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ETHIOPIA Nutrition Project Report No\. 136172 JUNE 26, 2019 © 2019 International Bank for Reconstruction This work is a product of the staff of The World RIGHTS AND PERMISSIONS and Development / The World Bank Bank with external contributions\. The findings, The material in this work is subject to copyright\. 1818 H Street NW interpretations, and conclusions expressed in Because The World Bank encourages Washington DC 20433 this work do not necessarily reflect the views of dissemination of its knowledge, this work may be Telephone: 202-473-1000 The World Bank, its Board of Executive reproduced, in whole or in part, for Internet: www\.worldbank\.org Directors, or the governments they represent\. noncommercial purposes as long as full attribution to this work is given\. Attribution—Please cite the work as follows: The World Bank does not guarantee the World Bank\. 2019\. Ethiopia—Nutrition Project\. accuracy of the data included in this work\. The Any queries on rights and licenses, including Independent Evaluation Group, Project boundaries, colors, denominations, and other subsidiary rights, should be addressed to Performance Assessment Report 136172\. information shown on any map in this work do World Bank Publications, The World Bank Washington, DC: World Bank\. not imply any judgment on the part of The Group, 1818 H Street NW, Washington, DC World Bank concerning the legal status of any 20433, USA; fax: 202-522-2625; e-mail: territory or the endorsement or acceptance of pubrights@worldbank\.org\. such boundaries\.  Report No\.: 136172 PROJECT PERFORMANCE ASSESSMENT REPORT ETHIOPIA NUTRITION PROJECT (IDA-H3760) June 26, 2019 Human Development and Economic Management Independent Evaluation Group Currency Equivalents (annual averages) Currency Unit = Ethiopian Birr (Br) 2008 $1\.00 Br 9\.51 2009 $1\.00 Br 11\.77 2010 $1\.00 Br 14\.40 2011 $1\.00 Br 16\.89 2012 $1\.00 Br 17\.70 2013 $1\.00 Br 18\.62 2014 $1\.00 Br 19\.58 Abbreviations BMI body mass index CBN community-based nutrition CPS Country Partnership Strategy EDHS Ethiopia Demographic and Health Survey FMOH Federal Ministry of Health GDP gross domestic product HEW health extension workers ICR Implementation Completion and Results Report IDA International Development Association IEG Independent Evaluation Group NNP National Nutrition Program PAD project appraisal document PPAR Project Performance Assessment Report SDR special drawing rights SNNPR Southern Nations, Nationalities, and Peoples’ Region UNICEF United Nations Children’s Fund USAID U\.S\. Agency for International Development WHO World Health Organization All dollar amounts are U\.S\. dollars unless otherwise indicated\. Fiscal Year Government: July 8–July 7 Director-General, Independent Evaluation Ms\. Alison Evans Acting Director, Human Development and Economic Management Ms\. Sophie Sirtaine Acting Manager, Corporate and Human Development Mr\. Rasmus Heltberg Task Manager Ms\. Mercedes Vellez ii Contents Preface \. v Summary \. vi 1\. Background and Context \.1 Project Context \.3 2\. Results \.7 Other Important Results \. 12 What Worked, and Why? \. 14 Design and Preparation \. 14 Implementation and Supervision\. 15 What Didn’t Work, and Why? \. 16 Design and Preparation \. 16 Implementation and Supervision\. 17 3\. Lessons\. 18 Bibliography\. 21 Figures Figure 1\.1\. Project Theory of Change \.6 Tables Table 1\.1\. World Bank Financing under the IDA Grant, by Component \. 7 Table 2\.1\. Current World Bank Ethiopia Portfolio on Nutrition \. 13 Appendixes Appendix A\. Project Performance Assessment Report Overview\. 25 Appendix B\. Methodology \. 27 Appendix C\. Basic Project Information \. 29 Appendix D\. Project Ratings \. 30 Appendix E\. Other Issues \. 40 iii Appendix F\. Demographic and Health Survey Data, 2005, 2011, and 2016\. 41 Appendix G\. Tracking Funding for Nutrition in Ethiopia across Sectors \. 46 Appendix H\. List of Persons Met\. 48 This report was prepared by Mercedes Vellez and Salim Habayeb, who assessed the project in February 2019\. The report was peer reviewed by Denise Vaillancourt and panel reviewed by Soniya Carvalho\. Aline Dukuze provided administrative support\. iv Preface This is a Project Performance Assessment Report (PPAR) by the Independent Evaluation Group (IEG) of the World Bank Group on the Ethiopia Nutrition Project (P106228)\. The project was chosen for a PPAR pilot because of its potential for learning, and to better understand its contribution to nutrition improvement efforts and their sustainability in Ethiopia\. The PPAR findings, moreover, could be used to inform future IEG evaluations in the nutrition sector\. The project was approved on April 4, 2008, and closed six years later on May 31, 2014, after a four-month extension to complete project activities\. Total project expenditure was $26\.73 million, financed by an IDA grant in the amount of special drawing rights 18\.8 million (equivalent to $30 million at appraisal)\. Large exchange rate fluctuations were noted by the Implementation and Completion Report (ICR)\. In addition to the grant, the government contributed the equivalent of $9\.60 million to the project\. The PPAR findings are based on a review of the World Bank’s project documents; a review of academic and policy literature; analysis of secondary data; nutrition evaluations and health sector performance reports; and interviews with relevant stakeholders (see appendixes A and B)\. A mission to Ethiopia, undertaken by the IEG team from February 11 to February 21, 2019, included interviews with a range of central, regional, and woreda-level counterparts; stakeholders; and development partners\. The mission also interacted with health extension workers and beneficiary mothers during site visits in Gobesaye Kebele (Oromia) and Haben Kebele (Tigray)\. The IEG team expresses its great appreciation to Ms\. Erika Marie Lutz, Senior Nutrition Specialist, and Frew Tekabe, Senior Nutrition Consultant, Agriculture Growth Program (previously a member of the World Bank project team) for their extensive support and for joining the visit to Tigray Region\. IEG gratefully acknowledges all those who made time for interviews and who provided further relevant information and insights\. IEG expresses its gratitude to H\. E\. Dr\. Lia Tadesse, State Minister, Federal Ministry of Health, Government of Ethiopia, and other officials for valuable discussions; to Anne Margreth Bakilana, program leader for Human Development, for her insights; to Sitra Mustafa for her support in data collection and organization; and to the World Bank country office in Addis Ababa for the logistical and administrative support provided to the mission\. Following IEG standard procedures, a copy of the draft report was shared with relevant government officials and agencies for their review and feedback and no comments were received\. v Summary Project Background and Description Although Ethiopia has achieved substantial progress in economic, social, and human development over the past decade, the ranking of its Human Development Index remains low\. Malnutrition is widespread, and it lowers resistance to infections and affects the intellectual development of children and productivity among adults\. The government highlights the importance of nutrition in its development plans and recognizes the role of nutrition to propel sustainable development\. The determinants of malnutrition are multifaceted, and the roots of undernutrition that prevents healthy growth and development are numerous: poverty; disease; disempowerment; access to safe, nutritious, and diverse food; access to health care; low education levels; inadequate feeding and caregiving; unhealthy environments and hygiene practices; lack of water and sanitation; low levels of awareness about nutrition; and low use of micronutrients\. The government embarked on this project to address immediate and underlying causes of undernutrition in women and children, while also recognizing that the complexity of nutrition requires collective multisector efforts\. Hence, the project also set the stage to facilitate nutrition-related schemes expected to evolve over time in other sectors by establishing a national coordinating mechanism\. The project development objectives were “to improve child and maternal care behavior, and increase use of key micronutrients, To contribute to improving the nutritional status of vulnerable groups\.” Direct beneficiaries consisted of pregnant and lactating women, and under-five children in food insecure regions with high malnutrition rates\. Project activities were carried out in 238 woredas (equivalent to districts) in four of the most populated regions of the country (Oromia, Amhara, SNNPR, and Tigray)\. The woredas were chosen based on their high malnutrition rates and food insecurity\. The theory of change was premised on the assumption that community-based nutrition (CBN) programs constitute an effective response to improve nutrition\. CBN addresses the lack of micronutrients, inadequate infant feeding, and poor dietary practices, while targeting pregnant women and children at a critical age during which the most harmful impact of malnutrition may emerge\. In turn, these would be reasonably expected to contribute to improving the nutritional status of these beneficiaries\. Project interventions included advocacy and social mobilization, behavior change communications, interactive community conversations, provision of micronutrients, growth monitoring, promotion and counseling, treatment of severe malnutrition, basic health care, and deworming\. vi Results The PPAR findings reflect a story of positive change that supported the achievement of intended objectives\. The project provided a 55\.8 million people with access to CBN services, exceeding its target of 44\.1 million\. Behavioral changes in nutrition practices and the use of key micronutrients, such as for exclusive breastfeeding, iron supplementation for pregnant women, and the uptake of vitamin A in children, improved\. Use of iodized salt reached almost universal levels, and the availability and administration of zinc were facilitated by effective government policies\. Several outcome targets were exceeded\. Health statuses improved, notably for stunting and underweight in children\. Results were sustained, and after the operation closed in 2014, the project’s CBN model, which had been applied in 238 woredas under the project, was replicated in other woredas of the country, reaching 386 woredas in 2017\. In the larger context, multisectoral engagements significantly increased, but they required more years to develop, as time was required to transform a remarkable federal government commitment and theoretical concepts into actual practice by various sectors\. The project contributed to stimulating the mobilization of resources and augmentation of national nutrition efforts both in the health sector and other sectors\. The project’s performance was satisfactory\. The project objectives were and remain highly relevant to the World Bank’s Country Partnership Strategy for Ethiopia and were aligned to the government’s development strategies\. Relevance of design was rated substantial because of moderate shortcomings\. Project objectives were substantially achieved\. CBN interventions were deemed to be cost-effective and with favorable returns\. The efficiency with which the project was implemented was assessed as substantial\. Bank performance was rated moderately satisfactory in view of moderate shortcomings in the quality at entry combined with a satisfactory quality of supervision\. Government commitment was and remains high\. Borrower performance was rated moderately satisfactory because of some shortcomings largely consisting of early implementation delays\. Monitoring and evaluation were adequate overall, and this Project Performance Assessment Report referred to the region-specific demographic and health surveys to assess improvements in nutritional status\. The risk to development outcome is rated moderate\. CBN interventions were integrated with regular health services, and were replicated and expanded to additional areas of the country\. Outcomes were maintained after project completion\. Although there are no major immediate threats to outcome sustainability, efforts need to be maintained in demand generation and health services quality\. The project acted as a catalyst to augment support to nutrition\. Incremental contributions continued to grow from both development partners and the government, aggregating at $1\.1 billion for 2016–20, plausibly due to both the project and the global nutrition movement\. Government vii commitment remains high and is underscored by its financial allocations, declarations, support to the Health Extension Program that embedded the project, and the inclusion of nutrition indicators in national development plans\. In the foreseeable future, the current encouraging attention to various multisectoral nutrition initiatives should not inadvertently diminish the importance of direct interventions, such as CBN, which are critical to improve nutrition\. However, according to a 2018 World Bank study, Stunting Reduction in Sub-Saharan Africa, Ethiopia would need to invest about $220 million annually to scale up a package of nutrition-specific interventions over the next decade to meet its targets for stunting, wasting, anemia, and breastfeeding\. Nutrition outcomes slowly improved\. At the time of this evaluation, steady progress was being made in improving malnutrition at the national level, although the pace of such progress is relatively slow to reach the desired long-term targets of the country\. Respondents also noted that, although they were satisfied with current progress, major countrywide challenges remain, such as increased financing; delivery of CBN services through overburdened health extension workers; limitations in water supply, infrastructure, food supply and diversity; and social protection\. Contributions, integrations, and value additions to nutrition-sensitive aspects of water, hygiene, and sanitation and irrigation schemes across projects call for concerted and continuous advocacy and lobbying efforts\. Table S\.1\. Project Ratings Summary Indicator ICR ICR Review PPAR Outcomes Satisfactory Moderately satisfactory Satisfactory Risk to development Moderate Moderate Moderate M&E quality Substantial Substantial Substantial Bank performance Moderately satisfactory Moderately satisfactory Moderately satisfactory Borrower performance Moderately satisfactory Moderately satisfactory Moderately satisfactory Note: ICR = Implementation Completion and Results Report; M&E quality = quality of monitoring and evaluation; PPAR = Project Performance Assessment Report\. What Worked, and Why? Rather than establishing a new delivery infrastructure, the project efficiently built on the existing infrastructure and institutional arrangements in line with the decentralized administration structure of the government\. By embedding its main activities into the existing Health Extension Program at the community level, the project increased the likelihood of effective implementation and peripheral reach\. The project tapped into strong political commitment and was able to carry out a wide governmental and multipartner consultative process\. The design focused on underprivileged areas and addressed immediate needs for behavioral changes and micronutrient use\. viii The project planned and adopted a phased incremental implementation, thus facilitating training, administrative support, and operational readiness\. Behavior change improvements were facilitated by interactive approaches through “community conversations,” fitness with local settings, and improved counseling skills\. Supportive government policies for micronutrients, notably universal salt iodization and zinc administration, contributed to the attainment of related objectives\. What Didn’t Work, and Why? Initial guidance on mechanisms that steer multisectoral collaboration was lacking, but this was subsequently rectified\. Initially, various sectors needed prompting and concrete guidance in multisectoral collaboration, workplans, and budgets to mainstream nutrition into their own sectoral plans\. Evidence from studies in Ethiopia and comments from interviewees indicated that challenges to multisector work were at a rather basic level involving resources, budgetary arrangements, and know-how\. These challenges are applicable to the initial project years till 2012, as multisectoral initiatives started to increase during the last year of the project (2013–14) and the postproject period (2015– 19), facilitated by concrete guidance and advocacy through the collective efforts of the revised National Nutrition Program (2013–15), the project, the National Nutrition Coordinating Body, and the second National Nutrition Program (2016–20)\. Variable levels of human resource skills and logistical support from regional health bureaus resulted in fluctuations in the quality of health services provided\. Lessons • The use of interactive approaches at the community level can facilitate behavior change\. While maintaining traditional communication modalities, the project also adopted a more interactive approach with community conversations, in which people are encouraged to “ask, analyze, and act” under what is called the triple-A approach derived from a United Nations Children’s Fund concept to assess the problem, analyze its causes, and take actions\. The project prepared HEWs for this role through phased training, including higher counseling skills\. Behavior change activities were well planned and linked with community mapping and participatory assessments\. Nonhealth aspects of malnutrition were also covered\. Many mothers who have seen positive results with their children shared their experience with other mothers, household members, and other influencers in the community, thus further disseminating nutrition knowledge in the community\. • In very poor communities, CBN needs to complement behavior change interventions with income support to achieve the desired goals fully because behavior change also depends on the means to keep or to buy healthful and ix  nutritionally rich food\. Mothers can apply food diversity practices as counseled by CBN if they have the means to do so\. This would contribute to mothers’ participation in CBN and adherence to growth monitoring sessions\. Poverty often creates food insecurity that prevents access to sufficient, safe, and nutritious food to meet basic dietary needs, resulting in severe vulnerability to both physical well-being and mental health\. • Favorable institutional conditions, programmatic arrangements, and incentives facilitate the unfolding of multisectoral engagement\. The project sought to advance multisectoral collaboration, but substantial engagement was visible only after several years because time was required for the actual buildup of nutrition efforts as an integral part of mainstream responsibilities in various sectors\. In this sense, the Ethiopia experience shows that evaluations need sufficient time to pass for a plausible impact to have occurred, as noted in IEG’s findings in World Bank (2010)\. This lesson is also in consonance with USAID’s lessons learned 2013–15 from the Ethiopia Multisectoral National Nutrition Program indicating that the multisectoral approach requires patience, time, and continuous engagement, and that it requires incentives related to budget, capacity, and accountability\. • Integration of nutrition operations with an existing and institutionalized service delivery mechanism at the community level facilitates CBN implementation\. The project embedded its community interventions and micronutrient supplementation within the existing Health Extension Program, thus promoting its efficiency and community reach\. • External collaboration with development partners, under government leadership, catalyzes international expertise and good practices that benefit and reinforce government policy and its nutrition agenda\. Both the project and the national program led by the government benefited from such collaboration, which facilitated sharing lessons learned from international experience\. Additionally, joint monitoring missions with the government and development partners provided a platform to maintain ongoing dialogue and collaboration\. Sophie Sirtaine Acting Director Human Development and Economic Management Independent Evaluation Group x 1\. Background and Context 1\.1 Ethiopia has achieved substantial progress in economic, social, and human development over the past decade\. Real gross domestic product (GDP) growth averaged 10\.5 percent between 2004 and 2016, according to the FY18–22 Country Partnership Framework, which also indicated that recent growth acceleration was accompanied by a notable decline in poverty rates from 55\.3 percent in 2000 to 33\.5 percent in 2011, based on $1\.90 per day (World Bank 2017)\. 1\.2 Despite this progress, Ethiopia remains among the world’s poorest countries with a per capita income of $660 in 2016\. As articulated in its Second Growth and Transformation Plan, Ethiopia seeks to attain lower-middle-income status by 2025 and follow a growth path that is more broadly inclusive and sustainable\. The population was estimated at 102\.4 million people in 2016 (WHO 2019), and 80 percent of the population lives in rural areas\. With an annual population growth rate of 2\.5 percent, Ethiopia’s population is estimated to reach 150 million by 2035 (World Bank 2017)\. Life expectancy rose from 52 to 65 years during the same period, with improvements in many human development indicators, but Ethiopia still ranked 174 of 188 in the Human Development Index (2015)\. Based on the World Development Indicators, total health expenditures per capita have increased steadily from $5\.4 in 2000 to $13\.4 in 2008, $22\.4 in 2014, and to $27\.5 in 2016\. As a percentage of GDP, total health expenditures were consistently about 4\.5 percent since 2000\. However, government domestic expenditures remain low at an average of 1 percent of GDP during 2012–16, while private expenditures have soared over time to 57 percent of total health expenditures in 2016\. Externals funds for the health sector account for 15 percent of total health expenditures in 2016\. According to Ethiopia National Health Accounts (2017), nutrition accounted for 13 percent of spending\. 1\.3 Malnutrition indicators remain high in Ethiopia\.1 Before the project, the national prevalence of stunting among children under five was 51 percent; the underweight rate was 33 percent; and wasting was 12 percent, according to the Ethiopia Demographic and Health Survey (EDHS) 2005\. These are the three measures of undernutrition according to the World Health Organization (WHO)\. A child is considered (i) stunted if his or her height-for-age is more than two standard deviations below the median height-for-age of the reference population; (ii) underweighted when his or her weight-for-age is more than two standard deviations from the median weight-for-age of the reference population; and (iii) wasted if weight-for-height is two standard deviations below the median weight-for-height of the reference population\. Stunting is one of the main markers of protein-energy malnutrition and is usually irreversible after age two\. 1 1\.4 Multiple factors affect nutrition outcomes\. Poor breastfeeding practices contribute to infant mortality, and much of the inappropriate breastfeeding behavior in Ethiopia results from lack of knowledge rather than other constraints; there is no evidence of a positive relationship between wealth and optimal breastfeeding behavior in the country\. Child malnutrition is associated with maternal malnutrition and childbirth size\. The children of mothers who are thin, with a body mass index (BMI) of less than 18\.5, are more likely to be stunted, wasted, or underweighted than the children of mothers who have a normal BMI\. Chronic energy deficiency is caused by eating too little or having an unbalanced diet that lacks adequate nutrients\. Women of reproductive age are especially vulnerable to chronic energy deficiency and malnutrition, and chronic undernutrition among women is a major risk factor for adverse birth outcomes\. Children who are smaller at birth are more likely to be stunted, wasted, or underweight than children who are normal or larger at birth\. Moreover, the proportion of children undernourished declines with increasing mother’s education and increasing household wealth\. 1\.5 There are several negative consequences of undernutrition and micronutrients deficiencies in the short and long terms\. Malnutrition itself becomes an underlying cause of childhood deaths associated with infectious diseases in developing countries\. Beyond the direct loss caused by mortality, malnourished survivors require additional health care, and a productivity loss arises from impaired cognitive development and stunted physical stature\. Vitamin A deficiency damages a child’s immune system and lowers resistance to common infections\. Iodine deficiency disorder reduces the ability to learn, leads to high dropout rates in primary schools, and ultimately weakens the benefits of investments in education\. Iron deficiency anemia has far-reaching effects on intellectual development and labor productivity among adults\. Even mild zinc deficiency impedes growth and increases the risk of diarrheal and respiratory diseases, thus zinc therapy can reduce related morbidity and mortality\. Although economic growth can help lift people out of poverty, inadequate health and nutrition have been closely linked to diminished individual cognitive ability, productivity, and labor market outcomes\. 1\.6 The economic costs of malnutrition are significant\. In 2007, it was estimated that Ethiopia would lose approximately Br 144 billion ($15\.2 billion) during the period 2006– 15, or about 10 percent of GDP, because of iron deficiency anemia, iodine deficiency disorder, and stunting alone (USAID 2007)\. In 2013, the African Union Commission and the government of Ethiopia conducted a study on the cost of hunger in Ethiopia\. This study suggested that the annual cost of undernutrition was estimated at Br 55\.5 billion, equivalent to 16\.5percent of GDP, and that the country could reduce losses by Br 148 billion by 2025 if underweight rates were reduced to 5 percent and stunting to 10 percent in children under five\. It also found that reducing child undernutrition to only one-half the levels at the time of the study could reduce losses by Br 70\.9 billion\. 2 1\.7 Multifaceted determinants of malnutrition have shifted the focus of nutrition policies\. In the past, policy makers addressed food security as the primary means to confront malnutrition\. Initiatives were focused on acute malnutrition and drought- related emergencies\. Progressively, this narrow focus expanded with a growing understanding of the multidimensional and multisectoral characteristics of nutrition\. The roots of undernutrition are many, and numerous determinants prevent healthy growth and development, including poverty and material deprivation, disease, access to safe and nutritious food, access to health care, education levels, inadequate breastfeeding and other feeding and caregiving practices, agriculture-related issues, unhealthy environments and hygiene practices, inadequate water supply, and sanitation\. Analytical work undertaken by the World Bank in 2007 on malnutrition in Ethiopia indicated that although food security is only one important factor among multiple determinants, the focus on high-impact nutrition interventions delivered through the health sector is also important\. 1\.8 Nutrition has progressively gained attention in Ethiopia’s government strategies within the larger context of poverty alleviation\. In 2005, the government launched a Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005–10 that called for implementing a multisectoral nutrition strategy to achieve Millennium Development Goal 1 of halving poverty and hunger by 2015 (Ministry of Finance 2006)\. In 2008, it launched the first National Nutrition Program (NNP) that highlighted the importance of nutrition interventions that address the immediate causes of suboptimal growth and interventions that address underlying determinants of malnutrition\. The revised NNP (2013–15) and the second NNP (2016–20) provided more specificity and concrete guidance in addressing multisectoral aspects of nutrition (FMOH 2016)\. The plans embodied the government’s commitment to improving nutrition, and at the Third International Conference on Financing for Development in 2015, the government pledged through the Seqota Declaration to end child malnutrition by 2030 and recognized the role of nutrition to propel sustainable development\.2 Nutrition was integrated in the country’s Health Sector Transformation Plan\. The current National Growth and Transformation Plan II 2015–20 includes national nutrition indicators\. Project Context 1\.9 The Ethiopia Nutrition Project was the World Bank’s first support to the government to assist its nutrition agenda\. The project development objectives were “to improve child and maternal care behavior and increase utilization of key micronutrients, To contribute to improving the nutritional status of vulnerable groups” (World Bank 2008b)\.3 To deliver against these objectives, project activities were divided into two components\. The first supported community-based nutrition (CBN) interventions consisting of behavior change communications, counseling, provision of micronutrients, 3 growth monitoring and promotion, treatment of malnourished children, and basic health care and deworming\. The second component aimed at institutional strengthening, including human resource development, monitoring, operational research, and the establishment of a National Nutrition Coordinating Body to spur and coordinate future multisectoral programs\. CBN was conducted incrementally in 238 woredas (equivalent to districts) with high malnutrition rates and food insecurity, within four of the most populated regions of the country: Amhara; Oromia; Southern Nations, Nationalities, and Peoples’ Region (SNNPR); and Tigray\.4,5 1\.10 Responsibility for delivering the CBN changes overtime\. During the project’s first two years of implementation, health extension workers (HEWs) delivered CBN with complementary services of voluntary community health workers, who were trained to fill the gap for unmet health care needs and promotional activities\. Considering broader community development needs, concerns about a fragmented approach to service delivery, and concerns about service quality, voluntary workers were no longer used after 2010 by government decision\.6 All health services consolidated in the mainstream system with regular staff\. The government promoted the role of the voluntary Women Development Army, also referred to as Health Development Army, which is a voluntary and participatory engagement of women’s groups for advocacy, social mobilization, and promotional activities within the community covering a wider scope of topics, such as sanitation and hygiene\. They are not involved in clinical services provided by HEWs, but they provide a complementary role through advocacy and social mobilization\. Health Development Army volunteer leaders are selected from model families\. The Federal Ministry of Health (FMOH) intends to train about 3 million Health Development Army leaders (FMOH 2017)\. They are well regarded by both decision makers and communities\. A senior regional health official even suggested to the Independent Evaluation Group (IEG) mission that a World Bank–supported operation could be considered to strengthen their future role\. 1\.11 According to IEG’s reconstruction of the project’s theory of change, activities were logically linked to expected outputs and outcomes\. The theory of change was premised on the assumption that CBN programs constitute an effective response to improve nutrition because they deal with immediate causes of undernutrition (lack of micronutrients and inadequate feeding behavior) by targeting pregnant women and children with nutrition services at a critical age period during which the most harmful impact of malnutrition can occur\. It was reasonable to expect that the provision of CBN services would increase access to micronutrients and enhance mothers’ knowledge and skills in good nutrition practices, which would lead to improved nutrition behavior by mothers and increased use of key micronutrients, thus contributing to improving the nutritional status of targeted beneficiaries\. 4 1\.12 However, in food insecure contexts, the effective compliance of mothers toward appropriate food diversity practices as counseled by the program might be limited by the lack of basic resources to keep or buy healthful and nutritionally rich food\. That said, the project was not meant to address all factors underlying nutrition outcomes that the theory would predict in a multisectoral way but rather anchor specific nutrition interventions within the community health services already provided\. Considering limited project financing and the inability of the Ministry of Health to extend direct operations beyond its own mandate, the project strategy in establishing a multisectoral institutional body to kick off prospective multisectoral initiatives was a realistic approach\. The project was always intended to be initial seed money to spur additional interventions and investments from other donors (World Bank 2015, 26)\. 1\.13 Attribution is plausible for the proximal outcomes related to behavior change and micronutrient use, but for the nutrition status itself, only a contributory role can be claimed because of the large interplay of underlying determinants and contextual factors\. The role of the World Bank–supported project in CBN was predominant among other nutrition-related projects and technical assistance programs supported by various agencies (World Bank 2008b, 28, supplemented with additional information) at the project launch, as follows: • Food Security Project supported by the Canadian International Development Agency, the U\.K\. Department for International Development, and the Italian Agency for Development Cooperation\. • Productive Safety Net Program Adaptable Program Loan II supported by the International Development Association (IDA), the Canadian International Development Agency, Development Cooperation of Ireland, the U\.K\. Department for International Development, the European Commission, the World Food Programme, and the U\.S\. Agency for International Development (USAID)\. • Water Supply and Sanitation Project supported by IDA and the U\.K\. Department for International Development\. • Enhanced Outreach Strategy for Child Survival supported by the United Nations Children’s Fund (UNICEF) and the World Food Programme\. • School Feeding Program supported by the World Food Programme\. • CBN supported by UNICEF\. Activities included measles vaccination, vitamin A supplementation, deworming, and nutritional screening\. Coverage was difficult to ascertain in the context of a large technical assistance from UNICEF\. The agency also bought 4,830 metric tons of ready-to-use therapeutic food 5  (Plumpy’nut) to treat acute malnutrition for an estimated 200,000 children in Ethiopia (UNICEF 2008)\. • Essential nutrition actions supported by USAID (2003–06) in collaboration with three regional health bureaus\. The activity promoted a strategy that included seven essential nutrition actions\. These are exclusive breastfeeding for children 0–6 months, adequate complementary feeding for children 6–24 months; adequate nutritional care of the sick and severely malnourished child, adequate nutrition for women, prevention of vitamin A deficiency for women and children, prevention of anemia, and prevention of iodine deficiency for all members of the household\. Factors that inhibited institutionalization of this program included the lack of an approved National Nutrition Strategy, lack of indicators related to essential nutrition actions in the health management information system, and lack of regularly scheduled training courses on essential nutrition actions for new and continuing health professionals (Jennings and Hirbaye 2008)\. • Multiple nongovernmental organizations active in various nutrition aspects at the local level\. • Government regular primary health care services\. Figure 1\.1\. Project Theory of Change Source: Independent Evaluation Group reconstructed theory of change of the project\. Note: CBN = community-based nutrition\. 6 1\.14 The World Bank financed project activities through a $30 million IDA grant (special drawing rights [SDR] 18\.8 million)\. The total project expenditure was $26\.73\. The ICR noted large exchange rate fluctuations between SDR and the U\.S\. dollar (see appendix C for basic project information; World Bank 2015, 38)\. Table 1\.1\. World Bank Financing under the IDA Grant, by Component Appraisal Estimate Actual Cost Percentage of Component ($, millions) ($, millions) Appraisal Supporting service delivery 14\.00 12\.20 87 Institutional strengthening and 16\.00 14\.53 91 capacity buildinga Total project costb 30\.00 26\.73 89\.1 Note: IDA = International Development Association\. a\. Communications for behavior change and substantial parts of human resources development directly related to the first component supporting service delivery\. b\. The source of these data is the Operations Portal\. Additional government contributions amounted to $9\.6 million equivalent, but were not included in the Implementation and Completion Results Report’s tables\. 2\. Results 2\.1 The Project Performance Assessment Report (PPAR) findings reflect a story of positive change that supported the achievement of intended objectives\. The project provided 55\.8 million people with access to CBN nutrition services, exceeding its target of 44\.1 million\. Behavioral changes in nutrition practices and in the use of key micronutrients improved, such as for exclusive breastfeeding, iron supplementation for pregnant women, and the uptake of vitamin A in children\. Judicious government policy facilitated almost universal use of iodized salt and widespread availability of zinc for children\. Several outcome targets were exceeded, and improvements in health status were seen, notably for stunting and underweight in children\. Results were sustained, and the project’s CBN model was replicated in other districts of the country (from 238 woredas under the project to 386 woredas in 2017)\. In the larger context, multisectoral engagements significantly increased, but they required more years to develop because time was needed to transform a remarkable federal government commitment and theoretical concepts into actual practice by various sectors (see the section Other Important Results)\. 2\.2 The World Bank helped improve the availability of basic nutrition services\. The main inputs and outputs, detailed in appendix D, included the following: advocacy, communications, counseling, community conversations, and enhanced knowledge and compliance with good practices in exclusive breastfeeding, complementary feeding, food diversity, and dietary practices; direct supply of nutrition commodities, including micronutrients (iron and folic acid) and anthropometric equipment\. The project enhanced staff mobility, improved outreach services and supervision, improved skills 7 with new training curricula, and supported long-term investments in nutrition capacity for trained woreda health officers to receive master’s degrees in nutrition through sandwich training\. The project’s counseling activities were of utmost importance because lack of knowledge is one of the main causes underlying the conservative exclusive breastfeeding rates confirmed by HEWs\. A 2018 systematic review and meta- analysis by Alebel et al\. (2018), covering 32 Ethiopia studies, found that mothers who attended antenatal visits or who gave birth at a health institution were twice as likely to practice exclusive breastfeeding, illustrating the benefits of health education exposure and counseling\. 2\.3 Exclusive breastfeeding practices improved, and the target was exceeded in project woredas\. A midcourse independent evaluation in CBN-specific woredas supported by UNICEF found significant changes in maternal and child nutrition feeding practices (White and Mason 2011)\. The percentage of infants age 0–6 months who were breastfed exclusively (for the first six months of life) increased from 66\.6 percent in 2009 to 89 percent in 2011 in CBN woredas (based on the assessment of 54 woredas labeled as tranche 2 of CBN activities rolled out in 2009)\. Project-specific endline surveys were not completed because of supply issues within UNICEF, but EDHS national results were available\. Exclusive breastfeeding at the national level increased consistently from 49 percent in 2005 to 52 percent in 2011, and 58 percent in 2016 (figure F\.1)\. Despite the lack of recent disaggregated data, national averages can be used as proxies for project region data because CBN coverage was almost universal in Tigray, 92 percent in SNNPR, 80 percent in Amhara, and 58 percent in Oromia, which overall account for 80 percent of the total population in Ethiopia\. The median duration of exclusive breastfeeding also increased across regions but remains low at slightly more than three months old (figure F\.2)\. 2\.4 Community-level data showed substantial improvements in dietary intake practices during the project life for mothers and children\. The proportion of women eating less during pregnancy decreased from 64 percent in 2009 to 47 percent in 2011 in CBN tranche 2, and from 63 percent in 2009 to 55 percent in 2011 in CBN tranche 3 (White and Mason 2011)\. The share of children age 6–23 months who consume a minimal acceptable diet increased from 21\.2 percent in 2009 to 43\.4 percent in 2011 in CBN tranche 2, and from 27\.6 percent in 2010 to 37\.4 percent in 2011 in CBN tranche 3\. In addition, there was a reduction in poor dietary practices: Caregivers who provided inadequate amounts of food to children who had diarrhea decreased from 55 percent in 2009 to 30 percent in 2011 in CBN tranche 2, and from 55 percent in 2009 to 28 percent in 2011 in tranche 3\. Dietary diversity for under-two children in CBN tranche 2 also improved from 27\.4 percent in 2009 to 49\.7 percent in 2011 and from 31\.9 percent in 2010 to 48\.8 percent in 2011 in tranche 3\. 8 2\.5 Better feeding practices likely resulted from improved mothers’ knowledge, including through interactive communication methods applied by the project, as discussed in section 3\. The substantial CBN-specific rates noted by 2011 become diluted when considering regional data\. Despite improvements in region-specific rates, minimum dietary diversity among children under two continue to be somewhat low: By 2016, less than 18 percent of children had an adequately diverse diet in former project regions (figure F\.3)\. In Tigray, the rate does not exceed 14 percent, which may be linked to Bilal et al\. (2014) conclusions that lack of basic resources to keep or buy healthful and nutritionally rich food was an important constraint, and more broadly that the link between improved knowledge and improved dietary diversity is conditioned on market access (Hirvonen et al\. 2017)\. 2\.6 Participation in growth monitoring exceeded the target under the project, but participation in growth monitoring remains relatively low in the country\. The percentage of under-two children participating in monthly growth monitoring and promotion sessions increased from a baseline of zero (under project interventions) to 42 percent in 2014, exceeding the target of 40 percent\. During health post visits, the IEG mission noticed that output data were duly registered, including for cured children with severe malnutrition and for those who were referred for treatment\. The 2018 Nutrition Joint Review Mission Report of the Health Sustainable Development Goals Program (FMOH 2018) indicated further progress in growth monitoring, with a national average performance of 44 percent in 2018, up from 37 percent in the previous year 2017\. The highest annual coverage was registered in three of the four project regions: Tigray (66 percent), SNNP (56 percent), and Amhara (51 percent)\. 2\.7 The project contributed to increased consumption of key micronutrients by pregnant women\. Use of iron supplementation among pregnant women in the project’s CBN areas increased from 17 percent in 2009 to 89 percent in 2014, exceeding the target of 25 percent\. Regarding national-level data, the National Mini-Demographic and Health Survey of 2014 (at project completion) showed a slower increase, from 15 percent in 2011 to 34 percent in 2014\. Two years after project closing, EDHS 2016 data showed that 42 percent of women took iron tablets during their most recent pregnancy, which means that more than half of women in the country did not take any iron tablets during their most recent pregnancy, and only 5 percent of pregnant women took iron tablets for the recommended 90 days\. Therefore, despite the project’s notable progress in iron supplementation for pregnant women in project areas, the rates remain at a substandard level in the country as a whole\. 2\.8 Evidence on the intake of vitamin A in children under five is also positive but less consistent across data sources\. The number of children age 6–59 months receiving a dose of vitamin A every six months increased from 10\.2 million in 2008 to 12\.3 million in 9 2014, exceeding the target of 11\.3 million\. Average rates of vitamin A intake remained stagnant at the national level (45 percent) both before and after the project (figure F\.4)\. The project regions of Tigray and Amhara increased vitamin A use to 74 percent and 48 percent, respectively\. However, the Oromia and SNNPR regions decreased vitamin A use (to 37 percent and 47 percent, respectively), suggesting less convincing project results\. After project closing, vitamin A supplementation shifted from a campaign mode to routine service delivery, and the varying ability among woredas to implement this shift contributed to fluctuations and mixed recorded results\. The 2018 Nutrition Joint Review Report of the Health Sustainable Development Goals Program (FMOH 2018) indicated continued progress in vitamin A delivery, reaching an average of 69 percent in woredas in nonemerging regions (better socioeconomic conditions) in 2018 (up from 48 percent in 2017) and 26 percent in woredas in emerging regions (lower socioeconomic conditions), up from 0 percent in 2017\. 2\.9 An increase in iodized salt production during the project period exceeded the intended results\. Ninety percent of the national salt production by the private sector was iodized in 2014 compared with a baseline of 28 percent in 2000, exceeding the target of 50 percent\. EDHS 2016 data showed that households using iodized salt in the four project regions increased from an average of 21 percent in 2005 to an average 89 percent in 2016 (figure F\.5), an average similar to the national rate\. The government mandated the iodization of salt for human consumption in February 2011 under its universal iodization policy\. The household use pattern appears to be logical, and use rates are expected to be in line with market availability to the consumer through increased private sector production, which was quasi-universal\. However, issues related to quality standards of iodization and incorrect dosage persist, notably at the level of small manufacturers with manual processes\. 2\.10 The project did not track specific nutritional health outcomes of pregnant women and children under five in target areas because these were conceived as higher-level objectives that are likely to be influenced by the project interventions but also by other factors\. However, EDHS data show moderate declines in the share of women age 15–49 (not only pregnant) with a BMI below the normal range\. The drawback of using the EDHS data is that the level of plausible improvements in pregnant women would have been diluted in the larger pool of all women of reproductive age\. Figure F\.6 shows that women’s undernutrition declined in Tigray from 37\.5 percent in 2005 to 34 percent in 2016, and in Amhara from 27 percent to 22\.9 percent\. It remained unchanged in Oromia at 24\.7 percent and declined in SNNPR from 26\.7 percent to 14\.9 percent\. Nationally, undernutrition declined from 27 percent in 2005 to 22 percent in 2016\. The prevalence of anemia among women age 15–49 declined in Tigray from 29\.3 percent in 2005 to 19\.7 percent in 2016, in Amhara from 31 percent to 17\.2 percent, and in SNNPR from 23\.5 percent to 22\.5, but it increased in Oromia from 24\.9 percent to 27\. 3 percent\. 10 Nationally, anemia declined from 27 percent to 24 percent during the same period (figure F\.7)\. Mild improvements in anemia among women age 15–49 does not reflect that the project was unsuccessful in supporting iron supplementation for pregnant women because better anemia results could be diluted in the data encompassing all women age 15–49\. 2\.11 Children’s nutritional status showed improvements in each project region for the two main indicators: stunting and underweight\. Stunting (height-for-age) reflects long- term chronic conditions resulting from suboptimal health and nutrition, and underweight (weight-for-age) reflects both chronicity and acute episodes\. Findings from EDHS region-specific data show that stunting rates declined in the four project regions with high malnutrition as follows: Tigray from 41 percent in 2005 to 39\.3 percent in 2016, Amhara from 56\.6 percent to 46\.3 percent, Oromia from 41 percent to 36\.5 percent, and SNNPR from 51 percent to 38\.6 percent\. Stunting rates nationally declined from 51 percent to 38 percent (figure F\.8)\. 2\.12 Underweight rates in children under five declined sharply in project regions\. EDHS data show that rates fell in Tigray from 41\.9 percent in 2005 to 23 percent in 2016, in Amhara from 48\.9 percent to 28\.4 percent, in Oromia from 34\.4 percent to 22\.5 percent, and in SNNPR from 34\.7 percent to 21\.1 percent in 2016 (figure F\.9)\. The decline in the national underweight rate was relatively moderate, from 33 percent in 2005 to 24 percent in 2016\. Additionally, growth monitoring data in CBN woredas showed an improvement of 15 percentage points in underweight prevalence among participant children under two years old two years after CBN launch\. UNICEF conducted an evaluation of the expanded CBN program that replicated the project approach between 2013–17 in sample kebeles (communitites) from 145 woredas where similar CBN interventions were scaled up in Oromia, SNNP, and Amhara (UNICEF 2018)\. Underweight decreased from a baseline of 22 percent in 2013 to 17 percent in 2017, and stunting decreased from 40 percent to 35 percent during the same period\. 2\.13 The third anthropometric measurement of child nutritional status, wasting (weight-for-height or thinness), is not a good measure of chronic malnutrition because it is influenced by recent episodes of severe disease or acute starvation\.7 It can change rapidly because the indicator is responsive to short-term influences and is highly susceptible to seasonal variations in food availability\. Therefore, the wasting indicator is not recommended for evaluating change in anthropometric status in nonemergency situations (Measure Evaluation 2016)\. 2\.14 At the time of this evaluation, steady progress was being made in improving malnutrition at the national level, though its pace could compromise Ethiopia’s achievement of long-term targets\. Stunting rates vary greatly between and within regions, and rates are still extremely high (above 40 percent) in some regions (Amhara, 11 for example)\. Respondents also noted that although they were reasonably satisfied with current progress, major countrywide challenges remain such as limitations in water supply, infrastructure, food supply and diversity, and social protection\. 2\.15 Regarding long-term impacts, improvements in maternal and child mortality were also reported nationally\. Under-five mortality declined from 88 per 1,000 live births in 2011 to 67 in 2016, infant mortality from 59 in 2011 to 48 in 2016, and the maternal mortality ratio from 676 per 100,000 live births in 2011 to 412 in 2016\. The nutrition determinant as such is linked to global health outcomes, and the combined effect of micronutrient deficiencies and underweight is an integral part of the global disease burden\. One-third of child deaths worldwide are attributable to undernutrition, according to the Global Nutrition Policy Review (WHO 2013)\. However, because nutrition is only one of many determinants of such mortality, the project’s plausible contributions to mortality can only be partial\. Other Important Results 2\.16 The project raised awareness of the nutrition agenda\. In the context of a global nutrition movement, multisectoral initiatives from the government and from bilateral and multilateral partners started to increase during the last year of the project (2013–14) and during the postproject period (2015–19)\. World Bank and UNICEF joint support to the FMOH was raised as an exemplary collaboration of the two multilateral bodies during the launching event of the Scaling Up Nutrition Framework of Action in the 2010 Spring Meeting\. Concrete guidance on multisectoral nutrition initiatives and links was provided through the collective efforts of revised NNP I (2013–15), NNP II (2016–20), the National Nutrition Coordinating Body, and the project\. 2\.17 The project established the National Nutrition Coordinating Body\. This body facilitated the nutrition efforts of relevant ministries that were signatories of the NNP, including the Ministries of Health; Education; Agriculture and Rural Development; Trade and Industry; Labor and Social Affairs; Women, Children and Youth Affairs; Water and Energy; and Finance and Economic Development\. According to the Annual Performance Report of the Health Sector Transformation Plan, the National Nutrition Coordinating Body has spearheaded the majority of nutrition-related activities involving other sectors (FMOH 2017)\. Although the performance of the coordinating body in its early years until about 2012 was limited, it steadily developed over time, resulting in the body being recognized for spearheading the majority of multisectoral activities under NNP II as documented by FMOH\. Officials from FMOH informed the IEG mission that the coordinating body is being renamed the National Food and Nutrition Council to reflect its expanded scope, and it will be under the office of the prime minister, who will be in charge of appointing leadership and members of the council\. This change in the 12 governance structure is expected to improve the accountability of all of the sector ministries and aims at overcoming the long-standing challenge to the FMOH through its National Nutrition Coordinating Body of holding other sectors accountable for the NNP implementation\. 2\.18 The CBN program was sustained over time and expanded\. FMOH respondents informed the IEG mission that 752 woredas at the time of this review in 2019 had either CBN or other sector nutrition programs or a combination of both\. Other government ministries established their own nutrition units\. Furthermore, in agriculture, there was momentum to advance combined agendas such as nutrition-sensitive, gender-sensitive, and climate-smart agendas\.8 Overall funding for nutrition increased from $181 million in 2013–14 to $330 million in 2014–15, and to $455 million in 2015–16 (see appendix G on tracking funding for nutrition in Ethiopia across sectors)\. Donor contributions amounted to 88 percent of incremental funding, government contributions 11 percent, and nongovernmental organizations 1 percent\. For the current period 2016–20, FMOH officials informed the IEG mission that incremental nutrition commitments amounted to about $1\.1 billion, notably from the Bill and Melinda Gates Foundation, UNICEF, USAID, and the World Bank\. 2\.19 The World Bank enhanced its efforts to address malnutrition in the country\. The current World Bank portfolio for nutrition support significantly increased in multiple sectors, as shown in table 2\.2\. Table 2\.1\. Current World Bank Ethiopia Portfolio on Nutrition Project- Estimated Program Nutrition Project Name Budget Budget Included (Approval–Closing FY) Focus Area ($, millions) ($, millions) Promoting Young Increase women’s empowerment and 2\.73 2\.73 Women’s Livelihoods nutrition, promotion of nutrition-sensitive (2018–21) agriculture and livelihoods Health Sustainable Goals Improve coverage of vitamin A among 350 40 Program-for-Results children 6–59 months, growth monitoring (2013–18) and promotion among children 0–24 months, and iron-folic acid therapy among pregnant women Agriculture Growth Mainstream cross-cutting issues (gender, 350 17\.5 Program II nutrition, and climate change) throughout (2005–20) its five main components (public agricultural services, agricultural research, small-scale irrigation, agriculture marketing and value chain, and project 13  Project- Estimated Program Nutrition Project Name Budget Budget Included (Approval–Closing FY) Focus Area ($, millions) ($, millions) management and monitoring and evaluation) Agriculture Growth Provide technical assistance to support 5\.5 5\.5 Program II Multidonor the quality of implementation of the Trust Fund nutrition-related activities under (2016–19) Agriculture Growth Program II Livestock and Fisheries Improve consumption of animal-source 170 8\.5 Sector Development foods by women of reproductive age Project (2018–24) Enhancing Shared Set up nutrition coordination platforms in 1,300 50 Prosperity through Productive Safety Net Program (PSNP) Equitable Services woredas, training front-line service Program-for-Results providers (health extension workers, social (2015–19) workers, and teachers) in PSNP woredas on nutrition, and increasing the frequency that PSNP mothers have contact with health extension workers Productive Safety Net IV Increase links between PSNP beneficiaries 600 450 (2014–20) and community-based nutrition services and promotion of improved maternal, infant, and young child feeding behaviors Water Supply, Sanitation, Improve access to safe water, adequate 205 61\.5 and Hygiene Project sanitation, and hygiene practices (2014–19) Pastoral and Agro-Pastoral Support beneficiaries in addressing gaps 514 270 Livelihood Resilience in nutrition knowledge and food handling Project and preservation skills for improved (2018–24) dietary intake within households Total for nutrition n\.a\. 906 Source: World Bank Country Office, Ethiopia, as of February 2019\. Note: Most of this nutrition funding is for nutrition-sensitive activities\. PSNP = Productive Safety Net Program\. What Worked, and Why? Design and Preparation 2\.20 The project built on the existing mechanism and institutional arrangements to implement its nutrition interventions rather than establishing a new delivery infrastructure\. By embedding its main activities into the service delivery mechanism of the Health Extension Program (initiated in 2003), the project increased the likelihood of its implementation and peripheral reach (Damtew, Chekagen, and Moges 2016)\. 14 Community activities were conducted by front-line HEWs who were already deployed in the country to deliver primary health care services at the level of health posts across remote communities in Ethiopia\. Regarding support structures, the project’s CBN services built on the existing institutional arrangements through a tiered mechanism in line with the decentralized administration structure of the government—central, regional, zonal, and woreda levels\. 2\.21 The project tapped into strong political commitment and was able to conduct a wide governmental and multipartner consultative process, including a joint partner preappraisal mission in October 2007 under government leadership\. The fact that project preparation was closely linked to the preparation of the NNP (simultaneous preparation of project operations and the NNP policy document) further increased the motivation for stakeholder engagement, and the recognition of nutrition as a development agenda was growing\. 2\.22 The project raised the prominence of nutrition through its focused CBN activities\. In principle, nutrition is an integral part of primary health care, but it had insufficient attention in the past\. According to the ICR, the Lancet Series on Maternal and Child Nutrition of June 6, 2013 also recognized the relevance of CBN design features\. Although community interventions were inherently pro-poor, it was likely that mothers and children from higher socioeconomic categories would have also benefited from the project\. However, the dissemination of health education messages to the whole community (notably on breastfeeding and dietary practices) was a desirable gain that would be favorable to the population at large because inappropriate breastfeeding behavior was caused by the lack of knowledge in all wealth quintiles in Ethiopia\. Implementation and Supervision 2\.23 Project implementation proceeded incrementally by phases, thus facilitating implementation rollout\. Proper and realistic planning allowed the readiness of operational arrangements, including training\. Project activities were rolled out in tranches that varied in timing and size, starting with 39 pilot woredas in 2008 (tranche 1), followed by 54 woredas (tranche 2) in 2009, 77 woredas (tranche 3) in 2010, and 58 woredas (tranche 4) in 2011, and subsequently reached 238 woredas in 2012\. CBN further expanded to 372 woredas in 2015 and to a 386 woredas in 2017 (there were 700 woredas in the country in 2008 and 800 woredas in 2018)\. Concurrently, the project improved supervision and staff mobility, which were relatively limited before the project, thus facilitating both supervisory support and outreach service delivery through the provision of motorcycles, vehicles, and bicycles\. 2\.24 Within its behavior change interventions, the project was effective in adopting interactive approaches through community conversations and in strengthening the 15 quality of professional counseling\. Traditionally, health education involved information transfer through prescriptive general messages and materials such as posters and brochures\. While keeping these modalities (including mainstream media and community radio), the project also adopted a more interactive approach through community conversations, in which people are encouraged to “ask, analyze, and act” under what is called a triple-A approach (FAO 2011)\. Health education activities were linked with community mapping and participatory assessments\. Nonhealth factors contributing to malnutrition were also covered\. In addition, many mothers who have seen positive results with their children shared their experience with other mothers, household members, and other influencers in the community, thus expanding the dissemination of nutrition messages in the community\. The importance of effective counseling and health education in addressing mothers’ behavior and lack of knowledge was elucidated by a systematic review and meta-analysis showing that mothers who attended antenatal visits or who gave birth at a health institution were twice as likely to practice exclusive breastfeeding (Alebel et al\. 2018)\. 2\.25 Supportive government policies for micronutrients contributed to the attainment of related project objectives\. Legislation on universal salt iodization, which was adopted and came into force in 2011, mandated iodization by private sector producers, thus increasing market availability of iodized salt and household use\. The registration of zinc as an essential drug facilitated the availability of zinc as an integral part of the health post package and allowed HEWs to administer it to children\. Zinc acetate was procured and distributed nationwide for the first time in the country’s history\. What Didn’t Work, and Why? Design and Preparation 2\.26 The multisectoral engagement has significantly grown after an initial four-year delay, though to a limited extent during the early project period\. At the start-up, the project did not clarify the practical modalities for multisectoral engagement, that is, the how-to mechanisms\. The PAD listed desirable links, but their realization was difficult without concrete plans, budgets, and focused advocacy (World Bank 2008b, 78–79)\. The project design included the establishment of a coordinating body but without clearly delineating its work plan or the expected trajectory for multisector nutrition engagement\. Therefore, the coordinating body’s performance was limited during the project period’s early years\. 2\.27 There was a lack of clarity in promoting multisectoral synergies\. This is in line with the conclusions of WHO (2013), which stated the following global findings: “Policies do not clearly state operational plans and program of work; do not have clear goals, targets, timelines or deliverables; do not specify roles and responsibilities; do not 16 identify the capacity and areas of competence required of the workforce; do not include process and outcome evaluation with appropriate indicators; and do not have the necessary or adequate budget for implementation\.” NNP II summarized related earlier shortcomings, stating that most line ministries (listed in the Other Important Results section) lacked an effective organizational structure to mainstream nutrition into their core activities and did not allocate related budgets to build or expand the links\. 2\.28 A second reason explaining the low initial progress in multisectoral work relates to resources\. The respondents commented that challenges to multisector work were at a basic level involving resources, budgetary arrangements, and expertise\. Kennedy et al\. (2015) concluded that level of enthusiasm for multisector approaches to improve nutrition in Ethiopia was palpable, that international literature had focused too much on theoretical concepts, and that issues related to governance and budgets would need to be addressed to promote and sustain multisectoral approaches\. Lessons learned during 2013–15 from the Ethiopia Multisectoral NNP (Harvey 2016) indicated that multisectoral approach requires incentives in budget, capacity, and accountability\. Implementation and Supervision 2\.29 Variable levels of human resource skills resulted in service quality fluctuations\. As a senior regional health official said in an IEG interview: “We are climbing the mountain—we are now in the middle of it\. We need to reach the top, but at present, we have different needs\. We have dealt with access, and we must now focus on quality\. We need higher skills, better training, know-how, and energy\.” For example, there were marked differences in productivity of HEWs in how they allocate their time, what services they focus on, and how long it takes to complete a task (USAID 2017)\. The IEG mission’s limited field visits did not observe the HEWs’ work overload, but there was consensus among interviewees that the quantity of tasks that HEWs are expected to provide in both health and nutrition is high\. According to FMOH, a second-generation Health Extension Program is being developed and would include upgrading HEWs to the level of community health nurses\. The current World Bank project, Enhancing Shared Prosperity through Equitable Services Program-for-Results and its additional financing (2015–23), continues to support training of front-line services providers\. 2\.30 Another factor affecting quality was the varying attention of health bureaus to support the Health Extension Program that embedded CBN activities in administrative and logistical support\. There is often a generic tendency in community program evaluations to focus on the performance of front-line workers rather than the totality of operational elements, such as the supply of medicines, materials, and equipment, and weak referral systems\. The IEG mission’s site visits observed some gaps in logistical and support services, such as in some antibiotics and pediatric scales in Adea woreda health post\. On logistics, transportation critical for outreach activities (such as bicycles) may be 17 suitable in flat areas, but not in rugged terrain\. Only vehicles and motorcycles were replaced eventually after the project\. There were four outreach substations for the Haben kebele health post, with small ones serving an average of 15 beneficiary women and larger ones an average of 100 women\. The average walk for HEWs to reach the substations was about one hour\. A study on the Ethiopian Health Extension Program and Variation in Health Systems Performance indicated marked variations between well-performing and lower-performing woredas in their implementation of primary health care and support from health bureaus in financial, technical, and supervisory support (Fetene et al\. 2016)\. According to respondents, FMOH is planning to renovate and expand health posts and improve equipping and supplying\. 3\. Lessons 3\.1 The use of interactive approaches at the community level can facilitate behavior change\. While maintaining traditional communication modalities, the project also adopted a more interactive approach with community conversations, in which people are encouraged to “ask, analyze, and act” under what is called the triple-A approach derived from a UNICEF concept to assess the problem, analyze its causes, and take actions\. The project prepared HEWs for this role through phased training, including higher counseling skills\. Behavior change activities were well planned and linked with community mapping and participatory assessments\. Nonhealth aspects of malnutrition were also covered\. Many mothers who have seen positive results with their children shared their experience with other mothers, household members, and other influencers in the community, thus further disseminating nutrition knowledge in the community\. 3\.2 In very poor communities, CBN needs to complement behavior change interventions with income support to achieve the desired goals fully because behavior change also depends on the means to keep or to buy healthful and nutritionally rich food\. Mothers can apply food diversity practices as counseled by CBN if they have the means to do so\. This would contribute to mothers’ participation in CBN and adherence to growth monitoring sessions\. Poverty often creates food insecurity that prevents access to sufficient, safe, and nutritious food to meet basic dietary needs, resulting in severe vulnerability to both physical well-being and mental health\. 3\.3 Favorable institutional conditions, programmatic arrangements, and incentives facilitate the unfolding of multisectoral engagement\. The project sought to advance multisectoral collaboration, but substantial engagement was visible only after several years because time was required for the actual buildup of nutrition efforts as an integral part of mainstream responsibilities in various sectors\. In this sense, the Ethiopia experience shows that evaluations need sufficient time to pass for a plausible impact to have occurred, as noted in IEG’s findings in World Bank (2010)\. This lesson is also in 18 consonance with USAID’s lessons learned 2013–15 from the Ethiopia Multisectoral NNP indicating that the multisectoral approach requires patience, time, and continuous engagement, and that it requires incentives related to budget, capacity, and accountability\. 3\.4 Integration of nutrition operations with an existing and institutionalized service delivery mechanism at the community level facilitates CBN implementation\. The project embedded its community interventions and micronutrient supplementation within the existing Health Extension Program, thus promoting its efficiency and community reach\. 3\.5 External collaboration with development partners, under government leadership, catalyzes international expertise and good practices that benefit and reinforce government policy and its nutrition agenda\. Both the project and the national program led by the government benefited from such collaboration, which facilitated sharing lessons learned from international experience\. Additionally, joint monitoring missions with the government and development partners provided a platform to maintain ongoing dialogue and collaboration\. 1The World Health Organization defines malnutrition as deficiencies, excesses, or imbalances in a person’s intake of energy and/or nutrients\. Malnutrition addresses three broad groups of conditions: (i) undernutrition (stunting [height-for-age], underweight [weight-for-age], and wasting [weight-for-height]; (ii) micronutrient deficiencies; and (iii) overweight\. 2 Ethiopia declared its intention to end child malnutrition by 2030 with the launch of the Seqota Declaration on July 15, 2015\. Ethiopia’s Minister of Health, Kesete Admasu, announced the launch at the Third International Conference on Financing for Development\. The Seqota Declaration reflects the government of Ethiopia’s strong commitment to improve nutrition and recognizes the role of nutrition to propel sustainable development\. 3 This Project Performance Assessment Report uses the project development objectives as a benchmark for the assessment, parsing it as follows: to contribute to improving the nutritional status of vulnerable groups by (i) improving child and maternal care behavior and (ii) increasing utilization of key micronutrients\. Accordingly, contributing to improving the nutritional status of vulnerable groups will be assessed as the final outcome, with (i) and (ii) as intermediate outcomes\. (Improving nutritional status was considered as a higher-level objective in the project appraisal document (World Bank 2008b) and the Implementation and Completion Results Report (World Bank 2015)\. The Project Performance Assessment Report uses the following definitions: (i) Vulnerable groups refer to children under age five, and pregnant and lactating women (World Bank 2008b, 4); (ii) nutritional status for children refers to stunting, wasting, and underweight (World Bank 2008b, 20); (iii) nutritional status for pregnant women refers to body mass index and anemia (Ethiopia Demographic and Health Survey 2016, pages 197–199); (iv) child and maternal care behavior refer to breastfeeding behavior, complementary feeding, and practices (World Bank 2008b, 5, 7); and (v) key micronutrients refer to four main micronutrients of concern to the National Nutrition Program: iodine, vitamin A, iron, and zinc (World Bank 2008b, 74)\. 19 4 At appraisal, the country had about 700 woredas, and at the time of the Project Performance Assessment Report, the country had 800 woredas further divided into 15,000 kebeles (communities) according to the Ethiopian Government Portal (http://www\.ethiopia\.gov\.et)\. 5The four regions account for more than 80 percent of the country’s population, and project coverage reached about 50 percent of that population\. The country has nine national regional states (commonly called regions) and two administrative states (Addis Ababa and Dire Dawa administrative councils)\. 6For example, the performance of volunteers to undertake GMP and to report data was not adequate and resulted in modest rates of GMP sessions (World Bank 2015, 61)\. 7Wasting prevalence has changed little over time, declining nationally from 12 percent in 2005 to 10 percent in 2016, and the regional rates reflect this low pattern (in Tigray from 11\.6 percent in 2005 to 11\.1 percent in 2016, Amhara from 14\.2 percent to 9\.8 percent, and in SNNPR from 6\.6 percent to 6 percent)\. However, the underweight rate increased in Oromia from 9\.6 percent to 10\.6 percent\. 8 Vikas Choudhary, senior agricultural specialist and task team leader, Agriculture Growth Program, World Bank country office in Addis Ababa provided this information\. 20 Bibliography Alebel, Animut, Cheru Tesma, Belisty Temesgen, Aster Ferede, and Getiye Dejenu Kibret\. 2018\. “Exclusive Breastfeeding Practice in Ethiopia and Its Association with Antenatal Care and Institutional Delivery: A Systematic Review and Meta-Analysis\.” International Breastfeeding Journal 13: 31\. Bilal, S Selamawit M\., Albine Moser, Roman Blanco, M\. G\. Spigt, and Geert Jan Dinant\. 2014\. “Practices and Challenges of Growth Monitoring and Promotion in Ethiopia: A Qualitative Study\.” Journal of Health Population and Nutrition 32 (3): 441–51\. CSA (Central Statistical Agency Ethiopia) and ICF\. 2016\. Ethiopia Demographic and Health Survey 2016\. Addis Ababa, Ethiopia, and Rockville, Maryland: CSA and ICF\. Damtew, Zufan Abera, Chala Tesfaye Chekagen, and Amsalu Shiferaw Moges\. 2016\. ”The Health Extension Program of Ethiopia: Strengthening the Community Health System\.” Harvard Health Policy Review 16 (1)\. Ethiopia, Government of\. 2016\. National Nutrition Program 2016–2020\. Addis Ababa: Government of Ethiopia\. ———\. 2017\. Ethiopia Health Accounts, 2013/14\. Addis Ababa: Government of Ethiopia\. FAO (Food and Agriculture Organization)\. 2011\. The Need for Professional Training in Nutrition Education and Communication: Final Report\. June\. Rome: FAO\. Fetene Netsanet, Erika Linnander, Binyam Fekadu, Hibret Alemu, Halima Omer, Maureen Canavan, Janna Smith, Peter Berman, and Elizabeth Bradley\. 2016\. “ The Ethiopian Health Extension Program and Variation in Health Systems Performance: What Matters?” PloS One 11 (5): e0156438\. https://doi\.org/10\.1371/journal\.pone\.0156438\. FMOH (Federal Ministry of Health, Government of Ethiopia)\. 2017 \. Annual Performance Report: Health Sector Transformation Plan-I, EFY 2009 (2016/17)\. Addis Ababa: FMOH\. ———\. 2018\. Joint Review Mission Final Report, Health Sustainable Development Goals (SDG) Program for Result: Ethiopia Nutrition Data Verification, December 2018\. Addis Ababa: FMOH\. Harvey, Mary\. 2016\. “Ethiopia’s Multi-Sectoral National Nutrition Program: Lessons Learned 2013–2015\.” Presentation at the Multi-Sectoral Nutrition Strategy Global Learning and Evidence Exchange, East and Southern Africa Regional Meeting, Dar es Salaam, Tanzania, March 8–10\. Hirvonen, Kalle, John Hoddinott, Bart Minten, and David Stifel\. 2017\. “Children’s Diets, Nutrition Knowledge, and Access to Markets\.” World Development 95 (July): 303–315\. Jennings, Joan, and Mesfin Beyero Hirbaye\. 2008\. Review of Incorporation of Essential Nutrition Actions into Public Health Programs in Ethiopia\. Washington, DC: FANTA\. 21 Kennedy, Eileen, Masresha Tessema, Tesfaye Hailu, Dilnesaw Zerfu, Adamu Belay, Girmay Ayana, Desalegn Kuche, Tibebu Moges, Tsehai Assefa, Aregash Samuel, Tarik Kassaye, Habtamu Fekadu, and Joan Van Wassenhove\. 2015\. “Multisector Nutrition Program Governance and Implementation in Ethiopia: Opportunities and Challenges\.” Food and Nutrition Bulletin 36 (4): 534–548\. Lamstein, Sascha, Amanda Pomeroy-Stevens, Patrick Webb, and Eileen Kennedy\. 2016\. “Optimizing the Multisectoral Nutrition Policy Cycle: A Systems Perspective\.” Food and Nutrition Bulletin 37 (4): S107–S114\. Levin, Carol\. 2014\. “Cost and Cost Effectiveness of Nutrition Programs\.” Presentation at the University of Washington Global Center for Women, Children, and Adolescent Health technical symposium, Strengthening the Nutrition Continuum: From Early Research Through Implementation to Metrics, Seattle, October 15\. Measure Evaluation\. 2016\. Indicator Compendium for Reproductive Maternal Newborn Child and Adolescent Health\. https://www\.measureevaluation\.org/rbf/indicator- collections/health-outcome-impact-indicators/children-under-5-years-who-are-wasted\. MOFED (Ministry of Finance and Economic Development, Government of Ethiopia)\. 2006\. Plan for Accelerated and Sustained Development to End Poverty (PASDEP)\. Addis Ababa: Government of Ethiopia\. NNCB (National Nutrition Coordinating Body)\. 2016\. National Nutrition Program: Multisectoral Implementation Guide\. Addis Ababa: NNCB\. UNICEF (United Nations Children’s Fund)\. 2008\. UNICEF Annual Report 2008\. New York: UNICEF\. ———\. 2018\. Evaluation of the Community Based Nutrition Programme, Presentation for Nutrition Development Partner Forum Meeting\. Ethiopia: UNICEF\. USAID (U\.S\. Agency for International Development)\. 2014\. Multi-Sectoral Nutrition Strategy 2014- 2025\. Washington, DC: USAID\. ———\. 2017\. Case Studies of Large-Scale Community Health Worker Programs: Examples from Afghanistan, Bangladesh, Brazil, Ethiopia, Niger, India, Indonesia, Iran, Nepal, Pakistan, Rwanda, Zambia, and Zimbabwe\. Washington, DC: USAID\. White, Jessica, and John Mason\. 2011\. Assessing the Impact on Child Nutrition of the Ethiopia Community-Based Nutrition Program\. New Orleans: Tulane University School of Public Health and Tropical Medicine\. World Bank\. 2008a\. Ethiopia—Country Assistance Strategy\. Washington, DC: World Bank\. ———\. 2008b\. “Ethiopia—Ethiopia Nutrition Project\.” Project Appraisal Document 42171 -ET, World Bank, Washington, DC\. 22 ———\. 2008c\. Ethiopia—IDA Grant H376-ET Financing Agreement\. Washington, DC: World Bank\. ———\. 2010\. What Can We Learn from Nutrition Impact Evaluations? Lessons from a Review of Interventions to Reduce Child Malnutrition in Developing Countries\. Independent Evaluation Group\. Washington, DC: World Bank\. http://ieg\.worldbankgroup\.org/sites/default/files/Data/reports/Nutrition_web_version\.Jul y_6_0\.pdf\. ———\. 2012a\. Ethiopia—Country Partnership Strategy FY12–16\. Washington, DC: World Bank\. ———\. 2012b\. “Ethiopia—Ethiopia Nutrition Project\.” Restructuring Paper 65924-ET, World Bank, Washington, DC\. ———\. 2015\. “Ethiopia—Ethiopia Nutrition Project\.” Implementation Completion and Results Report, ICR3201, World Bank, Washington, DC\. ———\. 2017\. Ethiopia—Country Partnership Framework FY18–22\. Washington, DC: World Bank\. ———\. 2018\. Stunting Reduction in Sub-Saharan Africa\. Washington, DC: World Bank\. WHO (World Health Organization)\. 2013\. Global Nutrition Policy Review: What Does It Take to Scale Up Nutrition Action? Geneva: WHO\. ———\. 2014\. “Global Nutrition Targets 2025\.” Policy Brief Series WHO/NMH/NHD/14\.2, WHO, Geneva\. ———\. 2019\. “Statistics\. Countries: Ethiopia\.” WHO\. https://www\.who\.int/countries/eth/en/\. 23 Appendix A\. Project Performance Assessment Report Overview The Independent Evaluation Group (IEG) assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrity of the World Bank’s self- evaluation process and to verify that the World Bank’s work is producing the expected results, and second, to help develop improved directions, policies, and procedures through the dissemination of lessons drawn from experience\. As part of this work, IEG annually assesses 20–25 percent of the World Bank’s lending operations through fieldwork\. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevant to upcoming studies or country evaluations; those for which executive directors or World Bank management have requested assessments; and those that are likely to generate important lessons\. To prepare a Project Performance Assessment Report (PPAR), IEG staff examine project files and other documents, visit the borrowing country to discuss the operation with the government and other in-country stakeholders, interview World Bank staff and other donor agency staff both at headquarters and in local offices as appropriate, and apply other evaluative methods as needed\. Each PPAR is subject to technical peer review, internal IEG panel review, and management approval\. Once cleared internally, the PPAR is commented on by the responsible World Bank Country Management Unit\. The PPAR is also sent to the borrower for review\. IEG incorporates both World Bank and borrower comments as appropriate, and the borrower’s comments are attached to the document sent to the World Bank’s Board of Executive Directors\. After an assessment report is sent to the Board, it is disclosed to the public\. About the IEG Rating System for Public Sector Evaluations IEG’s use of multiple evaluation methods offers both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach\. IEG evaluators all apply the same basic method to arrive at their project ratings\. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEG website: http://ieg\.worldbankgroup\.org)\. Outcome: The extent to which the operation’s major relevant objectives were achieved, or are expected to be achieved, efficiently\. The rating has three dimensions: relevance, efficacy, and efficiency\. Relevance refers to the relevance of the objectives\. Relevance of objectives is the extent to which the project’s objectives are consistent with the country’s current development priorities and with current World Bank country and sectoral 25 assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, sector strategy papers, and operational policies)\. Efficacy is the extent to which the project’s objectives were achieved, or are expected to be achieved, taking into account their relative importance\. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared with alternatives\. The efficiency dimension is not applied to development policy operations, which provide general budget support\. Possible ratings for outcome: highly satisfactory, satisfactory, moderately satisfactory, moderately unsatisfactory, unsatisfactory, and highly unsatisfactory\. Bank performance: The extent to which services provided by the World Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loan or credit closing toward the achievement of development outcomes)\. The rating has two dimensions: quality at entry and quality of supervision\. Possible ratings for Bank performance: highly satisfactory, satisfactory, moderately satisfactory, moderately unsatisfactory, unsatisfactory, and highly unsatisfactory\. 26 Appendix B\. Methodology This report was prepared after document review, online literature review, and interviews in Addis Ababa with officials of the Federal Ministry of Health and the Pharmaceutical Fund and Supply Agency, and with individuals involved in the project and in nutrition\. Interviews were also held with regional officials in Tigray and Oromia, and with woreda officials in Gulomekada Woreda, Tigray; and Adea Woreda, Oromia\. Additional documentation on nutrition and health performance was supplied by the Federal Ministry of Health and World Bank Country Office\. The project already had a solid base of evidence on many of its effects, notably from a self-evaluation by the World Bank (April 2015)\. The IEG evaluation methods sought to complement this existing knowledge and to generate lessons from the operation\. In terms of additional data, the primary source consisted of the Ethiopia Demographic and Health Survey (EDHS 2016), which was implemented by the Central Statistical Agency, supported by the government of Ethiopia, the United States Agency for International Development, the government of the Netherlands, the Global Fund, Irish Aid, the World Bank, the United Nations Population Fund, the United Nations Children’s Fund, UN Women, and the Demographic and Health Survey Program, Rockville, Maryland\. Interviews were related to the cycle of project operations, results, implementation experience, challenges encountered, quality aspects, contextual factors, views on what worked and didn’t work and why, and the role played by other sectors in nutrition promotion\. Discussions covered both the project implementation period of 2008–14 and the postproject period 2015–19\. Field visits were carried out in two kebeles to bridge macro-level results with field reality samples\. Gobesaye Kebele in Oromia was chosen because Oromia represented central geographical settings, and Haben Kebele in Tigray because it was located in the furthest Northwestern region, bordering Eritrea\. The field visits were largely centered on health posts that were the main routes for nutrition services at the community level\. IEG mission attended actual service delivery sessions to observe how services were applied, quality aspects, and record keeping\. Interactions were held with health extension workers (HEWs) and beneficiary mothers both at health posts and during household visits in the two kebeles\. Discussions were also held with woreda authorities and nutrition focal points, who provided technical insights\. 27 Table B\.1\. Evaluation Matrix: Links between Main Evaluation Aspects and Data Collection Methods Data Collection Methods Interviews and focus and policy literature Review of academic CBN Site visits and Portfolio review in interactions with nutrition sectors Secondary data the health and stakeholders groups with sources HEWs Harmonized Evaluation Criteria Relevance Relevance of objectives YES YES YES Relevance of design YES YES YES Efficacy Achievement of objectives: Behavior changes YES YES YES YES Micronutrient use YES YES YES YES Improved nutritional status YES YES YES Efficiency Traditional methods: benefit-cost ratios, YES YES net present value, rate of return, and so on Aspects of design and implementation YES YES YES YES YES affecting efficiency Note: HEWs = health extension workers\. 28 Appendix C\. Basic Project Information Project Cost Actual project cost for World Bank–financed activities under the IDA grant was $26\.73 million corresponding to 89\.1 percent of the estimated SDR 18\.8 million cost, equivalent to $30 million at appraisal\. The government contributed an amount equivalent to $9\.60 million or 100 percent of the estimated contribution at appraisal\. World Bank Project Financing Country – Ethiopia Project Name – Nutrition Project Project ID – P106228 ICR Date – April 15, 2015 Original Commitment – $30 million Parallel financing\. The additional support mobilized by the project aggregated at $2\.74 million as follows: Rapid Social Response Multidonor Program: $0\.62 million\. Japan Social Development Fund Grant: $1\.81 million\. Japan Grant: $0\.31million\. Environmental Category – C Dates The project was appraised on 02/26/2008, approved on 04/29/2008, and became effective on 09/10/2008\. A midterm review was carried out on 11/29/2011\. The project was restructured on 4/2/2012 to updates baselines and improve the results framework\. Development objectives and key associated outcome targets were not revised, maintaining the project ambition\. The project was extended by four months on 12/16/2013 to complete implementation of activities, and it closed on 05/31/2014\. 29 Appendix D\. Project Ratings Table D\.1\. Principal Ratings Indicator ICR ICR Review PPAR Outcome Satisfactory Moderately satisfactory Satisfactory Risk to development Moderate Moderate Moderate outcome M&E quality Substantial Substantial Substantial Bank performance Moderately satisfactory Moderately satisfactory Moderately satisfactory Borrower performance Moderately satisfactory Moderately satisfactory Moderately satisfactory Note: The Implementation Completion and Results Report (ICR) is a self-evaluation by the responsible Global Practice\. The ICR Review is an intermediate IEG product that seeks to independently validate the findings of the ICR\. M&E quality is the quality of monitoring and evaluation\. PPAR = Project Performance Assessment Report\. Relevance Relevance of the objectives\. The objectives “to improve child and maternal care behavior, and to increase use of key micronutrients, To contribute to improving the nutritional status of vulnerable groups” were and remain relevant to Bank and country strategies, although the objective to improve child and maternal care behavior should have been more clearly stated as it largely derived from the mother’s behavior\. First, the objectives were consistent with the Country Assistance Strategy (CAS), 2008–11, that aimed to support Ethiopia in sustaining its emerging “dual take-off” in economic growth and basic services delivery (World Bank 2008a)\. The project was in line with the CAS strategic objective 1 on improving access and quality of basic service delivery, and with its strategic objective 3 on reducing vulnerability\. The objectives remained in general alignment with the World Bank’s Country Partnership Strategy 2012–16 at the time of project closing\. The partnership strategy emphasized increasing resilience and reducing vulnerability, and its second pillar focused on improving delivery of social services and developing a comprehensive approach to social protection and risk management (World Bank 2012)\. Also, the objectives continue to be relevant to the current Country Partnership Framework for FY18–22 and in line with its focus area 2 for building resilience and inclusiveness, and with its objective 2\.5 for improving early childhood nutrition (World Bank 2017)\. Second, the objectives remain relevant to the twin goals of the World Bank Group for Ending Extreme Poverty and Promoting Shared Prosperity\. Third, the project was and remains responsive to country needs and government national plans\. Given full alignment with World Bank and country strategies, relevance of objectives is rated high\. 30 Relevance of the design\. The project design laid out a strong rationale for community- based nutrition (CBN) interventions\. But the alternatives considered at appraisal were limited to process aspects, that is, a choice between traditional lending and a program- wide approach\. The results chain was generally clear and linked activities to outcomes, but with some gaps\. The design included the establishment of a National Nutrition Coordination Body, but the results framework of the project was rather incomplete in keeping track of the functions of this institution under an expected trajectory for multisector nutrition engagement\. The results chain for behavior change directly led inputs to outcomes, and could have further elucidated intermediate outputs\. Nevertheless, the design made effective use of the existing Health Extension Program which provided primary health care to mothers and children by embedding community- based nutrition activities within its service delivery mechanism\. The project design appropriately targeted pregnant women and children during a critical age period where the most significant harmful impact of malnutrition can emerge in cognitive, motor and social development, school attainment and future economic productivity\. Implementation arrangements were aligned with the decentralized institutional arrangements of the government, including central, regional, zonal and woreda levels\. The design appropriately planned for a realistic rollout of CBN interventions in a phased manner\. Given adequate overall design, but with some moderate shortcomings, relevance of design is rated substantial\. Efficacy The assessment of efficacy took into consideration the predominant role of the World Bank–supported project in CBN during the project period, as shown in para\. 1\.14 of the main report, and the project-specific outcome indicators for the achievement of behavior change and micronutrient use (objectives 1 and 2)\. However, since the project considered the improvement of nutritional status (objective 3) as a higher-level objective, CBN-specific data were insufficient to assess nutritional status, hence, the IEG mission used region-specific data from the Ethiopia Demographic and Health Survey\. As stated in para\. 2\.5, making inferences from regional data was appropriate because CBN coverage in terms of woredas was high in the four regions: almost universal in Tigray, 92 percent in SNNPR, 80 percent in Amhara, and 58 percent in Oromia\. However, these created challenges in data interpretation concerning nutritional status because of a dilution effect, as national data encompassed all women ages 15–49\. 31 Objective 1: Improve Child and Maternal Care Behavior Rationale\. It was reasonable to expect that the provision of CBN services, supported by capacity building, improved skills, mobility, advocacy, information, counseling of mothers, behavior change communications suitable to the local needs, community conversations, and favorable government policies, would contribute to nutrition behavior changes by mothers for breastfeeding and dietary practices\. In turn, improved nutrition behavior would be reasonably expected to contribute to improved nutritional status\. Outputs\. CBN interventions were rolled out in tranches that varied in timing and size throughout 2009, 2010, and 2011, and covered 238 woredas by project closing\. About 13,000 health personnel were trained in community-based nutrition, exceeding the target of 12,000\. Health extension workers (HEWs) were also trained on a revised curriculum\. The project provided dozens of vehicles, 1,600 motorcycles, and 28,750 bicycles to allow greater mobility to HEWs in outreach work, and to health centers for supportive supervision\. Advocacy, behavior change communications, and counseling were undertaken by Federal Ministry of Health (FMOH) and HEWs, and through community conversations\. Training was conducted on data collection, monitoring, and financial management at the federal and subnational levels, and, by project closing, 80 percent of CBN woredas were providing monthly nutrition data to the federal level, exceeding the target of 50 percent\. The project financed a two-year masters course in nutrition, with 80 masters-level graduates\. Ten operational research studies relevant to both components 1 and 2 were conducted and disseminated, exceeding the target of eight\. The studies were carried out by five local universities owing to constraints at the Ethiopia Health and Nutrition Institute to undertake them as originally planned\. The topics included: effectiveness of school health and nutrition education to improve health and dietary practices; bioavailability, digestibility, and sensory acceptability of complementary foods; effect of nutrition education on child feeding practices; effectiveness of organizing newly-wed women and adolescent girls to improve access and use of nutrition services; reaching school and nonschool attending adolescent girls for iron supplementation; national iodized salt coverage in Ethiopia; national food consumption survey; challenges and opportunities in adapting community-based nutrition among pastoralists; modalities to improve pregnant women’s compliance to daily iron folate supplementation; and development of integrated training on quality and implementation of community-based nutrition\. Outcomes\. The results for behavioral improvements are discussed in section 2 of the main report and show improved maternal and child care behavior\. Achievement of this objective is rated substantial\. 32 Objective 2: Increase Use of Key Micronutrients Rationale\. It was reasonable to expect that the provision of key micronutrients, supported by capacity building, improved skills, mobility, advocacy, information and behavior change communications and counseling, and favorable government policies, would lead to increased use of key micronutrients by mothers and children\. In turn, these would be reasonably expected to contribute to improved nutritional status\. Outputs\. In addition to the outputs noted above under objective 1, the project provided key micronutrients to beneficiary mothers and children\. Iron-folic acid tablets were provided to pregnant women as part of antenatal care under the Health Extension Program\. Vitamin A doses were provided to children aged 6–59 months, and quarterly screenings were held for undernourished children through Child Health Days\. A Universal Salt Iodization policy was adopted through legislation, thus increasing market access and household use\. Zinc was registered as an essential drug and included in the health post package, allowing its use by HEWs, thus enhancing its availability and use by households\. Outcomes\. Increases in micronutrient use are discussed in para\. 2\.7 of the main report, and some targets were exceeded\. The achievement of this objective is rated substantial\. Objective 3: Improve the Nutritional Status of Vulnerable Groups Rationale\. It was reasonable to expect that improvements in nutrition behavior, increased use of micronutrients, deworming, identification and treatment of malnourished children would contribute to improving the nutritional status of vulnerable groups\. Outputs\. In addition to the outputs described above under objectives 1 and 2, children were dewormed, and malnourished children were identified through growth monitoring and treated\. Outcomes\. Plausible contributions to nutritional status improvements in pregnant women and children under age five children are discussed in Objective 2: Increase Use of Key Micronutrients section\. The achievement of this objective is rated substantial\. Overall efficacy rating\. As both intermediate outcomes and the final outcome were almost fully achieved, overall efficacy is rated substantial\. Efficiency The PAD drew on a benefit-cost analysis that was undertaken for several interventions affecting nutritional outcomes in Ethiopia, as part of the economic and sector work done by the World Bank (Malnutrition in Ethiopia: Current Interventions, Successes, Cost-Benefit 33 Analysis, and the Way 20 Forward), but no project-specific analysis was carried out (World Bank 2008b, 66–69)\. The PAD’s analysis covered selected interventions similar to project activities under component 1 (Supporting Nutrition Service Delivery): reduced child and maternal mortality, increased economic productivity (through the prevention of detrimental effects of stunting and low birth weight), and increased mental ability of children (by addressing micronutrient deficiencies)\. The benefit-cost ratios were favorable and indicated that benefits were several times higher than the cost, but no specific numbers were provided\. The analysis did not address activities related to component 2 (Institutional Strengthening and Capacity Building) because of the lack of available data on benefits and impacts\. The ICR calculated a benefit-to-cost ratio of 4\.6 to 1, monetizing benefits including saved child and maternal lives and increased lifetime earnings from reduced stunting, anemia, low birth weight, and vitamin A deficiency, and exclusive breastfeeding (World Bank 2015, 27–29 and 41–48)\. Using a 5 percent discount rate, the net present value of the project was estimated at $79\.9 million with a modified internal rate of return of 38 percent (a modified value adjusted the rate to account for the difference between re- investment rate and investment return, as rates of return tend to overstate the true rate of return when they assume that all benefits are reinvestable)\. The ICR’s calculation employed realistic and conservative assumptions, namely an earnings premium of 10 percent for stunting avoidance, 5 percent for anemia avoidance, and 7\.5 percent for low birth weight avoidance which were applied as the effect of increased productivity (World Bank 2015)\. Future wages were discounted at 5 percent per year, after adjusting for normal mortality\. Each year of productive life was valued as the real per capita gross domestic product estimated at $222, and the productive lifespan was defined as lasting from 15 until 53 years of age\. The lifetime income stream of a 2- year old child was valued at $1,803, and that of a 25-year-old mother was valued at $2,918\. The ICR conducted a sensitivity analysis using a 10 percent discount rate, which showed a net present value of $64\.9 million\. Under conservative assumptions using lower bound value of all estimates, the net present value was $44 million and the benefit-cost ratio was 3\. The results suggested that the monetized benefits substantially exceeded the costs of the project\. The ICR suggested that returns could be even higher, as the analysis did not include the full spectrum of outcomes such as the benefits of institutional strengthening and capacity building that would contribute to making evidence-based decisions and to realize potential efficiency gains, and other benefits such as avoiding downstream losses from the high use of health resources and additional care for people with reduced cognitive development\. There is an international acknowledgement that community-based interventions are cost-effective in improving nutrition\. According to Levin (2014), there is strong evidence 34 that direct nutrition interventions like CBN are cost-effective, but there is less evidence on nutrition-sensitive interventions related to some sectors, especially those that require integration either across different sectors, or at different levels of service delivery\. Main aspects of design and implementation contributed to efficiency\. The project built on an existing program to deliver its services, although there were concerns about the level of skills of HEWs in the Health Extension Program and their workload\. The project used existing federal and regional institutional structures in the country\. The project had a nine-month delay in its launch due to a governmentwide business process reform and slow financial management during the initial three years of implementation, but the delays were overcome with extensive additional training and added capacity (see the Borrower Performance section)\. The IEG mission followed up on procurement delays for iron supplements that were reported by the ICR, which also noted that additional registration processes were required from suppliers after FMOH determination that iron folate supplements should be treated as a medical supply\. The Pharmaceutical Fund and Supply Agency in charge of iron supplements procurement explained to IEG mission that international competitive bidding procurement guidelines had to be followed and that a dialogue among key players in FMOH would have been useful to discuss expected delivery dates that should have been set in concert with the Pharmaceutical Fund and Supply Agency\. The impact of the stated delays was negligible on project operations, as actual use targets for iron supplements were highly exceeded in project areas, throughout implementation\. As for iodized salt, intended results were exceeded, facilitated by government policy that mandated iodization\. Concerning grant fund use, 11 percent of the project SDR proceeds remained unused at closing\. The ICR noted large exchange rate fluctuations\. Project staff indicated that planned allocations available to the project in local currency were virtually fully used by project closing, with $14,000 equivalent remaining\. The transitory implementation delays and the variability in regional performance did not impact the efficient realization of the desired results, some of which were exceeded as early as 2011, three years into project implementation\. Hence, the impact of the above-mentioned moderate shortcomings on the efficient realization of project activities was insignificant\. Given the cost-effectiveness of community-based interventions, appreciable returns, favorable aspects of design and implementation that contributed to efficiency, with some moderate shortcomings in administrative and operational efficiency, overall efficiency is rated substantial\. Overall outcome\. Given high relevance of objectives, substantial relevance of design, substantial efficacy and efficiency, overall outcome is rated satisfactory, indicative of essentially minor shortcomings in the project’s preparation, implementation, and achievement\. 35 The risk to development outcome is rated moderate\. CBN interventions were integrated with regular services and CBN continued to expand in the country\. Although there are no major immediate threats to outcome sustainability, efforts need to be maintained in demand generation and aspects of service quality\. Incremental contributions for nutrition continued to grow from both the government and development partners, including the World Bank, aggregating at about $1\.1 billion for 2016–20 (see para\. 2\.8)\. Nutrition-specific activities and nutrition-sensitive interventions, which address broader underlying determinants of malnutrition, continued to increase (see appendix D and table 2\.2 of the main report)\. Government commitment remains high and is underscored by its financial allocations, declarations, support to the Health Extension Program and its continued strengthening, and the inclusion of nutrition indicators in national development plans\. However, there is a continued gap in financing for the high-impact nutrition interventions: it is estimated that more than $220 million annually would be needed to scale up a package of nutrition-specific interventions over the next decade for Ethiopia to meet its targets for stunting, wasting, anemia, and breastfeeding (World Bank 2018, 77)\. At the same time, operational areas that require continued attention are logistical and supply support, financial management at regional and subregional levels, and monitoring & evaluation\. In the foreseeable future, the current favorable and encouraging attention to nutrition efforts in various sectors should not inadvertently diminish the primary focus on a subset of direct nutrition-specific interventions, such as CBN, and which are critical to improve malnutrition\. Bank performance\. Project preparation benefited from a strong participation of the government and a multipartner team formed in 2007 to determine nutrition objectives, activities, financing priorities, and implementation arrangements\. The design was sound in its strategic relevance and approach, and in its focus on poor and food insecure districts, although added attention could have been provided to alleviate the lack of means for very poor mothers in collaboration with relevant sectors\. The design of technical interventions adequately built on good practices for nutrition-specific operations and integration with health\. Although preparation anticipated and mitigated potential implementation risks, those of insufficient fiduciary capacity and monitoring and evaluation (M&E) capacity were not adequately identified\. Modalities for tracking the performance of the national coordinating body and advancing intersectoral collaboration, were not fleshed out\. Quality at entry is rated moderately satisfactory\. In terms of supervision, there were two task team leaders during the implementation period\. Supervision was reportedly proactive, building on a strong professional relationship between the World Bank team and FMOH officials\. Through regular supervision missions, often jointly carried out with development partners, and reliance on specialists based in the country office, the team reportedly provided effective implementation support and fiduciary oversight\. The team maintained a constructive 36 dialogue with stakeholders\. The team carried out a focused midterm review that provided information for improving the results framework and for NNP revisions to clarify sectoral engagement modalities\. Human resource constraints were addressed, including the addition of fiduciary staff, resulting in improved financial management performance, disbursements, and overall implementation\. The quality of supervision is rated satisfactory\. The aggregation of both subratings for quality at entry and supervision indicate an overall Bank performance rating of moderately satisfactory\. Borrower performance\. To a large extent, the government and implementing agencies were indistinguishable\. There was no dedicated project implementation unit, and the federal government through the Federal Ministry of Health was responsible for project implementation\. The federal level was assisted in project implementation by lower level government institutions, namely, regional health bureaus and Woreda Health Offices in accordance with existing governance systems\. Assistance was also sought from the Ethiopia Health and Nutrition Institute in M&E and research, and from the Pharmaceuticals Fund and Supply Agency in pharmaceutical procurement\. Therefore, this PPAR opted for a unified rating for borrower performance\. Ownership and commitment to achieving development objectives were strong as demonstrated through policy, institutional support and budgetary allocations\. The federal government continued to strengthen the Health Extension Program that carried CBN activities\. The government’s close involvement and full engagement remained high\. Initial shortcomings were observed and can be characterized as early implementation delays, largely in financial management\. Also, there was a delay in the project launch caused by a systemwide government reform\. Limited experience with World Bank guidelines was cited as a reason for slow processes in the first three years\. Early challenges in overall human resource capacity and financial management were addressed after the midterm review of 2011\. An action plan for strengthening fiduciary performance was developed and implemented\. The government increased nutrition-related staffing at the national level, and appointed regional nutrition coordinators in project areas for the health sector and for liaison with other sectors at the local level\. Training was enhanced, notably through training of financial managers in 144 woredas\. Federal-level accountant training was provided to allow cascading training to woreda accountants\. As a result, statements of expenses were settled quickly, and overall disbursement patterns improved through the remainder of the project period\. There were no qualified audits and an in-depth financial management supervision report in March 2014 confirmed adequate financial management under the project\. Hence, the initial moderate shortcomings and delays were transitory\. Although the performance of the National Nutrition Coordination Body was limited during the initial project period, performance improved steadily and the 37 government reported that the coordinating body has spearheaded the majority of nutrition-related activities involving other sectors (FMOH 2017)\. IEG mission was informed that this body is being renamed as National Food and Nutrition Council\. Overall government performance is rated moderately satisfactory\. M&E quality\. The indicators were linked to behavioral and micronutrient objectives, but there were insufficient indicators to assess improvement in nutritional status under the project’s M&E, as nutritional status was interpreted by the PAD and ICR as a higher- level objective\. Nevertheless, there was a strong commitment to evaluation from the start for both the project and NNP, and strengthening M&E was an integral part of component 2\. The national health management information system did not initially include nutrition indicators, and the project planned for CBN data collection on a monthly basis from the woreda level to regional health bureaus and to the national level\. An independent evaluation was planned\. Strengthening existing systems included the health management information system, Integrated Disease Surveillance and Response system, and Demographic Surveillance Sites\. Initially, M&E implementation faced challenges at the woreda level owing to limited staff capacity and skills, but these were addressed at the 2012 restructuring, resulting in notable improvements in the timely flow of reports and their quality\. CBN data were collected on a monthly basis, and, by project closing, over 80 percent of woredas were providing timely reporting\. The National Health Monitoring Information System was revised under the project to include growth monitoring and promotion\. A midcourse evaluation of CBN activities was carried out by Tulane University in 2011, supported by UNICEF\. Surveys were carried out by local partners, Addis Continental and Mela\. The analysis was conducted by Tulane University and monitored by the Ethiopian Health and Nutrition Research Institute\. The endline surveys were not completed because of related supply issues within UNICEF\. However, region-specific Ethiopia Demographic and Health Survey data were available\. Apart from the routine use of M&E during implementation, the findings were used by the government to inform a new National Nutrition Program (NNP II)\. Considering all aspects of M&E, the overall quality of M&E is rated substantial\. References FMOH (Federal Ministry of Health, Government of Ethiopia)\. 2017\. Annual Performance Report: Health Sector Transformation Plan-I, EFY 2009 (2016/17)\. Addis Ababa: FMOH\. World Bank\. 2007\. Malnutrition in Ethiopia: Current Interventions, Successes, Cost-Benefit Analysis, and the Way 20 Forward\. Washington, DC: World Bank\. ———\. 2008a\. Ethiopia—Country Assistance Strategy\. Washington, DC: World Bank\. 38 ———\. 2008b\. “Ethiopia—Ethiopia Nutrition Project\.” Project Appraisal Document 42171 -ET, World Bank, Washington, DC\. ———\. 2012\. Ethiopia—Country Partnership Strategy FY12–16\. Washington, DC: World Bank\. ———\. 2015\. “Ethiopia—Ethiopia Nutrition Project\.” Implementation Completion and Results Report ICR3201, World Bank, Washington, DC\. ———\. 2017\. Ethiopia—Country Partnership Framework FY18–22\. Washington, DC: World Bank\. 39 Appendix E\. Other Issues Safeguards\. The project did not trigger any safeguard policies, and it was classified as environmental category C\. Financial management\. During the initial years of the project, issues related to weak staff capacities and skills were identified, including for budgeting, internal control, and financial reporting\. An action plan for improvement was developed at the midterm review in 2011\. As noted in appendix A, training was provided to financial managers in 144 woredas, and federal and woreda accountants\. Nutrition coordinators were hired to work at the regional level\. As a result, statements of expenses were settled quickly, and overall disbursement patterns improved through the remainder of the project period\. No qualified audits were reported, and a financial management supervision report in March 2014 confirmed adequate financial management under the project\. Procurement\. Procurement was undertaken according to guidelines\. Slow procurement processes were observed in the initial years\. The lack of familiarity with World Bank guidelines was cited\. Delays that were reported in the ICR on the procurement of iron supplements are discussed in the Efficiency Section in appendix A of this report\. The Pharmaceutical Fund and Supply Agency explained to IEG mission that international competitive bidding procurement guidelines had to be followed and that a dialogue among key players in FMOH would have been useful to discuss anticipated delivery dates\. Such delays had a negligible impact on project operations, and use targets for iron supplementation in the field were highly exceeded in project areas\. 40 Appendix F\. Demographic and Health Survey Data, 2005, 2011, and 2016 Figure F\.1\. National Prevalence of Exclusive Breastfeeding for Children under Age Six Months (percent) 60\.0% 58\.0% 56\.0% 54\.0% 52\.0% 50\.0% 48\.0% 46\.0% 44\.0% National 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. Figure F\.2\. Median Duration of Exclusive Breastfeeding in 11 Regions 5 4\.5 4 3\.5 3 2\.5 2 1\.5 1 0\.5 0 Oromia Tigray Amhara Benishangul-Gumuz Gambela Addis Ababa SNNPR Afar Somalia Dire Dawa National Harari Project regions Non-project regions 2005 2016 Source: Ethiopia Demographic and Health Survey data\. 41 Figure F\.3\. Minimum Dietary Diversity among Children under Age Two in 11 Regions and Nationally (percent) 50% 40% 30% 20% 10% 0% Oromia Amhara Tigray Benishangul-Gumuz SNNPR Afar Somalia Gambela Addis Ababa Dire Dawa Harari National Project regions Non-project regions 2011 2016 Source: Ethiopia Demographic and Health Survey data\. Figure F\.4\. Vitamin A Supplement Use among Children under Age Five in 11 Regions and Nationally (percent) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Oromia Amhara Tigray SNNPR Somalia Benishangul-Gumuz Gambela Addis Ababa Afar Dire Dawa National Harari Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. 42 Figure F\.5\. Households with Iodized Salt in 11 Regions and Nationally (percent) 100% 80% 60% 40% 20% 0% Oromia Amhara Tigray SNNPR Afar Somalia Benishangul-Gumuz Gambela Addis Ababa Dire Dawa National Harari Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. Figure F\.6\. Nutritional Status of Women of reproductive age (BMI <18\.5) in 11 Regions and Nationally (percent) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Benishangul-Gumuz Oromia Amhara Tigray Gambela Addis Ababa SNNPR Afar Somalia Dire Dawa Harari National Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. 43 Figure F\.7\. Prevalence of Anemia in Women of RA in 11 Regions and National (percent) 70% 60% 50% 40% 30% 20% 10% 0% Oromia Amhara Tigray Dire Dawa Gambela Addis Ababa SNNPR Afar Somalia Benishangul-Gumuz Harari National Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. Figure F\.8\. Prevalence of sStunting among Children under Age Five in 11 Regions and Nationally (percent) 60\.0% 50\.0% 40\.0% 30\.0% 20\.0% 10\.0% 0\.0% Oromia Amhara National Tigray SNNPR Somalia Benishangul-Gumuz Gambela Addis Ababa Afar Dire Dawa Harari Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. 44 Figure F\.9\. Prevalence of Underweight among Children under Age Five in 11 Regions and Nationally (percent) 60\.0% 50\.0% 40\.0% 30\.0% 20\.0% 10\.0% 0\.0% Oromia Amhara National Tigray Benishangul-Gumuz Gambela Addis Ababa SNNPR Afar Somalia Dire Dawa Harari Project regions Non-project regions 2005 2011 2016 Source: Ethiopia Demographic and Health Survey data\. 45 Appendix G\. Tracking Funding for Nutrition in Ethiopia across Sectors Table G\.1\. Funding by Financing Source and Intervention, 2013–16 ($, millions) Planned Expenditures Expenditures Budgets Type of Funding Source 2013/2014 2014/2015 2015/2016 Donor organizations (Bilateral, 168\.7 319\.6 400\.0 Multilateral, and Foundations) Nutrition and water, hygiene, and sanitation 8\.4 118\.5 142\.2 PSNP nutrition component 3\.1 2\.9 72\.2 Emergency assistance (food support and 24\.6 62\.7 56\.0 resources) Promotion of nutrition-sensitive agriculture 36\.9 38\.3 42\.8 and food security Capacity building for nutrition 8\.6 20\.4 18\.6 Behavior change communication (BCC) & 7\.8 7\.8 10\.1 breastfeeding promotion Management of acute malnutrition 16\.4 6\.8 9\.1 (emergency) Nutrition & infectious diseases 15\.4 11\.6 7\.0 Management of acute malnutrition 12\.4 17\.1 6\.3 (nonemergency) School health & nutrition 11\.9 11\.0 6\.0 Micronutrients 4\.1 5\.7 3\.3 Growth monitoring and promotion 0\.8 0\.4 1\.4 Advocacy for nutrition 0\.7 0\.4 1\.1 Integrated package of nutrition interventions 0\.1 — 0\.4 Support for the implementation of — 0\.1 0\.1 multisectoral nutrition actions Government 5\.6 4\.8 49\.9 School health & nutrition 3\.9 2\.3 30\.2 PSNP nutrition component — — 17\.5 Support for the implementation of 1\.7 1\.8 1\.9 multisectoral nutrition actions Micronutrients — — 0\.1 Promotion nutrition-sensitive agriculture and 0\.1 0\.1 0\.05 food security Capacity building for nutrition — 0\.03 — 46  Planned Expenditures Expenditures Budgets Type of Funding Source 2013/2014 2014/2015 2015/2016 Behavior change communication (BCC) and — 0\.005 — breastfeeding promotion Nutrition and lifestyle/chronic diseases — 0\.01 — Nutrition and water, hygiene, and sanitation — 0\.05 — International nongovernmental 7\.1 5\.3 5\.2 organizations Emergency assistance (food support and 0\.5 1\.2 2\.4 resources) Behavior change communication (BCC) and 0\.01 0\.3 0\.9 breastfeeding promotion Management of acute malnutrition 2\.3 1\.0 0\.8 (emergency) Management of acute malnutrition 0\.7 0\.7 0\.5 (nonemergency) School health and nutrition 1\.9 0\.01 0\.2 Capacity building for nutrition 0\.1 0\.4 0\.2 Promotion of nutrition-sensitive agriculture 0\.9 1\.3 and food 0\.1 security Nutrition and water, hygiene, and sanitation 0\.1 0\.1 0\.04 Growth monitoring and promotion (GMP) 0\.003 0\.003 — Micronutrients 0\.3 — — Integrated package of nutrition interventions — 0\.1 — Nutrition and infectious diseases 0\.01 0\.04 — Total 181\.5 329\.7 455\.1 Source: Ethiopia, Federal Ministry of Health, results for Development and Children’s Investment Fund Foundation; website (www\.moh\.gov\.et)\. Ethiopian fiscal years 2006 to 2008 (2013/2014 to 2015/2016)\. Note: — = not available\. 47 Appendix H\. List of Persons Met WORLD BANK Ziauddin Hyder Senior Nutrition Specialist, Project Task Team Leader Erica Marie Lutz Senior Nutrition Specialist Frew Tekabe Senior Nutrition Consultant, Agriculture Growth Program Lisa Shireen Saldanha Nutrition Specialist Anne Margreth Bakilana Program Leader for Human Development Roman T\. Gebremedhin Africa Early Years Fellow, HNP Senior Operations Officer, Co-Task Team Leader for the Health SDG Roman Tesfaye Program-for-Results, GHN07, HNP Senior Agricultural Specialist, Task Team Leader, Agriculture Growth Vikas Choudhary Program GOVERNMENT, STAKEHOLDERS, AND DEVELOPMENT PARTNERS Central Level H\.E\. Dr\. Lia Tadesse State Minister, Federal Ministry of Health, FMOH Dr\. Meseret Zelalem Director, Maternal & Child Health and Nutrition, FMOH Dr\. Mesfin Kebede Assistant Director, Maternal & Child Health and Nutrition, FMOH Mrs\. Frezer Abebe Nutrition Case Team Leader, FMOH Dr\. Belaynesh Yitru Adviser, Nutrition Specialist, FMOH Mr\. Birara Melese Yalew Nutritionist and Senior Adviser to maternal and Child Nutrition, FMOH Dr\. Frew Lemma Senior Nutrition Specialist, Nutrition Case Team, FMOH Dr\. Loko Abreham Director, Pharmaceutical Fund and Supply Agency (PFSA) Pierre-Luc Vanhaevebeke Nutrition Coordinator, European Union Regional Level Tigray Region: Dr\. Hagos Godefy Head, Tigray Regional Health Bureau, Mekele Mr\. Teksay Weldemaniam Deputy Regional Bureau Head, Mekele Mr\. Mengeshe Bahveselasse Regional Nutrition Team Leader, Mekele Mr\. Chens Hailu Woreda Nutrition Coordinator, Gulomekada Woreda Mr\. Mebrahiu Sebeya Supervisor, Haben Kebele Health Post, Tigray Oromia Region: Dr\. Abiku Tadesse Zonal MCH Expert Mr\. Degaga Zaonde Deputy Woreda Health Office, Adea Woreda Mr\. Mekonnen Jotie Nutrition Focal Person, Adea Woreda Dr\. Mekonnen Germane Communicable Disease Expert, Adea Woreda Health Office Dr\. Aklilu Hayiliye Under-5 Out Patient Department official, Primary Health Care Health Extension Workers, Beneficiary Mothers, and Household visits Haben Kebele, Gulomekada Woreda, Tigray Region Gobesaye Kebele, Adea Woreda, Oromia Region 48

REVIEW

P005811

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 24237 IMPLEMENTATION COMPLETION REPORT (IDA-20150; IDA-20151) ONA CREDIT IN THE AMOUNT OF SDR 8\.2 MILLION (US$10\.0 MILLION EQUIVALENT) TO THE REPUBLIC OF YEMEN FOR AN INSTITUTIONAL DEVELOPMENT FOR A PUBLIC ADMINISTRATION PROJECT June 14, 2002 Human Development Sector Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUrVALENTS (Exchange Rate Effective ) Currency Unit = Yemeni Rial (YER) April 1989: US$ 1 = YER 9\.75 April 1999: US$ 1 = YER 145\.00 May 2000: US$ 1 = YER 161\.26 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CBY Central Bank of Yemen COCA Central Organization for Control and Auditing GOY Govenmment of Yemen ICR Implementation Completion Report IDA International Development Association ISS Institute for Social Sciences (the Hague) JIPA Jordan Institute of Public Administration MCSAR Ministry of Civil Service and Administrative Reform MIS Management Information System MOF Ministry of Finance MOPD Ministry of Planning and Development NIAS National Institute of Administrative Sciences (ex NIPA) NIPA National Institute of Public Administration (now NIAS) PIU Project Implementation Unit PDRY People's Democratic Republic of Yemen SDR Special Drawing Rights UNDP United Nations Development Programme UK United Kingdom YAR Yemen Arab Republic YER Yemeni Rial Vice President: Jean-Louis Sarbib Country Director: Mahmood A\. Ayub Sector Director: Jacques Baudouy Task Team Leader Vasilios C\. Demetriou  FOR OMCIAL USE ONLY REPUBLIC OF YEMEN INSTITUTIONAL DEVELOPMENT FOR PUBLIC ADMINISTRATION PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 7 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 11 7\. Bank and Borrower Performance 12 8\. Lessons Learned 14 9\. Partner Comments 15 10\. Additional Information 24 Annex 1\. Key Performance Indicators/Log Frame Matrix 34 Annex 2\. Project Costs and Financing 37 Annex 3\. Economic Costs and Benefits 38 Annex 4\. Bank Inputs 39 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 41 Annex 6\. Ratings of Bank and Borrower Performance 42 Annex 7\. List of Supporting Documents 43 This document has a restricted distribution and may be used by recipients only in the peirformance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.  6Tp: Core ICR |Report Date: June 24,2002l 1\. Project Data Name: INST\. DEV\. FOR PUB\. LIC/TFNumber: IDA-20150; IDA-20151 Country/Department: REPUBLIC OF YEMEN Region: Middle East and North Africa Region Sector/subsector: FS - Financial Sector Development KEY DATES Original Revised/Actual PCD: 11/09/1987 Effective: 04/12/1990 04/12/1990 Appraisal: 04/17/1989 MTR: 06/15/1995 Approval: 05/12/1989 Closing: 06/30/1996 12/31/1998 Borrower/lImplementing Agency: GOVERNMENT/MCSAR/NIPA Other Partners: STAFF Current At Appraisal Vice President: Jean-Louis Sarbib Wilfried P\. Thalwitz Country Manager: Mahmood A\. Ayub Everardus J\. Stoutjesdijk Sector Manager: Jacques F\. Baudouy Douglas H\. Keare Team Leader at ICR: Vasilios C\. Demetriou\. Yogendra Saran ICR Primary Author: Vasilios C\. Demetriou; Ragaa Makharita; and Patricia Maughan-Colon\. 2\. Principal Performance Ratings (HS=-Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: N Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: Project at Risk at Any Time: No quality at entry evaluation existed at the time of appraisal\.  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: This project, Institutional Development for Public Administration, was the first IDA\. credit for institutional development of Yemen's public administration, although there have been other IDA-assisted projects that supported development of the skilled manpower needed in public administration\. The project was to improve public administration through institutional development of the Ministry of Civil Service and Administrative Reform (MCSAR) and the National Institute for Administrative Sciences (NIAS)\. MCSAR regulates employment conditions in the public sector, including wages and salaries\. NLAS (formerly the National Institute for Public Administration, NIPA) was formally mandated in 1994 as the country's main public administration training agency\. NIPA/NIAS was given increased responsibility in 1981 to develop national administrative capacity, as well as to promote the training of public officials and those in mixed-ownership (e\.g\., state-owned enterprises\. In addition to its training responsibility, NIAS is required to: (i) conduct education programs at the post-secondary and post-university levels for civil servants, and for public and mixed-sector employees; (ii) engage in research and consultancy activities; and (iii) publish its findings\. The two institutions responsible for the development and operation of Yemen's public service\. The project complemented the Government's effort to create an efficient civil service, as outlined in the Five-Year Plan (1987-1991)\. MCSAR and NIAS had been mandated to create policy\. that would strengthen public institutions, and both entities needed upgraded skills and facilities in order to carry out their mandates effectively\. The task became more complex when North and South Yemen reunited and the Republic of Yemen was created in May 1990, one year after the project was approved and only a month after it became effective\. The project had been designed for, and the IDA credit granted to, the Yemen Arab Republic (YAR)\. However, when YAR merged with the former People's Democratic Republic of Yemen (PDRY), the new centralized-but northern-controlled-civil service administration had to absorb roughly 110,000 civil servants from the former PDRY\. This seriously constrained the new Government's ability to function efficiently and effectively\. The project was not at that time redesigned; rather, implementation of the original project proceeded under those circumstances\. The original project objectives were to strengthen MCSAR and NIAS through technical assistance, staff development, and logistical support, so that these agencies could effectively support the Govemment's institution-building efforts throughout the public administration\. Specifically, the project aimed to enable MCSAR to: (a) evaluate and improve the quality of Government operations and management, personnel and administrative policies, and manpower and training planning of up to nine Government agencies (not named in the appraisal documents); (b) establish a Management Information System (MIS) for the civil service and the public sector; and (c) assess the consistency of its own structure with respect to its functions and responsibilities\. For NIAS, the project aimed to: (a) improve the quality, efficiency, and coverage of education, training, and research, and strengthen consultancy programs; (b) meet its staff shortages through expatriate teacher support while Yemeni staff were away on fellowships; (c) develop a long-term strategic plan for manpower development in the public sector; and (d) establish appropriate institutional decision making structures and processes\. The project was to be implemented over a seven-year period, with MSCAR and NIAS responsible for implementing their respective components\. The credit of SDR 8\.2 million (about US$10\.8 million), was approved by the IDA Board in May 1989\. The project was originally designed for the Yemen Arab Republic (North Yemen), and was to be implemented over a seven-year period\. The total cost of the project was estimated at US$15\.06 million equivalent, with a foreign exchange component of US$10\.2 million\. The Credit Agreement was signed in January 1990 and became effective in April 1990\. - 2 -  The project fit well into the framework of Govenmment objectives, as stated in the Third Five-year Plan (1987-1991), which gave priority to increasing the effectiveness of Government institutions\. The project also was in line with previous IDA efforts, as well as with projects sponsored by other agencies, which provided substantial inputs for the development of skilled manpower and appropriate institutional structures for the effective management of development programs\. Since 1973, a substantial portion of IDA assistance has been devoted to institutional development, training, and technical assistance; large numbers of Yemeni officials have benefited from overseas training under the fellowship components of different credits\. Specifically, IDA has assisted in developing the capacity of the Ministries of Planning and Development, Agriculture, Economy, Education, and Health\. For the project, the two beneficiary institutions were the Ministry of Civil Service and Administrative Reform (MCSAR) and the National Institute of Public Administration (NIPA), which was renamed the National Institute of Administrative Science (NIAS) in 1994; these agencies accounted for 36 and 64 percent share of the project cost, respectively\. MCSAR and NIAS were targeted because of their mandate to suipport the Govemment's plans for social and economic development, by increasing the efficiency of public agencies\. Two Project Implementation Units (PIUs), one for MCSAR and one for NIAS were responsible for implementing their respective components\. However, this arrangement proved to be problematic, since'there was little cooperation between the two PIUs, and little interest or supervision from the Ministry\. The project aimed to strengthen the capacity of both MCSAR and NIAS to carry out their mandates to impiove the performance of public institutions\. For MCSAR, the objective was to enable it to fulfill its operational and advisory obligations to nine Govermnent agencies in the areas of manpower and training planning, personnel administration, procedural improvements, and increased effectiveness\. At the time of appraisal, no specific recommendation were made, but it was assumed that some key ministries such as the Ministry of-Planning and Development, the Ministry of Education and MCSAR itself might be considered\. During implementation, none of these ministries cooperated and some actively resisted the idea completely\. For 'NIAS, the objective was to improve its capacities to design and deliver training programs aimed at increasing the skills of public administrators, to conduct research, and to provide consultancy services to public agencies\. For both entities, the project provided funding for technical assistance, staff development programs, and improved facilities\. 3\.2 Aevised Objective: Yemen's social and economic environment was affected between 1990 and 1994 by domestic and regional events, including the unification process, the Gulf War, and civil strife\. Issues that had influenced the initial design of the project consequently changed particularly the country's administrative needs and priorities\. Therefore, a decision was taken in March 1995 to restructure and redirect the project in order to provide for the necessary administrative reforms\. The proposal for restructuring the project was prepared in M[ay 1995 by Pan Yemen Consultant Services\. This new strategy advocated abandoning those portions of the initial project that could not be completed by December 1997, the anticipated closing date\. The restructured project aimed to support, strengthen, or accelerate any successful, ongoing activities of the initial project, and, at the same time, develop and implement activities' for promoting -concrete administrative reforms and updating administrative operations\. Almost from the beginning, the project suffered from a number of difficulties and implementatron did not proceed satisfactorily\. Bank supervision was also inadequate despite frequent missions\. The project was -3 -  restructured in September 1995 and SDR 2 million (US$3 million), which at that time was considered a surplus, was canceled\. Subsequently, task management from the Bank side was changed, implementation picked up and it appeared likely that the project, as originally designed, would be implemented\. A supplemental credit was approved in October 1997 (see following section)\. The difficulties with the project had a number of interrelated causes\. Both components expenenced management problems, but the NIAS component (64 percent of project cost) was particularly affected by the lack of leadership, as NIAS did not have a dean for three years\. The MCSAR component (36 percent of project cost) initially moved fast, but with some quality lapses in the implementation of various activities, it then slowed down\. These lapses were largely a result of the reunification of North and South Yemen in 1991\. The merger of the two civil service administrations created new difficulties in developing an effective system of public sector management\. The problem was exacerbated later that year when the country was plunged into economic crisis, due to the return of approximately 750,000 Yemeni workers (out of a total population of 15 million) from Saudi Arabia as a result of the Gulf War\. The country's economic difficulties were further exacerbated by a brief but devastating North-South civil war in 1994\. By this time, the focus of the country's top decision makers was on the priority of national reconciliation, rather than on the more medium-term goal of creating an efficient, modem system of public administration\. Once good progress had been made toward national healing, the next set of urgent issues involved staving off an inminent economic collapse\. Again, attention was focused on crisis management In early 1995, IDA realized that the project design and development objectives were too ambitious in light of Yemen's recent experiences; and that the Government was in no position to embark on ambitious and somewhat politically sensitive civil service reforms even if the project were given more time\. The conclusion was that while the proposed objectives of reforming the civil service, restructuring certain ministries, and steamlining administative procedures were still valid, the range of activities involved could not be accomplished within the scope of this project\. Therefore, the project was restructured and the surplus canceled in September 1995\. Activities such as advising and restructuring up to six Govemment departments or ministries on administrative procedures, performance evaluation, and work classification; and reviewing the organization and functions of nine Government agencies, were dropped\. Under the restructured project, the objectives for MCSAR were modified to concentrate on the following priority areas: a\. Simplifying administrative systems and procedures, to eliminate unnecessary administrative regulations and facilitate the decision-making process\. b\. Restructuring some key ministries, so they could support the economic reform program\. c\. Reforming civil service personnel management, to simplify the procedures governing the intenal mobility of civil servants, identification and redeployment of surplus manpower, and analysis of future manpower needs\. d\. Establishing an integrated, computer-based MIS that would connect MCSAR with other key ministries, thereby enhancing the Government's ability to use and share information\. e\. Conducting four studies: (i) Records Management; (ii) Wages and Salary Structures in Yemen Civil Service; (iii) Jobs Classification; and (iv) Human Resources Management and Personnel Policies\. The output of these studies was intended to provide the needed conceptual foundation for policy reform in these areas\. The objectives for NIAS remained unchanged\. However, achievement of these objectives was found to require additional money (see below)\. -4 -  3\.3 Original Components: Ministry of Civil Service and Administratve Reform (MCSAR)\. The project originally aimed to assist MCSAR in building its capacity for manpower planning in the civil service; formulating new public personnel policies that would enhance the management of human resources; inproving Government orgnmizational structures; and simplifying operational procedures in the pubhc service\. Activities in these areas are described below\. (a) Manpower Development PlanIing\. The expected output of this activity (109 person-months) was a cornprehensive manpower and training plan to have been developed with the help of consultants and the Ministry's own staff, who, after the completion of their own training overseas, would have an enhanced capacity to administer the training programs and monitor their impact\. The staff training planned under this activity was for both long- and short-term training in the areas of human resources planning, manpower statistics, and the assessment of training needs for Government personnel\. (b) Personnel Policy and Administration\. A study of the personnel system (9 person-months) was to have been carried out, which would serve as the foundation for improving personnel policy and administration\. A long-term consultant (36 person-months) was to have been attached to MCSAR's Government Personnel Sector, and assisted by short-term consultants (6 person-months)\. Funds were to have been provided for staff training at the graduate and diploma levels (102 person-months) in jobs classification and grading, staff evaluation and development, and civil service statistics\. (c) Management Information Capacity\. The development of an efficient Management Information System (MIS), including the construction of a new computer center and the provision of related hardware and software, was to have occurred (78 person-months of consulting services and 72 person-months of staff training)\. (d) Government Organization and Operations\. As a result of different efforts under this activity, MCSAR was to have gained the capacity to advise and restructure up to six Government departments or ministries on issues relating to administrative procedures, performance evaluation, and work classification\. To this end, a senior consultant/team leader was to have been attached to the Minister's office (42 person-months), and assisted by other specialists (8 person-months)\. Staff capacity was to be developed through graduate and diploma fellowships (123 person-months) in various areas of public sector management Short-term training was also planned (66 person-months), to increase skills in accounting, financial management, performance evaluation, and organization and methods\. Under this activity, MCSAR's Department of Organization and Administration, in particular, was to have been strengthened so that it could review the organization and functions of nine Government agencies during the life of the project\. Funds were to have been provided for expert services (36 person-months) and staff training (123 person-months)\. (e) MCSAR's Organizational Structure\. A study (3 person-months) was to have been undertaken to assess the adequacy of the Ministry's organization and functions and determine the organizational structure and operational procedures that would best help the Ministry to fulfill its mandate\. The expected output was, a set of recommendations for restructuring, and their implementation\. National Institute of Administrative Science (NIAS), formerly called National Institute of Public Administration (NIPA)\. The objectives of this component were to address the major constraints to NIAS being able to carry out its mandate of training, research, and consultancy for Government agencies\. The activities of this component are described below\. -5 -  (a) Staff Development\. Nine fellowships were to have been offered to staff to enable them to earn graduate degrees overseas, thereby strengthening NIAS's teaching faculty in key programs, including information technology and public finance\. In addition, funds were to have been provided for short-term training (126 person-months) to upgrade the skills of NIAS faculty in public administration, office management, design and organization of training programs, and project management and teaching methods\. (b) Research and Consultancy\. To develop capacity in these areas, the project was to have provided fellowships for staff development in the areas of research and consultancy methods, and management (102 person-months)\.It also provided consulting services (36 person-months) for developing the research program and canying out consulting assignments in four public agencies/projects\. (c) Long-term Training Plan\. Expert services (10 person-months) and staff training (4 person-months) were to have been provided to develop NIAS's capacity to prepare a long-term training plan, and to guide the formulation of programs and curricula that could meet changing demands for training, research, and consultancy services\. (d) Equipment and Facilities\. The project was to have provided funds to expand the existing physical facilities at Sana'a headquarters to address the issue of space shortage, as well as funds to replace the inadequate rented space of the regional NIAS branch at Ibb with a new building and faculty housing\. (e) Teaching Support\. The project was to have provided substitute teachers (540 person-months) to teach courses in office management, accounting, public administration, and economics, to enable NIAS operations at the three regional branches and at Sana'a headquarters to continue while staff were being trained\. 3\.4 Revised Components: To reinforce MCSAR's regulatory and administrative function, the restructured project focused on: (a) streanilining administrative systems and procedures by eliminating unnecessary administrative regulations that were inhibiting the decision making process; (b) restructuring and/or reorganizing some key departments in order to facilitate economic reform; (c) reforming the civil service by simplifying the procedures governing the internal mobility of staff, identification and redeployment of surplus manpower, and analysis of future manpower needs; and (d) enhancing computer capabilities and developing an integrated, computer-based MIS for key ministries to be selected during the course of implementation\. For NLAS, the restructured project focused on: (a) improving its capacity to design and deliver public administration and civil service training programs; and (b) strengthen its research and consultancy capabilities in priority areas of public administration\. For both MCSAR and NIAS, the project also included civil works and related equipment and furniture (paras\. 12 and 13)\. Soon after the cancellation of SDR 2 million, NIAS contracted the civil works for expansion of the Sana'a campus\. To complete the remaining activities, however, the project required an additional US$1\.54 million to cover a cost overrun caused by several factors beyond the borrower's control: (a) a sharp decline in the value of the SDR, which reduced project funds by US$0\.79 million; (b) extra work needed to complete the foundation of the Ibb campus, repair flood damage, convert the existing Ministry building to house the computer center, and construct a new building and training facility for the Ministry, although the original plan included only the computer center for MCSAR; (c) underestimation of the cost of equipment and furniture for NIAS's new facilities, as well as for the new MCSAR office building and training facility; and (d) a cost overrun in the training programs\. It should be noted that the DCA amendment of January 1996, - 6 -  incnaasing IDA financing of civil works from 51% to 90%, also contributed to the need for additional IDA funcls\. IDA agreed to continue its support for the completion of the remaining activities, and a supplemental credit for SDR 1\.13 million (US$1\.54 million) was approved in September 1997\. The clos:ing date was extended twice, until June 30, 1998 because key components including the fellowships program were still incomplete\. A third extension to December 31, 1998 was granted when financial mismanagement was discovered, to enable investigation for alleged misappropriation of funds before the PIUs were disbanded\. 3\.5 Quality at Entry: Not formally assessed\. However, in retrospect, the project was too ambitious for a country with ancient traditions and slow change\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Although project restructuring helped to accelerate implementation, MCSAR's leadership continued to be distiacted by the issues of unification, civil strife, and national healing\. These circumstances significantly affected the degree of attention paid to the project's objectives and activities\. In addition, even after some poliiical stability was achieved, the national leadership continued to focus on crisis management in an attempt to stave off an imminent economic collapse\. Thus, although the four studies and the local and overseas training programs for MCSAR were completed, the level of achievement of project objectives was very' modest\. For NIAS, which remained without a Dean for more than three years, the failure to fulfill the project's development objectives-strengthening of internal systems, strategic planning, and program development-was even more disappointing\. In addition, despite the procurement of certain equipment, and the completion of civil works, various staff training programs, and the Long-term Training Plan study, the financial mismanagement during the last year (see paras\. below) cast a pall on the NIAS component, which overshadowed these accomplishments\. 4\.2 Outputs by components: Mimnistry of Civil Service and Administrative Reform (MCSAR) The simplification of administrative systems and procedures did not take place within MCSAR and other ministries, because MCSAR was unable to attract the expertise required and many staff members who needed to be involved in the process were overseas in training programs under this project\. The restructuring of some key ministries also did not occur, because some of the ministries proposed for the exercise such as MOPD and Education, resisted the idea and MCSAR did not pursue the matter further with higher authorities\. In regard to the reform of the management of civil service personnel and the identification and redeployment of surplus manpower-the basic requirements for these reforms were not in place, so this objective, as well, proved too ambitious to achieve\. The computer equipment, although outmoded almost as soon as it was installed, is being well utilized for the general purposes of MCSAR\. It is well suited to handling MCSAR's MIS, particularly as it applies to the salaries and wages of MCSAR's own personnel\. However, despite the improvement in MCSAR's MIS capacity, the intended linkage of the Ministry with other agencies never occurred\. The computerization of personnel records has covered only about 30 percent of the civil service staff due to a lack of resources for data collection and entry\. IDA's suggestion to contract this activity outside MCSAR did not materialize, as MCSAR insisted on carrying out the activity in-house\. Later, it was decided that this activity could be - 7 -  undertaken under the new initiatives for civil service reform which, with IDA assistance, were under preparation by the Government\. Despite the fact that all Ministers who served during the life of the project up until 1997, expressed their commitment to the project's objectives, MCSAR's work methods did not change, and the Ministry did not define its mission as one of reform until a new Minister took office\. Law No\. 19 of 1991, which defines the functions and responsibilities of MCSAR and was the target of reform under this project is still in force\. Under this law, performance evaluation and the reward system in the civil service is still based on seniority rather than merit\. In addition, MCSAR's administrative procedures have not been simplified, and decision-making remains solidly centralized\. The inputs for civil works and goods did not fully achieve the original project objective of creating a computer center to provide a modern information and communication environment This function was assigned to a converted top floor in the old building, while the new facility now serves as the Ministry's headquarters providing excellent training facilities and a records center\. Training served to increase the knowledge of participants, but has had no impact on their job performance with the exception of those trained in the computer field, who found that taining did improve their performance\. In general, training was not designed within a strategic framework of MCSAR's own development needs, which remain undefined to date\. The training selection method was deficient, as many officials were sent to training programs in subjects unrelated to their jobs\. For some, the level of training was either too simplistic or, for those low education levels, too complicated\. The Jordan Institute of Public Administration (JIPA), which evaluated the training, reported that more than 30 percent of MCSAR's trainees were unfit for the programs, and that the groups were seldom homogeneous in terms of educational background or knowledge of the subject matter\. In some cases, the training period was too short, particularly in the case of the 9 programs organized by the University of Jordan, each of which entailed only 30 hours of trining in a 2-week period\. Such short duration was insufficient for the complex subjects to be covered\. No evaluation has been made of these programs, but participants reported that treatment of the subjects often stopped at generalities\. Thefour studies conducted under the MCSAR component have been presented to the Ministry by the PIUJ but have not been seriously discussed\. The results were disappointing; the four studies addressed subjects that are interdependent, and their outputs could have fed into each other as a coherent blueprint for policy reform\. However, the studies were neither designed nor conducted in a coordinated manner\. Each study team worked independently and did not discuss its work with the other teams\. The local teams were disbanded as the tasks were completed, and no follow-up was carried out\. Three of the four studies were either too theoretical or irrelevant to the Yemeni context by the time they were completed, while the fourth, the Records Management Study, made some valuable recommendations that the Ministry ignored, despite the urging of IDA\. The study on manpower planning was not applicable to the Yemeni environment\. The study on wages and salaries focused on the advantages of the present wage and salary policies in the civil service and suggested only minor changes to the status quo, despite the urgent need for a review of problems caused by the present policies\. The study on jobs classification contained useful general information about jobs classification, but failed to apply its recommendations to the Yemeni context\. The study on records management, the only study that was satisfactory, described the problems of MCSAR's records management system and suggested important changes in records units organization; document maintenance; treatment and handling of confidential correspondence; methods of preservation and archiving of records; procedures for incoming and outgoing mail, etc\. -8 -  National Institute of Administrative Science (NIAS) The project objectives were not entirely realistic for the conditions in Yemen at the time of project preparation\. Furthermore, as there was absence of leadership at the Institute, even the realistic objectives were not fully realized\. Because NIAS lacked a Dean for three years, and considering all the other factors that affected the national political and economic environment, the Institute's management was not fully committed to the project, and did not exercise guidance or control of the PIU\. This made it difficult to succeed in developing NIAS's long-term institutional capacity\. Even after project restructuring, most attention went to civil works and hardware\. Little was done to improve the Institute's internal management and efficiency, and the overseas training programs lacked strategic planning, with many candidates undertaking subjects that were irrelevant to NIAS's priorities\. Scant attention was paid to strengthening intenal systems, strategic planning, and program development, even after the new Dean was appointed\. The negative environment that prevailed at NIAS was also the result of the absence of 172 faculty members trained either under this project or under two previous IDA-financed education projects\. These staff members received salaries, yet their presence was not required and they were often not held accountable for their activities\. Some have formally left the service of NIAS, while others occupy positions in public and private organizations, yet most remain on the NIAS payroll\. Virtually no training activiies took place in 1998, nor were any meaningful research or consultancy activities conducted during the life of the project\. An expatriate consultant was placed in NIAS to initiate research activities, but spend most of her time as a substitute for faculty away on training\. At the time of the ICR mission there was an air of mistrust toward NIAS due to the absence of a clear mandate\. The Ministry of Finance sfill considered NIAS to be only a center for secretarial training and steadily reduces its budget\. The Ministry also refused to approve any salary restructuring for NIAS staff, despite Cabinet decisions to do so in 1994 and 1997, and despite NIAS staff claiming equivalence with university faculty and decrying their own low salaries and status\. With the civil service reform momentum supported by an IDA project, the situation has since improved\. In regard to staff development, more than US$2\.2 million was disbursed for training NIAS staff by the project closing date\. Of the 39 staff members who benefited from long-term training, 6 studied in the United States, while the remaining 33 were placed for graduate study in Egypt and Jordan\. Of those who received fellowships in the United States, five returned to Yemen but all eventually left the service of NIAS\. The fellows who were placed in Egypt and Jordan overstayed the normal period needed to obtain their diplomas\. Most stayed for four years (some stayed even longer), studying general subjects not directly related to their work at NIAS\. This poor outcome can be attributed to the lack of supervision, as candidates were not held accountable for their course programs and there was no evaluation of the candidate's academic performance\. Moreover, there were delays in the disbursement of student allowances, causing unnecessary hardship to the students\. This was eventually resolved by contracting supervision of the programs to an international agency, which also provided some guidance to the candidates and ensured timely receipt of their allowances\. In the area of staff development and training, the IDA supervision missions should have been more thorough and should have verified the information\. The, short-term training in Jordan (60 staff members) was relevant to NIAS's needs, and participants reported improvement in their performance\. Local short-term training for NIAS staff in the branches was also useful, and the subjects addressed their needs\. However, the study tours were used to reward particular individuals in the Ministry of Planning and Development (MOPD) and the Central Office of Control and Auditing (COCA), rather than to enhance the skills of NIAS personnel\. In addition, the number of countries visited was excessive, and there were no specific plans to visit relevant institutions during those trips\. -9-  The budget allocated to expert services was under utilized\. Three expatriate instructors were hired for periods varying between 12 and 18 months but they were not involved in activity planning or improving internal efficiency, nor did they develop new training materials, as had been intended\. The research specialist did not conduct any research, although one research project was designed but never implemented\. The previously mentioned defection of staff and the prevailing low morale hampered both innovation and productivity at NIAS\. The Long-term Training Plan of Civil Service was finalized in 1999 after an 18-month delay due to a payment dispute (see paras\. below) between NIAS and the contractor, the Hague's Institute of Social Sciences (ISS)\. The Government agreed to pay the dues, although actual payment was delayed until early 2002\. The report presents a sound blueprint for NIAS's future organization, mandate, and its role in the planned and urgently needed civil service reform; however, the plan still needs to be made more relevant to the needs of NIAS and Yemen's civil service\. 4\.3 Net Present Value/Economic rate of return: Economic rate of return was not calculated\. 4\.4 Financial rate of return: Financial rate of return was not calculated\. 4\.5 Institutional development impact: Overall institutional impact was mimmal\. MACSAR and NIAS benefited mainly from hardware (buildings and equipment) and it would depend how these facilities would be used in the future to improve operation\. But, technical assistance and staff development efforts failed\. They were poorly coordinated and implemented piece meal and out of synch with each other\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Some of the factors affecting the project were beyond the control of the Government, which found it necessary, throughout the life of the project, to focus primarily on the urgent issues of security and macroeconomic stability\. The project was therefore implemented in the absence of political attention and leadership, with the PIUs at both MCSAR and NIAS having no guidance or supervision\. Implementation was reduced to a series of mechanical acts, without regard for the project's broader development objectives\. 5\.2 Factors generally subject to government control: Even when the project was restructured and the objectives made less ambitious, no managerial mechanisms were put in place, at either MCSAR or NIAS, to establish standards for quality control\. In the absence of such mechanisms, poor decisions were made concerning a number of important issues, including: (a) selection of trainees, training design, follow-up, and the evaluation of trainees; (b) selection and performance of consultants; (c) procurement and use of equipment, furniture, and vehicles; (d) implementation and follow-up of studies; and (e) preparation of construction documents and supervision of civil works\. There was no accountability for results, with the two PIUs simply blindly processing requests for purchases, payments, and routine work, at times even sending payments to the wrong accounts (see below)\. -10-  5\.3 I'actors generally subject to implementing agency control: Project implementation was also negatively affected by financial irregularities, which were revealed when a contractor complained to the Resident Mission that he had never received his payment, which had been made directly by IDA\. Upon investigation, IDA discovered that the fimds were diverted into another accoumt at the Commercial Bank of Yemen\. The Resident Mission reported this to the Govermment, which immcdiately launched its own investigation\. An audit by COCA also revealed several violations and irregularities in the use of NIAS accounts\. In December 1998, IDA retained the services of an independent auditor, Allied Accountants (AA) of Jordan, to examine the accounts\. In the final reconciliation of the Special Account (US$600,000), the Loan Department has disallowed about US$116,000 (US$69,000 that was diverted outside the project and about US$47,000 due to inadequate documentation)\. The Government refunded US$68,853\.66 and US$11,904\.86 to IDA in year 2000 and early 2002 respectively and submitted eligible documentation for US$35,125\.50 at the end of 2000\. Subsequently, IDA proceeded with the direct payments to two suppliers which were still pending at the time the credit closed\. 5\.4 Costs andfinancing: The significant differences between appraisal estimates and actual costs are due to changes in project financing\. Initially, the Government was expected to finance 49 percent of civil works and 80 percent of local training\. During project implementation, it became apparent that the Government would be unable to raise the necessary counterpart funding; therefore, IDA agreed to increase its financing of civil works from 51 to 90 percent\. Training took place in Yemen, but it was conducted by the Jordan Institute of Public Administration (JIPA), and was, therefore, 100 percent financed by the IDA credit\. The foreign costs include indirect foreign exchange components\. Local costs, as in the case of civil works, incluide payments in US dollars\. Civil works contracts signed after 1995 (for NIAS facilities) were denominated in US dollars and financed at 90 percent by the IDA credit\. The 10 percent balances were paid by thle Government in Yemeni rials converted at the time of payment at the rate set by the Central Bank of Yemen (CBY)\. The older MCSAR contracts were more complex and were based on the following formula\. IDA financed 90 percent of the contract, with 40 percent of the payments converted to US dollars at the rate of YR12\.02 to the dollar; and 50 percent of the payments were paid in Yemeni rials and charged to the credit at the CBY rate at the time of payment\. The remaining 10 percent was paid by the Government in Yemeni rials\. These arrangements increased IDA financing requirements\. The Govenmment share was comrrspondingly decreased\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Despite the failures of this project, and now that political stability has been established, there is strong support in Yemen to reform public administration and improve the system of governance\. This will require enhanced attention by executive agencies, particularly MCSAR and NIAS, to make use of, and build upon, the skills and knowledge acquired through this project\., Under new administrations, MCSAR and NIAS have now changed and can provide the leadership that was lacking during project implementation\. To that end, the Government is seeking additional assistance to improve public sector management\. It has obtained financial support from the United Nations Development Programme (UNDP) under grant funding for a governance project, and prepared an IDA-financed Civil Service Modernization Project, which was approved by the Bank's Board in May 2000 and is now effective and under implementation\. - 1 1 -  Supervision performance varied at different stages of project implementation\. It was too casual at the beginning and paid little attention to the lack of progress in key Government commitments for reform\. Supervision intensified after the mid-term review, when IDA responded in a timely manner to the need for restructuring\. As a result of improved supervision during the last two years, the borrower became more engaged, and progress and disbursement performance improved significantly\. These effort ensured the completion of key components such as the new NIAS branch at Ibb, the NIAS extension at its Sana'a campus; the overseas fellowships program, the new Computer Center, MCSAR's Headquarters; and five project studies (four for MCSAR and one for NIAS)\. 6\.2 Transition arrangement to regular operations: Administrative reform and performance improvement are part of a continuous process that is intrinsic to sustainable development\. In recognition of this, the Government is interested in pursuing the objectives of this project under new activities\. The ongoing dialogue has been motivated by the acute awareness that improvements in public management, public services, and institutional strengthening at the central, regional, and local levels, are imperative for achieving economic and social development and political stability\. The project's development objectives remain valid; however, future operations should incorporate a strong mechanism to ensure quality through proper monitoring and continuous evaluation\. The objectives should be focused on the key issues of reform and policy management in public agencies, with emphasis on reinforcing the institutional capacity to effectively implement development activities and deliver improved public services\. The human resources developed through previous training programs would be useful assets for future activities, particularly for the Civil Service Modernization Project (see para\. 6\. 1)\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: During project preparation, IDA's identification of key project elements was appropriate; however, there were weaknesses in the assumptions and expectations on which the project was based, especially regarding the sustained interest and involvement of key policymakers\. The project was certainly also overly ambitious for a developing country with strong ancient traditions\. Appraisal was flawed in a number of respects, which created implementation problems and led to the need for additional IDA resources\. Some cost elements were grossly underestimated\. For example, expecting the Government to finance 49 percent of the civil works and 80 percent of other local expenditures was unrealistic and points to poor judgment on the part of the IDA project design team\. 7\.2 Supervision: Supervision performance varied at different stages of project implementation\. It was too casual at the beginning and paid little attention to the lack of progress in key Government commitments for reform\. Supervision intensified after the mid-term review, when IDA responded in a timely manner to the need for restructuring\. As a result of improved supervision during the last two years, the borrower became more engaged, and progress and disbursement performance improved significantly\. These effort ensured the completion of key components such as the new NIAS branch at Ibb, the NIAS extension at its Sana'a campus; the overseas fellowships program, the new Computer Center, MCSAR's Headquarters; and five project studies (four for MCSAR and one for NIAS)\. - 12 -  IDA also performed well in canceling unfeasible components and their corresponding credit allocations, and in later responding favorably to the request for supplemental funds when implementation of the NIAS conmponent picked up and it became apparent that the remaining funds would not cover commitments and projected expenditures\. IDA's agreement to finance a higher percentage of the civil works was also appropriate\. In addition, IDA performed well in discovering and halting the mismanagement and misappropriation of project funds, albeit very late in the implementation process, and in insisting on auditing project accounts, which revealed significant weaknesses in the internal controls, which the Government is currently addressing for future projects\. An independent audit financed by IDA also provided an objective evaluation of financial management and project implementation issues\. This analysis will\. not only help the Government investigate the suspected misappropriation of funds but will also provide the basis for reforming the financial management of future projects\. 7\.3 Overall Bank performance: The World Bank office in Sana'a, with its local Arabic-speaking staff, had not yet been established in the: early days of project implementation\. While supervision became more effective when the Field Office was established in 1995, its absence for the first five years of the project allowed many problems to go unnoticed for a very long time, with members of the supervision missions simply having to accept the information given to them by the PIU managers, who did not volunteer to translate certain negative: outiomes that were well-documented in Arabic reports\. The fact that the PIUs did not share these reports contributed to IDA's lack of knowledge of day-to-day operations\. It is also evident that training, which absorbed more than one third of IDA credit, was carried out without the benefit of IDA supervision and guidlance\. The same was true of the selection and performance of consultants\. More efficient supervision could have averted many implementation problems, and increased the chances for the project to achieve its development objectives\. Borrower 7\.4 Preparation: The borrower's ownership of and interest in the project was strong during design and negotiations; hovwever, events forced a shift in focus toward salvaging the political unity of the nation, protecting the economy, and resolving the social crises created, first, by the aftermath of the Gulf War, and then by the period of civil strife\. Without the benefit of solid political control and guidance, the attempts of the previous Minister of the Civil Service to unify the PIUs under his control, as proposed by IDA missions, weie short lived, and were abandoned when he left office\. 7\.5 Government implementation performance: The Governments performance was marginal and was uneven throughout project implementation\. Towvards the end of the Project, new administration became more seriously involved, but it was already too late to correct already implemented programs that were poorly coordinated, resulting in minimal benefits\. This was particularly valid for training and institutional capacity building efforts\. Another weakness inl government performance was total absence of supervision of the two implementing units\. They were left completely on their own and although intentions were good in some respects neither had the knowledge or the expertise to make policy decision that were critical to the success\. of the Project\. IDA wamed against this weakness and suggested that the two implementation units be merged under a closer supervision of the Ministry\. But, this recommendation was never implemented\. - 13 -  7\.6 ImplementingAgency: In the midst of these numerous crises, the PIU managers were entrusted with a high level of autonomy, and they distanced themselves from the two institutions they were supposed to serve\. Moreover, there were no checking mechanisms to ensure that the management actions taken would benefit the institutions in general\. Initiatives for civil service reform by MCSAR bode well for the future, as long as dialogue on the reform issues addressed by this project is continued, and the investments in training and civil works made under this project are well utilized\. This is particularly important in the case of NIAS, the lessons of which need to be carefully considered so that the same mistakes are not repeated in future projects\. 7\.7 Overall Borrowerperformance: The project's major objectives were not satisfactorily achieved, as the expected outcomes in both project components were only partially realized\. The policy improvements planned for public service management, ministerial reorganization, computerization of civil service personnel records, and improvements in civil service training and research activities, remain unfulfilled\. The four studies carried out for MCSAR, deemed necessary to provide a coherent foundation for activities leading to performance improvements, have been of limited value\. Although civil works were completed, the buildings either remain under utilized (NIAS, because of the lack of furniture) or are being used for purposes other than those originally planned (MCSAR's computer center)\. The equipment and vehicles procured are not being used to serve the purposes for which they were obtained\. Staff development is the project's only positive achievement, despite the deficiencies in many activities and the fact that many of those trained (particularly in NIAS) have left their jobs\. The project's outcome is largely a function of the circumstances under which it was implemented\. Had there been a stable political, social, and economic environment, and had there been more supervision on the part of IDA and the Government of Yemen, the project may have achieved its objectives\. Government ownership of the project was clear at the beginning, but external circumstances caused ownership to deteriorate\. However, the authorities' renewed interest in public management and reform may now make it possible to effectively utilize the Records Management Study, as well as the staff skills acquired through the various training programs\. 8\. Lessons Learned Despite the fact that the project was negatively affected by factors not under the borrower's control, and that the project's reform and development objectives remain valid, the project produced several important lessons for implementation and supervision: (a) Administrative reform projects require close supervision and continuous dialogue and adaptability\. In countries where traditional administrative practices exist, change is very difficult\. Projects seeking to achieve performance improvements and behavioral change at both the policy and executive levels need to be closely monitored and continuously evaluated\. While such responsibility rests primarily with the borrower, IDA should provide the needed assistance and advice to ensure that targeted reforms are accomplished\. This is particularly important in countries with very limited capacity\. (b) Staff development and training must be carried out in the context of a strategic plan that takes into account both institutional needs and the career enhancement of the individuals concerned\. These factors should influence the training design, content, and duration\. Criteria for selecting candidates should be transparent and take into account the ability of the individual to benefit from the training\. Much more - 14 -  could have been accomplished through trainiing programs financed under this project if there had been a better training selection process\. It may even be relevant to include specific stipulations in credit or loan agreements regarding training and the selection process, to ensure maximum benefit from proceeds allocated for staff development\. The Bank's focus of supervision gave low priority to training activities and reported progress in numbers without further analysis on the relevance or quality of training\. (c) The capacity for project management needs to be assured during the project design phase and should be operational at the onset of project implementation\. A key factor in the success of a project is the adequate capacity for its implementation\. Standards of managerial performance and decision making authority should be clearly defined and transparent\. A PIU should be established during project design, have clear terms of reference and clear responsibility to report to higher ups, and be involved in all phases of clesign and negotiations, to allow its managers to identify with the project and to own its content and objectives\. (a) Beneficiary institutions need to be involved in project implementation\. The borrower should not relinquish all project matters and management to technical PIUs, which are not equipped to make policy decisions\. Although the use of PIUs which are able to attract technically competent staff-is a practical approach to managing day-to-day activities management arrangements should also include mechanisms that effectively engage the beneficiary institutions when critical policy decisions and capacity-building efforts are involved\. (e) Supervision missions should include staff (especialy local filed office staff) with language abiities, who can examine records in the borrower's official language and comfortably engage officials in dialogue in their own vernacular\. In the case of this project, many problems could have been avoided had supervision missions included an Arabic-speaking member\. 6) Physical assets should be managed and properly maintained through a systematic inventory control system\. At present, Yemen has no system to ensure that assets acquired through public funds are installed and used as intended, and properly maintained\. (g) Soundfinancial management and internal controls are criticalfor curbing corruption and the mismanagement offunds\. Despite the excess control and scrutiny - of the project by MOPD and more recently by MOF, there is still risk of financial mismanagement in future projects\. The current control systems need to be reexamined, and more effective controls introduced, without necessarily creating more bureaucracy\. (h) There is a need for both internal and external audit functions\. COCA should be assigned an internal rather than external audit role, and external audits should be assigned to independent auditors\. It should be noted that COCA's external audits of the project did not detect that the NIAS PIU maintained two illegal accounts at the Commercial Bank of Yemen and was able to transfer funds from the Special AccDunt into these accounts\. This points to weaknesses in the internal approval and payment processing functions at both MOPD and the Commercial Bank of Yemen\. Further analysis and reforms are needed to prevent similar problems in the future\. 9\. Partner Comments (a) Btorrower/implementing agency: Letter to the Minister of MCSAR and Summary Report Prepared by a Special Committee appointed by the - 15 -  Minister (Reality Evaluation Committee) is presented below unedited\. B\. Eng\. Muhammad Ahmad Al-Junaid Minister of Civil Service and Administrative Reform Greetings, On the basis of Ministerial Resolution No\. (157) of 1997 concerning the constitution of a Committee to evaluate the reality of the National Institute of Public Administration and the Institutional Development of Public Administration Project, the Committee has the pleasure to submit to your excellency its report on the results that it has arrived at, despite the difficulties that impeded the accomplishment of the task at the appointed time\. The most important of these difficulties were:- * Non-co-operation of some officials of the Project with the Committee in furnishing some of the documents and attachments which the Committee considered it necessary that they be furnished\. * The co-incidence of the Committee undertaking its tasks with the Central Organ for Accounts and Audit undertaking the audit of the Project's accounts - Component [B] of the National Institute, and the observations and violations that it exposed, the most important of them being the embezzlements which have been incorporated in the report submitted to you by the Organ and currently under the consideration of the competent judicial quarters\. * The change effected to the Institute leadership and the drop-out of some medium-level leaderships from the Institute, in addition to the constructions works that were being executed at the time, led to the dispersal of the documents and difficulties in obtaining them with facility\. Hereunder are the following:- A summary of the most important contents of the detailed report (attached): First: Component (A) subordinated to the Civil Service: I\. Project Management: Two managements have been witnessed by the Institute during the period from since its founding in 1989 until 1997\. There is nothing that evidences that the two managements undertook management of the Project and utilization of the credit competently and effectively to benefit from the external funding to modernize the administration in the administration organ according to the objectives of the agreement The Committee discovered that the Project management had not undertaken some tasks and responsibilities provided for in the credit agreement and the ministerial resolutions concerning the formation of the Project management (details in the appended report)\. 2\. Civil Works: These were represented by the construction of an engineerily designed building which was prepared for the purpose of being used by the Computer Unit\. The cost of the building, along with paving of the Ministry compound and creating a car park roof until 31/12/1997, and on the basis of data furnished to the Committee, amounted to US$ 512,966\. The building and its furbishings were not utilized in an exemplary manner nor was it benefited from for the purpose for which it had been constructed\. It was used as an office for the Minister, a meetings haUl and some other departments\. The third floor of the old building was set for the use of the Computer Unit after - 16 -  its arnendment at an additional cost of US$ 97,000 and YR 440,000\. 3\. Equipment and Machinery: Computer Unit: The Higher Tenders Committee gave its approval for the import of a computer unit to operate an inter -linked and integrated data sytem for administration in the civil service, with technical specifications suited to the objectives of the credit to develop management in the administration organ in the Yemen, and that at a cost of US$ 691,354\. The approval contained many conditions, among them a seven years maintenance guarantee within the contract price\. However, the import was made for another computer unit with amendments to the core of the original specifications, which rendered the original specifications disfigured and full of faults\. Moreover, the unit supplied according to the amendments is considered to be of backward technology\. Furthermore, the amendments entailed that the state undertake payment of 10% of the value of the supply conbtact annually for maintenance\. Thus, the costs expended for the supply of a computer unit and amounting to US$ 486,518, and without the cost of maintenance, is considered to be a waste of public funds, as has been underlined by the World Bank in one of its correspondences to the Project management\. It should be noted that the said unit (the computer) has not realized linkage and integration of data in the civil service, despite its existence and operation since 1994 (more details in the attached report)\. Furniture: Most of the furniture supplied is suited to the use of the computer\. The cost of the furniture supplied until 31/12/1996 and according to what is shown by the Project registers and statements amounts to US$ 362,783\. It has appeared to the Committee that what has been received on a temporary basis is in the value of US$ 309,662\. No technical inspection has been carried out by the committee formed for the purposes of technical inspection and receipt according to specifications as the committee was not enabled to peruse the tender documents (specifications) to carry out the technical inspection and verification\. The furniture supply measures were disfigured by some violations which have been clarified in the attached detaiiled report\. 4\. Training and acguaintance visits to abroad: Short and medium term traininx: Until 31/12/1996 the amount of US$ 664,673 has been expended from the credit on short and medium-term training\. From the attachments that have been furnished to the Committee it appears that no benefit has beent made from the funding allocated for training for the following reasons:- * Random selection of training programs without prior study to determine the spheres and types of programs required to serve the Project objectives\. * Absence of fundamentals and criteria (according to the contents of the Agreement) for the selection of triainees, which led to the despatch of employees with low qualifications, such as less than the preparatory stage certificate, and in spheres that require university qualifications\. It should be noted that - 17 -  the Agreement made high qualifications a condition for despatch to abroad for training\. There also was repetition of despatch of some employees for more than one time and, sometimes, despatch of some employees was for the purposes of treatment or the improvement of their living conditions\. Acquaintance visits to abroad: An amount of US$ 377,000 has been expended to cany out visits by six groups covering 28 persons, from among the leaderships of the ministry and the Ministry of Planning and Development to some European and Middle Eastem countries\. There are no reports clarifying the extent to which there has been benefit from such visits and their yield\. Furthermore, the Committee was not enabled to peruse all the attachments and the supporting documents pertaining to the disbursement of the amount referred to above\. The purpose was to verify the undertaking of the acquaintance visits to abroad by those covered by the six groups as regards duration, travel allowances and the airlines used, as well as the other expenses and transport whose cost amounted to US$ 56,696 and the extent to which such expenditure was legal, especially as travel allowance for each person was disbursed in excess of what has been determined by the Prime Minister's resolution concerning allowances\. Second: Results of evaluation and audit of the Institutional Development Project: Chapter two: 1\. Results of the evaluation of Phase One of the Project's life: Its duration is seven years extending from 1989 until June, 1995 and constituting 88% of the Project's life as detemiined by the Agreement The following has become clear:- The process of implementation and utilization of the credit amount during this phase proceeded very slowly as the ratio of the amounts ufilized during this phase amounted to 24% of the allocations made from the credit\. This matter makes clear the failure of the Project management in utilizing and implementing the Project components during this Phase and, consequently, not realizing the objectives targeted by the Project and that despite the elapse of seven years of the Project's life which produced negative effects\. These are as follows:- The quarter granting the credit excluded the amount of US$ 2,458,900 from the credit thereby depriving the country from benefiting therefrom\. Having the country bear interest on utilization fees calculated at the rate of 0\.5% on the approved amounts that were not utilized\. Results of evaluation of Second Phase of the Project's life: This phase extends from 1995 until mid-1998 after extension of the withdrawals period twice each year\. It has become clear that the process of implementation of the Project components during this Phase proceeded in a good manner, but was characterized by numerous excesses and violations, which will be reviewed in brief here and in a detailed manner in the detailed report and that according to the primary components of the Project as follows:- - 18 -  2\.1 Civil Works (Buildings!: The;e are represented by the execution of the following tenders:- * Completion of the construction of the second floor, the registration building, the guard rooms and the surrounding wall of the Institute building in Sana'a\. * Institute buildings and teachers' housing in Ibb\. The process of implementing these buildings was characterized by deviations and excesses as is shown in detail in the detailed report, and which are summarized as follows:- 1\. Presence of great aspects of shortcomings in the process of preparing studies, drawings, specifications and the primary bills of quantities which were prepared for the execution of the two tenders\. This is clear from the emergence of problems at the outset of implementation, in addition to the effecting of numerous amendments to the specifications of the two tenders upon execution\. 2\. The presence of aspects of weakness and shortcomings in the process of supervision over the execution of these two buildings\. It should be noted that the preparation of drawings and specifications, as well as the process of supervision, was undertaken by the Project management alone and the Ministry of Constructions was not invblved therein according to the governing laws\. 3\. The Project management undertook execution of some works at the Institute building in Sana'a at costs magnified by 100% over the prices of execution when compared with the execution prices adopted by the Ministry of Constructions (as a legal referral) and for the same works executed on time\. 4\. TFhe Project management undertook disbursement of amounts to the Sana' Institute building contractor within the expended amounts for works not executed in reality\. The total amount that could be monitored is US$ 15,251\. 5\. T7he presence of a number of technical observations on the works executed in the Sana'a and Ibb buildings\. 6\. The Project management creating problems in a willful manner with the contractor executing the Ibb buildings tender\. 2\.2 Eguipment\. furniture and motor vehicles: 1\. Evaluation of activities pertaining to effecting procurement operations: Non-preparation of procurement requisitions, specifications, and bills of quantities in a sound and precise manner which resulted in the Project management not effecting a number of amendments to some of the procurement tenders after signing the contracts\. Non-recording of most of the procured assets, such as vehicles and so on in the warehouse registers, whether at the time of stocking or disposal\. The Project management failing to take any measures against suppliers who delayed the delivery process, and in particular the computer hardware\. Fornation of all procurement committees (specifications committee/analysis committee, etc\.) with the joint membership of the same employees\. 2\. Evaluation of activities of actual utilization of assets: From the reality of the disbursement operations related to equipment, furmiture and motor vehicles which were procured it became clear that these were being utilized by the Project alone\. This is contrary to what is supposed of the Project management preparing these potentials and handing them over to the competent sections at the Institute, and in particular the computers and the motor vehicles, etc\. to realize benefit - 19 -  therefrom\. 3\. Evaluation of warehouses used by the Project: * Irregularity of the process of utilization of warehouse registers and the unsound measures of stocking and disposal of the warehouse contents, in addition to the non-tallying of corresponding warehouse registers\. * The head of the procurements sections at the Project undertaking the work of the store-keeper in addition to his participation in all of the procurement committees\. * Appearance of deficits in the contents of the warehouses of the Project in respect of 40 types\. * Appearance of differences (by increase) in the contents of the warehouses for twelve types, which shows the random dealing with the warehouses contents in respect of disposal and receipt on the basis of oral orders and in a personal manner\. * The absence of a number of procured types, such as equipment, motor vehicles, etc\. in the actual inventory lists\. 2\.3\.d - Consultancy services and studies: A - d : Experts: * Absence of prior planning and programming on sound fundamentals and criteria for the summoning of experts with whom the Project had contracted\. * Contracts were concluded with experts who were not of competence allowing to benefit from them, especially as some of them were ordinary employees in the Yemen\. * Non-adherence of the experts with the contracts concluded with them\. * Not benefiting from the experts in training the local counter-parts\. * The occurrence of some malpractices in the disbursement of the entitlements and privileges of such experts\. 4\. Study on the training requirements in the civil service: This study was executed by the Social Studies Institute in the Netherlands\. It has become clear that the Project management transferred the amounts of a number of withdrawal requisitions expended from the value of the study contract to a special account in the name of the Project opened with the Commercial Bank branch in Taiz Street\. The total amount transferred is US$ 97,151\. 2\.4 Scholarships\. traiing and field visits: 1\. Scholarships and Higher Studies: It has become clear that a number of those despatched abroad have completed their studies and did not return to work at the Institute according to the objective of despatching them\. It has become clear that some of those despatched for study have continued there, even though the period necessary and determined for them to complete the study has ended, and their financial allocations continue to be disbursed without any knowledge of their stand\. The Project management and the Institute have failed to undertake continual follow-up of annual reports on the students in respect of regular educational attainment first by first\. The Committee has reservations as regards the disbursement of the students' entitlements through AMIDEAST owing to the unavailability of documents\. -20 -  2\. Short-term training courses abroad: * It has become clear that in the implementation of some of these programs the aid of some specialist establishments was enlisted and many exaggerated costs were paid to them, even though these programs could have been executed by the Institute itself\. * The monopolization of the execution of several programs by a single quarter (the Administration Institute in Amman), although the said Institute has not adhered to the execution of the items of the contract concluded with it\. 3\. External field visits: * It has become clear that there was gross manipulation of the field visits program (Germany, Belgium, Holland) in respect of the third group, be that as regards travel allowances, tickets or the non-travel by all members of the group as a whole\. * It has become clear that there was fraud committed in the program related to attendance of the seminar on the future of special education held in Cairo, as travel allowances were disbursed to the members of the groups without their actual travel\. 2\.5 General Observations: Absence of a sound filing system at the Project\. Irregular entry and registration operations in all financial, accounting and warehousing registers\. The relevant supervisory quarters' failure to undertake their control roles before approval of disbursements operations of the Project, which implies the collusion of these quarters, such as the Ministry of Planning, the Ministry of Finance and the Central Bank\. Third: Institute Properties There was a review and evaluation of the istitute properties which were purchased from its budget and the credits and aid it had received\. The results were as follows:- 1\. The Institute's sale of the equipment granted to it by the Central Planning Organ to benefit from and preserve them, and not sell them off\. 2\. The Institute's sale of printing equipment to the Moral Guidance Department without our knowing the nature or the value of the sale\. 3\. A deficit was found in the following:- Nine (9) types of audio-visual equipment\. Ten (10) types of equipment, air-conditioners and machinery which the annual inventory taking committee of 1997 did not take up\. Twenty four (24) types of machinery disbursed from the warehouses in the trust of a number of employees during 1995 - 1997 without their being mentioned in the 1997 inventory taking\. 4\. The failure to take any proper measures to retrieve 429 books that were loaned to the Institute employees from the library during the period 1980 - 1998\. 5\. Five (5) motor vehicles ownership was finally transferred and three (3) temporarily transferred\. We were unable to ascertain what had been done by the Institute in respect of two motor vehicles that were stolen, an engine detained by the traffic police and a 1976 model car no\. 284 that is still in the workshop\. - 21 -  Revenues and fees status: From the review and evaluation the following has become clear:- 1\. The failure to issue a regulation that organizes the process of collecting fees and disbursements by the Dean of the Institute to this date\. 2\. The failure to pay in the amount of YR 1,469,284 into the public account of the government and which is the remaining part of the 30% of the fees collected and which have been spent by the Institute\. 3\. The failure of those concerned to calculate, deduct and pay in the income tax at the rate of 16% of the amounts expended from the fees accounts and the relevant amount is YR 1,850,033\. 4\. Institute's violation of the resolution of the Prime Minister to calculate 40% of the fees only for the branches and not 70%\. Status of reconciliation of conditions of the teaching and training staff of the Institute: The review, inspection and evaluation makes the following clear- 1\. Absence of a system of selection and appointment of the members of the teaching and training staff at the Institute until the beginning of 1997\. 2\. The Institute Dean issuing a regulation on posting criteria that determined the highest level of posting at the degree of teacher and professor and this entailed deprivation of the rights of the senior teachers and trainers of the Institute by determining the period of service during the period 1974 - 1983 at two years being one year for the purposes of promotion\. 3\. The Posting Committee adopted the researches and consultancies standard as the major criteria for filling out the posting form and from which only those who learnt of it benefited, while those who did not hear of it from among the senior staff with evidenced experience and activity did not realize any benefit\. 4\. The same form that was distributed at the Institute was also distributed among the branches, despite the knowledge of the Committee that the activities and spheres of the branches are less than those of the center and by this the rights of a large number of the branches' cadres to posting were done away with\. 5\. A specimen form was prepared to calculate the years of experience from 1985 until 1993, while the standards of the posting regulation determined that the years of experience of the teaching staff member should be calculated from 1984 until 1993 and by this those with seniority were deprived of one year that should have been calculated for the purposes of promotion\. 6\. The number of those covered by posting in the lists is 153, while there are only 142 files which means 11 files less and those concerned report that these were lost but they do not know how they were lost or the reasons behind their being lost\. 7\. Absence of copies of qualifications certified by the Committee in some files, even though they are to be found in other files\. 8\. The Posting Committee did not make it a condition that copies of the completed research papers and consultancies be appended and be deemed a part of the files' documents\. 9\. A number of the teaching staff did not - through their signatures - admit the posting they had received from the Committee\. 10\. A number of members of the teaching and training staff covered by the posting dropped out of the Institute following the issue of the Civil Service's formal opinion no\. (26/CS/94) on 25/7/1994\. From what has been reviewed of the observations and violations that the Committee arrived at in the light of what was available to it of statements and information, and as the Project is about to end with the end of the current year (1998), the Committee submits the following recommendations:- Obligate the Project management to carry out a comprehensive inventory of all of its assets, their - 22 -  places of presence and their conditions so that these can be handed over officially to the beneficiary quarters and this should be documented in their registers so as to make control over them more effective in the future\. Obligate the quarters benefiting from the equipment, implements, apparatuses and furniture funded by the Project to maintain them, act to benefit from them and utilize them in an exemplary manner, and particularly the computer hardware handed over to the National Institute and the Ministry, along with the photocopiers and other equipment Reconsider the distribution of the Project motor vehicles to the quarters that are most in need for them and, in particular, the branches of the National Institute in the govemorates\. Adopt the necessary measures to bring to book those involved in the commitment of violations cited in the report, and in the light of the accountability, adopt the necessary legal measures in respect thereof\. Create an appropriate system for preserving the current properties of the Institute, and action for clarification of the benefits accrued to the Institute by previous sale operations of some properties and whose value remains unknown to the Committee\. Adopt the appropriate measures in respect of the deficits, particularly in various appartuses and types of machinery\. Adopt the appropriate measures to retrieve the books loaned to the beneficiaries and underline the return system\. Pay in the revenues of the government account at the rate of 30% of the fees collected first by first and calculate 70% of the fees in favour of the branches\. Reconsider the reconciliation of the status of the teaching and training staff at the Institute on the basis of the selection and appointment system as determined by the Organizational Regulation No\. (3) of 1997 and Article No\. (33) and on the basis of the job description resolution issued by the Minister of Civil Service No\. (4) of 1994 and create posting fundamentals in accordance therewith\. Those are the most important observations that have been arrived at through the inspection and review carried out by the Committee\. It is requested that these be perused and directives be issued for the implementation of the recommendations contained in the report or that which you consider appropriate\. Accept our best regards and high appreciation\. Ahrrad Saleh Saif Committee Chairman Abdllllah Al-Dar Committee member Ahbrrad Al-Harbi Committee member Jameel Al-Areeqi Committee member Tareq Salah Al-Masri Committee member c\.c with compliments:- Chairman, Central Organ for Accounting and Audit Minister of Finance Minister of Planning and Development Dean, National Institute of Administration Sciences - 23 -  (b) Cofinanciers: Not applicable\. (c) Other partners (NGOs/private sector): Not applicable\. 10\. Additional Information In view of the complexity of issues not easily explained in the ICR text, the ICR mission's Aide-memoire is attached below for information\. IMPLEMENTATION COMPLETION REPORT THE REPUBLIC OF YEMEN INSTITUTIONAL DEVELOPMENT FOR PUBLIC ADMENISTRATION PROJECT (CREDIT 2015-YEM) PART III\. ANNEXES Annex 1\. February 1999 Implementation Completion Mission Aide-memoire 1\. An IDA mission consisting of Vasilios C\. Demetriou visited Yemen from February 15-21 to discuss and finalize the findings of the August/September 1998 implementation completion mission carried out by Messrs\. Vasilios C\. Demetriou (Senior Implementation Specialist, MNSHD) and Ragaa Makharita (Public Administration Specialist, Consultant), and Mme\. Patricia Maughan (Consultant)\. Support and follow-up were provided by Messrs\. Qaiser Khan and Ali Husni of the Resident Mission in Sana'a\. The mission devoted about 6 days to finalizing the findings of the August/September 1998 mission, which were inconclusive due to the unavailability of documents, and to the ongoing investigations of fraud and the misappropriation of funds\. The mission also attended a National Conference on Technical Education and Vocational Training (February 23-27, 1999), and participated in the appraisal of the Child Development Project\. 2\. The mission met with H\. E\. Eng\. Mohammed A\. Al-Junaid, Minister of Civil Service and Administrative Reform; Mr\. Anwar Al-Harazi, Deputy Minister of Planning and Development; Mr\. Abdul Rahman Daiban, Dean of the National Institute of Administrative Services (NIAS); and the new Project Director of the NIAS Project Implementation Unit (PIU), Mr\. Mohammed Al Siragi, and his staff\. The mission also met with the Ministry of Civil Service and Administrative Reform's (MCSAR's) PIU Project Accountant, Mr\. Naimi, and discussed the final statements submitted for the MCSAR component\. H\. E\. Minister Eng\. Mohammed Al-Junaid confirmed that the Government would do its best to facilitate preparation of the ICR\. The mission wishes to thank all concemed officials for their candidness in dealing -24 -  with controversial matters, and for their cooperation and hospitality\. PrDject Objectives and Description 3\. Project objectives\. The project was approved on May 12, 1989 and became effective on April 12, 1990\. The project's original development objective was to improve public administration through the institutional development of both MCSAR and the National Institute for Administrative Services (NIAS)\. In particular, the project aimed to: (a) improve MCSAR's capacity to fulfill its operational and advisory obligations to major government agencies for manpower and training planning, personnel administration, and various aspects of operational and procedural effectiveness; and (b) increase NIAS's capability to provide education, training, research, and consultancy services to government agencies\. The project was restructured and its specific objectives simplified in 1995, as it was found that the original objectives were too ambitious-due, among other things, to the Ministry's diversion of attention in the aftermath of the civil war\. 4\. Project descnrpdon\. To assist MCSAR and NIAS in achieving these objectives, the project [originally] provided technical assistance, staff development,, civil works, equipment/furniture, and logistical support\. The MCSAR components were designed to help MCSAR: (a) evaluate and improve the operations and management, personnel and administrative policies, and the manpower and training planning of Government agencies; (b) establish a Management Information System (MIS) for the civil service and pubilic sector; and (c) assess the consistency of its structure with respect to its functions andl responsibilities\. The NIAS components were designed to help NIAS: (a) improve the quality, efficiency, and\. coverage of education, training, and research, and strengthen consultancy programs; (b) meet its staff shortages through expatriate teacher support while Yemeni staff are away on fellowships; (c) plan long-term manpower development in the public sector; and (d) establish appropriate institutional decision making structures and processes\. Both institutions also were to benefit from significant investments in construction and equipment to improve their facilities\. 5\. After the project was restructured, the simplified MCSAR components consisted of the civil works (Ministry building and the computer center) and related equipment and furniture, and completing the four stu(ies\. The reorganization of nine government agencies was discarded as unfeasible\. The fellowships program was already completed when the project was restructured\. The simplified NIAS components consisted of the civil works at Sana'a and Ibb campuses and related equipment and furniture, completion of the fellowships programs in Jordan and Egypt, and completion of one study: Long Term Training Plan of Civil Service in Yemen\. Research and consultancy services were considered as unfeasible in the remaining implementation period\. Supiplemental Credit 6\. Shortfalls in project funding occurred after the project was restructured, due to cancellation of part of the credit and devaluation of the SDR\. The original credit amount was SDR 8\.2 million (US$10\.8 mil]ion equivalent)\. After cancellation of SDR 2 million (US$3 million equivalent)-considered a surplus when the project was restructured-and devaluation of the SDR, the remaining credit was SDR 6\.2 million (US$8\.88 million equivalent\. The supplemental credit brought the total level of IDA assistance to SDR 7\.3', million (US$10\.42 equivalent\. Furthermore, IDA's agreement to finance a higher percentage of the civil works (from 51% to 90%) also contributed to the shortfalls\. Therefore, a supplemental credit of US$1\.54 million equivalent was approved by the Board on October 14, 1997\. The additional funds covered: (a) Civil works, specifically: (i) balances due for the MCSAR building, estimated at US$0\.20 million; - 25 -  and (ii) balances due for the Ibb and Sana'a campuses of NIAS, estimated at US$0\.20 million\. The balances were paid and the works were completed within the expected timeframe\. (b) Equipment and furniture for the newly completed NIAS facilities at Sana'a and Ibb, at an estimated cost of US$0\.55 million\. Tendering and evaluation for this procurement have been completed; however, awards cannot be made until funding is assured\. Unless these items can be financed, the entire investment will have been wasted, as it will not be possible to conduct effective training without proper furniture and equipment\. The contracts for equipment and furniture were allegedly fraudulent according to the Central Organization for Control and Auditing (COCA)-and therefore were canceled (see para\. 8)\. Since it was too late to invite fresh tenders, the facilities remain without some essential teaching equipment and have only minimal furniture borrowed from existing campuses, and are thus unable to operate to their full capacity\. (c) Training, to enable NIAS faculty members to finish their master's programs at overseas universities, at an estimated cost of US$0\.63 million\. Upon their return, they are expected to teach at NIAS, thus significantly enhancing the academic and professional qualifications of its faculty\. Of the 22 students who studied in Jordan, 19 have graduated and are now with NIAS; two have dropped out; and one is seeking further assistance from the Ministry of Planning and Development (MOPD) to complete his studies by September 1999\. Of the 11 students who studied at the Sadat Academy in Egypt, only 7 are expected to graduate by June 1999\. Most of them returned to Yemen during 1998/99 to reduce costs until they were ready to return and defend their theses\. IDA was given assurances about these programs when the supplemental credit was requested\. Overview of Results 7\. MCSAR\. All of the simplified project activities have been completed (works, goods, training, studies, and technical assistance)\. The new MCSAR facilities, including the computer center, are now fully operational\. Four fellowships in the United States, as well as technical assistance and local training activities, have been completed\. The four studies under the project have been completed and final reports submitted\. 8\. NIAS\. Results for NIAS have been mixed\. The civil works at the Sana'a campus have been completed and NIAS is already using the facilities, although with limited furniture (see para\. 6b)\. It is still not clear whether the furniture contract was fraudulent, as claimed by COCA, as the evidence so far is inconclusive\. The matter is to be resolved by the courts\. Because of additional costs incurred in the execution of civil works, a Government committee (comprising members from MOPD, MCSAR, NIAS, Public Works, and COCA) reviewed the contractor's claims and agreed to a 34 percent increase in the original contract amount\. The Ibb campus has also been completed; however, NIAS was not given possession of the site until recently, after disputes with the contractor were resolved\. In this contract, claims amounted to 48 percent over the original contract amount due to extraordinary foundation conditions (which were witnessed by IDA staff during construction) and underestimation of the external works\. However, even with these extras, neither contract exceeded the average cost per square meter for similar buildings\. The value of these two contracts was increased, in accordance with the amended values, to allow for the final payments and 10 percent retentions to be made\. Books purchased at the Cairo book fair in February 1998 have been delivered (but have not yet been paid for)\. An amount of US$30,000 had been advanced to the former PIU Director for payment, but no payment was made and the US$30,000 is now missing\. The total value of books received from the Al-Ahram agency is about US$54,000\. All equipment deliveries have been made, with the exception of the furniture mentioned above\. All local training activities have been implemented\. Six fellowships in the United States have been completed\. In - 26 -  addition, two fellows have recently returned from Jordan and have rejoined NIAS at Sana'a and Ibb\. The II and 22 fellowships in Egypt and Jordan, respectively, have also been completed\. A draft report on the long-term training study was recently finalized by the Hague's Institute of Social Sciences (ISS), after a delay due to a payment dispute\. The study contains recommendation that could be a blueprint for NIAS's future development\. 9\. Disbursements\. About US$9\.64 million (92 percent of the credit, including the supplement of US$1\.54 million) has been disbursed, while about US$0\.35 million of the remaining credit balance of US$0\.81 million is fully committed and should be disbursed before the end of the six-month grace period\. A cancellation of about US$0\.46 million is anticipated due to cancellation of the furniture contract and other activities that could be not implemented on time\. 10\. Audit Reports\. The audit report for FY97 was prepared by COCA and submitted in June 1998\. A draft for discussion was submitted to the mission\. Neither report mentioned any of the irregularities revealed by the subsequent COCA and IDA investigations (see para\. 11)\. Financial Management Issues 11\. NL4S-Alleged misappropriation of funds by the former PIU Director\. It was discovered in April 1998, when a contractor complained about not receiving a direct payment made by IDA, that a nuriber of payments had been diverted into the former PIU director's accounts in the Commercial Bank of Yemen (one project account and one private account)\. The Resident Mission demanded that an immediate investigation be carried out by the Govemment and prompt action was taken\. An investigation by COCA found that additional accounts (project and personal) were being used by the former PIU Director\. He was arrested by Yemeni authorities, and NIAS hired a new Project Director, Mr\. Mohamed Al-Siragi\. With the exoeption of Mr\. Al-Siragi, a new project accountant, and a new procurement officer, the other staff remain the same\. An examination of various documents made it clear that information on withdrawal applications sent to the Ministry of Planning and Development (MOPD) was different from information provided on the applications sent to IDA\. The copies sent to MOPD contained the beneficiary's correct bank account number, while the copies sent to IDA showed account number 1021418 (project account in commercial bank) or number 1004520 (former PIU Director's personal account)\. Investigations by IDA and COCA revealed that this account had a total of US$1,710,563 in transactions between August 8, 1996 and Febnrary 2, 1998\. The balance on February 2, 1998 was US$31\. The COCA investigation revealed that nine transactions, totaling US$249,740, had not been made to project contractors, as the former PIU Director subsequently claimed; rather, they had been transferred to either of the two commercial accounts\. After further adjustments (subtracting US$30,000 kept in the PIU safe, and adding the US$30,000 advance drawn for paying Al-Ahram publishing house and the US$37,950 transferred to the personal accounts of the former PIU Director), the final figure of allegedly misappropriated funds amounts to US$287,690\. This experience points to the need for IDA to check the validity of account numbers on each withdrawal application\. 12\. MCSAR\. MCSAR's PIU Director left the project in May 1998 and is now working for UNDP\. The accountant, procurement officer, and secretary were retained until June 30, 1998\. The accountant and secretary continued to work for the project until December 1998; then, from July 1998 until December 31, 1993, a new procurement officer and assistant were used\. IDA was not consulted on these actions, and it is not clear why they were necessary, since all procurement activities had been completed 12 months earlier\. - 27 -  Preparations for the Implementation Completion Report (ICR) 13\. The format and content of the ICR, as well as the Government's contribution, were discussed during the May 1998 mission, and the mission team provided both PlUs with several sample ICRs and the IDA's guidelines on ICRs\. Both PIUs have been collecting relevant information for the ICR, and will be ready to prepare their parts after IDA's portion of the ICR is cleared intemally and submitted to the Govemment for comment\. Analysis of Project Implementation: MCSAR 14\. Overall, this component disbursed US$0\.51 million less than its allocation, not taking into account the Special Account (SA) advance, which is being recovered\. Amounts disbursed, by category, are shown in Table 1\. Table 1\. Disbursements by Category for Part A (MCSAR component only) Cat\. Description Allocation (US$) Disbursed (UJS$) Undisbursed 1-A Civil works 1,198,215\.46 894,202\.16 304,013\.30 2-A Equipment, furniture, and 1,200,166\.15 1,364,298\.93 -164,132\.78 vehicles __ 3-A Consultant services 945,499\.17 522,531\.64 422,967\.53 4-A Training and fellowships 1,104,462\.15 1,158,994\.50 -54,532\.35 TOTAL 4,448,342\.93 3,940,027\.23 508,315\.7 Note: Minus sign before undisbursed amount indicates cost overrun\. The table excludes Category 5 (refund), SA advances, and the unallocated category, which is shared by both components\. Further adjustments are being made, and the recovery of the SA is in progress\. About 38 percent (US$1\.55 million) of the credit allocated to MCSAR was disbursed under state-owned enterprises (SOEs) through the SA\. Category l-A Civil works 15\. All civil works contracts under this component have been completed, and payments, including the 10 percent retention, have been made\. No further payments are due\. The works were completed under two contracts: (a) construction of the computer center, which was later modified to become the office and training facility for the Ministry; and (b) construction of external works and the car shed in the Ministry compound, and paving\. 16\. The building was contracted to Mohamed Al-Asbahi at YR17\.6 million\. The contract value increased to YR18\.2 million after variation orders (US$0\.94 million equivalent)\. IDA disbursed US$0\.84 million (90 percent) against this contract on the following basis: 40 percent of payments in US dollars at the conversion rate of YR12\.02 to the US dollar, and 50 percent of payments in Yemeni rials at the official rate of the Central Bank of Yemen at the time of payment\. The 10 percent balances were made in rials by the Government\. 17\. The external works, paving, and car shed were also contracted to Mohamed Al-Asbahi, as an - 28 -  extension of his larger building contract, at YR3\.1 million, which increased to YR3\.5 million due to variation orders (US$0\.14 million)\. IDA disbursed about US$0\.12 million (90 percent) against this contract on the basis described above\. Category 2-A Equipment, furniture, and vehicles 18\. Goods were provided through 10 contracts\. IDA disbursed about US$1\.3 million against these contracts (mostly on 100 percent cif basis)\. The largest contract was for the computer system, at US$0\.49 mili on, which was installed in the existing building instead of in a new computer building\. Additional work costing about US$100,000 was carried out to prepare the existing site\. The second-largest contract was for the procurement of furniture for the new building, at about US$0\.31 million\. In the mission's view, some of this furniture was extravagant CatEgory 3-A Consultant services 19\. IDA disbursed about US$0\.6 million against this category; the major part of the funds (US$9382,000) financed four studies (see para\. 20)\. The project also financed several small contracts for training and training-related activities; a study by Arthur Anderson for COCA (US$163,000); the services of lical consultants hired to assist with project restructuring in 1995 (US$21,000); and the salaries of PIU staff from January 1998 to December 1998 (US$28,500) There are no further payments pending\. 20\. The four studies were: (a) Records Management (US$80,000), prepared by the Jordan Institute of Public Administration (JIPA); (b) Wages and Salary Structures in Yemen Civil Service (US$76,000), by the Center for Professional Management Expertise (TEAM), a subsidiary of a Palestinian consulting firm; (c) Jobs Classification (US$101,000), by the University of Jordan; and (d) Human Resources Man,!agement and Personnel Policies (US$125,000), by JIPA\. Extensive comments were made by IDA during the preparation stage of the studies\. All studies were completed by mid-1997 but all had limited impact\. The jobs classification study was too theoretical; the salary and wage study recommendations were not feasible, and the human resources study was not relevant in the Yemeni context\. The records management study could have had useful applications, and earlier missions had suggested that MCSAR imp]lement the study recommendations in one or more Government agencies (including MCSAR itself), but the Ministry has taken no action in this regard\. Category 4-A Training 21\. The project financed many ad hoc training and study visits abroad, mostly in Jordan and Egypt\. As there was no plan or strategy for these activities, no record of the agencies from which the beneficiaries came, and no transparent selection criteria for trainees (some trainees were later found to have traveled for medical treatment, not for study), it is difficult to assess the impact of the activities or whether they coniributed to achieving the project's objectives\. Training carried out in this manner cost close to US$0\.5 million, almost 50 percent of the total US$1\.1 million spent on training under the MCSAR component\. Initially, each fellowship was managed by the PIU, with the cooperation of the embassy in the concerned country\. However, as it became apparent that this mode of management was not effective, the Government decided to contract management of the remaining six overseas fellowships to a specialized agency (AMIDEAST) in the following areas: (a) manpower planning (one staff received one year of training in the Unit:ed States); (b) computer operating systems (two staff received training in the United States, and one received three months of training in Lebanon in the field of software and operating systems); and (c) statistics (two staff from the statistics department received three months of training in Jordan in statistical planning and preparation of statistical yearbooks)\. All of the fellows have returned to MCSAR, except for -29 -  the manpower planning candidate, whose status is unknown\. An earlier mission had suggested that MCSAR attempt to recover the cost of training for the fellow who did not return to MCSAR, as per the terms of the fellowship agreement, but action is unlikely\. 22\. Earlier missions had suggested that, in preparation for the ICR, MCSAR attempt to evaluate the impact of such training by surveying former trainees who are now working in MCSAR and other Government agencies\. The mission reiterated that it would be important to find how many of these staff are still with MCSAR, and also to identify the causes of failure in those cases where staff, despite their training, find it difficult to utilize their new skills\. Analysis of Project Implementation: NIAS 23\. Amounts disbursed by category are indicated in Table 2\. Overall, this component disbursed about US$0\.46 million less than its allocation, due mainly due to the canceled furniture and equipment contract with the Al-Hatmi Company\. Table 2\. Disbursements by Category for Part A (NIAS component only) Cat\. Description Allocation in Disbursed in Undisbursed in US$ US$ US$ 1-A Civil works 1,279,786\.71 1,643,632\.25 -363,845\.54 2-A Equipment, furniture, and 1,700,848\.83 1,367,743\.90 333,104\.93 vehicles 3-A Consultant services 897,283\.32 196,614\.44 700,668\.88 4-A Training and fellowships 1,851,388\.07 2,059,502\.01 -208,113\.94 TOTAL 5,729,306\.93 5,267,492\.60 461,814\.33 Note: Minus sign before undisbursed amount indicates cost overrun\. The table excludes Category 5 (refund), SA advances, and the unallocated category, which are shared by both components\. Further adjustments are being made, and the recovery of the SA is in progress\. About 40 percent (US$2\.3 million) of the credit allocated to NIAS was disbursed under SOEs through the SA\. Category l-B Civil works 24\. All civil works contracts under this component have been completed, and payments, including the 10 percent retention, have been made\. No further payments are due\. The work was completed under two contracts: (a) extension of the existing Sana'a campus; and (b) construction of the new branch at Ibb\. However, it is being claimed by the COCA committee that the contractors did not carry out some of the work, especially at Ibb\. This points to poor supervision and payment certification processes\. The mission requested that the Government investigate such claims and ensure that all work for which payment was made has been completed\. 25\. The Sana'a extension was contracted to Abdulmalik Ali Al-Ansi at US$500,000 million, and this total was increased to US$562,399 through variation orders but excluding several claims that were disputed\. The disputes over extras by the Sana'a contractor were resolved after a Government committee recommended that the original contract amount be increased from about US$500,000 to US$670,000 (a 34 percent increase)\. On that basis, IDA issued a "no-objection" for the increased value of the contract, and has already processed all pending payments to this contractor\. The building has been completed and is now - 30 -  being used, but without the furniture that was canceled\. 26\. The Ibb branch has also been completed, but also lacks furniture due to the cancellation of the furniture contract\. The problem with the extras incurred at the Ibb branch was also resolved through a Government committee, which determined that many of the variation orders were necessary because of omissions in the construction drawings and bill of quantities-probably due to the fact that the bidding process was rushed so that the building could be completed before the closing date\. Although the decision was not unanimous, the comniittee did recommend that IDA increase the value of this contract from about US$800,000 to US$1,187,000 (a 48 percent increase)\. In addition, there was a significant increase in the cost of the foundations due to special soil conditions at the Ibb site\. These problems were witnessed by staff from the Resident Mission during construction\. 27\. The May 1998 mission carried out an analysis of final costs based on the gross areas constructed or rehabilitated, and concluded that even with the increase, the costs remained reasonable and within an acceptable unit cost range compared to similar works\. Category 2-B Equipmen4tfurniture, vehicles, and books 28\. Various goods were provided through nine contracts\. IDA disbursed about US$1\.37 million against these contracts (mostly on 100 percent cif basis)\. Contracts for furniture (US$339,670) and equipment (US$155,170) signed with Al-Hatmi Office Trading Company were canceled after COCA claimed that the contracts were fraudulent and that the supplier was not the original bidder\. This was a major setback for the Sana'a extension and the new Ibb branch, as this furniture and equipment were critical for their operation\. In the mission's discussions with MOPD, the mission suggested that future funding for essential goods could, if the Ministry requests, possibly be provided under one of the non-project Japanese grants\. The mission recommends that NIAS pursue this option\. The lists should be carefully reviewed to ensure that only essential, functional, and reasonably priced items are included\. 29\. Purchase of books for the NIAS library\. The delegation that attended the February 1998 book fair in Cairo placed orders with the Al-Ahram Distribution Agency totaling US$54,917\. The reference books ordered for the library were received by NIAS; however, payment has yet to be made\. A sum of US$30,000, withdrawn from the SA by the former PIU Director, withdrawn under the pretense of making payment against this contract, is missing\. The mission advised the PIU that the balance of US$24,917 coulcl be paid by IDA, after the missing US$30,000 has been paid to Al-Ahram by the Government In any eveni, this and other missing IDA funds should be fully accounted for\. Categ,ory 3-B Consultant services 30\. The project financed a number of consultant contracts relating to some of the project's training activities\. The project also financed the salaries of PIU staff for the period of January -December 1998\. IDA disbursed US$197,000 against this category\. There are no further payments pending, although, as mentioned below, there were certain payments made that the beneficiaries claim they did not receive\. 31\. The Long Term Training Plan of Civil Service in Yemen (US$186,000)\. This was the only study comnmissioned by NIAS (the contractor was ISS), and its recommendations can be considered a blueprint for the development of NIAS\. However, there were some payment irregularities that need to be straightened out According to the PIU, this contract comprised two parts: foreign and local components, with ISS (a Netherlands firm) to be paid US$121,000, and local staff who contributed to the study paid US$65,000\. Payments for the entire US$186,000 have been made; however, only US$97,151 went to ISS, while - 31 -  US$97,151 went to local contributors\. Thus, ISS was shortchanged US$32,151, while the local contributors were paid US$32,151 in excess\. It is not clear whether this arrangement was mutually agreed upon by NIAS and ISS\. Category 4-B Training 32\. IDA financed 39 fellowships for NIAS faculty, all managed by AMIDEAST: six in the United States, 11 in Egypt, and 22 in Jordan\. All fellows have completed their studies and have returned to Yemen\. All programs were managed by AMIDEAST\. IDA disbursed US$2\.06 million under this category\. Minor adjustments and reconciliation of the accounts with AMIDEAST are pending, as there were some savings\. Achievement of Development Objectives 33\. Partly due to the civil war, but partly due to significant weaknesses in both MCSAR and NIAS, it was not possible to meet the development objectives [of broad institutional strengthening] as originally envisaged\. Moreover, even after significant restructunng and simplification of the project in 1995, achievement of the revised objectives (paras\. 34 - 40) was still modest, and many questions need to be answered before this project can claim even marginal success\. MCSAR 34\. Staff development programs\. The impact of these programs is virtually impossible to assess, as many of the staff trained no longer work at MCSAR\. 35\. A new computerized system to manage personnel records The system was outmoded in terms of capacity and design as soon as it was installed\. The Ministry claims that, even with its limitations, this system has been used extensively and was instrumental in conducting the civil service census, a key preparatory activity for the proposed Civil Service Reform Project, to be supported by IDA\. 36\. A new buildWingfor the Minisry\. Although the project provided for construction of a new building to house a computer facility, the computers were installed in existing buildings and the funds used to construct a new building for the Ministry\. The Ministry claims this new building has increased its effectiveness, and has been particularly useful in launching various activities relating to the Government's Civil Service Reform Plan The building includes good conferencing and training facilities, as well as modem records and filing rooms\. 37\. Four studies on key topics\. The studies were conceived very early in the project cycle but all were completed late and all had limited impact (see para\. 20)\. MCSAR should seek assistance to implement key recommendations of the records management study, especially for those that fit within the framework of the Civil Service Modernization Project\. NIAS 38\. Staff development programs\. Efforts to improve the NIAS faculty through staff development programs generally had a poor outcome, due to: (a) lack of a strategic framework; (b) the random selection of specializations; (c) poor selection criteria for the candidates; and (d) the inclusion of persons not employed by NIAS\. - 32 -  39\. Sanaa campus extension and establishment of a new branch at Ibb\. The Sana'a campus was extended and a new branch at Ibb was established\. Both facilities are now completed, but are not filly operational because of the lack of furniture and equipment They are excellent facilities and should be made functional as soon as possible\. 40\. Long Term Training Plan of Civil Service in Yeten\. The study came in very late (at the end of 1997, instead of in 1990); however, it does contain important recommendations that could be pursued\. The studly could be viewed as a blueprint for NIAS's future development Summary of Pending Actfons 41\. The following actions need to be initiated by MCSAR, NIAS, and IDA: MCOPD: (a) All missing funds-expenditures that were either not fully documented, ineligible, or diverted should be returned to IDA\. The investigation is ongoing, but a rough estimate of this figure is about US$120,000\. NIAS: (b) Incomplete works at Sanaa and Ibb\. Allegations that some payments were made against work that has not been satisfactonily completed should be investigated\. (c) Furniture and equipmentfor Sana'a and Ibb\. The possibility of securing Japanese grant funds to procure essential furniture and equipment for the Sana'a extension and the new branch at Ibb should be explored\. MCSAR and NIAS (together): (4) The reconciliation and fuU recovery of the SA\. The two agencies should continue to work closely together to reconcile their respective expenditures drawn from the SA - and make reports to IDA\. IDA Actions: (e) Pending payments\. Direct payments for the remainig eligible expenditures should be made to suppliers, contractors, and consultants, since the SA is depleted and virtually recovered\. (I) Independent invesdgadon by Alied Accountants\. Completion of the investigation should be expedited, and the Government informed of the findings\. IDA Implementation Completion Mission Sana'a, Republic of Yemen Febrjary 1999 - 33 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Table 1: Key Indicators for Project Implementation Priority Areas Indicators Results A\. MCSAR 1\. Civil works for the MIS Computer center Completed satisfactorily, although facilities were occupied by the Ministry and not the computer center\. The center was installed instead at the existing Ministry building\. 2\. Furniture & equipment Supplies for computer center The computer equipment was provided and is well utilized\. Other goods were supplied to meet the needs of the Ministry, which occupied the building\. Three vehicles were procured for the Ministry\. 3\. Technical assistance (a) Long-term fellowships 465 mm Time allocated was converted to medium and short-term training\. (b) Short-term fellowships 338 mm 140 officials received training (2-4 weeks) in Jordan and Egypt during the period 1994-96\. In addition, 75 officials were trained in Sana'a by qualified Yemenis with the assistance of one JIPA staff\. Six officials were trained under an AMIDEAST contract: 3 in the\.US; 2 in Jordan; and I in Lebanon\. (c) Studies 22 mm Four studies were completed: (i) Manpower Planning; (ii) Wages & Salaries; (iii) Records Management; and (iv) Jobs Classification\. (d) Consultancy services 262 mm The four studies were completed by consultants and the Jordan Institute of Public Administration (JIPA)\. B\. NlAS 1\. Civil Works (a) Addition to Sana'a campus Construction & renovation Completed satisfactorily and on time, but to this date work remains unfumished\. (b) New facility at Ibb New construction Completed\. The new building was not handed over to the NIAS administration by the contractor, as he was not fully compensated for his work\. 2\. FurnIture & equipment For new & existing facilities Some furniture was acquired for the Sana'a campus\. The Ibb campus was not fumished\. Some computers, typewriters, and books for the Sana'a library were provided\. Eleven vehicles were purchased\. 3\. Technical assistance (a) Fellowships 962 mm 39 long-term fellowships completed; 6 fellows did not return to NIAS; many others poorly supervised and studies not relevant to NIAS work\. (b) Experts (teacher support) 690 mm Three expatriates were hired as instructors for periods varying between 12-18 months\. (c) Consultancy services 76 mm A study on Training Needs in the Civil Service was finalized by the Institute of Social Sciences (the Hague)\. (d) Study tours 24 senior staff and two senior MOPD officials received study tours to Jordan, Egypt, and Syria (10 persons); 8 to England, France, and Morocco; 7 visited Germany, Holland, Belgium, and Egypt; and the NIAS Dean reportedly visited Tunisia and Egypt\. -34 -  Table 2: Key Indicators for Project Operation Project Objectives Results A\. AISSISTANCE TO MCSAR _ 1\. Manpower Development Planning\. The assessment and A study on Manpower Planning was prepared, but it is not programming of training needs for the public sector, applicable to the Yemeni context\. development of a manpower and training plan, and development of staff capabilities in manpower statistics\. 2\. Personnel Polky and Administration\. The assessment, A new computerized system to manage personnel records was development, and implementation of personnel policies, and provided\. Four studies on key topics were completed: development of staff capabilities in job classification and (i) Records Management; (ii) Human Resources Development; grading, staff evaluation and development, and employee (iii) Wages and Salary Structures; and (iv) Job Classification\. statistics\. _ 3\. Government Organization and Operations\. The The four completed studies (listed above) are relevant to the assessment and strengthening of administrative procedures planned objectives\. There was improvement in the Ministry's throumgh the development of staff capabilities in performance performance due to the substantial training of staff (overseas evaluation, work classification, public systems analysis, public and local) in areas previously iacking expertise\. sector management and economics, accounting, financial management, and work organization and methods\. 4\. AIranagement Information Capacity\. The establishment The Management Information System was implemented, but and operation of a computer processing unit for operation of fell short of servicing the entire civil service\. an Integrated Civil Service Management Information System\. _ B\. ASSISTANCE TONIS __ 1\. Development of Staff Capabiites\. The development of Training by JIPA and consultants benefited many NIAS staff\. staff capabilities for planning and conducting training in such However, few are in their original posts to practice their new areas as information technology, public finance, office skills\. A number of fellowships also helped improve staff management, public administration, organization of capabilities, although there was a great number of pre-service programs, project accounting, procurement, and non-relevant disciplines included in the program\. Most secretarial practice\. fellows have returned and are now working with NIAS\. 2\. Research and Consultancy Servkes\. The development of Some consultant services were utilized in preparing training staff capabilities in research methodology and consultancy programs for NIAS staff However, the research services were methods\. not fully utilized\. 3\. L,ng-term Plan\. Development of a long-term plan for The study was commissioned to the ISS by NIAS, and it has NIAS's education and training activities, as well as for the been completed satisfactorily\. The study can be viewed as a development of NIAS's intemal organization for blueprint for NIAS's future development implementation of those activities, including the identification of long-range objectives, methods, and training programs\. 4\. Teacher Support\. Provision of teacher support in courses Twenty-two NIAS faculty trained in the Master's Degree for sdills development and management, including office program in Jordan\. 19 have completed it and retumed to their management, accounting, economics, public administration, posts\. Eleven candidates studied in Egypt (7 graduated)\. and i rformation technology\. 5\. Erpansion of AU4S\. Sana'a headquarters, and Sana'a HQ completed satisfactorily, but the Ibb facilities were construction of Ibb branch facilities\. not handed over by the contractor until a dispute over payment was finally resolved\. The facilities at both campuses have not been furnished\. The fumiture contract was found to be fraudulent and was cancelled\. There was not sufficient time to call for fresh tenders\. This is the main reason for the cancellation of about US$772,000\. - 35 -  Table 3: Studies Included in the Project Purpose as Defined Study at Appraisal/Redeflned Status Impact of Study MCSAR = 1\. Records Database of Civil Service Completed June 1997 Limited\. The Ministry has not Management Employees taken the study seriously, but it could have useful applications\. 2\. Salaries and Wages Database Management Completed August 1997 Limited\. Not feasible in the Structure Yemeni context\. 3\. Jobs Classification Civil Service Management Completed Limited\. Too theoretical\. September 1997 4\. Human Resource Civil Service Management & Completed July 1997 Limited\. Not relevant to the Management & Development Yemeni context\. Development AUS _ I \. Long-term Institutional Development for Completed June 1999 Potentially significant if NIAS Tramining Plan Study NIAS implements the plan\. Could be used as a blueprint for NIAS's future development strategy and _______________________ operations\. -36 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million uivalent 1\. M:CSAR 4\.80 4\.20 87\.5 2\. NiAS 8\.60 5\.80 67\.44 Totail Baseline Cost 13\.40 10\.00 Physical Contingencies 0\.50 0\.00 Pri:e Contingencies 1\.50 0\.00 Total Project Costs 15\.40 10\.00 Total Financing Required 15\.40 10\.00 Note: The foreign costs include indirect foreign exchange components\. Local costs, as in the case of civil works, include payments in US dollars\. Civil works contracts signed after 1995 (for NIAS facilities) were denominated in US dollars and financed at 90 percent by the IDA credit\. The 10 percent balances were paid by the Government in Yemeni rials converted at the time of payment at the rate set by the Central Bank of Yemen (CBY)\. The older MCSAR contracts were more complex and were based on the following formula\. IDA financed 90 percent of the contract, with 40 percent of the payments converted to US dollar; at the rate of YR 12\.02 to the dollar; and 50 percent of the payments were paid in Yemeni rials and charged to the credit at the CBY rate at the time of payment\. The remaining 10 percent was paid by the Government in Yemeni rials\. These arrangements increased IDA financing requirements\. The Government share was correspondingly decreased\. Pro ect Financin b Com onent In US$ million e uivalent) MCSAR 3\.52 1\.0 0\.00 4\.03 0\.17 0\.0 ;114\.5 1 1\.3 0\. NIAS 7\.28 3\.10 0\.00 5\.57 0\.23 0\.00 76\.5 7\.4 0\.0 Total 10\.80 4\.60 0\.00 9\.60 0\.40 0\.00 88\.9 8\.7 0\.0 Note: The differences between appraisal estimates ard actual costs are due to changes in project financing\. Initially, the Government was expected to finance 49 percent of civil works and 80 percent of local training\. During project implementation, it became apparent that the Government would be unable to raise the necessary counterpart funding; therefore, IDA agreed to increase its financing of civil works from 51 to 90 percent\. Training took place in Yemen, but it was conducted by the Jordan Institute of Public Administration (JIPA), and was,,therefore, 100 percent financed by the IDA credit\. - 37 -  Annex 4\. Bank Inputs (a)Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Idenitification/Preparation 12/87 3 ED, MS, PA 03/88 4 ED, PA, M, 0 06/88 5 A, ED, PA, M, O Appraisal/Negotiation 01/89 3 A, EC, DC 06/89 2 0, TM, EC Supervision 10/89 1 A, TM 06/90 2 PA, TM U S 08/92 4 PA, TM, IS, O U S 05/93 3 TM, PA, EC S S 07/92 3 TM, A, PA S S 01/94 3 TM, E, PA S S 10/94 3 TM, E, IS S S 12/94 2 ED, O S S 03/95 4 TM, ED, O, IS S S 06/95 2 TM, ED S S 10/95 3 TM (IS, A) S S 03/96 3 TM (IS, A) S S 07/96 1 TM (IS, A) S S 10/96 1 TM (IS, A) S S 05/97 1 TM (IS, A) S S 11/97 1 TM (IS, A) S S 01/98 1 TM (IS, A) S S 05/98 1 TM (IS, A) S S 12/98 Update TM (IS, A) U U ICR 07/98 3 TM (IS, A), O, PA U U 02/99 1 TM U U Travel was not possible during June 1990 and August 1992 due to the Gulf War and security problems\. - 39 -  Keys to overall verformance radunes: Prior to FY94: 1: problem fiee; 2: moderate; 3: major problems\. FY94 onwards: HS: Highly satisfactory; S: Satisfactory; U: Unsatisfactory; HU: Highly unsatisfactory\. Abbreviations: A: Architect; EC: Economist; ED: Education Specialist; MA: Management Specialist; PA: Public Administration Specialist; 0: Operations Officer; IS: Implementation Specialist; TM: Task Manager; DC: Division Chie£f (b) Staff Stage of Project Cycle AL testEstimate No\. Staff weeks US$ ('000) Identification/Preparation 72\.7 151\.8 Appraisal/Negotiation 61\.5 157\.2 Supervision 134\.2 309\.0 ICR 11\.2 75\.0 Total 279\.6 693\.0 -40 -  Annex 5\. Raftngs for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest\. N=Negligible, NA=Not Applicable) Rating ED macro policies OH OSUOM ON * NA O Sector Policies OH OSUOM ON O NA O FPhysical * H OSUOM O N O NA O Financial OH OSUOM ON * NA El Institutional Development O H O SUO M O N 0 NA El nvironmental OH OSUOMM ON * NA Social El Poverty Reduction O H OSUOM O N * NA O Gender O H OSUOM O N * NA El Other (Please specify) O H OSUOM O N * NA O Frivate sector development O H O SU O M O N 0 NA El fublic sector management O H OSUOM O N O NA OI Other (Please speci) O H OSUOM O N O NA -41 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating • Lending OHS OS *U OHU F Supervision OHSOS *U OHU ? Overall OHS Os *u OHU Although, there was some improvement in the Bank supervson towards the last two years, it was too late to correct systemic problems in the management anrangements and governance of the two key beneficiary institutions (MCSAR and NIAS)\. Moreover, IDA missions failed to recognize the associated risks of these weaknesses and rated the project's objectives "satisfactory" until the very end\. 6\.2 Borrowerperformance Rating J Preparation OHS*S OU OHU • Government implementation performance O HS OS O U O HU • Implementation agency performance O HS O5 G U O HU s Overall OHS OS *U OHU Rating of "Satisfactory" for Preparation is marginal\. Although, project design was sound at the time of appraisal, major modifications were necessary later during implementation, due to unforeseen events, but also due to over ambitious design\. -42 -  Annex 7\. List of Supporting Documents 1\. Full report of Special Committee\. A Summary was insexted in Section 9 (Partner comments)\. 2\. Report of the Accountants (Allied Accounts of Jordan)\. 3\. IC(R Aide-memoire\. -43 -      IMAGING Report No\.: 24237 Type: ICR

REVIEW

P010458

 ICRR 11245 Report Number : ICRR11245 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/15/2002 PROJ ID : P010458 Appraisal Actual Project Name : Power Sect\. Dev\. Pro Project Costs 4,470\.0 2,860\.9 US$M ) (US$M) Country : Pakistan Loan /Credit (US$M) Loan/ US$M ) 230\.0 230\.0 Sector (s): Board: EMT - Power (90%), Cofinancing 0\.0 0\.0 Central government US$M ) (US$M) administration (7%), Law and justice (3%) L/C Number : L3764 Board Approval 94 FY) (FY) Partners involved : None Closing Date 06/30/1999 03/31/2001 Prepared by : Reviewed by : Group Manager : Group : Alvaro J\. Fernando Manibog Alain A\. Barbu OEDST Covarrubias 2\. Project Objectives and Components a\. Objectives The objectives of the project were to: (a) set the stage for a gradual restructuring and privatization of the power sector in general, and the Water and Power Development Authority (WAPDA) in particular, through the implementation of a comprehensive Strategic Plan for restructuring and privatization of the Pakistan power sector; (b) support WAPDA's investment program to minimize the country's chronic shortage of electricity at least-cost while further enhancing demand-side management measures, and facilitating the privatization process; (c) enhance resource mobilization and the operational efficiency, autonomy and accountability of the power sector entities; and (d) strengthen the environmental assessment and mitigation capabilities within the sector\. The objectives were defined by the Government of Pakistan (GOP) in 1992 before project appraisal, and modified in 1998 through a Policy Statement on Power Sector Reform Program\. While the modification largely retained the original objectives of the reform program, it strengthened the implementation arrangements for management and oversight of WAPDA, and established specific milestones for completing the restructuring of WAPDA\. b\. Components The project included three components: (1) A restructuring and privatization component to support: (i) the restructuring and corporatization of WAPDA into a holding company with decentralized power generation, transmission and distribution subsidiaries operating as discrete autonomous profit centers; (ii) the establishment of a National Electric Power RegulatoryAuthority (NEPRA) to set standards and regulate largely privately operated power sector; (iii) the development of a pricing policy which would provide the incentives needed to support the project's privatization objectives; (iv) the development of a labor transition program that would allow the privatization of the power sector to occur in a manner that provides adequate management flexibility to the private sector while addressing the concerns of labor; and (v) the initial offering for sale to the private sector of parts of WAPDA's assets\. (2) An investment component to support a four-year time-slice (FY95-98) of WAPDA's investment program, while improving the reliability of the system in order to make it more efficient and more attractive to private investors\. (3) A technical assistance component to cover consultant services and training for the above mentioned two components, as well as for strengthening WAPDA's environmental capability\. The 1998 Policy Statement on Power Sector Reform discontinued the concept of WAPDA being a holding company\. Instead, it indicated that the thermal generation, transmission and distribution functions of WAPDA were to be taken over by a number of independent companies, while a residual WAPDA was to retain the management and operation of the hydropower generation facilities and the development of the country's water and hydropower resources\. This was the main revision made to the project's restructuring and privatization component\. c\. Comments on Project Cost, Financing and Dates The project was completed at an estimated cost of US$ 2,881 million or 36 percent lower than the US$4,470 million appraisal estimate\. The decrease in cost was mainly due to a significantly lower investment made by WAPDA than the one estimated at appraisal (US$2,861 million in lieu of US$4,442 million) and a reduction in the costs of the restructuring and privatization (US$15\.0 million in lieu of US$20\.2 million) and technical assistance (US$5\.0 million in lieu of US$6\.8 million)\. In June 2000, upon request of the GOP, the original US$230 million Bank loan was reduced to US$218 million\. The GOP on-lent to WAPDA US$198\.0 million to finance investment, technical assistance and part of the restructuring and privatization component\. It retained US$12 million for the component implemented by the GOP\. Ultimately, the US$210 million Bank loan financed equipment and materials (US$187\.4 million), civil works (US$3\.0 million) and consulting services and training (US$19\.6 million) over a period of 6 years\. The GOP and WAPDA financed the balance\. The loan was closed on March 31, 2001 following two extensions of the loan closing date by a total of 21 months\. 3\. Achievement of Relevant Objectives: The project objectives were partially achieved\. A legal and regulatory framework for the power sector was enacted\. It unbundled the power generation, transmission and distribution functions\. The completion of the Strategic Plan for restructuring and privatization of WAPDA is expected by end-2002\. The project financed part of the WAPDA's investment program which together with investment made by private independent power producers (IPPs) are contributing to alleviate the country's chronic shortage of electricity and to decrease power cuts and energy losses\. Also, partial autonomy and accountability of the power sector entities has been achieved\. The strengthening of the environmental assessment and mitigation capabilities of the sector was not achieved\. 4\. Significant Outcomes/Impacts: The National Electric Power Regulatory Authority (NEPRA) was established under the Regulation and Generation, Transmission and Distribution of Electric Power Act in 1997\. NEPRA is responsible for regulating and overseeing the power sector, in particular for setting electricity tariffs for all regulated activities\. WAPDA functions have been reorganized into 3 generation companies (GENCOs), 8 distribution companies (DISCOs) and the National Transmission and Dispatch Company (NTDC)\. A 1,600-MW thermal power station was privatized in 1996\. Extra high voltage transmission lines (1,900 km), secondary transmission grid lines (5,500 km) and power transformer capacity (4,259 MVA) were built and added to the Pakistan power system\. Also, 2\.2 million new customers were connected to electricity service\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): (a) WAPDA's management and staff had no prior experience in dealing with issues involved in restructuring an integrated utility into a number of independent operations and, before 1998, were not committed to restructure WAPDA\. Some of these weaknesses in institutional capacity, which contributed to significant delays in project implementation, could have been overcome by seeking expert advice and availing of training opportunities offered by the technical assistance component of the project\. (b) Although the pricing of electricity tariffs is done in a transparent process, the prices approved by GOP do not reflect the full cost of supply\. NEPRA sets the regulated electricity prices based on petitions made by the suppliers and results of public hearings\. However, NEPRA in setting tariffs has to also taken into consideration the GOP's economic and social policies which tend to price electricity below the values dictated by purely economic principles\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory The enacting of the power sector reform Law, the initial steps taken by the GOP to implement it fully in the years to come, and the physical investment made to improve the power sector support the satisfactory rating\. This is in spite of the low ERR of the physical investment, and the failure of the project to achieve progress in the environmental front\. Institutional Dev \.: Modest Modest Sustainability : Likely Likely This rating assumes that the new legal framework for the power sector will  permit the allocation of resources to NEPRA to enable it operate autonomously in overseeing the power sector and setting electricity tariffs based solely on economic principles\. Bank Performance : Satisfactory Satisfactory The Bank was very flexible in accepting project delays resulting from a complex implementation of the reform program within the economic and political context of the country, and because of the interest the Bank had in maintaining a standing dialogue with the GOP on power sector privatization\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: (a) A program to unbundle and restructure a large organization is not likely to succeed if implemented from within the organization\. It would be advisable to undertake the reform program through a management team and agents who are at the same time committed to the reform and empowered by the Government with a full mandate and authority to carry out the restructuring and unbundling\. (b) In the power sector, a privatization program should give initial priority to the privatization of the power distribution companies rather than the privatization of the power generation plants\. (c) An active campaign of public awareness and dissemination of the power sector reform will help employees, customers, others stakeholders and public at large to understand the rationale and benefits/costs entailed by the reform program\. Radio and TV media, the Internet, and seminars and workshops would be the appropriate instruments to carry out the campaign\. 8\. Assessment Recommended? Yes No Why? Several matters are at issue: (i) the actual implementation of the restructuring of WAPDA and the privatization of distribution companies; (ii) the way a wholesale or pool power market will be established and managed; (iii) the financing of NEPRA's operating budget; and (iv) the setting of electricity tariffs and its impact on the financial position of WAPDA\. Moreover, the environmental objectives of the project were not achieved\. 9\. Comments on Quality of ICR: The ICR complies satisfactorily with the Bank guidelines for the preparation of ICRs\. It presents a detailed description and evaluation of the project results\. It would have been enriched had the legal and regulatory framework been explained in more detail, and the results of the project mid-term review reported\. The review of the ICR by a technical editor might have help to fill a few gaps and correct minor mistakes (examples: the estimated cost of the investment component of the project was US$4,443 million and not US$4,470 million; no data was provided in the table for Project Financing by Component; and in Table 4-Bank Inputs, the mid-term review mission was not listed)\.

REVIEW

P057952

 ICRR 12667 Report Number : ICRR12667 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 11/01/2007 PROJ ID : P057952 Appraisal Actual Project Name : Social Investment US$M ): Project Costs (US$M): 29\.32 29\.47 Fund 2 Project (sif 2) Country : Armenia Loan/ Loan /Credit (US$M ): US$M): 20\.00 20\.87 Sector Board : SP US$M ): Cofinancing (US$M): 2\.71 1\.92 Sector (s): General education sector (41%) General water sanitation and flood protection sector (26%) Irrigation and drainage (17%) Other social services (16%) Theme (s): Rural services and infrastructure (25% - P) Access to urban services and housing (25% - P) Improving labor markets (24% - P) Small and medium enterprise support (13% - S) Participation and civic engagement (13% - S) L/C Number : C3348 Board Approval Date : 05/11/2000 Partners involved : DFID Closing Date : 12/31/2005 08/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Nalini B\. Kumar George T\. K\. Pitman Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The aim of the project was to assist the Government of Armenia in its continuing endeavor to improve the living standards of the lower income groups in the population and strengthen institutions at the local level \. The specific project objectives were to: (i) Improve basic social and economic infrastructure that can result in immediate improvements of the living conditions of the poorest among the population and short -term employment opportunities\. (ii) Develop partnership at the local level between the local government authorities and communities through effective outreach programs to improve planning, coordination, management and information dissemination activities \. (iii) Enhance greater stakeholder participation and empowerment at the local level by supporting the decentralization of activities which will provide clearer roles and greater accountability for the local governments and communities in the design, implementation, sustainability of micro projects, and the eventual transition to direct contracting of works \. (iv) Promote institution building and social capital formation at the local level focusing on strengthening local government and communities in decentralized management of basic public services \. (v) Promote private sector development by creating opportunities for the local construction industry, fostering competitive bidding processes and by training small -scale contractors\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had three components : 1\. Rehabilitation of Small -Scale Infrastructure (Appraisal estimate US$18\.68 million actual US$25\.13million) This component built on the work carried out under the first social investment fund project to rehabilitate basic social and economic infrastructure in communities \. It also financed a capacity building and technical assistance program benefiting implementing agencies, local governments, contractors and social fund staff for preparation, design, procurement, implementation and maintenance of micro -projects\. 2\. Local -Level Institutional Strengthening (Appraisal estimate US$0\.90 million, actual US$0\.78 million) Local governments and community -based associations were targeted for capacity building by technical assistance to strengthen partnerships between them and to enhance capacity for greater effectiveness in service delivery \. ASIF ) (Appraisal estimate US$3\.60 million actual 3\. Institutional Support to the Armenia Social Investment Fund (ASIF) US$3\.48 million) This component supported the project management unit through provision of limited office equipment, vehicles, salaries and operating costs including training of staff \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The credit amount at appraisal is noted as US$ 20\.00 million\. However the Disbursement Estimates in project portal gives the SDR equivalent at appraisal as US$ 22\.58 million\. At appraisal community contribution was estimated to be US$2 million and government counterpart funds were to be US$ 1\.43 million\. Actual community contribution was US$ 2\.55 million and actual government contribution was US$ 2\.02 million\. Substantial savings were made in the Consultants' Services category due largely to the hiring of local consultants and firms to carry out key assessments, capacity building programs and microproject design and supervision\. A total of US$1\.4 million was reallocated and led to an increase of works under the Small -Scale Infrastructure component\. However, the amount of this reallocation does not completely explain how the total cost of the infrastructure component increased from US$ 18\.68 at appraisal to US$25\.13 million at completion\. The Government requested for extension of the IDA credit by 8 months\. 3\. Relevance of Objectives & Design: The project objectives were consistent with the Government's poverty reduction strategy and its development priorities\. At the time of project preparation in 1999, Armenia faced several hardships arising from economic transition\. Infrastructure had deteriorated and one -half of the population was living below the poverty line \. The project was relevant to the government objective of moving rapidly to redress the immediate needs of the Armenian population\. The 2004 Country Assistance Strategy also underscored the importance of raising the living standards of the poor and vulnerable groups through better health, education and other basic services \. Overall relevance is rated substantial \. 4\. Achievement of Objectives (Efficacy): The overall objective of assisting the Government of Armenia in its continuing endeavor to improve the living standards in the population and strengthening institutions at the local level appears to have been substantially achieved through increased access of the population to cleaner drinking water, improved schools, increased income from short term employment, among others \. However the evidence in the completion report on outcomes is weak and largely based on the results of limited beneficiary and social capital impact assessment surveys carried out in a small number of communities and it is difficult to say how widely these results were acheived \. With respect to the specific project objectives: (i) The objective of improving basic social and economic infrastructure was largely achieved and short term employment opportunities were created \.There were 332 community infrastructure improvements covering schools, potable water facilities, irrigation systems and community centers in remote communities \. 57 schools were rehabilitated or newly built in the earthquake zone, furniture was provided for 620 schools and heating systems were installed or repaired in approximately 50 schools\. Water supply services were rehabilitated or constructed in 50 villages\. The ASIF project program also complemented and thereby contributed to the development programs in Armenia which helped reduce the poverty rate in the country from 56\.1 percent in 1998/99 to 34\.6 percent in 2004\. It is however not clear how much of the decline in poverty can be attributed to the project \. That said, the region in its comments provides additional information from a poverty mapping exercise which shows that at least half of the communities who received ASIF support had faced higher than average incidence of poverty in their respective marz in 2004\. (ii) Some partnerships are reported to have been developed at the local level between local government authorities and communities but there is no information presented in the ICR on many of the key outcome and impact indicators (even though these were identified in the appraisal report to assess the objective \.) (iii) While about a 1,000 meetings were organized involving 155,000 community members it is difficult to judge whether stakeholder participation and empowerment at the local level was enhanced because there is no baseline against which a comparison can be made \. The completion report draws on the findings of beneficiary and social capital impact assessments but there is little information presented on how the treatment communities in which they were carried out were selected\. Annex 10 (page 53) on the methodology for the social capital impact assessment clearly notes that the "beneficiary sample was not selected to be statistically representative of ASIF communities' total beneficiary communities\." (iv) The completion report notes the numerous training courses held for government officials, school staff and community members and this probably did contribute to institution building and social capital \. However, it is difficult to say how much social capital was created at the local level because there is no baseline \. The completion report also acknowledges (page 24) "With regard to the project's local level institutional strengthening activities, it is difficult to evaluate the full impact of these activities regarding assistance to the national decentralization program \. Its essentially pilot activities have not been in place very long and their across -the -board results are not yet entirely manifested\. " (v) There appear to be some gains in promoting private sector development by creating opportunities for the local construction industry, and by training small -scale contractors\. However, the completion report also notes that the higher contract prices significantly reduced the number of contractors participating in work bids \. The completion report does not provide evidence on some of the key indicators noted in the appraisal document \. For example, satisfactory ratings from contractors on training received and the number of contractors that participated in more than one micro project\. Moreover there was no baseline against which a comparison could be made \. 5\. Efficiency (not applicable to DPLs): No rate of return calculations were made at either appraisal or completion \. This is unfortunate as an ex-ante cost-benefit analysis could have been done for each typical category of micro project (that constituted the major element of project cost) at appraisal, and an ex-post ERR calculated for a sample of completed micro projects for the ICR\. However some cost-effectiveness analysis of micro projects supported by the social fund vis -a-vis those of comparator organizations was carried out on the basis of which the ICR claims that average costs of a new school (more than half of social fund micro projects ) constructed by the social fund was less than a comparator NGO or the government\. The average cost per beneficiary in new schools constructed are also claimed to be lower\. In case of water supply (20 percent of total) social fund micro projects had the lower cost per beneficiary compared to the NGO but were on average more expensive because of their size and complexity \.The picture was mixed for irrigation where cost per beneficiary for the social fund micro projects were lower than the government but higher than the NGO\. It is difficult to make an assessment of efficiency of resource use on the basis of the cost -effectiveness analysis for three reasons: (i) first by the appraisal document's admission (page 44) the degree of cost-efficiency and effectiveness of alternatives can significantly vary depending on the nature, mandate and modus -operandi of an organization; (ii) As noted by the completion report, while the actual total disbursements for the micro -projects far exceeded the amount estimated at appraisal the works completed were less in volume (page 14) because prices of work contracts were significantly higher than estimated at appraisal; (iii) the use of unit capital costs to assess efficiency needs to be complemented with other means as the cheapest schemes may carry high operation and maintenance costs \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\.  6\. Outcome: Given the concerns on efficiency and the weaknesses on the evidence on achievement of objectives, overall outcome is rated moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The ICR claims that the risk to development outcome is low because, among other reasons, there is likely to be continuing government support for the types of assistance which the social fund has supported and because there has been progress towards integrating community -based projects with local institution building \.However there is limited evidence on these in the ICR \. Neither does the report provide information on how the schools in the communities will pay for the services of teachers or for the maintenance of water supply \. In its comments the Region provides additional information on this aspect \. It notes that the practice in Armenia is that all teachers' salaries are paid through allocations to schools originating from the central government budget leaving some maintenance expenditure to be met by the communities \. Constraints also remain which can hinder progress toward integrating community -based projects with local institution building\. These include: predominant central government powers and the lack of suitable division of labor with local administrations; inadequate autonomy and resources of local governments; numerous gaps and uncertainties in governance arrangements; substantial unskilled personnel and instabilities in municipal administrations \. In its comments the Region provides additional information on this aspect also \. It notes that systems have been put in place through extensive training of mayors and municipal officials, development of municipal plan and budget and provision of line items in these budgets for the maintenance of public facilities \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: The project objectives were ambitious for a five year implementation period \. The project not only hoped to provide substantial infrastructure and service improvements to the poor but also contribute to social capital building and institution building\. While substantial infrastructure was built it is less clear how much social capital was actually built\. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government Performance : Government commitment to the social fund was strong and more counterpart funds than envisaged at appraisal were provided \. The Ministry of Finance was however not very successful in mobilizing the envisaged level of external co -financing\. Implementing Agency Performance : The Social Fund's technical and professional capacity allowed it to successfully cover a large number of communities \. The agency was also able to effectively deal with several challenges as they arose --the increase in the price of construction material, the foreign currency realignments and the resulting program delays \. The ICR however notes that the social fund's decision to make investments in some large water networks were debatable choices but does not clarify further \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E design built on the experience of the first social fund project and hence considerable emphasis was put on systematic data collection and analysis in this project \. The appraisal document contains an extensive list of outcome/impact and output performance indicators \. M&E however was able to provide more information on the quantitative goals of delivering infrastructure, number of training courses held among others than on qualitative changes in institutional capacity \. There was also no baseline to assess how much living standards improved or if the poorest communities/income groups were the main beneficiaries \. M&E Implementation: As already seen in section 4 above, at the completion stage not all the indicators were reported on and there is more reporting on output than outcome /impact indicators\. Though M&E also put considerable emphasis on collecting considerable information thorough the use of social capital impact assessment, beneficiary surveys and impact assessments, institutional assessment and other tools, it is not clear how frequently these were carried out and how the communities were chosen for the beneficiary surveys \. M&E Utilization: The completion report notes that the mid -term review of the project carried out in November 2003 provided recommendations for project improvements drawing on the findings of Beneficiary assessments, institutional assessments, among others \. The Social Fund also upgraded its MIS which was linked with its internal accounting operation thereby permitting both systems to use one database \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The appraisal document noted that certain types of micro -projects such as water supply rehabilitation schemes may require special environmental mitigation measures to protect the quality of the water source \. The document noted that environmental mitigation measures may also be needed in case of sewerage, sanitation systems and irrigation rehabilitation works\. The completion report provides no details on these aspects but notes that a Bank review of the social fund's operations concluded that no micro projects presented environmental problems \. In addition, the completion report notes the need for caution on fiduciary issues \. It reports on a recent business and enterprise survey report which notes that the Social Fund has to function under conditions of high perceived corruption in national commercial activities in Armenia \. The completion report also notes that a CFAA report noted the significant overall fiduciary risk in Armenia because of weaknesses in core control and regulatory agencies and in the quality of auditing, monitoring and supervision \. The one negative fiduciary experience reported was reportedly handled by the Armenian Government in a systematic manner \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately There are concerns about the evidence Satisfactory on efficiency and efficacy in this project as seen in section 4 and 5 of this review\. As noted in the Notes to this table when insufficient information is provided by the Bank to arrive at a clear rating, IEG has the option to downgrade the rating\. In this case the outcome rating has been downgraded to moderately satisfactory\. Risk to Development Negligible to Low Moderate Weaknesses remain in the institutional Outcome : environment as noted in section 7\. Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Based on the ICR the following lessons are highlighted : Even the most sophisticated poverty targeting strategies can be difficult to implement because of political pressures, data limitations and the limitation of demand driven approaches that do not ensure that the majority of the employment benefits go to the poorest \. Projects aimed at capacity enhancement and community participation should explicitly and systematically monitor and evaluate the extent to which these are achieved using both quantitative and qualitative measures \. Sustainability considerations must be thought through from the beginning of the project \. This includes sufficient thought as to how groups /associations formed at the community level will continue to function effectively on project closure, and the in -country capacity to support operation and maintenance \. 14\. Assessment Recommended? Yes No Why? To verify the outcome and risk to development outcome rating and also identify lessons of experience especially with respect to institution building and social capital enhancement \. 15\. Comments on Quality of ICR: The ICR is rated unsatisfactory overall as there are several important shortcomings : On the basis of the evidence presented it is difficult for the reader to reach a conclusion on the achievements under the specific project objectives \. Some critical information to make an assessment of the risk to development outcome was also not presented in the ICR but was provided subsequently in the comments from the Region \. The report notes that the social fund's decisions to make investments in some large water networks were debatable choices (page 31) but does not clarify further why \. The ICR also does not provide information on several critical indicators that are noted in the appraisal document on project ownership and sustainability (page 32) namely--satisfactory reports by ASIF follow -up engineers on operation and maintenance of facilities, number of plans prepared jointly on raising local contribution for project sustainability, number of contacts documented by the promotion team on initiatives to include line items in the local budget for operation and maintenance expenditures, feedback from local authorities and communities on project ownership and maintenance issues during project implementation, workshops and seminars convened to discuss operation and maintenance \. The report notes on page 22 that Annex 13 describes the methodology for beneficiary and other assessments however the ICR does not include the Annex \. On further reading it can be seen that some details on methodology for these assessments are included as part of Annex 10 but this section does not explain how the treatment communities were selected \. There is a discrepancy in appraisal dollar amounts for the three components between the text and annex tables in the report which the Region in its comments explains is the result of price contingencies \. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P108525

Document of The World Bank Report No: ICR00003207 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H3880) ON A GRANT IN THE AMOUNT OF SDR 1\.9 MILLION (US$ 3\.0 MILLION EQUIVALENT) TO THE GOVERNMENT OF THE KYRGYZ REPUBLIC FOR A CAPACITY BUILDING FOR ECONOMIC MANAGEMENT PROJECT April 30, 2015 Macroeconomic and Fiscal Management Global Practice Central Asia Country Unit (ECCU8) Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 25, 2015) Currency Unit = Kyrgyz Som (KGS) US$ 1\.00 = KGS 61\.0968 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CADII Central Agency for Development, Investments and Innovation CAS Country Assistance Strategy 2007-2010 CBEM Capacity Building for Economic Management CIS Confederation of Independent States EU European Union GTZ German Aid Agency ICRR Implementation Completion Results Report HRM Human Resources Management IDA International Development Assistance IEG Implementation Evaluation Group (WB) IMF International Monetary Fund JCSS Joint Country Support Strategy M&E Monitoring and Evaluation MEDT Ministry of Economic Development and Trade MOE Ministry of Education MOF Ministry of Finance NBKR National Bank of the Kyrgyz Republic NGO Non-governmental Organization OECD Organization for Economic Co-operation and Development PAD Project Appraisal Document PDG Policy Development Group PDO Project Development Objective PIU Project Implementation Units PM Prime Minister PPP Public Private Partnerships PSRR Public Sector Reform Roadmap RIA Regulatory Impact Assessment RMSM Revised Minimum Standard Model SECO Swiss Economic Cooperation SC Steering Committee TA Technical Assistance USAID United States Aid VAT Value Added Tax WB World Bank  Vice President: Laura Tuck Country Director: Saroj Kumar Jha Senior Director Marcelo Giugale Practice Director Satu Kahkonen Practice Manager Miria Pigato Project Team Leader Bakyt Dubashov ICR Team Leader Kamer Karakurum Ozdemir  Kyrgyz Republic Capacity Building for Economic Management Project CONTENTS Data Sheet A\. Basic Information\. i  B\. Key Dates \. i  C\. Ratings Summary\. i  D\. Sector and Theme Codes \. ii  E\. Bank Staff \. ii  F\. Results Framework Analysis \. ii  G\. Ratings of Project Performance in ISRs \. vii  H\. Restructuring (if any) \. vii  I\. Disbursement Profile\. viii  1\. Project Context, Development Objectives and Design \. 1  2\. Key Factors Affecting Implementation and Outcomes\. 3  3\. Assessment of Outcomes \. 9  4\. Assessment of Risk to Development Outcome \. 11  5\. Assessment of Bank and Borrower Performance \. 11  6\. Lessons Learned \. 13  7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 14  Annex 1\. Project Costs and Financing \. 15  Annex 2\. Outputs by Component \. 16  Annex 3\. Economic and Financial Analysis \. 19  Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 20  Annex 5\. Beneficiary Survey Results \. 21  Annex 6\. Stakeholder Workshop Report and Results \. 22  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 23  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 27  Annex 9\. List of Supporting Documents \. 28  A\. Basic Information Capacity Building for Country: Kyrgyz Republic Project Name: Economic Management Grant Project ID: P108525 L/C/TF Number(s): IDA-H3880 ICR Date: 04/30/2015 ICR Type: Core ICR Lending Instrument: TAL Borrower: KYRGYZ REPUBLIC Original Total XDR 1\.90M Disbursed Amount: XDR 1\.84M Commitment: Revised Amount: XDR 1\.84M Environmental Category: C Implementing Agencies: Ministry of Economy Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/12/2008 Effectiveness: 12/18/2008 12/18/2008 11/10/2011 Appraisal: 05/08/2008 Restructuring(s): 03/04/2013 10/30/2013 Approval: 07/01/2008 Mid-term Review: Closing: 12/31/2012 06/30/2014 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately satisfactory Government: Moderately satisfactory Implementing Quality of Supervision: Moderately satisfactory Moderately satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately satisfactory Moderately satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 100 Theme Code (as % of total Bank financing) Administrative and civil service reform 24 Analysis of economic growth 25 Macroeconomic management 25 Public expenditure, financial management and 13 procurement Regulation and competition policy 13 E\. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Shigeo Katsu Country Director: Saroj Kumar Jha Annette Dixon Practice Miria Pigato Kazi Mahbub-Al Matin Manager/Manager: Roland Clark and Ekaterina Project Team Leader: Bakyt Dubashov Vashakmadze ICR Team Leader: Kamer Karakurum Ozdemir ICR Primary Author: Kamer Karakurum Ozdemir F\. Results Framework Analysis Project Development Objectives The objective of the Project is to assist the Recipient in establishing and institutionalizing an efficient and effective framework for formulating and implementing sustainable economic policies ii as well as in enhancing the capacity of public institutions responsible for the development and implementation of such policies to formulate and carry out the policies\. The most important project objectives are: a) contribute to government-wide coherent macro- economic policy development and decision making through establishing strong inter-ministerial coordination and interface; b) support process of economic policy development and implementation through enabling public institutions (and particularly the MEDT, through capacity building and restructuring) to formulate sound and analytically informed policy measure and proposals; and c) support reform of employment practices and wages in the civil service by building the capacity in a special task force in this area\. Revised Project Development Objectives (a) PDO Indicators Original Target Formally Actual Value Achieved Values (from Revised Indicator Baseline Value at Completion or approval Target Target Years documents) Values Enhanced interministerial coordination and capacity to ensure a coherent economic Indicator 1: policy decision-making process\. Met\. The government adopted a system for Procedures economic forecasting formalized and and a procedure for coordination socio-economic Value mechanisms development prognosis\. quantitative or Poor coordination established; N/A A macroeconomic and Qualitative) Regular meetings investment policy of coordination coordination council committee with and a technical group relevant agenda\. on financial programming have been established\. Date achieved 12/31/2013 Comments The meetings of the macroeconomic and investment policy council occur as needed (incl\. % with no predetermined time schedule\. (60%) achievement) Public institutions (and particularly the MEDT, through capacity building and Indicator 2: restructuring) are enabled to formulate sound and analytically informed policy measure and proposals\. Met\. The new structure of the Ministry of MEDT has old MEDT Value Economy has been dysfunctional structure reorganized quantitative or N/A adopted and better and low analytical consistent with Qualitative) suited to carry out the capacity\. new structure\. tasks assigned to the Ministry\. Date achieved 06/30/2014 iii Comments Frequent restructurings within the government were an impediment to establishing (incl\. % capacity\. achievement) (60%) Capacity for carrying out a reform of wages and employment in the civil service, Indicator 3 : together with options developed\. Met\. The government adopted a new wage Salary task force system for civil Value presents options No existing capacity to servants and is quantitative or for wage and N/A carry out a pay reform\. implementing measures Qualitative) employment to improve reform\. remuneration in the civil service\. Date achieved 06/30/2013 Comments In addition to the new wage system, the government adopted a regulation to evaluate (incl\. % civil servants' performance, requirements standards and job instructions for the civil achievement) servants\. (75%) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Presidential Decree/Government Regulation which (a) clearly defines roles and Indicator 1: responsibilities in economic policy design, implementation and evaluation at central level, and (b) establishes an effective coordination mechanism\. Coordination procedures Met\. The formalized in macroeconomic and decree or investment policy Value regulation\. No existing coordination council was (quantitative Agreement N/A procedures established (the or Qualitative) reached on regulation and composition and composition of the agenda of council)\. coordination committee\. Date achieved 05/31/2011 Comments To support the work of the council, a technical group on financial programming (incl\. % was also established\. (100%) achievement) Regular meetings of coordination group taking place, with appropriate agenda Indicator 2: and relatively few major economic policy decisions being taken outside the mechanism\. Value Coordination Not met\. The (quantitative N/A committee N/A macroeconomic and or Qualitative) meeting regularly investment policy iv  with substantive council meets only appropriate as needed with no agenda\. predetermined regular schedule\. Date achieved Comments The technical group on financial programming meets regularly, while the high- (incl\. % level coordination council does not\. achievement) (50%) Publication of macroeconomic and fiscal forecasts with evidence that these Indicator 3 : forecasts provide the basis for budget and economic policy discussions\. Met\. The government Publication of publishes the Mid- more detailed term Socio- forecasts at least economic Value twice during the Development (quantitative Not currently published\. N/A year, and evidence Prognosis, the Mid- or Qualitative) that forecasts form term Budget the basis of budget Framework and planning\. annual budget laws with explanatory notes, once a year\. Date achieved Comments These documents are published on the Ministry of Finance and the Ministry of (incl\. % Economy web-sites once a year, rather than twice a year\. achievement) (90%) Indicator 4: New structure of MEDT corresponds to that proposed in the SDP\. Met\. The new structure of the MEAMP Ministry of Value Dysfunctional current reorganized Economy has been (quantitative N/A structure\. consistent with adopted and is or Qualitative) new structure\. adequate to address the tasks assigned to the Ministry\. Date achieved 08/31/2013 Comments (incl\. % The current structure is adequate to address the assigned tasks\. (75%) achievement) Satisfactory implementation (according to private sector surveys) of significant Indicator 5: measures to improve the business environment proposed by the investment council\. Not met\. The 2013 Surveys indicate BEEPS results progress in other Value suggest that areas of business (quantitative N/A N/A companies' environment and or Qualitative) perceptions of increase various aspects of satisfaction with the business climate v  the performance of have improved IC and MEDT\. since 2008\. According to surveys conducted by the Bishkek International Business Council, the business environment improved in some areas\. Date achieved According to the National Statistics Committee, the trust of the population to the Comments Ministry of Economy and the quality of services by the Ministry improved but (incl\. % still remain low\. achievement) (50%) High quality policy papers are produced and subsequently translated into policy Indicator 6 : decisions\. At least six policy papers developed, of which three are Value judged to be of Met\. Eight studies (quantitative N/A high quality and at N/A have been or Qualitative) least one forms the conducted\. basis of a significant policy decision\. Date achieved Comments The studies included the following themes: the shadow economy, the tourism (incl\. % sector, corruption, the impact of the accession to the CU on the textile industry, achievement) the fiscal and monetary policies and economic institutions\. (75%) Indicator 7: Pay and grading reform group established\. Met\. The task force Salary task force was established and Value established and it developed and (quantitative No existing task force\. N/A basic data basic data was or Qualitative) collected\. collected\. Date achieved Comments (incl\. % Action fully achieved\. (100%) achievement) Indicator 8: Options paper for pay reform is produced\. Met\. The task force Salary task force developed and Value presents options submitted the civil (quantitative N/A for wage and N/A service wage or Qualitative) employment strategy and an reform\. action plan to vi  implement the strategy\. Date achieved 06/30/2013 The government adopted a new wage system for civil servants and is Comments implementing measures to improve remuneration in the civil service\. It also (incl\. % adopted a regulation to evaluate civil servants' performance, requirements achievement) standards and job instructions\. (90%) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/25/2009 Satisfactory Satisfactory 0\.10 2 01/30/2010 Satisfactory Satisfactory 0\.24 Moderately Moderately 3 12/31/2010 0\.39 Unsatisfactory Unsatisfactory 4 07/08/2011 Moderately Satisfactory Moderately Satisfactory 0\.48 5 03/26/2012 Moderately Satisfactory Moderately Satisfactory 0\.98 6 09/12/2012 Moderately Satisfactory Moderately Satisfactory 1\.41 7 02/27/2013 Moderately Satisfactory Moderately Satisfactory 1\.91 8 10/08/2013 Moderately Satisfactory Moderately Satisfactory 2\.12 9 04/26/2014 Moderately Satisfactory Moderately Satisfactory 2\.46 10 06/21/2014 Moderately Satisfactory Moderately Satisfactory 2\.60 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 11/10/2011 MS MS 0\.71 Reallocation among categories\. Extension of the closing date and reallocation among categories with the aim of strengthening the capacity of 02/13/2013 MS MS 1\.7 the Ministry of Economy in its current and new policy priorities including anti- corruption\. Extension of the closing date and reallocation among 10/30/2013 MS MS 2\.15 categories to further strengthen capacity of the Ministry of Economy\. vii I\. Disbursement Profile viii 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Kyrgyz Republic has faced overwhelming development challenges in the post-1991 transition\. Growth has been sporadic and average growth rate during 1996-2006 was below many other CIS\. Among the main constraints to a better economic performance were heavy involvement of the public sector, weak governance and flaws in public administration, leading to a poor business environment\. According to the 2005 Investment Climate Assessment while the authorities made significant upgrades to the legal framework for doing business, weak implementation capacity and lack of enforcement mechanisms undermined the impact of the regulatory reforms\. The project appraisal document thus identified the following as the key development issues facing the authorities in achieving high and sustainable growth: (i) the development of the capacity to maintain macroeconomic stability using domestic institutional and analytical capacities; (ii) the ability to develop and implement policies to improve the business environment; and (iii) the need to build and retain capacity in the public sector for both of these objectives\. The project was grounded in the Joint Country Support Strategy (JCSS) which underlined business environment as a one of the key areas of engagement and suggested that capacity building in economic policy formulation and implementation will be critical\. While other donors such as USAID, GTZ and the EU have also been involved in activities aiming to improve the business environment, the appraisal document of the project argues the Bank has a clear comparative advantage\. This is due to the Bank’s ability to provide direct support for capacity building to the Ministry of Economy and support policy coordination at the government level, building on the Bank’s ongoing engagement on public financial management reform and through the Country Economic Memorandum TA\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The objective of the Project was to assist the Recipient in establishing and institutionalizing an efficient and effective framework for formulating and implementing sustainable economic policies as well as in enhancing the capacity of public institutions responsible for the development and implementation of such policies to formulate and carry out the policies\. The most important project objectives were: a) contribute to government-wide coherent macro- economic policy development and decision making through establishing strong inter-ministerial coordination and interface; b) support process of economic policy development and implementation through enabling public institutions (and particularly the MEDT, through capacity building and restructuring) to formulate sound and analytically informed policy measure and proposals; and c) support reform of employment practices and wages in the civil service by building the capacity in a special task force in this area\. 1 1\.3 Revised PDO and Key Indicators, and Reasons/Justification There was no revision to the original PDO\. 1\.4 Main Beneficiaries, The main direct beneficiary of the project is the Ministry of Economy through the second component on capacity building in improving economic policy making and implementation\. The first component on improving the inter-agency coordination has aimed multiple agencies including the Ministry of Finance and the Government’s office\. Similarly, the third component on the pay and grading reform has been aimed at benefitting all civil servants across government agencies\. 1\.5 Original Components The project was aimed at financing training, consultancy services and capacity building in the following areas: ï‚ Component 1\. Institutional and technical framework for government-wide macroeconomic policy development and co-ordination (US$0\.563 million); ï‚ Component II\. Strengthening the capacity of MEDT and the MOF to fulfill an effective role in macro-economic analytical work and policy development (US$1\.969 million); ï‚ Component III\. Development of capacity to carry out a pay and grading reform in the civil service (US$0\.381 million); and ï‚ Component IV\. Project management and coordination (US$0\.328million) The project emphasized building local capacity and wherever possible the use of local consultants and resources\. In addition, the project recognized that one of the key constraints to any institutional reform process is the difficulty in attracting and retaining skilled personnel given the poor remunerations and incentives\. It therefore supported the use of locally financed salary supplements for key officials engaged in the reform process, after their selection through a competitive and transparent process\. The use of such supplements was suggested as a means to initiate a virtual circle whereby through recruiting and retaining qualified professionals, the quality of the working environment in selected areas of the public sector is raised, and disincentives are reduced\. Moreover it was foreseen that the practice of provision of such incentives may be extended as an interim measure until a full pay and grading reform would be instituted for the Civil Service, on the basis of the detailed work carried out by the Salary Task Force supported under component three\. The salary supplements would be paid by the authorities as co-financing of the project, and would constitute the first phase of a reform program that would extend beyond the life of the project, in which such supplements would be incorporated into a revised salary structure, on a timescale consistent with resources available, to ensure that all institutional changes supported by the project are sustained and extended\. 2 1\.6 Revised Components There were no substantive revisions to the components of the project\. However the March 4, 2013 Level 2 restructuring aimed at reallocating funds to support the Government reform on anti- corruption under Component 2\. 1\.7 Other significant changes There were two extensions to the closing date of the project\. The original closing date of December 31, 2012 was first extended to December 31, 2013 and then to June 30, 2014\. The main rationale for the first extension was the late start to the project which was at least partly due to the turbulence in the Kyrgyz Republic during this period (2010 revolution and price and supply shocks)\. The second extension aimed to continue supporting monitoring and evaluation of anti-corruption policies, which was brought under the mandate of the Ministry of Economy during the implementation phase of the CBEM\. In addition, three rounds of reallocation of funds were made during the life of the project, as displayed in Table 1 below\. While the shares of the Consultants Services and Training and Study Tours categories changed only marginally, the share of the Operating Costs category increased from 5 percent to 14 percent\. Initial Revised Final Initial (% Revised Revised March (% (in SDRs) Dec 2008 share) Nov 2011 March 2013 2014 share) Goods 173,000 9 173,000 173,000 173,000 9 Consultants Services 995,000 52 899,600 923,707 973,707 51 Training and Study Tours 460,000 24 460,000 460,000 478,000 25 Operating Costs 90,000 5 185,400 253,813 275,293 14 Unallocated 182,000 10 182,000 89,480 0 0 Total 1,900,000 100 1,900,000 1,900,000 1,900,000 100 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The project design builds on the experiences of the Bank in both lending operations and analytic work, combined with technical assistance\. The team makes references in the project document to recent IEG reviews of technical assistance projects and Bank support for public sector reform, OECD report on capacity development as well as Joint Country Support Strategy and CAS completion report of 2007\. Important points acknowledged in the preparatory phase are: (i) the ineffectiveness of previous development policy lending in a weak institutional environment and fragile political structure; (ii) the need to be realistic about political and institutional capacity, while also being opportunistic by preparing technical foundations for future engagement; (iii) the difficulty of changing behavior and organizational culture that need to accompany technical improvements; and (iv) the effectiveness of focusing on simple and basic reforms rather than sophisticated ones\. 3 Building on these principles, the project focused primarily on macroeconomic and fiscal policy coordination and strengthening the capacity of the Ministry of Economy but also included a wage and grading reform component\. 2\.2 Implementation Several political disruptions following the inception of the project negatively affected the management of the project and implementation in the early phases\. The initial design established a Steering Committee for supervision of the project, consisting of the representatives of the key government agencies (Ministry of Economy, Ministry of Finance, PM’s office, National Bank, State Personnel Service as well as NGOs)\. The Steering Committee (SC) would be chaired by the Head of the Economic and Social policy Division of the President’s Administration and would be responsible for the overall guidance of the project and formal approval of TORs for consultants\. The first SC was established in October 2008 but within a year, in October 2009, this structure was effectively dissolved due to the change in the government\. The second SC was established by the Central Agency for Development, Investments and Innovation (CADII) in early 2010 albeit being very short-lived, as CADII was subsequently abolished\. The gaps that followed these disruptions lead to delays in the activities of the project, by for example, causing suspensions in the recruitment of consultants and cancellation of training events\. Finally, the third and final SC was established by the government in September 2010 and the Ministry of Economy was appointed as the chair of the Committee\. Day-to-day project management and procurement and financial management issues were undertaken by the Project Implementation Unit within the Ministry of Economy\. The risks identified at appraisal were relevant and the project was deemed as a high-risk operation at inception in 2008\. In particular, implementation capacity and sustainability were identified as “high-risk” for the operation\. There were two challenges in this area however: (i) the political disruption in 2010 provided additional constraints to effective implementation due to frequent changes in the management structure of the project and the multiple restructurings of the main beneficiary agency, the Ministry of Economy; and (ii) the mitigating measure identified in the PAD, i\.e\. top-up payments to attract and retain qualified staff, was not sufficient to ensure sustainability\. Despite these distinct challenges, however, overall project implementation has been broadly satisfactory in achieving the outcome indicators towards meeting the overarching project development objective\. There was no mid-term review (on file) and no project at risk status was assigned\. The 3rd and 4th implementation status reports assessed the project as moderately unsatisfactory\. This was the result of significant delays in the implementation of the project vis-à-vis the original plan which in turn was due to two rounds of disruptions in government in 2009 and 2010\. Component 1\. Institutional and technical framework for government-wide macroeconomic policy development and coordination\. The overarching goal of this component was to set up a framework for sound economic policy- making including macroeconomic forecasting, primarily through establishing an inter-ministerial policy coordination council\. Such a council was established through a government decree in May 2011 and its functions were revised through another decree in June 2012\. A technical group on financial programming supported the coordination council and project consultants helped with the preparation of the coordination meetings\. The coordination council was headed by the Prime Minister and included as members the Minister of Economy, the Minister of Finance, the Minister 4 of Labor, the Governor of the National Bank and the Head of the Social Fund\. The technical group comprised representatives from their institutions\. The coordinating council did not meet regularly as foreseen by the project\. There are two reasons behind this: (i) the fundamental change in the regime; while before 2010 the President was responsible for economic development, after the shift to Parliamentary system in 2010, the leadership has moved to the Prime Minister; and (ii) the Prime Minister and the council members have had a heavy agenda and the cabinet meetings partially took over the council meetings\. The difficulty in convening the coordination council was further complicated by the frequent changes in the Cabinet\. Furthermore, the regulation establishing the council referred to specific names and not titles\. As a result, a new regulation would be needed for the new members of the cabinet to serve on the council\. Within the technical group, capacity for macroeconomic forecasting was improved\. The project supported the establishment of an expert team for forecasting and a government resolution set the deadlines for forecasting and budget preparation\. The project provided the tools for and training on IMF financial programming model to a core group of staff in the key central agencies for economic policy-making\. One of the main achievements of the project has been the harmonization and increasing the quality of economic forecasting and facilitating coordination among central agencies at the technical level\. However, the consultation mechanism between the technical group and the high-level coordination council has not functioned effectively, limiting the impact of the newly developed capacity for forecasting\. The first component under the CBEM project was coordinated with the financial programming capacity building under a SECO-funded project\. Component 2\. Strengthening the capacity for economic management, analysis and policy development This is the largest component of the project, receiving over 60 percent of total spending under the project\. The objective of strengthening the capacity for economic management, analysis and policy making within Ministry of Economy (and to a lesser extent in the Ministry of Finance) was pursued through several distinct activities\. Overall, the project was successful in meeting the objective\. Functional Review of the Ministry\. The Ministry of Economy (Ministry of Economic Development and Trade at the time of project preparation) was newly established1 and was assigned a central role in economic policy making\. The Ministry needed to develop capacity to develop sound economic and structural policies and to harmonize policy making across the different government agencies\. Against this background, one of the main activities under the project was a functional review of the Ministry, which identified the roles and responsibilities of its structural divisions, culminating in the restructuring of the Ministry through a government resolution issued in August 2011\. However, the development strategy of the Ministry was not implemented and the Bank’s project team advised to stop supporting this strategy through the CBEM project\. The current structure of the Ministry was adopted in August 2013\. There are separate departments in charge of 1 The Ministry of Economy was initially established in 2004\. The agency changed names several times since then, also reflecting the roles and responsibilities assigned\. 5 policy development, macroeconomic analysis and projections, anti-corruption policy and regulatory impact analysis\. Macroeconomic Projections\. With the help of the project, the Ministry of Economy developed its capacity to make macroeconomic projections and generate different macroeconomic scenarios\. A core group of ministry staff is able to use (i) the financial programming model (as indicated in component 1 above) (ii) the RMSM-x model and (iii) an inflation forecasting model—primarily as an input to the macro models\. The project also funded training on forecasting for 300 regional staff of the ministry and provided support on fiscal modeling, such as on analysis of taxes or VAT refunds, however the outputs relied heavily on consultant support\. In addition, the institutional mandate for tax policy was moved from MoE to MoF during the project implementation period, making unclear the role of MoE in fiscal policymaking, while this change was later reversed\. Human Resources Management\. The main aim of this sub-component was to initiate the concept of human resource management in the Ministry and eventually roll-out to other ministries and public agencies\. In August 2009, the HR department was separated from the Personnel department\. Subsequently, a chief specialist was hired for the new department, but the head of department could not be hired for about a year\. During 2010-13, the officials aimed to establish the institutional framework for an effective Human Resources Management (HRM) system\. The state secretary position (who would be responsible for HRM) was also not filled during this period, which created another constraint in further progress in this area\. An extra salary coefficient was foreseen based on performance and provisions were developed towards this\. However in order to put into effect this new remuneration scheme, an amendment to the civil servants law was needed, which extended beyond the mandate of the Ministry of Economy\.2 Under this component, several training activities took place and local academics were involved in many of these activities\. In addition, an internal survey was conducted, new techniques such as psychological testing was introduced\. Overall, this sub-component helped the authorities establish the concept of HR management and progress was made in (i) developing a better recruitment process based on qualification, (ii) developing training programs based on actual needs and (iii) introduction of performance evaluation\. Implementing and monitoring the government’s anti-corruption action plan\. This sub- component was not explicitly included in the project design, but was added following the 2010 developments which put improved governance at the core of improving public services\. The government approved the national anti-corruption action plan for 2012-14 in August 2012 (supported by the World Bank’s First Development Policy Operation - DPO1) and the Ministry of Economy was put in charge of monitoring and coordination of the implementation of the action plan\. As a result, there was a need to establish a monitoring mechanism for the implementation of the action plan and build capacity within the Ministry for this purpose\. This later augmentation of the project with capacity building in anti-corruption monitoring, in addition to a slow take-off of the project due to political constraints, led to a need to extend the project to June 2014\. A dedicated unit—Department of Anti-corruption Policy was established in August 2013\. With the Ministry of Economy acting as the secretariat for the anti-corruption action plan, the new anti- corruption department took on responsibility on behalf of the Ministry\. The anticorruption unit continues to produce monitoring reports on the implementation of the government’s anticorruption plan\. Moreover, the unit prepared a new government program for anticorruption for 2014-17\. 2 This is officially the mandate of the State Personnel Service\. 6 Policy Development Group (PDG)\. The PDG was established as a division within the MoE with the objective of developing policy and providing analysis of the economic impact of external events and new developments in the economy\. The PDG was envisaged to play a key role in linking the activities of the Ministry of Economy to the Investment Council under the President\. While the PDG was established as a department within the MoE, the abolishment of the Investment Council as a result of the changes in the political regime in the country undermined the function of the PDG in supporting policymaking\. The department was restructured as the division of Strategic planning in June 2013 subsuming the duties of PDG\. While the group produced a number of reports on different issues in public administration and new legislation during the lifetime of the project, it is not clear whether sustainable capacity has been built to produce analytic or strategic documents\. According to the project completion report by the Project Manager, this was primarily due to capacity constraints and other assignments within the Ministry taking over as priorities\. Regulatory Impact Assessment (RIA)\. A new department was established in 2009 within the Ministry of Economy with the objective of undertaking RIAs for government agencies\. The terms of reference for this department were also coordinated with USAID and ADB in the context of their projects in the area of investment climate\. While the methodology for carrying out RIAs was developed under the USAID project, there was a need to enhance it and make it more specific\. At the same time, it was also essential to equip staff with the right skills to conduct RIAs\. The CBEM project aimed to fill in this gap\. Under the project an international consultant was hired to develop a more detailed methodology\. While the newly developed methodology reflected the global experience in this field, it was not fully applicable in the country, given the current structure and inter-governmental relations and dialogue with the private sector\. For example, the absence of a mechanism that facilitates receiving systematic feedback from all stakeholders remained as an obstacle\. A document on the standards for conducting RIAs was prepared and submitted to the government\. Economic assessment of investment projects\. Under this sub-component, the project implementation relied more heavily on consultants, and limited training was provided to the Ministry staff during project implementation\. Consultants produced a number of papers on public investment management and PPPs\. While there are diverging views within government agencies on the degree of usefulness of the activities, (suggesting for example that the recommendations of the consultants on improving public investment management were quite general and made it difficult to implement\.) Currently public investment management remains fragmented, with most public investment projects being financed by donors and no centralized system for fund allocation\. Component 3\. Development of capacity to carry out a pay and grading reform in the civil service While not clearly integrated with the other two components of the project, Component 3, which was led by the State Personnel Service, helped government progress in reforming its pay and grading system\. The Wage Reform Strategy for civil servants in both central and local government agencies covering 2013-20 and an action plan for its implementations was approved by the Government in June 2013 (through resolution number 383)\. The pay system was unified for 28 state agencies and a baseline salary of 5,000 Soms was established, with a built-in gradual increase to this base amount until 2020\. This amount was for the first time made public, representing a move towards a more transparent system\. However there is a need to institutionalize these changes 7 through legal amendments\. 3 The Government also adopted standards for job description and qualifications in civil service and regulations for assessing performance of civil servants and the President approved a new civil service registry in June 2013 (through order number 145)\. The Public Sector Reform Roadmap provides a good framework for the implementation of these improvements to the pay and grading system\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The results framework consisting of project outcome indicators as well as intermediate outcome indicators served as the basis for monitoring and evaluation of the project\. Eight implementation status reports were prepared and filed during the course of the project\. A mid-term review was not undertaken\. The transfer of the team leadership of the project to a Bishkek-based staff in early 2013, last phase of the project, provided an opportunity for a more continuous supervision arrangement for the project as well as increased interaction with the project implementation unit\. On the client side, the project implementation unit with the support of two core economic advisors provided M&E services, primarily by producing annual reports\. However, since beneficiaries of the project was split between several agencies (MoE, MoF, SPS) under the different components, supervision of all activities by the PIU may have been more constrained by the level of interaction between these agencies\. 2\.4 Safeguard and Fiduciary Compliance The project did not trigger any of the Bank’s safeguards\. No fiduciary issues were encountered and financial management practices were satisfactory\. 2\.5 Post-completion Operation/Next Phase There was a formal request from the government, during a meeting with the Minister of Economy on November 27, 2013, to continue receiving technical and advisory services following the closing of the CBEM project\. The request refers to a number of areas including anti-corruption, Customs Union, business environment and investment climate, and state property management\. The Bank responded to this request with a letter dated December 25, 2013\. In most of the areas of interest, the World Bank is providing support through different instruments, rather than a follow-up capacity building project\. For example, the Bank has taken an important role in the implementation of anti- corruption action plan through the work under Public Sector Reform Roadmap (PSRR)\. 3 On December 18, 2014, the Government adopted Resolution #712 for approval of the draft Law of the Kyrgyz Republic “On Public Civil and Municipal Service”\. As of April 2015, the draft law is being reviewed by the Parliament\. 8 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Relevance\. Effective policy-making, including macroeconomic and fiscal policies and institutional capacity to design and implement such policies are at the core of a solid and sustainable development program of the Kyrgyz Republic\. As a result, the project development objective continues to be highly relevant after over six years since project inception\. However it is quite general and high-level for a small project like the current CBEM project\. The design of the project is a reflection of the goal to achieve this high-level objective\. Design and scope\. The scope of the project, with its three main components, also seems relevant for the continued development challenges of the country\. However, the very broad and cross- cutting nature of the project was itself a challenge to achieving results\. The third component on pay and grading reform, for example, does not present itself as a natural complement to the first two components\. While establishing a modern pay and grading system is a priority reform area, a more comprehensive approach within the context of a full and self-standing civil service reform agenda may be more effective in addressing the pay and grading system issues\. Similarly, the second component includes a vast number of sub-components, ranging from very strategic “functional review” to very narrow “evaluation of infrastructure projects”\. This wide-ranging design of the project made it difficult to have a coherent project management while also posing challenges to implementation\. Implementation\. The project clearly suffered from the political disruptions in 2009 and 2010 in its early stages, as these were not really foreseeable\. More structurally, the country still has low institutional capacity and challenges in coordinating macro policies, despite improvements made with the support of the project\. In the absence of clear designation of responsibility for the sub- components of the project, implementation proved to be challenging particularly under the very wide-ranging second component\. 3\.2 Achievement of Project Development Objectives The project was moderately satisfactory in achieving the overarching project development objective\. The objective was “to assist the Recipient in establishing and institutionalizing an efficient and effective framework for formulating and implementing sustainable economic policies as well as in enhancing the capacity of public institutions responsible for the development and implementation of such policies to formulate and carry out the policies\.” As such, the PDO was quite high-level and ambitious\. Yet, the following sub-components were important in partially achieving the main objective\. First, the training and consultancy provided for building macro modelling capacity, under the second component, has led to new and improved practices\. Macroeconomic and fiscal forecasts are now being published at least annually in the Mid-term socioeconomic development prognosis and the mid-term budget framework\. The technical group has been operational and instrumental in improving coordination among different agencies involved in macroeconomic and fiscal forecasting\. Second, capacity has been created in monitoring and evaluation of anti-corruption programs, under the second component\. While, originally not part of the capacity-building program, the assignment of the responsibility of monitoring and evaluation of the implementation of the anti-corruption action plan led to a significant need to improve capacity in the Ministry to fulfill this function\. 9 Establishment of a separate unit within MoE and the training provided through the project helped the authorities reach out to both central and local agencies to support them in designing their own measures and implementing them to reduce the levels of corruption\. Over the last few years, Kyrgyzstan’s ranking on Transparency International’s Corruption Perception Index has improved, from 164th (out of 178 countries) in 2010 to 136th (out of 175 countries) in 2014\. Third, the efforts under the third component on wage and grading reform were also worthwhile in reaching project’s development objective\. A Salary Task Force was established to help the government reform its pay and grading system\. The Wage Reform Strategy for civil servants in both central and local government agencies covering 2013-2020 and an action plan for its implementations were approved by the Government in June 2013\. An improved wage and grading system is an important ingredient to creating a more capable civil service\. Clearly, there is a longer term agenda that will ensure the government to achieve levels of policy formulation and implementation capacity at international best practice levels\. 3\.3 Efficiency The PAD anticipated that CBEM would strengthen the institutional mechanisms and capacity for policy making which would contribute fundamentally to the growth and development prospects of the Kyrgyz economy\. However, as a TA project, no cost-benefit analysis was undertaken at appraisal\. As section 3\.2 above argues, the project has led to significant gains in policy development capacity\. Although the exact gains are not possible to measure quantitatively and attribution of benefits is not straightforward, the assessment of the outcomes of the project in this report suggests the use of funds was broadly efficient\. 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory As described in section 3\.2 above, satisfactory outcomes in the core activities of the project is the driving force behind the moderately satisfactory rating\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development No specific poverty impact, gender aspects and social development issues were discussed in the project document nor were they considered during implementation\. Any potential impact would be indirect and an assessment in these areas could not be made\. (b) Institutional Change/Strengthening Institutional capacity building was at the core of the CBEM project\. The most significant improvement was experienced in the macro modeling capacity of the Ministry of Economy\. Despite various institutional and political constraints, the Ministry was able to enhance its capacity and to adopt new and improved modeling practices\. Macroeconomic and fiscal forecasts are now being published at least annually in the Mid-term socioeconomic development prognosis and the mid- term budget framework\. The technical group has been operational and instrumental in improving coordination among different agencies involved in macroeconomic and fiscal forecasting\. In 10 addition, in the area of policy-making, capacity has been created in monitoring and evaluation of anti-corruption programs within the Ministry of Economy\. While, originally not part of the capacity-building program, the assignment of the responsibility of monitoring and evaluation of the implementation of the anti-corruption action plan led to a significant need to improve capacity in the Ministry to fulfill this function\. Establishment of a separate unit within MoE and the training provided through the project helped the authorities reach out to both central and local agencies to support them in designing their own measures and implementing them to reduce the levels of corruption\. Finally, the Ministry has increased its capacity to develop and review strategic documents\. This improved capacity has helped them contribute to the National Sustainable Development Strategy, and particularly take on the role of harmonizing sectoral strategies within a larger framework\. (c) Other Unintended Outcomes and Impacts (positive or negative) No unintended positive or negative outcomes have been identified\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops No beneficiary survey or stakeholder workshops were conducted as part of this ICR\. 4\. Assessment of Risk to Development Outcome Rating: Moderate The most significant risk to higher capacity created, particularly in the area of macro modeling, is the high staff turnover in the MoE\. This is a common risk faced by capacity-building projects in similar countries and more broadly\. Several staff have already left during the lifetime of the project\. There is no evidence that suggests top-up payments have proven effective in retaining staff, as they were transitionary and introduced high degrees of discretion\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately satisfactory The design of the project was aligned with the needs of the country and its priorities\. It also built on the 2007 Country Development Strategy\. The Project Appraisal Document referred to the Independent Evaluation Group’s recommendation of focusing projects on basics and that TA is essential to upgrade capacity for implementation\. The Project did focus on basics and did not aim for supporting sophisticated reforms\. However, the design of the project encompassed three wide areas of support—not very well integrated and involving multiple beneficiary agencies\. This created a challenge for effective implementation towards meeting the development objective\. The challenge was aggravated by the political disruption in the early phase of the project and a less burdened capacity building program could have taken off sooner in the wake of these disruptions\. Moreover, the top-up payments built into the program did not prove to be effective in improving the implementation of the capacity-building program\. 11 (b) Quality of Supervision Rating: Moderately satisfactory The Bank’s supervision was broadly satisfactory\. The core team stayed engaged and new team members were brought in, when the capacity building program was augmented by anti-corruption monitoring and evaluation program\. Eight implementation status reports were prepared and were filed, while no mid-term review was prepared\. The TTL-ship changed three times after inception, with the last change moving task management to a country office based staff in early 2013\. The latter transfer, in the last phase of the project, provided an opportunity for a more continuous supervision arrangement for the project as well as increased interaction with the project implementation unit\. There were some delays on the Bank side in responding to no-objection requests from the PIU particularly in the early phase of the project\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately satisfactory The overall Bank performance for the project is rated moderately satisfactory\. Although the project development objective is an overarching and ambitious one, progress towards meeting the objective was moderately satisfactory\. The project did assist the government in “establishing and institutionalizing an efficient and effective framework for formulating and implementing sustainable economic policies as well as enhancing the capacity of public institutions responsible for the development of such policies to formulate and carry out the policies”\. Clearly, there is a longer term agenda that will ensure the government to achieve levels of policy formulation and implementation capacity at international best practice levels\. As Annex 2 shows, progress towards meeting the results indicators in three components has been satisfactory\. The design of the project included selected priority needs of the counterpart, and capacity building activities in all three components provided positive contributions\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately satisfactory The authorities greatly value the partnership with the World Bank\. The counterparts have expressed their contentment with the contribution of the CBEM project\. Over the lifetime of the project there were multiple changes in the structure of the government, as a result of which project initiation was delayed and overall progress slowed down\. However, despite these challenges the authorities managed to keep project implementation broadly on track\. The main direct area of involvement for the Government was the Coordination Council under the first component\. The Council was established in May 2011 and its membership and duties were revised in June 2012\. However, the Council did not meet regularly as envisaged as a result of structural changes in the governing structure in the country in the early period and then frequent changes in the government with a continued heavy agenda\. The meetings of the Council took place as needed with no pre-determined schedule\. The technical group also facilitated coordination among various agencies\. 12 (b) Implementing Agency or Agencies Performance Rating: Moderately satisfactory The performance of the two main implementing agencies, the Ministry of Economy and the State Personnel Service was broadly satisfactory\. Most importantly under component 1, participation of key staff from the Government’s Office, Ministry of Economy, Ministry of Finance, NBKR, National Statistical Committee and Social Fund in monthly meetings of the technical group on financial programming helped coordination among agencies\. As a result of this effective coordination mechanism, the inter-agency communication on economic forecasting became more operational and the economic team was better positioned to negotiate with the IMF the 2011-14 program\. At the same time, activities relating to the functional responsibilities of the Ministry of Economy and human resources management under component 2 suffered from lack of leadership in the early phases of the project due to vacancy of the state secretary position and the head of the Human Resource management unit\. Two key issues that had an impact on the performance of the project were the high turnover of staff and the workload of the project staff\. Departmental responsibilities arising from institutional needs undermined staff’s ability to focus on policy development and impact assessment\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately satisfactory Despite difficulties at the project inception and early phases and staff constraints, the authorities facilitated the project to build capacity in the areas described above\. The lack of a properly functioning senior level Coordination Council under the first component did not have substantive impact on the results, due to two reasons\. First, the high-level decisions were considered and taken in the Council of Ministers meetings, if and when needed\. Second, the technical group was fully operational and was influential in coordination among agencies mitigating partially the consequence of lack of regular meetings of the Coordination Council\. 6\. Lessons Learned There are three main lessons learned from the CBEM project experience\. Focus\. Bundling very important but not directly complementary components under a single project made it challenging to coordinate and implement\. Thus, more targeted capacity building programs could have yielded better results\. Capacity constraints\. Factoring in institutional constraints more explicitly in the implementation design could be more effective in achieving higher level results\. An assessment of the initial capacity could have been useful\. An initial constraint for the implementation of the project was the relatively inexperienced staff at the ministry which led to a longer time period for getting the project up and running\. Engaging a combination of young well-educated staff and experienced staff who would have a deep understanding of the policy-making processes of the country would have created a better basis for effective implementation\. Sustainability\. Finally, incorporating in the project top-up payments by the government to the project staff did not prove to be useful\. One issue with this practice was the discretionary nature of who would receive these additional payments, with the Deputy Minister selecting eligible staff\. This practice ended in December 2013 and there is no evidence that the top-up payments helped 13 retain the project staff or incentivized them to perform better\. In addition, to mitigate the risk of high staff turnover, a more systematic handover process could be built into project implementation\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Comments were received from the Ministry of Economy and State Personnel Service\. The comments are very brief and are attached as an annex to this report\. There were two comments that the team would like to highlight: (i) The Ministry of Economy asked that the following statement in section 2\.2, component 1 be taken out: “The difficulty in convening the coordination council was further complicated by the frequent changes in the Cabinet\. Furthermore, the regulation establishing the council referred to specific names and not titles\. As a result, a new regulation would be needed for the new members of the cabinet to serve on the council\.” The team’s assessment is that this statement reflects the actual challenges faced during the implementation of the project and hence should be kept in the report\. (ii) The Ministry of Economy did not agree with the statement “the top-up payments have proven ineffective in retaining staff, as they were transitionary and introduced high degrees of discretion\.” in section 4\. The team changed the wording slightly to suggest “there is no evidence” for any positive impact\. (b) Cofinanciers (c) Other partners and stakeholders 14 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage Components Estimate (USD Estimate (USD of Appraisal millions) millions) Component 1\. Government 0\.563 0\.382 67\.9% wide macro-economic policy development and coordination Component 2\. Strengthening 1\.969 2\.035 103\.3% capacity of MEDT Component 3\. Pay and grading 0\.381 0\.286 75\.0% reform in the civil service Component 4\. Project 0\.328 0\.600 182\.8% management Total Baseline Cost 3\.241 3\.303 Physical Contingencies Price Contingencies 0\.201 Total Project Costs1 3\.442 Interest during construction Front-end fee Total Financing Required 3\.442 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 0\.45 0\.47 \.00 IDA Grant 3\.00 2\.83 \.00 15 Annex 2\. Outputs by Component Outcome Output Indicators Status Component 1\. Institutional and technical framework for government-wide macroeconomic policy development and co-ordination (US$0\.563 million) Enhanced inter-ministerial Procedures formalized and Met\. The government coordination and capacity to coordination mechanisms adopted a system for ensure a coherent economic established; Regular meetings economic forecasting and a policy decision-making of coordination committee procedure for socio-economic process\. with relevant agenda\. development prognosis\. A macroeconomic and investment policy coordination council and a technical group on financial programming have been established\. The meetings of the macroeconomic and investment policy council occur as needed with no pre- determined time schedule\. (60%) Component II\. Strengthening the capacity of MEDT and the MOF to fulfill an effective role in macro-economic analytical work and policy development (US$1\.969 million) Public institutions (and MEDT reorganized Met\. The new structure of the particularly the MEDT, consistent with new structure\. Ministry of Economy has through capacity building and been adopted and better restructuring) are enabled to suited to carry out the tasks formulate sound and assigned to the Ministry\. analytically informed policy Frequent restructurings were measure and proposals\. an impediment to establishing capacity\. (60%) Component III\. Development of capacity to carry out a pay and grading reform in the civil service (US$0\.381 million) Capacity for carrying out a Salary task force presents Met\. The government reform of wages and options for wage and adopted a new wage system employment in the civil employment reform\. for civil servants and is service, together with options implementing measures to developed\. improve remuneration in the civil service\. In addition to the new wage system, the government adopted a regulation to evaluate civil servants' performance, requirements standards and job instructions for the civil servants\. (75%) Intermediate outcomes Presidential Coordination procedures Met\. The macroeconomic and Decree/Government formalized in decree or investment policy council 16 Regulation which (a) clearly regulation\. Agreement was established (the defines roles & reached on composition and regulation and composition of responsibilities in economic agenda of coordination the council)\. policy design, implementation committee\. & evaluation at central level Coordination procedures (b) establishes an effective formalized in decree or coordination mechanism\. regulation\. Agreement reached on composition and agenda of coordination committee\. Regular meetings of Coordination committee Not met\. The macroeconomic coordination group taking meeting regularly with and investment policy council place, with appropriate substantive appropriate meets only as needed with no agenda and relatively few agenda\. predetermined regular major economic policy schedule\. The technical group decisions being taken outside on financial programming the mechanism\. meets regularly\. Publication of Publication of more detailed Met\. The government macroeconomic and fiscal forecasts at least twice during publishes the Mid-term forecasts with evidence that the year and evidence that Socio-economic these forecasts provide the forecasts form the basis of Development Prognosis, the basis for budget and budget planning\. Mid-term Budget Framework economic policy discussions\. and annual budget laws with explanatory notes\. These documents are published on the Ministry of Finance and the Ministry of Economy web-sites\. New structure of MEDT MEAMP reorganized Met\. The new structure of the corresponds to that proposed consistent with new structure\. Ministry of Economy has in the SDP\. been adopted and is adequate to address the tasks assigned to the Ministry\. Satisfactory implementation Surveys indicate progress in Not met\. The 2013 BEEPS (according to private sector other areas of business results suggest that surveys) of significant environment and increase companies' perceptions of measures to improve the satisfaction with the various aspects of the business environment performance of IC and business climate have proposed by the investment MEDT\. improved since 2008\. council\. According to surveys conducted by the Bishkek Intl Business Council, the business environment improved in some areas\. According to the National 17  Statistics Committee, the trust of the population to the Ministry of Economy and the quality of services by the Ministry improved but still remains low\. High quality policy papers are At least six policy papers Met\. Eight studies have been produced and subsequently developed, of which three are conducted\. The studies translated into policy judged to be of high quality included the following decisions\. and at least one forms the themes: the shadow economy, basis of a significant policy the tourism sector, corruption, decision\. the impact of the accession to the CU on the textile industry, the fiscal and monetary policies and economic institutions\. Pay and grading reform group Salary task force established Met\. The task force was established\. and basic data collected\. established and it developed and submitted the civil service wage strategy and an action plan to implement the strategy\. Options paper for pay reform Salary task force presents Met\. The task force was is produced\. options for wage and established and it developed employment reform\. and submitted the civil service wage strategy and an action plan to implement the strategy\. The government adopted a new wage system for civil servants and is implementing measures to improve remuneration in the civil service\. It also adopted a regulation to evaluate civil servants' performance, requirements standards and job instructions\. 18 Annex 3\. Economic and Financial Analysis N/A 19 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Damir Esenaliev Economist ECSP1 Nurbek Kurmanaliev Procurement Specialist ECSO2 Iuliia Alexandrovna CEUST- Research Analyst Mironova UNIT John Otieno Ogallo Sr Financial Management Specialist OPSOR Natalia Pisareva Senior Economist ECSP1 Ekaterine T\. Vashakmadze Sr Country Economist DECPG Supervision/ICR Bakyt Dubashov Economist GMFDR Kamer Karakurum Ozdemir Sr Economist GMFDR (ICR main author) (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending 29\.04 90,918\.78 Supervision/ICR 199\.26 337,728\.61 Total: 228\.3 428,647\.4 20 Annex 5\. Beneficiary Survey Results N/A 21 Annex 6\. Stakeholder Workshop Report and Results N/A 22 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Ministry of Economy of the Kyrgyz Republic Memo 11-1 / ___ To: Development Department, Ministry of Economy of the Kyrgyz Republic From: N\. Sh\. Shamshijev, Head of the Macroeconomic Policy Office Regarding: WB project Date: 04\.17\.2015 Herewith, the Macroeconomic Policy Office refers to the relevant components of the reviewed Capacity Building for Economic Management Project implementation completion and results report falling within the terms of its reference, and would like to inform you regarding the following: The Ministry of Economy of the Kyrgyz Republic has originally set a goal of invigorating (“resuscitating”) the already existing Macroeconomic and Investment Policy Coordination Council, not “creating” it\. Therefore: In section “(a) PDO Indicator(s)”:  sentence “A macroeconomic and investment policy coordination council and a technical experts group have been established” in the column “Actual Value Achieved at Completion or Target Years” that refers to “Indicator 1” should be reworded to read as follows: “Efforts of the Macroeconomic and Investment Policy Coordination Council have been strengthened, and a technical group has been established”; In section “(b) PDO Indicator(s)”:  sentence “The macroeconomic and investment policy council was established (the regulation and composition of the council)” in the column “Actual Value Achieved at Completion or Target Years” that refers to “Indicator 1” should be reworded to read as follows: “Efforts of the Macroeconomic and Investment Policy Coordination Council have been strengthened”; Paragraph 1 of section “Component 1” on page 4 should be reworded to read as follows: “The overarching goal of this component was to set up a framework for sound economic policy-making including macroeconomic forecasting, primarily through efficient performance of the technical group established within the Macroeconomic and Investment Policy Coordination Council\.” Paragraph 3 of section “Component 1” on page 5 should be deleted\. In paragraph 2 of subsection “Macroeconomic Projections” in section “Component 2” on page 6, words “in consultation with the Central Bank” should be replaced with “in the course of operation of the interdepartmental working group”, because in the forecasting of inflation the Ministry does not consult the Central (National) Bank, but coordinates its forecasts with the latter\. In paragraph 1 of section 4 “Assessment of Risk to Development Outcome” on page 11, the sentence “The top-up payments have proven ineffective in retaining staff, as they were transitionary and introduced high degrees of discretion” appears to be inappropriate and should be amended or restated in its entirety, because the top-up payments have been an incentive for better performance and motivated staff of the Macroeconomic Policy Office\. 23  In the Annexes, words “A macroeconomic and investment policy coordination council and a technical experts group have been established” should be brought in line with section “(a) PDO Indicator(s)”\. In addition, proper name of the group established under the Macroeconomic and Investment Policy Coordination Council should be used across the text\. Head of the Macroeconomic Policy Office N\. Sh\. Shamshijev Prepared by I\. Kim, A\. Suynalijeva, tel\.: 62-05-35 (174); Department of Macroeconomic Forecast 24  Kyrgyz State Personnel Service Outgoing #: No\. 02-2-09/1393 Date: April 29, 2015 Re: 2015-3-13 dated April 10, 2015 World Bank Country Office in the Kyrgyz Republic The State Personnel Service of the Kyrgyz Republic would like to express its respect and appreciation to the World Bank for its cooperation and continued support for development of the public service of the Kyrgyz Republic\. Having reviewed the Implementation Completion and Results Report for the Capacity Development in Economic Management Project, we would like to inform you that on December 18, 2014, the Government adopted Resolution #712 for approval of the draft Law of the Kyrgyz Republic “On Public Civil and Municipal Service”\. Currently, the draft law is being reviewed by the Parliament\. This is the only comment we could offer at this stage\. Acting Director Kyrgyz State Personnel Service B\. Sagynbaev 25  Kyrgyz Government Office Reference No\. 16-1387 Date: April 28, 2015 To: World Bank Country Office in the Kyrgyz Republic Re: Letter No\. 2015-3-13 dated April 10, 2015 Herewith, the Kyrgyz Government Office would like to express its appreciation to the World Bank Country Office in the Kyrgyz Republic for our close and productive cooperation under the jointly implemented projects\. Having reviewed the Implementation Completion and Results Report for the Capacity Building for Economic Management Project, we would like to inform you that we do not have any further comments and recommendations\. Best regards, N\. Chuikov Head of the Economy and Investment Department 26 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders N/A 27 Annex 9\. List of Supporting Documents N/A 28

REVIEW

P000734

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 26258 IMPLEMENTATION COMPLETION REPORT (IDA-24380) ON A CREDIT IN THE AMOUNT OF SDR 66\.4 MILLION (US$ 96\.0 MILLION EQUIVALENT) TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA FOR A ROAD REHABILITATION PROJECT June 30, 2003 Transport Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective End April 2003) Currency Unit = Ethiopian Birr (ETB) ETB 1\.00 = US$ 0\.1149 US$ 1\.00 = ETB 8\.70 FISCAL YEAR July 8 - July 7 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DCA Development Credit Agreement EDRP Ethiopia - Demobilization and Reintegration Project ERA Ethiopian Roads Authority ERR Economic Rate of Return FMS Financial Management System GOE Government of Ethiopia HDM Highway Design Model ICB International Competitive Biding ICR Implementation Completion Report IRC International Roughness Index MTR Mid Term Review NPV Net Present Value PIP Project Implementation Plan PMS Pavement Management System PRSP Poverty Reduction Strategy Paper RFCS Road Functional Classification System RSDP I Road Sector Development Program-Phase 1 RSDPSP Road Sector Development Program Support Project RRAs Regional Roads Agencies SAR Staff Appraisal Report SDPRP Sustainable Development and Poverty Reduction Strategy Program SDR Special Drawing Right VOC Vehicle operating Cost Vice President: Callisto E\. Madavo Country Manager/Director: Ishac Diwan Sector Manager/Director: Maryvonne Plessis-Fraisssard Task Team Leader/Task Manager: John D\. Riverson  ETHIOPIA ROAD REHABILITATION PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 13 7\. Bank and Borrower Performance 13 8\. Lessons Learned 15 9\. Partner Comments 15 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 31 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 34 Annex 6\. Ratings of Bank and Borrower Performance 35 Annex 7\. List of Supporting Documents 36 Annex 8\. Borrower's Completion Report 37  Project ID: P000734 Project Name: ROAD REHABILITATION Team Leader: John D\. Riverson TL Unit: AFTTR ICR Type: Core ICR Report Date: June 30, 2003 1\. Project Data Name: ROAD REHABILITATION L/C/TF Number: IDA-24380 Country/Department: ETHIOPIA Region: Africa Regional Office Sector/subsector: Roads and highways (100%) Theme: Other urban development (P); Rural services and infrastructure (P) KEY DATES Original Revised/Actual PCD: 01/07/1987 Effective: 04/27/1993 06/04/1993 Appraisal: 09/10/1990 MTR: 06/01/1995 06/01/1997 Approval: 11/19/1992 Closing: 09/30/1998 12/31/2002 Borrower/Implementing Agency: ETHIOPIA/ Ethiopian Roads Authority (ERA) Other Partners: STAFF Current At Appraisal Vice President: Callisto E\. Madavo Aguirre-Sacasa Country Director: Ishac Diwan Francis X\. Colaca Sector Manager: Maryvonne Plessis-Fraissard S\. Weissman Team Leader at ICR: John D\. Riverson E\. Irgens ICR Primary Author: Negede Lewi & Teferra Mengesha 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:L Institutional Development Impact:SU Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: Project at Risk at Any Time:  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Development objectives of the Project were defined as (i) improve the bearing capacity, geometry, safety and riding quality on sections of Ethiopia's main transport artery; (ii) improve ERA's capacity for road maintenance, and (iii) implement institutional measures to enable the ERA to better assess and address potential sector problems\. The original objectives were both technical and output related\. However, the primary objective of the project, though not explicitly stated, was to improve the quality of the transport services in terms of speed and reliability and facilitate access, by bringing down unit transport costs, along Ethiopia's major transport corridor\. Transport rates, measured in terms of price per-ton km were amongst the highest in the world, the rehabilitation of the road sections had the objective of reducing these high unit costs\. It was also aimed at providing an opportunity for ensuring that competition delivers more efficient transport services, and hence support the expansion of export growth\. The rehabilitation of the road sections was essentially integral to the strategy to promote export-led growth and poverty reduction\. By project design, the ERA capacity was also largely enhanced through the supply and distribution of essential road maintenance equipment which enabled ERA to cover the maintenance of a larger part of the network including the other sections of the import-export corridor\. The institutional measures included training of staff leading to improved performance of functions such as contract administration and processing, implementation of pavement management system, establishment standard design manual and technical specifications and improved axle load equipment for effective measurement of loads which would provide a firmer basis for enforcement\. The implementation results are further elaborated under each component below\. 3\.2 Revised Objective: Project objectives remained the same throughout project implementation\. 3\.3 Original Components: The Project included the following components; (i) Rehabilitation of sections of road between Mille and the Port of Assab (about 196 km), including construction supervision\. The initial cost was 93\.46 M USD, out of which IDA financing was 80\.25 M USD (ii) Design and implementation of a Pavement Management System (PMS) and a Road Functional Classification System (RFCS) including the provision of technical assistance, equipment and other consultancy services\. The initial cost was 1\.64 M USD, with 100 % IDA financing\. (iii) Consulting services for sector related studies, Design Manual preparation, and design review\. The initial cost was 2\.98 M USD with 100 % IDA financing\. (iv) Training and technical assistance, the base cost was 0\.72 M USD with 100 % IDA financing\. (v) Improving the capacity of ERA to carry out road maintenance, and axle load control through the purchase of road maintenance and weigh bridge equipment, and the construction of maintenance depots with a cost of 10\.45 M USD out of which IDA financing was 10\.42 M USD\. The Semera-Elidar road section was also co financed in parallel by the ADB for a total amount at the projects completion of about 26\.7 M USD equivalent\. The works were executed by an ERA force account construction unit\. The rehabilitation of this section ensured the improvement of entire road section from Mille to Assab\. The components were clearly aimed at achieving the objectives by primarily improving the condition of roads and safeguarding the investment so as to facilitate more reliable shipping of goods and reduce - 2 -  transport costs in the primary import-export corridor\. In addition, the project design corresponded to the management and technical capacity of the implementing agency\. The ERA had already developed sound capacity in planning, budgeting, financial management and monitoring of progress of works\. To reinforce the capacity of the institution, however, the project provided for the overseas training of professional and management staff as well as the appointment of consultants to develop and implement; (i) the RFCS and PMS for providing the tools for classifying roads according to the services they render and for collecting and analyzing planning data for determining optimum maintenance and rehabilitation program for the road network\. (ii) Roads and Bridge Design Manual and Technical Specifications and introduce a Computer Aided Design and Drafting (CADD) system\. (iii) Financial Management Support to update ERA's entity accounts, develop a new chart of accounts, and train ERA Financial Management staff\. The consultancy support provided for the development of follow up projects was also an important element of the project which facilitated the establishment of the economic and technical feasibility and preparation of the levels of road improvements to be incorporated in future road projects 3\.4 Revised Components: As a result of the 1998 border conflict between Ethiopia and Eritrea, the project was restructured in August 1998 to include, (i) rehabilitation of about 70 out of 140 kilometers of the Mille-Gewane Road which is a continuation of the improvement of the Mille-Assab road, and (ii) additional preparatory studies for possible follow-on projects\. Restructuring was made after the mid-term review, and following a request by the Borrower including a revision of the PIP with expenditure proposals to fully utilize the proceeds of the Credit\. 3\.5 Quality at Entry: Quality at entry is rated satisfactory overall\. The assessment was based on the consistency of project objectives with the Borrower's overall investment priorities and the Bank's CAS\. The Borrower's overall investment priorities centered around improving the principal import-export road corridor the deterioration of which had accelerated due to excessive axle loads\. The rehabilitation therefore helped to restore the main lifeline of the country's road system in supporting economic growth, in general, and export development in particular\. The Bank's CAS focused on providing increased support directed initially at post-war reconstruction\. Although the project's preparation was initiated prior to the post civil war transition period, i\.e\., May 1991, its objectives were consistent with, and provided the basis for the Borrower's Sectoral objectives and priorities, and the CAS of the Bank for infrastructure\. As with most Bank financed projects of the period, the performance indicators were not explicitly developed (no baseline and budgeting figures were established)\. However, the opportunity was ceased during the project restructuring to address this\. The major road works were ready for implementation by the time of appraisal\. The design review and the ICB tender documents preparation were completed by an international consultancy Firm in April 1992\. The original design of the rehabilitation of the Mille ­ Assab road section was completed in 1989 by the Transport Construction Design Enterprise\. There was a delay in the processing of the procurement of contractors, and the contracts were awarded 23 (against a scheduled period of 9 ) months after project effectiveness, probably largely due to the inexperience of ERA at the time in contract administration\. The situation, however, has improved following TA support under the ERRP (Cr\. 2351-ET) and training provided to ERA staff under this Credit (2438-ET)\. See also Section 4\.5\. - 3 -  The environmental aspects were integrated in the road designs and works execution so as to minimize any adverse impact on the natural environment\. The rehabilitation did not require major relocations, hence the effects on human health and well being, ecosystems, use of natural resources as well as social effects were not critical\. As land acquisition plans were prepared, issues related to right-of­way (ROW), in general, and compensation entitlement payments, in particular, were resolved\. During implementation of the project which formed part of the 10-year RSDP, an Environmental Procedures Manual and a Resettlement Framework Paper was also prepared and adopted after Bank approval\. Bank supervision inputs during the works execution also contributed to ensuring that environmental mitigation measures were adequately addressed and any issues arising were addressed in accordance with Bank's Safeguard policies\. The rehabilitation of the road provided employment opportunities and enhanced the maintenance on critical sections\. Medical facilities and support were also availed from clinics at construction camp sites which included HIV/AIDS awareness campaigns and the promotion and use of condoms in the settlements along the road\. One area of exposure in project implementation is that it was not possible to anticipate the difficulty of implementing a road project traversing two neighboring countries, who at later stage got involved in a border conflict which intensified into a war, resulting in the suspension of two of the three works contracts on the Mille-Assab road\. Of the three main civil works contracts Contract 1 (Logia- Semera, 41 km), which is also serves traffic to the port of Djibouti, was completed satisfactorily, Contract 2 (Elidar-Burie,100 km) was 48% completed, and Contract 3 (Burie-Assab, 58 km which was located in Eritrea) was 95% completed\. The quality of work was generally good\. The Works were expected to be completed by April 1999 when the border conflict between Ethiopia and Eritrea extended into the area, and led to termination of Contracts 2 and 3\. It should be noted that when the project was initially appraised in September/October 1990, Eritrea was part of Ethiopia\. The processing of the Project was delayed as a result of a change in government in May 1991 when Eritrea has, de-facto, separated from the rest of Ethiopia\. The legal separation came into effect during early 1993\. The SAR was updated in March 1992 and a memorandum of understanding was signed between the two countries by which Ethiopia committed to assume the full Credit, and for Eritrea to assume full responsibility for the maintenance of the road within its territory after the completion of the works\. However, the external factor to result from the hostilities between Ethiopia and Eritrea could not be anticipated or assumed at the time\. The assumptions for achieving the objectives of the project were not explicitly stated in the SAR\. The critical assumption is, however, related to the continued use of the port of Assab as the most important outlet to the sea\. The SAR identified a number of risks including security problem, that some sections not included in the project (Mille-Awash) might fail, vehicle load control might not be successful due to weakness in enforcement, likely lack of success in the implementation of the PMS because of possible organizational weakness\. Nonetheless, except the security problem, it had been possible to cope with these risks, as follows, (i) The Mille - Awash road has been included in the RSDPSP project financed by IDA, (ii) ERA assumed the responsibility for the enforcement of legal limits on axle loads and there are signs of improvements in reducing over loading, although there are still some shortcomings\. Many vehicles are still over-loaded, particularly on the rear axle, and the requirement for more rigorous controls or effective sanctions to avoid the acceleration of the deterioration of the road network\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Objective 1\. Improve the bearing capacity, geometry, safety and riding quality on Sections of Ethiopia's main transport Artery: Overall, about 223 km of the proposed 266 km were substantially completed under the project\. The rehabilitation of the road improved riding quality, road safety, (due to a - 4 -  wider pavement, improved geometry, traffic signs and better riding quality) and reduced risks of bridge failure, along with contributing to a road transportation corridor that functions smoothly and efficiently\. The construction of parking/service lanes through built-up areas provided safe and easier access without restricting traffic movement, while meeting the requirements for parking bays for trucks and other vehicles\. Despite the unfinished sections of the Mille-Assab road, the overall project objectives were met, and the achievement is satisfactory\. The project's objectives are consistent with current country and sectoral assistance strategies, as well as the Bank's social and environmental goals\. The rehabilitation of the road also fits in the current country strategy based on Ethiopia's SDPRP which focuses on improving human development outcomes, enhancing pro-poor growth, and reducing vulnerability\. Central to this is integrating the country's trade to the world market\. The country depended on the corridor as the primary access to the sea, a critical element for export - led growth, integral to the SDPRP\. One of the components of the CAS is to support the rapid expansion of Ethiopia's exports, which is considered to probably constitute the country's most central challenge after providing food security\. The rehabilitation of the roads resulted in the reduction of high transport costs for exports and imports, and increase in the frequency of transport services\. This continued to be possible because the improved road section still provided the main connection via Dobi to the port of Djibouti to which all exports were diverted after the war, although the main section of road within Djibouti had not been improved to the same standard by closing date\. The Bank has now provided financing to Djibouti for improving the section of road from the border to Djibouti port\. In general, the project provided the framework for developing long-term sector strategy as it provided useful lessons during implementation and provided a basis for supporting the current CAS and sectoral assistance\. The 2003 - 2005 CAS has four thrust areas, which have been identified as a basis for supporting the Borrower's poverty reduction strategy\. These are capacity building, decentralization and service delivery, private sector development and pro-growth and infrastructure development\. The project was consistent with three of the four thrust areas of the CAS, capacity building (ERA's institutional capacity improved with the introduction of new systems and procedures as well as training of personnel), Private sector development (sub-contracting of road works and consultancy services to local firms), pro-growth (support the expansion and competitiveness of exports, and reduced transport costs for imports), and infrastructure development (improved condition and structural integrity of pavement and bridges along the corridor)\. The road works generated employment and income for local labor\. Objectives 2 & 3\. Improve ERA's Capacity for Maintenance; and implement institutional measures to enable ERA to better assess and address potential sector problem: The above objectives were realized in a number of ways as the project contributed to the development of institutional capabilities\. At the time immediately following restoration of peace following an 18-year civil war, when ERA District Maintenance Units were fully responsible for nearly all road maintenance activities, the supply of maintenance equipment and spare parts enabled immediate attention to road maintenance\. In addition, the development and implementation of the RFCS and PMS facilitated the institutionalization of long term and comprehensive road network planning and development\. It also helped ERA to implement planning techniques needed for determining optimum design and maintenance standards, and budget allocation for road expenditures\. The Design Manual, and Technical Specifications, were also an important outcome of the project\. The geometric standards provide design controls and criteria which are important parameters for harmonization of the federal and regional network functions and use\. The Technical Specifications are also expected to allow for clearer mutual understanding between the Executing Agencies and Contractors with regard to the quality of workmanship in construction operations and the selection and use of materials\. The pavement design guides have been based on well-known empirical methods and adapted to suit the pertinent features of the Ethiopian environment\. The bridges Manual sets well defined standards for - 5 -  different sections of Bridges, as well as the requirements for design loads\. In general, the manuals serve in documenting established design standards and criteria, as well as formats to be followed in preparing contract plans\. The FMS support has also strengthened the financial management system of ERA\. The organizational structure of the Finance Division was clearly defined and approved by the Board of Management of ERA, chart of accounts was designed and implemented, long outstanding balances in bank, debtors and creditors accounts were cleared and ERA entity accounts and audits have been brought fully up to date through FY 2002\. Support in developing the capacity of the private sector: Although not explicitly stated, the project supported the development of the private sector\. The road works on the ICB contracts created an opportunity for economy and efficiency after several years of dependence on ERA's force account\. It also provided opportunity for local contractors to participate in the supply of materials as well as in the construction of drainage structures and the district maintenance depots\. The consultancy services for the feasibility and EIA studies, and the Design Review, Pre-qualification of Contractors and Tender Evaluation for follow-up projects, as well as, the PMS, RFCS, and FMS, were all carried out by foreign firms in association with local consultants and/or with the participation of local professionals\. This has contributed to the development of the local consultancy industry\. Facilitate movement of traffic and improvement in safety: The project SAR highlighted the need to establish a regulatory environment for competition (regulation of entry and freight rates) for the delivery of transport services for Ethiopia's international trade\. This arose from the Bank dialogue with Government and action taken under the ERRP Credit (2351 ET) and the Transport credit (Cr\. 2002 ­ET), all of which emphasized the liberalization of the Road Transport Industry\. In conjunction with the ERRP the GOE raised tariffs by 70 percent on main roads (rates that were then highly regulated with very low, forcing truckers to overload, which in turn contributed to deterioration of the import-export corridor, in particular); GOE also agreed to complete deregulation by the end of 1992\. Substantial deregulation occurred in May 1992 when Proclamation 14/1992 was enacted\. The introduction of controls on axle loads was also consistent with the preservation of road infrastructure\. The axle load limit of 10 tons per axle passed in 1990 was enacted\. Road safety and environmental mitigation were addressed during the road works through the installation of traffic signs, enlargement of sharp bends and the construction of guardrails, all of which contribute to reducing accidents\. The additional environmental mitigation measures included the restoration of borrow pits, and the reduction of erosion through the adoption of gentle slopes and protection of soil\. The project's outcome is considered to be satisfactory, reflecting the original objectives\. The direct access to the port of Assab expected from the rehabilitation of the Mille-Assab road was affected by the border conflict between Ethiopia and Eritrea\. However, the access to the port of Djibouti was equally facilitated\. The project is rated satisfactory considering (i) the project objectives have been achieved, though the unforeseen border conflict which started in 1998 reduced its full contribution with the suspension of works on a section of the Mille-Assab road; (ii) The comparison of the economic analyses for the sections of the Mille-Assab, and Gewane-Mille roads at appraisal and at completion showed EIRR of 21\.7 and 14\.6 percent, respectively, largely due to the increased construction costs from the arbitration award\. This is still higher than the assumed opportunity cost of capital of 12% for Ethiopia\. (iii) Sustainability of the project is ensured as the borrower has introduced a stable flow of funds in the form of dedicated fuel levy for road maintenance and has improved network planning through the establishment and implementation of RFCS and PMS\. 4\.2 Outputs by components: A - Civil Works - 6 -  A\.1 Mille ­ Assab Road Rehabilitation: As stated in 3\.5 above the rehabilitation work was carried out under three contracts\. All the three contracts were awarded to SOGEA of France and signed on February 24, 1995, with a commencement date of March 1, 1995\. The original completion dates for contract 1 was February 28, 1997, and for contract 2 and 3, February 28, 1998\. The total amount of the contracts was 49\.88 M USD equivalent of which 13\.03, 21\.88, and 14\.97 M USD equivalent were for contract 1,2, and 3 respectively\. The contractor was granted an interim time extension of 5 months for all three contracts\. However, due to the border conflict between Ethiopia and Eritrea, the contracts 2 and 3 were terminated by the Employer on June 25, 1998\. At the time of termination, the overall accomplishment was about 73%; with accomplishment of 100% on contract 1, 48% on contract 2, and 95% on Contract 3\. The special status report prepared by the Consultant, in October 1998, excluded the effects of the acceleration and/or changes in the scope of the works, which the consultant said were left in ambiance, indicated the total amount of claims applied by the contractor, on all three contracts, was about 59\.8 M USD equivalent, out of which about 21\.34 M USD equivalent had been recommended for payment\. However, in spite of the attempts at reaching an amicable agreement between the Contractor and the client with the encouragement of the Bank, the two parties could not reach an agreement\. As a result, the contractor filed a request for arbitration on April 21, 1998\. The Contractor's basic claims could be categorized in the following six groups; (i) Delay and Disruption, (ii) Administrative, (iii) Special Risks, (iv) Equipment Re-Export, and (v) Sub-contractor's related claims, on all of the three Contracts, and (vi) Contracts 2&3 termination\. The attempts at amicable settlement between ERA, as Client, and the Contractor continued thereafter, however, the efforts were complicated by Government's insistence on pressing corruption charges against the Contractor which awaited judgment by the Ethiopian Supreme court\. These were eventually discounted by the Arbitral Tribunal which then rendered its final award in December 2001, declaring that the Contractor was entitled for payment of about 45\.6 M USD equivalent\. The (i) Special Risks, (ii) Contracts 2&3 termination, (iii) the sub-contractor and (iv) part of the delay and disruption claims were beyond the control of the ERA and GOE\. Whereas there was a possibility of reducing the claims related with the equipment re-export, some of the delay and disruption claims if timely actions were taken by different organs of the GOE\. The claims related with design issues were primarily related to the additional pavement deterioration which occurred between the time when the design review was carried out and actual construction on the ground\. The 12-month delay in the Contractor's mobilization also contributed to this situation\. The lack of experience in claims management in ERA, as this was one of the first major ICB contracts after two decades of force account culture, with no private sector participation, as well as, GOE's reluctance in giving ERA the full mandate to resolve the claims amicably, at the initial stages, all contributed to this scenario\. The Bank continuously encouraged and suggested to ERA and GOE, with advice from the supervision consultant, to resolve the disputes amicably\. The GOE in, June 2002, finally decided and informed the Bank that it was moving forward to reach amicable settlement with the contractor, while indicating that it would need Bank's assistance in reaching a speedy conclusion to the issue\. As a result, the Bank facilitated, and the GOE negotiated a settlement amount of 25 M USD with the Contractor and a request was submitted for Bank financing\. GOE also requested the Bank, and the Bank gave its no objection, that the available amounts in the Credit proceeds be used for eligible payments under the settlement agreement, and the remaining balance be financed under the EDRP (Cr\. 3437- ET)\. Two payments for a total amount of 15\.32 M USD were paid to the contractor from the remaining balance of the Credit proceeds, fully disbursing the Credit amount\. The outstanding balance i\.e\., 9\.68 M USD is proposed for financing under the EDRP\. The total amounts paid from the credit stands at 55\.44 M USD\. - 7 -  A\.2 Mille-Gewane Road Rehabilitation: This sub-component was included after the project was restructured and the tendering process was included in RSDPSP as part of the Modjo- Awash Arba- Gewane-Mille road\. The construction contract was signed on March 19, 1999 with a joint venture of South Africa, Greece and UK contractor, LTA/CCC/BB for a total contract sum of about USD 34 million equivalent\. This component was substantially completed, along with the full settlement of claims, and fully handed over to the Employer in July 2002\. The total claims of the contractor on this contract amounts to about 5 M USD, including claims that are related with legislation changes, which were amicably settled for an amount of about 1 M USD by ERA\. This in contrast with the longer period of the claims management and resolution on the Mille-Assab road contract was a further indication of the improvement in the capacity of ERA to handle contractor claims, as well as the provision of Dispute Resolution Experts in the new contracts on the Credit 3032-ET\. A total of 20\.22 M USD has been disbursed for the rehabilitation of about 83 km section of the road from the proceeds of credit, the remaining balance is financed under the Cr\. 3032-ET\. A\.3 Road Maintenance Depots: This component included the construction work of Awash and Gewane maintenance depots, commenced in April 1997 by ERA Own Force\. Due to delays in procurement of the required building materials, the works experienced substantial delays, and ERA contracted the remaining construction and finishing works to a local contractor\. The work has recently been completed with the Government covering all associated cost of the sub-component\. B\. Technical Assistance and Training B\.1 Construction Supervision of Mille-Assab Road Civil Work: The consulting firm, DIWI consult of Germany, signed a contract with ERA in February 1995 and provided technical assistance for supervision of the contract\. The consultant provided the assessment of the contractor claims which were the basis for the discussions with the contractor during the period of dispute and arbitration\. A final contract completion report was also prepared by the consultant\. About 2\.68 M USD was disbursed from the Credit\. B\.2 Pavement Management System & Road Functional Classification: The Consultancy contract was signed between ERA and BCEOM of France on May 2, 1996\. The study was implemented in two parts: Part I: Road Functional Classification system; and Part II: Development and Implementation of Pavement Management System\. Both studies were completed in March 1999 with 0\.96 M USD disbursed from the Credit\. B\.3 Consultancy services for the Design Review and Pre-qualification of contractors for the roads under RSDPSP: These consultancy services for the RSDPSP I roads (Modjo-Mille, Debremarkos-Gondar, Woldiya-Zalambessa, Awash -Harar) have successfully been completed with the award of civil work contracts being financed under credit 3032-ET\. The services were carried out by four Consultancy Firms\. About 1\.94 M USD was disbursed for these services\. B\.4 Feasibility Study for roads to be considered for RSDSP APL I and II: The consultancy services contract agreement was signed between ERA and KOCKS consult of Germany on 1st April 1999 for the feasibility Study of 7 roads\. Nazareth-Goba, Adigrat-Adwa, Gondar-Mereb River, Dera-Mechara, Dembi- Gambella, Woreta-Woldiya and Nekempte-Assosa roads\. The final report of the study was presented to both IDA and ERA on June 2000, with about 0\.08 M USD disbursed from the Credit\. B\.5 EIAs for Road to be considered for RSDSP APL I and II: The consultancy services contract for the EIA of the 7 roads (B\.4 above) was signed between ERA and Africon of South Africa on August - 8 -  16, 1999\. The study had been completed and final report submitted in February 2001 with about 0\.1 M USD disbursed from the Credit\. B\.6 Design Review and Pre-qualification of Contractors for Roads to be considered for RSDSP APL I and II: The proceeds of the credit was also used for the design review of 5 selected roads selected from the 7 roads whose feasibility & EIA were conducted\. The roads are Nekempte-Mekenajo, Nazareth-Goba, Adigrat-Shire, Woreta-Woldiya, and Dera-Mechara\. All the consultants have submitted the draft final report and are expected to finalize the documents incorporating both IDA and ERA's comments\. GOE requested and IDA agreed to finance the remaining services under Cr 3032-ET\. An amount of 0\.96 M USD was disbursed for these services\. B\.7 CADD and Road and Bridge Manual and Technical Specification: The consultancy services contract was signed between ERA and Louis Berger of USA on September 30, 1997 with the original completion date of June 30, 2000\. The services commenced as scheduled, but experienced delays in finalizing the manuals\. By the Credit closing date, the Drainage Design, Site Investigation, Pavement Design Volume I and II, Bridge Design, and Pavement Rehabilitation and Asphalt Overlay Design Manuals, as well as Standard Detail Drawings, Conditions of Contract Documents, and Geometric Design, and Standard Environmental and Procedures Manual have been reviewed and accepted by ERA\. The standard Technical Specifications prepared by the consultant was not found acceptable by ERA\. ERA's review committee in consultation with the consultant have therefore prepared a revised Technical Specifications\. The consultant has started the procurement process for the CADD system equipment\. About 0\.93 M USD was disbursed from the Credit\. GOE requested and IDA agreed to finance the remaining activities under Cr\.3032-ET\. B\.8 Review of ERA Financial Management and Accounting System: The contract was signed between ERA and SGV Consultants of the Philippines on October 29, 1998 with contract implementation period of 18 months\. The Consultant assisted ERA to complete the reconciliation of backlogged annual ERA entity accounts which resulted in all of the accounts being brought up to date by Credit closing\. The Consultant reviewed the financial system and produced a revised draft Accounting and Financial System Manual\. The organizational structure of the Finance Division was clearly defined, the chart of accounts was designed and implemented, long outstanding balances in bank, debtors and creditors accounts were cleared and ERA entity accounts and audits have been brought fully up to date through FY 2002\. But the consultant could not finalize the Manual, after testing them, and computerization of the financial system due to reservations regarding the capability of the software selected by ERA\. However, ERA finalized the manual, and implementation has commenced using the chart of accounts developed by the study\. An amount of 0\.28 M USD was disbursed for the services\. B\.9 Training and Twining: All in all, 43 out of the planned 50 staff from ERA and RRAs received training and seminars in courses offered in various institutions, colleges and universities\. All areas of specialization identified during appraisal such as equipment management, transportation planning, highway engineering, road maintenance, transport economics, labor based technology, computer science, contract law, training of trainers, workshop management, etc\. were covered with a disbursement of 0\.75 M USD\. The staff who were trained under the Credit now serve in leadership and professional positions in ERA\. The staff have contributed in enhancing needed ERA capacity in its various divisions and branches including contract administration, environmental monitoring, planning and equipment divisions\. C\. Procurement of Equipment C\.1 Maintenance Equipment: Two sets of road maintenance equipment amounting to 6\.4 M USD, - 9 -  were procured and are in use by ERA Maintenance units\. C\.2 PMS Equipment: All required items of equipment were procured as part of the PMS consultancy service and are in use by the Pavement Management Branch of ERA\. C\.3 Weigh bridge Equipment: Ten pick-ups and spare parts for weigh bridges have been procured for a total amount of 0\.12 M USD, and have increased the efficiency of the existing weighbridge stations following the transfer of full responsibility of operating the weigh stations from the Road Transport Authority to the ERA\. 4\.3 Net Present Value/Economic rate of return: The NPV and ERR for the three sections of the Mille - Assab road, and the Gewane - Mille road at appraisal and at completion are shown as follows At appraisal At completion Road Link NPV at 12% ERR NPV at 12% ERR (M ETB) % (M ETB) % Mille - Assab (i) Logia-Semera 25\.52 17\.3 35\.6 19\.1 (ii) Elidar-Burie 88\.01 22\.2 -3\.4 11\.2 (iii) Burie-Assab 89\.92 24\.3 5\.5 13\.0 Combined 203\.45 21\.7 37\.5 14\.6 Gewane-Mille 280\.9 21\.7 53\.471 14\.6 The scope and details of the economic re-evaluation have been presented in Annex 3\. The initial cost estimate for the project as a whole and for the Mille-Assab and Gewane-Mille roads are also shown in Annex 3\. It should be noted that the most important assumption concerning the project's cost estimates at appraisal were that about 80 percent of road works costs comprised foreign currency component\. The economic re-evaluation considered two scenarios (case I is the 'without' Port Assab scenario and case II "with" Port Assab scenario)\. Although the sections of the road beyond the Junction at Dobi to the port of Assab are not fully used by commercial traffic presently, for both scenarios, the analysis is based on the assumption that the entire road would be usable during the analysis period, with a reduced amount of traffic\. The settlement of the Claim amounts to USD 25 million, and this resulted in substantial increased in costs (by about 50 percent) in spite of the gains in exchange rate adjustment in comparison with the appraisal estimate\. Consequently, the economic analysis was based on higher construction unit cost expressed in Ethiopian Birr equivalent\. A specific distinction was made in traffic forecasting for cases I and II\. For case I, the assumption that the Port Assab would remain closed and as a result only 30 % of the traffic would be served by Elidar-Bure and Bure Assab sections), has led to lower than expected traffic levels\. For scenario II, it was assumed that Port Assab would be open to Ethiopian traffic in the latter years of the analysis period\. Considering the time series of historical data and synthesis of influences on anticipated increases in external trade, different growth rates have been applied for the two scenarios\. The effect of the uncompleted section on maintenance cost has also been considered for the Contract 2\. Even frequent re-gravelling is insufficient to reduce road roughness to acceptable levels due to its poor condition and the magnitude of forecasted traffic under both scenarios\. It is assumed that major re-gravelling and more frequent grading would be required to attain a smoother surface\. Therefore, unit costs for maintaining the uncompleted section is far higher than the standard generally applied\. However, the decrease in vehicle operating cost due to smoother surface is more - 10 -  than balanced by the increase in maintenance costs\. Hence, the high unit cost of maintaining the uncompleted section (contract 2) and the relatively higher level of vehicle operating cost have implications on the indices of the economic re-evaluation\. The reduced flow of benefits also apply to the overall investment for the rehabilitation\. 4\.4 Financial rate of return: Not applicable since non-revenue earning entities are involved\. 4\.5 Institutional development impact: The project produced substantial improvement in the capacity of ERA to effectively plan and manage the road network\. One example of the improved capacity in contract administration and procurement processing is the progress made in reducing the period taken to award works contracts from the start of the project\. The road works contracts under this Credit were not awarded until 27 months after the Credit approval and 23 months from effectiveness\. This is contrasted by 15 months and 11 months taken until the award of contracts under Credit 3032-ET, and the projected 12 and 9 months, respectively, projected for the award of road contracts for the proposed Road Sector Development Phase I Project in support of RSDPII\. The training of personnel was a critical prerequisite for institution building\. The local technical personnel employed by the contractors in the rehabilitation of the two roads benefited by enriching their experience\. The systems developed and manuals prepared equipped ERA with the tools for planning, designing and contract administration\. The staff of ERA engaged in contract administration and management, as well as, claims management, and settling of disputes amicably have gained a lot of experience\. The development and implementation of PMS along with the training of counterpart staff has reinforced institutional capacity for determining the optimum rehabilitation and maintenance of road sections based on road condition surveys and funding requirements\. Hence, a sound strategy involving a sequence of interventions to be applied during a designated analysis period to maintain the pavement above a minimum condition level provides for the sustainability of the project\. On the contrary, the continuing over loading of axles from heavy and articulated trucks, in certain cases as high as three times the legal limit is a problem that has an effect on sustainability\. However, improving institutional capacity of ERA in enforcing axle load limits is a step in the right direction in the retention of the road as a vital link in the network\. The overall progress in reducing the reliance on force account methods of works and towards increasing the use of contractors would enable long-term sustainability to properly maintain the roads\. The review of ERA's Financial Management and Accounting System under this project has much contributed towards improving the ERA's financial arrangement and accounting system\. It provided a sound guide ERA in meeting essential accountability requirements for the receipt and expenditure of funds\. In addition to meeting fiduciary responsibilities, the System facilitated decisions with respect to utilization of financial resources\. The training of 43 personnel in the road sector, in one Project, is one of the best achievements in the ERA's history\. The construction of maintenance depots at Awash and Gewane has contributed to enhancing physical capacity and support for road maintenance in Alemgena and DireDawa Maintenance Districts\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The most critical factor that affected the implementation and outcome of the road rehabilitation component of the project was the border conflict between Ethiopia and Eritrea\. The conflict had led to the suspension of the work on two of the Mille - Assab road contracts\. The outcome of this situation was the closure of the road to Ethiopian exports and import traffic, and its diversion to the port of Djibouti\. Eventually, this - 11 -  together with other factors resulted in a claim amounting to about 45\.6 M USD\. Relatedly, implementation had been delayed due to prolongation of mobilization and commencement of pre-construction activities\. Further, the processing of the project was delayed as a result of the change of government in March 1991\. Other contributing factors included the unsatisfactory performance of the consultant appointed for the preparation of Road and Bridges Design Manual, and Technical Specifications\. The suspension of the Consultancy services for the review of ERA's Financial Management and Accounting System is another factor that affected implementation and outcome of the project\. The depreciation of the local and some other contract currencies in relation to the SDR also increased the level of financial resources available for implementation and therefore the scope of the project could be expanded following the restructuring of the project in July/August 1998\. 5\.2 Factors generally subject to government control: A factor that affected implementation and outcome of the road rehabilitation works and created difficulties in keeping up with the time schedule was customs regulation for imports of equipment and supplies\. The contractor for the rehabilitation of the Mille - Assab road maintained that equipment tied up at ports due to time-consuming formalities resulted in delays and claimed compensation\. Aside from this, the inability, at the initial stage, to settle the claim through conciliation rather than through arbitration was major factor that influenced the implementation and outcome of the road rehabilitation component of the project\. 5\.3 Factors generally subject to implementing agency control: A number of factors that influenced project implementation and outcome include reorganization, rationalization of staffing plan, improved planning, training, reward system, technical assistance services and more effective financial management capabilities relating to budgeting, accountabilities and control of funds\. ERA has over the years introduced such measures as more effective payment procedures, monitoring and auditing capability\. The development of a manual of Accounting and Financial Systems to ERA by a consultant, though not fully completed, contributed to improved funds flow and control\. The revised organization chart and job description of the Finance Division have also enhanced effectiveness and efficiency in processing payments to contractors and consultants\. Lack of effectiveness in the ERA's organization particularly in the procurement of supplies resulted in prolonging the completion date of the road maintenance depots at Awash and Gewane\. Also, the deficiencies of the technical specifications of ERA contributed to substantial delay in procuring road maintenance equipment\. 5\.4 Costs and financing: An assessment of cost changes is difficult considering that due to the border conflict two contracts were terminated before completion\. It should be noted that the comparison is exacerbated as the actual cost for civil works includes the cost of rehabilitation of a section of the Gewane-Mille road, which was not part of the original project\. Nevertheless the actual cost of civil works for the rehabilitation of the 223 km of roads was less than the estimated amount shown in the SAR and USD, for the rehabilitation of 196 km of roads by about 19 percent, primarily due to the depreciation of contract currencies in relation to the SDR\. This comparison does not, however, cover the settlement of claims after arbitration to the contractor who was employed for the rehabilitation of the Mille - Assab road\. Considering the payments made against the claims under this credit, an amount of 75\.66 M USD was expended verses the planned amount of 74\.95 M USD estimated during appraisal\. The cost per km, including the full amounts of the claim considering the amount to be paid from the EDRP, will therefore be about 0\.380 M USD against an appraisal estimate of 0\.382 M USD, showing no significant change is estimated unit cost of the works - 12 -  The overall credit currency deprecation loss is about 5\.4 M USD, but this did not affect project implementation since there was an unutilized balance from the amounts allocated for the procurement of road maintenance equipment\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The project's sustainability would be rated as 'likely'\. There is a clear commitment from GOE in ensuring the maintenance of the rehabilitated roads, as demonstrated by the introduction of dedicated flow of funding\. Initial steps have also been taken in introducing more commercially oriented maintenance practices, and contracting out maintenance to the private sector\. There is also provision for the more effective enforcement of axle load legal limit\. Further, the training of personnel, and the development and implementation of systems and manuals together with the institutional changes in ERA support the long-term sustainability of the infrastructure\. The policy environment is also conducive to sustainability, as it permits significant GDP growth rates through continuation of economic reform and implementation of the SDPRP\. The central theme of the strategy is the achievement of sustainable growth with equity, which underlines the importance of road development\. 6\.2 Transition arrangement to regular operations: The operation and maintenance of both Gewane-Mille and the section of the Mille-Assab (Ethiopian part) have been generally satisfactory\. ERA has already included both Roads in its annual regular maintenance program and sufficient budget has been allocated\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: At the identification stage, the task team ensured that the project objectives and scope were consistent with both the government's priorities and the CAS\. Appraisal was satisfactory\. The SAR assessment of the government's commitment to the project and of the ERA's capacity during negotiation was excellent\. The economic analysis reviewed by Appraisal Team clearly indicated that it would be economically feasible to upgrade this important corridor\. The main risks were identified correctly: (i) security problem which might affect the implementation of the project; (ii) the risk of not including in the Project the other sections of the Corridor; (iii) the risk related to the implementation of the new Axle Load Control system; and (iv) risk associated with the PMS which may not be successfully implemented because of possible organizational weakness\. 7\.2 Supervision: During the period of implementation, the task team leader remained almost the same and the continuity of staff was maintained\. As a result, Bank supervision performance during implementation was consistent and satisfactory\. The Bank assigned a highly qualified team to the Project with an appropriate skill mix, including experts in areas of engineering, environment, highway maintenance, financial management and transportation economics\. Bank involvement was critical to the progress of implementation of both civil works and studies for which the staff provided useful advice in improving their quality\. The task team also showed responsiveness and flexibility in approving needed project design changes and modification\. 7\.3 Overall Bank performance: Overall, the Bank's performance was satisfactory\. The supervision team paid adequate attention to project - 13 -  compliance on all components of the Project, promptly warned and advised the Government to resolve disputes arising out the contracts' implementation\. Borrower 7\.4 Preparation: The Borrower's preparation was also satisfactory\. Both the national government and implementing agency were highly committed to the project from the start\. Their commitment was evidenced in their well-documented preparation work for this important project\. The Planning and Programming Division of the executing agency was capable of undertaking the full-fledged feasibility study of the Project\. In addition, the report submitted to the Bank by the executing agency in January 1990 which dealt with the overall transport sector and project concept, composition and economic evaluation of the civil works component enabled the Bank Mission to finalize its preparation\. 7\.5 Government implementation performance: The GOE's implementation performance on the Mille-Assab road project was not satisfactory, in the areas of custom clearance, and, by GOE taking a hard line against the contractor, due to the other court cases, minimizing the chances for ERA to reach an early amicable settlement on the Mille-Assab Contracts\. However, the performance was much improved on the Gewane-Mille road project, as ERA had agreed and followed IDA recommendations, with Government assistance, to set clear procedures under the new Road Sector Development Program and particularly from the start of the new Credit 3032-ET\. These measures assisted contractors to minimize the customs/ processing delays, and the Government has been fully committed to all aspects of the new project and the overall program's implementation\. 7\.6 Implementing Agency: The implementation of the project has been a challenge to both the Borrower and the ERA, considering the lack of experience in international procurement and contract administration over the period 1974 to 1991 for road works\. This had implications on important questions of delegating extensive powers to "Engineers" for the purpose of supervising the execution of road works, various aspects of contract performance and settlement of dispute\. On the contrary, the scope of range of policy and institutional improvement requirements for the implementation of the project as well as the number of institutions involved, the number of project components and their geographic dispersion had been limited\. There were no conditionalities that required changes in basic law and legislation, the responsibilities and status of the Executing Agency, as the Project fit into the new government's transition period\. Overall project management was satisfactory\. ERA swiftly adapted the project to changing circumstances and suggested changes accordingly\. The coordination of different government agencies in meeting mutual obligations was not straight forward, partly due to procedural impediments and their effects on the ability to perform in a reasonable time\. This was particularly the case with unreasonable inconvenience and delay in the delivery of contractor's equipment and supplies as a result of customs practices\. The most noticeable achievement of this project was the timely completion of the Gewane-Mille road rehabilitation and the introduction of PMS and RFCS into road network planning of the country\. The other important consideration is in the areas of training of both federal and regional road sector personnel\. In this regard, more than 43 road sector personnel have been trained in areas of transport planning and economics, construction law, financial management, highway engineering and design, equipment management, personnel administration, etc,\. 7\.7 Overall Borrower performance: Overall, the borrower's performance is rated as satisfactory\. In general, most concerned and key stakeholders showed their commitment to the Project and followed through to ensure its successful - 14 -  implementation and operation\. 8\. Lessons Learned One vital lesson in project preparation is the importance of indicators\. There were no specific outcome indicators established for the project during preparation and appraisal to monitor the progress of implementation\. However, for the Gewane-Mille road, which was included after the Project was revised in 1998, selected indicators were identified and a base line and/or benchmark was established\. The other lessons drawn from the Project, especially by ERA, was that they should seek the support of all organs of government to facilitate contract implementation, by minimizing bureaucratic procedures, such as delays in customs clearance, granting of licenses for explosives and radio communication equipment, etc\. These and others, provided grounds for contractor claims on the contracts in the project\. Consequently, in preparing the Cr, 3032-ET, many of such factors were considered and ERA with assistance from Government, established clear procedures in customs clearance, radio and explosives licenses, and thereafter informed contractors promptly\. Also important was the need to develop the capacity of domestic contractors\. Perhaps, one of the most important lessons learnt is the recognition of the complexity of internationally agreed principles of tendering, questions of law in the formulation of contracts, the options for the settlement of disputes in direct negotiation to avoid litigation and the tendency towards the use of arbitration\. This lesson contributed to the making special provisions for the appointment of dispute resolution experts on all new contracts thereafter, to provide opportunity for early resolution of disputes, before resorting to send cases to international arbitration\. Subsequent projects, including IDA financed ones, have incorporated arrangements to support the capacity of ERA especially in administering international contracts, and the domestic construction industry\. The strengthening of ERA's capacity in this area has contributed to the reduction on contract processing time\. Government's attention has been drawn to the need for improving its regulations, procedures and practices with a view to achieving efficiency in expediting the delivery of project inputs in the context of RSDP\. Since one of the factors that contributed to the delay in implementation was the border conflict, greater attention may need to be paid to analysis of political risks in multinational projects\. Experience gained in implementing projects, such as the factors leading to delays in processing of contracts, when recognized and accepted by the Borrower, leads to gains in the preparation and implementation of other future operations\. This should therefore be suitably considered in the new operations\. Important consideration Only 73 percent of the Mille-Assab road project has been completed due to the border conflict between Ethiopia and Eritrea\. It is, therefore, the duty of the GOE to allocate increased funding for maintenance to achieve the objectives of reducing vehicle operating cost and travel time; and could obtain resources to complete the project as conceived, as part of post-conflict resolution\. 9\. Partner Comments (a) Borrower/implementing agency: Borrower's comments are included in their completion report attached in Annex 8\. (b) Cofinanciers: Not applicable - 15 -  (c) Other partners (NGOs/private sector): Not applicable 10\. Additional Information None - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Indicator Base line Actual/Latest Estimate Traffic (ADT) 650 453 Journey Time (Heavy vehicle) 2\.09 min/km 1\.63 min\./km Roughness (IRI m/km) 3\.73 2\.0 Truck Rates(Birr/Ton/km) 0\.51 0\.37 Procurument processing time (months) 27 15 km of roads built 266 223 - 17 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Civil Works 55\.39 75\.66 136\.59 Technical Assistance/Training 7\.60 8\.56 112\.63 Equipment 7\.80 6\.38 81\.79 Total Baseline Cost 70\.79 90\.60 Physical Contingencies 10\.62 Price Contingencies 14\.59 Total Project Costs 96\.00 90\.60 Total Financing Required 96\.00 90\.60 As of February 26, 2003 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 88\.17 0\.00 0\.20 0\.00 88\.37 (74\.95) (0\.00) (0\.17) (0\.00) (75\.12) 2\. Goods 10\.58 0\.00 0\.00 0\.00 10\.58 (10\.58) (0\.00) (0\.00) (0\.00) (10\.58) 3\. Services 0\.00 0\.00 10\.30 0\.00 10\.30 (0\.00) (0\.00) (10\.30) (0\.00) (10\.30) Total 98\.75 0\.00 10\.50 0\.00 109\.25 (85\.53) (0\.00) (10\.47) (0\.00) (96\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 94\.58 0\.00 0\.20 0\.00 94\.78 (75\.66) (0\.00) (0\.00) (0\.00) (75\.66) 2\. Goods 7\.05 0\.00 0\.00 0\.00 7\.05 (6\.38) (0\.00) (0\.00) (0\.00) (6\.38) 3\. Services 0\.00 0\.00 9\.01 0\.00 9\.01 (0\.00) (0\.00) (8\.56) (0\.00) (8\.56) Total 101\.63 0\.00 9\.21 0\.00 110\.84 (82\.04) (0\.00) (8\.56) (0\.00) (90\.60) 1/Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. - 18 -  Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate IDA Govt\. CoF\. IDA Govt\. CoF\. IDA Govt\. CoF\. Civil Works 75\.12 13\.26 0\.00 75\.66 18\.92 100\.7 142\.7 0\.0 Technical 10\.33 0\.00 0\.00 8\.56 0\.45 82\.9 0\.0 0\.0 Assistance/Training Equipment 10\.58 0\.00 0\.00 6\.38 0\.67 60\.3 0\.0 0\.0 - 19 -  Annex 3\. Economic Costs and Benefits A\. Original Economic Evaluation of the Gewane-Mille Road Project A1\. Background of the Project: The Feasibility Study for the Rehabilitation of Gewane ­Mille road was undertaken by TecnEcon, in July 1997\. During the same year, a Design Study was conducted by Gauff Engineers and Nor Consult performed the Design Review later in mid-1998\. The pavement design for rehabilitation consists of 60 mm Asphalt Concrete (AC) wearing course and 130 mm of Dense Bitumen Macadam (DBM) over a variable thickness of granular sub-base (150 mm-250 mm)\. A2\. Description of the Project: The current analysis is concerned only about the Gewane-Mille section of the Awash-Mille link (as opposed to the approach of the Feasibility Study Consultant who considered Awash-Mille as one link of the Mojo-Mille road)\. to carry out the study)\. Gewane-Mille (146 km) is the last section of the Mojo-Mille Road Rehabilitation Project, located in Afar Region\. This road is part of the primary route connecting Djibouti Port to Addis Ababa, the capital city of Ethiopia\. The project consists of rehabilitation of the existing road to a higher standard with a better riding quality, strength and safety\. A3\. Normal Traffic & Traffic Growth Rates: The Annual Average Daily Traffic on the project road (Gewane-Mille) for the year 1996 is taken as the base year\. The traffic was estimated to grow at 11% per annum to 1998 for light & commercial vehicles\. For light vehicles traffic is assumed to grow at 6% to 2000, 4% to 2010 & 2\.8% to 2020\. For commercial vehicles, the rates would be 10%, 5% and 2\.1% respectively\. A4\. Proposed Rehabilitation Options and Respective Construction Costs:Two types of pavement designs have been assumed: ALT 1- Overlay on existing roads using thick asphalt concrete layers; and ALT 2- Reconstruction of existing roads comprising a thin asphalt concrete surfacing over granular base and/or sub-base layers\. Construction cost/km for Alt 1 of Gewane-Mille road is estimated at 1\.7 million Birr and that of Alt 2 is 2\.2 million Birr\. Thus, the total financial cost for the road is shown below: Cost in million Birr Length Link (km) ALT1 ALT2 Gewane-Mille 146 248\.2 321\.2 A5\. Analysis Period: It was assumed that construction would commence in 1998 and last for two years\. The road would be open to traffic at the beginning of 2000\. The analysis period ends in 2020 (i\.e\. a 20 year analysis period was assumed) with no residual value\. - 20 -  A6\. Maintenance Strategies: The maintenance strategies assumed were as follows: - For the "without" project case (ALT0): - Routine Maintenance - Grading at six months interval - Spot re-gravelling up to 30 m3 per annum For the "with" project case ALT1 and ALT2: - Routine maintenance - Patching up to 50% of the potholes area per annum During the construction period it is assumed that routine maintenance would be carried out for each project alternative\. A7\. Evaluation of Results: The economic model used for the analysis was HDM-III\. The model computes benefits in the form of savings in VOCs, road maintenance costs and travel time costs\. Discounted benefits are then compared to discounted costs to produce measure of net worth\. The results of the HDM-III analysis are summarized in the next table\. From the table it can be seen that the Gewane-Mille link has an EIRR higher than 12 percent (the opportunity cost of capital)\. Alternative 1, overlay on existing road (which is an asphalt concrete surface) is clearly the most effective construction option\. Summary of Economic Evaluation for the Rehabilitation of Gewane-Mille road NPV in million Birr Link Length Alternative 1 Alternative 2 (km) NPV at EIRR 12% (%) Discount rate NPV at 12% Discount rate EIRR (%) Gewane-Mi 146 280\.9 21\.7 lle 197\.5 18\.0 B\. Economic Re-evaluation of the Gewane-Mille Road Project B1\. Background and Description of the Analyzed Project: The Feasibility Study for the Rehabilitation of Gewane-Mille road was undertaken by TecnEcon, in July 1997\. During the same year, a Design Study was conducted by Gauff Engineers and Nor Consult performed the Design Review later in mid-1998\. The pavement design for rehabilitation consists of 60 mm Asphalt Concrete (AC) wearing - 21 -  course and 130 mm of Dense Bitumen Macadam (DBM) over a variable thickness of granular sub-base (150 mm-250 mm)\. The current analysis is concerned only about the first 70 km of Gewane-Mille road project which has been financed under Cr\. 2438 ET\. This road is part of the primary route connecting Djibouti Port to Addis Ababa, the capital city of Ethiopia\. The project consists of rehabilitation of the existing road to a higher standard with a better riding quality, strength and safety elements\. B2\. Methodology and Assumptions: The economic viability of the project was reassessed applying the same methodology used in conducting the Feasibility Study\. The rehabilitation of the Gewane-Mille road was expected to lead to reduced vehicle operating costs (VOCs), decreased maintenance costs (both periodic & routine) and travel time costs over the life of the project\. Economic Internal Rate of Return (EIRR) and Net Present Value of the project road were recalculated using the World Bank's HDM III model\. Recent information was taken into account to validate the results\. The EIRR calculation is based on five major assumptions: (a) The economic life of the project is assumed to be 20 years\. No residual value is assumed\. (b) Project construction costs comprise actual financial costs for civil works\. (c) All taxes and other transfer payments are removed from the financial cost and benefit streams\. The financial costs and benefits are converted to economic costs and benefits using a standard conversion factor of 0\.85\. (d) VOC inputs and maintenance costs are updated to take into account recent estimates\. (e) Prevailing opportunity cost of capital was used as 12% to be consistent with the original Feasibility Study conducted in July 1997\. B3\. Estimation of Economic Costs and Benefits B 31\. Normal Traffic & Traffic Growth Rates: ERA carries out periodic traffic surveys to assess growth and vehicle composition on selected locations throughout the country\. Consequently, normal traffic has been updated to take account of ERA's 1999 classified traffic count\. The Annual Average Daily Traffic on the project road (Gewane-Mille) from the year 1999 till the year that the road has been opened to traffic (i\.e\. 2002) is shown in the table below\. Average Annual Daily Traffic (Year 1999) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Gewane-Mille 70 3 34 8 5 12 19 77 393 551 Average Annual Daily Traffic (Year 2000) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Gewane-Mille 70 0 35 1 4 30 10 57 375 512 - 22 -  Average Annual Daily Traffic (Year 2001) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Gewane-Mille 70 1 26 2 1 18 11 102 287 448 Average Annual Daily Traffic (Year 2002) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Gewane-Mille 70 1 25 2 3 20 15 79 308 453 As can be seen from the table above, there is some fluctuation from year to year partly due to the rehabilitation work\. The average growth from the year 1999-2002 is slightly low and it varies between 0 & 30%\. For the remaining years of the analysis period, 2 sets of growth rates have been assumed; traffic is assumed to grow at 5% to 2010 & 7% to 2022\. B 32\. Construction Costs: Construction costs were estimated at 154 million Birr for 70 km of Gewane-Mille road (i\.e\. taking cost/km at 1\.7 million Birr)\. The actual construction cost/km for Gewane-Mille road is 3\.3 million Birr- implying that cost has become twice than anticipated\. The total financial and economic cost for the road is shown below: Cost in million Birr Length Financial Cost Economic Link (km) Cost Gewane-Mille 70 227\.6 193\.5 B 33\. Analysis Period: Construction was assumed to take two years commencing at the beginning of 1998\. However, the project actually took three years starting in April 1999 and was completed in August 2002, with a delay of only one year\. The economic life of the project ends in 2022 (i\.e\. a 20 year analysis period is assumed) with no residual value\. B 34\. Maintenance Strategies: The maintenance strategies assumed are as follows: - For the "without" project case (ALT0): - Routine Maintenance - Grading at six months interval - Spot re-gravelling up to 30 m3 per annum For the "with" project case (ALT1): - Routine maintenance - Patching up to 50% of the potholes area per annum - 23 -  During the construction period it is assumed that routine maintenance would be carried out\. Maintenance costs savings are then derived as the difference between the costs of the with and without the project cases\. B 4\. Evaluation of Results; The economic model used for the analysis is HDM-III\. The model calculates benefits in the form of savings in VOCs, road maintenance costs and travel time costs\. Discounted benefits are then compared to discounted costs to produce measures of net worth\. The results of the HDM-III analysis are summarized below\. From the table it can be seen that Gewane-Mille road is still viable with an EIRR higher than 12 percent, even though the actual cost of rehabilitation has doubled\. Summary of Economic Evaluation for the Rehabilitation of Gewane-Mille Road NPV in million Birr Link Name Length (km) Economic Indices NPV at 12% Discount 53\.471 Gewane-Mille 70 rate EIRR (%) 14\.6 C\. Economic Re-evaluation of the Mille-Assab Road Project I\. Background of the Project; An in-house Feasibility Study for the Upgrading of Mille-Assab road was undertaken by ERA in March 1989\. The Mille-Assab road is 355 km long\. The road is divided into four lots: Lot I-Logiya-Semera (41km), Lot II- Semera-Elidar (134km), Lot III- Elidar-Bure (80km) & Lot IV- Bure-Assab (75km)\. The upgrading work for Semera-Elidar section had been financed by ADB\. This analysis is concerned about the remaining three sections of the road which have been financed by IDA through Cr 2438 ET\. Due to the Ethio-Eritrean conflict in the vicinity of the project, ERA has been forced to terminate the contracts on June 25th 1998\. At the time of termination of the contracts, accomplishment on contracts 1,2 & 3 was 100%, 48% (~50%) and 96% (~100%) respectively\. II\. Description of the Project; The Mille-Assab route commences at Mille, 512 km North East of Addis Ababa and terminates at the Port of Assab, the important national port then\. The route is a part of the Addis-Assab import-export corridor\. Eventhough the Port of Assab is closed for the Ethiopian traffic, the road is still important in connecting Djibouti Port (which is the only port Ethiopia is using) to Addis Ababa, the capital city\. The project consists of upgrading the existing road (DBST) to a higher standard (AC) with a better riding quality, strength and safety\. III\. Methodology and Assumptions; The economic viability of the project was reassessed applying the same methodology used in conducting the Feasibility Study\. The upgrading of the Mille-Assab road was expected to lead to reduced vehicle operating costs (VOCs) and decreased maintenance costs (both periodic & routine) over the life of the project\. Economic Internal Rate of Return (EIRR) and Net Present Value of the project road were recalculated using the World Bank's HDM III model\. Recent information was taken into account to validate the results\. - 24 -  The EIRR calculation is based on five major assumptions: (a) The economic life of the project remained at 15 years\. No residual value is assumed\. (b) Project construction costs comprise actual financial costs for civil works and supervision costs\. (c) All taxes and other transfer payments are removed from the financial cost and benefit streams\. The financial costs and benefits are converted to economic costs and benefits using a standard conversion factor of 0\.85\. (d) VOC inputs and maintenance costs are updated to take into account recent estimates\. (e) Prevailing opportunity cost of capital remained at 12%\. IV\. Estimation of Economic Costs and Benefits 1\. Normal Traffic & Traffic Growth Rates: ERA carries out periodic traffic surveys to assess growth and vehicle composition on selected locations throughout the country\. However, traffic count on this particular section has become slightly different compared to earlier years from 1998 onwards ­this is because traffic that used to use the Assab route has diverted to Port Djibouti route\. This means that the first section (Logia-Semera) would serve the actual traffic; however traffic on this route would not fully use the remaining two sections (i\.e\. Elidar-Bure & Bure-Assab)\. Therefore, at this stage of the analysis two sets of assumptions would be useful: Case I: Assume Port Assab would remain closed to Ethiopian traffic, therefore only 30% of the actual traffic is served by the last two sections of the road\. Case II: Assume that Port Assab would be opened to Ethiopian traffic in the later years of the analysis period, therefore a fairly high traffic growth rate than Case I is assumed\. Normal traffic has been updated to take account of ERA's 1996 classified traffic count\. The Annual Average Daily Traffic for the project road (Mille-Assab) from the year 1996 till the year 2002 is shown in the table below\. Average Annual Daily Traffic (Year 1996) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 2 16 8 5 31 21 156 356 595 Average Annual Daily Traffic (Year 1997) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 2 18 5 8 9 19 159 272 492 - 25 -  Average Annual Daily Traffic (Year 1998) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 3 22 2 17 7 15 126 338 530 Average Annual Daily Traffic (Year 1999) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 2 47 4 18 19 19 156 505 770 Average Annual Daily Traffic (Year 2000) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 2 37 1 12 21 33 162 426 694 Average Annual Daily Traffic (Year 2001) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 2 47 3 7 12 23 199 442 735 Average Annual Daily Traffic (Year 2002) Length Land Small Large Small Medium Heavy Truck & Road Link (km) Car Rover Bus Bus Truck Truck Truck Trailer Total Mille-Assab 196 0 40 4 7 8 35 129 427 650 As can be seen from the table above, there is some fluctuation from year to year partly due to the upgrading, war and the civil unrest in the vicinity of the road\. The average growth rate from the year 1996-2002 is slightly low and it varies between 0 & 30%\. For the remaining years of the analysis period two sets of growth rates have been taken; for light vehicles traffic is assumed to grow at 4% to 2006 & 2\.8% to 2013\. For commercial vehicles, the rates would be 5% and 2\.1% respectively\. For Case II the growth rates for all types of vehicles are assumed to be 5% from 2007-2013\. - 26 -  2\. Construction Costs: Construction costs were estimated at 165\.94 million Birr (i\.e\. cost/km=0\.85 million Birr) at 1989 prices\. However, the work of only Contract I & III have been completed; 50% of Contract II's work has been accomplished (i\.e\. 50% of the cost has been expended)\. Therefore, the approximate actual construction cost/km for Mille-Assab road is 1\.4 million Birr- implying that cost has become twice than anticipated\. The total financial and economic cost for each section of the road is shown below: Cost in million Birr Length Financial Cost Economic Link (km) Cost Logiya-Semera 41 85\.4 72\.6 Elidar-Bure 80 89\.4 76\.0 Bure-Assab 75 98\.8 84\.0 3\. Analysis Period; Construction was assumed to take five years (including one year maintenance) commencing at the beginning of 1989\. However, the project actually took three years starting in 1996 as it was terminated on June 25, 1998\. The economic life of the project ends in 2013 (i\.e\. a 15 year analysis period is assumed) with no residual value\. 4\. Maintenance Strategies: The maintenance strategies assumed are as follows: - For the "without" project case (ALT0): - Routine Maintenance - Patching up to 20% of the potholes area per annum - Reseal at 5 years interval For the "with" project case ALT1 (Section I & III): - Routine maintenance - Patching up to 100% of the potholes area per annum - Reseal at 7 years interval For the "with" project case ALT 1(Section II): - Routine maintenance - Patching up to 100% of the potholes area per annum - Overlay at 8 years interval During the construction period, it is assumed that routine maintenance and patching would be carried out for the road\. Maintenance costs savings are then derived as the difference between the costs of the with and without the project cases\. IV\. Evaluation of Results; The economic model used for the analysis is HDM-III\. The model calculates benefits in the form of savings in VOCs, road maintenance costs and travel time costs\. Discounted benefits are then compared to discounted costs to produce measures of net worth\. The results of the HDM-III analysis for Case I & II are summarized as follows\. - 27 -  Case I: From the table it can be seen that the project road as a whole (i\.e\. Mille-Assab) is still viable with an EIRR higher than 12 percent (the then opportunity cost of capital)\. However, when looked at by section, Contract II (Elidar-Bure) has an EIRR lower than the threshold mainly because only 50% of the section has been completed and a higher maintenance cost is assumed as a result\. Summary of Economic Evaluation for the Upgrading of Mille-Assab road NPV in million Birr Link Name Length (km) Economic Indices NPV at 12% Discount rate 35\.6 Logiya-Semera 70 EIRR (%) 19\.1 NPV at 12% Discount rate -6\.0 Elidar-Bure 80 EIRR (%) 10\.6 Bure-Assab NPV at 12% Discount rate 3\.5 75 EIRR (%) 12\.7 Mille-Assab 196 NPV at 12% Discount rate 33\.0 EIRR (%) 14\.3 Case II: From the table it can be seen that the project road as a whole (i\.e\. Mille-Assab) is still viable with an EIRR higher than 12 percent (the opportunity cost of capital)\. Summary of Economic Evaluation for the Upgrading of Mille-Assab road NPV in million Birr Link Name Length (km) Economic Indices NPV at 12% Discount 35\.6 Logiya-Semera 70 rate EIRR (%) 19\.1 NPV at 12% Discount -3\.4 Elidar-Bure 80 rate EIRR (%) 11\.2 NPV at 12% Discount 5\.5 Bure-Assab 75 rate EIRR (%) 13\.0 NPV at 12% Discount 37\.5 Mille-Assab 196 rate - 28 -  EIRR (%) 14\.6 As can be seen from the analysis, though Contract II has exhibited a lower EIRR, the Mille-Assab road project as a whole is still viable\. - 29 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation April - May 1989 3 HIGHWAY ENG\. (1) TRANSPORT SPE\. (2) February 1990 4 HIGHWAY ENG\. (1) SR\. ECONOMIST\. (1) TRANSPORT SPE\. (1) Appraisal/Negotiation September - 5 HIGHWAY ENG\. (2) October 1990 SR\. ECONOMIST\. (1) FINANCIAL ANAL\. (1) TRANSPORT SPE\. (1) August 10-13, 4 HIGHWAY ENG\. (1) 1992 COUNSEL (1) DISBURSEMENT Off\. (1) TRANSPORT ECO\. (1) Supervision 01/14/1993 1 HIGHWAY ENGINEER (1) 1 1 10/01/1993 1 SR\. HIGHWAY ENGINEER (1) 2 1 07/10/1994 2 HIGHWAY ENGINEER (1); S S PROCUREMENT SPECIALIST (1) 11/01/1994 2 OPERATIONS ANALYST (1); S S HIGHWAY ENGINEER (1) 04/14/1995 2 SR\. FINANCIAL MGT\.SPEC\. S S (1); HIGHWAY ENGINEER (1) 06/30/1995 1 HIGHWAY ENGINEER (1) S S 03/05/1996 2 HIGHWAY ENGINEER (2) S S 06/22/1996 3 SR\. ACCOUNTANT (1); S S HIGHWAY ENGINEER (2) 11/06/1996 3 SR\. ACCOUNTANT (1); S S HIGHWAY ENGINEER (2) 04/10/1997 2 MISSION LEADER (1); S S HIGHWAY ENGINEER (1) 09/24/1997 3 MISSION LEADER (1); S S HIGHWAY ENGINEER (1); INFRASTRUCTURE SPEC\. (1) 02/21/1998 3 MISSION LEADER (1); S S HIGHWAY ENGINEER (1); INFRASTRUCTURE SPEC\. (1) 10/30/1998 2 TEAM LEADER (1); S S INFRASTRUCTURE SPECIAL (1) - 30 -  06/26/1999 6 TEAM LEADER (1); S S HIGHWAY ENGINEER (1); OPERATIONS ANALYST (1); SOCIAL SCIENTIST (1); INFRASTRUCTURE SPEC (1); SENIOR ACCOUNTANT (1) 10/21/1999 5 TASK TEAM LEADER (1); S S HIGHWAY ENGINEER (1); SOCIAL SCIENTIST (1); INFRASTRUCTURE SPEC (1); SR\. ACCOUNTANT (1) 06/19/2000 5 TEAM LEADER (1); S S HIGHWAY ENG\. (1); SOCIAL SCIENTIST (1); PROG\.ASST/SOCIOLOGIST (1); SR\. ACCOUNTANT (1) 06/19/2000 3 SR\.HWY\.ENGR\.(TTL) (1); S S OPERATIONS OFFICER (1); FINANCIAL SPECIALIST (1) 02/17/2001 7 TASK TEAM LEADER (1); SR\. S S HIGHWAY ENGINEER (1); ECONOMIST/FIN\.ANAL\. (1); SOC\.SCIENTIST/ENVN\.SP\. (1); SR\. OPERATIONS OFF\. (1); FIN\. MGMT\. SPEC\. (1); SECTOR MANAGER (1) 06/28/2001 5 TASK TEAM LEADER (1); S S ENVIRONMENTAL SPEC\. (1); SOC\.SCIENTIST/ENVN\.SP\. (1); SR\. OPERATIONS OFFICER (1); FIN\. MGMT\. SPECIALIST (1) ICR March/April 6 HIGHWAY ENG (2) S S 2003 OPERATIONS OFF (1) OPERATIONS ANAL (1) TRANSPORT ECON (1) SOC\.SCIENT\./ENVN SP\. (1) - 31 -  (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 52\.8 129\.4 Appraisal/Negotiation 42\.6 121\.1 Supervision 196\.3 579\.2 ICR 13\.5 32\.8 Total 305\.2 862\.5 - 32 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 33 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 34 -  Annex 7\. List of Supporting Documents 1\. ERA- TECNECON, Consulting Services for the Five Roads Feasibility Study, Final Report, Addis Ababa, Ethiopia, July 1997\. 2\. ERA, An Economic Feasibility Study for the improvement of the Mille­Assab Road, Planning and Programming Division, Addis Ababa, Ethiopia, March, 1989\. 3\. ERA, Implementation Completion Report, Addis Ababa, Ethiopia, March 2003\. 4 ERA, Report on Annual Rural Traffic Movement in Ethiopia Addis Ababa, Ethiopia 1993-2003\. 5\. Sheladia Associates, Inc\. in association with Metaferia Consulting Engineers, Gewane-Mille Road Rehabilitation Project-Project Completion Report (Draft), Report No\. 45, November 15, 2002, Addis Ababa, Ethiopia 6\. ERA, Road Rehabilitation Project, Planning and Programming Division, January 1990\. 7\. IDA, Development Credit Agreement ­Road Rehabilitation Project (Cr 2348-ET), January 27, 1993 8\. MEDAC, National Economic Parameters and Conversion Factors for Ethiopia, Addis Ababa, Ethiopia, June 1998\. 9\. World Bank, Aide Memoires of the Project, various, Addis Ababa, Ethiopia\. 10\. World Bank, Operational Manual (OP 13\.55) Implementation completion Reporting, July 1998\. 11\. World Bank, Staff Appraisal Report-Road Rehabilitation Project, October 29, 1992, Report No\. 11249-ET\. 12\. FDRE, Ethiopia: Sustainable Development and Poverty Reduction Program, MOFED, July 2002, Addis Ababa, Ethiopia\. 13\. FDRE, Development and Poverty Profile of Ethiopia, Welfare Monitoring Unit, MOFED, March 2002, Addis Ababa, Ethiopia\. 14\. Development Credit Agreement No\. 24380-ET dated January 27, 1993 15\. World Bank, Staff Back-to-Office Reports and Supervision Aide Memoires 16\. International Chamber of Commerce, International Court of Arbitration, Award Sentence Case 9954/AC/DB December 2001 - 35 -  Annex 8\. Borrower's Completion Report THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ETHIOPIAN ROADS AUTHORITY ROAD REHABILITATION PROJECT (CREDIT 2438-ET) IMPLEMENTATION COMPLETION REPORT (ICR) ADDIS ABABA APRIL 2003 - 36 -  1\. INTRODUCTION The Government of Ethiopia and the World Bank (IDA) signed a Development Credit Agreement (Credit No\. 2438-ET) for the Road Rehabilitation Project (RRP) in January 27, 1993 and the Credit was declared effective on June 4, 1993 after the fulfillment of all the condition of effectiveness\. The project was revised in September 1997, as part of the Modjo - Mille road improvement project under the IDA financed Road Sector Development Program Support Project (RSDPSP)\. Before the shift of the Ethiopian Traffic from the port of Assab to Djibouti, the Mille - Assab road was serving a very high traffic volume and most of the heavy trucks moved on this road had a high axle loads\. The combination of high axle loads and weak pavements together with inadequate maintenance intervention led to the rapid deterioration of the road\. The project was therefore mainly designed to restore the main import-export corridor of the country, mille-Assab road\. 2\. PROJECT OBJECTIVES The objective of the project was to finance the urgently needed repairs and rehabilitate the road, so that it remains functional and open to traffic, and extend the service life of the road for a period of 15 to 20 years\. The main benefits of the road rehabilitation component are savings in vehicle operating costs; decrease maintenance cost and an increase in road transport efficiency\. The pavement management system would also enable ERA to better monitor and plan road maintenance of its road network\. In general the overall objectives of the project are to: ® Carry out urgently needed repairs and rehabilitation of the main road system, Mille - Assab road; ® Assist ERA in putting into place institutional measures to prevent deterioration of the road system; and ® Finance the establishment of pavement management system for the whole bitumenized road network in Ethiopia\. 3\. PROJECT COMPONENT The project consisted of the following component for which an IDA credit 2438-ET of US$ 96\.0 million (SDR 66\.4 million) was allocated: - Road Rehabilitation between Mille and Port of Assab, about 196km, including construction supervision; Improving the capacity of ERA to carry out road maintenance through procurement of different Road maintenance equipment; Establishment of a Road functional classification and pavement management system to monitor the performance of the road network; - 37 -  Design and Implementation of pavement management system including provision of technical assistance, equipment and other consultancy services\. Design reviews and review of design manuals and of standard specifications; Sector related training of staff and technical assistance; and Consulting services for sector related studies\. 4\. PROJECT DESCRIPTION AND BACKGROUND Mille-Assab Road Rehabilitation (196 km) The Mille - Assab road rehabilitation is the main component of CR 2438\. The Mille- Assab road project commences at Mille, 512 km North East of Addis Ababa and terminates at the Port of Assab\. The route is a section of the Addis - Assab highway that was the most Important - Export corridor of the country\. The project was designed to rehabilitate all damaged sections and widen substandard section so that the life of the entire road becomes 15 to 20 years as measured in equivalent standard axles\. Designs and Implementation of a Pavement Management System The legal axle load limit in Ethiopia is 8 tones for front axle and 10 tones for rear axle, which is frequently exceeded\. Overloaded cargo trucks, therefore, contributed substantially to pavement deterioration especially on the Addis Ababa-Assab road\. To enable ERA to monitor its paved road system the project was financed the establishment of a pavement management system (PMS)\. The PMS was designed and implemented with technical assistance to the extent required\. The project component is included the cost of training staff to operate the pavement management system, including computer training, vehicles, etc\. Technical Assistance and Training To enable the local construction industry capacity, a study was initiated in order to assess the problems of the industry so that it actively plays its roll in the RSDP\. The project covered part of the cost of this study and other sector related issues\. The project also included provision for technical assistance for specialized support during the implementation of the Axle Load Control System\. Such assistance could take the form of consultancy services, through twining with sister institutions familiar with the techniques required or through an overseas training program\. Procurement of Equipment The project was financed the procurement of road maintenance equipment suitable for patching and resealing work along the whole stretch of road from Addis Ababa to Mille\. In addition, the project was also financed equipment needed for the implementation of the PMS and Axle Load Control System\. Other Consulting Services The proceeds of the loan were used to undertake design review of the RSDPSP I roads; and the feasibility, environment, design review and tender document preparation of the roads included under APL I and II\. Consultants were also engaged to prepare a new Design Manual and new standard specifications for road\. - 38 -  5\. PROJECT FINANCING PLAN The total cost of the project by source of funding and project component is presented as follows: Costs are in million US$ Project Component Total Cost Funding Incl\. Cont\. IDAGOE I\. Civil Works 1\.1 Mille ­ Assab ® Logia ­ Semera (41 Km) 20\.96 17\.823\.14 ® Elidar ­ Bure (100 km) 35\.12 29\.855\.27 ® Bure ­ Assab (58 Km) 32\.11 27\.294\.82 1\.2 Awash and Gewane Section Depots 0\.20 0\.170\.03 Sub Total 88\.39 75\.1313\.26 - 39 -  II\. Technical Assistance/ Training 2\.1 Supervision of Civil Works 5\.29 5\.290\.00 2\.2 PMS Consultancy 1\.31 1\.310\.00 2\.3 Design Review, Addis Mille 0\.72 0\.720\.00 2\.4 Training and Twinning 0\.72 0\.720\.00 2\.5 Design Manual and Standard Specification Preparation 0\.95 0\.95 0\.00 2\.6 Domestic Construction Industry 0\.33 0\.330\.00 Sub Total 9\.32 9\.320\.00 3 Equipment: 3\.1 Maintenance Equipment 9\.92 9\.920\.00 3\.2 PMS - Equipment 0\.33 0\.330\.00 3\.3 Weighbridge Equipment 0\.33 0\.330\.00 Sub Total 10\.58 10\.580\.00 Grand Total Including Contingencies 108\.29 95\.0313\.26 6\. PROJECT IMPLEMENTATION AND ACHEIEVEMENT 6\.1 Civil Works The Civil Work of the project consists rehabilitation of Mille ­ Assab road and the construction work of Awash and Gewane maintenance Depots\. - 40 -  6\.1\.1 Mille - Assab Road Rehabilitation The Civil work component of the RRP (rehabilitation of the Mille - Assab road) that had been executed through three contracts, i\.e\. Contract 1: Logia - Semera (41 km), Contract 2: Elidar - Bure (100 km) and Contract 3: Bure Assab (58 km)\. The three contracts were signed with a total contract value of Birr 285\.8 million of which Birr 74\.6 million, Birr 125\.6 million and Birr 85\.6 million for each contract respectively\. However, due to the Ethio-Eritrean conflict in the vicinity of the project, ERA has been forced to terminate the contracts on June 25th 1998\. Therefore following the termination, the case was under arbitration and on December 21, 2001 the Arbitral Tribunal gave the final award\. At the time of termination of the contracts, accomplishment on contracts 1, 2 and 3 was 100%, 48% and about 96% respectively\. The detailed status of each of the three contracts of the Mille - Assab rehabilitation project as of June 1998 is as stated here under\. 6\.1\.2 Road Maintenance Depots The construction work of Awash and Gewane maintenance Depots commenced in April 1997 by Own Force and was nearing finishing works\. However, due to delays in procuring materials for the finishing work, the progress of the Depots was completely paralyzed\. Currently only few finishing work is remain that includes fixing generator\. 6\.2 Technical Assistance & Training 6\.2\.1 Construction Supervision The consulting firm, DIWI Consult GMBH of Germany, had signed a contract agreement in February 1995 and providing a technical assistance for supervision of the Mille-Assab road r ehabilitation project\. Since the arbitration case is now finalized, the consultant is instructed to prepare the Final Completion Report of the project\. ERA expected that the consultant would finalize the contract completion report soon\. 6\.2\.2 Pavement Management & Road Functional Classification Systems The study was implemented in two parts: part I - road Functional Classification System (RFCS); and Part II - Development and Implementation of the Pavement Management System (PMS)\. The final report of the RFCS study was completed in November 1997 and the development of PMS has completed the study in March 1999\. The advantage of the new functional classification, as the name implies, classifies roads based on socio-economic parameters\. This type of classification allows identifying economically important routes\. Classification of the national road network has been completed and distributed to the regions and to the concerned Federal Government Organizations\. ERA is also now implementing the RFCS on the Federal road network, and the numbering has been completed for all 16000 km of the main - 41 -  road network\. Completion of PMS base data for the road network has also been undertaken for 14637 km of the Federal Road Network\. An update of the Road Data Bank figures has been completed on 12531 km\. The system helps ERA to manage the main road network in the country systematically\. It is also used for the preparation of the prioritized multi-year road sector development program\. 6\.2\.3 Design Manual and Standard Specifications Most of the manuals are completed and some of them are already in use\. The following Manuals are completed by the Consultant and approved by ERA for final report: - The Drainage Design Manual The Site Investigation Manual The Pavement Design Manual Volume I The Pavement Design Manual Volume II Rigid pavement The Bridge Design Manual The Pavement Rehabilitation and Asphalt overlay Design Manual The Geometric Design Manual 6\.2\.4 Design Reviews, Pre-qualification of contractors and Evaluation of Bids This involves design reviews and the preparation of tender & contract documents for the roads to be financed under the RSDPSP Phase I\. These projects are divided into 10 contract projects and awarded to contractors\. 6\.2\.5 Feasibility, Environment Impact Assessment, and Design Reviews for RSDPSP II The credit proceeds had been used for the feasibility study and EIA of the projects proposed for financing under follow on credit\. The road projects are: Nazareth - Asela ­ Dodola/Shashemene - Goba, Adigrat - Adwa, Gondar - Mereb River, Dera - Mechara, Dembi - Gambella, Woreta - Woldiya and Nekempte - Assosa\. The Design Reviews for the roads projects mentioned above, except Gonder - Mereb and Dembi - Gambella, are progressing\. According to the current progress, all the Design Review Studies would be completed between mid of 2003 and beginning of 2004\. - 42 -  6\.2\.6 Training/Twinning To date about 43 staffs from ERA and Regional Administrations have received training in courses offered in various fields and training & seminar on relevant topics under the Credit\. The Trainings were held at Kisi Training Center (Kenya), Crown Agents' and other center and institution in UK and in the USA\. The total amount spent on training is approximately Us$ 0\.75 million\. These training help the organizations to be more effective in its short and long-term goals through improving the quality and quantity of out put since human resource development is the most important element in any organizations\. 6\.2\.7 Review of ERA's Financial Management & Accounting Recruiting a long-term consultant to assist in financial management & accounting consultancy services helps ERA's financial records to become up to date, and trained staff\. The Consultant reviewed the structure of Finance Division and the different systems like accounting system, accounting records, cost accounting and financing management and produced Manuals in Draft Form\. However, the Consultant dissatisfied with the chosen software and discontinued the service on October 2002 before implementing the study\. This being the case, ERA has finalized the Manual\. Implementation has started by using the chart of account as recommended in the study\. Computerization of accounts based on the study recommendation will continue\. 6\.3 Procurement of Equipment Maintenance Equipment: The objective of the procurement of equipment was to enable to replace at least some of the outdated equipment used in the routine maintenance activities\. To this end, there was an allocation for procurement of road maintenance equipment and spare parts in category III of RRP\. Weighbridge Equipment: Ten pickups vehicles are procured and handed over to ERA by Road Transport Authority on and are in use by the Weigh Bridge stations and Districts for axle load measurement and enforcement duties\. All the required spare parts from the remaining balance have been procured and maintenance of weighbridges is progressing as required\. These equipment are expected to maintain old parts and to renew the weigh bridge equipment\. PMS Equipment: All the necessary items of equipment, including vehicles, computers with printer and plotter, copier, dessy equipment, top meters, bump integrators and Benkelman beam, had been procured and handed over to ERA under the PMS Study Consultancy Agreement\. 6\.4 Mille Assab Arbitration Following the termination of the contract for the rehabilitation of the Mille - Assab road project, the Contractor (Claimant) filed a request for Arbitration on 24th April 1998 against the State of - 43 -  Ethiopia (Respondent 1) and the Ethiopian Roads Authority (Respondent 2)\. Subsequently, the International Chamber of Commence (ICC) informed the parties that the court had decided to set the arbitration in motion at its session of 16th June 1998\. Recently ERA and the Contractor negotiated on the Award and reached an agreement on the amount to be paid to the contractor (USD 25\.0 million) and the modality of payment is pending until the claimant ensures the financing of the whole amount of the settlement\. According to the modality of payment USD 14\.0 million was paid to the contractor and the remaining amount (USD 11\.0 million) will be financed from other credit\. 7\. FACTORS AFFECTING THE PROJECT Mill ­ Assab Rehabilitation Project: Because of the Ethio - Eritrea conflict in the project area ERA has been forced to terminate the contract\. Before the termination of the contract the performance of the contractor was low\. The major factor for the low accomplishment of the contractor was mainly because of poor management, lack of proper planning, lack of experienced staff and frequent breakdown of equipment\. Review of ERA's Financial Management & Accounting: The consultant who was doing this study was not willing to continue or complete the service since he was dissatisfied with the chosen software\. Because of the above reason the study is not completed as scheduled\. In general poor performance of consultants in other studies also contributed for the delay in the completion of the studies\. PMS Equipment: The PMS has a problem related to computers, which is being used for visual condition surveys\. However, currently the procurement process for the purchase of computer has started\. 8\. ASSESSMENT OF BORROWER AND BANK PERFORMANCE 8\.1 Borrower Performance The Government of Ethiopia For the execution of the project, the Government of Ethiopia was declared its commitment to the objective of the project as set forth in schedule 2 to the Agreement; and has also made every possible follow up, through the Ministry of Finance and Economic Development, during the formulation and implementation of the project\. The Government of Ethiopia, through MoFAED, was also reviewed quarterly construction progress report to ensure conformity to work schedule and alert contractor; through implementing Agency, from possible delays and consequences\. - 44 -  Implementing Agency (ERA) For the purposes of the project, ERA has opened and maintained in dollars a special deposit Bank account in the National Bank of Ethiopia on terms and conditions satisfactory to the IDA, including appropriate protection against set-off, seizer or attachment\. During project implementation period, ERA assigned one Senior Engineer as a counter part for each component of the project of Mille-Assab and Pavement Management System (PMS) who had been followed whether the works of the project were carried out according to the design and the agreement made between ERA and the Contractors or not\. The quality and the quantity of the works of the project that were performed by contractors and consultants were approved and certified by ERA's Civil Contract Administration Division\. Accordingly, payment was effected on time to the Contractors and Consultants for their specific service given to the project\. During the execution of the project, the quarterly progress reports of the project were prepared by ERA\. In order to prevent or reduce the problem that was encountered during the execution of the project, ERA made several meeting with contracts, Consultants and delegation of the Bank (IDA)\. In addition to this, ERA evaluated and approved work schedule and performance, material delivery schedule, on site availability program for major construction equipment, project cash flow, proposed project organization chart and staffing plan prepared by contractor to ensure practicability and effective utilization resources\. 8\.2 The World Bank Lending The Bank has been supporting rehabilitation and improvement of critically needed investments in highway and port infrastructure, promoting more efficient operations within Ethiopia's operating companies both through institutional development measures and provision of equipment\. Accordingly, to restore and improve the main import-export corridor of the country, IDA was agreed to lend to the Government of Ethiopia, an amount to various currencies equivalent to sixty six million four hundred thousand Special Drawing Rights (SDR 66,400,000)\. Supervision The Bank's team has continuously and closely monitored the execution of the project\. The Team focused on the implementation of the project; adequacy of the Bank and Government input to implementation; quality of the consultants' progress reports; project restructuring; and the financial status and claims\. During the implementation period of the project, the Task Team of the World Bank had made about 10 times field visit to inspect the ongoing works on the Mille - Assab road and carried out effective supervision on the works of the other project components\. - 45 -  9\. UTILIZATION OF CREDIT PROCEEDS 9\.1 Original Allocation and Revised Cost Estimates The table presented below compares the original allocation of the credit proceeds and the revised actual project costs\. The revised project costs among other thing reflects the final cost estimates of the consultant and the outstanding payments, costs incurred with the termination of the civil work contract and compensation of items lost because of the dispute\. Table 2 RRP - Use of the Credit (IDA Portion) (In Million USD) Amount First Revised Second Actual No\. Description Allocate Project Cost Revised Expendi d Project Cost ture I CIVIL WORKS Mille-Assab \. Logia- Semera 17\.82 12\.41 10\.137 10\.137 \. Elidar-Bure 29\.85 21\.80 9\.789 9\.789 \. Bure - Assab 27\.29 20\.12 11\.282 11\.282 \. Mille Assab Arbitration Settlement - - 25\.0* 25\.00 \. Gewane - Mille - - 33\.418 33\.418 Awash Section Depot 0\.17 0\.17 - Sub Total 75\.13 54\.50 89\.626 89\.626 II TECHNICAL ASSISTANCE & TRAINING - Supervision of Civil works 5\.29 2\.25 2\.533 2\.533 - PMS Consultancy 1\.31 1\.03 0\.819 0\.819 - Training and Twining 0\.72 0\.88 1\.160 1\.160 - Financial Management Analysis 0\.33 0\.35 0\.375 0\.375 - Design Manual Preparation 0\.95 1\.35 0\.737 0\.737 - Design Review of RSDPSPI 1\.70 2\.26 1\.756 1\.756 - Design Review of RSDPSPII 1 2\.13 0\.894 0\.894 Sub Total 10\.30 10\.25 8\.274 8\.274 III EQUIPMENT Mtc\. Equipment 9\.92 6\.23 6\.932 6\.932 PMS equipment 0\.33 0\.00 - - Weigh Bridge Equipment 0\.33 0\.33 0\.114 0\.114 Sub Total 10\.58 6\.56 7\.046 7\.046 Grand Total * 96\.01 71\.31 104\.946 104\.94 6 * Because of the varying exchange rates between SDR and USD the remaining balance is expected to be about USD 14\.0 million instead of USD 16\.064 Million (96\.01 - 79\.946) and - 46 -  therefore additional USD 11\.0 million should be allocated to finance the whole payment USD 25\.0 million\. 9\.2 Proposal on the Outstanding Projects Since the project is closed and as a matter of fully realizing the primary objectives of the credit and timely preparation of the follow-on road projects, the remaining works are proposed to be financed from the on going credit 3032-ET\. These sub-projects include the service of supervising engineer of Mille - Assab with a cost of USD 30,000; and the finalization of the design manual with a cost of USD 51,000; and the finalization of design review tender document preparation of APL I and II road with a cost of USD 1\.3 million\. 10\. LESSONS LEARNED The progress of the contract projects can only be sustained, if the contractors are able to maintain its management effectiveness as well as an improved organization of its operation\. In order to complete the contract projects on the schedule time, ERA management should require the consultant (and through him the contractor) to take the necessary action on time\. It is very important and fruitful to negotiate and settle any arbitration with contractors amicably once it happens\. Continuously and closely monitoring the execution of the contract projects is essential to ensure the maintenance of the steady progress\. Sufficient resources, such as new construction equipment, material, skilled manpower etc\., is essential in order to achieve faster construction rate\. - 47 -  - 48 -

REVIEW

P004190

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 15576 IMPLEMENTATION COMPLETION REPORT LAO PEOPLE'S DEMOCRATIC REPUBLIC INDUSTRIAL CREDIT I (CREDIT NO\.1947-LA) March 8, 1996 Country Operations Division Country Department I East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (as of September 1995) Currency Unit = Kip (K) Kip 1\.00 = US$0\.11 US$1\.00 = K 930 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BoL - Bank of Lao PDR GDP - Gross Domestic Product ICR - Implementation Completion Report NEM - New Economic Mechanism SBL - State Bank of Lao PDR FISCAL YEAR October I - September 30  FOR OFFICIL USE ONLY TABLE OF CONTENTS PAGE Preface\. Evaluation Summary \.i Part I\. Project Implementation Assessment \. 1 A\. Statement/Evaluation of Objectives \.1 I B\. Achievement of Objectives \.2 C\. Major Factors Affecting the Project \.4 D\. Project Sustainability \.4 E\. Bank Performance \.5 F\. Borrower Performance \.6 G\. Assessment of Outcome \.7 H\. Future Operation \.7 I\. Key Lessons Learned \.8 Part II: Statistical Annexes Annex A Statistical Tables Table 1: Summary of Assessment \. 9 Table 2: Related Bank Loans/Credits \. 10 Table 3: Project Timetable \. 10 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual \. 11 Table 5: Key Indicators for Project Implementation \. I I Table 6: Key Indicators for Project Operation \. 12 Table 7: Studies Included in Project \. 12 Table 8A: Project Costs \. 13 Table 8B: Project Financing \. 13 Table 9: Economic Costs and Benefits \. 14 Table 10: Status of Legal Covenants \. 14 Table 1 1: Compliance with Operational Manual Statements \. 15 Table 12: Bank Resources: Staff Inputs \. 15 Table 13: Bank Resources: Missions \. 16 Annex B Sector-Specific Data\. Table 1: List of Sub-projects Under the Initial IDA Credit \. 17 Table 2: List of sub-projects Financed from Reflows \. 20 Table 3: Arrears Status: Projects Financed by IDA Credit \. 22 Table 4: Arrears Status: Projects Financed by Reflows \. 23 Table 5: Breakdown of Loans by Industrial/Service Sector \. 24 This document has a restricted distribution and may be used by recipients only in the performance of their IoMcW duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   IMPLEMENTATION COMPLETION REPORT LAO PEOPLE'S DEMOCRATIC REPUBLIC INDUSTRIAL CREDIT I 11947-LA] PREFACE This is the Implementation Completion Report (ICR) for the Industrial Credit Line project in Lao PDR, for which Credit 1947-LA in the amount of US$ 10 million equivalent was approved on July 26, 1988 and made effective on January 19, 1989\. The credit was closed on June 30, 1995, in comparison with the original closing date of June 30, 1993\. It was fully disbursed, and the last disbursement took place on August 10, 1995\. Cofinancing for the project was provided by the Government of France\. The ICR was prepared by Rebecca Hall, Country Officer, Country Operations Division, East Asia and Pacific Region and reviewed by Pamela Cox, Division Chief, Country Operations Division; Walter Schwermer, Projects Advisor and Callisto Madavo, Director, East Asia and Pacific Department I\. The borrower provided comments on a draft of this document, which have been incorporated\. Preparation of this ICR was begun during the Bank's final supervision/completion mission, December 11 to December 16, 1995 It is based on material in the project files\. The borrower contributed to preparation of the ICR by contributing its views during the mission, which are reflected in the Aide Memoire, preparing its own evaluation of the project's execution; and commenting on the draft ICR\.   IMPLEMENTATION COMPLETION REPORT LAO PDR INDUSTRIAL CREDIT I CREDIT NO\. 1947-LA EVALUATION SUMMARY Introduction 1\. The Industrial Credit I project (IC) was the first IDA operation in the industrial sector in Lao PDR\. The project was developed as a result of discussions between the central bank (formerly State Bank of Lao PDR now the Bank of Lao PDR) and IDA regarding the need for support in expanding the intermediation role served by the financial system\. Project Objectives 2\. The Industrial Credit project was designed to support essential investments for the rehabilitation, modernization and expansion of productive capacity in the industrial sector through the provision of financing for equipment, spare parts, and technical assistance\. It was expected to bring about greater efficiency and help the country take advantage of export and import substitution opportunities, thereby enhancing public savings and foreign exchange earnings\. The primary focus of the project was the manufacturing sector and many of the investments to be financed were already identified/pre-appraised by the time of Board presentation\. An additional project objective was to support the institutional development needed for the delivery of term credit for industrial financing in the Lao PDR\. 3\. The objectives of the project were achieved in a narrow sense but fell short of initial expectations\. Productive capacity in the industrial sector did increase as many credit recipients were able to expand production lines and purchase new equipment and spare parts\. By 1994, industry accounted for almost 18 percent of GDP in real terrns, up from 11 percent in 1988\. There is little evidence, however, that production methods and management skills in enterprises have improved as a result of the credit, with the exception of some privatized enterprises\. This is illustrated by the high percentage of credit recipients, particularly state owned enterprises, whose loans are in arrears\. Lastly, the capacity within BoL to evaluate projects remains weak due to discontinuity of staff and a lack of training and transfer of skills within the institution\.  - 11 - Implementation Experience and Results 4\. While the development objectives of the project were met, implementation experience must be considered less than satisfactory\. There were large lags in disbursements and the identification, appraisal and approval of sub-projects by the Borrower was weak\. Additionally, monitoring of the portfolio of sub-loans by the Borrower was insufficient and a large percentage of loans resulted in arrears\. Shortages of trained credit officers at the BoL resulted in delays in sub-project approval\. The deadline for submission of sub-projects for approval to IDA was extended twice and the project's closing date was also extended two times\. As of project closing, 93\.77 percent of the credit was committed\. Of the credit amount, 92\.5 percent had been disbursed, with the remainder being canceled\. 5\. It is important to recognize that the economic environment changed quite dramatically between project design and implementation\. The State Bank of Lao, which functioned as both a central and commercial bank, was reorganized into a two-tier system with central banking separated from commercial banking\. The n w central bank (the Bank of Lao PDR) was made responsible for issuing currency, extending credit to the commercial banks, and acting as the fiscal agent for the Government\. The IDA credit, however, remained under the management of the Central Bank as the commercial banks were not considered capable of managing longer-term lending activities\. Demands of the financial sector restructuring resulted in reduced attention paid to project implementation\. 6\. Furthermore, the privatization efforts of the Government negatively affected project implementation\. As state-owned enterprise demand for credit waned due to privatization or the shift to joint venture arrangements, attention shift to the private sector for identification of sub-projects\. However, demand for term credit from private enterprises was relatively modest\. The overall result was a weak pipeline of sub-projects and a need to extend the deadline for submission of sub-projects to IDA for approval as well as the project closing date\. Early into project implementation, problems with payment arrears developed\. Summary of Findings, Future Operations, and Key Lessons Learned 7\. While the development objectives were met in a narrow sense, there are concerns about the sustainability of the project, particularly the institutional capacity development that has taken place\. 8\. It was expected that a second Industrial Credit Project would follow this operation but developments in the financial sector, including the separation of the State Bank into several commercial banks and a Central Bank and the opening of branches of foreign commercial banks, make it difficult to justify BoL's continued involvement in credit distribution\. Preparation of an Industrial Credit II Project was therefore discontinued\. There is still a valid need for capacity building at the Bank of Lao, however, but these needs are being addressed through various technical assistance projects rather than with additional IDA credits\.  - 111 - The main lessons learned from project implementation include: (a) There is a need for IDA to develop a strategic view of relevant sectors prior to project identification and appraisal in order to ensure that potential reforms and changes with the sector can be foreseen\. (b) A realization that discontinuity of staff within an implementing agency is of particular concern in countries where human capacity is still weak\. Additionally, mechanisms for transfer of newly acquired skills and knowledge need to be institutionalized so changes in staff do not result loss of new skills\. (c) Adequate attention to and resources for supervision on the part of IDA, particularly for the first operation within a sector, is crucial to effective project implementation\. (d) Technical assistance, when crucial to project implementation, should be included in project design and financed by the project so that timely provision of necessary activities can be assured\.   LAO PEOPLE'S DEMOCRATIC REPUBLIC INDUSTRIAL CREDIT I [CR\. 1947-LA] IMPLEMENTATION COMPLETION REPORT PART I\. PROJECT IMPLEMENTATION ASSESSMENT A\. STATEMENT AND EVALUATION OF OBJECTIVES 1\. Background and Statement of Objectives\. At the time of project inception, Lao PDR had a very small industrial sector which was largely dominated by state-owned enterprises\. The structure of the sector had changed little since the 1 970s as foreign exchange shortages prevented much needed replacement of and addition to productive capacity\. Capital investment was normally financed through budgetary allocations, often being used as a means of providing operational subsidies to enterprises\. In general, the system provided little incentive for operating efficiency at the enterprise level\. 2\. With the introduction of the New Economic Mechanism (NEM) in 1986, however, a fundamental shift in the operation of public enterprise was expected as the program supported increased autonomy and greater operational and financial accountability for public enterprises\. Credit was expected to replace budgetary transfers as the main means of financing investment and working capital\. A major implication of the NEM was the expanded role of the country's still underdeveloped financial sector in the provision of term credit for the newly autonomous enterprises\. At the time of project development, the financial sector comprised a single institution, the State Bank of Lao PDR (SBL), which was responsible for the combined functions of central, commercial and development banking\. 3\. The Industrial Credit Project was directed mainly at supporting essential investment for the rehabilitation, modernization and expansion of productive capacity in the country's industrial sector through the provision of equipment, spare parts and technical assistance\. The project was also intended to support the establishment of an infrastructure for the delivery of term credit for industrial financing\. In particular, the establishment of systems and procedures for project appraisal and investment financing was to be initiated with a view towards strengthening the banking system's ability to assume its expanded financial intermediation function under the NEM\. 4\. Specifically, the project objectives were: (a) to upgrade the capacity and productivity of small- and medium-sized industries through: the acquisition of modern equipment and essential spare parts and raw materials, and the provision of technical assistance to improve production methods and management skills; and (b) to initiate the development of a capability for project evaluation within SBL with a view towards progressively strengthening the institution's ability  to assume its expanded financial intermediation function under the New Economic Mechanism (NEM)\. 5\. Evaluation of Objectives\. The objectives of the project were appropriate given the situation within the financial and industrial sectors at the time of project preparation and IDA's strategy as formulated at the time\. As noted in the section discussing IDA performance, however, questions can be raised as to whether sufficient attention was given to diagnosing the causes of poor performance in these sectors, before prescribing a credit line as a solution\. The project attempted to bring about greater efficiency in the operations of public enterprises while opening the way for a greater reliance on private initiatives\. It addressed the two key constraints to development in the sector, namely the lack of foreign currency resources for the rehabilitation and expansion of productive capacity and the need to strengthen institutional and managerial capabilities given the increasing emphasis that was being placed on autonomous microeconomic decisions by individual enterprises\. Additionally, focus on the development of capacity for project evaluation within the banking system was timely based on the expected increase in demand for financial intermediation under the NEM\. B\. ACHIEVEMENT OF OBJECTIVES 6\. The development objectives of the project were achieved in a narrow sense and fell short of initial expectations in certain areas\. Productive capacity in the industrial sector did increase, but the total increase was less than expected, as credits were also extended to service sector enterprises\. The privatization of some state enterprise reduced the demand for credit from the industrial sector\. As a result, the focus of the project shifted towards the budding private sector, which is largely service oriented\. Development of institutional capacity for project evaluation fell short of expectations as the use of new skills and project evaluation techniques has not yet been institutionalized\. 7\. Expansion of Productive Capacity\. The primary objective of the project was to support essential investments for the rehabilitation, modernization and expansion of productive capacity in the industrial sector, particularly focused on the manufacturing sector\. This was to be accomplished through the provision of credit to acquire necessary modem equipment and essential spare parts and raw materials, and by the provision of technical assistance to improve production methods and management skills\. 8\. Productive capacity of enterprises in various industries was indeed upgraded as many credit recipients were able to expand production lines and purchase new equipment and spare parts\. Lao Brewery, which was later privatized, was able to change its bottling line and substantially expand production\. Several manufacturing enterprises in the garment and food processing industry were also able to increase production as a result of credits received\. Enterprises engaged in metallurgy, extraction, chemicals, paper, plastics and construction activities also benefited from available credits\. In 1994, industry accounted for almost 18 percent of GDP in real terms, up from 11 percent in 1988\. The manufacturing sector's share of GDP (in real terms) also increased substantially, from 7\.5 percent in 1988 to 12\.7 percent in 1994\.  - 3 - 9\. To the extent, however, that some portion of available credit was diverted to service sector enterprises, such as hotels and tourism, the overall increase in industrial productive capacity is less than expected\. Credits equal to roughly 16 percent of total lending were extended to enterprises outside the industrial sector\. While these credits did result in increased productive capacity in the service sector, this was not the original intention of the project\. As the Government pursued its privatization program, the pipeline of sub-projects which had been developed during project appraisal to ensure quick disbursements became less and less relevant\. It can be argued, therefore, that IDA and BoL were correct in redefining the objectives of the credit line towards increasing private sector participation, including services\. Given that many of these private sector sub-projects were much smaller in size, this also contributed to slower than expected disbursements\. 10\. The project included co-financing from the French Government to fund a Resident Advisor to provide technical assistance (TA) for a period of 3 years\. This advisor, however, was less than completely successful in providing the necessary guidance and training to BoL; commercial banks and enterprises, and IDA supervision missions often provided supplemental TA\. During project implementation, it became apparent that an additional advisor was needed and BoL requested IDA's assistance to secure financing for such an advisor\. When these efforts proved unsuccessful, BoL was still reluctant to use part of the available IDA credit for this purpose and the additional training never materialized\. 11\. Development of Institutional Capacity for Project Evaluation\. While the technical assistance provided did develop some capacity within BoL to appraise projects, and an infrastructure for the delivery of term credit for industrial financing has been initiated, the use of new project appraisal and evaluation techniques has not been institutionalized\. Despite the availability of sound, modern project appraisal methods, intuition and personal qualifications remain the primary factors used to evaluate creditworthiness\. Computer programs developed for project appraisal which employ internationally recognized indicators and evaluation criteria are still not used regularly in credit decisions\. This remains true both within the BoL and the state commercial banks\. Projected cash flow and product marketability are taken into account during the evaluation process, but when project cash flow cannot be demonstrated, "collateral" of the project's promoter is accepted and credit is extended\. This is particularly problematic in Lao PDR where the legal framework and related regulations enabling the actual collection of collateral in the event of default are still underdeveloped\. Additionally, little follow-up regarding the financial situation of credit recipients is done on a systematic basis\. 12\. The capacity at BoL to evaluate projects remains weak despite training and technical assistance provided\. This is largely due to a lack of continuity of staff and little or no training and transfer of skills within BoL\. Management within BoL has had difficulty moving from the old system of simple administration of credit allocations to the new system involving proper banking functions, and additional training in this area would be beneficial\. 13\. Upgrade Management Skills\. With the possible exception of some enterprises which were privatized and have since become more profitable, there is little evidence that management capacity in enterprises has improved as a result of the credit\. This is illustrated by the high percentage of credit recipients who were unable to service their debts and whose loans fell into arrears\. At the time of the ICR mission, six enterprises, which received 12\.1 percent of total  credit funded from IDA proceeds, were in arrears of more than three payments with another four enterprises accounting for 6\.4 percent of the IDA credit were in arrears of one to three payments\. Finally, five firms representing 9\.3 percent of IDA credit proceeds are in dispute regarding payments which BoL is trying to resolve\. With respect to credits financed from project reflows (about US$2 million), an additional 10 enterprises or 31 percent of these credits were in arrears\. C\. MAJOR FACTORS AFFECTING THE PROJECT 14\. There were several factors which resulted in project delays and the postponement of both the deadline for sub-project approval and the closing date by two years\. Most importantly, the ability of the Borrower to implement the project successfully was affected by reforms in the financial sector which began in 1988\. SBL, which functioned as both a central and commercial bank, was reorganized into a two-tier system with central banking separated from commercial banking\. The central bank (now called the Bank of Lao PDR) was made responsible for issuing currency, extending credit to the commercial banks, and acting as the fiscal agent for the Government\. The IDA credit, however, remained under the management of BoL as the commercial banks were not considered capable of managing longer term lending activities\. Given this major restructuring and additional financial sector reforms which were adopted during the implementation period, the project received less attention from BoL than needed for truly successful implementation\. 15\. Additionally, the privatization efforts of the Government led to a reshaping of many state- owned enterprises initially considered as candidates for subloans\. In a number of cases, joint venture agreements signed with foreign investors resulted in an elimination of the demand for credit from that enterprise as new owners brought sufficient capital to the enterprise\. As the privatization program continued, the implementing agency became less concerned with investigating new investment opportunities\. The scope for publicly sponsored projects was considerably reduced, at the same time that private sector demand for term credit remained relatively modest\. The overall result was a weak pipeline of sub-projects and a need to extend the deadline for submission of sub-projects to IDA for approval from June 30, 1991 to December 31, 1994\. 16\. Early into project implementation, problems with payment arrears also developed\. Efforts on the part of BoL to resolve these payment arrears did not prove successful in many cases, largely due to a lack of clearly enforceable penalties\. Increased efforts by BoL to improve the performance of the portfolio of sub-loans and resolve these arrears situations resulted in a near moratorium on the approval of new projects for almost a year which further slowed project disbursements\. Lastly, weak institutional capacity within the implementing agency hampered implementation and resulted in slower than expected disbursements\. D\. PROJECT SUSTAINABILITY 17\. To the extent that enterprises who received credits remain viable, the expansion in productive capacity is sustainable\. The question of enterprise viability is a crucial one, particularly with respect to state-owned enterprises\. It is not clear that investments financed by  the project were made in growth areas and therefore sustainable\. With respect to capacity building activities, it is doubtful whether project evaluation and appraisal techniques transferred to and other skills acquired by BoL staff will remain in use now that IDA supervision of the project has ceased\. While capacity building is a priority for the Lao, there remains work to be done with respect to institutionalizing the use and sharing of newly acquired skills within the government and its agencies\. For these reasons, project sustainability remains uncertain\. E\. ASSOCIATION PERFORMANCE 18\. Project Identification\. IDA's identification of the project raises some important questions\. The industrial and financial sectors at the time were underdeveloped and in need of support given the Government's economic reform program as outlined under the NEM\. In light of the assumption regarding the need for credit, a credit line was appropriate and the project was in line with IDA's strategy of overall support for the Government's program of economic and financial reform\. It is not clear from project documents, however, that a sufficient attempt was made to determine whether this increase in the demand for credit would actually materialize given expected changes in ownership of state enterprises\. There should have been more strategic thinking as to how these sectors would develop under the NEM and the possible effects on project implementation of potential developments within the sector\. Additionally, it is unclear whether or not sufficient attention was paid to diagnosing the causes of poor performance in the financial and industrial sectors, before ascertaining that access to credit would improve performance\. 19\. Project Preparation\. IDA's preparation of the project was adequate and some attention was given to the current situation in both the financial and industrial sectors as well as capacity constraints within the banking system\. From the project documents, it appears that the substantial changes that took place in the financial sector and the resulting effect on project implementation were not foreseen during the preparation phase, but perhaps should have been considered\. 20\. Appraisal\. Early identification and appraisal of viable sub-projects proved satisfactory and facilitated faster disbursements of the IDA credit\. With the exception of one sub-project (a coal mine), appraisal and rate of return calculations proved accurate\. In the case of the coal mine, however, the assessment of the market for coal production was overly optimistic\. It was expected that a cement factory, not yet built, would purchase a significant portion of the production from the mine at a price of US$40 per ton\. The credit line was extended based on this appraisal but delays in construction of the cement factory translated into income problems for the coal mine\. The cement factory was not completed until 1994 and the mine was forced to export to Thailand in the interim at a much lower price of US$25 per ton\. As a result, the credit line has had severe payments problems which are only now being resolved\. 21\. Supervision\. Initially, supervision of the project by IDA was frequent and adequate\. As the project progressed, however, supervision became less frequent\. After 1991, only one supervision report per year was prepared\. This is largely the result of staff turnover: during the implementation period there were at least four task managers of record for the project\. This turnover of staff within IDA unfortunately occurred while project staff at BoL were also  - 6 - changing, resulting in a near by complete lack of institutional memory within IDA\. This is of particular concern for this project since many of the initial preparation briefs and reports mention that lack of trained personnel and shallow institutional depth at SBL would likely translate into a need for more frequent or higher than normal supervision\. However, such close supervision did not materialize during imp"^ --titation\. F\. BORROWER PERFORMANCE 22\. Borrower performance with respect to sub-project identification, appraisal and supervision of approved projects was lower than expected\. BoL had difficulty moving from the old system of administration of credit allocations to the new system involving proper banking functions\. Perhaps the largest single problem with respect to project implementation was the discontinuity of staff at BoL\. Management of the Credit Department, which was responsible for project implementation, and project staff changed several times during the implementation period\. This turnover of staff translated into gaps in project implementation and the loss of institutional knowledge regarding proper sub-project appraisal and overall project implementation procedures\. Lack of knowledge of project staff and inability to prepare proper documentation resulted in fewer and fewer sub-projects submitted to IDA for approval and lower than expected disbursements\. 23\. Computer programs developed for project appraisal using internationally recognized indicators and criteria are still not used in credit decisions\. Despite the existence of this model and training provided by a resident advisor, intuition and an evaluation of personal qualifications rather than project viability remain the primary methods used to evaluate creditworthiness\. This is true both within the BoL and state commercial banks\. With respect to supervision of approved sub-projects, no analysis was done regarding the evolution of the financial situation of credit recipients and the possible effect on an enterprise's ability to meet its debt-service obligations\. While it can be understood that such analysis may not be necessary for all sub-projects, it is certainly warranted for those enterprises that fell into arrears and have been unable to service their debt\. 24\. However, BoL did try to involve the newly established commercial banks in project implementation\. Based on an evaluation of the financial position and capabilities of the commercial banks, it was decided that this involvement should be limited to the role of acting as agents in the identification and supervision of selected sub-projects\. With respect to projects financed by reflows, commercial banks were given primary responsibility for identification and appTaisal of sub-projects, with final approval required from BoL\. BoL therefore did try to develop project appraisal skills and some infrastructure for delivery of term credit in the commercial banks\. It is important to note that sub-projects financed with reflows did not require prior review by IDA and therefore minimum rates of return may not have been properly assessed\. Additionally, since IDA approval was not necessary, and the approval process therefore much quicker, the availability of these reflows may have contributed to slower disbursements from the original IDA credit line\.  G\. ASSESSMENT OF OUTCOME 25\. On balance, the project's outcome is considered successful in a narrow sense since to some extent all major objectives were achieved; however issues regarding sustainability remain uncertain\. The primary objective, expansion of productive capacity, was achieved as credit was provided to allow firms to purchase modem equipment and spare parts\. The troublesome situation with arrears, however, raises doubts about the viability of these enterprises\. In some cases, reports indicate that enterprises are in fact viable and a "willingness" to pay rather than an "ability" to pay is the cause of the arrears problem\. Institution building objectives were also achieved, albeit to a lesser extent than originally envisaged, but sustainability in this area is particularly doubtful\. 26\. Despite the achievement of these objectives, there were several shortcomings in implementation\. Project implementation was slower than expected due to dramatic changes within the financial sector and discontinuity of staff both within BoL and IDA\. Disbursements lagged behind appraisal estimates for several reasons\. First, the Government's privatization program rendered the pipeline of sub-projects (which had been prepared and appraised in order to enable quick disbursements) less and less relevant and enterprises lacked the expertise to translate investment ideas into bankable projects\. Second, once project reflows became available, approval of sub-projects financed from these reflows may have substituted for use of the credit line as they did not require prior approval from IDA\. Thirdly, the provision of technical assistance, which occurred early in project implementation, did not prove sustainable as many newly acquired skills were not shared across or within agencies which resulted in a weak pipeline of sub-projects and corresponding lags in credit approvals and disbursements\. H\. FUTURE OPERATIONS 27\. It was expected that a second project would follow this operation, and in fact an Industrial Credit II project was developed as far as the IEPS stage\. When the Industrial Credit I project was developed, it was understandable for SBL to be involved in credit distribution given the virtual non-existence of a commercial banking sector in Lao PDR\. Even after SBL was restructured into separate central and commercial banks, capacity within the newly created state commercial banks did not warrant management of long term credit activities, and BoL continued to manage the credit line\. The situation today, however, is quite different: in addition to domestic commercial banks, there are several branches of foreign banks now operating in the country\. Under these circumstances, BoL's continued involvement in credit distribution is hard to justify and preparation of the Industrial Credit II project was therefore discontinued\. 28\. There is still a valid need for institution building and capacity development at the BoL but these needs are beirpg addressed through various technical assistance projects rather than additional IDA credits\. The broader issues of financial sector reform, including the strengthening of the banking sector to meet the needs of a growing market-oriented economy, will be further supported by the proposed Third Structural Adjustment Credit\.  -8 - I\. KEY LESSONS LEARNED 29\. There is a need for IDA to develop a strategic view of relevant sectors prior to project identification and appraisal in order to ensure that potential reforms and changes with the sector can be foreseen\. Potential reforms and resulting changes in structure or methods of operations should be considered before embarking on the first project in a particular sector\. 30\. Discontinuity of staff within an implementing agency is of concern in any project but is of particular concern in countries where human capacity is still weak\. Additionally, when mechanisms for transfer of skills and project knowledge are not institutionalized, project design must include adequate capacity building and the development of staff capable of training other staff\. 31\. Adequate attention to and resources for supervision on the part of IDA, particularly for the first operation within a sector, is crucial to effective project implementation\. To the extent possible, changes in responsible staff within IDA should be limited during the implementation period\. 32\. Technical assistance, when crucial to project implementation, should be included in project design and financed by the project\. While the financing of TA by bilateral donors with grant money is desirable for the Borrower, it often results in delays in project implementation and when problems arise, IDA typically has no recourse to correct the situation\. M:ULaos\ProjectsUCRI\.DOC  Part II: Statistical Annexes  Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Part II: Statistical Annexes Annex A: Statistical Tables Table 1: Summary of Assessment Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation Table 7: Studies Included in Project Table 8A: Project Costs Table 8B: Project Financing Table 9: Economic Costs and Benefits Table 10: Status of Legal Covenants Table 11: Compliance with Operational Manual Statements Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions Annex B: Sector Specific Data Table 1: List of Sub-projects Under the Initial IDA credit Table 2: List of Sub-projects financed from reflows  - 9 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 1: Summary of Assessments A\. Achievement of Objectives Substantial Parl Negliible Not applicable (/) (V) ( ) (1) Macro Policies O O O 0 Sector Policies 0 0 0 0 Financial Objectives 0 O E O Institutional Development 0 0 0 O Physical Objectives 0 0 0 0 Poverty Reduction 0 0 0 0 Gender Issues O O O 0 Other Social Objectives 00 O Environmental Objectives O O O 0 Public Sector Management 0 0 0 0 Private Sector Development O 9 0 0 Other (specify) 0 0 O 0 B\. Project Sustainabilitv Lilcely Unlikely Uncetain ($) (v') (/) Highly C\. Bank Performano satisfactory Satisfactoly Deficien (1) (1) (/) fdentification 0 0 E Preparation Assistance a 0 0 Appraisal 0 0 0 Supervision [ R 0 Higl D\. Borrower Performance satisfactory Satisfacto Deficient (") (V) ) Preparation 0 0 0 Implementation 0 0 0 Covenant Compliance 0 0 0 Operation (if applicable) 0 0 0 Highly HihlY E\. Assessment of Outcome satisf Satisfacty Unsaisfactorv unsatisfactl) 0/) 0/) 0/) 0/3  - 10- Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 2: Related Bank Loans/Credits Credit title Purpose Year of approval Status Preceding operations 1\. None 2\. Following operations 1\. None 2\. Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ l l Latest Estimate Identification (Executive Project Summary) January 29, 1987 Preparation/Pre-appraisal July 1987 May 11, 1987 Appraisal January 1988 January 22, 1988 Negotiations May 1988 June 8, 1988 Board Presentation July 1988 July 26, 1988 Signing August 1988 August 16, 1988 Effectiveness November 1988 January 18, 1989 Project Completion June 30, 1993 June 30, 1995 Loan Closing June 30, 1993 June 30, 1994 June 30, 1995 June 30, 1995  - 11 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 4: Credit Disbursements: Cumulative Estimated and Actual (USS millions) Appraisal Estimate 3\.8 7\.1 9\.1 10\.0 10\.0 10\.0 FY90 FY91 FY92 FY93 FY94 FY95 Actual 1\.96 2\.83 3\.91 5\.53 6\.90 8\.88 Actual as % of Estimate 51\.5 39\.9 42\.9 55\.3 69\.0 89\.0 Date of Final Disbursement August 1 0, 1995 Table 5: Key Indicators for Project Implementation and Operation' I\. Key Implementation Estimated Actual Indicators in SARlPresident's Report I\. N/A II\. Modified Indicators (if applicable) 1\. N/A III\. Modified Indicators for Future Operation (if applicable) 1\. N/A As lic projcct %%aN appraised in January 1988 before new OED ICR guidelines were in place, no indicators were listed In the S -\R or President's Rcport See I ble I 0 for other areais that %%ere monitored\.  - 12- Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 6: Key Indicators for Project Operation2 I\. Key Operating Indicators in SAR/President's Estimated Actual Report__ _ _ _ _ _ _ _ _ 1\. N/A 2\. 3\. II\. Modified Indicators (if Applicable)__ _ _ _ _ _ _ _ _ _ _ _ _ _ 1\. N/A 2\. 3\. III\. Modified Indicators for Future Operation (if applicable) 1\. N/A 2\. 3\. Table 7: Studies Included in Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study l\. None l 2\. 3\. As the project was appraised in January 1988 before new OED ICR guidelines were in place, no indicators were listed in the SAR or President's report\. See Table 10 tor other area:s that %%ere monitored\.  - 13 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 8A: Project Costs ______ Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Total Local Foreign Total Item Costs Costs Costs Costs 1\. Sub- 0\.0 10\.0 10\.0 0\.0 10\.0 10\.0 projects 2\. Technical 0\.1 0\.5 0\.6 0\.1 0\.5 0\.6 Assistance TOTAL 0\.1 10\.5 10\.6 0\.1 10\.6 10\.6 Table 8B: Project Financing Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Source Local Foreign Total Local Foreign Total Costs Costs Costs Costs IDA 0\.0 10\.0 10\.0 0\.0 10\.0 10\.0 French Government 0\.1 0\.5 0\.6 0\.1 0\.5 0\.6 Domestic Contribution 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 TOTAL 0\.1 10\.5 10\.6 0\.1 10\.6 10\.6  - 14- Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 9: Economic Costs and Benefits Given the nature of the Industrial Credit I project, it is not possible to calculate an economic rate of return for the entire project\. Ex-ante rates of return which were calculated for a sample of sub- projects range from 26\.5% to 67\.1%\. Ex-post rates of return were not calculated since the requisite information (financial data from sub-borrowers) was not collected by the BoL\. Table 10: Status of Legal Covenants Lao People's Democratic Republic CR 1947-LA Agreement Section Covenant Present Original Revised Description of Comments type status fulfillment fulfillment covenant date date Credit 4\.01 (a) I C ongoing Govremment to maintain records and accounts re\. Statement of expenditure 4\.01 (b) I CD September February Audit of SOEs and Special 1995 1995 Account \. 4\.02 9 C annual Annual review and if necessary, adjustment of on-lending rates \. I\. 4\.03 12 - C Govemment to inform IDA of any changes to the banking system\. \. Project 3\.01(b) I C June 1994 BoL to fumish unaudited Project accounts were up project accounts to IDA to date \. \. I CD September February BoL to fumish audited 1995 1995 project accounts to IDA \. 3\.02 12 C ongoing BoL to protect itself from Foreign exchange risk was foreign exchange risk bome by sub-borrower Covenant types: I\. = Accounts/audits 8\. = Indigenous people 2\. = Financial performance/revenue generation from 9\. = NMonitoring, review, and reporting beneficiaries 10\. = Project implementation not covered by categories 1-9 3\. = Flow and utilization of project funds 11\. = Sectoral or cross-sectoral budgetary or other resource 4\. = Counterpart funding allocation 5\. = Management aspects of the project or executing agency 12\. = Sectoral or c\.oss-sectoral policy/ regulatory/institutional 6\. = Environmental covenants action 7\. = Involuntary resettlement I \. = Other 8\. Present Status: C = covenant complied with CD = complied with after delay CP = complied with partially NC = not complied with  - 15- Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 11: Compliance with Operational Manual Statements Statement Number and Title Describe and comment on lack of compliance No significant variance with the operation None manual statements based on documents in file\. Table 12: Bank Resources: Staff Inputs Stage of Planned Revised Actual Project Cycle l Weeks US$ Weeks US$ Weeks US$ Through Appraisal \. \. \. \. 25\.6 67,400 Appraisal-Board \. \. \. \. 3\.4 5,100 Board-Effectiveness \. \. \. \. 6\.0 13,200 Supervision \. \. \. \. 70\.9 165,300 Completion 12 34\.4 7\.5 23\.1 6\.6 25,500 TOTAL \. \. \. 112\.2 276,500 l  - 16 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 13: Bank Resources: Missions Performance Rating Number Specialized Implemen- Development Stage of MontW/ of Days in Staff Skills tation Objectives Types of Project Cycle Year Persons Field Represented Status Problems Through Appraisal Nov-86 2 5 Loan Officer Sr\. _ Economist Loan Officer Jan-87 2 5 Economist Apr-87 2 6 Loan Officer Fin Analyst Economist Sept-87 2 6 Fin\. Analyst Appraisal through Board N/A Approval Board Approval through Oct-88 i 8 Economist _ _ Effectiveness Supervision Nov-89 2 12 Operation Officer N/A I Satisfactory Consultant Operation Officer June-90 1 7 N/A I Project Management Performance Operation Officer Project Management Oct-90 2 13 Consultant N!A I Compliance vith Covenants Feb-91 1 7 Economist N/A I Project Management Compliance vith Covenants Technical Assistance Progress Economist Nov-8 1 3 4 Financial Analyst N/A I Project Management Nov-81 3 ~~~~~~Consultant Technical Assistance Sr\. Economist Consultant Oct-92 2 7 Financial N/A I Project Management, Technical Economist Assistance, Training, Compliance with Covenants Sr Economist July-93 i 9 N/A I Project Management, Training, Technical Assistance Sr Economist Project Management, Technical Sept-94 2 5 Consultant U U Assistance, Training, Compliance with Covenants Completion Dec-95 2 7 Country Officer U S I I I I Consultant I  - 17- Implementation Completion Report Lao People's Democratic Republic Industrial Credit Line Project (CR 1947-LA) Table 1: Statement of Sub-projects Under Initial IDA Credit Sub-project I PRINCIPAL INTEREST 1 [Tota Contract Date Committed I Withdrawn I To be repaid I Repaid To be paid I Paid arrears [TOTAL 1 9,377\.316 8,674,2471 4\.777,169 3,799,551] 1,638,747 1,390,791 ,573 LAGACO 01/89 29-Mar-89 214,765 214,765 214\.765 214,765 78\.366 78,366 0 05/89 21-Jul-89 200,000 72,557 72,557 72,557 25,052 25,052 0 LAO VIENG DISTILLERY 02/89 29-Mar-89 78,937 78,937 78,937 74,021 28,728 28,727 4,916\.45 VIENTIANE TAILORING 03/89 19-Apr-89 143,000 141\.734 141\.734 0 63,015 3,744 201,005 09(03)/90 22-Dec-90 90,000 31,539 31,539 0 11,930 0 43,469 COAL MINING 04/89 20-Jul-89 500\.000 421,529 214,260 15\.000 189,708 107,325 281,644 LAO BREWERY 06/89 27-Oct-89 997\.614 997,614 997,614 997,620 185,527 185\.517 4 07(01)/90 30-Jun-90 90,000 97,424 97,422 97,422 13,680 13,680 0 11(01)/90 25-Mar-91 30,000 29,401 29,401 29,401 3,268 3,268 0 34(03)/93 3-Aug-93 2,200,000 1,969,245 412,500 412,500 154\.799 154,819 -20 INTERNATIONAL GARMENT 08(02)/90 7-Dec-90 165,000 163,132 163,132 68,941 51,639 44,225 101,605 SAVANNAKHET PLASTIC 10(04)/90 28-Dec-90 70,000 69\.540 69,540 69,539 9,388 9,388 0 LAO SOFT DRINK 12(02)/91 20-Apr-91 200\.000 187\.002 187,002 187,002 26,858 26,858 -0 SANTIPHAB SUZUKI LAO 13(03)/91 14-Jun-91 200,000 200,000 200,000 200,000 29,074 29,074 0 LAO CONCRETE PRODUCT 15(05)/91 23-Jun-91 180,000 178,900 178,900 178,900 39,862 39,862 -0  - 18- |Sub-project PRINCIPAL tINTEREST [ otal| |Contract Date Committed Withdrawn To be repaid Repaid To be paid arrears SAVANNAKHET PRINTING 16(01 )91 15-Aug-91 95,000 93,950 93,950 93,950 16,694 16,695 -0 P V GARMENT 18(08(/91 5-Oct-91 400,000 378,685 307,167 280,952 82,126 82,126 26,215 CHAMPASAK ICE FACTORY 17(07)/91 3-Oct-91 155,000 141,161 103,360 48,127 37,911 37,918 55,227 NAILS & BARBED WIRE 1 9(0919 1 19-Nov-91 220,000 176,949 115,011 0 52,434 1,000 166,445 XESET ICE FACTORY 20(01)/92 7-Mar-92 185,000 165,072 46,000 5,000 51,443 34,390 58,053 VM GARMENT 21(02)/92 200,000 199,850 100,000 60,500 48,997 41,759 46,738 SI GARMENT 22(03)/92 185,000 183,598 82,620 82,620 38,848 38,839 9 FANCY GARMENT 23(04)/92 8-Apr-92 180,000 150,580 75,996 50,576 28,440 28,440 25,420 LAO TOYOTA 24(05)92 22-Apr-92 150,000 136,072 76,408 75,908 29,897 29,896 501 INDOCRUISE 25(06)/92 30-Apr-92 140,000 148,579 74,240 14,079 35,508 35,055 60,614 PACDPI PAINT FACTORY 26(07)92 29-May-92 180,000 180,014 33,750 22,500 30,657 31,651 10,256 SAVANNAKHET DREDGING 27(08)192 1 -Jul-92 160,000 145,522 16,000 0 18,581 15,606 18,975 HOTEL PHOUPADENG 28(09Y92 16-Oct-92 98,000 98,082 36,000 29,408 16,689 15,220 8,060 VIENTIANE ICE FACTORY 29(10)/92 7-Dec-92 220,000 220,023 140,000 70,000 35,184 35,184 70,000 THONGSAVANXAY GARMENT 30(11)192 9-Dec-92 220,000 220,852 41,400 41,400 31,847 31,847 -0 BAN KEUN PURIFY WATER 31(12)/92 24-Dec-92 40,000 33,260 17,800 0 7,585 316 25,069  - 19- Sub-project PRWNCIPAL R INTEREST Total Contract Date Committed Withdrawn To be rpaid Repaid To be paid Paid arrears VANSANA HOTEL 32(01)/93 28-Jan-93 200,000 199,823 82,600 82,600 38,230 38,230 0 KHONG HOTEL 33(02)/93 2-Aug-93 95,000 94,031 18,990 25,130 11,046 11,046 -6,140 SAVAN HUNG HUANG HOTEL 35(04)/93 3-Aug-93 200,000 188,450 44,500 46,000 24,990 25,091 -1,601 SHINAWATRA GARMENT 34(05)/93 4-Aug-93 300,000 300,005 83,300 83,300 43,101 43,101 0 PRINCESS HOTEL 37(06)/93 4-Aug-93 120,000 119,900 30,000 30,000 14,336 14,337 -0 HOTEL RELAIS 38(07)/93 5-Aug-93 170,000 170,026 53,775 24,833 23,647 23,647 28,942 VIRA HOTEL 39(08)/93 22-Dec-93 65,000 65,000 15,000 15,000 8,355 8,334 21 DENTAL CLINIC 41(01)/94 20-Jan-94 40,000 11,444 0 0 1,306 1,158 148  - 20 - Implementation Completion Report Lao People's Democratic Republic Industrial Credit Line Project (CR 1947-LA) Table 2: Statement of Sub-projects under Reflows Sub-project PRINCIPAL | INTEREST Total [Contract Date | Committed I Withdrawn I To be repaid |Repaid Tobe paid |Paid arrears [GENERALTOTAL | 2,056,5001 2,017,4701 1,057,8051 801,4561 253,9161 196,5611 | |313,7041 BRICK FACTORY KM15 01/R/91 14-Jun-91 30,000 29,652 29,652 0 10,073 195 39,531 ECI 14(04)91 24-Jun-91 143,000 143,000 143,000 143,000 34,746 34,746 0 XOI SAY HOTEL 20/R/91 19-Nov-91 55,000 39,797 0 0 10,973 500 10,473 GRAVEL & SAND 01/R/92 9-Jan-92 30,000 29,610 29,610 0 9,459 2,188 36,881 ACID DISTILLERY 02/R/92 14-Jan-92 30,000 30,000 30,000 2,779 8,217 7,679 27,758 PV GARMENT 03/R/92 15-Jan-92 50,000 49,962 49,963 49,963 8,942 8,942 0 ITSALA CONSTRUCTION 04/R/92 3-Apr-92 30,000 30,000 30,000 23,700 6,897 967 12,231 LCP 07/R/92 8-Jul-92 100,000 99,300 99,300 99,300 13,816 13,816 0 PLASTIC SAVANNAKHET 05/R/92 2-Jul-92 12,000 11,558 11,559 11,558 1,579 1,580 0 03/95 21-Jan-95 120,000 120,000 0 0 7,680 5,253 2,427 TUKTUK ASSEMBLY 06/R/92 7-Jul-92 7,000 6,675 6,675 6,675 829 829 0 SANTI PAB PRINTING 08/R/92 8-Jul-92 186,000 185,800 185,800 156,524 35,376 32,560 32,093 PURIFY WATER 10/R/92 28-Jul-92 38,000 37,958 37,958 6,400 7,729 7,729 31,558  - 21 - Sub-project 1 PRINCIPAL INTEREST 1 Total Contract Date | Committed Withdrawn To be repaid Repaid [ To be paid Paid arrears CHOPPED 1 -Oct-92 8,000 7,600 7,600 3,350 3,350 1,401 121R192 YADA COMPANY 11/R/92 25-Sep-92 70,000 68,600 68,600 68,600 5,311 5,311 0 AENG FACTORY 13/R/92 28-Oct-92 10,000 10,000 10,000 10,000 825 825 0 PAPER CUTTER FACTORY 09/R/92 22-Jul-92 12,000 12,000 12,000 12,000 896 896 0 01/R194 5-May-94 24,000 24,000 4,000 4,000 2,931 2,512 419 06/95 20-Feb-95 15,000 15,000 0 0 657 657 0 SAVANNAKHET DREDGER 27/08/92 1-Jul-92 70,000 70,000 0 0 6,020 3,158 2,862 INTER EXPORT GARMENT 15/R/93 4-Mar-93 170,000 170,000 113,600 18,800 37,636 28,354 104,082 PIANE PEN CLINIC 02/95 21-Jan-95 70,000 70,000 3,680 0 3,640 2,224 5,096 GALVANIZED STEELS FACT\. 16/R193 5-Mar-93 180,000 179,988 179,988 179,988 15,034 15,034 0 02/95 12-Dec-94 305,000 285,469 0 0 12,497 12,497 0 LAO UNIVERS GARMENT 16/95 18-May-95 200,000 200,000 0 0 9,067 5,022 4,044 OXIGEN ACETYLEN FACT\. 13/95 20-Apr-95 91,500 91,500 4,820 4,820 1,684 1,684 0  -22 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 3: Arrears Status: Projects Financed by IDA Credit Sub-projects Disbursed Percent of Total (USSThousands) Fully Reimbursed Loans 2,141\.153 24\.68 LAGACO I 214\.765 LAGACO2 72\.557 Lao Brewery 1 997\.614 Lao Brewery 2 97\.424 Lao Brewery 3 29\.401 Savannakhet Plastic 69\.540 Lao Soft Drink 187\.002 Santiphab Susuki Lao 200\.000 Lao Concrete Product 178\.900 Savannakhet Printing 93\.950 Loans with current payments 4,126\.056 47\.56 Lao Vieng Distillery 78\.937 Lao Brewery 4 1,969\.245 P V Garment 378\.685 SI Garment 183\.598 Lao Toyota 136\.072 PACDPI Paint Factory 180\.014 Thongsavangxai Garnent 220\.852 Vansana Hotel 199\.823 Khong Hotel 94\.031 Savan Hung Heuang Hotel 188\.450 Shinnawatra Gannent 300\.005 Princess Hotel 119\.90 Vira Hotel 65\.00 Dental Clinic 11\.444 Arrears of I to 3 Payments 554\.791 6\.39 Champassak Ice Factory 141\.161 Savannakhet Dredging 145\.522 Hotel Phou Phadeng 98\.082 Relais Hotel 170\.026 Arrears of 3 or more Payments 1,047\.236 12\.07 International Garrnent 163\.132 Xeset Ice Factory 165\.072 V M Garment 199\.850 Fancy Garment 150\.580 Indo Cruise 148\.579 Vientiane Ice Factory 220\.023 Disputed Loans 805\.011 9\.28 Vientiane Tailoring 1 141\.734 Vientiane Tailoring 2 31\.539 Coal Mine 421\.529 Nails & Barbed Wire 176\.949 Ban Keun Purified Water 33\.260  - 23 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 4: Arrears Status: Projects Financed by Reflows Subprojects Disbursed Amount Percent of (US$ Thousands) Total Fully Reimbursed Loans 581\.083 28\.8 E\.C\.1 143\.000 P\.V\. Garmnent 49\.962 LCP (Lao Concrete) 99\.300 Savannakhet Plastic no 2 11\.558 Tuk Tuk Assembly 6\.675 YADA Company 68\.600 AENG Factory 10\.000 Paper Cutter Factory no I 12\.000 Galvanized Steel Factory no 1 179\.988 Loans with current payments 805\.970 33\.94 Savannakhet Plastic n° 3 120\.00 Paper Cutter Factory n° 2 24\.000 Paper Cutter Factory n° 3 15\.000 PIANEPEN Clinic 70\.000 Galvanized Steel Factory n° 2 285\.470 Lao Univers Garment 200\.00 Oxygen Acetylen Factory 91\.500 Arrears of 1 to 3 Payments 285\.800 14\.17 ITSALA Construction 30\.000 SANTIPAB Printing 185\.800 Savannakhet Dredger n° 2 70\.00 Arrears of 3 or more Payments 344\.617 17\.09 Brick Factory 29\.652 XOISAY Hotel 39\.797 Gravel & Sand 29\.610 Acid Distillery 30\.000 Purify Water 37\.958 Chopped Meat 7\.600 Inter Export Garnent 170\.000  - 24 - Lao People's Democratic Republic Implementation Completion Report Industrial Credit Line (CR 1947-LA) Table 5: Breakdown of Loans by Industrial/Service Sector Subprojects Disbursed Amount Percent of (USS Thousands) Total Food & Related Industries 3,964\.697 37\.03 Lao Distillery 78\.937 Lao Brewery 3,093\.684 Lao Soft Drink 187\.002 Vientiane Ice Factory 220\.023 Ban Keun Purified Water 33\.260 Champassak Ice Factory 141\.161 Xeset Ice Factory 165\.072 Chopped Meat 7 600 Purify Water 37\.958 Textiles 2\.477\.359 23\.14 LAGACO 287\.322 Vientiane Tailoring 173\.373 Intemational Garment 163\.132 P V\. Garment V\.M\. Garment 199\. 850 S 1\. Garment 183\.598 Fancy Garment 150\.580 Shinnawatra Garment 300\.005 Thongsavangxay Garment 220\.852 Inter Export Garmnent 170\.000 Lao Univers Garment 200\.000 Hotels & Tourism 1,138\.891 10\.64 Vansana Hotel 119\.823 Savan Hung Heuang Hotel 188\.450 Princess Hotel 119\.900 Vira Hotel 65\.000 Relais Hotel 170\.026 Khong Hotel 91\.031 Indo Cruise 148\.579 Hotel Phou Phadeng 98\.082 Xoisay Hotel 55\.000 Metallurgy & Mechanical Industries 985\.153 9\.2 Santiphab Susuki Lao 200\.000 Lao Toyota 136\.072 Nails & Barbed Wire 176\.949 Tuk Tuk Assembly 6\.675 Galavanized Steel Factory 465\.457 Extractive Industries 666\.661 6\.23 Savannakhet Dredging 215\.522 Coal Mine 421\.529 Gravel & Sand 29\.610 Plastic, Paper and Chemical 563\.612 5\.26 PACDPI Paint Factory 180\.014 Savannakhet Plastic 201\.098 Acid distillery 30\.000 AENG Factory 10\.000 Paper Cutter Factory 51\.000 Oxygen Acetylen Factory 91\.500 Construction 337\.852 3\.15 Lao Concrete Product 278\.200 Brick Factory 29\.652 ITSALA Construction 30\.000 Services 572\.794 5\.35 Dental Clinic 11\.444 Savannakhet Printing 93\.950 Santipab Printing 185\.800 YADA Company 68\.600 PIANEPEN Clinic 70\.000 E\.C\.1 143\.000  Lao People's Democratic Republic Industrial Credit I (Credit No\. 1947-LA) Implementation Completion Mission AIDE MEMOIRE The Industrial Credit I project was approved by the Board on July 1, 1988 and declared effective on January 19, 1989\. The closing date was originally planned for June 30, 1993 but due to a number of factors, was extended twice and finally closed on June 30, 1995\. A World Bank Implementation Completion Report (ICR) mission visited Lao PDR from December 1 1 to December 16, 1995 to collect additional data for the preparation of the ICR, to solicit the views of the borrower and implementing agencies, and to provide advice and support to the Government on the preparation of their evaluation of the project for contribution to the document\. The mission wishes to thank the Credit Department, Bank of Lao PDR (BoL) for its assistance and cooperation\. During the mission, the objectives of the ICR were explained to a team from the BoL designated by the Government to undertake the task of overseeing preparation of the report\. The mission solicited the views of the Government representatives and those responsible for actual project implementation\. The mission encouraged the team to focus on a) an assessment of the objectives, design, and implementation experience; and b) an evaluation of the Bank's and the Government's performance during the implementation phase of the project\. The Industrial Credit Project was the first IDA project in the industrial sector in Lao PDR which was very small and dominated by state owned enterprises\. The first few sub- projects approved, which were loans to state enterprises, did support essential investment for the rehabilitation, modernization and expansion of productive capacity as the project intended\. During implementation however, priorities were redirected, and a significant portion of subsequent loans were made to private sector, service oriented enterprises such as hotels, printing and a dental clinic\. Additionally, loans made to state enterprises experienced problems with arrears, in some cases despite the profitability of the enterprise\. Pressure from the Government resulted in complete repayment of outstanding balances by one enterprise, but 18 out of the 39 total loans remain in arrears\. Capacity building at the BoL and state commnercial banks for project appraisal was also an objective of the Industrial Credit Project\. Staff turnover and failure to utilize available bilateral technical assistance resulted in a smaller than expected increase in institutional capacity for project appraisal\. This is evidenced by the fact that a computerized sub-loan monitoring system and model developed for sub-project appraisal at BoL has not been updated or used since 1993 (the mission was inforrned, however, that monitoring of some projects has been done by hand)\. To a large extent, credit decisions continue to be made on the basis of personal merit and creditworthiness rather than project viability\. This is particularly true of the loans financed out of reflows where Qnly 4 out of 26 sub-projects were appraised using the computer model\. The model for project appraisal was updated and converted to Microsoft Excel by the mission\. It is strongly recommended that BoL  begin using the model again and that commercial banks be required to use the program for appraising projects prior to credit approval\. Despite difficulties and delays in project implementation, US$9,377\.3 million was committed under the IDA credit with withdrawals as of 15 December 1995 totaling US$8,674\.2 million\. A total of 39 loans were made for 34 approved sub-projects directly from the IDA credit plus an additional 27 loans for 23 sub-projects approved out of reflows\. The remaining undisbursed balance from the IDA credit will be canceled with the formal closing of the project\. It should be noted that the availability of reflows from existing loans, which began in 1991, contributed to a decline in the use of funds under the IDA credit, particularly since approval of sub-projects from IDA was not required for these loans\. The mission also noted that during the period January 1994 to February 1995 no new projects were approved, either from reflows or the IDA credit\. During this period there was a reluctance on the part of BoL to initiate new loans until the arrears situation had been addressed, additionally there was a lack of viable sub-projects in the industrial sector\. The mission attempted to calculate ex-post financial rates for return for a small sample of sub-projects, however sufficient data was not available\. IRRs were calculated for each sub-project prior to approval and those rates can still be considered reliable\. The mission reviewed a sample of 11 sub-projects which showed IRRs ranging from 26\.5 percent to 57 percent (this high IRR is for the Lao Brewery plant extension and should be considered an outlier)\. Overall, project implementation was less than satisfactory but progress on overall development objectives must be considered satisfactory\. Productive capacity has been upgraded for several industries and development of capacity for project evaluation within BoL has been initiated\. It is however, the recommendation of this mission that funding for further training in this area, both for BoL and state commercial banks be secured\. Tentative lessons that have been drawn from the experience of implementation of the project are: First, continuity of staff is important in projects that require initial training and capacity building to implement\. If continuity of staff is not possible, there must at least be a mechanism in place to transfer knowledge and skills needed for project implementation to replacement staff\. Second, initial operations in any field require frequent supervision in the part of IDA, but particularly in areas where existing capacity has been identified as weak from project preparation\. It was agreed that the Bank would send the draft ICR document to the Bank of Lao by January 20, 1996\. BoL staff agreed to provide comments on said draft and to furnish the Government's contribution to the ICR no later than January 30, 1996\. Vientiane, Lao PDR December 15, 1995  RAPPORT FiNAL SUR L'EXECUTION DU PROJET RDP Lao : Projet de Credit Industriel IDA Cr\.1947-LA Historigue: Le Projet de Credit Industriel IDA Cr\. 1947-LA r6sulte dune etroite collaboration entre rIDA et les autorites du Gouvernement Lao\. Les missions didentification se sont d6roulees en fevrier, septembre de rann6e 1987 et en fevrier de rann6e 1988\. Les Accords de Cr6dit de Developpement et de Projet ont 6te sign6s a Washington le 16 aofit 1988, pour un montant de 7,4 millions de DTS soit environ 10 milions de USD\. La date de clotfure du Projet etait iniatialement fix6e au 30 juin 1993, mais apres 2 extensions, il a et finalement cloture le 30 juin 1995\. Les obiectifs du Proiet: Le Projet a deux grands objectifs: - Elever la capacite et la productivite des petites et moyennes industries a travers ( i ) racquisition d'equipements modemes, de pieces de rechange et de matieres premieres indispensables et ( ii ) une assistance technique pour am6liorer les methodes de production et les connaissances en gestion\. - Initier le developpement dtune aptitude a 6valuer les projets au sein de la Banque en vue de renforcer progressivement les comp6ences pour assumer ses fonctions dintermediateur financier\. Ainsi, le projet est forme de deux composantes: - La composante credit qui vise a ameliorer et a d6velopper les PME/PMI qu'ils viennent du secteur public ou prive\. - La composante assistance technique qui est une aide du Gouvernement francais et qui est concretise par l'envoi de conseillers pour assister la cellule du Projet dans r6tude et ltvaluation desprojets durant le commencement de la mise en 6x6cution du Projet\. La mise en oeuvre du Proiet La mise en vigueur du Projet a 6te declaree le 19 janvier 1989\. Depuis cette date jusqu' a maintenant, 39 conventions de pret ont et accord6es a 34 projets secondaires approuv6s  2 sur la ligne de credit initiale, representant des d6caissements d'un montant total de 8\.939\.315,89 USD\. Le plus grand emprunteur est la Brasserie du Laos ( elle a re,u en tout 3\.324\.438,98 USD ), le plus petit etant la Clinique dentaire ( 11\.444,14 USD )\. Le Projet a 6t6 mis en oeuvre dans la Prefecture de Vientiane et ensuite dans six provinces qui sont: Province de Vientiane, Savannakhet, Champassack, Saravane, Luang Prabang et Xieng Khouang\.Les secteurs dont le Projet a 6te implique sont au nombre de 6: confection de v8tements, industrie d'assemblage, industrie alimentaire et de boissons, mines et carrieres, h8tels et services\. L'assistance technique francaise a commence au mois d'octobre 1988 et a fini en septembre 1991\. Cette aide etait compos6 d'un conseiller technique permanent et d'un conseiller de projets qui venait travailler 3 a 4 fois par an durant la periode citee\. Concemant les details de cette aide de 600\.000 USD, la Banque ne les connait pas et raide materielle ne s'est traduite que par un ordinateur en 1989\. Le tableau suivant permet de synthetiser les chiffies cles de la ligne de credit initiale: Montant Montant InterOts Annee Nb\. de projets decaisse ( $ ) rembours6 ( $ ) pergus ( $ approuves 1989 5 604,425\.22 11,270\.78 1990 2 1,463,096\.94 - 74,473\.60 1991 7 581,929\.28 283,295\.14 142,699\.38 1992 12 1,866,221\.69 527,745\.52 158,257\.15 1993 7 1,797,421\.21 708,328\.19 204,556\.82 1994 1 2,095,262\.35 793,915\.37 355,830\.25 1995 530,986\.20 1,677,463\.41 443,453\.83 Total 34 8,939,342\.89 3,990,747\.63 1,390,541\.81 Jusqu'a ce jour, 7 projets secondaires ont totalement rembourses leurs pr8ts ( ce nombre inclut la Brasserie du Laos qui repaye integralement son premier prt ), cela representant une somme de 2\.141\.153,23 USD\. En parallele avec la mise en oeuvre de la ligne de credit initiale, a partir de 1991, nous avons utilise les fonds provenant des remboursements pour repreter tout en respectant nos engagements envers le Ministere des Finances\. De ce fait, nous avons signe 26 conventions de pret pour 23 projets secondaires pour un montant total de 2\.017\.469,86 USD\. Dans ce nombre, 9 d'entre eux ont deja rembourse en totalite\. Le principal d6ja recouvre sur ces projets secondaires est de 884\.456,03 USD\. Sur les 26 conventions de pr8t, 7 d'entre eux font l'objet d'un refinancement a des banques commerciales d'Etat\.  3 Le tableau suivant permet de resumer les chiffies importants du reflow: Montant Montant lnt6rOts Annde Nb\. de projets d6caiss6 ( $ ) rembours6 C $ ) pergus ( $ approuv6s 1989 1990 - 1991 3 172,652\.31 - 35,440\.07 1992 14 412,600\.31 2,400\.00 22,154\.75 1993 2 556,068\.24 74,206\.81 50,589\.62 1994 2 94,000\.00 567,679\.22 67,062\.04 1995 5 781,969\.00 240,370\.00 68,292\.76 Total 26 2,017,289\.86 884,656\.03 243,539\.24 Evaluation des resultats a) Le credit: Bien qu'il y a eu des retards au debut de rex6cution du Projet ( les premiers decaissements ont et6 effectues en juin 1989 ), les fonds utilises sur les ressources de 1IDA ont pu etre de l'ordre de presque 9 millions usr les 10 millions de USD prevus\. Les premnieres 2 annees, les prets ont dt6 faites principalement sur la Prefecture de Vientiane, et ensuite nous avons developpe les pr8ts dans les autres provinces\. Les resultats ont ete satisfaisants car en plus du renforcement de la base industrielle du pays, cela a permis de creer des emplois a la population\. Les acquisitions d'equipements et de mat6riels pour la majorit6 ont 6t6 execut6s suivant les principes et les procedures en accord avec l'IDA\. b) L'Assistance techniaue: Au cours de la periode de 3 ans ou les conseillers 6taient presents, bien que c'etait une p6riode assez courte, ils se sont efforc6s de nous aider dans la mise en oeuvre du Projet de facon satisfaisante, surmontant les difficultes et en introduisant des nouvelles m6thodes de gestion d'une ligne de credit\.  4 c) La Lestion du Proiet Bien qu'au cours des 6 annee de la mise en place et de rex6cution du Projet, il y a eu fr6quemment des changements de responsables, mais en realite, nous avons pu assurer fondamentalement une certaine continuite qui s'est traduite par des relations de travail regulieres avec IIDA, des approbations de projets secondaires a une cadence normale, un bon taux de recouvrement des prets accordes\. Conclusions finales 1\. Les avantages Ce projet a eu un succes dans une certaine mesure, bien que les fonds n'ont pas ete utilises a 100 %, on n'a pu quand meme decaisser i hauteur de 90 % environ des ressources allouees, tout en orientant le credit vers les diff6rentes regions du pays, contribuant a une meilleure situation economique\. L'octroi du credit a atteint un grand objectif en creant des emplois a la population, notamment dans les usines de confection de vetements qui ont recu un financement de la part de la ligne de credit\. Actuellement, dans ces usines, la main d'oeuvre est principalement f6minine et est estime a plus de 3\.500 personnes\. De facon generale, le recouvrement des prets sur la ligne de credit initiale se deroule satisfaisante, couvrant deja 44 % ( environ 4 millions de USD ) des fonds utilises\. 2\. les difficultes Le manque de cadres competents est a rorigine que les rapports d'ex6cution et les documents de synthese soient faits en retard\. De ce fait, la gestion du Projet eprouve des difficultes de temps a autre\. C'est une des raisons que le Projet a ete oblige d'avoir eu deux extensions\. Le manque de connaissances solides de la part de certains promoteurs qui viennent soumettre des dossiers est un probleme qui se prolonge dans le recouvrement des dettes\. Certains projets secondaires ont des retards dans leurs paiements parce qu'ils ont estime leur taux de rentabilit6 trop haut et qui n!6tait pas realiste avec le marche local ou etranger, la structure du financement et leur capacite de gerer leurs affaires\. A part ca, les langues etrangeres sont une barriere, en particulier ranglais et le francais pour qu'ils puissent bien formuler leur projet\. Cela entrame bien evidemment des retards dans la soumission des dossiers\.   Vr\.-- I ' ! '--4 C a U F0 C\. 1:) G\. E Q) >-\. r\. J E-

REVIEW

P092786

 ICRR 13308 Report Number : ICRR13308 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/24/2010 PROJ ID : P092786 Appraisal Actual Project Name : Human Capital US$M ): Project Costs (US$M): 6\.4 5\.11 Technical Assistance (sidem Apl #1) Country : Slovak Republic Loan/ US$M): Loan /Credit (US$M): 6\.4 5\.11 Sector Board : ED Cofinancing (US$M): US$M ): Sector (s): Central government administration (100%) Theme (s): Administrative and civil service reform (33% - P) Poverty strategy analysis and monitoring (17% - S) Social analysis and monitoring (17% - S) Education for all (17% - S) Improving labor markets (16% - S) L/C Number : L7271 Board Approval Date : 01/25/2005 Partners involved : Closing Date : 06/30/2008 06/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : H\. Dean Nielsen Susan A\. Stout IEGSE ICR Reviews IEGSE 2\. Project Objectives and Components: a\. Objectives: The objective of the Project is to assist the Borrower in modernizing its systems of employment, education and social cohesion by developing an effective policy infrastructure to implement, manage and evaluate employment, education and social cohesion reforms in the MoLSAF (Ministry of Labor, Social Affairs and Family ) and MOE (Ministry of Education)\. This wording appears in both the Project Appraisal Document (PAD) and the Loan Agreement (LA)\. Neither the PAD nor the LA provide operational definitions for critical terms in the objective statement (e\.g\., "modernizing," "policy infrastructure")\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The LA version of the components differs from the PAD version in that it combines the main PAD statement with details from PAD Annex 4 (condensed and sometimes reworded, for increased clarity )\. The brief descriptions for Component 2 and 3 are taken from the LA, and for Component 1 from the PAD, where it is more consistent with the content of the sub-components\. Component 1: Creation of a Policy Capacity Framework (Appraisal cost: $1\.24 million; Actual cost: $1\.4 m)\. To Create a framework within which evidence -based policy making and the design and implementation of components of reform in the two Ministries and associated institutions can be coordinated \. Component 2: Investment in Human Resources (Appraisal cost: $4\.14 m; Actual cost: $2\.7 m)\. Improvement in the quality of human resources available for policy making and implementation in the two participating Ministries and associated institutions, through capacity building of the existing staff supplemented by strategic staff reallocation and targeted recruitment, to analyze policy options and the impact of ongoing reforms \. Component 3: Building and Upgrading Institutional Capacity (Appraisal cost: $0\.8 m; Actual cost: $0\.9 m)\. Creation and implementation of an integrated policy management system to structure and guide various steps in the policy cycle in both the two participating Ministries and in the complementary network of institutions, through the development of the capacity to produce high quality policy outputs in priority areas, thereby ensuring the availability of improved statistical and monitoring information for policy makers in the field of employment, education and social cohesion\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: This technical assistance project was developed as the first in series of regional Adaptable Program Lending (APL) projects\. The series aimed to provide targeted technical assistance to the eight Eastern European Countries that had recently joined to European Union, with an emphasis on improving social and institutional development and economic management\. The funding covered mainly technical assistance, capacity building, and grants (e\.g\., for studies) but there was also a modest provision for goods and works in support of these \. No counterpart financial contribution was agreed to, but much staff time was devoted to the project and the cost of borrowing was deducted from the budgets of the two Ministries \. Total disbursement for the project was 80 percent of the amount allocated, with minor overruns in Component 1 and 3 and underspending (34 percent) in Component 2\. The disbursement was slow during most of the Project, except at the end, when expenditures were mainly on products having little relationship to project objectives \. The Government requested and was awarded a one year no -cost extension and during that year disbursement was brisk albeit \. The was a $0\.2 million difference between the total project cost at appraisal and the aggregated costs of the project components plus contingency \. This difference does not exist in the Euro version of the budget, suggesting exchange rate discrepancies \. 3\. Relevance of Objectives & Design: The relevance of objectives is rated as modest \. In general it has been well established that the eight Eastern European nations that joined the European Union in 2004, including the Slovak Republic, were constrained in their social and economic development by antiquated policy design and management systems and that technical assistance could be constructively used in updating them \. The objectives of the Slovak Republic's Human Capital Technical Assistance Project (HCTA) were put forward as a way to "modernize" the country's policy management, but they were poorly articulated and vague, violating one of the lessons learned from previous capacity development loans, that goals be clearly articulated \. Due to this vagueness, the objectives were often rephrased in different parts of Project documents, including the Government's completion report, adding to confusion about their relevance \. Another problem was one of stakeholder commitment to the objectives \. Although there was strong commitment to the objectives among the few high placed officials in the two Ministries who advanced them, there was little buy -in to or even knowledge of the Project objectives at the technical level, and once the Government changed (about one year into the life of the Project) and the main Project advocates were replaced, high level commitment to Project objectives wavered\. Despite their vague articulation, the Project objectives were generally aligned with World Bank support plans for the region and country (as evidence by the fact that the Project was to be the first of a regional series of TA projects promoting social and institutional development ), but since the Slovak Republic graduated from eligibility for World Bank assistance in 2008 and is no longer covered under any country assistance strategy, it is not possible to assess the relevance of objectives to Bank country strategies today \. The relevance of Project design is also rated as modest \. Since the project objectives were poorly defined the other design elements (e\.g\., Results Framework) were problematic\. For example, since the objectives did not point to any specific outcomes, no relevant outcome indicators were specified \. Likewise, there was no clear connection between project objectives and Project components and their activities, which were often disjointed and /or overlapping\. The performance indicators that were specified were often too broad ("institutional arrangements\.assessed\. and strategic plans developed ") or subjective ("evaluate policy documentation for quality and relevance") to be helpful\. When the Government changed and new managers were appointed the emphasis in the Project changed (without formal restructuring), leaving it with many activities and products that were tangentially (at best) related to the original objectives \. 4\. Achievement of Objectives (Efficacy): The rating for efficacy is modest \. As indicated above, achievement of Project objectives is difficult to ascertain, given how poorly defined they were \. One criterion is the single Results Framework outcome indicator (which is more of a reframing of Project objectives ): "Permanent institutional capacity for evidence -based policy monitoring developed in the two ministries" (taken to mean "policy management" rather than the narrower "policy monitoring")\. There is little evidence that the Project led to a permanent change in the way policies in the two ministries were managed (formed, implemented and evaluated)\. Processes which were expected to lead to such institutional capacity development (comprehensive analysis of existing policy management systems, translated into re-organization proposals, staff development plans, and MOE / MoLSAF reform indicators) were largely unimplemented, giving way to different agendas \. This diversion from the original agenda was evident in the kinds of activities undertaken under the various Project components\. Component 1: While some studies conducted on institutional capacity were related to policy management (analyzing MOE research and grant programs; monitoring and assessing programs and institutions under MoLSAF), the majority were about more general organizational and management issues \. Component 2: Likewise, little capacity building and staff training were about policy management; most were about HR management and HR capacity in general\. (Two policy-oriented staff training activities seemed to cover the content of the policies more than skills for making them)\. Component 3: There was some TA for improving the quality and quantity of data for policy making, but the contribution of this assistance was not evaluated, except through subjective judgments (positive) made by the Borrower\. Output\. The Project was productive in generating studies, consulting reports, and training activities in the two ministries, which were valued and appreciated by the Government \. The Borrower's ICR lists the activities implemented under each of the Project's components and their results, with the total reaching over 60\. Many of these were considered to be quite useful, for example : for the MOLSAF: a unified system for evaluating quality management; consulting on assignments in human resources development; training on prevention and elimination of violence against women; initial planning and training for human resource management, and assessment of training needs of new MOLSAF managers; and for the MOE : a process map for the Ministry; a unified system for the evaluation of quality of management; and a training program for MOE and university staff on Common Assessment Framework (CAF) methodology\. These programs, however, were found to be un - or marginally connected to the main objectives of the Project\. 5\. Efficiency (not applicable to DPLs): There was no assessment of efficiency during the Project nor in the Implementation Completion Report \. The Borrower (both Ministries) was satisfied with the number of studies and the amount of training they received compared to the modest expenditure (around $5 million), but since few of these benefits are directly in the intended areas, the efficiency of the Project can be rated no higher than modest \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Given that the ratings for relevance, efficacy, and efficiency are all modest, the overall outcome of the Project is rated unsatisfactory a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The education and employment sector leaders appointed by the new government just after a year into the Project showed little interest in or funding support for improving management in their respective fields, and there is little evidence that these objectives will be taken up in the future \. Some capacity building was undertaken, but it was not in the area of policy management (modernizing and building sustainable capacity for evidence -based policy making)\. Once the country emerges from the current recession and EU financial support is consolidated, there may be a renewed interest in improved policy management, but this will need to start from the bottom \. a\. Risk to Development Outcome Rating : High  8\. Assessment of Bank Performance: Quality at entry \. The HCTA Project was prepared within an extremely short time frame -- two months from identification to Board approval \. Most of the preparation was done by the Slovak Government which had strong (but poorly defined) ideas about what the Project should cover and a need to move things forward before the next election\. The Bank team, which at the same time prepared a regional program (APL) of TA in the field of social and institutional development, was under pressure in the region to be a timely and agile source of TA financing \. Given the compressed schedule there was insufficient time to prepare Terms of Reference for initiating studies, gain broad stakeholder commitment to the Project, specify rules for a university grants program, and design an adequate project evaluation plan \. Whereas it is good practice to support government ownership and initiative, many of the shortcomings identified could have been avoided by more pro -active Bank team engagement in areas such as assuring a reasonable results framework, articulation of adequate and measurable indicators of Project performance, and designing a strong M&E framework \. Concerning critical risks, ownership problems due to a change in government were not mentioned as a risk, even though preparation was rushed precisely because election time was approaching\. What was mentioned was how ownership was confined to senior -reform minded officials (excluding technical staff) but mitigation strategies for this were acknowledged as only being able to "partially mitigate the risk" (PAD)\. Quality of Supervision \. The Bank supervision team drew upon competent and high level managers but effective Project supervision was constrained by the gaps in Project preparation, which called for compensatory efforts early in the Project which did not materialize (given an emphasis on moving Project activities and disbursements forward) and turn over in the Bank Team (four Task Team Leaders over the Project's four and a half years, albeit mostly involuntary -- two retirements and one secondment )\. When the Government changed the Bank team attempted to engage new ministers in frank discussions of Project directions, including the possibility of restructuring, but all this led to was a resumption of some activities in the Ministry of Education (most of which were not clearly related to original Project objectives ) and a little rekindled interest in the Project objectives in the MoLSAF\. Given the fact that most activities planned for the one year extension period were not directly relevant to original Project objectives, the Bank team agreement to extend was questionable \. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Unsatisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: Government Performance \. The Project enjoyed firm support from high level managers in both Ministries at the time of approval, but knowledge about and commitment to the project did not extend to the technical level \. It was expected that this and the preparation gaps in the Project would be dealt with by the leadership after Project effectiveness, but just after a year (and a change in government) the original leaders were replaced, with the new leaders having less commitment to the Project and its original objectives \. The Government did not seek to cancel the Project or even to restructure it, but because of the above and its modest budget (which was not considered incremental to regular budgets) it enjoyed a relatively low level of priority \. Additionally, the Government stipulation that Project activities be approved by a Joint Project Steering Committee of high level officials, which for the new government included the Ministers, meant that decisions were often delayed until the rare moment when Ministers could meet\. Implementing Agency Performance \. Management of the Project was in the hands of a Project Director from the MoLSAF (overall coordinator, communication channel to the Bank, and manager of MoLSAF programs ) and Project Coordinator (manager of the MOE program and provider of technical input to the Director )\. Administrative functions were performed by a Project Coordination Unit that was created under another project of the MoLSAF \. Although these senior managers were among the original champions of the Project, implementation was slow in the early years (in the MOE virtually no project activities were undertaken in the first two years; in the MoLSAF relevant studies and training took place but not of the scope originally contemplated )\. With the change in government, the MOE recommitted itself to implementing the Project but with little emphasis on the Ministry's policy function, and the MoLSAF moved ahead with activities which also were only tangentially related to Project objectives\. Shortcomings in advancing Project objectives under the new Government were at least in part a result of the Government's decision to allow the procurement specialist, a person who had no content knowledge of the line departments within the Ministries to double as the Project Director \. Nevertheless, productivity under the Project was high and financial management effective \. a\. Government Performance :Unsatisfactory b\. Implementing Agency Performance :Moderately Unsatisfactory c\. Overall Borrower Performance :Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Design \. The Project design did not include a systematic monitoring and evaluation plan, and, although some indicators were specified in the Results Framework, there was no baseline information and no specification of M&E methods, timing and reporting\. Likewise, there was no system for evaluating the quality of services by TA contractors, the main deliverable in the Project \. Implementation \. In practice the PCU did submit progress reports, tally the number of trainees and training events, and effectively monitor procurement and the status of contracts (outputs)\. However, there was little done to assess Project outcomes\. Utilization \. Most large Project-supported studies were followed by feedback sessions among Ministry line staff to discuss conclusions and recommendations \. However, given the absence of a tight evaluation plan, little of this was conveyed to the PCU or the Bank where it could have been used for Project improvement and further programming \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The Project generated a number of studies that were valued by the Government and supportive of needed Government reforms, albeit un- or tangentially related to Project objectives \. For example, the MOE expanded the use of the widely adopted (in Europe) Common Assessment Framework and produced studies on MOE organizational and personnel issues, and the MoLSAF undertook public information campaigns supporting adoption of the Euro and opposing violence against women, and studies for the Department of Inclusion Services and the Center for International Legal Protection of Children \. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Unsatisfactory Based on modest relevance, modest Unsatisfactory efficacy, and modest efficiency \. The ICR concluded that the Project did not contribute significantly to establishing a culture of evidence-policy making within either ministry (a paraphrasing of the Project objective), but gave the Project credit for a few relevant outputs among a larger group that did so only tangentially\. Risk to Development Significant High The ICR rated the risk as "substantial" Outcome : even thought that category is not available for an ICR\. The category of "significant" is, and as the second lowest rating on that scale can be taken as substantial (also second lowest)\. This review recognizes that there was capacity building and output related to institutional development in the Ministries, but ranks the risk as high given the current government's marginal interest in the main objectives of the Project\. Bank Performance : Moderately Moderately Based on moderately unsatisfactory Satisfactory Unsatisfactory quality at entry and moderately unsatisfactory quality of supervision \.  The region rated quality at entry MU and quality of supervision as MS, and arrived at an overall MS rating\. However, according to the harmonized IEG/OPCS evaluation criteria, when one of the two elements is in the satisfactory range and the other in the unsatisfactory range, the project outcome is the tie breaker\. Thus, the region should have also rated Bank performance as MU\. Borrower Performance : Moderately Unsatisfactory The evidence presented in the ICR Unsatisfactory suggests that the Government exhibited little follow through on its commitments even prior to the change in leadership and that project management decisions led to fragmentary work not supportive of Project objectives\. Some valuable outputs were produced under project management, but many of these would have been produced even without project support\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The following lessons can be put forward : Designing a Project that depends on the permanence and commitment of a handful of high level individuals is a high risk proposition\. More work up front, and where that is not possible, early on in implementation, to build support for the Project at the technical level would have resulted in greater ownership and deeper commitment, even under circumstances when original Project advocates were replaced \. Technical assistance projects are inherently difficult to assess, making it particularly important that objectives be unambiguously stated and that M&E systems be carefully and expertly designed and implemented \. This was not a part of HCTA preparation, making it difficult to show achievement of objectives during and at the end of implementation\. The amount of the loan for the HCTA project was probably adequate for the actual tasks, but not enough to catch and hold the interest of Ministers once the original Project champions had moved on \. Also, the fact that the Project was not incremental to regular ministry budgets further reduced interest \. If it had been possible to decentralize the project steering committee to a lower level (perhaps to department heads ), the given amount of money might have been enough to galvanize attention and build lasting commitment \. In a country and region with increased funding options, the traditional Bank project model did not work well \. Traditional Bank investment projects carry many processing requirements and transaction costs \. In regions like Eastern Europe, new funding sources (EU) with fewer strings attached are becoming available, and this means that ministries can turn to other sources to fund their technical assistance needs \. Under such circumstances motivation to seek or implement conventional Bank projects becomes less pressing \. Building a regional IBRD program of technical assistance around the strong proposal of a single country (and planning to expand to other countries through a horizontal APL ) proved to be nonviable, as commitment in the original country waned and no other countries submitted proposals \. A more appropriate model would have been for the vanguard country and program to be seen as a pilot for the regional concept, with expansion following the pilot's success and lessons learned \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR was well written, informative, frank in its appraisal of Project achievements, and insightful in the articulation of lessons\. Despite the fact that hard data had not been produced during the Project to show achievement of objectives, the ICR was able to compile enough fragmentary evidence to reveal Project accomplishments and lack thereof\. Nevertheless, the ICR gave more credit to Project accomplishments in areas unconnected to Project objectives than is merited, especially given the fact that it was never restructured to cover them \. Another shortcoming was its failure to assess project efficiency \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P050880

 Document of The World Bank Report No\. ICR00001429 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-46250 and IBRD-46251-BR) ON A LOAN IN THE AMOUNT OF US$30\.1 MILLION EQUIVALENT AND AN ADDITIONAL FINANCING LOAN IN THE AMOUNT OF US$ 30\.0 MILLION EQUIVALENT TO THE STATE OF PERNAMBUCO FOR THE RURAL POVERTY REDUCTION PROJECT July 23, 2010 Sustainable Development Department Brazil Country Management Unit Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2010) Currency Unit = Real (R$) R$1\.00 = US$ 0\.5334 US$1\.00 = R$ 1\.8748\. FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing (Ln\. 46251-BR) APOINME Association of Indigenous People and Organizations in the Northeast, Minas Gerais and Espírito Santo BB Bank of Brazil BN Bank of Northeast CA Community Association CAS Country Assistance Strategy CDD Community-driven Development CMDR Municipal Council for Rural Development CPS Country Partnership Strategy FECAMP Campinas Economic Foundation FUMAC Municipal Fund for Community Support FUMAC-P Pilot Municipal Fund for Community Support FUNAI National Indigenous Foundation FUNASA National Health Foundation HDI Human Development Index HDI-M Municipal Human Development Index IICA Inter-American Institute for Cooperation on Agriculture IPA Agronomic Institute of Pernambuco IPLD Integrated Plan for Local Development IRR Internal Rate of Return KPI Key Performance Indicator MC Municipal Council MDA Ministry of Agrarian Development MDS Ministry of Social Development MIS Management Information System MTR Mid-Term Review NAP Center for Support to Productive Subprojects (ProRural) NGO Non-Governmental Organization OP Original Project (Ln\. 46250-BR) PAC Community Support Fund PAD Project Appraisal Document PDO Project Development Objective PNCF National Land Credit Program POLICONSULT Polytechnic Association of Consulting PP Project Paper for Additional Financing PPS Physical Performance Study PROMATA Support Program for the Sustainable Development of the "Zona da Mata" RD Development Regions RPAP Rural Poverty Alleviation Program RTU Regional Technical Unit SCI Social Capital Index SEAPE Special Secretariat for Aquaculture and Fisheries of the Presidency (Secretaria Especial de Aquicultura e Pesca da Presidência da República) SEBRAE Brazilian Service for Support to Micro and Small Enterprise SEDAR Secretariat of Development and Regional Articulation UNITEC State Technical Unit Vice President: Pamela Cox Country Director: Makhtar Diop Sector Manager: Ethel Sennhauser Project Team Leader: Edward Bresnyan ICR Team Leader: Edward Bresnyan  BRAZIL Rural Poverty Reduction Project – Pernambuco CONTENTS A\. Basic Information\.i B\. Key Dates \.i C\. Ratings Summary \.i D\. Sector and Theme Codes \. ii E\. Bank Staff \. ii F\. Results Framework Analysis \. ii G\. Ratings of Project Performance in ISRs \. vii H\. Restructuring (if any) \. viii I\. Disbursement Profile \.ix 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes\. 4 3\. Assessment of Outcomes \. 14 4\. Assessment of Risk to Development Outcome \. 21 5\. Assessment of Bank and Borrower Performance \. 22 6\. Lessons Learned \. 24 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 25 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Outputs by Component \. 27 Annex 3\. Economic and Financial Analysis \. 38 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 41 Annex 5\. Beneficiary Survey Results \. 43 Annex 6\. Stakeholder Workshop Report and Results \. 44 Annex 7\. Executive Summary of Borrower Completion Report and Comments on Draft ICR 45 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders \. 56 Annex 9\. List of Supporting Documents \. 57 MAP:\. 58 A\. Basic Information Rural Poverty Country: Brazil Project Name: Reduction Project - Pernambuco IBRD-46250,IBRD- Project ID: P050880 Loan Number(s): 46251 ICR Date: 07/19/2010 ICR Type: Core ICR STATE OF Lending Instrument: SIL Borrower: PERNAMBUCO Original Total USD 30\.1M Disbursed Amount: USD 56\.9M Commitment: Revised Amount: USD 59\.5M Environmental Category: B Implementing Agencies: Secretariat of Planning and Management Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/10/2000 Effectiveness: 01/25/2002 01/25/2002 07/12/2005 Appraisal: 03/05/2001 Restructuring(s): 06/17/2009 Approval: 06/26/2001 Mid-term Review: 11/19/2004 Closing: 06/30/2005 01/31/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Satisfactory Satisfactory Moderately Implementing Moderately Quality of Supervision: Satisfactory Agency/Agencies: Satisfactory Overall Bank Moderately Overall Borrower Moderately Performance: Satisfactory Performance: Satisfactory i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 20 14 Other social services 35 27 Power 10 3 Roads and highways 25 - Sub-national government administration 10 5 Water supply - 51 Theme Code (as % of total Bank financing) Other social development 13 10 Participation and civic engagement 25 14 Rural non-farm income generation 24 10 Rural policies and institutions 13 13 Rural services and infrastructure 25 53 E\. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Makhtar Diop Gobind T\. Nankani Sector Manager: Ethel Sennhauser Mark E\. Cackler Project Team Leader: Edward William Bresnyan Luis O\. Coirolo ICR Team Leader: Edward William Bresnyan ICR Primary Author: Ana Maria Gonçalves F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) (i) Improve wellbeing and incomes of the rural poor through better access to basic social and economic infrastructure and services and support for productive activities, using proven community-driven development (CDD) techniques; (ii) increase social capital of rural ii communities to organize collectively to meet own needs; (iii) enhance local governance by greater citizen participation and transparency in decision-making, through creation and strengthening of community associations and Municipal Councils; and (iv) foster closer integration of development policies, programs and projects at the local level, by assisting Municipal Councils to extend their role in seeking funding, priority-setting and decision-making over resource allocation\. Revised Project Development Objectives (as approved by original approving authority) PDO was not revised\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : No\. of families benefited from subproject (SP) investments Total families Value OP: 110,000 rural AF: 38,000 benefited 97,000, quantitative or Zero families rural families 65% of aggregate Qualitative) target Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Partially Achieved\. OP: 63,128 families (58% of target)\. AF: 33,270 families (incl\. % (88% of target)\. achievement) Indicator 2 : Incremental employment generated from subproject investments Value Est\. direct new quantitative or Zero OP: No target AF: No target jobs: > 11,000 Qualitative) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. Incremental employment from productive subprojects estimated as (incl\. % follows: (i) agricultural mechanization (5,200); (ii) agroindustry (1,220); (iii) achievement) basic grain processing (1,134); and (iv) fish breeding and equipment (1,953)\. Indicator 3 : Increase in wellbeing and incomes of project beneficiaries Value Increased quantitative or Zero OP: No target AF: No target wellbeing Qualitative) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. Evaluation studies confirm: (i) 86% of beneficiary families Comments improved their wellbeing; (ii) 45% of beneficiary families accessed clean (incl\. % reliable water supply and 70% gained electricity; and (iii) houses without achievement) sanitation fell from 59% to 29%\. Indicator 4 : Increase in social welfare of rural communities\. Value Social welfare quantitative or Zero OP: No target AF: No target benefits substantial Qualitative) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. 50,000 families with clean drinking water and 29,500 with Comments household sanitation (i\.e\., better health, hygiene)\. 1,453 houses constructed (incl\. % (i\.e\., better living conditions)\. Job creation (Indicator 2) led to social welfare achievement) gains\. Indicator 5 : Increase in Social Capital Index (SCI) of Municipal Councils iii Value Strong evidence for quantitative or Zero OP: No target AF: No target MC social capital Qualitative) growth\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. Evaluation studies conclude that 85% of Community Associations Comments view Municipal Councils as effective in representing community interests and (incl\. % channeling project information; 65% found Municipal Councils strengthened achievement) their Community Associations\. No\. of MCs participating in priority-setting and decision-making on resource Indicator 6 : allocation of project and non-project-funded development activities Project resources Value allocated to all quantitative or Zero OP: No target AF: No target targeted Qualitative) municipalities (i\.e\., 179 MCs) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. Regarding Municipal Councils: (i) 100% are setting priorities and Comments deciding resources allocations; (ii) 98% were restructured to consolidate (incl\. % municipal-level investment decision-making; and (iii) 96% are increasing achievement) integration and partnerships\. Increase in total project and non-project financing allocated through the Indicator 7 : Municipal Councils RPAP (1997-2001): Municipal Councils represented 40% of 100% of subproject Value subproject financing funds (US$68 m\.) quantitative or OP: No target AF: No target (US$15 m\.)\. Municipal allocated by Qualitative) Councils# leveraging of Municipal Councils non-project funds incipient\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. (i) Municipal Councils deliberated US$33 m\. under the OP (incl\. % andUS$35 m\. under the AF (100% of Component 1 resources); and (ii) an achievement) additional US$25 m\. of non-project resources leveraged for subprojects\. Indicator 8 : No\. of communities graduated from the program 154 communities Value graduated from quantitative or Zero OP: No target AF: No target productive Qualitative) subprojects (OP/AF) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Partially Achieved\. CAs: (i) limited to one matching grant for productive Comments subproject and graduated thereafter (from further productive subprojects but not (incl\. % program as a whole); and (ii) MCs steered CAs with critical mass of basic infra\. achievement) to other programs\. iv (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Number and type of subproject implemented\. AF: Aggregate Value OP: 1,560 Incremental (OP/AF): 2,284 (quantitative Zero subprojects 1,100 subprojects (86% or Qualitative) subprojects of OP/AF target) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. (i) 1,738 subprojects under OP and 546 subprojects under AF (114% Comments and 50% of appraisal target, respectively)\. Overall, 59% of subprojects were (incl\. % socio-economic infrastructure, with productive and human development at 6% achievement) and 35%, respectively\. Indicator 2 : Number of subprojects operating and maintained 1 and 2 years after completion Value OP and AF: Strong (quantitative Zero OP: No target AF: No target indications of or Qualitative) satisfactory O&M Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. (i) under OP, beneficiaries reported 75% SPs completed and Comments operating as intended; (ii) under AF,75% SPs completed, 60% with satisfactory (incl\. % O&M provisions\. O&M by beneficiary families for 50% SPs; CAs responsible achievement) for 30% SPs\. Indicator 3 : Cost-effectiveness and quality of basic infrastructure and social subprojects\. High cost- Value effectiveness, (quantitative Zero OP: No target AF: No target quality and or Qualitative) satisfaction levels, OP and AF Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. Project design promotes cost effectiveness and quality: demand-led Comments priority-setting; standard technical designs including costs; competitive (incl\. % contracting and community execution\. PPS re-confirmed price efficiency\. High achievement) majority of subprojects technically satisfactory/good quality\. Indicator 4 : Economic efficiency and financial viability of productive subprojects Productive Value subprojects show (quantitative Zero OP: No target AF: No target robust economic or Qualitative) efficiency and financial viability Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. Case study analysis of dominant types of productive subprojects (incl\. % confirm IRRs > 25% which are robust to sensitivity analysis\. achievement) Indicator 5 : Number of CAs vs\. total communities in project area Estimated 4,500 3,462 Community Value OP: 780 communities in project Associations (quantitative Community AF: No target area and 1,246 without repetition or Qualitative) Associations Community Associations (77% of total v  under RPAP (2001)\. communities in the project area) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. 1,553 additional Community Associations under original project and (incl\. % 663 under the additional financing\. 3,462 project-created Community achievement) Associations proposed subprojects vs\. 2,284 subprojects approved\. Indicator 6 : Growth in the number of Community Associations 1,246 CAs (without 3,462 CAs without Value repetition) formed under repetition (92% (quantitative OP: No target AF: No target previous RPAP (1995- increase compared or Qualitative) 2001) to baseline) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. 1,553 CAs created under the OP (125% increase relative to baseline) Comments and 663 created under AF (24% increase relative to those existing at close of (incl\. % OP)\. Results reflect a significant expansion in social capital over the course of achievement) the project\. Indicator 7 : Percentage of women in Municipal Councils and Community Associations 20% Municipal Councils led by Value women; 26% (quantitative Zero OP: No target AF: No target Community or Qualitative) Associations led by women\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. Women led 24% of CAs and comprised 36% of beneficiaries in (incl\. % productive subprojects under the OP, and 33% and 27%, respectively, under the achievement) AF\. Indicator 8 : Municipal Council resource utilization (indicative vs\. actual) AF: Area 1: 70% of OP: Area 1: 74% subproject of subproject funds funds allocated for allocated for uptake by 109 70% subproject Value uptake by 111 Municipal funds invested in (quantitative Zero Municipal Councils; Area 2: Area 1; 30% in or Qualitative) Councils; 26% subproject Area 2\. Area 2: 30% funds for 68 subproject Municipal funds for 68 Councils\. Municipal Councils\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Achieved\. OP used two resource allocation mechanisms with increasing degrees Comments of decentralization and representation (i\.e\., FUMAC and FUMAC-P); AF (incl\. % institutionalized FUMAC mechanism and used it to consolidate other achievement) municipal-level councils\. Indicator 9 : Growth in number of FUMAC-P Councils AF: No target Value 2 FUMAC-P Councils OP: 14 additional Zero growth (FUMAC-P (quantitative created under RPAP FUMAC-P (FUMAC-P eliminated or Qualitative) (1997-2001)\. councils created eliminated) during OP) Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Not Achieved\. FUMAC-P proved unsuccessful due to: (i) poor results on the vi (incl\. % ground; (ii) the Borrower#s reticence in delegating SP prioritization and achievement) financing to the MCs; and (iii) institutional roadblocks (legal and procurement) making FUMAC-P non-viable\. Indicator 10 : Number of Community Associations formally graduated 154 Community Value Associations with (quantitative Zero OP: No target AF: No target productive or Qualitative) subprojects de facto graduated\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Partially Achieved\. Graduation applied only to CAs after one productive SP\. Comments Few CAs received more than one infrastructure/social SP due to MCs# (incl\. % targeting processes\. CAs with several accumulated CDD subprojects (though achievement) rare) lost eligibility de facto\. Number of Community Associations without subprojects participating in Indicator 11 : Municipal Councils 3,462 Community Associations Value participating in (quantitative Zero OP: No target AF: No target Municipal or Qualitative) Councils; of these, 1,040 (30%) had no subprojects\. Date achieved 01/25/2002 06/30/2005 01/31/2010 01/31/2010 Comments Achieved\. Total demand from CAs was 2,541 subprojects (OP/AF); of this, (incl\. % about 10% were not approved for various reasons (e\.g\., not eligible for project achievement) financing, not prioritized by Municipal Council)\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 10/29/2001 Satisfactory Satisfactory 0\.00 2 06/21/2002 Satisfactory Satisfactory 1\.20 3 11/26/2002 Satisfactory Satisfactory 2\.59 4 05/21/2003 Satisfactory Satisfactory 3\.94 5 06/26/2003 Satisfactory Satisfactory 4\.84 6 10/15/2003 Satisfactory Satisfactory 6\.23 7 05/25/2004 Satisfactory Satisfactory 8\.18 8 12/10/2004 Satisfactory Satisfactory 14\.23 9 04/29/2005 Satisfactory Satisfactory 21\.33 10 04/10/2006 Satisfactory Satisfactory 28\.97 11 10/13/2006 Satisfactory Satisfactory 29\.47 12 05/28/2007 Satisfactory Satisfactory 29\.47 13 12/03/2007 Satisfactory Moderately Satisfactory 33\.47 14 06/17/2008 Satisfactory Moderately Satisfactory 37\.97 15 09/30/2008 Satisfactory Satisfactory 42\.47 16 02/26/2009 Satisfactory Satisfactory 46\.97 17 10/26/2009 Satisfactory Satisfactory 52\.77 vii H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions A total of US$8\.0 m\., comprising US$6\.1 m\. from Category l(b) FUMAC Pilot Grants, US$1\.3 m\. from Category 1(c) PAC Grants, and US$0\.6 m\. from Category 5 07/12/2005 S S 23\.23 Unallocated, was reallocated as follows: US$5\.6 m\. to Category 1(a) FUMAC Grants and US$2\.4 m\. to Category 2 Consultants' Services and Training for Parts B and C of the Project\. The reallocation: (i) liquidated Category 4 (Unallocated) in the amount of US$ 690,000; (ii) reduced resources under Category 2 (Consultants# Services and Training) by USD 600,000; (iii) increased loan resources under Categories 1-a, 06/17/2009 S S 47\.92 1-b (Subproject Grants) by US$200,000 and US$400,000, respectively; and (iv) increased loan resources under 3-a (Incremental Operational Costs) and 3-b (Project Supervision and Monitoring Costs) by US$250,000 and US$440,000, respectively\. viii I\. Disbursement Profile ix 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\.1\.1 This Implementation Completion Report (ICR) describes the experiences, achievements and lessons of the Rural Poverty Reduction Project in the Brazilian State of Pernambuco\. The project was implemented in two stages: the original project - OP (Loan 46250–BR) from January 25, 2002 to June 30, 2006, in the value of US$30\.1 m\., and an Additional Financing - AF (46251 -BR) in the value of US$30\.0 m\., with the same project development objectives, design and implementation arrangements, approved October 5, 2006 and closed January 31, 2010\. The AF was designed to scale up project activities in small scale socio-economic infrastructure and services to enhance the impact of a well-performing, first-stage, community- driven development project\. For purposes of this ICR, the project is treated as one operation with notable changes in strategy, approach and results from the first (OP) to the second stage (AF) mentioned where relevant\. 1\.1\.2 The Northeast State of Pernambuco has a total population of 7\.5 million, of which about 2\.0 million (27%) are rural\. At Appraisal of the OP in 2001, about 53% of all households statewide - and 65% of rural families -- lived in poverty\. About 29% of rural households have income of less than one minimum salary per month (about US$58), rising to 58% at less than two minimum salaries per month\. National household data (1999) showed that about 87% of all rural households in Pernambuco lack piped water supply, 54% were without sanitation services, and about 20% of rural households remained without electricity, given that rural electrification programs had been relatively active, compared to 14%, 5% and 0\.8% respectively for urban Pernambuco, and 7%, 3% and 0\.9% for urban Brazil as a whole\. The other previous Bank- supported Rural Poverty Reduction Projects in the Northeast Region, including Pernambuco, had helped to alleviate these conditions using a promising participatory, demand-driven approach to addressing persistent poverty, but the scale of poverty in rural Pernambuco remained a major challenge, even after their implementation\.1 1\.1\.3 Government’s Strategy and Actions Taken\. At the time of project preparation, the Federal Government had just launched its Projeto Alvorada framework for poverty reduction efforts in municipalities nationwide with lowest Municipal Human Development Index (HDI- M)\. The Bank-supported CDD projects in the Northeast region were seen as having piloted important delivery mechanisms which fit well with the Alvorada strategy of local empowerment and community self-help, and the projects themselves were regarded as key components for its implementation\. The State Government of Pernambuco, had, in addition to previous projects in the CDD series, also piloted and expanded other programs to improve socio-economic wellbeing of rural populations including the Bank-supported Land Reform and Poverty Alleviation Pilot Project (Nº 4147-BR) and its scale-up, the Land-based Poverty Alleviation Project (Nº 7037-BR), both of which utilized a similar community-driven methodology\. The Government of Pernambuco also implemented programs to address the social and economic well-being of rural populations, including the “AGENDA SOCIAL PERNAMBUCO 2000â€? which focused on reducing poverty by increasing employment opportunities, providing grant- based financing in rural areas, supporting organizations, strengthening family agriculture and implementing housing improvement for the poorest populations\. 1\.1\.4 Bank Involvement: The Bank has had a long association with the Northeast Region and the State of Pernambuco, entailing regular dialogue on the overall lending program, state sector strategies and specific operations\. Pernambuco has consistently supported the community-driven Rural Poverty Reduction Projects (currently known locally as ProRural) 1 Reformulated Northeast Rural Development Projects (1993-1997); and Northeast Rural Poverty Alleviation Projects (1995-2004)\. 1 since their inception in 1995, and the State is notable for its willingness to test innovations, e\.g\., market-based land reform, fair trade initiatives, and regional integration\. The Bank’s CDD investments in Northeast Brazil are well-documented in other ICRs as well as evaluation studies suggesting the impact and cost-effectiveness of the approach\. Bank support at the time for a new Rural Poverty Reduction Project in Pernambuco paired its knowledge of a tested and robust new mechanism with the State’s own policies, experiences and commitment\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 1\.2\.1 As stated in the Project Appraisal Document (PAD) for the OP, and reiterated in the Project Paper for the AF, the project sought to assist the State of Pernambuco to reduce currently high levels of rural poverty by the following sub-PDOs: (a) improving well-being and incomes of the rural poor through better access to basic social and economic infrastructure and services and support for productive activities, using proven community-driven development (CDD) techniques; (b) increasing the social capital of rural communities to organize collectively to meet own needs; 2 (c) enhancing local governance by greater citizen participation and transparency in decision-making, through creation and strengthening of community associations and Municipal Councils; and (d) fostering closer integration of development policies, programs and projects at the local level, by assisting Municipal Councils to extend their role in seeking funding, priority-setting and decision-making over resource allocation\. Key performance indicators: Sub-PDO (a): ï‚ number of families benefited from subproject (SP) investments; ï‚ incremental employment generated from SP investments; ï‚ increase in well-being and incomes of project beneficiaries; and ï‚ increase in social welfare of rural communities\. Sub-PDO (b): ï‚ increase in social capital index (CPI) of project Municipal Councils\. Sub- PDO (c): ï‚ number of Municipal Councils participating in priority-setting and decision-making on resources; and ï‚ allocation of project and non-project funded development activities\. Sub-PDO (d): ï‚ increase in total project and non-project financing allocated through Municipal Council mechanism; and ï‚ number of communities graduated from the program\. 1\.3 Revised PDO 1\.3\.1 The PDO was not revised under the OP or under the AF\. While the key performance indicators also remained unchanged, the target value for number of families benefited was revised downward to 38,000 under the AF, based on the actual cost parameters under the OP\. 2 Social capital is defined, for purposes of the NE CDD projects as, “a stock of knowledge, behavioral practices and attitudes held by the members of a social group, which guides the activities in which they participate to resolve community problems\. Social capital provides citizens with appropriate reasons and motives to act collectively on behalf of a community with which they personally identify\.â€? (See Van Zyl, Sonn and Costa, July 2000)\. 2 1\.4 Main Beneficiaries The primary target population was the same for the OP and for the AF\. The OP sought to benefit 110,000 poor rural families (27% of Pernambuco's rural population), primarily small- holders, tenants, sharecroppers, and landless laborers\. The AF targeted an additional 38,000 families with the same profile\. The project area, under the OP, covered 177 municipalities - i\.e\., all municipalities excluding seven located in Metropolitan Recife\. Under both the OP and the AF, resources were concentrated in the 109 municipalities (Area 1) with the lowest relative Human Development Index (HDI) ranking; Area 2 comprised 68 municipalities with slightly higher HDI-M\. The AF included two newly-created municipalities under Area 1 (bringing its total to 111), left Area 2 unchanged and explicitly allocated loan SP resources according to area targeted\. Both the OP and the AF sought the inclusion of indigenous and Afro-descendent peoples, yet the AF was more explicit in this regard\. 1\.5 Original Components (as approved) The total cost of the OP was US$40\.0 million, of which the Bank loan financed US$30\.1 million\. 1\.5\.1 Component 1: Community Subprojects (OP -US$36\.0 m\., 90% total estimated cost) financed matching grants to organized rural CAs for about 1,560 small-scale investment SPs categorized as infrastructure, productive and social\. New types of community investments were also included, such as education, health, culture and environment\. Three financing mechanisms were available: (i) PAC, under which CAs submitted their investment proposals directly to the State Technical Unit (STU); (ii) FUMAC, where decision-making on investment proposals was delegated by the State to the MCs, composed predominately of CA representatives, with participation also from civil society and municipal authorities; and (iii) FUMAC-P, under which high-performing MCs had access to a “block grantâ€? to finance SPs\. Component 2: Institutional Development (OP - US$2\.8 m\., 7% of total estimated cost) financed technical assistance and training to build capacity of the implementing entities including the CAs, MCs and the STU\. Modest funding was also included to support state institutional modernization and reform related to poverty reduction programs and policies\. Component 3: Administration, Supervision, Monitoring and Evaluation (OP -US$1\.2 m\., 3% of total estimated cost) financed the costs (excluding salaries) of project administration and coordination including supervision, monitoring and subsequent impact evaluation\. 1\.6 Revised Components 1\.6\.1 The AF was designed to scale up financing, activities and beneficiary coverage to strengthen the impact of the successful OP, without changing its basic design, methodology or implementation arrangements\. The cost of the AF totaled US$40\.0 million, with Bank financing of US$30\.0 m\. 3 Project components remained the same, with changes to relative costs and targets drawn from experience under the OP: (i) Component 1 (US$32\.9 m\., 82% of total estimated cost) would finance an additional 1,100 community SPs to benefit another 38,000 families, exclusively under the FUMAC mechanism; 4 (ii) Component 2 increased to 3 The Federal Government approved borrowing by the State of Pernambuco for a OP with subsequent authorization to scale up, provided project performance was satisfactory\. Given strong progress under the OP, the State sought the scale-up in the full, Federally-authorized amount of US$31\.0 million for the AF\. 4 The reduced targets but same-sized loan came from a planned increased focus on productive investments - which tend to cost more than basic infrastructure albeit benefiting fewer families - and experience with higher than expected costs per beneficiary family under the OP\. 3 US$5\.4 m\., 14% of total estimated cost; and (iii) Component 3 also increased to US$1\.7 m\., 4% of total estimated cost\. The Board approved the AF on October 5, 2006 and the loan Closing Date was extended to January 31, 2010\. 1\.7 Other significant changes 1\.7\.1 Reallocation of Funds: There were two reallocations of funds during the Project’s implementation: OP: In 2005, US$8\.0 m\., consisting of US$6\.1 m\. from Category l(b) FUMAC Pilot Grants, US$1\.3 m\. from Category 1(c) - PAC Grants, and US$0\.6 m\. from Category 5 – Unallocated, were reallocated to Category 1(a) – FUMAC Grant (US$5\.6 m\.) and Category 2 - Consultants Services and Training (US$2\.4 m\.)\. AF: In 2009, of a reallocation of US$1\.29 m\., US$0\.2 m\. was reassigned to Category 1(a) Area 1 Grants, and US$0\.4 m\. to Category 1(b) Area 2 Grants\. The remaining US$1\.24 m\. was reallocated to Category 3(a) - Operational Costs (US$0\.47 m\.) and 3(b) - Project supervision (US$0\.77 m\.)\. 1\.7\.2 Extension of Closing Date: From the original Closing Date of June 30, 2005, two extensions took place under the OP: (i) to June 30, 2006 (in May 2005); and (ii) to January 31, 2007 (in June 2006)\. The first extension sought full disbursement of the Bank Loan financing the OP, while the second extension provided a “bridgeâ€? from the OP to the Board presentation of the proposed AF\. The Closing Date for the AF Loan was not extended and it closed at the end of its allotted three years\. 1\.7\.3 Amendments to the Loan Agreement: The OP loan agreement was amended in regard to the Closing Date extensions and reallocations previously mentioned\. The AF loan agreement was amended only in regard to the reallocation (see 1\.7\.1)\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Soundness of background analysis: 2\.1\.1 The reduction of poverty and inequality were benchmarks of the Bank’s country assistance efforts, and the Northeast region was a primary focus area for well-targeted anti- poverty programs to improve human and physical capital\. The analytical basis and justification rested on the documented successes and lessons of similar operations across the Northeast region, including Pernambuco, since 1993\. Further, the Bank had financed studies, analytical work, and state economic memoranda to identify the dimensions, characteristics and causes of rural poverty and to develop strategic options for policy and programmatic actions\.5 In general terms, rural poverty is fostered by a relatively weak natural resource base vulnerability to frequent droughts, low labor productivity, high levels of illiteracy and poor quality and coverage of education, relatively large family size and poor access to basic infrastructure and services\. The project was seen as an instrument for intensifying the economically viable small farm sector in the Northeast region, as a factor in stimulating growth of the rural non-farm sector and, through the provision of basic infrastructure, as a safety net for poor rural communities in drought-prone areas with natural resource problems\. 5 Most notably, “Rural Poverty Reduction in Brazil: Towards an Integrated Strategyâ€? (April 2003)\. See Annex 9\. 4 2\.1\.2 The Bank’s Country Assistance Strategy (CAS 22116-BR, dated May 24, 2001, FY 01- 03) identified the reduction of poverty and inequality as central to the Bank’s assistance efforts, and the Northeast region as a primary focus area, stressing well-targeted anti-poverty programs, human and physical capital formation, decentralization of expenditure and implementation responsibilities to the states and municipalities, and better integration of poverty policies and programs to increase impact and efficiency\. The OP was consistent with these higher-level CAS objectives\. The AF, in turn, was consistent with the CAS (27043-BR, dated November 10, 2003) for FY04-07, which called for successive projects under the Northeast CDD program to finance basic infrastructure for the rural poor, support income-generation activities, and promote closer integration of State and Federal rural initiatives in participating municipalities\.6 Assessment of project design: 2\.1\.3 Objectives: Project objectives were rational, given the conditions on the ground in Pernambuco, were aligned with country and sector strategies, and remained consistent with the Borrower's rural priorities through two changes of Government and subsequent adjustments to those strategies\. The higher level PDO - not expected to be measured within the life of the project - sought a direct impact on rural poverty through four sub-PDOs for which the project could reasonably be held accountable\. A decade of piloting, scaling up and evaluation of the Northeast community-driven development projects provided assurance that the PDO was achievable, albeit ambitious\. The integration objective was innovative and challenging to implement and measure, reflecting the Borrower’s interest in leveraging support for the target population using the project's established institutional mechanisms\. Objectives were considered measurable, although income results were understood to require a longer maturation and, at end- project, were expected to be preliminary\. Overall, project objectives were consistent with the Borrower’s known technical and institutional capacity at appraisal of both operations\. 2\.1\.4 Indicators: Key Project Performance Indicators (KPIs) were numerous, stemming in part from the four sub-PDOs\. Due to the inherent nature of the social capital and local governance sub-PDOs, their associated KPIs lacked a clear numerical definition\. There was some confusion in two areas: (a) graduation; and (b) separation of social well-being from social welfare\. Graduation was characterized as "communities" moved out of the "program" when actual design called for CAs receiving a productive subproject to be graduated from further productive matching-grants after its execution\. A community can have more than one CA and a CA can comprise just part of a community\. Furthermore, the CA owns the subproject, not the community\. 2\.1\.5 The PAD required that a CA with one grant-financed productive subproject be graduated to other financing for productive activities, but that CAs retained eligibility for other types of project investments\. Social well-being and income were combined in one indicator, and social welfare was to be measured in a separate KPI\. Finally, the PDO focused on community social capital but the related KPI called for an increase in the social capital index (SCI) of the Municipal Councils, for which there was no baseline\. 2\.1\.6 Components and organization: Project components were few, clearly-formulated and appropriate for achieving project objectives importantly due to their internal flexibility, permitting innovations and additional activities within the broad outline and methodology\. 2\.1\.7 Organization and Decentralization: The established STU, experienced and embedded in its parent secretariat, retained its coordination role\. The definition of a management model that guaranteed efficiency with agility and responsiveness to community demands proved 6 The Bank insisted that all investment resources secured from these complementary programs be targeted and approved using the project’s established institutional mechanisms (i\.e\., CAs and MCs), thereby leveraging the project methodology within a wider set of rural policies and programs\. In practice, integration was a broader process\. 5 successful\. These new practices represented important advances for Project performance, relative to the predecessor RPAP (1997-2001)\. 2\.1\.8 Project management demonstrated a high standard of transparency and commitment to participation\. This was made possible by the decentralization of project management and the introduction of eight Regional Technical Units (RTUs) in strategic locations statewide\. Following the logic of the Regions of Development (RD), adopted by the State for its development planning, the STU opened RTUs in Recife, Palmares, Limoeiro, Caruaru, Garanhuns, Arcoverde, Salgueiro and Petrolina, each staffed with multidisciplinary teams\.This decentralization enabled greater flexibility in Project performance, given the RTU’s autonomy to perform actions and procedures locally\. The proximity of technical assistance also reduced delays in SP processing and strengthened the CAs’ ability to manage their SPs\. Another effect of decentralization was enhanced SP supervision\. The RTUs facilitated greater dialogue with rural communities benefited by the project and deepened knowledge of local development challenges and corresponding options\. 2\.1\.9 Strategic choices: The project stimulated improvements in social welfare and local economic activity through several strategic choices: (a) productive activities, technical assistance and investments, in both social and economic infra-structure/services, supporting the agricultural diversification and employment opportunities; (b) the cost-effective and responsive community-based approach offered better prospects of sustainability; (c) boosting the capacity of the MCs, through training and technical assistance, to engage in broader local planning leveraging of complementary resources through integration with other programs/agencies; (d) introduction of a graduation or exit strategy for the beneficiaries of productive investments; (e) a more precise poverty targeting framework; (f) rigorous monitoring and evaluation; and (g) updated information technology to increase transparency by permitting communities and the RTUs to access project information in real time\. 2\.1\.10 Graduation: Under previous CDD operations in Pernambuco, most of the investments requested by the CAs comprised infrastructure SPs\. Graduation was a new design element arising from internal Bank concerns about using grant financing for productive activities\. The Bank team argued that grants were a justifiable mechanism for jump-starting income generating activities, given the obstacles normally encountered by small, poor rural borrowers seeking formal credit\. The Bank and STU consulted during appraisal with the Bank of the Northeast and Bank of Brazil to try and link graduating CAs to such entities through information sharing and coordination related to group credit candidates, participation of these representatives financial institutions at MCs meetings, and feedback to the STU by these banks on successful initial experiences with such borrowers\. The MIS was to monitor the share of rural poor that had received grant financing for productive investments and subsequently graduated to commercial credit\. 2\.1\.11 All CAs with productive projects were graduated, and a great number of them, as informed by the MCs, have the necessary infrastructure, assets, and organizational capacity to apply for other resources and services\. However, there is no evidence that during project implementation the proposed partnership with credit institutions worked as planned\. Studies conducted under the project 7 found that some communities had access to complementary resources which brought a comparative advantage vis-à-vis other communities without such access\. 2\.1\.12 Integration: Under the project the MCs were encouraged to expand their input into broader local planning to achieve better integration of policies and programs and improve the local impact of public resources available for poverty reduction\. In fact, MCs’ participation in 7 Relatório do Diagnóstico Situacional de Trezentos Subprojetos Produtivos do Projeto de Combate ä Pobreza Rural – PCPR – DA UNITEC - PRORURAL 6 the project proved more active and complex than was preliminarily designed, and came to be recognized by both the local population and their elected mayors as valid representatives of communities and civil society and as an able partner of local administration in fostering and sustaining municipal development\. The better organized MCs worked in partnership with other government programs and projects to better articulate local actions with the full participation of the community\. The status of partnership to integrate the project with other government programs and projects can be measured by the US$25\.0 m\. leveraged for water supply and investments SPs on land reform settlements (partnership with Ministry of Social Development (MDS) and Ministry of Agrarian Development (MDA)\. Some examples of the integration efforts are: (i) the agro-industry program in the Zona da Mata Region (PROMATA, SEBRAE and the Mayors); (ii) rural school program (SERTA, Mayor and Secretary of Education); (iii) semi-arid program; and (iv) Pesca Litoral Norte (SEBRAE, Alcoa, Comissão Pastoral de Pesca)\. 2\.1\.13 Territorial Approach - Integrated Plan for Local Development – IPLD: The implementation of the Integrated Plan for Local Development – IPLD enabled greater integration between investments to solve structural problems, within a broader policy development\. The IPLD incorporated linkages with other government actions that could contribute to elevating the HDI-M of 11 municipalities located in the Development Regions of Sertão do Moxotó and Agreste Meridional\. Together, these municipalities represented the poorest territories of the State\. The IPLD methodology stressed: (i) integrated state-level action, (ii) participatory local processes; and (iii) local implementation which put this strategy into practice\. Besides improving the HDI-M of the State’s poorest municipalities, the IPLD also enhanced performance of the Bank-supported Project itself, by bringing in the territorial dimension as a strategy for integrated regional productive development\. Adequacy of Government’s commitment: 2\.1\.14 Government was fully committed to project objectives and methodology under both the OP and the AF\. Though a potential concern at Appraisal, the State maintained adequate counterpart funding throughout project implementation\. Although changes in both the State Government and STU had occurred during Project implementation, this did not impact negatively on Project performance\. Blanket coverage of the FUMAC subprogram under the OP (and the elimination of PAC) further attests to the State’s resolve toward decentralized approaches to reducing rural poverty, as did its support for the new Federal Government programs such as Fome Zero, (Zero Hunger) Sede Zero (Zero Thirsty) and the project’s ability to promote social integration of actions through other programs\. Risk Assessment: 2\.1\.15 Risks were correctly identified in the PAD based on previous experiences with similar projects in Pernambuco and other Northeast states\. However, some additional risks could have been highlighted to allow a better appreciation of the project context and to plan appropriate mitigation measures: ï‚ Political change risk: Post-election State government changeover was known to be disruptive in Brazil, particularly in the Northeast, and effective mitigation measures were known from previous experience; ï‚ Sketchy planning by MCs: Mitigation measures to ensure that the STU gave the MCs an annual indicative budget to support realistic investment planning could have been stronger given that it was an important requirement of the Operational Manual; ï‚ Scant Technical assistance: Mitigating this risk by appointing a salaried Technical Advisor to each MC was sound but not implemented; in any case, this was only a partial solution to the pervasive issue of scant technical support in the rural Northeast; ï‚ Project targeting risk: Targeting could have reflected the fact that the poorest rural communities are often the least-organized and informed, with consequent project access 7  issues\. Mitigation should have called for intensive consultation, mobilization and organization of vulnerable populations from preparation onwards; and ï‚ Financial management risk: Risk assessment/mitigation relating to financial management issues consistent with the project’s community-based nature and decentralized financial arrangements could have been explicitly carried out\. 2\.2 Implementation 2\.2\.1 Overview: Both the OP and the AF had a rapid start-up and disbursement, considering the ample experience of the STU and its decentralization strategy, which started prior to Board approval of the OP and consolidated during its implementation\. The STU profoundly reformed its operational structure with the strategic distribution of eight RTUs located across the State Development Regions\. This decentralization of management has enabled greater flexibility and agility in project performance and consequently facilitating disbursements, as RTUs started to act with autonomy from the STU in several steps for the approval of SPs\. In January 2003, the STU also underwent changes in its administrative structure based on Reform of the State provision in Complementary Law no\. 49 of January 31, 2003, which introduced a matrix management model\. The Secretariat for Planning and Social Development became the Secretariat of Planning and the STU adopted a general manager and a manager for each program/project under its responsibility, coordinating all action jointly with the Technical Administration Management and with the Operational Manager\. The former have a horizontal area of action focusing on results and supporting the teams within its purview\. While the general design and objectives of the OP and AF were the same, implementation showed distinctions (see Annex 2)\. The AF, besides consolidating both the ongoing management decentralization and the experience of the IPLD, maintained its principal focus on the poorest municipalities according to the HDI-M, and introduced a management strategy for project implementation that took into account the territorial dimension8 linking the various social actors who participate in the construction of local development\. Major factors affecting implementation and their resolution/outcome 2\.2\.2 Government turnover: During project execution the STU underwent several State Government administrative reforms, and was transferred to different Secretariats\. Despite these, the STU was able to maintain and strengthen its field supervision teams and organizational structure\. Positive operational impacts included: (i) functional changes within the STU, with personnel being decentralized to the RTUs for greater institutional efficiency and greater agility in SP processing9; (ii) adoption of a territorial approach with specific focus on human and social capital development; (iii) more intensive activities in the 110 poorest (i\.e\., Area 1) municipalities; (iv) maximization of project investments and beneficiaries through the State’s provision of counterpart funding well in excess of appraisal estimates; and (v) intense focus on integration with other programs to leverage benefits and available resources\. 2\.2\.3 Institutional management of community demand: Community demand for construction of cisterns, wells and household sanitation exceeded indicative appraisal estimates\. Water infrastructure SPs drew the largest share of resources invested under Component 1\. Two factors lead to this result\. First, the State’s privatization of its electrical company spurred access in rural areas and, in fact, largely led to nearly universal access; as such, the project no longer needed to finance such investments\. Second, the State proactively partnered with Federal programs sponsored by the Ministry of Social Development (MDS) to expand access to potable 8 Municipalities that based in their cultural, economic and natural criteria are grouped into territories\. 9 Of a total Team of 182 persons now, 60% are at headquarters and 40% are in the RTUs\. In 2001 those percentages were 87% at headquarter and 13% in the RTUs\. The management of the project could set a mark of participation, transparency and commitment to public interest\. This work was made possible by the decentralization of project management, with the formation of the 179 MCs and the implementation of the nine RTUs in strategic locations\. 8 water, which in turn raised community demand for this type of subproject\. Thus, the construction of cisterns directly responded to community demand to minimize the effects of water shortages and irregular rainfall\. Poor rural communities, especially in the semi-arid region, seized the opportunity under the Project to access water infrastructure and improve daily living conditions\. Investment in household cisterns was aligned with the State Government strategy to strengthen the quality of life in the semi-arid, in conjunction with other programs and projects, like the "One million cisternsâ€?\. Household sanitation SPs were very significant in terms of volume as well as justified by the expected improvement in health and family living conditions\. 2\.2\.4 Quality Mid-term Reviews (MTR): The Mid Term Review (MTR) of the OP, conducted in 2004, confirmed that the Project was achieving its PDO\. Projects investments were visibly improving community wellbeing and living conditions and effective Project targeting was ensuring inclusion of the poorest rural populations and their access to project resources\. There was no MTR under the AF\. 2\.2\.5 The MTR made a series of operational recommendations for STU action; these did not require a change to the project objectives or its components\. The MTR’s principal recommendations further improved the Project, and upgraded the STU’s preparedness for the administrative and operational demands of a possible follow-on project with innovative features\. The main recommendations for the STU were the following: ï‚ Organize a workshop to review with RTUs the project’s rules and parameters, with the aim of clarifying selected aspects of the Operational Manual; ï‚ Continue to train the MCs for an expanded role as conduits for integrating rural public policies and programs; ï‚ Mobilize and organize poor communities to foster their participation; ï‚ Integrate project actions with other programs outside the IPLD; ï‚ Simplify models and requirements for productive subprojects and develop a training and technical assistance strategy; ï‚ Resolve the issue of very small-scale subprojects and partial community coverage in the case of some types of subprojects; ï‚ Eliminate the financing of subprojects in stages; and ï‚ Review the concept of “graduationâ€? once CAs start to access more than one subproject\. 2\.2\.6 Municipal Councils: Under the OP, the MCs consolidated their role as local decision- makers\. In each RTU, technical staff advised the MCs to build their capacity and strengthen their organization\. In 2004, some 32 MCs were restructured\. Also under the OP, the STU worked hard to establish 100 new MCs, resulting in 100% coverage of the Project area, greatly exceeding the end-project goal of 130 functioning FUMAC Councils\. 10 MC formation was supported by a strong training program and by the continued strengthening of the STU and the RTUs with adequate qualified technical staffing capable of assisting the newly formed MCs\. 2\.2\.7 The FUMAC – P program, (the most decentralized delivery mechanism delivery under the OP) showed neither satisfactory performance in resource management nor adequate participation of local government\. Thus, the STU concluded that SPs and CAs could be better served under the FUMAC mechanism and therefore opted to implement the OP (and, in succession, the AF) exclusively through this mechanism\. Overall, the CAs’ participation in the MCs has changed traditional patterns of social control, creating an emerging rural citizenry that is learning to live on different terms and refusing to conform to social and cultural patterns 10 The goal of a total of 130 councils functioning at the end of OP implementation of RPRP had been largely achieved within the first five months of OP implementation\. 9 previously constructed for them\. 11 Women and youth have also substantially increased their participation in the MCs12 and on CA administration\. 2\.2\.8 To provide overhead for MC maintenance, a management fee was established, amounting to 1% of SP cost\. The MCs with higher levels of organization have sought to work in partnership with other programs and projects by integrating and disseminating information in order to capture and leverage these complementary resources\. 2\.2\.9 Under the AF, the STU consolidated the MCs, making them entities capable of engaging across a broader set of public policies, thereby enhancing and diversifying civic involvement (i\.e\., attracting the active participation of ethnic groups, young, women and elderly people) to occupy spaces of decision-making and influence in the formulation and implementation of development policies and joint partnerships\. The MCs became independent legal entities and their restructuring included the following: (i) capacity building for development management; (ii) diagnosis and participatory planning; (iii) articulation of public offerings of programs with local demands; and (iv) encouraging entrepreneurship\. 2\.2\.10 This process led to the unification of the two municipal-level Councils across Pernambuco: (i) the Municipal Council for Rural Development (CMDR) created by municipal law, with equal composition and tasked with the deliberation of resources under the National Program for Family Agriculture (PRONAF); and (ii) FUMAC Municipal Councils (i\.e\., MCs), which are nonprofit entities with 80% majority representative of potential project beneficiaries and civil society, and 20% of municipal authorities and other entities; deliberated the resources of ProRural\. To date, 98% of these councils have been unified\. The consolidated councils retained the CMDR label, which now has 80% majority representation of the CAs and family agriculture cooperatives, and 20% of the government (municipal authorities) and others entities of the civil society with the responsibility to discuss and deliberate the actions and resources of ProRural and of others partners of sustainable rural development\. These MCs are now well placed to serve as ample forums for participation and social control of rural public policies\. 2\.2\.11 The main advances in the trajectory of these consolidated MCs13 are: ï‚ Greater organizational effectiveness; ï‚ Discussion and systematic monitoring of rural policies and development programs; ï‚ Creation of chambers or thematic groups to better develop such actions; ï‚ Expansion of MC composition and representation to increase participation of both rural and urban associations, including indigenous peoples and Quilombolas; ï‚ Building consensus among different political groups; ï‚ Unification of purpose among the previously separate entities; ï‚ Expansion of new issues in the public policy debate; ï‚ Effective participation of other entities, beyond ProRural, at MC meetings; and ï‚ Greater visibility among governmental and nongovernmental organizations\. 2\.2\.12 Partnerships and Integration: The project benefited from strong and ever growing support from many capable and effective NGOs and technical assistance groups\. The STU, under both in OP and AF, developed a comprehensive network of partnerships and integrated with other programs and projects\. In addition to federal programs14, the STU forged partnerships 11 The FECAMP Study supports this finding stating, “Project mechanisms gave expanded space for local participation and partially defused the direct power of local political actors, such as the mayors\. Even when the mayors are a notable presence, the exercise of power via the MCs implies changes in attitudes, and redefined strategies and priorities whose positive effects cannot be ignored\.â€? 12 Some MCs, as Ipubi, Bodocó and Granite, as many others were chaired by women\. 13 The results obtained from the Program strategy with the MCs have had repercussions in neighboring States and become a reference in the exchanges carried with them\. 14 Ministry of Social Development (MDS); Ministry of Agrarian Development (MDA); National Agricultural Supply Company (CONAB)\. 10 for specific tasks within the State Government15 and also with private institutions\. 16 Municipal government participation was also significant in complementary actions and investments, and in leveraging financial and technical support for the SPs\. These partnerships were fundamental for sound Project execution and management\. There was strong NGO involvement during Project implementation, particularly in SP preparation, technical assistance and CA capacity building\. The STU also established a partnership with the Inter-American Institute for Cooperation on Agriculture (IICA) via a Technical Cooperation Plan, under which it contracted technicians and consultants to develop various activities related to the Project\. 2\.2\.13 Productive Subprojects: Productive SP demand was thin under the OP (only about 2% of total SP demand)\. The OP financed 21 productive SPs (about 1% of total SPs)\. The STU adopted a cautious posture regarding productive SPs under the OP, applying rigorous criteria in their technical, economic, financial and environmental analyses, due to difficulties and limited success with these SPs under the predecessor project (i\.e\., RPAP, 1997-2001)\.17 Considering the high CA interest in employment and income generation, and also because in the two first years of the OP, so few productive SPs were financed, the Bank supervision team recommended that the STU assess the viability of networking the productive SPs, in order to create the conditions necessary to leverage the demand and consequently the financing of more such investments\. 2\.2\.14 The volume of productive SPs increased significantly under the AF (24% of total SPs), a direct result of intensified action by new STU management to improve SP preparation and monitoring\. These actions were under the responsibility of the “Center for Support to Productive Subprojects – NAP\. The interdisciplinary NAP team ensured the economic and technical feasibility of SPs, factors that definitively contributed to the success of the investment\. Agricultural mechanization (e\.g\. tractor and equipment) dominated productive SPs, under both the OP and AF\. SPs financed under the AF were mostly in support of production, such as farm machinery, basic grain processing and milk coolers As a whole, the great majority of productive SPs were rated highly by the beneficiaries\.18 Beside tractors, there were many other examples of successful small-scale enterprises in beekeeping, fruit production and processing, milk processing and other activities, providing important lessons for wide spill-over\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2\.3\.1 Management Information System: Project data collection and analysis depended on a Management Information System (MIS)\. Although the MIS had functioned well under the previous Project (RPAP, 1997-2001), it presented some shortcomings such as: (i) inability to monitor and register leveraged (i\.e\., non-project) resources from partnerships with others programs; (ii) specific tracking of the share of rural poor receiving grant financing for productive SPs; and (iii) CA graduation to commercial credits\. As such, the MIS was updated and important features were included in its structure to better monitor and record data concerning Project implementation, particularly for SP management by the decentralized RTUs\. The MIS consisted of three modules: (i) registration SP demand and proposals; (ii) monitoring 15 Water Resources Secretariat (outorga onerosa) CPRH (environmental license), PROMATA (businesses operator - support the communities associations in “Zona da Mataâ€? for qualification of products, production and producers and also search for new markets) IPA (preparation of subprojects, technical and managerial assistance to community associations), FUNDARPE and CEPIR (cultural activities and training with the ethnic groups indigenous and quilombolas)\. 16 Private companies - such as Parmalat, Batavo, Nutrir – in buying products resulting from production of the milk chain creating other alternatives beyond the institutional purchases\. 17 According to Simeon Nichter Study,: “Productive Investments in Pernambucoâ€?, the difficulties in productive subprojects comes from the lack of training and technical assistance to the communities that haves as consequences: (i) some subprojects never started considered no training was available to solve their initial problems; (ii)without training some subprojects had difficulties in use the purchased equipments; (iii) communities with subproject that involve animals could lose their herbs if they weren`t prepare do deal with diseases and eating habits\. 18 Impact phrases mentioned by the beneficiaries: (i) “The producer only started to like of milk after we had the subprojectâ€? ; (ii) “Today we are sure we are selling milk with qualityâ€?\. (iii) “Work with the hoe wasn`t lifeâ€?; (iv) “(iii) Our tractor is the worker Fortão that came to help us - The meaning of this acquisition for the life of the farmers, and what the equipment is for those people is expressed in the care shown for him and lovely nickname it has received: Fortão\. 11 of SP approvals; and (iii) SP supervision\. Furthermore, the MIS was transformed into a web environment in order to facilitate public access to information on project implementation\. 2\.3\.2 The MIS is accessible online by all the RTUs as well as the STU located in Recife\. This allows local data entry for CAs and SPs and the real-time monitoring of the entire SP cycle\. The MIS includes community profile variables, integrated financial management data with a greater physical reporting capability, and online connectivity between the RTUs and the STU to strengthen decentralized data collection and a real-time field data entry\. A link on the ProRural website allows registered users to access the MIS and select the variables they wish to be export to a specific report\. The MIS is dynamic and can generate relevant and timely information for the full breadth of users in ProRural, thereby enhancing the capacity to effectively monitor and supervise SPs\. The MIS generates measures for Key Performance Indicators to accompany physical and financial Project performance, but could be further improved with the inclusion of modules and associated reports containing indicators that currently are not reported regularly, e\.g\., jobs created, number of women, communities benefited, SP economic efficiency\. 2\.3\.3 Evaluation studies: Under the OP, the Project financed several studies, including a baseline and immediate results study (FECAMP 2004)\. This study was expected to be followed up by a second round of field survey with purpose of estimating Project impact evaluation\. By the time the second round was to take place, three events led to its postponement: (i) an AF loan had been approved by the Bank’s Board; (ii) changes in State and Project administrations; and (iii) protracted delays in the competitive contracting of the follow-up study\. It was then decided to use the existing baseline and proceed with the second round follow-up during AF implementation\. In exchange, the STU carried out other studies of OP implementation, such as: (i) “Productive Investments In Pernambucoâ€? (Nichter 2003) and (ii) a Physical Performance Study (CEPLAN 2004)\. 2\.3\.4 Under the AF, the STU’s concerns were mainly associated with: (i) MC reorganization in line with the territorial development approach; (ii) ProRural staffing – including the RTUs; (iii) actual Project implementation; and (iv) definition of a sound approach for the productive SPs\. These concerns, coupled with an apparent low appreciation of the Project´s administration for a formal impact evaluation study (despite the Bank team’s persistence in recommending the follow-up evaluation), led to the STU decision to conduct other studies in lieu of the second round of impact surveys, among them: (i) Diagnosis of the productive SPs (Associação Politécnica de Consultoria 2009); (ii) Case study SP analysis (Simões 2010); and (iii) a series of case studies to estimate economic and financial estimates of the project\. Annex 5 summarizes these studies; detailed economic and financial estimates are found in Annex 3\. 2\.4 Safeguard and Fiduciary Compliance 2\.4\.1 Safeguards\. The project was a Category B, with an Environmental Management Plan (EMP)\. The STU created a Technical, Environmental and Social Review Committee, to analyze SPs for consistent compliance with the Operational Manual, which included the Bank’s Environmental and Social Safeguards\. The STU also maintained an environmental specialist as part of its analytical team and was committed and equipped to handle an intensified environmental approach\. The STU applied, systematically and routinely, a set of environmental safeguard practices and procedures for SPs throughout both OP and AF implementation\. No SP agreement was signed or funds were transferred until the SP environmental viability was determined in order to: (i) insure compliance with relevant State and Federal environment laws and Bank Safeguards; (ii) consolidate the applications/integration of environmental standards in financed SPs; (iii) promote convergence between rural poverty reduction and environmental conservation/valuation; and (iv) initiate linkages between conservation and protection activities 12 and actual SPs\. When necessary, the Environmental License and the Water “outorgaâ€? licenses were issued by the relevant State agency\.19 2\.4\.2 Indigenous Peoples Participation Framework 20 : For the Project, indigenous beneficiaries comprised 1% of all beneficiaries, a figure roughly proportional to the distribution of the indigenous population within the State’s rural population\. Under the OP, some 1,700 indigenous people (or some 7% of the total indigenous population in Pernambuco) implemented SPs, primarily for housing rehabilitation and rural water systems\. The Project sought to create opportunities for indigenous communities to identity and execute small-scale community investments through their own associations, consistent with their unique socio-ethnic characteristics\. Under the AF, the Project expanded its assistance to indigenous communities through coordinated actions with other governmental and non-governmental agencies; nine SPs were financed for indigenous groups and those investments benefited about 700 families (3,083 people)\. 21 Forum and training activities benefited indigenous peoples\. A partnership with APOINME (Articulação dos Povos e Organizações Indígenas do Nordeste, Minas Gerais e Espirito Santo) strengthened existing and nascent indigenous organizations\. In 2008, the Project held a workshop in the municipality of Ibimirim for eleven indigenous groups to review the year’s activities and plan future actions until project closing\. 2\.4\.3 Financial Management\. Financial management performance was generally satisfactory throughout Project implementation\. The same financial management system was used under both the OP and the AF, with key improvements introduced under the OP and updated under the AF\. Financial management supervision missions consistently rated the project Satisfactory, with the exception of a downgrade to Unsatisfactory in June 2003, due to cross-country fiscal constraints at that time affecting most of the Bank’s Brazil portfolio\. The overall result of the final financial management supervision (April 2010) was positive and concluded that the STU’s financial management arrangements were Satisfactory\. The FM risk associated with the project remains Moderate\. 2\.4\.4 Audit\. Audit performance was generally Satisfactory\. Auditors’ opinions were consistently unqualified for Financial Statements and Special Opinions\. Management Letters (Carta Gerencial) found the project's internal control systems to be Satisfactory\. The Bank team followed up closely with the Borrower on auditors' recommendations and there were no audit issues pending at closing of either the OP or the AF\. 2\.4\.5 Procurement\. Procurement Post-Review (PPR) missions generally rated procurement risk as average and overall procurement performance as Satisfactory or Moderately Satisfactory\. A recurring issue was the STU's lack of technical and administrative capacity in the selection and procurement of consultants (both individuals and firms)\. Detailed recommendations were made by the Bank during the AF, among these the contracting of a procurement specialist well- versed in Bank procedures to speed up both processing and to train the STU's procurement team, and greater use of the project MIS as a procurement aid\. STU performance has improved in this regard, in advance of the proposed next-generation operation of the State\. 2\.5 Post-completion Operation/Next Phase 2\.5\.1 Transition arrangements to regular operations in the context of the Northeast CDD projects mean: (i) SP execution; (ii) its formal release to the beneficiary CA - which, with some exceptions such as rural electrification systems, legally owns the investment; and (iii) its 19 The environmental license was furnished by the CPRH and the water “outorgaâ€? by Water Resources Secretariat\. 20 Under the OP there was no IPPF, as it was not a requirement at the time Board Approval in 2001\. 21 Total indigenous population in Pernambuco is estimated at 20,000, or about 1% of the rural population\. Total indigenous beneficiaries (nearly 4,800 people) are also about 1% of total beneficiaries under the OP and AF\. 13 operation under pre-established rules and procedures agreed under contract between the CA and STU\. 2\.5\.2 Operation and Maintenance: The responsibility for SP operation and maintenance can be attributed to three different actors: (i) CAs, when the SP is for collective use, (ii) families benefited when the civil work and/or equipment under the SP is used exclusively by the beneficiary family; and (iii) public organizations, when municipal governments or concessionaires of the state government assume SP management after its implementation\. O&M performance under the Project was good and the sustainability outlook is positive\. O&M procedures were mandatory in SP proposals and mandatory criteria for their approval\. Technical assistance for designing O&M under the SPs was generally available\. Several project studies suggest that the importance of O&M is well-understood by communities\. Norms and procedures are in place for productive SPs, including payment of user fees and building of maintenance funds for equipment depreciation\. Sustainability of SPs is satisfactory, with user fees being paid where relevant\. After reaching access to basic infrastructure (water, electricity) communities are moving on to income generating activities – some communities are already reaching national and international markets\. 2\.5\.3 Next Phase: The State is already mainstreaming the project mechanisms, procedures and standards into its regular rural poverty reduction programs and will continue to finance similar activities with its own funds\. The State has received Federal Government approval to proceed with the preparation and subsequent negotiation of a new, larger and quite different rural program which stresses: (i) economic inclusion of smallholder agriculture; (ii) rural competitiveness; (iii) improved productive use of water resources; and (iv) scaling up of regional development initiatives (including public/private partnerships)\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: High overall relevance 3\.1\.1 Project development objectives remain relevant and continued to be consistent with the Country Partnership Strategy (CPS 42667-BR, 2008-2011, discussed by the Board in May 2008; Progress Report April 2010), explicitly via the challenge of reducing endemic poverty in Brazil’s Northeast region through economic inclusion to strengthen communities' productive potential and activities to foster their economic integration\. Basic infrastructure delivered cost- effectively to poor rural communities is essential for productive activity, as is the social capital formation promoted by the project's participatory institutions, i\.e\., CAs, MCs, and by the design of the SP cycle itself whereby CAs prepare, implement, operate and maintain their own investments\. The integration objective has high potential to boost impact and be a key element in regional/territorial approaches to scaling-up productive activities\. Project design remains relevant and appropriate for these objectives, and demonstrates flexibility to incorporate innovative elements as needed\. 3\.2 Achievement of Project Development Objectives 3\.2\.1 Data provided in this ICR are derived from diverse sources\. Results from various studies show that project objectives were achieved or have high potential for achievement, and that outcomes were positive\. Results of key project-financed studies are summarized in Annexes 3 and 5\. Objective 1: Improving wellbeing and incomes of the rural poor through better access to basic social and economic infrastructure and services and support for productive activities, using proven community-driven development techniques\. 14 3\.2\.2 This objective was partially achieved: ï‚ In aggregate, using established community-driven demand and allocation mechanisms, the project financed 2,284 community subprojects benefiting 96,400 families or around 424,000 people (65% of aggregate OP/AF target)\. Basic socio-economic infrastructure/services comprised 59% of total SPs, among these: (i) 1,172 water supply SPs, including simple systems with household connections, domestic cisterns and wells; (ii) 629 household sanitation SPs; and (iii) 154 productive SPs including tractor, agro processing and irrigation\. ï‚ Some 86% of beneficiary families surveyed by FECAMP (2004) reported improved wellbeing, citing: family health/hygiene benefits, material living conditions (housing quality, sanitation access, and durable goods ownership), and food access and quality\. Some 45% of families had gained access to clean reliable water supply and over 70% had access to electricity\. Safe water access had reduced water-borne diseases by 50% while 73% of respondents reported increased physical comfort from regular water access\. About 20% of families noted increased agricultural production, especially from access to small-scale community reservoirs\. These results were confirmed by evaluations cited in Annex 3 and 5\. ï‚ The quality of life gains for 73% of beneficiary families: improved health conditions (53%), conditions of comfort in the home (45%), quality of food consumed (26%) and quantity of food consumed (22%)\. ï‚ Importantly, benefits were being delivered to the project's targeted cohort of very poor rural families with exceptionally low average family income and high adult illiteracy\. ï‚ Employment generation: Productive SPs alone generated an estimated 11,000 jobs in agricultural mechanization, agroindustry, basic grain processing and fish farming\. ï‚ Results on income, health, quality of housing and access to services: - Incomes: Preliminary incomes results showed an average 22% increase from August 2003 - July 2004, with income from agricultural and livestock production up 50% and 40% respectively, from consumption of own production up 53%, and from work off- farm up 27%\. Some 35% of respondents reported better household subsistence conditions and 25% reported that SPs helped them to earn more money; for infrastructure subprojects, these figures were 32% and 52%, respectively\. - Housing conditions: The percentage of rural houses with bathrooms increased from 32% to 60%, while the use of septic tanks rose from 7% to 22%\. The proportion of families living in improved houses climbed from 79% to 94%\. - Access to electricity and water: Access to electricity made it possible for almost 100% of the beneficiaries to use electric domestic appliances – refrigerators being particularly important to improving and diversifying the family diet\. ï‚ Evaluation (Simões 2009) confirmed earlier indications for income: Some productive activities generated an average income increase of 50% and the same percentage in terms of productivity\. Objective 2: Increasing the social capital of rural communities to organize collectively to meet own needs\. 3\.2\.3 This objective was achieved: ï‚ Some 98% of beneficiaries surveyed agreed that their subproject was good for the community, and 86% confirmed that the investment was the community's top priority Many CAs were still meeting monthly, motivated by their initial SP to present new demands: 90% in 2004, and this average continued throughout project implementation\. Overall, community participation in CAs and collective decision-making had grown\. ï‚ Contribution of the subproject to the association\. Household surveys and field observations reveal that over 85% of beneficiaries agreed that SP execution contributed to unify the community and 90% the interviewees reported that the SPs encouraged the participation of members during implementation and afterward\. 15 ï‚ Some 16% of CA members interviewed had established links with other associations and regularly conducted some form of joint activity with them -- important indicators of sustainability\. Around 51% of the CAs interviewed reported that members participate in other Municipal-level organizations\. ï‚ The Project has been instrumental in the formation of a dense network of community associations as evidenced by the number of families joining and participating in organized civil society, the intensity of this participation and the increasing number of such associations representing the rural poor in local policy\. By end-Project, around 3,500 CAs had been established directly through project activities, and an equal number of communities had gone through preliminary mobilization activities positioning them to conceive, discuss and submit a proposal whether that proposal was ultimately under the Bank-supported project or outside, by another programs\. ï‚ A high percentage of community leaders interviewed valued the project for the organizational stimulus it provided, and these leaders themselves were cited by community members as the main catalyst in forming an association, with union leaders, local elected officials and the mayors also described as influential\. ï‚ CAs and MCs were viewed as inclusive, participatory and democratic institutions\. Associations' institutional capacity to represent the community and resolve its problems was rated highly in 80% of cases, with CAs seen as influential in community life\. ï‚ Associations' growing strength and role in the Municipal Councils had markedly changed relations between rural communities and State authorities as measured by the rise in municipal authorities' responsiveness to community demands: 88% of CA members reported that the MCs represent an advance in the representation of their communities’ interests and some 65% cites strengthened CA relations with municipal government\. ï‚ The change in structural social capital occurs more intensively in communities which have implemented SPs\. Studies and survey evaluated the legitimacy of the CAs under the Project and observed a unidirectional transformation in them over the time; these representative bodies are successful in significantly reducing intended manipulation by local, traditional political elites and strengthening their sense of civic duty\. ï‚ Beneficiary CAs, when compared with non-beneficiary CAs, are more capable of: (i) resolving internal conflicts; (ii) responding to communal demands; (iii) effectively advocating for their membership; (iv) solving local problems for the community; and (v) mobilizing financing and human resources\. ï‚ Evaluation (FECAMP 2004) confirmed social capital impact and found that the evolution of “shared public administrationâ€? increased solidarity, confidence, and leveraged additional funds from other programs\. FECAMP stated, “looked at from a longer-term perspective, there can be no doubt that there has been notable construction of social capital in the poorest rural communities, and that [the Project]is making a positive contribution to this transformationâ€?\. ï‚ The field visits and case studies (2010) indicate the project’s positive impact on social capital formation, a crucial project objective\. Nurtured through the CAs and MCs, social capital is displayed in social solidarity, confidence, mutual cooperation, linkages/access to diverse institutions and to the resources and information of a range of assistance programs outside the Bank-supported Project\. Objective 3: Enhancing local governance by greater citizen participation and transparency in decision-making, through creation and strengthening of community associations and Municipal Councils\. 3\.2\.4 This objective was achieved: ï‚ 101 new MCs were created, resulting in the virtual blanket coverage of the project area (179 municipalities) – greatly exceeding the end-project goal of 130 (OP)\. ï‚ 98% of the MCs were strengthened and/or restructured to improve representation, overall function, targeting and decision-making\. 16 ï‚ 179 MCs established and deciding use/allocations\. ï‚ Rationalization in the use of public resources\. 179 MCs established deciding on the use/allocations of funds to 100% of SPs, starting with community prioritization\. ï‚ The project established and trained an additional 2,116 CAs (over baseline), all of which are by definition, members of the 179 participatory MCs\. All CAs with approved SPs (2,284) received training in diverse subjects designed to promote participation, transparent decision-making and effective investment management\. ï‚ While MCs' level of sophistication and maturity varied, an increasing number were routinely discussing a range of public programs and issues affecting rural life, e\.g\., employment, youth migration, and natural resource issues\. About 70% of MCs were actively seeking resource leveraging opportunities for member associations under the project's integration goals\. ï‚ Surveys showed that CAs saw their MCs as links to the State Government and as sources of information, highlighting the need for MCs to stay well-informed about project rules, objectives and responsibilities, and especially about criteria for the selection and priority ranking of community demands\. ï‚ The MCs became more autonomous, less subject to political interference, open to debate and proposals on a wide range of topics, and undertook participatory budgeting, include broad representation across rural urban, indigenous and gender\. Objective 4: Fostering closer integration of development policies, programs and projects at the local level, by assisting Municipal Councils to extend their role in seeking funding, priority- setting and decision-making over resource allocation\. 3\.2\.5 This objective was achieved: ï‚ The project leveraged some US$25 m\. under its integration objective\.22 This represented resources leveraged through high-level formal partnerships established by the STU with MDS (US$11 m\.), MDA (US$ 8 m\.) and FUNASA (US$3\.5 m\.)\. ï‚ MCs were trained to take on integration activities\. At Project closing, about 70% of the more advanced MCs were actively deliberating the resources from other programs\. ï‚ An agreement with various NGOs guaranteed the restructuring of the MCs under the OP and training of 3,000 counselors in the themes of management, role and attributions of these Councils\. ï‚ The Regional Meetings played a key role in strengthening the MCs and creating a space for structured discussions\. The counselors have become more prepared to guide the MCs and discuss with the government and non-governmental agents their demands and priorities\. Some 3,487 people participated of these events\. 3\.3 Efficiency 3\.3\.1 An economic and financial analysis was performed based on data from case studies for the most commonly demanded subprojects\. The major findings are found in see Annex 3\. 3\.3\.2\. A sample was taken of 29 subprojects financed and implemented under the project (14 of water supply; 8 of home sanitation; 3 of honey production and 4 of farm tractor)\. Statistical extrapolations for the entire universe of subprojects financed were not intended, but there was a certain comfort level with the results obtained for four reasons: (i) the apparent homogeneity (i\.e\., representativeness) of the units comprising the universe by type of subproject; (ii) the intentional decision to include subprojects considered by knowledgeable people to be moderately successful, that is, the sampled units were not limited exclusively to very successful subprojects; (iii) the STU took care to select subprojects considered “typicalâ€?; and (iv) the communities composing the sample were geographically-dispersed\. 22 The Project Paper for the Additional Financing cites a ratio of 1:4 already achieved under the original project and a goal of 1:7 for the Additional Financing\. Evidence for the former is unavailable and the latter target was unrealistic\. 17 3\.3\.3\. Net present values (NPV), benefit/costs ratios (B/C) and Internal Rates of Return (IRR) for each subproject type sampled were estimated\. Cost and benefits streams were built on the basis of actual field data collected\. IRRs were estimated using a 10-year period and the NPV was calculated using a 10% discount rate\. Two IRRs were estimated: (i) IRR-1, using actual average values of the variables defined (see below) to measure costs and benefits; and (ii) IRR- 2, reflecting a sensitivity analysis by assuming 20% higher costs and a simultaneous 20% reduction in revenues/benefits\. Results are given in Table 1\. Table 1: Financial analysis of most commonly financed subprojects Type of subroject PV Benefits (R$) PV Costs (R$) B/C ratio IRR-1 IRR-2 Water supply 488,334 101,209 4\.83 83% 53% Home sanitation 126,049 140,202 1\.11 11% 8% Farm tractor 597,726 245,622 2\.43 61% 39% Honey production 717,152 349,475 2\.05 82% 54% Source: UNITEC/ ProRural 2010 3\.3\.4\. The evidence suggests that financial returns are robust for water supply, honey production and processing, and farm tractor, even under very conservative assumptions (shown by the sensitivity analysis – IRR-2)\. Regarding water supply (as shown in other studies such as Binswanger 2005) and home sanitation, their positive impact on beneficiaries’ wellbeing is widely recognized, despite the inability to fully quantify this impact in this exercise\. The approach here seems to yield very high financial returns for water supply investments and much lower, although positive, for home sanitation investments\. These investments are mainly justified by their wellbeing impact\. 3\.3\.5\. Additionally, financial returns are compared for four types of subprojects, common and similar in seven individual States with RPRPs\. Results indicate that Pernambuco is faring quite well in water supply, farm tractor and honey production and processing subprojects\. When compared with results obtained by van Zyl et al\. for all ten Northeast states, Pernambuco currently performs higher on two comparable types of subprojects: farm tractor and honey production (Table 2)\. Table 2: Comparative Analysis of IRRs across Northeast States with RPRPs Type/States Northeast Pernambuco Paraiba Piauí Ceará Bahia Minas Sergipe Region Gerais Water supply - 53 30 3 18 21 53 57 Sanitation - 8 - - - - - - Farm tractor 38 39 - 35 - 39 - 25 Honey 17 54 - 63 - - - - Sources: van Zyl et al\. 2001; project-specific ICRs; case studies 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 3\.4\.1 The overall outcome rating of Moderately Satisfactory is justified based on: ï‚ Original and continuing relevance of project objectives and design to the needs of the rural sector in Pernambuco and the wider Northeast region; ï‚ Attainment of only 65% of aggregate OP/AF target for beneficiary families; ï‚ Satisfactory outcomes for most project development objectives substantiated by several full- scale evaluations/other studies of beneficiary wellbeing, employment, incomes and social capital formation; ï‚ Preliminary indications of SP economic and financial efficiency and sustainability; 18 ï‚ Evidence of substantial institutional development in MCs and CAs; ï‚ Strong evidence of physical sustainability of financed investments through completion, operation and O&M rates and practices; and ï‚ Successful integration experience by leveraging an additional US$ 25 m\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 3\.5\.1 Poverty impact: The project impact on rural poverty reduction is suggested by project studies showing improved family income and wellbeing\. The dominance of water supply investments has positioned a large number of poor rural families for more complex productive activities in the future\. Social capital formation has also prepared beneficiaries to demand access to a range of Federal and State programs\. Their organizational levels and membership in MCs increase their potential to receive and benefit from other services, programs and policies\. 3\.5\.2 Targeting: The Project was accurately targeted\. FECAMP results demonstrated that beneficiaries conformed to the intended project profile\. FECAMP assessed the ex-ante status of beneficiary communities at Project entry in terms of education, housing, employment, living conditions, household assets and income\. The analysis of the conditions of the target communities and the socioeconomic profile of beneficiaries confirms that the Project reached poor communities and extremely poor families, including particularly those beneficiaries subject to food insecurity\. 3\.5\.3 FECAMP (2004) found that the living conditions and socioeconomic status of beneficiary families confirmed their extreme poverty and that part of this population suffers food/nutritional deficits\. The study also found that the municipalities with lowest HDI-M, between 0\.467 and 0\.598, in the OP, received proportionately greater volumes of project resources\. This is also confirmed by end-of-project analysis of MIS output on SP distribution according to Area 1 and Area 2 targeting, as laid out in the PAD and PP\. The 2004 study also estimated the scope of the project in terms of the total population of rural poor, concluding that 10% of poor rural families of the State were directly assisted by the project; the 97,000 families benefited by end-of-project constitute in excess of 20% of the rural population of Pernambuco\. Since 70% of the rural population of Pernambuco is below the poverty line, project reach is very significant in absolute and relative terms\. 3\.5\.4 Gender and Youth: Women's direct involvement in CA leadership gained traction over time, particularly under the AF, due to the STU’s vigorous mobilization strategy\. The Project demonstrated the capacity of the Northeast CDD model to both include and empower women, contrary to the view that women participate but have no power\. Under the OP, 24% of all CAs were led by women, while under the AF the percentage was 32%\. About 16% of MCs had women in leadership roles and about 20% of all MCs had women as Presidents\. A partnership was established with the State Secretariat of Women, which resulted in the STU's contribution to the construction of the 1st State Plan of Policies for Rural Women of Pernambuco\. There was a strong emphasis on ensuring women’s participation in training events and in delivering technical assistance to female-headed subprojects, especially productive SPs\. Women’s leadership positions in the CAs and MCs also implied their automatic inclusion in special forms of training required to fulfill those roles\. 3\.5\.6 Regarding the inclusion of young people, the STU partnered with the State Secretariat of Youth and promoted workshops and seminars to discuss public policies for the rural youth\. A strong partnership was established with the NGO Serviços de Tecnologia Alternativa (SERTA) which contributed to promote local development\. This partnership brought greater integration of young people in search of better living conditions for their families and communities\. 19 3\.5\.7 Ethnic Groups: Quilombola (Afro-descendent) and Indigenous People communities benefited from project investments\. The Project extended to historically excluded Quilombolas and indigenous communities the same opportunities given to other communities\. Under the OP and the AF, around US$ 845,159 were invested in 14 subprojects of water infrastructure (cisterns and wells) for Quilombolas, benefiting 731 families (3,216 people) in 13 municipalities covering the regions of the Sertão, Agreste Setentrional e Meridional\. 59% of the resources invested were concentrated in Agreste Meridional e Sertão do Moxotó regions where municipalities with the lowest HDI-M are situated\. The US$25 m\. leveraged under the project includes a JSDF grant of US$650,000 to empower poor and remote Quilombola communities in Pernambuco by building their social capital and facilitating their access to existing public and private resources\. 3\.5\.8 The same strategy was used for indigenous peoples\. The STU partnered with the National Indigenous Foundation (FUNAI) and, under the OP, some 1,700 indigenous people (or some 7% of the total indigenous population in Pernambuco) implemented SPs in housing rehabilitation and rural water systems\. The Project sought to create opportunities for indigenous communities to identity and execute small-scale SPs through their own associations, consistent with their unique socio-ethnic characteristics\. Under the AF, an additional nine SPs were financed for indigenous groups, benefitting about 700 families (3,083 people)\. (b) Institutional Change/Strengthening 3\.5\.9 Both the OP and the AF financed a massive amount of training, the impact of which on the MCs and CAs was largely positive\. The STU is an experienced body with a professional and stable technical and administrative core team\. Its decentralized management mode, including the eight RTUs, encouraged community involvement in the selection and definition of priority actions, project execution and management of public funds\. 3\.5\.10 The STU was able to build a pattern of management that features the integration, transparency and capacity for joint action\. This pattern is responsible for its performance in project implementation financed by international organizations, and is an example of the possibility of building within the public structure, a management system capable of realizing great challenges\. 3\.5\.11 Evidence of its institutional development can be seen in its ability to surmount the difficulties associated with government turnover, navigate shifting rural strategies, embrace innovation, coordinate a complex series of institutional partnerships on behalf of the project, while maintaining the pace of disbursements in a timely manner and proactively support leveraging of additional resources\. (c) Other Unintended Outcomes and Impacts (positive or negative) 3\.5\.12 As with its predecessor (RPAP, 1997-2001), the project became a vehicle for important innovations including: (i) the Comércio Solidário (Fair Trade) program promoting sales of small-farm products to national and international markets; (ii) the implementation of a territorial development strategy; (iii) development of the Integrated Plan of Local Development (IPLD) to support local development; (iv) management decentralization; (v) engagement with Quilombola (Afro-descendent communities) and Indigenous People through educational/cultural consultation and outreach programs\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 3\.6\.1 The project financed a survey-based baseline evaluation for impact assessment under the OP, two survey-based Physical Performance Studies (OP and AF), several sets of case 20 studies and a Borrower Completion Report (OP and AF)\. The following briefly summarizes key findings of the four evaluations with a more detailed presentation in Annex 5 and Annex 3\. 3\.6\.2 FECAMP (2004): This baseline/evaluation covered three Northeast States - Ceará, Pernambuco and Bahia\. In Pernambuco, the study includes a survey of direct information in 50 communities and 61 SPs that benefited 8,602 families\. The control group comprised 493 families\. The evaluation confirmed that 70% of the rural population was below the poverty line, with a profile showing extreme poverty and deprivation\. Access to basic services was low; adult illiteracy was high\. The study showed that the rural population of Pernambuco (under the OP) earned an average income some 5% below the poverty line\. This study had a galvanizing effect on the project by showing that the poorest segments of the rural population, those with lowest IDH-M, were being reached as planned\. Case studies included in this evaluation showed that 86% of beneficiaries had significantly improved living conditions from 2000 (pre-project) to 2002/2003\. Income results were promising and a range of variables was very positive for social capital gains\. 3\.6\.3 CEPLAN (2004)\. This Physical Performance Study used quantitative and qualitative data for SPs implemented under the OP\. The survey was conducted in 50 municipalities across the 12 administrative regions of Pernambuco\. It covered 92 communities and 619 families; 2,863 beneficiaries were interviewed\. For 30% of these families, the annual income was less than half the official minimum salary\. For 21% of families, total household income was approximately one salary\. Most of the CAs interviewed (91%) reported improvement in the quality of life of the population, while 83% confirmed a positive vision for the use and benefits of the SPs\. 87% noted that both benefits and subproject size conformed to their expectations\. Beneficiary families and the CAs had a positive outlook on project performance\. Better knowledge on the part of beneficiaries about the project and its operation had a positive influence on their priority-setting\. The option for decentralized management of the project was perceived as a very positive point for achieving the PDO\. 3\.6\.4 POLICONSULT (2009)\. The report diagnosed the productive SPs implemented under the OP and the AF\. Data were collected for 300 subprojects in 114 municipalities\. The research sought to determine the current status of these SPs\. The report concluded that these SPs had significant impact on the beneficiaries’ quality of life, although this did not always translate into increased income\. There were direct and positive effects with the generation of employment opportunities, improved infrastructure and the incorporation of social roles by the beneficiaries\. 3\.6\.5 Physical Performance Study – Pereira and Gonçalves (2010)\. The study conducted an ex-post evaluation of SP physical implementation, which was found to be satisfactory\. The procurement of goods, works, construction and contracting services demonstrated economy and efficiency\. The price benchmarks adopted by the STU for manpower and building materials were consistent with market reference prices\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 4\.0\.1 Sustainability: Factors likely to promote sustainability include: ï‚ Extensive evidence that community O&M practices are satisfactory and appropriate for the SPs financed, and that the importance of O&M is well-understood; ï‚ Evidence of social capital formation which can be leveraged for more complex and diverse investment activities, e\.g\., productive; ï‚ MCs restructured, trained and operational in all 179 targeted municipalities, and instrumental in the deliberations of State Territorial Development Councils; and ï‚ Mainstreaming of the project mechanisms and institutions\. 21  4\.0\.2 Environmental management: SP environmental integrity is supported by the following: ï‚ Established environmental screening processes for all proposals, with access through co- participation arrangements and environmental expertise in specific cases; ï‚ Standard subproject designs for all commonly demanded SPs, with design features for potential environmental issues, e\.g\., waste disposal for manioc mills; ï‚ In-house environmental professionals in the STU; ï‚ Environmental awareness built into training programs for CAs and MCs; ï‚ Close attention to environmental compliance during Bank supervision missions including physical inspection of subprojects in the field; and ï‚ Introduction of/training for a new category of environmental/ecological SPs\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 5\.1\.1 Moderately Satisfactory Positive elements: ï‚ Close Bank/Client collaboration during the preparation of both the OP and the AF; ï‚ Calibration of project design with the lessons of previous similar projects in Pernambuco and other Northeast states and relevance to the Borrower’s rural priorities/strategy; and ï‚ Incorporation of innovative elements designed to strengthen impact, improve targeting, promote integration and resource leveraging, and respond to Bank concerns about appropriate use of grant financing\. Negative elements: ï‚ Inadequate design of PDO performance and intermediate impact indicators; ï‚ Excessive number of impact indicators; and ï‚ Lack of baseline data for the OP, not remedied during preparation of the AF even with evaluations and data available\. (b) Quality of Supervision Rating: Moderately Satisfactory 5\.1\.2 The rating is based on the following: Positive elements: ï‚ Supervision missions were timely, more frequent at critical periods, well-prepared and documented\. The project absorbed 78 weeks of supervision; Bank supervision missions included randomized field visits to CAs, MCs and SPs; ï‚ Aide Memoires were focused on key elements of project design and objectives, including fiduciary and safeguards performance\. Time-bound actions expected of the Borrower were followed up and outcomes reported; ï‚ Mid-term review (OP) was timely, comprehensive and all findings/recommendations were discussed with the STU, with documented follow-up; ï‚ Team members worked with both outgoing and incoming administrations to facilitate smooth transitions with minimum disruption to the project; and ï‚ Consistent focus on Financial Management and Procurement supervision/follow-up\. 22 Negative elements: ï‚ No MTR conducted during the AF; ï‚ Bank supervision should have expanded to include a Water Specialist, given the large volume of small-scale water infrastructure financed under the project; and ï‚ Inability to garner STU support for the follow-up to the FECAMP 2004 study to permit quantitative measure of project impact\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 5\.1\.3 Overall Bank performance is rated Moderately Satisfactory based on the Appendix A of the ICR Guidelines (OPCS, August 2006, and updated June 05, 2007)\. Although the project Team’s supervision performance was strong, it was not sufficient to balance out the over- estimated indicators for beneficiary families and productive investments, nor to facilitate the STU’s completion of the programmed suite of impact evaluation studies\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 5\.2\.1 The Borrower's performance during preparation and implementation is rated Satisfactory based on the following: Positive Elements: ï‚ Successive State Governments were committed to the project and its objectives as an integral element of their respective Multi-year Development Plans and rural strategies\. ï‚ Government underscored its commitment by leveraging another US$25 m\. from diverse programs/agencies to further expand project coverage and intensify the focus on the most vulnerable groups\. ï‚ Despite government turnover, the fundamental thrust of the state's rural strategy and pro- poor orientation did not change\. ï‚ Government aggressively pursued preparation and negotiation of the AF and, in a similar vein, is actively developing a new and larger follow-on program with progressive objectives\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 5\.2\.2 As noted in earlier sections, three separate state secretariats were responsible for the project over its lifespan and this had both positive and negative institutional, operational and strategic impacts on project implementation\. The Moderately Satisfactory rating reflects performance whereby the STU: Positive Elements: ï‚ Prevailed, given its technical and operational experience, over disruptive effects of government turnover and shifting rural strategy; ï‚ Managed to ensure timely disbursement of both Loans, and achieved all project objectives and targets; ï‚ Aggressively pursued and successfully utilized partnership arrangements to leverage technical, operational and financial support for the project; ï‚ Explored and expanded approaches to productive investments under the Fair Trade initiative, Comércio Ético e Solidário, and arranjos produtivos, consistent with its longstanding track record of supporting innovation; ï‚ Initiated a territorial development strategy and institutions with participation of MCs; 23 ï‚ Engaged with Quilombola (Afro-descendent) and ethnic communities through awareness- building, educational and cultural programs; and ï‚ Maintained a cooperative and committed relationship with the Bank throughout\. Negative Elements: ï‚ STU institutional reticence under the OP to productive SPs, while mitigated under the AF, led to markedly fewer such investments than anticipated; and ï‚ Low priority placed on impact evaluation, as shown by the lack of follow-up to the FECAMP 2004 baseline study\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 5\.2\.3 The overall Borrower performance is rated Moderately Satisfactory\. 6\. Lessons Learned 6\.1 CDD promotes social capital formation: The Project’s demand-driven feature improves local governance by giving poor rural communities a unique set of experiences involving: collective action; priority-setting; decision-making; and subproject financial management, operation and maintenance\. Social capital under this and similar projects is both a benefit in its own right and an element in the success of community-driven rural poverty reduction\. Tangible benefits from subproject investments strengthen collective capacity, generate a sense of citizenship, and raise the bar for local government accountability\. 6\.2 Decentralized project management improves responsiveness to beneficiaries: By delegating responsibility for day-to-day implementation to regional technical offices, the project’s markedly increased its visibility and accountability to beneficiary families\. The proximity of assistance activities - including technical and legal support – reduce subproject processing times, strengthen the CAs’ management capacity and increase the quality and frequency of STU supervision of overall implementation\. 6\.3 CDD can effectively target and empower poor rural women: Experience in Pernambuco and elsewhere shows unequivocally that demand-driven mechanisms not only enable women to access the benefits of community investments, but provide important leadership/learning opportunities for women through the community associations and Municipal Councils\. 6\.4 CDD is appropriate for ethnic groups and indigenous peoples: The project showed that participatory, demand-driven mechanisms are consistent with the cultural practices of these groups and that they can manage the subproject cycle, including its participatory mechanisms, effectively\. 6\.5 Systematic impact evaluation requires more intensive focus: Ideally, evaluation programs designed at Appraisal should be launched prior to Effectiveness as a priority of both project execution and Bank supervision\. A timely baseline study and follow-up/repeater survey with control panels should be completed within the project’s lifetime\. However, alternative, simpler, but methodologically valid forms of evaluation should be explored if “heavierâ€? frameworks prove unworkable or unacceptably costly to the client\. Parallel training can build political and technical support toward a strong “evaluation cultureâ€?\. 6\.6 CDD mechanisms can improve the quality and targeting of non-project public resources, while leveraging complementary funding and deepening the investment stock needed for faster poverty reduction: The project leveraged an additional US$25\.0 m\. from complementary sources to finance community investments\. Increased efforts to channel other 24 Federal- and state-level programs through the Municipal Councils in Pernambuco can potentially accelerate and intensify rural poverty reduction\. Such integration merits greater Bank support for its longer-term institutional and operational evolution, and for monitoring and evaluating its implementation, outcomes and impact\. 6\.7 Preparation and analysis of small-scale productive ventures needs equal rigor\. Small scale grant-financed productive ventures, in contrast to community infrastructure, require a business plan (including technical and financial analysis), up-front marketing arrangements and formal training for the operational phase\. Beneficiaries need to get it right the first time under a one-time grant financing opportunity to jump-start employment and income generation, in addition to using the experience to qualify for future financing from lending institutions\. To avoid "reinventing the wheel", successful productive subprojects should be studied carefully to determine critical features, replicated where feasible and appropriate, and monitored over time to assess evolution and lessons\. A databank (case studies) of such experiences can leverage their benefits longer-term and with wide geographic application\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies: ï‚ The Borrower’s letter of July 9, 2010 (Annex 7) commenting on the draft ICR concurs in broad terms with the Bank’s assessment of the Project\. This assessment takes into account, along with other documents, the findings of the Borrower Completion Report, which was prepared by the STU\. ï‚ The Borrower notes with satisfaction with partnership maintained with the Bank throughout project implementation, both in terms of financing (through the Bank loans 46250-BR and 46251-BR) and technical assistance (via Bank supervision)\. ï‚ The Borrower concurs with the overall rating of Moderately Satisfactory, further noting that the OP attained 58% of the target value for families benefited, while the AF achieved 88% on the same target\. ï‚ The Borrower shares the Bank’s observation that despite several public administration changes over the course of project implementation, project implementation did not suffer as a result\. In fact, the Borrower notes that the State’s financing counterpart contribution was constant, as was its strategic focus on rural poverty reduction\. ï‚ The Borrower agreed with the scope and content of the Lessons Learned presented in the draft ICR, particularly noting the lessons regarding productive subprojects, such as: (i) the higher threshold for financial and economic analyses required; (ii) the importance of business plans to ground these subprojects in actual market opportunities; and (iii) strong focus on management training for the community associations in order to reduce risk of failure\. These factors have been included in the State’s proposal for a new operation (with Bank financing) which would seek the economic inclusion and increased competitiveness of the small-scale agricultural producer\. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 25 Annex 1\. Project Costs and Financing Original Project A\. Project Cost by Component (in USD m\. equivalent) Components Appraisal (USD m\.) Actual (USD m\.) % Appraisal 1\. Community Subprojects 34\.3 33\.2* 97% 2\. Institutional Development 2\.7 5\.3 196% 3\. Administration, Supervision, 1 2\.2 220% Monitoring and Evaluation Total Baseline Cost 38 40\.7 107% Physical Contingencies 1\.2 0 Price Contingencies 0\.8 0 Total Project Costs 40\.0 40\.7 102% Front-end fee PPF 0 0 Front-end fee IBRD 0 0\.3 Total Financing Required 40\.0 41\.0 103% *Includes beneficiary contribution and State counterpart B\. Financing - Original Project Type of Appraisal Actual Source of Funds % Appraisal Cofinancing (USD m\.) (USD m\.) Borrower 9\.90 11\.58* 117% IBRD 30\.10 29\.47 98% *Includes beneficiary contribution and State counterpart Additional Financing C\. Project Cost by Component (in USD m\. equivalent) Components Appraisal (USD m\.) Actual (USD m\.) % Appraisal 1\. Community Subprojects 31\.2 34\.7 111% 2\. Institutional Development 5\.4 2\.5 46% 3\. Administration, Supervision, 1\.7 2\.3 136% Monitoring and Evaluation Total Baseline Cost 38\.3 39\.5 103% Physical Contingencies 0 0 0% Price Contingencies 0 0 0% Total Project Costs 38\.3 39\.5 103% Unallocated 1\.7 0 0% Front-end fee IBRD 0 0 0% Total Financing Required 40\.0 39\.5 99% *Includes beneficiary contribution and State counterpart\. D\. Financing Type of Appraisal Actual Source of Funds % Appraisal Cofinancing (USD m\.) (USD m\.) Borrower 10\.00 9\.56* 95\.60 IBRD 30\.00 27\.40 91\.33 *Includes beneficiary contribution and State counterpart\. 26 Annex 2\. Outputs by Component 2\.1 The following shows physical outputs by component with separate discussions on productive subprojects and targeting performance\. 2\.2 Component Community Subprojects: Community Subprojects are identified, executed, operated and maintained by beneficiary communities, acting through their legally- constituted CAs\. The component (OP US$36 m\., AF US$32 m\., 90% and 80% of total estimated project cost, respectively), was to finance matching grants to organized rural CAs for about 1,560 and 1,100 small-scale investment SPs (under OP and AF, respectively) categorized as infrastructure, productive and human development\. New types of investments specified in the AF included health, education, environment and culture\. Subprojects under the OP were expected to be financed under three subprograms - PAC (State Community Schemes), FUMAC (Municipal Community Schemes) and FUMAC-P (Pilot Municipal Community Funds - of varying degrees of decentralization and autonomy\. PAC was expected to absorb about 5% of all SP cost (up to US$ 1\.8 m\.); FUMAC about 80% (US$28\.8 m\.) and FUMAC-P about 15% (US$5\.4 m\.)\. PAC was the least decentralized while FUMAC-P was the most advanced in giving each MC its own budget envelop to manage\.23 Although expected, there was not any SPs financed by PAC, and it had already being phased out in Pernambuco (as in most Northeast states) at the time of the AF\. Under the AF, the FUMAC mechanism was mainstreamed, with SP financing explicitly grouped in two areas according to municipal-level development (i\.e\., IDH-M)\.24 2\.3 The combined project (OP/AF) financed 2,284 subprojects, benefiting some 96,400 families\. Total cost of Component 1 under the OP was US$33\.6 m\. (97% of appraisal estimate) and US$34\.7m\. under the AF (about 111% of appraisal estimate), including the State and beneficiary counterpart contributions of US$13\.8\. Utilization of the Loan for Component 1 under the OP was US$23 m\. (90% of the appraisal allocation) and US$24 m\. under the AF (110% of the appraisal allocation, see Annex 1)\. While the OP utilized FUMAC and FUMAC–P mechanisms, 100% of SPs under the AF were channeled through the mainstreamed MCs\. Total cost of the component aggregating OP and AF was US$ 76\.4 m\. 2\.4\. Demand: Project success depended on a wide mobilization of rural communities, their organization into CAs and subsequent expression of their investment priorities in the context of the MCs\. Dissemination and mobilization were made using different means and methods and reached all municipalities and communities, even the most distant from urban centers requiring a substantial institutional effort to bring information and motivate the rural people to participate in the Project\. STU management was decentralized through the creation of RTUs\. The institutionalization of MCs allowed greater interaction with rural communities that stood to 23 Under FUMAC, community associations participate in representative Municipal Councils with 80% majority membership of beneficiaries and civil society, and 20% of municipal authorities and other entities\. The Councils meet regularly to debate community subproject proposals and set priorities, based on an indicative annual budget determined by the STU\. Approved subprojects are sent to the UNITEC for final technical and environmental analysis and approval\. Funds are transferred directly to the beneficiary association\. In Pernambuco, many pre-existing Municipal Sustainable Development Councils (CMDS) were adapted to project rules for representation (80/20 etc\.) and became FUMAC Councils\. FUMAC-P Councils were established as a pilot to determine the utility and feasibility of allocating a number of more advanced Councils an annual budget to manage - based on an Annual Operating Plan (POA)\. As with the other NE states, FUMAC-P did not function as expected and all were eventually devolved to the original FUMAC design\. The main reason was that the NE State Governments never felt comfortable with the decentralization of actual funds management to these Councils\. Further, some FUMAC-P tended to finance very small subprojects designed to reach the maximum number of communities, resulting in low and localized impact\. Finally, under PAC, community associations submit subproject proposals directly to the State Technical Unit which transfers funds directly to the associations for approved subproject\. There is no representative Municipal Council\. This mechanism was a holdover from an earlier period, and utilized by communities in municipalities which had difficulty - for political/other reasons - in forming a Municipal Council\. It is the least decentralized and studies have shown, has the least impact on social capital formation\. 24 Area I represented 110 municipalities with HDI less than or equal to 0\.632, with an estimated 70% of investments to finance approximately 350 subprojects\. In Area , 69 municipalities HDI higher than 0\.632, with investments was expected to absorb 30% of tall resources to finance approximately 150 subprojects\. 27 benefit from the project and the knowledge of the potential and the problems of each region\. This mobilization effort yielded an aggregate SP demand of 2,541 proposals, leading to the approval and financing of 2,284 subprojects or 90% of total demand (Table 1 a-c)\. Table: 1\.a Subproject demand and implemented by type ( OP/AF) Subproject Type Demand Implemented I/D Families % Infrastructure 1,543 1,342 87% 62767 Productive 194 154 79% 8,890 Human Development 804 788 98% 24,741 Total 2,541 2,284 90% 96,398 Table: 1\.b Subproject demand and implemented by type ( OP) Subproject Type Demand Implemented I/D Families % Infrastructure 1,149 1,059 92% 43,306 Productive 30 21 70% 1,060 Human Development 670 658 98% 18,762 Total 1,849 1,738 94% 63,128 Table: 1\.c Subproject demand and implemented by type (AF) Subproject Type Demand Implemented I/D Families % Infrastructure 394 283 72% 19,461 Productive 164 133 81% 7,830 Human Development 134 130 97% 5,970 Total 692 546 79% 33,270 2\.5 Subprojects: The project financed 2,284 SPs, 86% of the combined target (see tables 2-a and 2-b)\. Average subproject cost was US$19,100 under the OP and US$63,600 for AF; three factors help to explain this three-fold increase under the AF: (i) the appreciation of the Real vis-à-vis the US Dollar over the project period; (ii) price inflation of materials and inputs; and (iii) larger-scale SPs under the AF, as evidenced by the two-fold increase in average families benefited per SP\. Infrastructure and human development SPs had greater demand\. Under the OP 1,738 SPs were financed, 111% of target at appraisal\. The AF financed 546 SPs, only 50% of project target, yet these subprojects benefitted 33,800 families (89% of target)\. Table 2-a: Subprojects Implemented (OP) % Av\. Cost Cost per Families Type of SP # SPs Total US$m\. # Fam\. (US$) Ben\. Fam per SP Water Cisterns 719 41% 11\.8 22,664 16,471 523 32 Household Sanitation 502 29% 8\.8 14,728 17,582 599 29 Comm\. Water Supply 190 11% 3\.5 9,877 18,359 353 52 House Rehab\. 126 7% 2\.9 1,453 23,214 2,013 12 Agricultural Tractor 42 2% 1\.7 5,727 40,222 295 136 Small-scale Irrigation 26 1% 0\.8 525 29,543 1,463 20 Small dam 16 1% 0\.2 869 13,554 250 54 Fishing equipment 14 1% 0\.3 911 21,718 334 65 SUBTOTAL 1,635 94% 30\.0 56,754 18,385 530 35 All Others 103 6% 3\.2 6,374 30,602 495 62 TOTAL 1,738 100% 33\.2 63,128 19,109 526 36 28 Table 2-b: Subprojects Implemented (AF): % Ave\. Cost Cost per Families Type of SP # SP Total US$m\. # Fam\. (US$) Ben\. Fam\. per SP Water Cisterns 159 29% 8\.1 8,895 51,200 915 56 Household Sanitation 127 23% 8\.5 5,768 66,912 1,473 45 Comm\. Water Supply 104 19% 7\.9 7,736 75,977 1,021 74 Agricultural Tractor 52 10% 3\.3 4,230 62,659 770 81 Basic Grain Prod\. 36 7% 2\.0 1,996 55,497 1,001 55 Small Dams 14 3% 1\.1 1,246 82,059 922 89 Small-scale Irrigation 10 2% 0\.8 199 80,634 4,052 20 Bee-keeping 9 2% 0\.5 205 59,222 2,600 23 Fishing Equipment 7 1% 0\.4 286 52,782 1,292 41 SUBTOTAL 518 95% 32\.6 30,561 63,039 1,068 59 All Others 28 5% 2\.1 2,709 73,308 758 97 TOTAL 546 100% 34\.7 33,270 63,565 1,043 61 Types of subprojects 2\.6 Infrastructure: The strong demand for infrastructure, particularly the 1,172 subprojects in water supply financed under the project, confirms the precarious conditions in which the rural population resides, where water shortages are chronic\. Support for this type of subprojects reflects the priority that the State placed on this issue\. The average cost of infrastructure subprojects was approximately US$18,500 (OP) and US$62,492 (AF)\. Each water supply subproject benefited an average of 36 families (OP) and 63 families (AF)\. 2\.7 Human Development: 755 SPs (e\.g\., household sanitation, housing rehabilitation) benefited 24,700 families (some 108,860 people)\. The project financed 629 household sanitation SPs, benefiting 20,500 families, with each SP benefiting approximately 33 families at an average cost of U$67,00 (AF) and US$17,600 (OP)\. 2\.8 Productive: The small amount of productive subprojects, particularly under the OP, where demand was just 6% of appraisal estimate, did not decrease the overall result\. The analysis of SP demand and the overall project performance showed that, in the early years of implementation, the poorest communities chose to prioritize infrastructure investments, such as water supply and electricity (considered of extreme need) as well as investments that provided improvement in the wellbeing of the population, such as household sanitation\. This low rate can also be credited to the management decision of ProRural with the application of stringent criteria for the approval of such subprojects\. 2\.9 The volume of productive SPs increased significantly under the AF25, a direct result of intensified action by new STU management to improve their preparation and monitoring\. These actions were under the responsibility of the “Center for Support to Productive Subprojects – NAP26\. The interdisciplinary NAP team ensured that productive SPs demonstrated economic 25 Under the OP, only 21 productive SPs had the financial support from ProRural, while the AF financed 133 subprojects (six-fold increase)\. 26 The STU created NAP to enhance STU expertise vis-à-vis productive subprojects\. NAP is comprised of seven technicians with backgrounds in Agronomy, Engineering, Biology, Economics, Animal science and Psychology\. 29 and technical feasibility, factors that definitively contributed to the success of these investments\. Most of the subprojects financed were in support of production, such as farm machinery, basic grain processing and milk coolers\. Although productive SPs increased significantly under the AF, their integration to markets remained weak\. 2\.10 Tractors: The Project financed 100 agricultural mechanization SPs (e\.g\., tractors and equipment)\. The vast majority of these SPs were rated highly by beneficiaries for their economic and social benefits, including: (i) the ability to prepare land in time for the rainy season; (ii) job creation capacity; and (iii) capacity to generate substantial community savings from rental fees charged for tractor operation and maintenance\. Examples of these benefits are noted in project studies: (i) “Case Studies: Impact Evaluation of the PCPR II Subprojects (Simões 2010); and (ii) Situational Diagnosis of 300 Productive Subprojects of the Rural Poverty Reduction Project - UNITEC – ProRural (Polytechnic Association of Consulting 2009)\. The main social and economic effects arising from these SPs are as follows: ï‚ Social effects include reduced time and labor spent on the improvement of the land\. Manual land preparation, using a hoe, previously required 65 days; tractors reduce this to just six hours, freeing up time for leisure or income-generating activities\. ï‚ Economic effects include the use of machinery in the processing of land to improve soil quality and, as a consequence, increased productivity\. The expectation is that production will increase from 30% to 40%, with the added value throughout the production chain, impacting mainly on household incomes\. According to field studies (Polytechnic Association of Consulting 2009), 98% of beneficiaries stated that such investments help to increase family income\. Capacity to generate community savings from higher rental fees previously charged for tractor operations and maintenance is another economic impact\. Such savings are frequently applied by communities to new investments\. Targeting: 2\.11 The Project was accurately targeted\. FECAMP (2004) demonstrates that beneficiaries conformed to the intended profiles and that the project is reaching its target population\. FECAMP found that the living conditions and socioeconomic status of beneficiary families evidenced extreme poverty and that part of this population suffers food/nutritional deficits\. The study also found that municipalities with the lowest HDI-M, between 0\.467 and 0\.598, received a proportionally greater volume of project resources\. In terms of subproject value approved per capita, municipalities with greater IDH-M (0\.700-0\.862) received proportionally less resources, while the cohort with lowest IDH-M received a higher proportion, in line with project targeting for both the OP and AF\. FECAMP also found that the Project directly reached 10% of the total poor rural families in Pernambuco in the first years of the OP\. Given that 70% of the rural population of Pernambuco lives below the poverty line, the Project’s reach is significant in both absolute and relative terms\. 2\.12 The strategy of prioritizing municipalities with HDI-M below 0\.623, implemented by the Government of Pernambuco since 2002, was adopted and strengthened under the AF, aiming to increase the impact of the project near the rural poor population of the state of Pernambuco\. Loan resources were explicitly allocated in two areas27, taking into account the value of the HDI-M as well as differences in size and intensity of poverty among the municipalities of the respective areas\. 27 Area I: 110 municipalities with HDI-M less than or equal to 0\.632, with 70% of the resources to finance 770 subprojects\. Area II - 69 municipalities with HDI-M greater than 0\.632 with 30% of the total resources to finance 330 subprojects, 30  2\.13 Of the 546 28 subprojects financed under AF, 394 subprojects (US$24\.6 m) were financed for Area I CAs, representing 71% of the total AF SP resources, slightly above target\. As for Area II, it absorbed 29% of SP resources, to finance 152 subprojects (US$10\.1 m\.)\. The amounts and the percentages above are as targeted for each area and demonstrate the commitment of the State with the objectives of the Project in order to benefit the poor rural population of the state located in the municipalities with lowest HDI-M (Table 3)\. Table 3: Subproject Financed by Priority Area 2002 - 2010 Area29 Original Project Additional Financing Total SP Nº % US$ m\. SP Nº % US$ m\. SP Nº % US$ m\. Area 1 1,207 69 22\.5 394 72 24\.6 1,601 70 47\.0 Area 2 531 31 10\.7 152 28 10\.1 683 30 20\.8 Total 1,738 100 33\.2 546 100 34\.7 2,284 100 67\.8 Source: Unite Prorural/ Integration: 2\.14 The Project leveraged R$47 m\. (US$25 m\.) to integrate the project with other agencies and programs (Table 5)\. The STU fostered partnerships to support the project, drawing State and Federal resources to communities and utilizing the MCs for participatory decision-making\. Partners include MDS (Federal sanitation construction), MDA (Territorios da Cidadania, acquisition of vehicles and equipment for communities) and CONAB (direct purchase of products from family agriculture)\. FUNDARPE and CEPIR (training for indigenous/ethnic groups) are also partners, along with State water agencies\. The MCs also showed strong capacity to establish partnerships and integrate with other programs and policies\. (Table 4)\. Table 4: Municipal Councils – Integration and Partnership Level Entity Ministry of Agrarian Development – MDA National Supply Company – CONAB Federal Development Company of San Francisco – CODEVASF Government Bank of Brazil – BB Northeast Bank - BN Federal Rural University of Pernambuco UFRPE State Secretariat of Agriculture and Agrarian Reform Government Secretariat of Regional Development and Articulation SERTA NGOs Cooperative of Professional in General Activities - COOPAGEL Araripe Foundation Women's House of Northeast Women's Center of Cabo Alternative Technology Service – SERTA Federation of Agricultural Workers of Pernambuco - FETAPE Trade Union National Federation of Workers and Workers in Agriculture Families - Movements FETRAF Movement of the Landless – MST Trade Union Movements Brazilian Service for Support to Micro and Small Enterprise - SEBRAE National Service for Rural Learning - SENAR Others National Council for NUTRITIONAL AND Food Security - CONSEA State Council of Sustainable Development 28 Although the 546 subprojects under the AF were 49% of the appraisal target, these investments benefitted 32,370 families, 88% of the appraisal target\. The number of subprojects may have been overestimated at appraisal and, considering various economic factors during the implementations of AF, both subproject scale and average cost were above the appraisal estimate\. 29 The criterion for the allocation of priority areas was adopted under the AF (2007-2010)\. 31 Table 5: Resources Leveraged from other Programs/Activities for the Project's Targeted Population (US$ m\.) Execution (US$ m\.) Activity Total Value1 Beneficiary Value: State Value: Federal Value: Bank Private Contribution Initiatives3 Agreement: Cisterns MDS 11,228,498 - 2,853,631 8,374,867 - - Ministry of Agrarian 8,080,800 - 808,080 7,272,720 - - Development- (MDA)2 National Health Foundation 3,478,984 - 446,682 3,032,302 - - (FUNASA)3 GTZ4 1,600,171 - - - - 1,600,171 Japanese Grant4 800,085 - - - 800,085 - Subtotal 25,188,538 - 4,108,393 18,679,889 800,085 1,600,171 Ln\. 46250-BR Component 1 31,627,055 3,136,348 5,488,609 23,002,098 Ln\. 46251-BR Component 1 34,138,341 3,240,612 4,860,919 24,036,810 TOTAL - Component 1 65,765,396 6,376,960 10,349,528 47,038,908 Total Executed 90,953,934 6,376,960 14,457,921 18,679,889 1,600,171 % Executed 138% 100% 140% N/A30 100% N/A31 Source: UNITEC - ProRural 1 Converted at US$1\.00 = R$1,8748 (01/31/2010) 2 Family farm improvements 3 Household sanitation and water supply 4 Quilombola communities 30 Not calculated because not foreseen at appraisal\. 31 Ditto 32 2\.15 Performance results at end-project are shown in Table 6 below: Table 6: Component 1 - Project Performance Indicators at end-Project Components and Activities Institution Target Target Actual % Achieved Responsible Original AF* Total (OP/AF) Project EOP 1\. Community Subprojects 1,560 1,100 2,284 86% Infrastructure (#) 815 572 1,342 97% Productive (#) Beneficiary 362 275 154 24% Social (#) Associations 383 253 788 124% Beneficiaries Total (Families) STU/MC 110,000 38,000 96,398 65% Total (Individuals) 484,000 167,000 424\.151 0% Community assns\. benefited (#) 780 550 2,284 172% Municipal Councils created (#) FUMAC (#) STU/MC 38 0 101 266% FUMAC-P (#) 14 0 0 0% Municipalities benefited (#) STU 177 0 179 101% 2\.16 Component 2: Institutional Development (OP US$5\.3 m\.; AF US$2\.7 m\., 7% and 14% of total project estimated cost, respectively) financed technical assistance and training to build capacity in implementing entities, including the CAs, MCs and the STU\. Modest funding was also included under the OP to support state institutional modernization related to poverty reduction programs and policies following a similar, successful activity under the previous project as part of the wider Bank/State dialogue\. 2\.17 This component financed training for CAs, MCs and STU project technicians, in addition to technical assistance and information dissemination\. Technical assistance and specialized consultancies were financed for CAs and MCs to build and consolidate their participatory decision-making processes and their role in overseeing subprojects execution\. Special emphasis was given to the sustainability of community investments, including specific themes, related to the most demanded SPs (e\.g\., water supply, household sanitation)\. 2\.18 This component financed some 2,146 training events for CAs, partner agencies, the MCs and STU\. These events had a massive participation of about 44,037 people\. (See Table 7)\. 33 Table 7: Training under Component 2 - Institutional Development Category No\. No\. Content of Training Events Participants Business Administration Entrepreneurship Stimulus for the development of skills 21 573 Management of own business Strengthening and Restructuring Qualification for the successful product marketing Training for the use of credit lines Management of MCs 673 8,210 Marketing techniques Importance of collective action Management Techniques for water catchment Knowledge about water quality Water Management 478 23,861 Environmental Care Water security Water as a basic factor of citizenship Bricklayer Training 35 335 Construction technology of cisterns Training on environmental issues Health and environment Environmental 103 4,188 Land Water Health, Use and care of management household sanitation Project management and project development Project Supervision Partnership Articulation Operational 50 525 Integration of public policies Accountability Legal affairs Management organization Training of facilitators Public management Family Farm Local Development Others 18 556 Handicraft Ecotourism Total 1,443 42,193 2\.19 The STU also partnered with public and private entities, seeking to leverage technical and other support for the Project, integrate the Project locally to promote complementary activities and diversify Project content conceptually and methodologically (Table 8)\. 34 Table 8: Training partnerships with NGOs and workers’ movements Development Action Results Agreements with NGOs for the restructuring Strengthening Project partnership with 12 of the Councils and implementation of the NGOs who operate in rural areas Regional Meetings Agreement with Apoimne Strengthening of indigenous organizations Agreement with Serta e Fetape - Youth management training Agreement with Women’s House of NE Women trained in Project Management Agreement with the Northeastern Ecological Technical and project beneficiaries trained Society and sensitized on Environmental Management 2\.20 The component also financed various courses, seminars and workshops to benefit especially indigenous peoples, Quilombolas, women's groups and youth with topics related to those groups (Table 9)\. Table 9: Training for special groups Group Nº Nº Content Event Participants 2 25 Gender training 5 115 Associative management, gender and policies for women Women 1 15 Improvement of production, marketing and management association 1 78 Training of the representatives of the Municipal Councils for public policies aimed at young people 1 103 Training of the representatives of the Municipal Councils Youth for public policies aimed at young people 4 104 Management and policies for youth 1 117 Public policies for youth 1 70 Information on existing policies and definition of Indigenous strategic actions 1132 314 Making diagnosis 1 43 Discussion of action plan 1 50 Dissemination of Project of Promotion Leadership of Quilombola Quilombola Communities in PE 1 70 Issues of race and ethnicity 1 20 Quilombolas policies TOTAL 31 1,124 32 Workshops performed in their own villages\. 35 2\.21 Performance results for Component 2 were as follows (Table 10): Table 10: Component 2 – Performance Indicators at end-Project Component/Activities Responsible Unit Target Target Total Institution OP AF EOP 2\. Institutional Development STU/MC Preparation, Annual TA/training program STU No\. 4 3 7 Municipal Councils No\. 52 721 Community mobilization Beneficiaries STU/MC Seminars 40 15,945 Local leaders Participants 720 12,355 No\. training courses offered Beneficiary assns No\. 25 547 All Municipal Councils FUMAC No\. 104 840 FUMAC Councils FUMAC P No\. 28 STU Staff No\. 11 Technical assistance provided For subproject implement\. STU/MC SP 1,560 1,100 2\.284 (technology transfer) attended Source: Project MIS 2\.22 Component 3: Administration, Supervision, Monitoring and Evaluation (OP US$2\.22 m\.; AF US$2\.25 m\., 185% and 130% of total estimated project cost, respectively) financed the costs (excluding salaries) of project administration and coordination including supervision, monitoring and impact evaluation\. 2\.23 This component performed as expected, supporting project coordination and activities to monitor project performance and results\. Incremental operational costs (excluding salaries) of the STU further improved supervision and strengthened project operation\. The component financed the upgrading of the project MIS, as well as public information outreach to disseminate understanding about Projects objectives, benefits, rules and methodology\. 2\.24 The component also financed Regional Meetings of the MCs, one of the main instruments for disseminating the Project to ensure transparency in the use of public resources\. Initially focused on the dissemination of the project, the Regional Meetings became an important mechanism for strengthening the MCs and CAs\. These meetings also provided structured discussion for the MCs, enabling them to critique aspects of the project and develop the capacity for discussion and understanding about the reality of the municipalities\. Some 23 meetings were held, of which one was statewide and 22 were Regional Meetings (Table 11)\. The State Meeting promoted the “Contest of Councils’ Best Practicesâ€? in three different categories: (i) Management and Internal Organization, (ii) Articulation and Social Policy, and, (iii) Implementation of Development Policies\.33 33 57 entries of the Councils’ successful experiences were submitted via the internet, of which 9 were selected to be presented during the State Meeting\. 36  Table 11: Regional Meetings for Municipal Councils Year Event Nº Events Nº Participants 2008 Regional Meeting 10 1,428 2009 Regional Meeting 4 717 2009 State Meeting 1 602 2010 Regional Meeting 8 740 TOTAL 23 3,487 2\.25 Performance results for Component 3 were as follows (Table 12): Table 12: Component 3 – Project Performance Indicators at end-Project Component/Activities Responsible Unit Target Target Total Institution OP AF EOP 3\. Project Administration, Supervision, Monitoring and Evaluation Supervision Subprojects STU/MC No\. 3,120 - - visits Municipal Councils STU No\. 416 - - visits Annual Operating Plans (POA) Prep\. of POA FUMAC-P FUMAC-P No\. 208 - - MC Consolidation & preparation, STU No\. 4 3 8 Project POA Standard subproject designs Preparation STU No\. 5 - - Review/Updating STU No\. 20 - - Monitoring Reports (to Bank) Monthly disbt\. summaries and MIS STU No\. 48 36 84 update Annual, semi-annual reports STU No\. 12 9 21 External studies STU No\. 4 3 7 Evaluation studies Physical Performance Review STU No\. 1 1 2 (MTR) Impact evaluation Baseline STU No\. 1 - - Final STU No\. 1 1 2 Source: Unitec - ProRural 37 Annex 3\. Economic and Financial Analysis 3\.1 Project implementation, as forcefully stated by the Project´s Technical Unit, “aimed and reached success in: (a) contributing to raise HDI for the poorest municipalities in the State of Pernambuco through provisions of access to basic services of infrastructure, human development, strengthening of local production chains, education, health, environment, technology and technical assistance; (b) contributing to consolidate decentralized and democratic public administration, able to promote the coordination and integration of actions among the three levels of government, civil social organizations and from the private sector in the municipalities and Development Regions (RDs), through interinstitutional coordination; (c) supporting the communities to improve their management capability, wealth generation and market insertion of their products and services; and (d)stimulating effective society participation, through its organizations, including ethnical groups, youth, women, elderly and handicapped people to occupy roles in decision processes at community, municipal and regional levels, influencing the formulation and implementation of development policies\.â€? (see ProRural - Borrower Completion Report – AF)\. 3\.2 The Project financed 2,284 community subprojects, benefiting some 96,398 families, distributed in 179 municipalities and organized in some 2,216 community associations\. Of the 2,284 community subprojects financed and implemented, 93% comprised the following: water supply, including cisterns; household sanitation; housing improvement and construction; farm tractor; small irrigation schemes; honey production and processing; milk processing; rural electrification and handicrafts\. These main types of subprojects accounted for 87% of families benefited under the Project\. (see Table 3\.1)\. 3\.3 The Project was subject to a number of physical performance studies and implementation reviews; the main findings of these studies are summarized in Annex 5\. An end-of-project impact evaluation study was not conducted; however, 29 case studies of typical subprojects - with field data collection, were compiled to estimate indicative economic and financial results of the Project\. Additionally, a comparative analysis is done of the known results of similar Projects and types of subprojects (water supply, sanitation, farm tractor and honey production) in the Northeast Region (see Table 3\.3)\. Table 3\.1 – Main types of community subprojects financed under OP and AF Types of Subprojects # of subprojects % # Ben\. fam\. % Water supply 1,172 51\.3 49,172 51\.0 Sanitation 629 27\.5 20,496 21\.3 Others 161 7\.1 12,211 12\.6 Housing 126 5\.5 1,453 1\.5 Farm tractor 94 4\.1 9,957 10\.3 Small irrigation schemes 36 1\.6 724 0\.8 Milk processing 23 1\.0 1,168 1\.2 Rural Electrification 22 1\.0 596 0\.6 Honey production 18 0\.8 472 0\.5 Handicraft 3 0\.1 149 0\.2 Total 2,284 100\.0 96,398 100\.0 38 Methodology: Case Studies 3\.4 A case study approach was adopted, based on the four main types of subprojects (i\.e\., water supply; home sanitation; farm tractor; honey production and processing) and the community associations demanding, executing and operating these investments\. A sample of 29 subprojects (14 of water supply; 8 of home sanitation; 3 of honey production and 4 of farm tractor) was selected\. Statistical extrapolations for the entire universe of subprojects financed were not intended, but there was a certain comfort level in exploring the results obtained for four basic reasons: (i) the apparent homogeneity (i\.e\., representativeness) of the units comprising the universe by type of subproject; (ii) the intentional decision to include subprojects considered by knowledgeable people to be moderately successful, that is, the sampled units were not limited exclusively to very successful subprojects; (iii) the STU took care to select subprojects considered “typicalâ€?; and (iv) the communities composing the sample were geographically-dispersed\. 3\.5 An STU technical team conducted the field research, interviewing beneficiaries and CA leaders, those knowledgeable about the subprojects and their histories\. Questionnaires were applied, tailored to the nature of each subproject type studied, with questions permitting both open and closed responses\. 3\.6 Net present values (NPV), benefit/costs ratios (B/C) and Internal Rates of Return (IRR) for each subproject type sampled were estimated\. Cost and benefits streams were built on the basis of actual field data collected\. IRRs were estimated using a 10-year period and the NPV was calculated using a 10% discount rate\. Two IRRs were estimated: (i) IRR-1, using actual average values of the variables defined (see below) to measure costs and benefits; and (ii) IRR-2, reflecting a sensitivity analysis by assuming 20% higher costs and a simultaneous 20% reduction in revenues/benefits\. All monetary values are expressed in Brazilian Reais\. 3\.7 Costs and benefits identified for each subproject type were the following: ï‚ Honey production and processing: Total initial investment; annual operating costs; revenues derived from services provided by the processing unit controlled by the community association; value of incremental production and improved quality of honey; value of incremental employment generated by honey production and processing and revenues from community association membership fees\. ï‚ Farm tractor: Total initial investment; annual operating costs; revenues derived from services provided by the tractor and associated implements and value of incremental production of corn and beans\. ï‚ Water supply with household connection and cisterns: Total initial investment; annual operating costs; revenue for water consumption and membership fee (proxy for willingness to pay for unmeasured benefits); value of time of family members freed from having to catch water; value of incremental employment generated by water availability; value of reduced diseases and incremental investments\. ï‚ Home sanitation: Total initial investment; value of reduced diseases and incremental value of the houses due to the investments received\. 3\.8 The results of the exercise are shown in Table 3\.2\. Given the strong limitations of the sampling procedures, though compensated in part by the manner in which the units were 39 selected and interviewed, (see 3\.4 above), the results serve mainly as indicators of the magnitude of possible real value\. Table 3\.2: Financial analysis of most commonly financed subprojects PV Benefits PV Costs Type of subroject (R$) (R$) B/C ratio IRR-1 IRR-2 Water supply 488,334\.88 101,209\.27 4\.83 83% 53% Home sanitation 126,049\.60 140,202\.68 1\.11 11% 8% Farm tractor 597,726\.20 245,622\.52 2\.43 61% 39% Honey production 717,152\.52 349,475\.44 2\.05 82% 54% 3\.9 The major finding is that evidence suggests that financial returns are robust for water supply, honey production and processing and farm tractor and even under very conservative assumptions (shown by the sensitivity analysis – IRR-2)\. Regarding water supply (as shown in other studies such as Binswanger 2005) and home sanitation, their positive impact on beneficiaries’ wellbeing is widely recognized, despite the inability to fully quantify this impact in this exercise\. The approach here seems to yield very high financial returns for water supply investments and much lower, although positive, for home sanitation investments\. These investments are mainly justified by their wellbeing impact\. Comparative analysis of results of Pernambuco and other States for similar projects 3\.10 A comparison of financial returns to investments in the four types of subprojects, common and similar in 7 individual States with RPRPs (see Table 3\.3 suggests that Pernambuco is faring quite well in water supply, farm tractor and honey production and processing subprojects\. When compared with results obtained by van Zyl et al\. for all ten Northeast states, Pernambuco currently is faring higher for two comparable types of subprojects: farm tractor and honey production\. Table 3\.3: Estimated Internal Rates of Returns (%), for comparable subprojects types Type/States1 NE PE PB PI CE BA MG SE Water supply 53 30 3 18 21 53 57 Sanitation2 8 Farm tractor 38 39 35 39 25 Honey 17 54 63 1 Northeast (NE, all States)\. Pernambuco (PE), Paraíba (PB), Piauí (PI), Ceará (CE), Bahia (BA), Minas Gerais (MG) and Sergipe (SE) 2 Estimates available for PE only Sources: NE (van Zyl study); for PB, PI, CE and SE see corresponding ICRs; for BA and MG obtained from working sheets for preparation of ICRs by T\.Barbosa\. 40 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Lending Andrea Ryan Engineer TWUWS Andrew Parker Sr\. Rural Development Economist PRMVP Anna Roumani Consultant LCSAR Claudio Mittelstadt Financial Management Specialist LCSFM Edward Bresnyan Sr\. Rural Development Specialist LCSAR Enzo de Laurentiis Lead Procurement Specialist LCES Isabella Micali-Drossos Senior Counsel LEGLA Joachim von Amsberg Country Economist LCC5C João Barbosa de Lucena Consultant LCSRE Jorge Muñoz Lead Rural Development Specialist LCSAR Klaus Deininger Land Administration Specialist DECRG Luciano Wuerzius Procurement Specialist LCSPT Luis Coirolo Team Leader LCSER Maria de Fátima Amazonas Sr\. Rural Development Specialist LCSAR Mariana Montiel Senior Counsel LEGLA Marta Molares-Halberg Senior Counsel LEGOP Morag van Praag Financial Officer LOAG3 Raimundo Caminha Consultant LCSAR Susana Amaral Financial Management Specialist LCSFM Túlio Barbosa Consultant LCSAR Supervision/ ICR Anna Roumani Consultant LCSAR Claudio Mittelstadt Financial Management Specialist LCSFM Eduardo França ET Consultant LCSFM Edward Bresnyan (TTL at Closing) Sr\. Rural Development Specialist LCSAR Isabella Micali-Drossos Senior Counsel LEGLA João Barbosa de Lucena Consultant LCSAR Jorge Muñoz Lead Rural Development Specialist LCSAR Luciano Wuerzius Procurement Specialist LCSPT Maria de Fátima Amazonas Sr\. Rural Development Specialist LCSAR Mariana Montiel Senior Counsel LEGLA Raimundo Caminha Consultant LCSAR Susana Amaral Financial Management Specialist LCSFM Túlio Barbosa Consultant LCSAR 41 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY01 9\.88 75,384\.73 FY02 6\.51 21,845\.03 Total: 16\.39 97,229\.76 Supervision/ICR FY02 0\.4 20,868\.29 FY03 6 32,615\.16 FY04 9\.01 43,626\.88 FY05 17\.73 81,890\.82 FY06 13\.55 76,547\.47 FY07 5\.83 45,624\.97 FY08 6\.9 60,011\.92 FY09 7\.68 58,530\.29 FY10 9\.87 84,639\.73 Total: 76\.97 504,355\.53 42 Annex 5\. Beneficiary Survey Results 5\.1 FECAMP (2004): This baseline/evaluation covered three Northeast States - Ceará, Pernambuco and Bahia\. In Pernambuco, the study includes a survey of direct information in 50 cities and 61 SPs that benefited 8,602 families\. The control group comprised 493 families\. The evaluation confirmed that 70% of the rural population was below the poverty line, with a profile showing extreme poverty and deprivation\. Access to basic services was low, adult illiteracy was high\. The study showed that the rural population of Pernambuco (under the OP) earned an average income that some 5% below the poverty line\. This study had a galvanizing effect on the project by showing that the poorest segments of the rural population, those with lowest IDH-M, were being reached\. Case studies included in this evaluation showed that 86% of beneficiaries had significantly improved living conditions from 2000 (pre-project) to 2002/2003\. Income results were promising and a range of variables was very positive for social capital gains\. 5\.2 CEPLAN (2004)\. This Physical Performance Study, developed by CEPLAN, was based on quantitative and qualitative data for SPs implemented under the OP\. The survey was conducted in 50 municipalities across the 12 administrative regions of Pernambuco\. It covered 92 communities and 619 families; 2,863 beneficiaries were interviewed\. For 30% of these families, the annual income was less than half the official minimum salary\. For 21% of families, total household income was approximately one salary\. Most of the CAs interviewed (91%) reported improvement in the quality of life of the population, while 83% confirmed a positive vision for the use and benefits of the SPs\. 87% noted that both benefits and subproject size conformed to their expectations\. Beneficiary families and the CAs had a positive outlook on project performance\. Better knowledge on the part of beneficiaries about the project and its operation had a positive influence on the choice of their priorities\. The option for decentralized management of the project was perceived as a very positive point for achieving its goals and objectives\. 5\.3 POLICONSULT (2009)\. The report diagnosed the productive SPs implemented under the OP and the AF\. Data were collected for 300 subprojects in 114 municipalities\. The research sought to determine the current status these SPs\. The report concluded that these SPs had significant impact on quality of life of the beneficiaries, although this did not always translate into increased income\. There were direct and positive effects with the generation of employment opportunities, improved infrastructure and the incorporation of social roles by the beneficiaries\. 5\.4 Physical Performance Study – Pereira and Gonçalves (2010)\. The study conducted an ex-post evaluation of SP physical implementation, which was found to be satisfactory\. The procurement of goods, works, construction and contracting services demonstrated economy and efficiency\. The price benchmarks adopted by the STU for manpower and building materials were consistent with market prices\. 43 Annex 6\. Stakeholder Workshop Report and Results N/A 44 Annex 7\. Executive Summary of Borrower Completion Report and Comments on Draft ICR A\. Borrower Completion Report (Executive Summary) 1\. THE ORIGINAL PROJECT 7\.1 The Rural Poverty Reduction Project (RPRP – Pernambuco, ProRural), operated by the Technical Unit ProRural – UNITEC, subordinated, since 2004, to Secretariat of Social Development and Citizenship (SDSC), was part of the strategy to support local development adopted by State Government, as expressed in the State’s Multi-year Plan (PPA) 2004-2007\. The PPA sought to reduce social exclusion, through investments and actions of infrastructure and the support for productive activities\. As such, the RPRP introduced innovations by adopting the following practices: (i) strengthening of the Community Associations, Municipal Councils and Forums; (ii) decentralization of management through the establishment of eight Regional Technical Units - RTUs; (iii) adoption of Regional Meetings to discuss with the Municipal Councils criteria for prioritization of subprojects; (iv) establishment of strategic partnerships for complementary actions; and (v) adopting a territorial approach as a strategy to support integrated and sustainable local development, in contiguous municipalities with the lowest HDI of the state (i\.e\., IPLD)\. 7\.2 The operating model adopted by RPRP to support the rural population assumed that mechanisms that include increased participation of civil society tend to generate better results as enhanced social capital and increase the capacity of communities to mobilize internal and external resources enables their development\. In this sense, the financing of community subprojects is presented as a catalytic instrument for mobilization and organization of these communities\. 1\.1 Physical and Financial Performance of Subprojects 7\.3 In the period from 2002 to 2006, 1,738 subprojects were implemented\. In this period, the RPRP benefitted 63,128 families across 1,644 associations in 175 municipalities within the 12 RDs of the State of Pernambuco\. According to MIS data, 32% of the all community associations benefited in that period were coordinated by women\. 7\.4 Human development and infrastructure were the most demanded and implemented types of subprojects\. Such dominance can be attributed, in part, to their standard designs, (e\.g\., housing construction, household sanitation and cisterns)\. However, productive subprojects, due to their complexity, were only 6% of the appraisal target\. This low performance can be attributed to a managerial decision of ProRural to finance only those productive subprojects that demonstrated technical and financial feasibility, since numerous failures caused by the non-compliance of these factors had occurred in earlier productive subprojects\. With respect to the twelve Development Regions, approximately 728 subprojects (42%) were implemented in the Agreste Region and 719 (41%) in the Sertão Region\. The Zona da Mata garnered just over 14% of all subprojects (249), while those municipalities comprising RMR captured 44 subprojects (3%)\. 45 1\.2\. Advances and Innovations Management 7\.5 In pursuit of a management model that would guarantee efficiency with agility and responsiveness to the community demands, the structure of UNITEC -- with its managers and regional units – reflects the incorporation of a modern management pattern, as seen in the matrix organizational structure\. 7\.6 The Project invested in the decentralization of management, through the strategic deployment of eight regional technical units, located in Recife, Palmares, Limoeiro, Caruaru, Garanhuns, Arcoverde, Salgueiro and Petrolina, with multidisciplinary teams in order to support the 12 RDs and 179 municipalities in the project area\. Thus, the most distant municipalities from the state capital, Recife, started to have a closer project support\. The management decentralization has enabled greater flexibility in the performance of the RPRP, since the RTUs started to act at various stages on the subprojects’ implementation\. All procedures for the approval decision and monitoring of subprojects implementation were devolved to the RTUs Territorial Approach: The Experience of the Integrated Plan for Local Development (IPLD) 7\.7 Studies conducted and the experience accumulated by the project technical staff signaled the need to rethink the implementation model of the RPRP, mainly with the aim of proposing actions that could bring more effective results for the poor rural population\. At the same time, the State Government, after evaluation of the PPA 2000/2003, acknowledged that while public investment had increased in basic infrastructure, social programs and productive projects, many municipalities remained in extreme poverty\. This led to a decision in 2003 to formulate the Integrated Plan for Local Development for the 11 contiguous municipalities located in the RDs of Sertão of Moxotó and Agreste Meridional, which had the lowest HDI-M statewide\. The IPLD was proposed as a pilot project, representing a new perspective as a development strategy, which provided evidence that guided the drafting of the proposed 2nd phase of the RPRP, and helped along the process with the reorientation of RPRP actions under the 1st phase\. 7\.8 These 11 municipalities implemented community subprojects worth approximately R$ 102 million, of which almost 8% represents RPRP resources\. In this sense, compared with the volume of resources invested by other Government Secretariats, it is clear that investments made by RPRP from 2004 to 2006 were a catalyst for public policy actions undertaken by the State Government in these IPLD municipalities\. These subprojects afforded the rural population greater accessibility to social services, water infrastructure, creation of new economic pole and access to new technologies and other services\. Table 1: RPRP Investments in IPLD – Period 2004-2006 Financed Subprojects Actions Families (R$) Subprojects Nº Nº Nº 1 – Water Infrastructure 56 6,554,651 3,253 4,538 3 – Health 8 246,963 224 224 4 – Housing 1 171,671 15 15 5 – Education 11 262,425 11 427 6 – Productive 11 743,198 694 397 TOTAL 87 7,978,908 4,197 5,601 Source: PCPR/Prorural / November 2007 46 7\.9 The experience of IPLD represented an advance that should be incorporated into programs that work with rural poverty\. A major step was taken in order to seek the integration of public policy actions\. It is necessary to continue this experiment to try to break away from this fragmented culture in the public sector\. In addition, other intangible results of this experience were the expanded participation of the population and a consequent incorporation of the most excluded in the decision spaces\. Social Capital 7\.10 The Supervision of Local Articulation (SALOC), linked to the Operations Management was established in 2002, with the aim to strengthen the Municipal Councils, and to monitor and enhance their actions\. SALOC implemented a systematic work based on specific monitor tools, among which stands out the annual assessment of the Municipal Councils, from which was possible to identify the need for restructuring of 32 councils in 2004\. 7\.11 The empowerment of the Municipal Councils was achieved through systematic training, supported by the RTU’s staff and monitored by SALOC\. As a result of the Councils’ training process, there was significant participation of rural farmers in deciding on the application of resources within the municipalities and regions, promoting transparency and reducing political interference in the management of the Project, realizing also, the integration of actions to reach the most vulnerable populations\. An important result of this process was that 100% of subprojects financed were discussed in the municipal councils and boards, from the prioritization made by the communities\. Regional Meetings of Municipal Councils 7\.12 One of the main instruments for disseminating project information to ensure transparency in the use of public resources were the Regional Meetings, which began in 2002 and have been carried out annually in the Development Regions of the State\. Later, these Regional Meetings proved to be an important mechanism for strengthening the Municipal Councils and Community Associations\. The meetings also came to be a structured forum for discussion, enabling the exercise of criticism and the development of capacity for discussion and understanding about the reality of the municipalities\. Training of Community Associations 7\.13 In parallel with actions for the strengthening of the Municipal Councils, investment in training for the population benefited by RPRP can be considered as a contribution to the creation of social capital in rural areas covered by the Project\. The Community Associations have been prepared on the operational aspects of subprojects, through capacity-building in bookkeeping, as well as legal, technical and social issues, thereby addressing all areas necessary for subproject implementation\. 7\.14 Considering the communities’ demand in the semi-arid region for cistern subprojects, one focus of training in the period 2003 to 2006, was Management of Water Resources directed to maintenance and use of cisterns\. The training was conducted in partnership with the Semi-Arid Articulation (ASA), and the municipal authorities, through the Health and Education Secretariats\. Since 2004, Environmental Health Education training has taken place for beneficiaries with household sanitations subprojects\. In addition to the training conducted under the project, the Ministry of Social Development (MDS) sponsored, in 2005, training in Water Resources Management for approximately 3,000 farmers in 69 associations in 29 municipalities which had 47 benefited from the construction of cisterns with MDS funds, including the training of 233 bricklayers\. Quilombolas 7\.15 The Project benefited 516 Quilombola families in the Development Regions of Sertão, Agreste Setentrional and Meridional, with an emphasis on water infrastructure subprojects (e\.g\., wells and cisterns)\. Small agro-industries in Mata Sul 7\.16 An example of successful partnerships under the RPRP was the Project for Small Agro- industries in Mata Sul\. The project, primarily discussed in the Microregional Articulation Commission of Mata Sul, consisted of a development alternative for family farming in Mata Sul Region\.The process of implementing this project included institutional partners such as the Northeast Development Superintendency (SUDENE)/ United Nations Development Programme (UNDP), SEBRAE, Support Programme for Sustainable Development of the Zona da Mata de Pernambuco (PROMATA) and municipal governments, with the direct participation of farmers\. Among the areas targeted were fruits, brown sugar, dairy, herbal products and cotton processing\. 1\.3 Studies Impact Assessment - Indicator of Sustainability 7\.17 The FECAMP indicates that, even living in poverty, a significant portion of project beneficiaries improved their living conditions, and that the Project had direct impacts on health, hygiene, housing and welfare, but no impact on income, food security and job stability\. The FECAMP study highlights these specific impacts: Water Supply Systems, Cisterns and Small Dams: (i) regular and reliable water supply; (ii) reduced time spent in activities to obtain water from distant sources, thereby releasing time for work or leisure; (iii) reduced health problems related to consumption of contaminated water; (vi) higher property values; and (v) greater community participation in both construction and maintenance activities\. Household sanitation and Housing: (i) improved family hygiene and reduced incidence of diseases; (ii)generated consumer demand for hygiene products (e\.g\., soap, soap, toilet paper); (iii) generated pressure for income from new needs; (iv) significantly improved the daily physical comfort of the family; and (v) increased participation in community associations’ activities\. 7\.18 According to data from PNAD 2001 and 2004, some changes can be found in the rural reality of the State, with an improvement in the provision of electricity, piped water and household sanitation: Electricity: 2001 – 391,090 households 2004 – 440,567 households Household Sanitation 2001 – 242\.977 households 2004 – 256,402 households Piped Water 2001 – 113,645 households 2004 – 124,999 households 48 2\. ADDITIONAL FINANCING 2\.1\. Introduction 7\.19 The second phase of RPRP (2007-2010) continued the strategies adopted under phase I of the project while introducing the following new practices: (i) adoption of Regional Meetings to discuss with the Municipal Councils for Rural Development - CMDR and planning priorities of the municipality, the criteria for prioritization of subprojects and inter-institutional articulation processes; (ii) establishment of strategic partnerships for complementary actions; (iv) mainstreaming the territorial approach piloted under phase I; (iv) establishment of an interdisciplinary working group focused on improving the execution of productive subprojects, the Center for Support to Productive Projects - NAP; and (v) implementation of an enhanced training strategy and the articulation of networks of producers and project beneficiaries\. 2\.2 Community Subprojects 7\.20 In the period 2007-2010, 546 subprojects were implemented, with investments of US$ 34,706,556\.47, 75% of which was financed by the World Bank loan, 15% was from the State of Pernambuco and 10% from the rural community associations\. During this period, the project benefited 33,185 families and 546 associations in 175 municipalities within 12 Development Regions\. 7\.21 As in the first phase, most of the subprojects financed were for infrastructure, with a total of 52%\. The actions of human development and productive, with 24% of total subprojects for each, were increased mainly in the last two years of the Project execution\. Table 2: Total subprojects financed by RPRP, AF Nº Nº Amount financed Type Subprojects Families N\.º % R$ % N\.º % Infrastructure 283 52 31,965,004\.59 51 19,461 59 Human development 130 24 15,544,584\.17 25 5,979 18 Productive 133 24 15,031,365\.79 24 7,830 23 TOTAL 546 100 62,540,954\.55 100 33,270 100 Source: Unitec/ ProRural – April 2010\. 7\.22 There was significant progress in the volume of investment in productive subprojects under the AF, a direct result of the intensified action of UNITEC and NAP to improve the preparation and monitoring of such subprojects\. Distribution in State Development Regions 7\.23 The decentralized management of PRORUAL, with the consolidation and distribution of the RTUs, gave ample project coverage for the 12 Development Regions\. By Development Region, approximately 43% of all subprojects financed were implemented in Agreste RDs (237 subprojects), while 33% were implemented in the Sertão’s RDs (179 subprojects)\. The Zona da Mata was benefited with 114 subprojects, which represents 21% of the total, while in RMR were implemented 16 subprojects, 3% of the total\. An emphasis was given to Agreste Meridional RD where were implemented a total of 113 subprojects, which represents 21% of total subprojects financed under the AF\. The distribution of subprojects (both in volume and R$ invested) was 49 inversely correlated with the HDI for the each RD: the lower the HDI, the higher the level of subproject investments\. Strengthening of Municipal Councils and Promotion Meetings 7\.24 The Strengthening of Municipal Councils promoted the debate on their overall composition and their social control role for public policies\. Some 178 Municipal Councils were restructured under the AF and consolidated as Municipal Councils for Rural Development (CMDRs)\. In 94 of these restructured Councils, Arrays of Priorities were developed and actions defined to achieve them\. 2\.3 Institutional Development 7\.25 The promotion of Regional Meetings was continued in this second phase of the project\. There were 22 Regional Meetings (3\.245 participants)\. Besides these meetings was held the First State Meeting with 602 participants\. 7\.26 The first State Meeting represented a milestone in respect of the Councils’ life as it helped to establish the identity of those entities with the achievement of public policies\. At the State Meeting was promoted the Contest of Councils Best Practices in three different categories: (i) Management and Organization Affairs; (ii) Social and Politics Articulation; (iii), and the implementation of policies Sustainable Rural Development\. 7\.27 In respect to institutional development, various training activities were promoted under phase II, targeting the Municipal Councils, including the Regional Meetings and State Meeting, and those directed toward the Community Associations and improvement of the UNITEC technical team\. Some 863 trainings were conducted with the participation of 16,204 people\. Of this total 564 were held for the Municipal Councils which were attended by 7,887 people\. The community associations were benefited from 276 trainings with the participation of 8,152 persons, and for UNITEC were conducted 23 courses for 165 technicians\. 2\.4 Advances and Innovations Attention to special groups 7\.28 ProRural paid significant attention to special groups, among them: (i) Quilombolas; (ii) indigenous peoples; (iii) women; and (iv) youth\. One result of this approach was the preparation of Plans of Action of 11 Indigenous people, through an agreement with the Association of Indigenous Peoples of Minas Gerais, Espirito Santo and Northeast – Apoinme\. 7\.29 The Project, in order to intensify its work with special groups, promoted the articulation and integration between State Secretariats, especially the Secretariat of Women and Youth\. The Project also contributed to the construction of the first State Plan for Public Policies for Rural Women of Pernambuco\. In articulation with the Secretariat for Youth, the project sponsored workshops and seminars for the discussion of public policies for rural youth\. The Project also obtained a seat on the “Comitê de Promoção de Políticas de Igualdade Étnico Racial CEPPIRâ€? enabling the mobilization of resources from FUNASA for Quilombola communities\. 7\.30 Under the RPRP as a whole, a total of 38 entities linked to special groups were benefited with the financing of R$4 million, allowing their access to water, cisterns and ways to strengthen their production process, such as tractors and milk coolers\. 50 7\.31 In support of Quilombola communities and as a complementary mechanism to the available resources through the RPRP, the Project mobilized resources from the Japanese Fund for Social Development - JSDF\. The Project for Promotion of Leadership of Quilombola Communities in Pernambuco – PPCQ, is now beginning its implementation\. This project, besides supporting the preparation of development plans in these communities, has the goal of digital inclusion of the Quilombolas through the acquisition of computers and equipment for Internet connections and implementation of information centers\. Innovation 7\.32 The Innovative Weaving Networks Project, in partnership with AVSI, aimed to generate an environment of cooperation among production units for the construction and dissemination of technologies more appropriate to the development of productive activities\. Its goal was to provide an environment for discussion and exchange on production and productivity on a competitive basis, and enable farmers to access technologies for the management of available facilities\. Another example, the Agribusiness Network of fruit pulp, aims to improve the quality of fruit pulp produced by family farming enterprises and increase income generation and sustainable use of natural resources for family farmers of the Sertão, Agreste and Zona da Mata\. 51 B\. Borrower Letter Commenting on Bank’s Draft ICR 52 53 54 55 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders N/A 56 Annex 9\. List of Supporting Documents 1\. Project Appraisal Document (PAD), Report No\. 21433-BR June 4, 2001\. 2\. Project Mid-Term Review (Relatório de Revisão de Meio Termo)\. UNITEC - ProRural 2004\. 3\. Baseline Study, Federal University of Campinas (FECAMP) 2004 4\. Physical Performance Study – Original Project (Avaliação do Desempenho Físico do PCPR em Pernambuco – ProRural), Consultoria Econômica de Planejamento\. CEPLAN 2004\. 5\. Project Paper (Additional Financing), Report No\. 37170-BR September 11, 2006\. 6\. Trajetória do PROJETO RENASCER 1999 a 2006\. UNITEC – ProRural 2006\. 7\. Borrower Completion Report – Original Project (Relatório Final do Projeto de Combate a Pobreza Rural – PCPR II 1ª Fase)\. UNITEC– ProRural 2007\. 8\. Borrower Completion Report – Additional Financing (Relatório Final do Projeto de Combate a Pobreza Rural – PCPR II 2ª Fase)\. UNITEC– ProRural 2010\. 9\. Rural Poverty Reduction in Northeast Brazil: An Evaluation of Community-driven Development, Binswanger, Amazonas, Barbosa, Costa, Menezes, Pazello and Romano\. World Bank 2009\. 10\. Rural Poverty Reduction in Northeast Brazil: Achieving Results through Community Driven Development\. Coirolo Luis; Lammert Jill\. World Bank 2009\. 11\. Evaluation of 300 productive subprojects (Relatório do Diagnóstico Situacional de Trezentos Supbrojetos Produtivos do Projeto de combate a Pobreza Riral – PCPR da UNITEC – ProRural)\. Polytechnic Association of Consulting\. POLICONSULT 2009\. 12\. Physical Performance Study – Additional Finanicing (Relatório Parcial de Desempenho do Projeto de Combate à Pobreza Rural – PCPR II 2ª FASE)\. UNITEC – ProRural 2010\. 13\. Case Studies – Subprojects Financed under Additional Financing (Estudo de Casos – Análise de Impactos de Suprojetos PCPR II – Fase: 2007-2009)\. Simões, Rebecca\. January 2010\. 14\. Physical Performance Study – Additional Financing (Estudo de Desempenho Físico Simplificado do Projeto de Combate à Pobreza Rural de Pernambuco (PCPR/PE) – ProRural)\. Pereira Marcelo; Gonçalves Marco\. May 2010\. 15\. Implementation Status Reports (ISRs) 16\. Supervision Aide Memoires 17\. Loan and Guarantee Agreements – Original Project and Additional Financing 18\. Fiduciary Supervision Records (Financial Management and Procurement) 57  IBRD 37940 STATE BOUNDARIES GUYANA SURINAME NORTHEAST R\.B\. DE VENEZUELA FRENCH REGION BOUNDARIES BRAZIL GUIANA (Fr\.) INTERNATIONAL STATE OF PERNAMBUCO BOUNDARIES COLOMBIA RORAIMA RURAL POVERTY REDUCTION PROJECT REGIONAL OFFICES OF THE STATE TECHNICAL UNIT AREA EXCLUDED FROM THE PROJECT AMAZONAS PARÃ? RIO GRANDE MARANHAO CEARÃ? DO NORTE 600 ISOHYETS IN MM B R A Z I L PARAÃ?BA PIAUÃ? CLIMATIC ZONES: ACRE PERNAMBUCO RO ALAGOAS SEMI ARID ND TOCANTINS ÔN IA AREA SERGIPE REGIAO DO SEMI-ARIDO MATO OF MAP PERU GROSSO BAHIA TRANSITIONAL ZONE AGRESTE BRASILIA BOLIVIA GOIÃ?S COASTAL FOREST MATO ZONA DA MATA MINAS ESPÃ?RITO GROSSO GERAS DO SUL SÃO SANTO MAIN ROADS PAULO RIO DE CHILE PARAGUAY JANEIRO MAIN CITIES PARANÃ? REGIONAL OFFICES SANTA CATARINA STATE CAPITAL RIO GRANDE This map was produced by the Map Design Unit of The World Bank\. ARGENTINA DO SUL ATLANTIC STATE BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank OCEAN Group, any judgment on the legal status of any territory, or any URUGUAY endorsement or acceptance of such boundaries\. 800 600 41°00' 40°30' 40°00' 39°30' 39°00' 38°30' 38°00' 37°30' 37°00' 36°30' 36°00' 35°30' 35°00' 0 120 100 0 140 Brejinho 0 60 0 160 0 0 Camutanga 80 Exú C E A R Ã? S\. José També 800 7°30' do Egito Timbaúra P A R A Ã? B A 600 Macaparana 7°30' Araripina Goiana Tuparetama S\. Vicente Ferrer Ipubi Alianca Condado Morelândia Granito Vicéncia Afogados da Itaquitinga Cedro Machados Sta\. Cruz da P I A U Ã? Trindade Bodocó São José do Bel Monte Baixa Verde Carnaíba Ingazeira Surubim Nazare da Mata Itamaracá Itapissuma Iguaraci Carpina Igaraçu Ouricuri Flores 80 0 Serrita Verdejante Serra Santa Cruz João Alfredo Pau-D'Alho Abreule Lima 1 Talhada Calumbi Vertentes Feira Nova Paulista do Capibaribe 8°00' 60 Passira Glória 8°00' 0 0 Parnamirim Jataúba Toritama do Goitá S\. Lourenço Olinda 60 Cumaru da Mata Salgueiro Custódia Sertânia Mirandiba Riacho das Almas Pombos RECIFE Pocão Vitória de Terra Nova Brejo da Gravatá Sto\. Antão Jaboatão dos Santa Cruz Madre de Deus Guararapes Betânia Caruaru Bezerros Châ Grande 2000 Carnaubeira Belo Jardim da Penha Camocim Escada Cabo de S\. Agostinho Arcoverde Pesqueira São Caitano des Felix Primavera Dormentes Agrestina Ipojuca Alagoinha Bonito Cortes 2200 8°30' Afrânio Cabrobó Cachoeirinha Ibimirim S\. Bento Ribeirão 8°30' Orocó Venturosa Belem do Una Cupira de Maria Sirinhaém Floresta Buíque Gameleira Belem de são Lajedo Catende Sta\. Maria Francisco Rio Formoso Jupi Panelas da Boa Vista Ã?gua Preta Iracuraba Tupanatinga Calcado Caetes Maraial Xexeu 220 40 0 Garanhuns Barreiros 0 0 40 Inajá Quipapa Itaparica Paranatama Itaíba Canhotinho Reservoir Nova Petrolândia S\. José da Salao Coroa Grande 9°00' B A H I A Palmeirina 9°00' 20 Iati Brejão 160 o 1200 isc 18 00 00 a nc Tacaratu Terezinha 0 o Fr Aguas Belas Correntes 0 14 0 Rio Sã Sobradinho 0 10 20 30 40 Bom Conselho 0 ATLANTIC 40 Reservoir A L A G O A S 0 KILOMETERS 60 OCEAN Petrolina 100 40 800 41°00' 40°30' 0 40°00' 39°30' 39°00' 38°30' 38°00' 37°30' 37°00' 36°30' 36°00' 35°30' 35°00' 0 JUNE 2010

REVIEW

P006379

 ICRR 10284 Report Number : ICRR10284 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3457 Project ID : P006379 Project Name : Sao Paulo Metropolitan Transport Decentralization Project Country : Brazil Sector : Urban Transport L/C Number : Loan 3457-BR Partners involved : None Prepared by : Antti P\. Talvitie, OEDST Reviewed by : Hernan Levy Group Manager : Gregory Ingram, Manager Date Posted : 04/05/1999 2\. Project Objectives, Financing, Costs and Components : Objectives : There were three objectives: (i) support the Federal Government in its efforts to transfer Sao Paulo subdivision of the Brazilian Train Company (CBTU-SP) to the State of Sao Paulo to enhance its management and operations; (ii) introduce institutional, organizational, and financial policy reforms to ensure long -term financial sustainability, improved multimodal integration, expanded capacity and reduction in subsidies; and (iii) contribute to poverty alleviation and environmental improvement \. Components : Institutional development (10%): policies and action programs to: (a) establish organizational, financial and institutional reforms for improved cost recovery and transfer of CBTU assets to their respective States; (b) operationalize multi-modal tariff integration between rail and feeder bus systems and non -motorized vehicles and introduce cost based fare structures which reflect peak and off-peak services and improve targeting of subsidies; (c) identify an investment program to consolidate the rehabilitation and decentralization program in Sao Paulo; (d) study and recommend management, technical and financial improvements for operating efficiency and for franchising or concessioning rail services to the private sector; and (e) provide technical and management training to entities participating in the project \. Investment (90%): Civil works and goods to implement the rehabilitation of stations, track, rolling stock, signaling, power supply, telecommunications fencing of the right of way, traffic engineering equipment and construction of transfer points \. Costs and Financing : The project costs were USD294 million (USD280\.8 million at appraisal)\. The costs were financed by a Bank loan for USD 126 million, which was fully disbursed, and by a USD 168 million government contribution\. The loan was approved in March, 1992 and closed in March, 1998, year and half later than planned \. 3\. Achievement of Relevant Objectives : The project objectives were achieved in large measure \. Decentralization of the CBTU-SP to the state of Sao Paulo was accomplished\. Institutional and organizational restructuring took place and much improved tariff regime was adopted providing for improved, though not full recovery of the operating costs, and intermodal coordination became better\. The project did reduce air pollution and improved traffic safety \. However, the project's contribution to poverty alleviation is unclear, although it is likely that travel conditions of the poor improved somewhat \. The economic rate of return of the completed project was relatively high : 18\.6 percent\. However, this was substantially less than estimated at appraisal (46%)\. The main reason for the lower ERR was lower than anticipated traffic, longer implementation period and higher than anticipated operating costs \. 4\. Significant Achievements : There were three significant achievements in this project \. The devolution of significant, previously federally owned and operated, regional rail assets and their operation to the State of Sao Paulo; the creation of Sao Paulo metropolitan wide organizations to coordinate and plan regional public transport services; gaining a consensus how to undertake similar interventions in other metropolitan regions of the country; carrying out a study, not originally part of the project, that evaluated options for concessioning the newly created state railway company (CPTM) and laid foundation for the concessioning process currently underway \. 5\. Significant Shortcomings : There are no significant shortcomings 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory One would like to rate Bank performance in conceptualizing and carrying out this project as highly satisfactory \. The only reason for not doing so is that it is too early to judge the final outcome of the project\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : The most important lesson was to learn how to decentralize rail transport assets and operations to States or metropolitan regions\. This complex undertaking is best accomplished gradually and with an agreed upon strategy emphasizing the strengthening of the institutional framework and focusing on important issues --in this case those having to do with labor relations and the condition of assets \. A related lesson is that decentralization creates favorable conditions for the privatization or concessioning of metropolitan rail operations \. Finally, a lesson learned is the significant effect fare evasion has on revenue; it was shown in this project that reducing fare evasion can materially improve the financial viability of rail services \. 8\. Audit Recommended? Yes No Why? This was an extensive urban transport operation and rich in its institutional component \. It should be audited to learn more how to decentralize urban transport operations and how to deal with complex issues in a complex political environment\. 9\. Comments on Quality of ICR : The ICR is comprehensive and covers the issues involved in this complex project \. The tariffs, subsidies and the 'Future Operation' would have merited a more thorough discussion on how the achievements of this project will be sustained, especially if the planned concessioning does not materialize \.

REVIEW

P113468

Document of The World Bank Report No: ICR3030 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-92979 TF-92980) ON A GRANT FROM THE FOOD PRICE CRISIS RESPONSE TRUST FUND IN THE AMOUNT OF US$ 5 MILLION TO THE GOVERNMENT OF THE REPUBLIC OF GUINEA-BISSAU FOR AN EMERGENCY FOOD SECURITY RESPONSE PROJECT April 28, 2014 Agriculture and Rural Development Country Department AFCF1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective July 31, 2008) Currency Unit = CFA franc (CFAF) US$ 1\.00 = CFAF 413\.85 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CBMP Coastal and Biodiversity Management Project CBO Community-based organization CFA Communauté Financière Africaine CFAF CFA franc CSB Corn-soya blend EC European Commission EFSSP Emergency Food Security Support Project (EU and WB funding) EPP Emergency Project Paper ESMF Environmental and Social Management Framework EU European Union EUFRRF European Union Food Crisis Rapid Response Facility FCRP Food Price Crisis Response Trust Fund g Grams GDP Gross domestic product GEF Global Environment Facility GFRP Global Food Crisis Response Program ha Hectare INPA Instituto Nacional da Pesquisa Agraria National Agricultural Research Institute ISN Interim Strategy Note ISR Implementation Status Report kg Kilogram km Kilometer L Liter m Meter M Million MADR Ministerio de Agricultura e Desenvolvimento Rural (Ministry of Agriculture and Rural Development) M&E Monitoring and evaluation NGO Nongovernmental organization NPK Nitrogen, phosphorus, potassium PDO Program Development Objectives PNIA Programa Nacional de Investimento Agrícola National Agricultural Investment Program PRRO Protracted Relief and Recovery Operation PRSP Poverty Reduction Strategy Paper t Metric ton TCU Technical Coordination Unit TF Trust Fund TTL Task Team Leader UN United Nations WFP World Food Programme Vice President: Makhtar Diop Country Director: Vera Songwe Sector Manager: Martien van Nieuwkoop Project Team Leader: Aniceto Timoteo Bila ICR Team Leader: Jane C\. Hopkins  THE REPUBLIC OF GUINEA-BISSAU Emergency Food Security Support Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives, and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes \. 17 4\. Assessment of Risk to Development Outcome \. 23 5\. Assessment of Bank and Borrower Performance \. 25 6\. Lessons Learned\. 28 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 29 Annex 1\. Project Costs and Financing \. 30 Annex 2\. Outputs by Component\. 31 Annex 3\. Economic and Financial Analysis \. 36 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 40 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 42 Annex 6\. Supporting Documents \. 49 Map \. 51 A\. Basic Information Guinea Bissau--Food Country: Guinea-Bissau Project Name: Price Crisis Response Program Project ID: P113468 L/C/TF Number(s): TF-92979,TF-92980 ICR Date: 04/28/2014 ICR Type: Core ICR GOVERMENT OF Lending Instrument: ERL Borrower: GUINEA BISSAU Original Total USD 5\.00M Disbursed Amount: USD 5\.00M Commitment: Revised Amount: USD 5\.00M Environmental Category: B Implementing Agencies: World Food Programme (WFP) PIU - MARD Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: Effectiveness: 10/13/2008 02/10/2009 Appraisal: 08/07/2008 Restructuring(s): Approval: 09/22/2008 Mid-term Review: 03/31/2010 Closing: 09/30/2011 08/31/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: High Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Crops 60 60 Other social services 20 20 Public administration- Agriculture, fishing and forestry 20 20 Theme Code (as % of total Bank financing) Global food crisis response 100 100 E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Vera Songwe Antonella Bassani Sector Manager: Martien Van Nieuwkoop Karen Mcconnell Brooks Project Team Leader: Aniceto Timoteo Bila Aniceto Timoteo Bila ICR Team Leader: Jane C\. Hopkins ICR Primary Author: Rachel Wilder Bingham F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of this project is to improve food security for the most vulnerable population, including children, and increase smallholder rice production in project areas\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Number of students receiving one meals a day Value quantitative or 0 14,000 14,102 Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 101% achieved achievement) Number of days of work-days (rations distributed to rural producers) in food-for- Indicator 2 : work activities Value quantitative or 0 160,000 285,000 Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 130% achieved achievement) Indicator 3 : Quantity of rice produced in the new rehabilitated areas under the project (tons) Value quantitative or 0 7,500 9,378 Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 125% achieved achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Hectares of mangrove rice rehabilitated Value (quantitative 0 2,000 2,741 or Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 137% achieved achievement) Indicator 2 : Hectares of lowland rice rehabilitated Value 0 3,000 2,880 (quantitative or Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 96% achieved achievement) Indicator 3 : Number of farmer groups with access to agricultural inputs Value (quantitative 0 500 534 or Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 Comments (incl\. % 107% achieved achievement) Indicator 4 : Number of sub-projects approved and under implementation Value (quantitative 0 300 267 or Qualitative) Date achieved 09/23/2008 09/23/2008 08/31/2013 89% achieved\. Note that this indicator captures only the post-harvest micro- Comments projects\. The previous indicator (number of farmer groups with access to (incl\. % agricultural inputs) captures the production micro-projects\. The total number of achievement) micro-projects was 801\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/29/2009 Satisfactory Moderately Satisfactory 0\.86 2 12/21/2009 Satisfactory Moderately Satisfactory 2\.58 3 06/09/2010 Satisfactory Moderately Satisfactory 2\.90 4 10/11/2011 Satisfactory Satisfactory 4\.00 5 10/20/2011 Satisfactory Satisfactory 4\.43 6 05/28/2012 Satisfactory Satisfactory 4\.43 7 01/02/2013 Satisfactory Satisfactory 4\.43 8 09/11/2013 Satisfactory Satisfactory 5\.00 H\. Restructuring (if any) Not Applicable I\. Disbursement Profile 1\. Project Context, Development Objectives, and Design 1\. The Emergency Food Security Response Project was financed by a US$ 5\.0 million grant from the Global Food Crisis Response Program Trust Fund (FCRP-TF) under the Global Food Crisis Response Program (GFRP), which was endorsed by the Board on May 29, 2008\. The operation supported the strategy of the Government of the Republic of Guinea-Bissau to maintain and enhance food security by mitigating the short- and medium-term impacts of the sharp rise in global food prices that began in 2008\. The project was fully consistent with the GFRP’s objectives, which were to: (i) reduce the negative impact of high and volatile food prices on the lives of the poor in a timely way; (ii) support governments in the design of sustainable policies that mitigate the adverse impacts of high and more volatile food prices on poverty while minimizing the creation of long-term market distortions; and (iii) support broad-based growth in productivity and market participation in agriculture to ensure an adequate and sustainable food supply response\. 1\.1 Context at Appraisal 2\. Country context\. Over the past decade, Guinea-Bissau invariably has appeared near the bottom of the annual Human Development Index issued by the United Nations Development Programme; it ranked 176th of 186 countries in the 2012 index\. Since the civil war of 1998, which is estimated to have cut national income by 20 percent, economic growth has barely exceeded population growth: Per capita gross domestic product (GDP) in 2012 is estimated at about US$ 520\. Chronic poverty is deep; even more worrisome, it has only deepened in the last decade\. The poverty rate climbed from 65 percent in 2002 to 69 percent in 2010, and preliminary estimates indicate that by 2013 it had reached 75 percent\. Levels of extreme poverty followed the same pattern, rising from 22 percent in 2002 to 33 percent by 2010 and to an estimated 45 percent at present\. The achievement of most Millennium Development Goals will remain out of reach well beyond the 2015 horizon\. 1 3\. Emerging food crisis\. At appraisal, the country’s 12-month inflation rate was rapidly increasing; it climbed from 3\.2 percent at the end of 2006 to 9\.3 percent by the end of 2007, driven mainly by a 14 percent rise in food prices in 2007 and a 15\.5 percent increase in 2008\. Consumer prices for rice, the most important and preferred staple food, nearly doubled in international markets between 2007 and 2008\. Similarly, in Guinea- Bissau the price of rice reportedly rose from CFAF 250 per kilogram (US$ 0\.61, at the current exchange rate) to CFAF 430 per kilogram (US$ 1\.05) during the summer of 2008\. The inflationary trend is likely to persist over the medium term\. Most recent statistics indicate that Bissau-Guineans spend roughly 65 percent of their income on food, leaving them extremely vulnerable to increased food prices\. 2 At the national level, the fiscal costs 1 Interim Strategy Note (FY2014–2015) for the Republic of Guinea-Bissau, Draft, Dec\. 16, 2013\. 2 Vulnerability Assessment Analysis and Mapping, 2005, World Food Programme\. 1 of tariff reductions granted for imports of rice and fuel in March 2008 were estimated at US$ 7\.3 million\.3 4\. Poverty and agriculture\. At the time of appraisal, Guinea-Bissau ranked 175th of 177 countries on the Human Development Index\. It was unlikely to reach any of the Millennium Development Goals by 2015 without peace and significant donor support\. An estimated 60 percent of its population lived in poverty, 4 while 80 percent were subsistence farmers\. Despite a favorable environment for agriculture, the country’s impoverished agricultural population was able to meet only 60 percent of the national demand for rice in 2007/08\. An important consideration is that most of the rural poor are involved in producing cashews, the country’s primary export crop; in 2008, cashews accounted for 98 percent of export revenues and 17 percent of government revenues\. Traditionally cashews are bartered at harvest for imported rice, but the cashew price has not kept pace with rapidly rising price of rice\. 5\. Institutional and capacity issues\. Guinea-Bissau’s weak institutional capacity is a product of its history\. At independence in 1974, the literacy rate was 1 percent, and the country had 60 kilometers of paved road\. Almost none of its citizens were educated, and they had been systematically excluded from participation in all aspects of colonial public administration\. The past four decades have been roiled by intense political instability, often marked by the intrusion of the military on the political scene, which has undermined law and order\. These circumstances have prevented the formation of stable, accountable institutions and frequently rendered successive governments incapable of providing essential public services and infrastructure\. The World Bank’s first and last intervention in the agricultural sector prior to the Emergency Food Security Response Project closed in 1995\. Although the earlier project focused specifically on establishing and building capacity within the Ministry of Rural Development and Agriculture (MADR), 5 it operated in a vacuum of government policy and disjointed international support for agriculture\. Its achievements quickly dissipated\. 6 6\. Alignment with strategies of Guinea-Bissau and the World Bank\. The Emergency Food Security Response Project’s strategy of responding to urgent shortages of staple crops was aligned with both pillars of the Interim Strategy Note (ISN) FY2009– 2010: (i) strengthening economic management and laying the foundations for improvements in the productive sectors and (ii) increasing access to basic services, especially in rural areas\. 7 The emergency project’s focus on the provision of seed, production tools, fertilizer, and small equipment was also well aligned with the Government of Guinea-Bissau’s Emergency Plan for the Agricultural Campaign of 2008– 2010\. 8 3 Rice imports pay only taxes related to the West African Economic and Monetary Union (at a rate of about 2\.5 percent)\. 4 World Bank (AFTP4), Integrated Poverty and Social Assessment (IPSA), Vol\. II: Conflict, Livelihoods, and Poverty in Guinea-Bissau (May 2006)\. 5 Ministerio de Agricultura e Desenvolvimento Rural (MADR)\. 6 Implementation Completion Report, Agriculture Services Project, June 1995 (approved 1987)\. 7 World Bank, Interim Strategy Note for the Republic of Guinea-Bissau (FY09–FY10), Report No\. 48466-GW (May 20, 2009)\. 8 Guinea-Bissau’s Poverty Reduction Strategy Paper was drafted at the end of 2011\. 2 1\.2 Original Project Development Objectives (PDOs) and Key Indicators (as approved) 7\. The Project Development Objective (PDO) was to improve food security for the most vulnerable population, including children, and increase smallholder rice production in project areas\. 8\. Key Project Outcome Indicators selected for measuring and monitoring progress toward achieving the PDO included: • Number of students in targeted schools receiving one meal daily\. • Number of days of work-days in food-for-work activities (rations distributed to rural producers)\. • Quantity of rice produced in the new rehabilitated areas under the project (tons)\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9\. Neither the PDO nor key indicators were formally revised\. 1\.4 Main Beneficiaries 10\. The principal beneficiaries targeted by the Emergency Food Security Response Project and the benefits they were meant to receive included: • Component 1: Support for the Most Vulnerable Population (US$ 1\.5 million)\. Primary-school children (grades 1–6) were expected to benefit from meals provided at school, and girls in grades 4–6 with good attendance were also to benefit from take-home rations\. Male and female agricultural producers, their families, and their organizations were expected to benefit from the provision of rations in exchange for work to rehabilitate land used to grow rice\. • Component 2: Support for Increasing Food Production (US$ 3\.0 million)\. Male and female agricultural producers, their associations, and their families were expected to benefit from increased agricultural production made possible through the distribution of inputs and technical training\. MADR was expected to benefit from technical and project management training\. • Component 3: Program Coordination, Monitoring, and Evaluation (US$ 0\.5 million)\. MADR, particularly its Department of Rural Engineering, was expected to benefit from project management training and basic improvements in working conditions through the distribution of computer equipment and software and the renovation of offices\. 11\. Secondary beneficiaries included: (i) families of students receiving school meals and take-home rations, and households participating in food-for-work activities, who 3 experienced reduced pressure on household food and financial resources; (ii) communities in proximity to newly rehabilitated land, which benefitted from increased production of rice and vegetables; (iii) families of producers receiving inputs and training; (iv) national nongovernmental organizations (NGOs) recruited and trained by the World Food Programme (WFP) and MADR in project management and technical topics; and (v) rural civil servants of MADR, who received technical training and on-the- job managerial training provided by consultants, the project’s Technical Coordination Unit (TCU), and national NGOs\. 12\. Five of eight regions in Guinea-Bissau received support from the project—Bafata, Biombo, Bissau, Cacheu, Gabu, and Oio—as well as the Autonomous Sector of Bissau\. 1\.5 Original Components (as approved) 13\. Component 1: Support for the Most Vulnerable Population (US$ 1\.5 million)\. Component 1 was designed to support the most vulnerable population through: (i) a school feeding program and (ii) a food-for-work program to rehabilitate land under rice\. WFP implemented this component through a specific Grant Agreement with the World Bank\. The school feeding program (Subcomponent 1\.1) was expected to be implemented over one year (October 20, 2008 to September 20, 2009), and the food-for work program (Subcomponent 1\.2) over two years (October 2008 to September 2010)\. The component was expected to serve 14,000 students one hot meal per day and supply roughly 930 metric tons (t) of food for both programs (school feeding and food-for-work)\. In addition, the school feeding program was expected to provide take-home rations for female students who had an attendance rate of 80 percent\. The food basket was to contain cereals, corn-soya blend (CSB) food, pulses, vitamin A-enriched vegetable oil, sugar, and iodized salt\. The food-for-work activities were intended to rehabilitate rice land by building dikes for mangrove rice on about 2,000 hectares and drainage channels and anti-erosion banks for lowland rice (about 3,000 hectares)\. The 180,000 beneficiaries of this program were expected to work on rehabilitation activities in exchange for food rations generating roughly 160,000 workdays\. The school feeding program targeted five regions (Bafata, Biombo, Cacheu, Gabu, and Oio), while the food-for-work program targeted the same five as well as the Autonomous Sector of Bissau\. 14\. Component 2: Support for Increasing Rice Production (US$ 3\.0 million)\. Component 2 was designed to deliver immediate benefits to food-insecure rural communities through the distribution of inputs, tools, other equipment, and training while also creating a foundation for sustainable production increases\. This component provided matching grants to groups of smallholder farmers to pursue activities that would increase food production and their access to markets (Subcomponent 2\.1); at the same time, it provided training to MADR to strengthen its technical capacity to assist smallholders and their organizations (Subcomponent 2\.2)\. While the project would support diversification and production of all food crops, the main focus was to increase rice production\. 15\. More specifically, roughly 500 smallholder farmer groups were expected to increase food production and productivity through the use of improved seed and other 4 agricultural inputs supplied under this component, which aimed to reduce the national rice deficit by 10 percent through the production of an additional 10,000 tons of paddy rice\. Under a demand-driven matching grant approach, which had proven successful in other projects in Guinea-Bissau, 9 farmer organizations in six regions (Bafata, Biombo, Bissau, Cacheu, Gabu, and Oio) requested grants for particular micro-projects to enhance productivity\. MADR coordinated these activities with the help of a selected group of national NGOs that had been trained to support communities’ requests for and implementation of matching grants\. 10 16\. Component 3: Project Management, Monitoring, and Evaluation (US$ 0\.5 million)\. Component 3 was designed to ensure adequate administrative systems to support implementation and facilitate achievement of the PDO\. To that end, Component 3 supported (i) the coordination, management, and oversight functions of the TCU set up within the Department of Rural Engineering in MADR and (ii) the Monitoring and Evaluation (M&E) Section and information management system to be set up within the TCU\. 17\. A multifaceted approach to achieve the PDO\. In summary, Component 1 was designed to use WFP expertise to respond immediately to food insecurity in two vulnerable populations\. The first consisted of rural children participating in the school feeding program and the female students who received take-home rations (without which they may not otherwise have attended school)\. The second vulnerable population consisted of unemployed and landless rural laborers, who received daily rations through the food-for-work program\. Aside from achieving near-term results, both components laid the groundwork for medium-term impacts\. Component 1 was designed to foster improvements in the food supply in the medium term through the production and productivity gains ensuing from land rehabilitated under the food-for-work program\. Similarly, Component 2 aimed not only to stimulate a rapid supply response but to build the capacity of rural households and MADR to maintain production increases over the medium term\. 1\.6 Revised Components 18\. The components were not revised during implementation\. 1\.7 Other significant changes 19\. The design, scope, scale, and implementation arrangements for the project did not change during its implementation, although the project completed five Level Two Restructurings, for a total extension of 23 months from the original closing date\. Each restructuring requested an extension of the closing date, and the first also requested a reallocation of funds between components and subcomponents\. The closing date extensions were requested to: (i) mitigate delays in the procurement and distribution of Component 2 goods; (ii) allow completion of activities after political instability caused a 9 Specified in Section 2\.1\. 10 Smallholder farmer groups were expected to contribute 10 percent of the total micro-project cost in-kind\. 5 nine month suspension of funds from April to December 2012; and (iii) facilitate the preparation of an Additional Financing, which had been envisioned but is only now being prepared as a separate GFRP-financed project\. 20\. As the project got underway in 2009, parallel funding from the EU Food Crisis Rapid Response Facility (EUFRRF) became available to complement and scale up the project’s activities\. 11 The parallel funding made it possible to: (i) increase the school feeding program from 14,000 to 28,000 beneficiaries; (ii) promote food production through the distribution of improved seed and fertilizer; (iii) provide matching grants to groups of smallholder farmers to finance micro-projects related to small-scale agricultural infrastructure, production, processing, and marketing; (iv) strengthen MADR’s technical capacity to assist smallholders and their organizations; and (v) rehabilitate 300 kilometers of rural roads in the five regions covered by the project under a food-for-work program to facilitate the flow of agricultural products to markets in residential and commercial centers\. Table 1 indicates the complementarity and value-added of the parallel financing\. Table 1: Activities Supported through Parallel Funding from the European Union Food Crisis Rapid Response Facility to Complement and Scale up Activities under the Emergency Food Security Response Project Emergency Food Security Response Project European Union Food Crisis Rapid Activity (Food Price Crisis Response Trust Fund) Response Facility P113468 P120214 School feeding Provide one meal daily to 14,000 students Provide one meal daily to an additional 14,000 students Food for work Under a food-for-work program, rehabilitate Under a food-for-work program, 5,000 ha of rice land to increase food rehabilitate 300 km of rural roads to production facilitate flow of agricultural products Distribution of Distribute seed, tools, equipment, and training Provide seed and other inputs through 64 technology packages through 800 micro-projects to produce 7,500 t micro-projects to produce 1,000 t of rice of rice per year and improve post-harvest processing Management and Support WFP-managed school feeding and Same, with additional emphasis on coordination food-for-work interventions; support TCU at visibility and communication MADR to oversee input provision, micro- projects, and coordination 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design, and Quality at Entry Soundness of background analysis 21\. The Emergency Project Paper (EPP) adequately described the country context and the Government of Guinea-Bissau’s emergency sector strategy by emphasizing the negative impact that rising food prices, particularly rice prices, could have on government receipts and rural poverty\. The EPP’s sound and compelling justification for an emergency operation pointed to the steep price increases in imported foods, the 11 Implementation Completion Report (No\. ICR 00002317) for a grant in the amount of € 2\.87 million under the European Union Food Crisis Rapid Response Facility Trust Fund (TF096347, TF 096348), June 28, 2012, page 1\. 6 decreasing competitiveness of the country’s largest export (cashews), and the capacity of its land resources to support growth in agricultural production and productivity\. 22\. In 2008, the World Bank was under great pressure to respond rapidly to worsening conditions in Guinea-Bissau as the global food price crisis gathered momentum and fuel prices continued to rise; for that reason, it elected to develop the project under OP/BP 8\.0\. A Bank team composed of agricultural experts and economists visited Guinea-Bissau to discuss the proposed project with the local stakeholders\. 12 A Concept Note was prepared expeditiously and submitted to a Regional Review Committee; the final review was conducted via a virtual meeting\. Background data used in designing the project included WFP surveys and analyses of food insecurity and malnutrition, documentation for the Coastal and Biodiversity Management Project (CBMP), and the analysis that the government had undertaken for the Emergency Action Plan for Agricultural Campaign 2008–2010\. The project was prepared in less than two months from the date of the initial Concept Note review on July 27, 2008 to the Board’s approval on September 22, 2008\. Assessment of project design 23\. Although preparation and appraisal took place under challenging conditions, the design was substantially sound\. It was relevant to Guinea-Bissau’s priorities for the agricultural sector and to its economic realities and aligned with the draft ISN\. The project also had clear components and appropriate implementation arrangements\. 24\. Relevance to Guinea-Bissau’s agricultural sector priorities and economic realities\. The PDO responded adequately to national circumstances and development priorities\. Component 1 addressed an immediate financing need and allowed the critical school feeding and food-for-work programs implemented by WFP to continue through the worst of the food price increases\. Components 1\.2 and 2 attacked the main agricultural supply constraints outlined in sector strategy documents by rehabilitating essential rice production land, injecting urgently needed production inputs into smallholders’ production systems, and effectively starting to fill the technology void that severely inhibits food production in Guinea-Bissau\. 25\. Alignment with the ISN\. The activities to be supported under the project were well aligned with the ISN for FY2009–FY2010\. That document identified increased rice production as a key outcome indicator under its first pillar: strengthening economic management and laying the foundations for improvements in the productive sectors\. 26\. Clear components\. As discussed in Section 1\.5, the project’s components were focused clearly on a set of distinct, urgently needed activities that were in keeping with the GFRP Trust Fund mandate to mitigate the short- and medium-term impacts of the food crisis\. 12 Interview with Task Team Leader, Aniceto Bila, January 22, 2014\. 7 27\. Appropriate implementation arrangements\. The implementation arrangements proposed were appropriate and relevant\. In general, the outsourcing of Component 1 activities to WFP, while maintaining a coordination unit within MADR, acknowledged the government’s implementation capacity constraints along with the need to foster Guinea-Bissau’s ownership of its rural development investments\. Direct contracting with WFP for the school feeding and food-for-work programs was based on earlier experiences in Liberia, where similar grants to WFP had been implemented successfully, and it gave this experienced organization the autonomy to carry on its successful Protracted Relief and Recovery Operation (PRRO) without unnecessary complications\. 28\. As mentioned, the matching grant model used to implement Subcomponent 2\.1 was adapted from successful community-based development projects\. They included completed projects in Angola and Nigeria and three on-going projects in Guinea-Bissau: the CBMP, funded by the World Bank, Global Environment Facility (GEF), and the European Commission (EC); the Projecto de Reabilitação Social do Sector Agrario, 13 funded by the African Development Bank; and the Community Support Program funded by the EC\. Experience at appraisal indicated that this model was appropriate and well accepted by beneficiaries\. 29\. Project management arrangements recognized the recipient’s commitment to the project while addressing relevant capacity concerns through: (i) the establishment of a TCU within the Department of Rural Engineering at MADR, as this department had shown itself to be fully engaged in the project’s rapid preparation and design; (ii) delegation of fiduciary management at start-up to the on-going satisfactory CBMP project; and (iii) including a training program for fiduciary specialists within MADR\. 30\. In sum, the project was highly relevant and its implementation arrangements were appropriate for an emergency response project\. Inevitably, the accelerated (60-day) preparation timeline resulted in some moderate shortcomings in design: (i) Beneficiary targeting\. The Regional Review Committee requested an indication of the criteria for selecting areas and beneficiaries for the school feeding and food-for-work programs\. 14 The criteria, although probably appropriate in the context of an emergency operation, could have been defined more rigorously if more time had been available to do so\. For example, beneficiaries of the food-for- work (land rehabilitation) activities were identified based on information available from Vulnerability Assessment Mapping and Food Security Assessments\. These analyses, carried out at the regional level, did not permit the project to target specific plots, although project documents indicate that land rehabilitation was to target fields of producers who were unable to produce and therefore likely to be more vulnerable than others\. Because no data were available to identify such producers objectively, targeting was based on MADR staff knowledge of the area which, while significant, risked being somewhat subjective\. 13 Agricultural and Rural Sector Rehabilitation Project\. 14 Minutes of Regional Review Committee (RRC) Meeting of July 27, 2008 and virtual RRC review of August 8-12, 2008\. 8  (ii) Implementation timeline\. The proposed implementation timeline for Component 2 proved optimistic, given the time that was ultimately required to recruit project staff, prepare an operations manual and Environmental and Social Management Framework (ESMF), assemble baseline data, and train and equip national NGOs to assist groups of smallholders in preparing and implementing micro-projects under the matching grant program\. 15 (iii) Coordination mechanisms\. Implementation arrangements and communication would have benefited from a specific mechanism for coordinating activities across the TCU, WFP, and Project Steering Committee\. 16 31\. For the most part, major risks were identified correctly during preparation\. They included country-level risks related to: (i) exogenous economic shocks, (ii) the political fallout from delayed elections, (iii) weak local capacity for implementation, and (iv) governance risks\. Project-level risks identified at preparation included: (i) technical/design risks resulting from inadequate oversight and limited availability of inputs, (ii) limited implementation capacity, (iii) elite capture of matching grants, and (iv) potentially inadequate fiduciary management available from the CBMP\. The measures proposed to mitigate those risks were generally appropriate and adequate\. 32\. The Quality Assurance Group did not assess Quality at Entry\. 2\.2 Implementation Component 1: Support for the Most Vulnerable Population (US$ 1\.5 million) 33\. Component 1 was implemented according to schedule, despite some initial issues (see the next paragraph)\. The Grant Agreement was signed three weeks after the expected effectiveness date and became effective the same day\. The component was fully disbursed by July 2009 for the procurement and associated distribution costs of 1,585 tons 17 of food\. 34\. As anticipated, 290\.34 tons of food were distributed during one school year under the school feeding program through once-daily meals for students from first through sixth grade and take-home rations for girls from fourth through sixth grade who had an 80 percent attendance record\. The school feeding program had anticipated starting in January 2009, yet late signing of the Grant Agreement in mid-October 2008 delayed the arrival of internationally procured rations\. Thanks to WFP’s extensive experience, the school feeding program still started four months after effectiveness, as planned; the first tranche of the program was executed between March and July 2009, and the second from October to December of the same year\. 15 See Annex 6 of the EPP (Report No\. 44941-GW), September 9, 2008\. 16 Interviews with WFP, Bank, and TCU staff, December 2013\. 17 Including 509 tons for the school feeding program and 1,076 for the food-for-work program\. 9 35\. An unforeseen positive consequence of that delay was that the project was able to fill the gap between Bank financing and the parallel EU financing with the remaining 218\.66 tons of rations between January and March 2010\. Consequently, the original 14,000 students fed under the FCRP suffered no break in school meals, while the additional 14,000 students targeted under EUFRRF began receiving meals as planned\. 36\. Unfortunately, supply issues affected the rations supplied to a portion of students during the 2009 school year (Table 2)\. For example, during the first tranche, the take- home ration for girls experienced a decrease in quantity (as well as nutritional quality) when rice was substituted for maize\. During the second tranche, supply issues caused the size of the school meal ration to decrease\. 18 The project organized beneficiary communities to contribute rice and sugar whenever possible to assure a nutritionally balanced ration\. Table 2: Rations Supplied to Students during the 2009 School Year Decline in Program Original Ration Changed Ration Quantity of Ration Take-home ration for girls, grades 4–6, with 208 g maize meal 167 g rice 20% 80% attendance School meal ration for students, grades 1–6 120 g CSB 100 g CSB 17% 20 g oil 10 g oil 50% 15 g sugar 8 g sugar 47% 37\. Throughout implementation, WFP placed heavy emphasis on building local ownership of the school feeding program\. With the help of project funds, WFP teams trained local staff of the Ministry of Education and members of Parent-Teacher Associations to manage food stocks, coordinate and distribute meals, and monitor results\. Strong local ownership improved the quality of oversight on the ground and ensured appropriate use of project resources\. In communities where local management capacity was weak or community engagement was modest, field partners (international and national NGOs) were enlisted to support the school feeding activities, which noticeably improved performance\. 38\. Several factors limited the effectiveness of feeding programs in some schools\. For example, some teachers could not manage the program well, and some communities were not strongly involved\. Poor school infrastructure (unsuitable classrooms, inappropriate kitchens, and the absence of a water supply system and latrines) and the lack of adequate educational materials and desks could limit the program’s nutritional and educational impacts\. The Ministry of Education lacked the capacity to follow up regularly—including difficulties with transport\. Serious mismanagement of food commodities and unacceptable reporting standards in 9 out of 116 schools caused them to be suspended from the school feeding program until their headmasters were replaced by the Ministry of Education\. 18 See WFP, Summary Report for Implementation of School Feeding and Land Rehabilitation Activities (WFP Final Report), June 2011, page 5\. 10 39\. Food-for-work activities were scheduled to take into account the agricultural calendar\. Dike construction and canal dredging/digging started in April, when rains were minimal, and finished in time to establish nurseries in mid-June and transplant seedlings in mid-July\. Seven national NGOs were hired and trained to distribute food and monitor activities\. Each worker could expect to receive a 3-kilogram take-home ration of rice, oil and salt, but to facilitate and lighten the work day, most communities chose to contribute roughly one-third of that ration to a noontime meal eaten at the work site\. 40\. WFP’s flexible food-for-work model can be adapted to the local context\. The quantity of food supplied is based on the number of days expected to complete the work, not on the number of workers\. The number of work-days and quantity of food distributed are inversely related: If more workers arrive, the quantity of food increases and the number of work-days decreases proportionally\. Demand for work to rehabilitate water management systems for rice fields was high (understandably, because families depend on the produce of those fields to survive during the year), but no workers were turned away, showing the relevance of this model for the local context\. 41\. With their knowledge of local customs and efficient organizational methods, the NGOs and their WFP support teams successfully rehabilitated nearly half (2,293 ha) of the planned area of 5,000 hectares between April and July 2009; of this area, 1,802 hectares were cultivated (79 percent)\. The following year, the same NGOs and support teams facilitated the rehabilitation of an additional 3,328 hectares (of which 2,757 hectares were cultivated)\. Food-for-work programs also resulted in the rehabilitation of 969,454 meters of dikes and 54,939 meters of canals\. 19 The NGOs’ personal relationships with many beneficiaries also provided quality control, because they were able to ensure that no family took home more than one ration\. 42\. Coordination between the TCU, MADR, and WFP played a key role in the successful implementation of the food-for-work component\. The TCU and MADR provided the technical knowledge and criteria required to identify sites for work programs; WFP provided its expertise in food distribution and labor organization\. WFP supplied 41\.8 tons of lowland rice seed, and the TCU supplied 27 tons of mangrove rice seed, for farmers to plant the newly rehabilitated land\. Joint assessment missions by WFP, the World Bank, and the TCU were well organized and thorough; the ensuing discussions were constructive and effective, and the clear aide-mémoires served as good guides for adjustments in project implementation\. 20 Component 2: Support for Increasing Rice Production (US$ 3\.00 million) 43\. Component 2 experienced delays early in implementation, primarily because of inadequate national capacity to manage the logistical, technical, and administrative challenges of the rapid start-up, not for lack of attention or commitment to the project\. 19 WFP, Summary Report for Implementation of School Feeding and Land Rehabilitation Activities (WFP Final Report), June 2011, page 2\. 20 WFP, Summary Report for Implementation of School Feeding and Land Rehabilitation Activities (WFP Final Report), June 2011, page 8\. 11 For example, lack of knowledge of the Bank’s procurement rules for consulting services led to confusion over whether government personnel could fill key management positions in the TCU as consultants\. Because qualified independent consultants were scarce, and because the Bank’s procurement rules prevented government personnel from working as project consultants owing to potential conflicts of interest, many positions remained open for the first six months of implementation\. Critical activities experienced delays, including preparation of the operations manual and ESMF and the hiring and training of national NGOs\. 21 Fortunately these start-up delays did not affect the overall quality of implementation\. If anything, they provided time for the project coordinator and team to learn the rules and establish the details of the implementation arrangements for this component\. Once activities began in earnest, they were implemented on schedule, and the level of technical quality was high\. For example: • The TCU maintained a sharp focus on problem-solving and improving the quality of operations\. When it was learned that 21 percent of the land rehabilitated under the food-for-work program in the first year (2009) could not be cultivated because the new dikes washed out in the first rainy season, the TCU identified the technical issue causing the problem\. The narrow, hand-made drainage openings at the base of the dikes were at fault; these traditional openings could not resist the pressure of outflowing tidal waters, and the dikes collapsed around them, particularly in the mangrove areas\. For the next planting season, all dike construction was completed using PVC pipe for drainage, and the proportion of rehabilitated land that could be cultivated increased by 4 percent\. 22 Another example of problem-solving occurred when the WFP food-for-work teams pointed out the lack of small tools, fertilizers, pesticides, and protective gear to improve production performance on rehabilitated land\. The TCU prioritized these items in micro-project support to farmers whose land had been rehabilitated\. • National NGOs were hired and trained to support implementation of production activities from conception to evaluation\. While the hiring and training of local NGOs delayed disbursements in Component 2, the training ensured that the quality of implementation was high\. The NGOs’ contracts included a number of specific responsibilities and tasks, such as identifying beneficiaries and participatory activities; rehabilitating land; distributing food; developing, implementing, and monitoring micro-projects; training smallholder beneficiaries; and monitoring and evaluating all relevant results indicators\. The training that the TCU provided to these NGOs led to relevant, detailed, and results-focused micro- project proposals\. For their part, the NGOs’ knowledge of the local context and commitment to beneficiary communities (which were in many cases their own communities) facilitated rapid implementation of micro-projects\. The NGOs’ knowledge also ensured that the most vulnerable individuals would participate and thus helped to guard against elite capture\. 21 The operations manual was completed in November 2009 and tested and finalized by February 2010 (EUFRRF Emergency Project Paper, Report No\. 51266-GW, February 22, 2010, page 17)\. 22 WFP, Summary Report for Implementation of School Feeding and Land Rehabilitation Activities (WFP Final Report), June 2011\. 12 Component 3: Program Management, Monitoring, and Evaluation (US$ 0\.5 million) 44\. Component 3 supported two main sets of activities: (i) the coordination, management, and oversight functions of the TCU and (ii) the Monitoring and Evaluation Section and information management system set up within the TCU\. 45\. The government’s commitment to achieving the results of this project has been evident since the preparation mission in 2008 and has been reflected in the continuity of project leadership and the TCU’s consistent efforts to improve implementation\. The rapid preparation phase left the TCU at a disadvantage for rapid implementation\. The project coordinator worked alone for a significant portion of the first year of implementation to navigate World Bank procurement rules, hire staff, and at the same time prepare an operations manual and ESMF\. The project coordinator’s dedication to quality programming through detailed action plans and costing of activities, 23 ability to react rapidly to incorporate the lessons emerging during implementation, and effective staff management all contributed significantly to successful implementation\. Quarterly reports were informative and produced on time\. 46\. Program management would have been better, however, if the TCU and WFP had developed formal coordination mechanisms\. Their respective roles and responsibilities for overseeing, planning, and coordinating activities were not always clear, leading to frustration and minor technical weaknesses\. Extensions 47\. As noted, the project requested five extensions of the closing date to complete Component 2 activities and prepare an Additional Financing (which was envisioned, but did not materialize)\. These extensions highlight an inherent weakness of emergency operations: Rapid preparation does not always allow for proper sequencing of interventions, so delays arise in implementation\. For instance, the original closing date fell in the middle of the agricultural season, preventing the project from fully supporting farmers and capturing results during the 2011/12 season\. 48\. The second, third, and fourth extensions resulted primarily from the Bank’s suspension of activities in Guinea-Bissau following the April 2012 coup d’état\. The extensions enabled appropriate wrap-up activities and impact analysis to take place\. The end result of the restructuring was high achievement rates for all indicators\. Mid-term Review 49\. A mid-term review was originally scheduled for March 2010, but due to delays in start-up of Component 2 activities it was rescheduled for the first half of 2011\. At that time, Component 1 had closed and Component 2 was off to a good start, and the team judged that an MTR was not necessary\. 24 It may have served to streamline and clarify 23 As evidenced in TCU annual and quarterly reports\. 24 Implementation Status Report (ISR) #6, and interview with TTL Aniceto Bila, January 22, 2014\. 13 indicators, however, and strengthen the capacity to manage M&E for Component 2, as discussed in the next sections\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization M&E system design 50\. In keeping with the project’s emergency nature, the Results Framework included simple and straightforward performance indicators that were intended to be relevant, quantifiable, and easily measurable\. The speed of preparation meant that of necessity the detailed design of an M&E system (referred to as the “Management Information System” in the EPP) would be left for implementation\. 51\. The links between interventions and the PDO were clear, and adequate indicators were identified to monitor progress\. The first part of the PDO—improve food security for the most vulnerable population, including children—would be achieved under Component 1 with the school feeding and food-for-work programs, which would provide food directly to the beneficiaries\. The number of children fed and number of work-days completed were quantifiable, measurable indicators to show progress toward improved food security for the vulnerable populations in those programs\. The second part of the PDO—increased smallholder rice production in project areas—would be achieved under Component 2 through newly rehabilitated and cultivated land and input distribution\. Related indicators of hectares rehabilitated, number of farmer groups with access to inputs, number of micro-projects, and the amount of rice produced permitted appropriate monitoring of progress\. While the need for both land rehabilitation and input distribution (in other words, the need for multiple interventions from multiple components) to achieve the PDO was not explicitly stated in the EPP, the implementation of micro-projects in areas where land was rehabilitated assured strong links between activities and outcomes\. 52\. The M&E design strove to mitigate known weaknesses in local capacity by assigning responsibility for collecting data on Component 1 indicators to WFP and its partner NGOs\. The NGOs supporting implementation of Component 2 were also responsible for collecting raw data\. The functions of compilation, analysis, and presentation of results remained with MADR\. 53\. Minor weaknesses in the M&E system, as described in the EPP, did not critically affect the monitoring of progress toward the PDO\. For example, the food production indicator was variously defined as an annual target and a cumulative target\. A performance indicator for Component 3 (“level of project implementation according to annual plan”) was not included in the final version of the EPP, 25 although it would have been an efficient, objective means of monitoring MADR capacity improvements and clearly identifying implementation challenges\. Quarterly reports from the TCU indicate familiarity with annual plans as a management tool, however, and in practice Bank supervision staff used these plans to monitor progress\. The project would have benefited from a better approach for calculating the total number of direct project beneficiaries, as 25 Interview with TTL Aniceto Bila, January 22, 2014\. 14 the same beneficiaries could have received support for land rehabilitation and also received support through micro-projects to improve production on that land\. M&E implementation 54\. Data collection and reporting\. NGOs participating in the implementation of school feeding and food-for-work programs, as well as WFP staff, collected project data regularly (monthly for school feeding and daily for food-for-work)\. As agreed in the Grant Agreement, this information was presented on an annual basis in WFP’s Standard Project Reports\. Upon request, WFP also provided the Bank supervision teams with intermediate updates for Implementation and Status Reports (ISRs)\. WFP also produced two project completion reports summarizing the specific achievements under GFRP financing\. The data collection methodology was clear and sufficient to monitor implementation\. 55\. Information to measure progress against the performance indicators for production, micro-projects, and training was collected during World Bank supervision missions and for TCU quarterly and final reports\. As is common in emergency projects, especially when some components are managed by a capable implementing agency that gets off to a strong start, the overall quality of project M&E varied\. WFP’s monitoring of Component 1 was moderately satisfactory, but M&E for Component 2 was challenging because few M&E specialists were available in the government or private sector to work for the project\. Upon termination of the M&E specialist’s contract, the management of the M&E system devolved to the project coordinator when a replacement could not be found\. Data collection, compilation, and analysis improved under his management\. This experience demonstrates the importance of ensuring that the government has the capacity to capture project impacts through a relevant, efficient data collection system that is managed effectively\. The ICR mission confirmed that MADR is committed to strengthening this aspect of project implementation in future interventions\. 56\. Baseline studies\. Due to the emergency nature of the project, no baseline field studies were carried out; all indicators relied on secondary data\. Data on poverty and food insecurity for activities implemented through WFP were obtained from regular surveys, such as WFP’s Vulnerability Assessment Mapping and the Food Security and Vulnerability in Rural Households Survey, as well as the Ministry of Education’s statistical department and previous PRRO reports\. These sources could not provide production or post-harvest data for evaluating the supply response, however, which complicated the impact evaluation, as noted in the TCU’s final project report\. M&E utilization 57\. The project may have lacked an M&E system that could be used as a management tool, but it succeeded in collecting a significant quantity of data to inform the project indicators and design of follow-up activities\. WFP has used the data from the school feeding and food-for-work programs implemented under the project to demonstrate the importance of school feeding for improving educational gains in Guinea-Bissau; in this 15 way, WFP was able to encourage such programs to be funded\. The M&E data from activities implemented by MADR have already been used to design a follow-on project\. 2\.4 Safeguard and Fiduciary Compliance Safeguards Compliance 58\. Subcomponent 1\.1 triggered no safeguards policies; Subcomponent 1\.2 and Component 2 triggered three: OP 4\.01 (Environmental Assessment), OP 4\.04 (Natural Habitats), and OP 4\.09 (Pest Management)\. Since the project was prepared as an emergency operation using the expedited procedures allowed under OP 8\.00, the preparation and public disclosure of safeguards instruments were not required until 120 days after effectiveness\. An Environmental and Social Safeguards Framework (ESSF) was prepared and disclosed after some delay\. 26 59\. Safeguards compliance was Highly Satisfactory\. Public disclosure events were conducted via forums, radio programs, and brochures in the capital and in each region where the project operated\. The project established a complaint management system and completed a Pest Management Plan prior to distributing pesticides, insecticides, and fungicides under Component 2\. NGOs supporting project beneficiaries in each region were trained in safe pest management techniques, and an environmental safeguards checklist accompanied each micro-project application\. Financial management 60\. The project’s financial management function is rated Moderately Satisfactory\. The three audits conducted over the life of the project were submitted to the Bank with considerable delays, but all confirmed that the fiduciary management of the project was adequate\. One audit flagged a number of ineligible expenditures, which the government reimbursed in full, albeit with some delay\. Procurement 61\. The project’s procurement function is rated Moderately Satisfactory\. Ex ante and ex post procurement reviews turned up no major shortcomings\. Even so, ISRs and aide- mémoires filed by the Bank’s supervision teams noted persistent weaknesses in file management and archives\. 2\.5 Post-completion Operation/Next Phase 62\. A new GFRP-financed operation is being prepared to follow this project and will reinforce its sustainability\. The proposed design builds on the experience of this project and includes the same components and implementing agencies\. 26 Publication was expected in May 2010 and completed in August 2010\. 16 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design, and Implementation 63\. The project’s objectives, design, and implementation of activities for mitigating high food prices in Guinea-Bissau are as relevant today as they were in 2008\. The market price of rice continues to rise faster than the cashew price, exacerbating the already unequal terms of trade\. Fiscally unsustainable import taxes on rice have been reinstated\. On the whole, WFP estimates that rural food insecurity continues to rise\. The share of rural households with less than a month’s supply of food increased from 65 percent to 92 percent between June 2012 and June 2013\. 27 Poverty levels have also continued to rise; as discussed, they were 69\.3 percent in 2010, compared to 64\.7 percent in 2002\. 28 In parallel, the percentage of income spent on food increased from 65 percent in 2005 to 85 percent in 2013\. 64\. Component 1’s objectives and design directly support the third and fourth core areas of Guinea-Bissau’s second-generation Poverty Reduction Strategy Paper (PRSP) 2011–2015 (“Promote inclusive, sustainable economic development” and “Raise the level of human capital development”)\. 29 WFP’s objectives under Component 1 of increasing school enrolment and attendance in the country’s most vulnerable areas, especially among girls, exemplify this alignment with national priorities\. Other examples are WFP’s efforts to improve household food security through “the rehabilitation of lands and creation of community assets” 30 and to increase the capacity of the government and local NGOs to establish and manage food-assistance and hunger-reduction programs\. In 2010, the government showed its continued prioritization of school feeding by passing the School Feeding Law\. That law creates national, regional, and local structures to support the implementation and management of school feeding programs\. 31 65\. The rations provided for school children and workers under Subcomponents 1\.1 and 1\.2 created a safety net, both for landless and jobless rural inhabitants subsisting on food purchased in the market and for households whose persistently low agricultural production continues to restrict food intake to one meal per day\. Note that school canteens do not provide nutritional support during the period in which children are most vulnerable to nutritional deficiencies—defined as the 1,000 days between a woman’s pregnancy and her child’s second birthday\. Had they done so, the project would have been even more relevant to national health and food security priorities\. The extent of malnutrition among this 1,000-day cohort is not well documented in national statistics, however, and the most recent Vulnerability Assessment Mapping done by WFP in 2011 did not look at this group\. 66\. The objectives and design of activities under Subcomponents 1\.2, 2\.1, and 2\.2 to rehabilitate land and build capacity to increase production are aligned with the 27 WFP Rapid Food Assessment, June 2012 and June 2013\. 28 Guinea-Bissau Poverty Reduction Strategy Paper, 2011–2015\. 29 Guinea-Bissau Poverty Reduction Strategy Paper 2011–2015\. 30 EPP excerpt regarding WFP’s PRRO objectives\. 31 As per interviews with WFP staff, December 2013\. 17 government’s National Agricultural Investment Program (Programa Nacional de Investimento Agrícola, PNIA) for the next 15 years and second pillar of the World Bank’s ISN, “Launching economic recovery in productive sectors\.” Increased production of food, particularly rice, will reduce dependence on expensive rice imports and shift bargaining power into the hands of smallholder producers during the annual rice-for- cashews barter\. 67\. Finally, the project’s design and objectives were entirely consistent with the broader objectives of the Bank’s GFRP, which were to: (i) reduce the negative impact of high and volatile food prices on the poor in a timely way; (ii) support governments in the design of sustainable policies that mitigate the impact of high and volatile food prices on poverty while minimizing the creation of long-term distortions in the market; and (iii) support broad-based growth in productivity and market participation in agriculture to ensure an adequate and sustainable food supply response\. 3\.2 Achievement of Project Development Objectives 68\. Overall the project was quite successful in achieving its development objective, as measured by the key performance indicators\. Given the challenging transitional context and limited capacity present in Guinea-Bissau, this achievement is considerable\. 69\. The first part of the development objective (“improve food security for the most vulnerable population, including children”) sought to respond as rapidly as possible to the food crisis by establishing a school canteen program and providing food in exchange for works to rehabilitate rice land\. Two key outcome indicators—the number of primary students in target areas receiving one meal daily and the number of work-days (rations) for rural producers in food-for-work activities—measured achievement of this objective\. 70\. At the time of closing, the number of primary students receiving one meal daily was 14,102 against a target of 14,000 students (101 percent achieved)\. Of these students, 1,411 girls from fourth to sixth grade received take-home rations based on their high attendance rates\. The project distributed 291 tons of food in 116 schools\. 71\. In all 116 participating schools, students received one hot meal per day 32 for 126 days during 2009\. Initially 170 feeding days were planned for January–June and October–December 2009; owing to the late signing of the Grant Agreement, however, rations did not arrive in Bissau until April\. Anticipating delays, WFP initiated the school feeding program in March 2009 with rations provided on loan through other financing\. Due to the shortened time period (126 versus 170 days), only 291 tons of the 509 tons procured were distributed in 2009; the balance (218 tons) was distributed under the parallel EU financing in January-March 2010\. 72\. It is likely that the guarantee of a daily meal, plus a take-home ration for a subset of female students, contributed to the high pass rates in WFP schools and reduced 32 Canteens actually served two meals per day, because students attended school in either the morning or afternoon shift\. Each set of students received the same ration once per day\. 18 dropout rates—outcomes that will have long-lasting effects\. Without the project, financing shortfalls would have barred WFP from continuing the school feeding and food-for-work programs\. Students would not have had adequate food, girls may have dropped out, and laborers would have had neither a daily ration for their work nor the promise of producing their own food on newly rehabilitated land\. In sum, without Component 1, the effects of the food crisis would have been magnified, and without the food-for-work program, Component 2 benefits would have been compromised, as the land on which beneficiaries undertook micro-projects would not have been rehabilitated\. 73\. The food-for-work program distributed 865\.63 tons of food to approximately 29,598 beneficiaries for a total of 285,000 working days (130 percent of the target) over two years (2009 and 2010)\. Women made up more than 50 percent of the workforce for rehabilitating lowland fields, but only 10 percent of the workforce for rehabilitating mangrove rice fields, owing to cultural preferences as well as the difficulty of working with the very heavy clay soils common in mangrove rice areas\. The ration recommended by WFP for each day of work by each participating head of the household was 3 kilograms of rice, 0\.250 kilograms of vegetable oil, and 0\.035 kilograms of salt\. Actual amounts of oil and salt distributed in 2009 and 2010 were somewhat lower than the recommended level (see Table 2 in section 2\.1); in some cases, rice alone was distributed\. As with the school feeding program, after this component came to an end, the remaining food stocks (210 t) were distributed in the first quarter of 2011 under food-for-work activities in the feeder roads component of the EU parallel financing\. 74\. The second part of the development objective sought to mitigate the effects of the food crisis in the medium term through community-identified micro-projects and technical assistance to MADR to “increase smallholder rice production\.” The achievement of this objective is evaluated in terms of one PDO indicator (tons of rice produced in the newly rehabilitated areas under the project) and two intermediate results indicators (hectares of lowland and mangrove rice fields rehabilitated)\. Tons of rice produced were calculated based on data for average yields and cultivated area collected by MADR’s Department of Agricultural Statistics\. 75\. In total, 969,454 meters of dikes were built and 54,939 meters of canals were dug, rehabilitating 2,880 hectares of lowland fields and 2,741 hectares of mangrove rice fields (96 and 137 percent of the targets, respectively) for a total 5,621 hectares of newly rehabilitated land\. Yields of lowland rice doubled, rising from 1\.1 tons per hectare beforehand to 2\.1 tons per hectare on average by 2012\. Yields for mangrove rice increased from 1\.6 tons per hectare to 1\.7 tons per hectare\. Total production for 2009–11 on land rehabilitated by the project reached 9,378 tons by the end of the third season (125 percent of the target)\. 76\. The project was the first in Guinea-Bissau to use participatory diagnostic methods to help producers identify their individual needs and formulate those needs into production or post-harvest micro-projects under the matching grant scheme in Subcomponent 2\.1\. In total, 788 micro-projects were approved and implemented (534 19 micro-projects focused on improving production, and 267 on post-harvest handling and processing) by the end of the third year of implementation\. 77\. Production micro-projects benefitted 13,934 producers through the acquisition and distribution of NPK fertilizer (115,002 kilograms), urea (70,089 kilograms), rope for delimiting parcels (30,446 meters), lowland rice seed (62,355 kilograms), vegetable seed (370 kilograms), and power tillers (13) with fuel (20,700 liters), among other items\. 78\. Post-harvest micro-projects benefitted 7,072 producers through the acquisition and distribution of rice hullers (52), materials (cement, nails, roofing supplies, and so on) for building warehouses and shelters for post-harvest processing machinery, sacks (8,400), and machines to puree tomatoes (5), among others\. 79\. Constraints in the data consolidation function of the M&E system prevented some results from being captured in project reports and aide-mémoires\. The national NGOs selected to support beneficiaries in developing and implementing micro-projects under Subcomponent 2\.1 not only trained communities in the participatory appraisal of community needs but provided consistent on-the-job training for the duration of the project and beyond\. Although capacity building was not a specified activity in their contracts, it was an integral part of their activities (see the list of training activities and beneficiaries in Annex 2)\. 80\. At the start of the project, WFP and MADR anticipated the need to provide seed to producers on newly rehabilitated land and procured 60 tons of lowland rice seed and 27 tons of mangrove seed\. An added benefit was that the seed procured by WFP was produced in Guinea-Bissau from two seed-producing associations supported by the Food and Agriculture Organization\. Mangrove rice seed was imported from Senegal\. In the following season, the parallel EU financing ensured continued results through the distribution of 60 tons of seed to 200 farmers to cover an additional 1,000 hectares, as well as 50 tons of fertilizer to farmers cultivating approximately 600 additional hectares in lowland areas\. Parallel financing also supported the construction of 170 kilometers of feeder roads in the project area to facilitate the marketing of agricultural products\. 33 81\. Training and capacity building for MADR surpassed targets thanks to cost-saving decisions and innovations in training by the TCU\. Over the life of the project, 131 producers and MADR staff received technical and project management training (202 percent of the target)\. Cost savings were gained by revising the training plan to bring international experts to Guinea-Bissau for extended periods, allowing them to train many more beneficiaries than could have been trained outside the country as originally planned\. Training planned for Europe was switched to regional locations, further stretching the original budget\. 82\. In sum, the project over-achieved its PDO targets (number of students receiving one meal a day; number of work-days in food-for-work activities; and quantity of rcien 33 Implementation Status Report (ISR) #6 for a grant in the amount of € 2\.87 million under the European Union Food Crisis Rapid Response Facility Trust Fund (TF096347, TF 096348)\. 20 produced in newly rehabilitated areas) by 101, 130, and 125 percent, respectively\. All intermediate results indicators were exceeded, except for the hectares of lowland rice fields rehabilitated (96 percent of target) and the number of farmer groups with access to agricultural inputs (93 percent of target)\. Annex 2 presents a detailed review of the project’s outputs\. 3\.3 Efficiency 83\. Component 1 provided support to vulnerable populations\. It had three types of economic impacts—a food security impact, an employment impact, and a rice production impact—and clearly demonstrates an efficient use of project funds\. The benefit-cost ratios for investment in rice production on the land rehabilitated under the food-for-work program were very high: 3\.5 and 3\.9 under two price scenarios (see Annex 3)\. This impact stands alongside the other two impacts of the food-for-work program (increased food security for workers and their families, and employment for rural workers)\. 84\. Component 2 provided support for increasing food production and also had a substantial impact on the rural population in the project areas\. As detailed in Annex 3, the four types of impacts achieved through this component—improved knowledge and capacity, increased farm income, increased employment, and increased rice production— also clearly demonstrate an efficient use of project funds\. Estimated benefit/cost ratios as well as returns to investment in improved rice seed, fertilizer, and farmer training in agricultural practices are quite high\. Benefit/cost ratios vary from 1\.64 to 2\.74 under different scenarios (see Annex 3)\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 85\. The overall outcome rating is Satisfactory, based on the substantial relevance of the development objectives and design, the satisfactory achievement of the development objectives, and the relatively high efficiency as evidenced by the analysis presented in Annex 3\. The project made a significant contribution to food security and smallholder rice production in Guinea-Bissau\. More importantly, it improved the lives of households in the project areas by making agriculture (the main source of their livelihood) more productive and sustainable over time\. 3\.5 Overarching Themes, Other Outcomes, and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 86\. Lower-than-average pupil dropout rates, as well as higher-than-average pass rates in 2009 and 2010, reveal the impact of school meals for poor and vulnerable groups in WFP-assisted schools\. Annex 2 describes these impacts in detail\. 21 87\. As intended by the EPP, activities under both components specifically sought to support women and girls\. At schools supported by WFP, men and women were equally represented in management committees and positions of leadership, and take-home rations were provided to girls with superior attendance rates, thus reducing the burden of their absence on their families\. The rehabilitation of lowland fields through the food-for- work program primarily targeted women farmers, thus valuing their critical role in food production\. The micro-projects implemented under Component 2 effectively targeted women through support to market gardens and post-harvest processing; the majority of the 267 post-harvest micro-projects supported women’s activities\. (b) Institutional Change/Strengthening 88\. Increased country ownership of the school feeding program\. Under this project, WFP strengthened the capacity of local communities and government authorities to administer and monitor school feeding programs\. The School Feeding Law, passed in the final year of the operation, formalized civil and government participation in (and commitment to) school feeding programs\. 89\. Increased capacity in MADR\. Critical training in project management and technical areas for MADR’s central and regional staff and producers increased the skills required to manage projects and bring about sustained improvements in production and productivity\. Challenges in M&E implementation and utilization demonstrated the urgent need for a relevant, efficient, and well-managed data collection system; MADR is committed to strengthening this aspect of project implementation in future interventions\. 90\. Increased capacity in national NGOs\. WFP’s and MADR’s contracts with national NGOs yielded a positive unintended impact as those organizations gained stronger capacity in project management, implementation, and evaluation\. 91\. Increased capacity in farmer organizations\. Each of the 788 micro-projects included not only equipment but significant capacity building to improve agricultural techniques and organizational management\. NGOs helped farmer groups establish management committees and trained those committees in the participatory analysis of community needs and effective group management\. Group members also received training in numerous technical areas, including pest management, equipment use and maintenance, planting techniques, harvest methods, post-harvest preservation of vegetables, proper storage, and seed selection\. (c) Other Unintended Outcomes and Impacts (positive or negative) 92\. None\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 93\. Data collection for the ICR started at the end of Component 1 in September 2010\. At that time, the Task Team Leader (TTL) produced a technical review of Component 1 22 that was used in preparing this ICR\. The ICR mission conducted interviews with the TTL, team specialists, the client, WFP, and national NGOs\. These interviews helped to understand the context in which the project operated, clarify relationships among stakeholders, and identify impacts that were not otherwise documented\. Informal interviews with direct beneficiaries occurred during missions to the project areas\. A half- day stakeholder workshop also took place during the ICR mission\. 94\. Stakeholders and beneficiaries generally expressed satisfaction with the project\. The school feeding program increased enrolment and helped female students stay in school\. Beneficiaries especially appreciated the food-for-work program, because the ration enabled them to eat one meal at the work site and take food home on a daily basis, while their labor contributed to future food production and earnings\. Given that most of these producers eat only one meal per day, this activity had a significant impact\. Despite the challenging context, project impacts were substantial, bringing thousands of hectares of rice fields back into production and increasing access to critical basic production inputs (seed, tools, and training) that had been unavailable locally\. 95\. Stakeholders expressed some frustration, however, with the intensity of World Bank and EU supervision and requests for information\. While supervision missions were often helpful and needed in in view of weak institutional capacity and provided guidance to the TCU, the TCU spent nearly 60 days per year accompanying missions\. 4\. Assessment of Risk to Development Outcome Rating: High 96\. The Risk to Development Outcomes is rated High\. The key risks underlying this rating are noted below\. The high political risk and high institutional risk were important determinants of the overall risk rating\. 97\. Political risk to development outcome is High\. In parallel with the challenging macroeconomic environment in Guinea-Bissau, the last four decades have been a period of intense political instability, often marked by the intrusion of the military on the political scene, which has undermined law and order\. This context prevents stable and accountable institutions from developing and creates a hostile environment for private investment, further hindering prospects for growth\. Low growth has translated into a lack of state revenues, severely limiting the capacity of successive governments to provide essential public services and infrastructure\. Their provision remains entirely dependent on donors\. 98\. Government ownership/commitment risk to development outcome is Moderate\. Prior to the April 2012 coup d’état, the government’s commitment to addressing food security issues was high, thanks to support from the New Partnership for Africa’s Development and associated donors\. At the time of the coup, the government had been in power for three years, longer than any government since 1997 and long enough to establish some legitimacy and gain traction on political issues\. The PNIA was developed 23 and integrated into the second-generation PRSP completed in September 2011\. With the subsequent change in government, the political commitment to food security issues appeared to wane as the government redirected its attention to the April 2014 presidential elections\. It must be emphasized, however, that the commitment of MADR’s technical staff during the project stands in sharp contrast to the current political attitude\. The TCU staff (particularly the coordinator) worked tirelessly to achieve and disseminate results, despite delays in paying government salaries, and even after the project closed\. 99\. Institutional risk to development outcome is High\. Training provided under Component 2 directly increased the capacity of MADR’s technicians and other staff members to carry out their extension, advisory, and project implementation roles\. Given the extremely tight national budget, however, MADR departments are unable to function without donor support\. Personnel are officially present in the field, but they lack operational budgets, equipment, transportation, renewal training, and adequate support personnel; donors finance nearly all operations\. There is no expectation that school feeding and food-for-work programs will be taken on by government institutions rather than donors in the near future\. 100\. Technical risk to development outcome is Significant\. The sustainability of project-supported activities is likely to vary by component\. For future school feeding programs, management committees that received training under the project can be expected to continue to bring their new knowledge to bear in a useful way\. With respect to Component 2, however, the lack of improved inputs (seed, tools, and small production and post-harvest equipment) in Guinea-Bissau jeopardizes the improved production rates and certainly threatens any future growth in production\. These threats to sustainability and development outcomes will likely differ in magnitude across intervention areas based on the strength of community management and organizational capacity\. In some areas, small equipment provided to farmer associations in 2010 remains in good condition owing to significant training and the commitment of users to manage their productive resources cooperatively\. In other areas, less training or a local culture that does not favor cooperative management jeopardizes the development outcomes\. 101\. Financial risk to development outcome is Significant\. As known from the outset, WFP faces funding challenges each year as it advocates for its key programs\. Financial risks that the supply response will not be sustained are many, as inputs are either not available or are extremely expensive, and dikes and canals take time and money to maintain\. These risks may be mitigated in the medium term by additional GFRP funding for a new operation that builds on the project’s experiences and continues school feeding, land rehabilitation, and micro-projects, albeit on a lesser scale\. Another consideration is that high rice prices, while hurting consumers, benefit producers\. Continued training for MADR staff will most certainly be circumscribed without donor support\. 102\. Social risk to development outcome is Moderate\. Group cohesion in Guinea- Bissau varies across the population, but on the whole Bissau-Guineans are comfortable in situations that call for cooperative management, as shown by the continued functioning of much of the small equipment distributed three years ago\. In addition, the ownership 24 developed over project goods in the process of implementing micro-projects is likely to strengthen tendencies to cooperate\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 103\. The project’s design was substantially sound\. The main interventions addressed urgent food security needs of vulnerable groups and struck an appropriate balance between providing emergency relief in the short run and building the foundation for a sustained agricultural supply response over the medium to long run\. A key design feature, the matching grant scheme, was adapted successfully from other projects to become the backbone of support to farmers\. The implementation arrangements deliberately sought to compensate for known weaknesses in local capacity by delegating responsibility for implementing aspects of the work to WFP, incorporating national NGOs with significant operational experience into the implementation, and providing essential technical and project management training for the TCU and key producers\. Fiduciary management was initially supported by the CBMP until TCU staff could take it on\. 104\. A few shortcomings detracted from quality at entry\. Management’s emphasis on exceptionally rapid preparation (a 60-day deadline) was understandable, given the scope of the emergency, but at the same time compromised implementation readiness\. Most of the design weaknesses that emerged, especially during early implementation, stemmed directly from the accelerated preparation timeline\. An identification or preparation mission met with stakeholders to formulate implementation arrangements, yet insufficient time was available to develop critical implementation tools, such as those related to M&E, recruitment, and procurement\. Subsequently, Component 2, managed by MADR, experienced a slow, laborious start\. (b) Quality of Supervision Rating: Satisfactory 105\. Field supervision missions were carried out regularly during the life of the project and involved specialists in community development, fiduciary management, safeguards, and economics, among other areas of expertise relevant to the project\. Aide-mémoires always thoroughly examined achievements and administrative and technical implementation issues, and they were always reviewed with stakeholders at the end of each mission\. ISRs appropriately summarized progress, assigned ratings, and identified issues requiring management’s attention\. The project remained under the leadership of the same TTL from preparation to closing, providing continuity, strengthening 25 institutional memory, and providing strong assurances that the lessons from the project would be identified and learned\. 106\. Minor shortcomings in supervision did not affect overall achievement of the PDO, but they should be specified for the record\. Early in the life of the project, delays in filing ISRs prevented management’s timely follow-up of emerging concerns with implementation\. The lack of a mid-term review delayed identification of emerging M&E challenges related to Component 2\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 107\. The Bank’s overall performance is judged to be Satisfactory, given that minor shortcomings in quality at entry due to the accelerated preparation timetable were compensated by proactivity during supervision\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 108\. The government’s performance rating is based on the performance of: (i) MADR in its role as policy maker and facilitator of development programs; (ii) the Project Steering Committee in its oversight role; and (iii) the TCU, which were the main government agencies coordinating the project and implementing Components 2 and 3\. 109\. In response to the Bank’s request during preparation, the MADR chose the Director of MADR’s Department of Rural Engineering to work with the Bank team in designing the project\. The timely and appropriate appointment of this individual contributed significantly to the technical design of the project as well as the structure of implementation arrangements\. His extensive knowledge of rural development in Guinea- Bissau and his enthusiasm, honesty, and passion for agricultural development were evident from the start, significantly contributing to quality at entry\. After effectiveness, MADR did much to encourage qualified government staff to accept positions with the project; it assured government salaries for staff working under the project and appointed the Director of MADR’s Department of Rural Engineering as the Coordinator of the TCU\. 110\. The Project Steering Committee, which included representatives from five ministries, was created in a timely fashion but met only once over the course of the project\. In practice, critical functions of the Project Steering Committee, such as technical reviews and budget approvals, were performed by the TCU in collaboration with the Minister of Agriculture\. 26 111\. The Department of Rural Engineering was given responsibility for coordinating all project activities and implementing Components 2 and 3, based on the operational nature of its mandate and the skills and enthusiasm of its director\. 112\. Within the TCU, better knowledge of Bank procedures would have reduced delays at start-up, and a stronger emphasis on M&E system design and utilization would have more fully and rapidly captured and documented the project’s results\. The TCU’s strengths included its history of rural operations and deep knowledge of rural realities and community needs, skills, and aptitudes\. The staff’s rapid mastery and application of the Bank’s fiduciary management mechanisms in project implementation was an asset, in addition to the satisfactory implementation of routine management activities such as processing procurement requests, narrative reporting, paying service providers on time, filing financial reports, and organizing supervision missions\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 113\. The Implementing Agencies performance rating is based on the performance of: (i) WFP, the agency responsible for day-to-day management and implementation of Component 1, and (ii) the national NGOs directly responsible for implementing activities supported through Component 2\. 114\. Overall, WFP’s performance was satisfactory\. WFP was thoroughly prepared for implementation (Component 1 was 100 percent disbursed by July 2009); consulted amply with beneficiaries and involved them through training; resolved implementation issues in a timely way (supply issues and logistical delays, for example); and coordinated and collaborated fully with other donors and stakeholders\. 115\. Minor shortcomings in fiduciary management (financial reporting delays) arose, as WFP found it very difficult to align the Bank’s reporting requirements with WFP corporate procedures and mandate\. WFP’s project reporting system, as approved and decided by its Executive Board, establishes the Standard Project Report as the reporting tool for all donors to WFP, but this format was not agreed prior to signing the Grant Agreement\. 116\. Under Component 1, national NGOs fulfilled a critical M&E function with precision and diligence and mitigated the risks of corruption and double-dipping in ration distribution\. Under Component 2, national NGOs performed satisfactorily across the board\. Their commitment to achieving the development objective was clear throughout the project design stage, negotiations, and implementation\. The relevance, depth of detail, and comprehensive nature of the micro-projects prepared under Component 2 attested to the NGOs’ excellent facilitation of participatory preparation of proposals\. Furthermore, their continued presence on the ground and shepherding of beneficiary communities significantly improved the sustainability of the results, even for an emergency project such as this one\. The ICR field mission saw plentiful evidence that equipment and tools 27 distributed during the project had been well maintained and continued to provide results for the targeted communities\. Any delays occasioned by training farmer groups were more than compensated by the rapid and high-quality implementation that ensued\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 117\. Guinea-Bissau performed well in meeting its obligations to the project, especially considering the domestic context of political unrest and the limited resources at the government’s disposal\. In areas where government performance was weak—such as knowledge of Bank procurement rules—significant effort was made to learn and improve\. The satisfactory performance of WFP and national NGOs as the implementing entities complemented the government’s efforts to meet the development objectives\. 6\. Lessons Learned 118\. Country ownership ensures achievement of development objectives, particularly in fragile countries where government leadership is lacking\. Ownership was demonstrated by the critical role played by the Director of the Department of Rural Engineering (the project coordinator) in implementation\. His dedication to excellence ensured strong links between project activities and the PDO, ensured that results were documented despite weaknesses in the M&E system, and structured implementation support to ensure sustainability (through the presence of national NGOs, for example)\. 119\. Community participation enhances the sustainability of impacts\. One result of strong community contributions to the design and implementation of micro-projects was that equipment distributed by the project has been relatively well maintained\. The December 2013 ICR mission confirmed that threshers, milling machines, and power tillers distributed in 2010 to many communities were still functioning and benefiting the population\. The involvement of national NGOs in providing technical assistance and on- the-job training to producer groups increases the likelihood of continued capacity building and guarantees that new development management skills stay in the communities that need them most\. 120\. Capacity constraints in fragile countries are persistent; they often negatively affect results and must be properly mitigated during design—not just implementation\. Even if a country has on-going projects yielding satisfactory results, Bank teams must not simply assume that the recipient is familiar with Bank methods and procedures, especially for accounting and procurement\. A thorough analysis of local capacity for all aspects of project management must be a priority during preparation—even during the rapid preparation and formulation process for an emergency operation—and preparation teams must plan for training to mitigate weaknesses at start-up, as needed\. 34 The 34 ICR, Agriculture Services Project (Credit 1799-GUB), June 1995\. 28 persistent capacity weaknesses in Guinea-Bissau, particularly in M&E, were noted as long ago as the first Agriculture Support Project in the 1990s\. 35 121\. The GFRP Trust Fund facilitated the Bank’s reengagement in agriculture in Guinea-Bissau\. The project has not only responded to an urgent need but has reintroduced the Bank team to the reality of operations in Guinea-Bissau\. It has served as a stepping-stone on which to rebuild agricultural investment by the International Development Association and provided valuable lessons for new operations\. The new GFRP project, currently being formulated, has taken under advisement the lessons related to persistent weak capacity and will rely heavily on WFP for implementation, M&E, and fiduciary management\. 122\. Clarify the roles of each actor\. WFP regarded the role of the TCU as very unclear throughout implementation, particularly with respect to managing school feeding activities, which fell under the purview of the Ministry of Education (not MADR)\. 123\. A minimum set of project “readiness conditions,” coupled with intense implementation support, is necessary for emergency operations to succeed\. The flexibility allowed in preparing emergency operations facilitates rapid preparation, effectiveness, and initial disbursement, but it may compromise the quality of implementation and jeopardize the sustainability of impacts if minimal implementation arrangements and conditions are not in place\. These arrangements and conditions include: (i) a clear, appropriate action plan for start-up; (ii) intense Bank supervision and “hand- holding” following effectiveness, including on-the-ground procurement and M&E support; and (iii) a rapid baseline survey or equivalent information gathering to ensure appropriate targeting\. It bears repeating that it is extremely difficult to ensure these conditions when pressure to respond to a crisis limits preparation time to only a few weeks\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 124\. Annex 5 summarizes Guinea-Bissau’s final evaluation report\. (b) Cofinanciers 125\. NA (c) Other partners and stakeholders 126\. NA 35 ICR, Agriculture Services Project (Credit 1799-GUB), June 1995\. 29 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ M equivalent) Appraisal Actual/Latest Percentage of Component Estimate Estimate Appraisal (US$ M) (US$ M) Component 1: Support for the Most Vulnerable Population Subcomponent 2\.1: School Feeding 1\.0 1\.0 100% Program Subcomponent 2\.2: Food-for-Work 0\.5 0\.5 100% Program Component 2: Support for Increasing Food Production Subcomponent 2\.1: Matching Grants for 2\.5 2\.0 80% Food Production Subcomponent 2\.2: Technical Support 0\.5 0\.3 60% Component 3: Program Coordination, 0\.5 1\.2 125% Monitoring, and Evaluation Total Project Costs 5\.0 5\.0 100% (b) Financing Appraisal Actual/Latest Percentage of Source of Funds Estimate Estimate Appraisal (US$ M) (US$ M) Borrower 0\.00 0\.00 \.00 Special Financing (FCRP) 5\.00 5\.00 100% 30 Annex 2\. Outputs by Component Component 1: Support for the Most Vulnerable Population 1\. Component 1 included two subcomponents—School Feeding Activities (US$ 0\.5 million) and Food-for-Work to Increase Food Production (US$ 1\.0 million), both implemented by WFP\. The component was effective on October 10, 2008 and closed on December 31, 2010\. 2\. Subcomponent 1\.1: School Feeding\. WFP’s school feeding program achieved highly satisfactory results across the life of the project (Table A2\.1)\. The lower achievement value of 13,812 at the end of July 2009 resulted primarily from the high number of dropouts during the intensive cashew harvest in May–June\. Even with this temporary loss of students, the project achieved 99 percent of the target during this period\. In early 2010, the original targeted beneficiaries, plus an additional 14,000 individuals, received meals for 43 days that they would not otherwise have received during that initial period due to a delay in the implementation of the EUFRRF\. Table A2\.1: Performance Indicators for Subcomponent 1\.1 (School Feeding) 2008/09 2009/10 2009/10 School Year School Year School Year Support to EUFRRF PDO Indicator Targets (Mar\.–July 2009) (Oct\.–Dec\. 2009) (Jan\.–March 2010) (Subcomponent 1\.1) in EPP Actual Achieved Actual Achieved Actual Achieved Number of students receiving one meal a 14,000 13,812 99% 14,102 101% 28,000 a day Female beneficiaries NA 47% NA NA (%) a/ Rations remaining under the WFP contract (218 tons) were used to provide one meal a day to 28,000 students for 43 days between January and March 2010, before the EUFRRF-procured food became available\. 3\. WFP’s results analysis also shows that schools with WFP feeding programs performed significantly better than those without in 2009\. National statistics estimate an average dropout rate of 14 percent and an exam pass-rate of 65 percent\. In contrast, WFP schools achieved pass-rates of 79 percent (boys) and 86 percent (girls) against drop-out rates of 7 percent (boys) and 4 percent (girls)—significant achievements in the local fight against poverty\. 4\. Subcomponent 1\.2: Food for Work\. WFP’s food-for-work program achieved highly satisfactory results by the time it closed at the end of 2010\. By the end of the first year, the program had achieved nearly 50 percent of the targeted number of work-days and had rehabilitated nearly half of the planned area\. Production figures grew by 42 percent from the first year to the second and were well on their way to achieving the target of 7,500 tons annually by the third year of the project (2011)\. By closing, all indicators had been satisfactorily achieved (Table A2\.2)\. 31  Table A2\.2: Performance Indicators and Intermediate Output Indicators for Subcomponent 1\.2 (Food for Work) and Component 2 (Support for Increasing Production) Target Actual PDO Indicators (Components 1\.2 and 2) in EPP 2009 2010 2011 Total Achieved Number of work-days in food-for-work activities 160,000 77,000 208,000 – 285,000 130% (rations distributed to rural producers) Beneficiaries of food-for-work program (number) NA 9,633 19,965 – 29,598 NA Quantity of rice produced in newly rehabilitated areas 7,500 3,876 5,502 – 9,378 a 125% (t) Intermediate Indicators (Components 1\.2 and 2) Subcomponent 1\.2: Food for Work Number of hectares of mangrove rice land 2,000 1,304 1,437 0 2,741 137% rehabilitated Number of hectares of lowland rice land rehabilitated 3,000 989 1,891 – 2,880 96% Total number of hectares rehabilitated 5,000 2,293 2,707 – 5,621 112% Component 2: Support for Increasing Food Production Number of farmer groups with access to agricultural 500 0 313 221 534 107% inputs Number of post-harvest subprojects (i\.e\., post- harvest micro-projects) approved and under 300 0 152 115 267 89% implementation b Number of subprojects (i\.e\., micro-projects) 800 0 465 336 801 100% approved and under implementation a/ The total production figure reported here and the data in in Table A2\.3 come from the WFP final report\. b/ Given the one-to one correspondence between the number of farmer groups with access to inputs and the number of production micro-projects, it was thought (and confirmed by the TTL) that this indicator (and target of 300) was meant to capture the number of post-harvest micro-projects\. Figures for both post-harvest micro-projects and total are therefore reported 5\. Table A2\.3 shows the area cultivated and rice production levels on the newly rehabilitated land by region\. Farmers who were unable to produce rice before the project grew an additional 9,378 tons of rice on newly rehabilitated land (125 percent of the original target of 7,500 tons)\. Table A2\.3: Area Cultivated and Production Levels on Newly Rehabilitated Land by Region, 2009–10 2009 2010 Total Region Lowland Mangrove Lowland Mangrove Area Produc- Area Produc- Area Produc- Area Produc- Area Produc- (ha) tion (t) (ha) tion (t) (ha) tion (t) (ha) tion (t) (ha) tion (t) Bafata 250 638 30 39 593 1,265 0 0 873 1,941 Biombo 45 91 402 704 0 0 353 705 800 1,499 Cacheu 200 398 184 423 195 312 306 458 885 1,592 Gabu 250 670 0 0 511 1,248 0 0 761 1,918 Oio 141 343 150 311 343 677 330 545 964 1,876 Bissau 30 55 120 205 41 81 86 210 277 551 Total 916 2,194 886 1,681 1,683 3,583 1,075 1,919 4,560 9,378 32 Component 2: Support for Increasing Food Production 6\. Component 2 included two subcomponents: Matching Grants for Food Production (US$ 2\.5 million) and Technical Support (US$ 0\.5 million)\. The results of Subcomponent 2\.1 were linked to the completion of land rehabilitation activities in Subcomponent 1\.2\. 7\. Subcomponent 2\.1: Matching Grants for Food Production\. Access to agricultural inputs for 534 farmer groups was facilitated through the implementation of 534 demand- driven micro-projects, and 267 micro-projects provided support to post-harvest activities\. 8\. Details on the kind of production and processing support provided are shown in Table A2\.4\. The table does not present an exhaustive list of items distributed; rather, it presents a sample of beneficiary preferences and types of support requested\. Briefly: • Beneficiaries preferred simple tools (machetes, hoes, rakes, spades)\. • The importance of fertilizer, seed, and insecticide is clear\. Those regions not requesting lowland seed were mangrove areas, which received seed from the project in 2009\. • Post-harvest needs were diverse and clearly tailored to the particular needs of each community\. • Despite the project’s focus on rice cultivation, vegetable production was also an eligible activity, and micro-projects for vegetable production were in high demand among female beneficiaries\. 9\. Under Subcomponent 2\.1, yields were also expected to increase\. After the WFP project closed at the end of 2010, production was estimated by farmers themselves and the Department of Agricultural Statistics in MADR in January 2012\. They based their calculations on actual hectares cultivated and a sample of 61 randomly selected yield subplots (carrés de rendement)\. Surface area calculations are a common statistic gathered annually by female farmers\. At the beginning of the season, using long pieces of rope of a specific length, they measure the length and width of their field(s) and estimate production levels for the season\. These calculations were verified by the Department of Agricultural Statistics (using the same method) just prior to taking their yield samples\. (Hence the approximately 30,000 meters of rope requested under Subcomponent 2\.1’s matching grant program; see Table A2\.4)\. Sample yield subplots were set up in 35 group fields and 26 individual fields (samples from two group fields and two individual fields in each county in each region where the project operated)\. 36 10\. Table A2\.5 shows rice production levels over the life of the project\. Farmers benefitting from improved water management and technology packages from the production micro-projects were able to produce a total of 19,487 tons of rice on the newly rehabilitated land between 2009 and 2011\. Annex 3 discusses the economic impacts of this additional production\. 36 Final Report\. Department of Statistics\. Ministry of Agriculture\. 33 Table A2\.4: Examples of Support Provided for Production and Processing under Subcomponent 2\.1: Matching Grants for Food Production Production Micro-projects (534 total) Processing Micro-projects (267 total) Type of Equipment/input Unit Quantity Type of Equipment/input Unit Quantity Tools Machines Machete # 5,745 Rice huller # 52 Hoe # 8,329 Maize mill # 35 Iron plow # 1,999 Electric mill # 1 Rake # 1,401 Tomato puree machine # 5 Spade # 4,725 Diesel generator (5 KVA) # 4 Pick # 972 Freezer # 1 Pitchfork # 958 Processing equipment Scythe # 270 Scale (50 kg) # 7 Seed Bags (empty) # 8,400 Lowland rice seed kg 62,355 Plastic sealing machine # 3 Vegetable seed kg 370 Tools Fertilizer/insecticide/herbicide Hoe # 410 NPK kg 115,002 Spade # 50 Urea kg 70,089 Machete # 25 Herbicides L 219 Watering can # 410 Fungicide kg 8 Inputs Insecticide L 561 Vegetable seed kg 77 Equipment NPK kg 1,800 Sprayer # 176 Urea kg 1,800 Watering can # 1,650 Furadan kg 18 Buckets (10-liter) # 1,309 Transport equipment Plastic bucket (20–30 liter) # 236 Push cart # 37 Big buckets (bayons) # 124 Donkey cart # 72 Carinhas de mão # 1,120 Construction equipment PVC pipe m 538 Tin roofing panels # 5,708 Rope m 30,446 Cement (50-kg bags) # 1,534 Rolls of wire mesh for fencing # 610 Tubing # 70 Power tillers # 13 Stoves # 95 Planter # 5 Roofing joists # 1,340 Operational inputs Iron doors # 6 Gasoline L 20,070 Iron grills # 6 Oil L 100 Iron grills for doors # 36 Transport implements Iron grills for windows # 48 Donkey carts # 9 Rakes # 20 Carts # 34 Harvester # 3 Sieves (aluminum) # 98 34  Table A2\.5: Rice Production Levels under the Project, 2009–11 Year Mangrove rice Lowland rice Total Average Total Area Yield Production Area Yield Production area yield production (ha) (t/ha)a (t) (ha) (t/ha) (t) (ha)b (t/ha) (t) 2009 886 1\.83 1,618 916 2\.25 2,063 1,802 2\.04 3,674 2010 1,075 1\.90 2,044 1,683 2\.02 3,406 2,758 1\.96 5,414 2011 1,960 1\.70 3,332 3,661 2\.00 7,322 5,621 1\.85 10,399 Total additional tons of rice produced 19,487 a/ Data from WFP's final report; yields for 2011 calculated by Department of Agricultural Statistics in January 2012\. b/ The WFP contract ended in December 2010\. For 2011, the total area under cultivation on rehabilitated land was assumed to equal the total number of hectares rehabilitated\. 12\. Subcomponent 2\.2: Technical Support\. More beneficiaries and MADR staff benefitted from training than the TCU originally targeted, thanks to cost efficiencies resulting from a revision of the training model\. International consultants were brought to Guinea-Bissau to train beneficiaries over a longer period instead of sending a few beneficiaries abroad for the same training\. For example, 115 project staff, government personnel, farmers, and NGO staff were trained to produce rice and seed of good quality over a two-month period rather than sending 40 persons to Europe for a week, as originally budgeted\. Table A2\.6 summarizes those training efforts\. Table A2\.6: Training Supported by the Project Planned Actual Number Type of Training Number of Country Length Notes of Beneficiaries Beneficiaries Production of rice and 40 115 Guinea- 2 months Demonstration fields good-quality seed (MADR (25 MADR Bissau (2011) installed in 6 regions to staff, NGO staff, INPA feature improved rice staff, and staff, NGOs, production techniques farmer and 90 farmers) and used of improved groups) seed\. Trainer brought from Senegal to accompany producers and staff instead of sending beneficiaries abroad\. Training for project 1 1 Senegal 1 month Completed Procurement Assistant (2010) successfully Study tour for MADR 5 0 7 days Not completed staff Farmer study tour 15 11 Senegal 7 days Completed (2010) successfully Training in project 1 1 Senegal 1 month Completed management and (2011) successfully monitoring Training in 2 2 Senegal 7 days Completed environmental and (2011) successfully social issues Training in financial 1 1 Kenya 10 days Completed management and (2013) successfully disbursement Total trained 65 131 35 Annex 3\. Economic and Financial Analysis 1\. This project was small in terms of cost but very large in terms of coverage, both in its geographical coverage and scope of activities\. Agriculture is the most important sector of the economy\. Almost 80 percent of the population depends on agriculture (directly and indirectly) for their livelihoods\. About 70 percent of the population is below the poverty line\. On an average, about 65 percent of the household income is spent on food, and food insecurity is a major national problem\. Given those harsh realities, the objective of this project was to improve food security for the most vulnerable population, including children, and increase smallholder rice production in the project areas\. 2\. This project—one of very few donor-funded projects that dealt with improving food security Guinea-Bissau—had an enormous economic impact on the lives of rural people in the areas where it operated\. However, it is very difficult to carry out a standard economic and financial analysis for this emergency food security project, given that it had three components and six subcomponents, and each subcomponent involved different activities\. In any case, this annex attempts to estimate the project’s likely impacts and, where possible, to provide estimated benefit-cost ratios\. Component 1: Support for the Most Vulnerable Population 3\. This component dealt with two programs: the school feeding program (US$ 0\.5 million) and the food-for-work program (US$ 1\.0 million)\. This component had three types of major economic impacts and clearly demonstrates a very efficient use of project funds\. 4\. Food security impact\. Under the school feeding program, food was provided to 14,102 students, against a target of 14,000\. Students received daily meals for the duration of one school year\. In addition, girls received take-home rations\. Given Guinea-Bissau’s low education rate, particularly of girls, this subcomponent had a major impact on education among beneficiaries, male and female\. Based on a large sample of students covered by the school feeding program, the program caused the dropout rate to decline from 19 percent to 5 percent and the pass-rate to rise from 65 percent to 82 percent\. Under the food-for-work program, 29,958 beneficiaries received food for a total of 285,000 days\. 5\. Employment impact\. The food-for-work program created employment for 285,000 person working days for 19,965 rural unemployed, including women\. In return for food, these workers rehabilitated 5,621 hectares (against a target of 5,000 hectares) of lowland and mangrove rice fields (specifically, 2,741 hectares of mangrove rice fields and 2,880 hectares of lowland fields)\. Rehabilitation included the construction of dikes on mangrove rice land to protect it from salt water and the construction of drainage channels and anti-erosion banks for lowland rice fields\. The rehabilitated land is ready for rice cultivation during every year in the future, as long as the dikes and drainage channels are maintained\. In addition to making it possible to produce more rice, this food-for-work 36 program created additional employment opportunities for farmers who were given parcels of rehabilitated land for rice cultivation\. 6\. Rice production impact\. In addition to the food security impact and the employment impact, the food-for-work program resulted in a large rice production impact because it rehabilitated 5,621 hectares for rice cultivation\. This achievement is critical in a country that is a net importer of rice\. Table A3\.1 summarizes information on the additional rice produced on land rehabilitated under the food-for-work program\. Table A3\.1: Total Rice Production on Rehabilitated Land, 2009–11 Rehabilitated Land Average Paddy Yield Clean Rice Production Year Paddy Production (t) Planted to Rice (ha) (t/ha) (t) 2009 1,802 2\.04 3,674 2,462 2010 2,755 1\.96 5,414 3,627 2011 5,621 1\.85 10,399 6,967 Total 19,487 13,056 7\. Since rice is grown on this newly rehabilitated land under low levels of inputs (mainly labor and land, allocated free of cost), the cost of production is estimated to be 40 percent of the value of rice production\. Based on this estimation, benefit-cost ratios for rice production under the food-for-work program (total cost US$1 million) are determined under two rice price scenarios (Table A3\.2)\. Table A3\.2: Benefit/Cost Ratios for Rice Production under the Food-for-Work Program Rice Gross Value of Estimated Net Value of Rice Rice Price Benefit-cost Production Rice Production Production Cost Production (US$/t) ratio (t) (US$ M) (US$ M) (US$ M) 450 13,056 5\.875 2\.350 3\.525 3\.5 500 13,056 6\.528 2\.611 3\.917 3\.9 8\. Clearly, the benefit-cost ratios for investment in rice production on the land rehabilitated under the food-for-work program were very high (3\.5 and 3\.9 under the two price scenarios)\. This impact stands alongside the two other impacts of the food-for-work program (namely, improved food security for the workers and their families and additional employment for rural workers)\. 9\. The Guinea-Bissau Rural Community Driven Development Project was approved by the World Bank in August 2009 and is under implementation\. That project also involves micro-projects\. Among its various types of micro-projects, two deal with activities similar to those implemented under this emergency food security project: the rehabilitation of dikes for lowland rice production and the rehabilitation of dikes for mangrove rice production\. The projected internal rate of return to investment for these two types of micro-projects is very high (Table A3\.3) and provides additional evidence that returns to investment in rehabilitating land for rice cultivation are high\. 37  Table A3\.3: Internal Rate of Return (IRR) for Investment in Rehabilitating Land to Grow Rice Micro-project type Investment (CFAF) IRR Rehabilitation of dikes for lowland rice fields 1,970,000 21\.17 Rehabilitation of dikes for mangrove rice fields 5,200,000 28\.87 Note: US$ 1 = CFAF 475\. Support for Increasing Food Production 10\. This project component supports increased food production by providing US$ 2\.0 million in matching grants for food production and US$ 0\.3 million for technical support to the staff of MADR\. Through four major impacts that demonstrated an efficient use of project funds, this component substantially benefited the rural population in project areas, as described next\. 11\. Improved knowledge and capacity\. Technical support and training were provided to MADR staff who, in turn, provided training and information about good agricultural practices to farmers and farmer associations\. In addition, NGOs were hired to work directly with farmers and farmer associations to provide support related to the micro- projects\. The main impacts of those interventions were: (i) increased capacity in MADR; (ii) increased capacity in local NGOs; (iii) increased capacity in farmer associations; and (iv) increased capacity and knowledge related to good agricultural practices among farmers\. While they are extremely important, the impacts of such improvements in capacity and knowledge are also notoriously challenging to quantify\. 12\. Increased farm income\. This project gave 534 farmer groups access to inputs and supported the implementation of 788 micro-projects\. Of those 788 micro-projects, 534 dealt with improving production; they increased the adoption of new agricultural technology as well as the production of food crops, particularly rice\. The remaining 267 micro-projects dealt with post-harvest agriculture, food processing, and improved access to agricultural markets\. The production micro-projects included 13,934 farmers, and the post-harvest micro-projects included 7,072 farmers\. The end result was increased food production, reduced food losses, improved shelf life of food, and increased farm income\. In other words, this small project changed the lives of over 21,000 farm households\. 13\. Increased employment\. The implementation of this component increased farmers’ direct employment in various project activities and also increased the sustainability of those activities over time\. In addition, this component created direct and indirect employment opportunities inside and outside agriculture\. For example, experts from the MADR and NGOs were involved in the implementation of various project activities\. In addition, indirect employment included input distribution; servicing of rice mills, farm equipment, and tools; and food processing, transportation, and storage\. In a country where rural unemployment is very high, this project significantly increased employment opportunities\. 38 14\. Rice production\. For the micro-projects, the project procured and distributed rice seed, NPK fertilizer, and urea to farmers\. Only part of the NPK and urea was used for growing rice, however\. About 62\.1 tons of rice seed was sufficient to plant 1,035 hectares of lowland rice; 51\.75 tons each of NPK and urea were required to apply the recommended levels of fertilizer (50 kilograms per hectare each for NPK and urea) on that area\. The total value of these three modern inputs was US$ 113,850 (US$ 62,100 for lowland rice seed, US$ 28,875 for NPK fertilizer, and US$ 28,875 for urea)\. Table A3\.4 presents the benefit-cost ratios estimated under four rice price/yield scenarios\. Table A3\.4: Benefit/Cost Ratio for Investment in Modern Inputs for Rice Production Rice Yield Increase Rice Price 75% over Base Yield 50% over Base Yield US$ 500/t 2\.74 1\.83 US$ 450/t 2\.47 1\.64 Note: For lowland rice, base yield is 1\.2 t/ha of paddy\. 15\. Clearly, as indicated by the estimated benefit/cost ratios, returns to investment in improved rice seed, fertilizer, and farmer training in good agricultural practices are very high\. The benefit/cost ratios vary from 1\.64 to 2\.74 under different scenarios\. Since base yields are so low, the actual paddy rice yield and hence the benefit/cost ratios could be even higher\. 16\. Overall, this project contributed significantly to food security and smallholder rice production in Guinea-Bissau\. More importantly, it has improved the lives of households in the project areas by making agriculture (their main livelihood) more productive and sustainable over time\. In other words, the returns to investment are very likely to be even higher than indicated by the benefit/cost ratios\. 39 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Name Title Unit Specialty Lending Aniceto Timoteo Bila Senior Rural Development Specialist AFTAR TTL, preparation Barbara Weber Senior Operations Officer AFCSN Bourama Diaite Senior Procurement Specialist AFTPW Procurement Carmen Pereira Liaison Officer AFCF1 Hoon Sahib Soh Senior Economist AFTP4 Kristine Schwebach Operations Analyst AFTCS Luz Meza-Bartrina Senior Counsel LEGAF Martin Serrano Counsel LEGAF Mohinder Mudahar Consultant Osval R\. A\. Romao Financial Management Specialist AFTFM Financial Management Patrice Sade Team Assistant AFTAR Renato Nardello Senior Operations Officer AFTAR Sossena Tassew Office Manager AFTAR Soulemane Fofana Operations Officer AFTAR Tanya Yudelman Consultant Tijan Sallah Lead Operations Officer AFTAR Victoria Gyllerup Operations Officer AFTRL Yves Prévost Environmental Specialist AFTEN Supervision/ICR Aniceto Timoteo Bila Senior Rural Development Specialist AFTA2 TTL, supervision Bourama Diaite Senior Procurement Specialist AFTPW Mohinder S\. Mudahar Consultant Economist Osval Rocha Andrade Romao Financial Management Specialist AFTMW Patrice Sade Program Assistant AFTA2 Cheikh A\. T\. Sagna Senior Social Development Specialist AFTCS Social Safeguards Cheick Traore Senior Procurement Specialist AFTPW Sidy Diop Senior Procurement Specialist AFTPW Community-driven Raimundo Caminha Consultant Development specialist Environmental Bienvenu Rajaonson Senior Environmental Specialist safeguards Taleb Ould Sid’ahmed Communications Associate Jane C\. Hopkins Senior Agricultural Economist AFTA1 TTL, ICR Racey Bingham Consultant Author ICR Mohamed Khatouri Lead M&E Specialist 40 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY09 22\.95 82\.74 Total: 22\.95 82\.74 Supervision/ICR FY09 10\.04 94\.42 FY10 22\.87 78\.80 FY11 15\.75 89\.89 FY12 12\.18 87\.69 FY13 8\.14 56\.97 FY14 3\.53 32\.86 Total: 72\.51 440\.64 41 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR Introduction 1\. The Government of Guinea-Bissau requested and obtained, on September 9, 2008, a World Bank Credit (International Development Association and International Bank for Reconstruction and Development) and a subsequent Additional Financing from the European Commission for a total amount of US$ 9 million to finance a Food Security Program through the Emergency Food Security Support Project (EFSSP), to be implemented by the Ministry of Agriculture and Rural Development (MADR), hereafter designated as the Ministry of Agriculture\. 2\. The project initiated activities in October 11, 2008, with the implementation of the procurement plan as well as other activities\. Physical execution of activities started in February 10, 2009, with funding from the World Bank and subsequently the EU, on the basis of a clearly defined action plan, as reflected in this final project report for the International Development Association grant only, during the period from October 11, 2008 through August 30, 2013\. Descriptive summary 3\. The main objective of the project is to improve the food security of the most vulnerable population, including children, and strengthen smallholders’ ability to produce rice\. This objective would be attained through three project components, whose implementation was entrusted to the World Food Programme in Guinea-Bissau (WFP) and the Ministry of Agriculture through a Technical Coordination Unit (TCU) of the project, for a period of three years, in selected areas of the country: the regions of Bafatá, Gabu, Oio, Cacheu, and the Autonomous Sector of Bissau\. 4\. This final project technical report briefly describes the activities carried out within the framework of the EFSSP implementation, during the period from February 2009 to August 30, 2013\. During this period, the TCU's performance featured very important achievements in financial management; procurement of goods, services and works; and in the technical coordination of activities in all project components, to reach the project’s strategic development objectives\. 5\. Therefore, despite some shortcomings, overall project performance is satisfactory if it is considered that these results were achieved in the context of Guinea-Bissau, reflecting broad national strategies as well as government policies related to the Food Security Support Program\. Furthermore, this satisfactory performance reveals the following strengths: (i) operational capability of the project team, backstopped by periodic supervision missions of the World Bank, augmented by a good rural coordination network involving all stakeholders, traditional and local government authorities, regional directorates of the Ministry of Agriculture, and NGOs; (ii) timely achievement of most of the project activities; and (iii) ownership of the project by the community-based organizations (CBOs) and other beneficiaries\. 42 6\. In view of the above, the project played a pioneering role in the area of food security, combating hunger and reducing poverty in rural populations\. At the same time, it demonstrated good institutional and organizational practices in executing a national project of this size\. The success of the project was due to a number of advantages, namely: (i) CBOs’ participation in the choice of project activities, with the materials and equipment of their choosing; (ii) involvement of partner NGOs, Agricultural Regional Directorates, and the regional project coordination units in the selection of beneficiaries; (iii) participation of CBOs, NGOs, and local authorities in the choice of the activities to be held in their respective zones; and (iv) ownership of the project by the beneficiaries\. Subcomponent 2\.1: Matching Grants 7\. Within Subcomponent 2\.1, of 800 micro-projects planned, all 800 were implemented, of which 534 micro-projects were for production support (mainly rice and horticulture) and 266 were for post-harvest activities (mainly milling equipment for rice and millet), benefiting 800 producer groups of about 20 producers each, or 16,000 direct beneficiaries\. The indirect beneficiaries are estimated at 112,000 people\. The total area is about 5,436\.7 hectares of lowlands used for rice cultivation\. Thus, total production before the project interventions (mangrove and lowland rice), based upon an average reference yield of 1\.35 tons per hectare estimated by the Department of Agricultural Statistics, was about 7,339 tons of paddy or 4,770 tons of milled rice\. With the assistance of the project, the average yield is about 1\.85 tons per hectare, for an estimated production of about 10,058 tons of paddy or 6,538 tons of milled rice\. 8\. Consequently, the additional gains resulting from project interventions providing agricultural inputs, material, and various types of equipment to improve the productivity of 5,436\.7 hectares of lowlands is 1,768 tons of milled rice, directly benefiting 9,300 beneficiaries in the regions where the project operated\. (See Tables 6 and 7 from the original report\.) 9\. This positive contribution has increased the consumption of locally produced rice and reduced dependency on the consumption of imported rice in rural communities\. Generally, in farmers’ management strategies, local production is divided as follows: One portion is consumed by family members; another is reserved for seed; and the surplus is sold and the revenue combined with revenues from cashew and other rural business activities to meet family needs (medicine and medical care, ceremonies such as weddings, tuition, school supplies, and so on)\. 10\. Moreover, the processing of paddy and other cereals in rural areas made it possible to increase revenues by marketing products of good quality, reducing labor- intensive work by women, and providing them with greater opportunities to diversify their rural activities, production, and agribusinesses\. 11\. Materials and equipment acquired by CBOs are estimated to be insufficient in quantity but much appreciated for their quality\. The distribution criteria established 43 beforehand for the materials, equipment, and other agricultural inputs provided by the project were fully respected\. It is important to state that there was some delay in the final distribution process (year 2012), owing to the “coup d’état” of April 12, which led to suspension of project operations; despite that delay, overall project efficiency was satisfactory\. 12\. Another important activity under this subcomponent is horticulture (market gardening)\. The total number of direct beneficiaries involved in horticulture under the project is estimated to be 36,661 women, producing different horticultural crops on 124\.06 hectares of land in six regions, for total production estimated at 1,611,250 kilograms (equivalent to CFAF 1,767,637; see Table 8 of the main report)\. Horticultural activities are highly appreciated and successful in the communities, especially among women\. The following impacts should be highlighted: Technical impacts • All of the women producers have mastered agricultural techniques very well\. • They know the full cropping calendars and agricultural cycles of each crop and classify the crops by growing season (rainy season crops such as okra, cucumbers, djacatu, beans, and badjiqui; dry-season crops such as tomatoes, onions, carrots, cabbages, peppers, lettuces, radishes, garlic, and so on)\. Socioeconomic impacts • Horticultural management committees promote a weekly levy system ranging from CFAF 100 to CFAF 1,000 among the association member groups\. This levy ensures the continuity of production, especially during the rainy season, for undertaking enterprises such as groundnut cropping, palm oil production, and the acquisition of small ruminants to increase family incomes\. • Similarly, women reserve a portion of their earnings for medical care in case of illness, for supporting children in school, and for improving family diets\. Finally, women horticulturists manage everything related to family food security, especially in the East and Autonomous Sector of Bissau\. • The associations that are part of Federation of NGO/APALCOF of Contuboel had their own initiatives to sell seed financed within the framework of the project (at a nominal price to Federation members)\. Revenues are deposited in the bank account of the organization with a view to be used in the next agricultural season to buy seed of horticultural crops in Senegal, in an attempt to create the conditions for sustainability\. Subcomponent 2\.2: Technical Support to the Ministry of Agriculture and Rural Development 13\. Out of 7 training sessions planned, 6 were executed, benefiting 131 participants from different areas of expertise in the agricultural sector, including: • 25 technicians from the project and INPA and 90 farmers and members of NGOs were involved in training in rice production systems as well as producing good- quality rice seed\. 44  • 1 procurement specialist and 11 peasants benefited from sub-regional exchange visits\. • 1 in the area of technical formulation of projects\. • 2 in socio-environmental matters\. • 1 in disbursement and financial management\. 14\. A study visit for MADR staff was not performed due to the complexity of the communication process\. Nevertheless, progress toward the PDO within the framework of Subcomponent 2\.2 was 86 percent\. (See Table 11 from the main report\.) 15\. It is important to state that 100 percent of the technicians who benefited from this training program have been inserted in different services of the Ministry of Agriculture, thereby upgrading the technical capabilities of the ministry to perform its mandate for the development of agriculture, a vital sector of the national economy\. Specifically, some of the activities carried out by the project supported the agricultural statistics service to collect agricultural data for 2011/12\. Main constraints during project implementation 16\. The main constraints during the implementation of project activities are summed up as follows\. First, the failure to hire personnel (Administrative Assistant, Secretary, Procurement Assistant, and Logistics Assistant) to complete the project staff caused pressures at work and the consequent accumulation of services, occasioning some delays in implementation and the updating of technical and financial data for the project\. Second, training in the use of equipment provided by the project was delayed by the temporary suspension of the project\. Third, problems arose in assembling equipment\. Fourth, partner NGOs did not follow up on activities of micro-projects\. Fifth, disruption of the project was linked to cyclical instability in the country\. Sixth, inflexible rules and procedures of the World Bank in the process of hiring competent technical personnel in specific areas (to prevent conflicts of interest) are the main factor behind the late start-up of the project\. The second and third constraints are directly linked to the events of April 12, 2012\. The fourth is directly linked to a lack of funds on the part of the partner NGOs\. Visibility 17\. Visibility is an important aspect of the success of any project\. Project strategies in public awareness were based on the dissemination of messages through partner NGOs and national and community radio and television\. These messages were enhanced by the project’s technical team members in their areas of intervention, who disseminated information on the project’s mission and other information in conjunction with traditional chiefs, notables, religious leaders, and local authorities\. Effective project awareness and dissemination in all intervention areas has made the project’s activities well known in rural areas and generated many requests for participation\. 45 Sustainability 18\. A project’s sustainability depends on the overall results achieved throughout its implementation\. In this context, five results appear to guarantee the project’s sustainability\. First, the process for acquiring and distributing material, equipment, and other agricultural inputs to CBOs was transparent and credible\. Second, training administered to members of CBOs improved their capacity to manage interventions\. Third, another factor likely to promote sustainability is the establishment of management and follow-up committees to maintain the rehabilitated land and horticulture perimeters\. Fourth, the management of post-harvest support equipment is ensured by the management committees, particularly through internal financial resources obtained by CBOs for operation and maintenance, and through the promotion of local capabilities for managing communally held goods in support of shared interests\. A final factor likely to promote sustainability is the involvement of MADR and local authorities in following up on project activities to ensure that the project’s achievements endure\. Lessons learned 19\. A number of lessons learned from implementing EFSSP may serve to inform other phases of the project or similar projects: • Innovative approaches served the project well\. They include CBOs’ freedom to determine what they wanted for their communities, as well as the creation of technical evaluation committees to select sites, conduct socioeconomic and environmental feasibility assessments, and validate which micro-projects were eligible for funding\. Those committees, chaired by the Regional Delegate for Agriculture, encompassed regional project coordinators, CBOs, notables, religious leaders, partner NGOs, and local authorities\. • All materials and equipment purchased under the project were properly channeled and distributed in a transparent manner according to pre-established criteria\. Transport costs were assumed by the respective communities, contributing to beneficiaries’ accountability\. • Ownership of the project by the beneficiaries is real, despite anomalies observed in some localities (especially in Cacheu and Biombo), as noted in the consultant's report on the impact of micro-projects\. • Participatory project coordination involved all actors in the decision-making process for the project, and project staff regularly followed up on CBOs’ activities\. • Collective performance is maximized by strong involvement of the Coordination Unit and World Bank supervision missions in monitoring, evaluating, and issuing related recommendations\. 46  • NGOs had some difficulty with efficient follow-up, because the financial resources made available to them through contracts signed with the EFSSP to identify, conceive, and follow up on micro-projects were considered to be insufficient\. • Dissemination of messages through partner NGOs on good agricultural practices and actions of the EFSSP is effective and efficient\. • The agricultural statistics service must be involved from the beginning in collecting production data, with and without the participation of the project, facilitating monitoring and impact\. • Inflexible rules and procedures of the World Bank in the hiring of competent technical personnel in specific areas (to prevent conflicts of interest) is the main factor behind the project’s late start\. • It is essential to produce a baseline description of each site, with socio- environmental reference data to facilitate socio-environmental monitoring and impact evaluation for the project\. Recommendations Recommendations to increase effectiveness and efficiency: • Recruit and train a full technical coordination team for better project implementation\. • Recruit a monitoring and evaluation specialist to improve data collection efficiency\. • Reinforce institutional collaboration between partner agencies (NGOs, regional structures of the Ministry Agriculture, and local authorities)\. • Support partner NGOs with adequate funding for micro-projects to allow them to provide technical support and follow-up and evaluate the activities of the beneficiaries\. • Keep promoting lowland and feeder roads to increase rice production and at the same time facilitate marketing\. • Reinforce the training for beneficiaries (CBOs) in organization, management, and women’s literacy\. Recommendations to increase the impact of the project: • Take gender into account when selecting candidates for training in rice production practices, especially in Bafata and Gabu, where women are the main rice producers\. • Increase the ceiling of the micro-projects\. • Reduce the number of micro-projects\. 47 • Reinforce support to CBOs by providing material, equipment, and spare parts to consolidate the results achieved in the first phase of the project\. • Reinforce the water supply for horticulture in proportion to the size of the field to ensure permanent water availability throughout the production cycle\. • Supply mechanized pumps and related implements to supply irrigation water to promote year-round production of lowland rice in Bafata and Gabu, specifically the perimeters of Bafata-Campossa, Contuboel, and Sonaco- APALCOF-TESITO\. • Supply more power tillers to increase cultivated area and reduce the labor requirement (especially for women, who constitute most of the agricultural labor force for lowland rice production)\. • Reinforce the supply of herbicides, fertilizers, and good quality seed of rice and horticultural crops\. • Promote horticultural crops by supporting producers, including women and youths, in processing and marketing their products\. 48 Annex 6\. Supporting Documents 1\. WB Docs Project File 2\. Implementation Status Reports 1-8 3\. Aide-mémoires and BTORs (all available, 2008–12) 4\. Emergency Food Security Support Project, Food Price Crisis Trust Fund, Emergency Project Paper, Report No\. 44941-GW, September 9, 2008 5\. European Union Food Crisis Rapid Response Facility Trust Fund, Emergency Project Paper, Report No\. 51266-GW, February 22, 2010 6\. Interim Strategy Note (FY2014–2015) for the Republic of Guinea-Bissau, Draft, December, 16, 2013 7\. Implementation Completion and Results Report (TF096347, TF096348) for the Emergency Food Security Support Project under the European Union Food Crisis Rapid Response Facility, Report No\. ICR2317, June 28, 2012 8\. NGOs Terms of Reference 9\. TCU Quarterly Narrative and Financial Reports (all, 2008–12) 10\. Standard Project Reports, WFP (all, 2008–10) 11\. Summary Report, Implementation of School Feeding and Land Rehabilitation Activities, WFP, June 2011 12\. Technical Review of Component 1 (main activities, achievements, and issues), World Bank, August 2010 13\. Technical Final Report of the Emergency Food Security Support Project, Main Summary, November 2013 14\. AFTOS Assessment of the Likelihood of Projects Closing in FY12 Achieving Stated Objectives (December 2011) 15\. Implementation Completion and Results Report Guidelines, OCPS, August 2006 (last updated 10/05/2011) 16\. ICR and IEG Evaluations: Lessons and Guidance for AFR 17\. Project Extension Packages (5) 18\. Stakeholder Interviews, focus groups, workshop, and field visits (NGOs, TCU, TTL, beneficiaries), December 2013 19\. Grant Reporting and Monitoring Reports and GFRP Project Status Reports 20\. Standard Project Report, WFP, 2009, 2010 21\. Implementation Completion Report, Agriculture Services Project, June 1995 (approved 1987) 22\. Galloway, R\., E\. Kristjansson, A\. Gelli, U\. Meir, F\. Espejo, and D\. Bundy (2009), “School Feeding: Outcomes and Costs\.” Food and Nutrition Bulletin 30(2): 171–82\. 23\. Résultats de l’Enquête Approfondie sur la Sécurité Alimentaire et la Vulnérabilité des Ménages Ruraux, Mars 2011, Rapport final, Programme Alimentaire Mondiale 49 24\. Présentation des Résultats Préliminaires de l’Evaluation Approfondie de la Sécurité Alimentaire en Situation d’Urgence Guinée Bissau, Programme Alimentaire Mondiale, October 2013 25\. Apresentaçao dos Resultatdos Finais, Projecto de Emergencia Apoio a Segurança Alimentar, December 2013 26\. Vulnerability Assessment Analysis and Mapping, 2005, World Food Programme 27\. Rapid Food Security Assessment, Guinea-Bissau, Biombo, Oio and Quinara Regions, June 2012 28\. Minutes of the Rapid Review Committee Meeting, July 27 and August 19, 2008 29\. World Bank (AFTP4): Integrated Poverty and Social Assessment (IPSA), Vol\. II: Conflict, Livelihoods, and Poverty in Guinea-Bissau, May 2006 30\. Guinea-Bissau Poverty Reduction Strategy Paper 2011–15 31\. Implementation Status Report #6\. Grant (P120214) for the Emergency Food Security Support Project in the amount of euros 2\.87 million from the European Union Food Crisis Rapid Response Facility Trust Fund (TF096347, TF 096348) 32\. Rural Community-Driven Development Project (RCDD), Project Appraisal Document, Report No\. 49557-GW, August 28, 2009 50  16°W 15°W 14°W To SENEGAL To Sédhiou To To Kounkané Kolda Kolda To Sédhiou Cuntima Cambaju B Sare Bá ácar Bácar Pirada (300 m) Dungal Bajocunda Canhâmina Canhâ Canhâmina Jumbembem To Canquelifá Canquelifá Ziguinchor To Diiattakounda Farim Buruntuma Cambaju ri To m ba To Oussouye Ignoré Ignoré nja Kabrousse Ca Contuboel Camajá Camaj ábá Camajábá u To São São Domingos Barro che Ca Mansaina Pitchie Youkounkoun Olossato Mansabá Mansabá a b Susana Gabu Gê Varela Cacheu Olossato Mansabá Mansabá Gamamudo eu Jolmete Bissorã Bissorã To ch Ca OIO G êba Gêba Uacaba Youkounkoun CACHEU Bafatá Bafatá GABÚ Bula Calequisse Canchungo Binar Encheia Mansôa Mans Mansôôa B A FAT Á Cabuca Bambadinca 12°N 12°N Nhacra al Safim Galomaro ub Xime r Caió Porto Porto Gole Co Quinhámel Quinh Quinháámel G êb a Ganquecuta Ch Ché Ché é Ch é BISSAU Garfanhapa Garfanhapa B éli Béli a BIOMBO Jabedá Jabedá Co nsô rub Dulombi ATLANTIC BISSAU Enxudé Ma Prábis Prá Prábis Enxudé al Vendu Vendu Iljante Fulacunda Leidi Tite Tite Boé Boé ba Xitole OCEAN Ondame o G ê QUINARA Guilege ld To na Koumbia Ca Buba To Ilha de São São João Joã João Féfiné Caravela lha de Ilha de Bolama Quebo a Carache Ilha de Bolama e Bub Empada Saafa Caravela Formosa d To de Bénnsané Abu I\. das an Galhinas o Gr Ri Arquipélago I\. de Soga I\. de Madina de Baixo Bedanda Gandembel GUINEA dos Bijagós BOLAMA li ba Rubane Tom Bubaque Ilha de Tombali Tombali Catió Catió TOMBALI To Ilha de I\. de Boké 14°W Uno Uno Bubaque Cachamba Canogo Ilha de Balanta Songonha Roxa Eticoga Ilha de Orango Ilha de Orangozinho Cacine To Boké GUINEA-BISSAU e I\. de IIlha ci n Ca Meneque Joao Vieira Campeane 11°N Ilhéu SELECTED CITIES AND TOWNS do Meio REGION CAPITALS GUINEA- NATIONAL CAPITAL BISSAU 0 10 20 30 40 Kilometers RIVERS MAIN ROADS 0 10 20 30 40 Miles RAILROADS DECEMBER 2004 IBRD 33415 This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information REGION BOUNDARIES shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any INTERNATIONAL BOUNDARIES endorsement or acceptance of such boundaries\. 16°W 15°W

REVIEW

P046952

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 36399 IMPLEMENTATION COMPLETION REPORT (IF-N0390 SCL-43250 TF-27155) ON A LOAN IN THE AMOUNT OF US$100 MILLION AND A CREDIT IN THE AMOUNT OF SDR 73 MILLION (US$100 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A FORESTRY DEVELOPMENT IN POOR AREAS PROJECT JUNE 27, 2006 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2005) Currency Unit = Yuan (Y) Y 1\.00 = US$ 0\.12 US$ 1\.00 = Y 8\.07 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CFA Community Forestry Assessment ERR Economic Rate of Return FDPA Forestry Development in Poor Areas Project FRDPP Forestry Resource Development and Protection Project FRR Financial Rate of Return GoC Government of China IDA International Development Association MOF Ministry of Finance NAP National Afforestation Project NDRC National Development and Reform Commission NFPP Natural Forest Protection Program NPV Net Present Value PAD Project Appraisal Document PMC Project Management Center PMO Project Management Office PRA Participatory Rural Approach SDR Special Drawing Right SFA State Forestry Administration TEATO Technical Extension and Training Office TVE Township and Village Enterprise Vice President: Jeffrey S\. Gutman, EAPVP (Acting) Country Director David R\. Dollar, EACCF Sector Manager Mark D\. Wilson, EASRD Task Team Leader/Task Manager: Liu Jin, EASRD  CHINA FORESTRY DEVELOPMENT IN POOR AREAS PROJECT IMPLEMENTATION COMPLETION REPORT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 13 7\. Bank and Borrower Performance 14 8\. Lessons Learned 16 9\. Partner Comments 17 10\. Additional Information 17 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 19 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Borrower's ICR 27  Project ID: P046952 Project Name: Forestry Development In Poor Areas Team Leader: Jin Liu TL Unit: EASRD ICR Type: Core ICR Report Date: June 27, 2006 1\. Project Data Name: Forestry Development In Poor Areas L/C/TF Number: IF-N0390; SCL-43250; TF-27155 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Forestry (86%); Micro- and SME finance (7%); Agricultural marketing and trade (4%); Irrigation and drainage (3%) Theme: Land administration and management (P); Rural markets (P); Small and medium enterprise support (P) KEY DATES Original Revised/Actual PCD: 01/24/1997 Effective: 12/16/1998 12/16/1998 Appraisal: 02/19/1998 MTR: 10/13/2001 10/13/2001 Approval: 05/21/1998 Closing: 12/31/2005 12/31/2005 Borrower/Implementing Agency: The People's Republic of China /The Ministry of Forestry Other Partners: STAFF Current At Appraisal Vice President: Jeffrey Gutman (acting) Jean-Michel Severino Country Director: David R\. Dollar Yukon Huang Sector Manager: Mark D\. Wilson Geoffrey B\. Fox Team Leader at ICR: Liu Jin Richard Scobey ICR Primary Author: Albert Nyberg; Weiguo Zhou; Zong-cheng Lin 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Forestry Development in Poor Areas Project (FDPA) was designed to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty reduction, forestry development and improved environmental management\. China long has been a forest-poor country\. The increasing gap between timber supply and demand is a key constraint to sustainable forestry development which in turn has led to a significant threat to biodiversity and natural forest protection\. While the launch by the Government of China (GoC) of the Natural Forest Protection Program (NFPP) in 1998 was environmentally beneficial to China, it further widened the gap between timber supply and demand by imposing a nation-wide logging ban\. The increase of forest resources is a priority in China's development strategy\. Most poor areas are in the remote mountainous areas of central and western China, where agricultural land is extremely poor and forest resources are the most important production asset available, shifting the focus of afforestation activities from the more developed southern and coastal provinces to the poorer inland regions would not only contribute to the forestry development, but also support farmers' income generation, particularly for poor households, to contribute to poverty alleviation in these areas\. The project objective reflected the government's development priorities and was highly consistent with the Bank's County Assistance Strategy (CAS) for China, which fits well within its goals of: (a) "Improving efficiency and sustainability of the use of natural resources" and (b) "reducing growing disparities and improve income in disadvantaged sectors and regions in China"\. The project objectives were clear and well understood by the participating provinces and county implementation agencies\. 3\.2 Revised Objective: The objectives remained unchanged throughout the project period\. 3\.3 Original Components: The primary focus of the project was timber and economic tree crop expansion, supported by strong technical services to develop new genetic materials, training for participants to extend new technologies and management experience on effective forest establishment and management, and the development of physical infrastructure\. Additionally, credit for the development of small scale forestry product enterprises was provided\. The project components are summarized below\. The appraisal cost estimates included physical and price contingency provisions\. (1) Timber Plantation (US$121\.8 million, 33\.5 percent of total project cost at appraisal)\. Although afforestation has continued for many years and nationwide forest coverage has increased, it remains low at about 18 percent\. Deforestation and barren fragile lands have - 2 -  contributed to major flooding and erosion problems and many of these lands are not sufficiently productive to generate adequate income for the resident population\. The primary objective of the project was to develop forestry resources to support poverty reduction and forestry development in the mountainous areas of twelve provinces in central and western China, where most of the designated poverty counties are located\. This component financed the establishment of about 315,000 ha of timber plantation\. The forestry resources were intended primarily to provide to construction timber and secondarily to provide pulpwood and mine pit-props\. The main afforestation entities were to be individual households, groups of households, shareholding cooperative forest farms and village/township collective forest farms\. The improved silvicultural management program initiated in the Forest Resource Development and Protection Project (FRDPP) were to be continued and the new research results were to be extended to the project planting activities\. (2) Economic Forest Crops (US$135\.2 million, 37\.1 percent of total project cost at appraisal)\. This project component was designed to generate income for poor households in a shorter time period than would be generated from timber investments\. It was designed to finance the establishment of about 230,000 ha of economic forest crops, comprising 110,000 ha of new/rehabilitated bamboo and 120,000 ha of fruit, nut and medicinal tree crops\. The varieties/species selected were to be based on farmers' preferences ­ influenced by local market conditions and the climatic/ecological suitability of trees to site conditions\. Site selection was based on soil fertility, rainfall, temperature, erosion potential, access to markets and poverty status of the local populace\. The afforestation entities were to be individual households, groups of households and shareholding cooperative forest farms\. (3) Technical Support Services (US$ 81\.5 million, 22\.4 percent of total project costs at appraisal)\. This component was designed to strengthen technical support in planting stock development, training and extension, rural infrastructure, and monitoring and evaluation\. Over 50 present of the funds in this component were allocated to improve the quality of planting materials and introduce improved genetic materials and nursery/production management technologies\. Existing agricultural and forestry extension networks were used to disseminate/train project beneficiaries\. An additional US$8\.0 million project funding was allocated for training and extension - given project beneficiaries' relatively low education levels and unfamiliarity with silvicultural practices\. Some infrastructure ­ forest trails, limited irrigation facilities for some economic tree crops, small storage sheds, etc\. ­ was perceived as necessary to implement the project effectively\. (4) Township and Village Enterprise (TVE) Development (US$25\.5 million 7\.0 percent of total project costs at appraisal)\. This component provided on-lending support to develop and expand small-scale, labor intensive, commercially-oriented TVEs engaged in forest product processing and manufacturing\. This component was expected to generate employment for unskilled surplus labor, allow local communities to capture the economic benefits of added-value to local production, and to expand the local market\. - 3 -  3\.4 Revised Components: The original components remained unchanged throughout the project implementation period\. However, the scale and financing of the various components were adjusted to reflect the altered conditions\. In particular, the activities of TVE Component were substantially reduced following the project mid-term review\. Following the logging ban in 1998, several forest product enterprises, located in counties containing forests covered by the NFPP, were unable to obtain sufficient raw material\. Moreover, some proposed TVEs faced rapidly changing markets and management risks\. Consequently, interest in borrowing funds to establish or expand forest product enterprises was greatly reduced\. Meanwhile, instead of developing TVEs many communities requested more tree plantings as increasing planting would cover more households, particularly the poor households, and forest products have a more stable market\. At the mid-term review it was agreed to reduce the TVE establishment target from 64 to 14 enterprises\. The cost of TVE activities was reduced from 7 percent to 1\.6 percent of the total project cost\. The funds saved by reducing the TVE establishment number were reallocated to plantation activities\. The logging ban also caused some counties to reconsider their level of participation because some sites were no longer available for timber production and harvesting\. Subsequently, the number of project counties was expanded from 183 to 216 to ensure that the development targets would be met and the funds spent\. 3\.5 Quality at Entry: A Quality at Entry review was not carried out by QAG for this project\. However, timely and successful project implementation, with only modest revision, proved that the Quality at Entry of the project was satisfactory\. The project objective was consistent with the CAS and government priorities in poverty alleviation and sustainable nature resource management\. The project concept, albeit unique, was well developed and incorporated lessons learned from previous forestry and poverty alleviation projects, Quality Assurance Group/Operations Evaluation Department reviews of forestry and poverty alleviation projects, and sector studies on forestry and poverty\. Considerable liaison was required between technical forestry staff and local poverty alleviation offices/staff to ensure appropriate selection of high-return tree species and identification of poor farmer participants\. A large training component was included, primarily on economic tree management for both forestry bureau staff and farmers, and complemented existing institutional capacity in timber management\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The achievement of the project objective is rated as satisfactory\. The project was managed by the State Forestry Administration (SFA), Forestry Departments in 12 Provinces/Autonomous Regions and 216 county Forestry Bureaus as well as township Forestry Station staff\. It was implemented by individual households, groups of households, shareholding cooperative forest farms and village/township collective forest farms, accounting for 43\.2, 28\.1, 14\.5, and 14\.2 percent of the total planting areas, respectively\. The project objective was achieved and the project outcome is rated as - 4 -  satisfactory with very favorable impacts on poverty alleviation, environmental improvement, and increased timber and economic tree crop production\. The project demonstrates that the afforestation effort in poor areas could not only contribute to forestry development but also greatly assist in poverty reduction, which is quite different from other forestry development projects that focused mainly on forest resource increases\. The main outcomes and achievements were as follows: (1) Poverty Alleviation: A primary goal of the project was to develop forestry resources to support poverty reduction in the mountainous areas of central and western China where most of the designated poverty counties are located\. Within the 216 project counties, 162 counties are national and provincial poverty counties, accounting for 75 percent of the total\. About 891,700 households participated in the project's activities of which approximately two-thirds were designated as poor households\. Results of household surveys conducted in villages of all 12 Project Provinces indicate significant poverty reduction impacts have been produced by the project\. Average annual per capita incomes of project participants increased from Y670 in 1998 to Y1653 in 2004 ­ an increase of approximately 150 percent\. Products from economic trees, such as Jujube, Tea, Bamboo and Pear planted under project auspices, contributed Y573 of that increase ­ an 85 percent increase over the 1998 baseline and substantially over the 60 percent target\. The balance of the increased income was primarily due to off-farm employment; the proportion of households with per capita annual incomes of Y1,500 or more increased from 7\.5 percent to 47 percent and the proportion of very poor households earning less than Y500/ per year decreased from 41 percent to 2 percent between 1998 and 2004\. The overall poverty rate in the project counties declined from 40 percent in 1998 to 17\.5 percent at project closing in 2005, which exceeded the project target of 20 percent\. Equally important was the training farmers received, which improved their production and management skills, increased their self-confidence and stimulated additional plantings external to the project\. In addition, the project planting activities also created about 110 million man-days of employment for the local farmers\. (2) Forestry Development\. An element of all forestry projects is their contribution to the national forest resources\. A total of 375,080 ha of timber plantations was established under the FDPA, accounting for 119\.1 percent of the target in the Project Appraisal Document (PAD)\. Most of the plantations have reached the anticipated quality standards\. Though project planted timber trees are too immature to be harvested, estimates of the standing timber volume indicate that the project closing target of 3 million m3 was exceeded by about 25 percent as the result of a more rapid growth rate than appraisal estimates and an increase in the planted area of timber trees\. Similarly, the `end of cycle' volume of standing timber is estimated to exceed the full impact target by 20-25 percent\. (3) Environment Improvement\. The third goal was to improve the environment through increased forest coverage, thereby improving water conservation and reducing soil erosion\. This objective was also realized\. A close examination of historical county-level data indicates that the actual forest coverage in project counties in 1997 was 39\.1 percent rather than the 45 percent recorded in the PAD\. The total forest coverage in the project counties was 45\.8 percent in 2005 - an increase of 6\.7 percentage points over the 1997 base and far above the - 5 -  target of around 2 percent\. Among the total forest cover increase, tree plantings under project auspices increased forests by 1\.2 percent on average in the project counties\. The impact of forest coverage, including economic tree plantings, on water conservation and soil erosion was evaluated in cooperation with the Bureau of Water Conservancy under specific conditions (degree of slope, amount of rainfall, etc\.)\. Although these conditions are highly variable, applying the derived coefficients to the project area implies that project tree planting reduced water run-off (increased water conservation) and soil erosion very substantially - by 67 to 75 percent compared with the bare sites\. 4\.2 Outputs by components: (1) Timber Plantation\. A total of 375,080 ha of timber plantations was established\. About one-third of the area was planted to conifer species and two-thirds were planted to broad-leaved species\. There were nominal targets for individual species but farmers and communities were permitted to select those which they concluded, after consultation with local forestry stations, were better suited to the local environment and which faced better market prospects\. The area planted to timber species exceeded the PAD target by about 19\.1 percent\. The project's Environmental Protection Guidelines were applied correctly to both timber plantations and economic tree crops, which effectively mitigated any negative environmental impacts by proper planting practices and enhanced the sustainability of the forest resource management\. An inventory carried out by forest design institutions at project completion indicates that the growth of most plantations (94\.4%) exceeds or is close to the designed growth target, and the growth rate of a few plantations is below the project standards\. This under-target statistic is due in part to natural disasters including fire, drought and flood; an estimated 70 percent of the lower growth plantations are attributable to natural disasters\. The balance is due to inappropriate species selection for the local environment and production mismanagement ­ the most common being insufficient use of fertilizer\. Action plans to improve the plantation quality and to provide the necessary financing have been developed by relevant county Project Management Offices (PMOs) and planting entities\. (2) Economic Forest Crops\. Plantings of economic trees (fruits, nuts, tea, and medicinal/ industrial oils) totaled 156,980 ha and 132,440 ha of bamboo were established or rehabilitated\. These plantings exceeded their PAD targets by 30\.8 percent and 20\.4 percent, respectively\. Plantings of virtually all economic tree species exceeded their targets; ginkgo was the notable exception\. The project design incorporated, as much as possible, a wide range of tree species to ensure that poor households would receive a diversified income over both the short and long terms\. The quality inventory classified 95\.8 percent of bamboo plantations up to the growth target\. Other economic tree crops had a somewhat lower proportion of 93\.2 percent above or within the satisfactory category\. Longan, tea, chestnut and hazelnut were among the better quality plantations ­ ginkgo and tung were the lowest\. An important reason for the lower proportions of the economic crops is the decline in prices for a few of these economic tree products, - 6 -  which reduced farmers' enthusiasm and discouraged their use of fertilizers and other cash inputs\. It is noteworthy that while the proportions of plantations that met the growth standards were relatively lower during the initial years of the project, between 90 percent to 95 percent, the proportion improved noticeably and exceeded 97 percent, during the final two years of planting\. (3) Technical Support Services\. The technical support services component comprised four sub-components: (a) The planting stock development program focused on the provision of superior seeds and seedlings\. Two-thirds of seed was collected from mother trees and seed orchards and one-fourth of seedling was clonal planting stock\. About 460 superior provenance, families and clones of timber species and 260 new varieties of economic species were introduced to the project areas\. About 1\.5 billion Grade 1 seedlings were produced to meet the project demand of 1\.1 billion ­ some 400 million seedlings in excess of the project needs, which were then made available to non-project households\. Improved nursery technology (including tissue culture) and management experience were adopted\. All Grade 2 seedlings were removed, ensuring that the project used only Grade 1 seedlings\. (b) The technical extension and training program provided technical and management training to a large number of farmers and staff of project implementation agencies in tree production and management\. Project training achievements exceeded targets\. Senior managers participated in international study tours/training in 12 different countries involving about 3,000 person-days; approximately 49,000 person-days of management and technical training were held for Provincial and County staff by Central-and Provincial-level PMOs; and almost 300,000 person-days of training were held at the County level for township forest station staff and farmer leaders ­ about 400 percent more than the 60,480 target\. More than 121,000 farmer leaders were trained to provide on-the-spot routine technical information\. In addition, about 3\.3 million farmer training days were completed ­ or seven percent more than the original target of 3\.1 million\. An important element of the training program were demonstration forests which were established on 29,520 ha (about 300 percent greater than the 5,815 ha target) in 161 project counties and covering all of the important plantation species, including several minor broad-leaf and economic tree species\. Managerial and technical material, exceeding 470,000 volumes, were printed at the Central and Provincial levels for project staff and over 2\.5 million leaflets, booklets and handbooks were printed at the county level (all 216 counties) for distribution to farmers\. In addition, numerous audio-visual aids were produced to train staff in superior cultivation and management techniques\. Since project areas are largely located in the remote poor counties, and most of the project households were poorly educated and unfamiliar with improved silvicultural practices, the training and extension program was extremely important to improve farmers' capacity in planting technologies, production and management\. Interviews with field technicians and farmers confirmed that they received significant technical training and other technical services including market information, and adopted a series of modern techniques for - 7 -  plantation establishment and management\. The project introduced and institutionalized plantation management skills would benefit poor farmers through increased income generation and contribute to sustainable forest management\. (c) Rural marketing infrastructure (transportation, cold storage facilities, etc\. for economic tree crops) expected to be constructed during the final two years of project implementation was reviewed by Provincial officials and was largely considered unnecessary as the private sector has responded quickly to the market needs in this area to generate short-term income by such investment\. Only Shanxi Province utilized project funds for infrastructure investment and the unutilized funds were reallocated to alternative uses following the review\. This sub-component should have received a more thorough analysis at appraisal\. (d) The monitoring and evaluation program was successfully undertaken\. A simple project monitoring and evaluation system was established to monitor project performance in achieving its development objectives and regularly assess the project's environmental and socioeconomic impacts\. Also, various data bases were maintained\. The effective monitoring contributed to improving the project implementation quality; it also provided timely feedback to project implementation agencies enabling them to improve or adjust implementation as issues arose\. In addition: (a) household surveys were undertaken to provide baseline, mid-term and project closing information and data; (b) an income survey was conducted at project closing to determine the project's impact on poverty alleviation; and (c) a plantation growth survey was carried out at the end of the project to collect the technical data necessary to evaluate achievement of the project's production objective\. These surveys and data bases facilitated the effectiveness of the monitoring and evaluation program\. Plantation establishment and environmental protection monitoring was effectively conducted throughout project implementation\. However, inadequate attention was accorded the community participation process at the early stage of the project\. The monitoring of farmer participation and project beneficiary selection was improved following the Bank's recommendation, thus ensuring that the participatory process would be maintained during project implementation and that the majority of project benefits would accrue to the poor counties, communities and households\. (4) Township and Village Enterprise Development\. During the mid-term review, the TVE target number was reduced from 64 to 14\. Accordingly, a total of Credit funds of SDR 2\.48 million and Loan balance of US$ 6\.10 million of the TVE component finances were reallocated to plantation establishment\. The implementation of the component was poorer than expected and it is rated as unsatisfactory\. Of the 14 TVEs included in project financing, nine remain in operation and five have failed\. Several reasons have been identified for reduced interest in borrowing for timber product TVE development and the poor performance of some TVEs\. First, the launched NFPP (enacted in 1998) banned logging in natural forests, thereby limiting the supply of raw material for many proposed TVEs\. Second, the lack of professional staff in the provincial and county PMOs and the complex review and approval process caused - 8 -  design and approval delays\. Third, during this elapsed time market demand for several products changed substantially\. Fourth, the enterprises were small-scale requiring relatively low quantities of technical inputs but intensive labor inputs, thus making them scale inefficient and less competitive\. It is noted that great attention was paid by both client and the Bank task team to improve the management of the TVEs during the project implementation and timber processing specialists were hired to provide technical and management assistance to the project TVEs\. With great effort, the operational efficiency of some TVEs was strengthened and the market competitiveness was improved\. Several enterprises performed very well\. However, the performance record of individual TVEs was mixed\. Clearly, more thought and analyses should have been directed toward this component during preparation and appraisal\. 4\.3 Net Present Value/Economic rate of return: The major quantifiable benefits of the project are derived from the incremental value of timber, horticultural products and TVE outputs\. Other significant non-quantifiable benefits were derived from: (a) environmental benefits such as reduced soil erosion and carbon sequestration; (b) improved technical support services; and (c) capacity building\. Economic analysis was carried out for each of the 32 species models, each individual TVE, the Timber Production Component, the Economic Forest Crops Component, the TVE Development Component and the project as a whole\. Compared to the PAD projections, the analysis showed an overall improved economic rate of return (ERR) at 26\.2 percent for the project\. The improved ERR for the Timber Production Component is due mainly to higher economic value of timber, the slightly lower ERR for Economic Forest Crops Component was due mainly to higher labor cost, and the substantially reduced ERR of the TVE Development Component was due mainly to the reduced numbers of TVEs and ineffective management of some TVEs\. The Net Present Value (NPV) of the project was re-estimated at 5,419 million Yuan ($655 million equivalent) with the opportunity cost of capital at 12 percent and calculated over a 27-year period\. This result is very robust to wide changes in key variables\. Annex 3 provides more details\. ERR Estimate (%) Appraisal Estimate Latest Estimate Component Timber Production 20\.1 24\.4 Economic Forest Crops 27\.9 27\.5 TVE Development 37\.9 14\.7 Total Project 24\.4 26\.2 - 9 -  4\.4 Financial rate of return: Financial analysis, using a cost and benefit analysis approach, was carried out for each species model, each individual TVE, the Timber Production Component, the Economic Forest Crops Component, the TVE Development Component and the project as a whole\. For consistency and compatibility, the analysis followed the methodological assumptions observed at project appraisal: (a) one rotation for all timber species; (b) a 25-year time period; (c) complete production and harvesting costs; and (d) complete actual investment costs\. Benefits are derived from timber, horticultural products and by-products (such as fuel wood and resin) but neither investment for, nor revenue from, inter-cropping is considered\. Financial prices are in 2005 current prices\. Actual import prices or the market prices paid were used for inputs\. Weighted average roadside prices and average market prices collected from all project provinces were used for timber products and economic forest crop products, respectively\. An average daily rate for labor was used in labor valuation, which was increased by about 20 percent from the appraisal estimate\. All these prices have been converted to 1998 constant prices based on the official inflation indices during the period\. Financial rates of return (FRR) are estimated at 23 percent, 18\.3 percent, 25\.9 percent and 19\.4 percent, respectively, for the project as a whole, the Timber Production Component, the Economic Forest Crops Component and the TVE Development Component\. These FRRs are all significantly higher than those at project appraisal, except that for TVE Development Component\. This overall improved project FRR was attributable mainly to: (a) the increase in the plantation area; (b) more favorable market prices for many project products; and (c) reduced or exempted tax obligations\. The FRRs for individual species models range between 12\.1 percent and 59\.5 percent\. The estimated FRRs are generally sensitive to market prices, assumptions about the stand's age at final harvest and tree productivity\. The detailed calculations for FRRs are available in the project file\. The future fiscal impact of the project for the government budget will be for the support service expenditures for staff and facilities and adequate budget provision has been firmly committed by various levels of government\. Commercial operations such as TVEs have positive impacts by generating tax revenues\. FRR Estimate (%) Component Appraisal Estimate Latest Estimate Timber Production 14\.7 18\.3 Economic Forest Crops 24\.2 25\.9 TVE Development 28\.7 19\.4 Total Project 19\.8 23 - 10 -  4\.5 Institutional development impact: The project had a substantial institutional development impact\. The project enhanced and expanded the effective administrative system developed under prior projects ­ including technical standards, regulations and guidelines ­ leading to improved extension effectiveness\. The broad theoretical knowledge and practical skills of senior forestry academics and practitioners were captured by forming a national technical consultancy team (211 experts)\. This team of experts assisted in developing and promoting advanced forestry management and cultivation technologies that the Forestry Station staff introduced to farmers, greatly improving farm-level efficiency and productivity\. The project's training component provided extensive administrative and intensive technical training which introduced new management and technical skills at all levels in the forestry sector\. The technical skills of Forestry Station personnel, who interact with farmers, were upgraded and expanded to include economic tree cultivation and management\. All of the project expertise has been retained by integrating project activities into routine forestry activities; furthermore, staff turnover was limited to retirement\. Lastly, skilled farmer leaders were trained to provide a stable line of communication from Forestry Stations to other village farmers\. The institutional development success is demonstrated by the large areas of timber and economic tree establishment, using the improved technologies that has occurred outside the project\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Several external factors affected project implementation, both positively and negatively\. On the positive side, the increased prices for products of most timber species increased farmers' interest in participation and improved the financial/economic benefits of the project\. Economic tree product prices fluctuated, but the average prices and net incomes appear to have been relatively stable\. However, other factors negatively affected project implementation and success\. Firstly, the changes in the US$ exchange rate with respect to the SDR during implementation reduced the US$ value of the IDA Credit by an estimated US$1\.57 million\. This is a small impact as an undisbursed Loan balance remained at Project closing\. Secondly, several localized natural disasters affected tree survival and quality\. For example, droughts in three provinces (Henan, Shanxi and Hebei) in 2002 contributed to some plantations' failure to reach growth standards, and fires affected an estimated 0\.8 percent of the plantings in Hunan Province\. 5\.2 Factors generally subject to government control: Factors which were subject to government control also had both positive and negative impacts on project implementation\. Positive factors include: (a) the government's decision to eliminate the eight percent Agricultural Tax which had the effect of improving the net income of farmers and foresters and stimulated interest in increasing agriculture and forestry production; and (b) the very favorable macroeconomic climate of strong economic growth and reform contributed to increased labor movement and improved ability to earn - 11 -  off-farm income and reduce poverty\. The transfer of surplus labor out of the poverty areas increased farmer labor wages and reduced interest in labor-intensive agricultural production\. As a result of the smaller labor requirement for forest crops, this transfer had a positive impact on project implementation\. Unfavorable implementation factors included: (a) the National NFPP that prohibited logging in selected areas of Sichuan, Guizhou and Yunnan\. Some project areas identified for initial afforestation were in these protected zones and were no longer available for timber plantation establishment\. The plantation tasks and funding were then reallocated to other project provinces and counties; (b) the logging ban, coupled with market changes in a liberalized market environment, impacted negatively on raw material supply to forestry TVEs and the market for processed timber products, causing some to downsize or discontinue operations; and (c) the logging ban also reduced financial revenues in counties located in the Program areas, which reduced the availability of counterpart funds\. In addition, the selection of project counties focused on poverty counties which are inherently budget constrained and limited the capacity to meet counterpart commitments\. Government counterpart funds provided were below commitment levels, and the shortage was largely compensated by increased investment by farmers and planting entities\. 5\.3 Factors generally subject to implementing agency control: The project management system and structure was very strong and indispensable to successful implementation and sustainability\. Skilled, high-level advisory groups were established at the Central level which further improved management and technical skills\. The pyramidal management structure, from the Central level down to township Forestry Station level was well coordinated, staff were knowledgeable and capable, and staff turnover was minimal and favorably facilitated project implementation, training and information flows\. The project developed a delivery mechanism for extension capable of reaching individual households and providing detailed information on appropriate tree species for specific locations that, combined with a participatory implementation approach, enabled farmers to plant tree species of their own selection and ensured strong farmer participation interest\. Successful implementation was further supported by research and training (involving new technologies, demonstration plots, plantation management, etc\.)\. Community Forestry Assessment (CFA) was first introduced into China's large-scale plantation development by the FDPA, and became a distinct factor enabling the project to involve large numbers of farm households, especially the poorer ones\. Based on a participatory rural approach (PRA) , CFA was the mechanism linking project planning and farmers' demands and aspirations, and facilitated local communities' participation in the entire project process\. CFA oriented the project design and implementation toward poor households, on the basis of their needs\. As a result, the project widely benefited poor households\. - 12 -  Early in project implementation, management perceived the difficulties of implementing the TVE component under the altered Forest Policy environment and appropriately requested downsizing that component, along with the marketing infrastructure sub-component, and reallocated the released funds to afforestation activities\. 5\.4 Costs and financing: Total project costs are estimated at US$370\.3 million, about 2 percent over the appraisal estimate of $364\.0 million\. The project cost among components was adjusted during project implementation to support an increased number of both timber plantation and economic forest crops\. While financing sources remain unchanged from the appraisal plan, both absolute and relative contributions by each source changed\. Contributions from all sources were reduced except for the beneficiaries' contribution\. Of the total financing required, about 52 percent was funded by the Bank, 3 percent lower than the appraisal estimate\. The aggregated financial contributions of all government entities were reduced to 17 percent from the appraisal estimate of 27 percent\. The beneficiaries' contribution increased from 18 percent at appraisal to 31 percent, mostly in the form of labor, organic manure and a limited amount of cash\. An undisbursed balance of about US$5\.5 million was cancelled from the Loan Account\. Project costs and financing are outlined in Annex 2\. 6\. Sustainability 6\.1 Rationale for sustainability rating: A complex set of factors are combined to rate the sustainability of the project's development impact as highly likely\. The physical project activities were largely completed and it is highly likely that the plantations will survive and grow as anticipated, which will generate economic and financial returns and environmental benefits as forecast\. Administrative and technical support for timber and economic tree production is well established ­ from the central SFAs down to township Forestry Stations ­ and is well respected by farmers/foresters\. The prices of many timber and economic tree species have increased, increasing tree crop profitability\. The participatory approach initiated under the project was welcomed by farmers and they remain enthusiastic\. Farmer training in new technologies and management techniques led to productivity gains greater than anticipated at appraisal, in both timber and economic tree crops, leading not only to higher household incomes but improving human capital and farmer self-confidence\. Many farmers have further developed and expanded tree crop areas outside the project, utilizing their own resources for expansion\. Tree plantings under project auspices increased the forested area in project counties; in addition, non-project planting increased the forested area by more than 5 percent in the project counties during the project implementation period, indicating both interest and capability\. 6\.2 Transition arrangement to regular operations: The institutional arrangement for regularizing post-project activities is well-developed, understood and effective\. The forestry management, organization and structure facilitate the merging of project activities including pest management, fire prevention and control, technical assistance to farmers and planting entities, as well as other plantation maintenance - 13 -  functions into their operational routine and this has been largely achieved\. The Bank ICR mission emphasized that because the plantations have a long gestation period before delivering their final economic benefits, and the appropriate post-project management arrangements are essential to ensure that the expected project benefits are achieved\. Many project entities have developed post-project action plans to ensure continuity and others have committed to prepare post-project plantation management action plans\. The funds for post-project plantation management will be largely derived from selling economic tree products, harvest of existing plantations and using other short-term income\. Though some of the poorest farmers might have difficulty in meeting their initial loan repayments, particularly if they selected timber species, local County governments are committed to supporting the poor and have promised repayment assistance if necessary\. In addition, the provincial and county PMOs have committed to strengthen information service to the farmers and planting entities to improve the linkages between plantation production and markets needs\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank's performance in the identification, preparation and appraisal of the project is rated as satisfactory\. The project's objectives and scope were consistent with the government's strategy for sustainably increasing forestry stocks/supplies, improving the environment, and reducing poverty\. The project also reflected the Bank's CAS priorities in these areas\. The Bank team appropriately appraised government's commitment and the Forestry agencies' capacity to implement the project\. The project incorporated experiences and lessons learned from previous forestry and poverty alleviation projects\. No major identification/preparation shortcomings have been identified\. However, greater in-depth evaluation of the marketing infrastructure at the preparation stage could have determined that demand for such infrastructure was relatively weak\. The TVE component was weakly implemented, which was largely because the preparation team could not have foreseen the policy change that affected the viability of forestry TVEs\. In addition, the small-scale and labor-intensive TVE design reduced the competitive capacity of the enterprises\. 7\.2 Supervision: The Bank's supervision performance in implementing the project is rated as satisfactory\. A stable task team including a forestry specialist and a social development specialist was maintained throughout the implementation period\. Supervision teams retained continuity, made flexible but timely visits and included appropriate combinations of skills to address issues as they became relevant\. This continuity fostered a mutually trusting working relationship with the implementing agencies and facilitated superior supervision; implementation problems and issues, such as a revised disbursement rate and adjusted TVE activities, were promptly addressed\. - 14 -  7\.3 Overall Bank performance: The overall Bank performance during project identification, preparation and supervision is rated as satisfactory\. Borrower 7\.4 Preparation: The borrower's performance in project preparation is rated as satisfactory\. Adequate resources were committed to project preparation; all levels of government and project implementation agencies strongly supported the project objective and goals and made the political and financial commitments necessary for successful implementation\. Appropriate lessons learned from previous forestry and poverty projects were incorporated into the project design ­ including sufficient extension staff and farmer training to ensure that new technologies and management practices were thoroughly understood and incorporated into farm-level production\. During project preparation, numerous meetings were held at township and village levels to identify potential village and farmer participation\. Government officials and implementing agency staff worked closely and continuously with the Bank's preparation staff\. SFA's strong organizational structure for project preparation and implementation ensured all relevant agencies were appropriately involved and issues requiring resolution were effectively and promptly resolved\. The only preparation weakness was insufficient attention to, and analysis of, the issues that affected on-lending for TVE development and expansion\. 7\.5 Government implementation performance: The government's implementation performance is rated as satisfactory\. Poverty reduction and environmental protection are high priorities and the government maintained strong interest in the project throughout implementation\. When changes in implementation became necessary, the government promptly responded with appropriate requests and comments, and the government-Bank cooperation remained strong throughout implementation\. 7\.6 Implementing Agency: The performance of the implementing agencies, from the central PMC through all levels down to township Forestry Stations, is rated as satisfactory\. The project employed a participatory approach not before utilized in forestry projects, which was highly successfully and enthusiastically supported by farmer participants\. There was full compliance with the legal covenants in the Credit and Loan Agreements; the quality of physical implementation was consistently high and outputs exceeded targets\. Problems with fertilizer procurement were addressed, although not fully resolved until a number of necessary fertilizers were purchased locally and Organic manure was largely applied\. 7\.7 Overall Borrower performance: The overall performance of the borrower is rated satisfactory\. - 15 -  8\. Lessons Learned The successful implementation of the project provided the following lessons which will be useful in designing future forestry projects in poor areas: (a) Farmer participation and empowerment through CFA was an appropriate project innovation that helped to ensure that social objectives were achieved\. Although staff intensive, the CFA model was effective and instrumental in poor farmer participation, and farmers keenly supported the concept\. This process should be replicated in future forestry development and poverty alleviation projects\. (b) A strong research-extension-training linkage was fundamental to transferring new production techniques/technologies and management to farmers/foresters\. A highly qualified senior consultancy group and researchers provided advice and information and was effectively linked through the project structure with farmers\. This strong linkage also provided superior planting materials and facilitated timber and economic tree productivity gains that exceeded targets\. (c) The development of a fertilizer market implies that farmers can obtain fertilizer more efficiently than through central procurement and distribution\. Future projects should include fertilizer costs in farmers' loan packages\. (d) The participatory approach is effective in ensuring farmers/foresters feel a sense of `ownership', but very poor farmers/foresters must be cautioned that planting timber species could result in loan repayment difficulties as maturity and harvest are long term\. They should be encouraged to plant early-bearing economic tree crops or to diversify planting species to include both short term and long term species\. Long rotation timber species might be appropriate if farmers have other short-term income generating activities that meet their livelihood needs before timber can be harvested\. (e) Intensive and detailed TVE analyses are necessary for projects with TVE on-lending components\. Manufacturing enterprises are more susceptible to market shifts than producers of raw materials and therefore requires critical evaluation\. If TVE components are included in future projects, project preparation and implementation agencies must have staff qualified to appraise enterprises to ensure; (a) commercial viability in both input and output markets; (b) scale efficiencies are achievable; (c) there is sufficient flexibility to adjust to policies that may limit input or output markets; and (d) inventory and cash flow management are realistic and consistent with borrowing and repayment capacity\. - 16 -  9\. Partner Comments (a) Borrower/implementing agency: Thanks to the concerted efforts and sound cooperation between us and the World Bank over the past seven years, the implementation of FDPA well achieved the designated targets\. We regard that the ICR has objectively reflected the project performance\. (b) Cofinanciers: No cofinancing was involved in the project\. (c) Other partners (NGOs/private sector): No other partners were involved in the project\. 10\. Additional Information - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Actual as % Indicators Projected in Actual/latest of appraisal PAD estimate estimate A\. Poverty Reduction 1\. Number of participating household 700,000 891,695 127 2\. % of poor household 70 67 96 3\. % of minority household 18 19 106 4\. Per capita income of project beneficiaries increased by % 60 85 142 5\. Incidence of poverty decreased from 40% in 1996 to 20 18 114 B\. Forest Resource Development 1\. Incremental standing volume of timber (million m3) 54 64\.9 120 2\. Incremental horticultural production value (RMB million) 2,300 3,060 133 C\. Environmenal management 1\. Rate of forest coverage increased, % 39 46 117 D\. Capacity Building (person-day) 1\. Overseas Study Tours/Training 3,675 3,060 83 2\. Training at national level 3,410 3,840 113 3\. Training at provincial level 26,730 45,181 169 4\. Training at county level 60,480 296,143 490 5\. Training at township level 3,112,085 3,298,804 106 6\. International consultants 120 66 55 7\. National and local consultants 105,400 Output Indicators: Actual as % Indicators Projected in Actual/latest of appraisal PAD estimate estimate A\. Tree Plantation Total plantation area (ha\.) 545,000 664,497 122 Grade I plantation, % 85 95 112 Class I seedlings produced (billion pieces) 1\.1 1\.5 136 % of clone planting stock 20 25 125 Number of sheds constructed (shed) 3,000 1,576 53 Value of marketing investments ( RMB million) 40 1 3 B\. Township and Village Enterprises Number of TVEs established 64 14 22 Number of jobs created 8,320 1,500 18 of which, % poverty farmers 70 60 86 Gross TVE output (RMB million) 212 87\.5 41 Notes: a\. All the indicators are valued at the project close except B1 incremental standing volume and B2 horticultural production value, which are the estimated values at full impact of the project\. b\. Per capita income increase of project beneficiaries includes the income of the householders who have planted economic tree crops\. - 18 -  Annex 2\. Project Costs and Financing Actual/Latest Actual/ Actual/ Appraisal Estimate MTR adjusted Estimate Appraisal MTR component US$ million US$ million US$ million % % A\. Timber Plantation 121\.80 131\.50 128\.6 106 98 B\. Economic Forest Crops 135\.20 145\.20 149\.8 111 103 C\. Technical Support Services 81\.50 81\.50 86\.3 106 106 D\. TVE Development 25\.50 5\.80 5\.6 22 97 Total 364\.00 364\.00 370\.3 102 Project Costs by Procurement Arrangements (Appraisal Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost /c ICB NCB Other /a NBF /b 1\. Works 1\.1 290\.0 291\.1 (0\.6) (143\.5) (144\.1) Plantation Establishment 278\.0 278\.0 (137\.6) (137\.6) Civil Works 1\.1 12\.0 13\.1 (0\.6) (6\.0) (6\.5) 2\. Goods 39\.3 8\.6 14\.4 62\.3 (39\.3) (4\.7) (9\.2) (53\.3) Equipment 1\.8 8\.1 10\.5 20\.3 (1\.8) (4\.2) (5\.3) (11\.3) Vehicles 11\.8 11\.8 (11\.8) (11\.8) Silviculture Inputs 25\.7 0\.5 4\.0 30\.2 (25\.7) (0\.5) (4\.0) (30\.2) 3\. Services 4\.1 6\.5 10\.6 (2\.6) - (2\.6) Training and Study Tours 0\.9 5\.4 6\.2 (0\.9) - (0\.9) Consultant Services 3\.2 1\.1 4\.4 (1\.8) - (1\.8) Total 39\.3 9\.7 308\.5 6\.5 364\.0 (39\.3) (5\.3) (155\.4) (0\.0) (200\.0) Note: Figures in parenthesis represent the amount financed by the Bank\. /a Other procurement methods include force account and community participation for plantation establishment, some rural infrastructure civil works (trails, sheds, irrigation facilities, and marketing infrastructure); and some TVE civil works; direct contracting for seeds; limited international bidding for pesticides; international shopping for some equipment; and training and consultant services\. /b NBF means non-Bank financing\. /c Total cost includes contingencies\. - 19 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost ICB NCB Other /a NBF /b 1\. Works 326\.0 326\.0 (173\.5) (173\.5) Plantation Establishment 314\.7 314\.7 (167\.7) (167\.7) Civil Works 11\.4 11\.4 (5\.9) (5\.9) 2\. Goods 12\.4 0\.8 5\.7 17\.0 35\.9 (12\.4) (0\.8) (5\.1) - (18\.3) Equipment 0\.4 0\.5 0\.3 1\.2 (0\.4) (0\.5) (0\.2) (1\.2) Vehicles 9\.0 9\.0 (9\.0) (9\.0) Silviculture Inputs 3\.0 0\.3 5\.4 17\.0 25\.7 (3\.0) (0\.3) (4\.9) - (8\.1) 3\. Services 2\.4 6\.1 8\.4 (1\.1) - (1\.1) Training and Study Tours 0\.8 2\.7 3\.5 (0\.8) - (0\.8) Consultant Services 1\.6 3\.4 5\.0 (0\.3) - (0\.3) Total 12\.4 0\.8 334\.1 23\.1 370\.3 (12\.4) (0\.8) (179\.7) (0\.0) (192\.9) Note: /a Other procurement methods include force account for plantation establishment, all civil works; direct contracting for seeds; limited international bidding for pesticides; international shopping for some equipment; and training and consultant services\. /b NBF means non-Bank financing\. Figures in parenthesis represent the amount financed by the Bank\. - 20 -  Project Financing by Component (in US$ million equivalent) Component Appraisal Estimate Bank Government Beneficiaries Total A\. Timber Plantation 121\.80 B\. Economic Forest Crops 135\.20 C\. Technical Support Services 81\.50 D\. TVE Development 25\.50 Total Project Cost 200 98\.5 65\.5 364\.00 Component Actual/Latest Estimate Bank Government Beneficiaries Total A\. Timber Plantation 76\.8 22\.7 29\.2 128\.6 B\. Economic Forest Crops 74\.4 23\.7 51\.6 149\.8 C\. Technical Support Services 39\.1 15\.2 32 86\.3 D\. TVE Development 2\.6 0\.7 2\.3 5\.6 Total Project Cost 192\.90 62\.30 115\.10 370\.30 Component Percentage of Appraisal Bank Government Beneficiaries Total A\. Timber Plantation 106\.0 B\. Economic Forest Crops 111\.0 C\. Technical Support Services 106\.0 D\. TVE Development 22\.0 Total Project Cost 96\.5 63\.0 176\.0 102\.0 Note: /a No breakdown of financing by component was made at project appraisal\. /b Total may not tally due to rounding\. - 21 -  Annex 3\. Economic Costs and Benefits Economic Analysis Financial Analysis Appraisal Estimate Latest Estimte Appraisal Estimate Latest Estimte Species ERR % NPV (yuan) ERR % NPV (yuan) FRR % NPV (yuan) FRR % NPV (yuan) Timber Production 20\.1 1,290,339 24\.4 2,097,079 14\.7 363,708 18\.3 848,582 1 Masson Pine (14) 18\.3 4,364 17\.2 4,117 13\.1 630 12\.9 555 2 Masson Pine (16F) 18\.6 4,417 17\.4 4,118 13\.4 767 13\.1 660 3 Masson Pine (16P) 19\.1 5,585 18\.3 5,735 14\.6 1,647 14\.3 1,580 4 Slash Pine (16) 19\.5 6,329 18\.9 6,874 15\.3 2,254 15\.4 2,496 5 Slash Pine (14) 19\.9 6,090 19\.2 6,480 15\.2 1,976 15\.2 2,204 6 Slash Pine (12) 20\.2 5,619 19\.2 5,651 14\.8 1,537 15\.0 1,781 7 Loblolly Pine (14) 20\.2 6,423 19\.3 6,693 15\.5 2,222 15\.2 2,183 8 Loblolly Pine (12) /b 19\.2 5,668 14\.8 1,748 9 Chinese Fir 20\.5 8,295 19\.1 8,060 16\.0 3,286 14\.9 2,475 10 Japanese Larch (16) 16\.6 3,145 16\.1 3,366 12\.1 42 12\.1 62 11 Chinese White Poplar 21\.6 7,185 22\.7 9,612 17\.3 3,292 17\.6 3,703 12 Populus Simonii /b 21\.9 2,756 16\.0 982 13 Italian Poplar 29\.3 5,854 38\.0 12,450 20\.7 2,551 29\.7 6,926 14 Eucalyptus 34\.0 4,864 42\.2 9,163 24\.6 2,527 32\.3 5,101 15 Black Locust 18\.7 2,514 19\.1 3,280 13\.0 302 13\.1 379 16 Broad-leaf Trees 16\.2 2,565 15\.6 2,581 12\.1 72 12\.0 20 Economic Tree Crops 27\.9 2,402,271 27\.5 3,314,319 24\.2 1,736,839 25\.9 2,835,182 1 Moso Bamboo - new 18\.8 3,665 22\.6 7,674 13\.4 672 20\.0 5,373 2 Moso Bamboo - rehab\. 23\.6 5,468 28\.2 10,601 17\.6 2,290 25\.6 8,050 3 Arundinaria 32\.5 10,019 27\.9 8,402 32\.2 10,909 23\.2 5,484 4 Dendrocalamus 40\.8 12,687 43\.7 16,689 34\.2 9,768 37\.2 12,402 5 Walnut 26\.6 14,013 26\.3 15,940 21\.1 7,551 28\.5 20,041 6 Chestnut 26\.3 14,358 26\.5 17,611 24\.1 11,711 22\.0 10,642 7 Eucommia 19\.4 5,006 19\.7 5,599 15\.6 2,182 17\.8 3,915 8 Gingko 34\.5 24,397 18\.8 5,678 31\.9 20,982 14\.7 2,066 9 Jujube 24\.9 8,768 31\.6 18,598 19\.1 4,420 27\.8 13,649 10 Pear 33\.4 20,712 28\.6 17,015 32\.2 20,451 36\.1 29,992 11 Tea 25\.0 11,365 36\.4 28,771 21\.9 8,003 34\.4 25,383 12 Anise 33\.8 30,942 19\.3 6,115 31\.3 24,004 17\.3 3,974 13 Orange 35\.7 35,705 25\.3 16,991 33\.6 32,411 35\.4 40,349 14 Oil Tea - rehab\. 28\.4 11,382 24\.9 10,906 23\.9 7,495 23\.4 9,052 15 Hazelnut - rehab\. 34\.6 4,212 74\.8 18,395 26\.0 2,586 59\.5 12,528 16 Apricot 41\.2 37,320 39\.9 37,720 38\.4 33,281 31\.1 20,810 17 Tung Tree 25\.0 3,849 15\.4 935 18\.6 1,883 12\.4 101 18 Longan 36\.3 21,628 24\.5 11,005 33\.6 19,362 20\.5 6,809 TVE Development 37\.9 413,308 14\.7 7,309 28\.7 212,129 19\.4 14,942 1 Solid Wood Floor Board 44\.4 11,488,164 28\.7 5,115,611 2 Ply-Bamboo Concrete Formwork 42\.2 6,694,993 27\.7 2,813,968 3 Fine Wood Board 41\.0 7,392,646 32\.2 3,919,054 4 Rosin $ Turpentine 32\.2 7,335,396 19\.5 2,090,634 5 Fruit Cold Storage 27\.8 3,734,645 22\.3 1,851,862 6 Wicker-work 26\.4 1,811,950 32\.4 2,425,869 Total Project 24\.4 3,990,174 26\.2 5,418,622 19\.8 2,214,589 23\.0 3,698,632 Notes: a\. Based on 12% discount rate\. b\. Loblolly Pine (12) and Populus Simonii were dropped during project implementation\. c\. NPV for the individual components and the total project is in '000 yuan\. d\. Analytical results for individual TVEs actually supported under the project are not shown due to their irrelevance to the TVE groups at appraisal\. - 22 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 11/1996 4 TL, ECO, PM, SD 04/1997 7 TL, ECO, ID, PM, SD, S, H Appraisal/Negotiation 10/1997 6 TL, PM, SD, H, LM, M 03/1998 8 TL, ECO, PM, SD, E, FS, LM, M Supervision 11/1998 5 TL, D, E, PM, S S S 06/1999 4 TL, D, PM, S S S 12/1999 4 TL, D, PM, S S S 04/2000 6 TL, D, ET, PM, S, TP S S 10/2000 8 TL, D, AE, SD, S, H, TP, PM S S 05/2001 5 TL, H, TP, SD, D S S 10/2001 7 TL, D, AE, SD, S, H, TP S S 06/2002 3 TL, S, H S S 11/2002 6 TL, DS, SD, S, H S S 09/2003 5 TL, FM, SD, S, H S S 05/2004 4 TL, FM, SD, E S S 03/2005 4 TL, FM, SD, E S S ICR 04/2006 4 TL, E, AE, SD S S AE = Agricultural Economist D = Disbursement Specialist E = Economist ECO = Ecologist ET = Economic Tree Crop Specialist FM = Financial Management Specialist FS = Forestry Specialist H = Horticulturist ID = Institutional Development Specialist LM = Land Management Specialist M = Marketing Specialist PM = Plant Materials Specialist S = Silviculturalist SD = Social Development Specialist TL = Team Leader TP = Timber Processing Specialist (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 14\.6 55\.01\. Appraisal/Negotiation 30\.3 115\.53 Supervision 150\.9 363\.21 ICR 11\.2 33\.52 Total 207\.0 567\.27 - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 -  Annex 7\. List of Supporting Documents 1\. China FDPA ICR by PMC, SFA, March 2006\. 2\. China FDPA Technical Extension and Training Summary Report, March 2006\. 3\. FDPA Third Household Survey Report, March 2006\. 4\. FDPA Community Forestry Assessment Summary Report, March 2006\. 5\. FDPA Young Plantation Quality Inventory Report, March 2006\. 6\. FDPA Environmental Monitoring Analysis Report, March 2006\. 7\. FDPA Performance Indicator Monitoring Table, March 2006\. 8\. Henan Province FDPA ICR, April 2006\. 9\. Anhui Province FDPA ICR Brief, April 2006\. 10\. Aide-Memoire for FDPA ICR Mission, April 2006\. - 26 -  Additional Annex 8\. [Borrower's ICR] Implementation Completion Report World Bank Loan Project Management Center, SFA, China March 2006 Executive Summary Project name: Forestry Development In Poor Areas Project (FDPA) (N039/4325-CHA)\. Execution period: From December 16, 1998 to December 31, 2005, seven years in total\. Project objective: Establish 545,000 ha of timber plantation, economic tree crops, and bamboo forests, based on sustainable and local participatory principles, in 12 project provinces (regions) of central and western China, to add forest resources and speed up forestry development, alleviate local poverty and improve the environment\. The borrowers: The project borrowers are of 4 levels\. The first level is the Ministry of Finance, P\. R\. China (on behalf of the Chinese government); The second level is the people's governments of the 12 provinces (regions) of Hebei, Shanxi, Liaoning, Anhui, Jiangxi, Henan, Hubei, Hunan, Guangxi, Sichuan, Guizhou and Yunnan; The third level is the people's governments of the 216 counties (cites) of the above 12 provinces (region); The fourth level is the 470,000 entities (households, household groups, shareholding forest farms or collective forest farms) of the above 216 project counties (cites)\. Total investment: The planned total project investment is RMB3\.02 billion Yuan (equivalent to 364 million USD in 1998), including World Bank borrowing of 200 million USD (IBRD 100 million USD, and IDA interim fund credit 74\.3 million SDRs equivalent to 100 million USD) or RMB1\.66 billion Yuan, and national counterpart fund RMB 1\.361 billion Yuan ( equivalent to 164 million USD)\. By December 31, 2005 the total accomplished project investment is 370\.3 million USD (equivalent to RMB3\.066 billion Yuan), including World Bank borrowing 193 million USD (IBRD loan 94\.477 million USD, IDA credit 98\.430 million USD), and the actual national investment of counterpart funds is RMB1\.469 billion Yuan\. Output/impacts: (1) Established 664,500 hectares of high standard and highly diverse tree species and intensively managed plantations, which made a significant addition to the local forest resource reserve\. The established timber/bamboo forest totaled 510,000 hectares have been taken as the demonstration forest of the China National Fast-growing and High-yielding Timber Production in Key Areas Program\. (2) The implementation of the project has accelerated the pace of poverty reduction in the poor population in the mountainous areas of central and western parts of the country, a positive contribution to the realization of the central government's target of Eighty Million Population Out-of-Poverty Within Seven Years Program; (3) The project is a beneficial and successful exploration of poverty alleviation by - 27 -  China's forestry sector, especially by using international financial resources to solve the survival and development problems of the poor households in mountainous areas; and (4) For the first time in China, a large project employed a participatory method on a wide scale to prepare, implement and monitor afforestation, thereby raising the capability of local forestry department to adopt social instruments to manage forestry projects\. Main benefits: It has been estimated that, at maturity, the project will produce forest standing volume of 64,924,700 cubic meters, firewood - 4,064,600 tons, rosin - 111,325,000 kg, bamboo timber and bamboo shoots - 11\.77 billion kg, fruit (plus leaf, bark) - 8\.169 billion kg, and the Eucommia tree can produce 350,000 cubic meters of timber\. The total value of these products would result in total project income of 53\.9 billion Yuan, an after-tax financial NPV 3\.699 billion Yuan, and an after-tax financial internal rate of return 23%\. Project implementation benefited approximately 3,830,000 people including 2,610,000 members of poor households, whose recent income has substantially increased, living conditions and standards have improved, and a foundation for long-term development firmly established\. The town and village enterprises the project supported played a role in using local forest by-products as raw materials, employ poor farmers and generate additional income\. Forest coverage in the project areas increased by approximately 2 percent and sequestered 0\.4 billion tons of carbon\. The implementation of the project provided local employment of about 0\.11 billion person days\. General Information 1\.1 Project Background 1\.1\.1 Forests are the main part for forestry development, ecological improvement and environmental protection, but China long has been a forest resource deficit country\. 1\.1\.2 The World Bank funded forestry projects such as the National Afforestation Project (NAP), Forest Resource Development and Protection Project (FRDPP), have facilitated speedy forest growth in China since mid-1980s and became a chief driving force for the reformation and opening-up to the outside world of China's forestry sector and for the development of its intensively managed forest plantations program\. 1\.1\.3 Poverty-alleviation is a principal developmental strategy for the Chinese government as well as the World Bank\. To further enrich the forest resources, improve the environment, and improve the livelihood of the local people, State Forestry Administration (SFA, formerly the Ministry of Forestry) lodged an application to the National Development and Reform Commission (NDRC, formerly the State Planning Commission) and the Ministry of Finance (MOF) for World Bank loan Phase III afforestation project, which was formally listed for financing for 1998 fiscal year, following the negotiation between Chinese government and World Bank for the 1997-1999 pipeline program in May 1996\. - 28 -  1\. 2 Project formation 1\.2\.1 Project proposal, identification and pre-appraisal\. From October to November 1996, a project identification mission of the World Bank headed by Mr\. R\. Scobey, visited China to verify the project\. In January 1997, the NDRC approved the project proposal\. In April through May 1997, World Bank working team had further discussion with SFA, NDRC and MOF and named the project "Forestry Development in Poor Areas Project"\. In Oct\.-Nov\. of the same year, the World Bank pre-appraised the project\. 1\.2\.2 Appraisal, negotiations and effectiveness\. On the basis of thorough preparatory work at the provincial level, from February to March 1998, the World Bank appraised the project and in April the Feasibility Studies were approved by NDRC\. From April 6th through 10th 1998, an in-depth negotiation was held in World Bank headquarter Washington D\. C\., USA regarding the provision of an IBRD loan of USD100 million and a interim fund credit of 74\.3 million SDR (1SDR=USD1\.34731, approximately USD100 million), and the Project Credit Agreement, Loan Agreement and the Minutes of Negotiation signed\. On December 16, 1998, World Bank EASRD notified Chinese government that the above two Agreements should take effect as of that date, indicating the conclusion of the 2-year-long project preparation, and the formal kick-off for the implementation\. 1\.3 Goals, components and locations of the Project 1\.3\.1 The project was designed to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty-alleviation, forestry development and environmental improvement\. The World Bank Project Appraisal Document stipulated specific development indicators for poverty-alleviation, forestry development and environment improvement\. 1\.3\.2 The project activities include: (1) Timber plantations of 315,000 ha, mainly broadleaf trees such as pine, poplar, and Chinese fir; (2) Economic tree crops of 230,000 ha, including 110,000 ha of new or rehabilitated bamboo forest; (3) Technical supporting services, including the development of planting materials, technology dissemination and training, rural infrastructure and project monitoring; (4) Development of village and township enterprises: by using the local forest products/by-products as raw materials to attain added values\. 1\.3\.3 Twelve provinces with suitable forestry development conditions were selected for the project\. The 12 provinces fall within the economically underdeveloped area of the country\. 1\.4 Identification of beneficiary groups\. Selection of the project counties considered the project objectives, natural conditions, and existent technological capacity of the counties; the - 29 -  project counties were adjusted during the implementation period in accordance with of the project objectives (Table 1)\. Detailed arrangements including project investment scale, management method, tree species and benefiting townships/villages and households selection were made by using Community Forestry Assessment (CFA) procedure\. Table 1: FDPA Participation Counties Total State-level Poor Counties Provincial-level Poor Non-poverty Counties Year county Counties number Number Number Number 1999- 216 101 61 54 -2005 1\.5 Project implementation results\. FDPA was launched in early 1999 and closed in the end-2005\. With the guidance and help of the World Bank and arduous efforts of the project localities over the 7 years; the Loan/credit Agreements, the PAD, the on-lending agreements of concerned domestic parties at various levels, along with the managerial/technical regulations were strictly implemented\. Consequently, the expected targets for the four key designated activities of the project were achieved\. Project Execution 2\.1 Project implementation by component 2\.1\.1 Forest establishment (1) Afforestation accomplishment\. Under the afforestation program of the project from 1999 to end 2005, according to the results of project inspection and acceptance checking, a total of 664,500 hectares forest was established\. The designated target of 545,000 hectares in the Project Credit Agreement and Project Loan Agreement, was exceeded by about 119,500 ha\. and the established area represents 121\.9% of the project target\. Furthermore, the revised target of 630,000 ha\. established during the project's mid-term review, was exceeded by 34,497 ha\. representing 105\.5% of the revised afforestation plan\. The area of timber plantation is 375,078 hectare or 101\.8% of the adjusted planned 368,388 hectares; bamboo forest - 132,440 hectares or 109\.4% of the adjusted planned 121,070 hectares; and the economic tree crops - 156,979 hectares or 112% or the adjusted planned 140,035 hectares\. For the specific tree species, all species except the Masson pine, Exotic pines, Chinese white poplar, Eucommia, etc\. exceed the planned targets\. There are two main reasons for over-fulfilling the planting targets\. Firstly, with World Bank support and modification of the Credit/Loan Agreements, surplus funds from other categories totaling 13,710,000 SDR and 23,400,000 USD was reallocated to the afforestation category to add 85,000 hectares of plantations\. Secondly, with the implementation of the National Natural Forest Protection Program, the timber market prospered and the project bamboo forest and economic tree crops had better short-term - 30 -  benefits than expected, therefore, farmers' enthusiasm in participating in afforestation increased\. There are two reasons for not meeting the planting targets of some tree species\. The changing markets affected the planting decisions of farmer households\. Based on the applications and suggestions of the project provinces, MPC made some flexible adjustments when arranging the afforestation plans\. (2) The quality of the established forest\. Acceptance checking in the twelve project provinces determined that the average planting area verification rate to be 99%, the average planting survival rate 93%, the average forest increment compliance rate 105%\. For the seven indicators reflecting the quality of afforestation, i\.e\. superior seeds use rate, Grade I seedlings use rate, planting area verification rate, the survival/maintenance rate, forest incremental compliance rate, increment tree compliance rate, environmental protection compliance rate all reached or exceeded the national ministerial standards\. During the second half of 2005 a quality inventory was conducted of young FDPA forests\. According to the results of the inventory, by project completion, the combined acreage of Class I and Class II plantations accounted for 94\.4% of the total project afforestation area, indicating that the quality of afforestation remained high\. (3) Young plantation tending\. Tending (thinning, pruning, etc\.) of the 664,500 ha\. was in accordance with the technical models of the project tree species\. Tending-hectares totaled 1,485,000 - indicating that, on average, each of the 664,500 plantation hectares was tended more than twice - implying primary completion of the tending task of the established forest\. (4) Supplemental works\. According to the local actual needs and the operational design of the project, the project financed the construction of 1,576 guard and storage sheds, and a considerable amount of economic tree crop origination facilities, forest roads, tree nurseries equipment/facilities, as well as forest firebreaks\. 2\.1\.2 Planting stock development program In close consideration of the actual local needs and the characteristics of project, and by adopting the successful practices of the Planting Stock Improvement and Breeding Plan of NAP and FRDPP, the FDPA Planting Stock Development Plan was formulated\. The FDPA plan stressed selection of high quality planting materials and application of related new technologies to provide sufficient quantity of high quality planting stock for the project\. Following the implementation of the FDPA Planting Stock Development Plan, for the past 7 years, all designed development targets of the plan were realized, with the general completion condition as follows\. (1) Prioritization of superior seed source and provenance\. During project implementation, the timber plantation provenance zonation was defined and it was clarified that the economic tree crops afforestation should adopt popular, special, superior, new and/or rare species or varieties\. According to the genetic requirements of the project planting - 31 -  species, the existing condition of the seed production bases of the country, and in compliance with the national forest tree seed zones and standards, the FDPA Recommended Provenance List of Key Tree Planting Species was formulated and implemented throughout the project areas\. During project implementation, 1,343,270 kg seed was used; including 37,307 kg of seed orchard seed, 897,184 kg of mother tree stands seed, 404,845 kg of high quality provenance seeds, and 3,934 kg of imported seed\. The superior quality seed adoption rate of project afforestation reached 99%\. (2) Expanded use of clonal seedlings and root trained seedlings\. During project implementation the total planting stock reached 1,452,290,000, of which the bare-root seedlings were 1,159,840,000, root trainer seedlings were 22,510,000, and polybag seedlings were 269,940,000\. Classified according to the method of propagation, the project produced 1,088,130,000 seedlings comprising 75% of the total and clonal planting stock of 364,150,000 sets constitution 25% of total production\. The production of planting stock exceeded project targets\. (3) Nursery management technologies improved\. Targeted at the problems existent in the former project tree nurseries, FDPA adopted further improved technical measures such as reduced seed application rate, prompt seedling culling, adequate root undercutting, higher organic matter content of seedling cultivation containers\. By the FDPA Key Tree Species Seedling Standards, the previously allowed Grade II seedlings were removed and only Grade I seedlings were permitted for project afforestation, the ratio between the seedling height and the collar diameter was reduced, and the planting stock standards of the major species for bamboo forest and economic tree crops were added\. The FDPA Tree Nurseries Technical Management Guidelines, specified that nursery management data be maintained\. The above measures indicate that the management level of the nurseries was improved\. (4) Strengthened extension and application of new technologies, new research achievements of planting stock development and seedling production\. With the FDPA Technical Extension and Training Program, including Internet technologies, training and distribution of technical publications, the development of planting stock was a focal component\. Consequently, related technologies were adopted by the project nurseries, farmer households and planting entities\. In total, 37 seedling production technologies such as seedling container organic matter prescription, bud sprout transplanting, rooting powders (ABT, GGR), tissue culture (Eucalyptus) nursery, moisture and land fertility management etc\. were adopted, and the extended technologies covered all project planting species\. According to the project planting plan and afforestation models, the county level central and key nurseries played the dominant role in supplying quality planting stock for project planting\. The goal to use only Grade I seedlings was realized basically\. According to statistics, the project demand of Grade I seedlings was 1,097,740,000 while the actual production reached 1,452,270,000 or 132\.3% of the plan\. 2\.1\.3 Execution of the technical extension and training plan Technical extension and training was an important part of the project, organizational - 32 -  development and various extension and training forms during project implementation played a promotional and supporting role in ensuring the application of technical standards and guidelines, raised the overall technical level of project management, upgraded the technological capability of the project staff at different administration levels, and improved farmer households' competence in forestry knowledge and forestry production skills\. (1) The organizational development\. FDPA established at the central level the Technical Extension and Training Supporting Leading Group, the technical consultancy expert database, and the FDPA Office of Technical Extension and Training Office (TEATO) in the Chinese Academy of Forestry\. And, in each project province and county corresponding organizations were established while at the township level, the responsible staff were arranged for technical extension and training\. Meanwhile implementation plans for technical extension and training plans were formulated at the central, provincial and county levels\. (2) Managerial and technical training\. During project implementation the PMC, in joint effort with TEATO, conducted 39 central level technical training courses comprising 3,840 person-days of staff from the 12 project provinces (regions) and key project counties, exceeding the planned target of 3,410 person days by 12\.6%\. Meanwhile, the World Bank Management Offices (PMOs) of the 12 project provinces conducted 257 training courses covering the topics of financial management, goods procurement, quality management, environmental protection, CFA, household survey and specific technical topics such as the prevention and control of pests and diseases, totaling 45,181 person-days at the county level, exceeding the planned target by 69%\. The project counties conducted 4,599 technical training courses for project township technicians and staff, village administrators and leading farmers totaling 296,143 person-days, which is 3\.89 times greater than the planned 60,480 person-days\. Additionally, the township level conducted 55,758 technical training courses or field demonstrations with farmer participation of 3,298,804 person-days, exceeding the plan by 5\.99%\. (3) Preparation and dissemination of technical information\. TEATO, of the Chinese Academy of Forestry, organized more than 20 forestry experts to compile and publish the book, World Bank Loan Forestry Project Technical Series that contained 25 booklets\. In May 19999, 300,000 sets of the book were printed and distributed to different levels of the townships, counties, and leading household farmers of the 12 project provinces; this was greatly welcomed, especially by the grass-roots technical people and project farmers Additionally, TEATO selected audio-video materials of 19 key economic tree crop species with related high-yield and high-quality cultivation technologies and made and distributed 800 sets of video tapes them to the PMO of every project county in May 2000 - allocating 4 -5 tapes (and types) to each county\. Every year during project implementation 4 editions of the Project Bulletin of World Bank Project Technology were compiled and circulated to report progress and achievements\. The Bulletin also played a role in having the project people exchanging information and experiences regarding technical extension and training, and strengthening the communication of different organization levels\. In 2001, TEATO opened its website (WWW\.CAFWB\.net) serving FDPA technical extension that includes 9 columns\. The website raised efficiency and the speed of technical extension\. Meanwhile the - 33 -  12 project provinces distributed their own reading materials, videotapes or VCDs to disseminate needed project technologies\. (4) Demonstration forests are important carriers of learning and technical training\. During the implementation period the 12 provinces constructed 29,521 ha\. of demonstration forest, 4\.1 times the planned target of 5,815 ha\. The demonstration forests were in 161 project counties, or 74\.5% of all project counties, and covered almost all the project's tree species\. (5) In 1999, the central level technical consultancy experts were organized to establish in Yangxin County of Hubei Province and Xixian County in Shanxi Province, two central level integrated technical demonstration zones and 35 demonstration gardens (forest stands, nurseries), where 75 farmer household technical demonstration were located\. This activity trained numerous county and town level technical people\. (6) Overseas study tours and training\. To improve the project staff's management expertise PMC organized international study tours/training for 170 staff to enable them to learn about advanced forestry technical practices and experiences\. The study tours and training covered 12 countries; Australia, New Zealand, America, England, Canada, Finland, Germany, Italy, Japan, Chile, Brazil and South Africa\. The study tours totaled 1,207 person-days and training totaled 1,853 person-days, making up 83% of the plan\. The study tours and training centered around afforestation practices and forest resource management specifically seedling production and nursery management, planting site preparation, planting methods, plantation tending and thinning, pest and insect management, wood felling, and timber processing\. Part of the training also aimed at raising the level of English language skills\. (7) Expert technical consultancy\. During project execution, four international consultants namely Mr\. Neville Freeman, Wang Yuzhu, Jakob-Hinrich FEINDT, and Liu Qizhi were recruited to offer technical consulting services on fruit marketing/economic tree crops, and plantation pests/diseases\. These experts toured the project areas and offered advice\. Their consultancies comprised 63 person-days\. In addition, national and local experts have provided around 105,400 person-days consultancy services\. 2\.1\.4 Goods procurement (1) International bidding, national bidding and shopping, procured 59,263 tons of chemical fertilizers (urea, calcium super-phosphate, etc\.) - comprising 38% of the total chemical fertilizer used (156,428 tons)\. In addition, the farmers procured 97,165 tons of chemical fertilizer, or 62% of the total\. Project farmers applied organic fertilizers to meet a portion of the fertilizer demand of project plantations\. Around 19,840 kg of seeds of Slash pine, Loblolly pine and Walnut were also procured\. Procured equipment include 268 forest protection/forest firefighting command vehicles, 115 pickup trucks, 9 field motorcycles, 608 sets of office equipment such as computers and printers, and 97 sets of irrigation/plastic sheet greenhouse/nursery equipment\. Goods procured utilized 17,602,600 USD of World Bank funds\. - 34 -  (2) Project goods procurement was executed strictly as planned\. To raise the procurement efficiency of chemical fertilizer and meet actual needs of the project forest farmers and the established plantations, the World Bank approved the proposal to change the international bidding method of chemical fertilizer to the shopping method of procurement by the PMOs of the provinces or counties\. To adapt to this shift, PMC developed the project document, FDPA Domestic Shopping Procurement Management Methods of Chemical Fertilizer, conducted shopping procurement training courses for project provinces and counties, and sent staff to the provinces and counties for guidance and supervision to ensure the procurement shift was implemented\. Use of chemical fertilizer totaled 156,428 tons (excluding the organic fertilizer the forest farmers used), or 93\.8% of the planned target of 166,707 tons\. Other procurement work was completed basically in line with the targets\. 2\.1\.5 Environmental management The FDPA project established and implemented Environmental Protection Guidelines to ensure adequate environmental management\. The guidelines built on well executed, good practices developed in past World Bank afforestation projects\. The average environmental protection compliance rate of the project afforestation reached 97%\. (1) Planting land selection accorded afforestation priority to suitable mountainous barren wasteland, bush land, sparse wood land (canopy closure below 0\.2), and low productivity, artificial forestland (annual increment less than 3 m3/ha)\. By this priority/ procedure ecological conservation was practiced and local biodiversity protected\. (2) By considering the characteristics of FDPA and the lessons of previous World Bank forestry project environmental protection guidelines, improved measures were adopted, including specifying "one tree one pond (the moisture retention pit)" measure as an upland planting site preparation method for economic tree crops\. For the economic tree crops and bamboo forests, possible environmental problems were considered and adjustments made, including replacing tending work with intercropping, hole-type, or strip-type site preparation methods at slopes more than 16 degrees, maintenance of the existent vegetation at the top, ridge and foot of the hills\. For bamboo shoot harvesting, attention was devoted to soil and water erosion prevention\. Adapting to actual conditions in provinces such as Shanxi and Jiangxi included measures directed toward plateau platform land and red soil environments ­ with good results\. (3) Reinforced pest and disease management for the plantations\. In February 2001 the Planted Forest Pests and Diseases Prevention Plan was issued and executed throughout FDPA provinces\. The project carried out planting stock quarantine measures, reinforced inspection and management, and took prompt environment-friendly measures to pest and disease incidence\. Due to the integrated adopted measures of prevention and control, there were no significant pest and disease outbreaks during project implementation\. (4) Project plantation environmental monitoring\. Although all of China's forestry - 35 -  projects pay attention to environmental monitoring, FDPA gave it higher significance because it included improved environment as a project goal\. From 1991 to 1995, the NAP carried out detailed environmental monitoring for timber plantations\. To understand the impact of planting program implementation, the FDPA Environmental Monitoring Implementation Plan, formulated by TEATO, designated 35 monitoring locations in 8 project provinces to monitor the condition of pests and diseases, soil fertility, and soil and water erosion of economic tree crop and bamboo forests\. By end 2005, the 11 soil and water erosion monitoring spots, 10 soil fertility monitoring spots and 14 pest/disease monitoring spots completed their monitoring tasks and required data was collected\. (5) Environmental impact assessments were made before the construction of the small enterprises of FDPA\. And after their establishment, the enterprises were supervised following the national and local environmental protection stipulations, and health and safety regulations, such as the discharge of pollutants\. 2\.1\.6 Town and village enterprises (TVEs) TVE development was designed to support the small-scale, labor intensive, commercially operating town/village level enterprises using local forest raw materials, to provide the surplus non-technical laborers with employment/income opportunities and to deepen the project product market\. According to project design, 12,800,000 USD sub-loan should be used to build 64 small processing/marketing or post-harvesting treatment enterprises\. Following the launch and implementation of the China National Natural Forest Protect Project, in some project areas the supply of raw materials became insufficient and the market demands changed significantly, so some project provinces proposed to adjust TVE investment\. Based on China's application, in May 2001 the World Bank supervision team agreed to downsize the 64 TVEs target to 14\. In line with the TVE approval procedures, PMC issued FDPA TVE Provisional Stipulations Regarding Relevant Issues, and Feasibility Study Standards and Requirements of TVEs according to which no enterprises should commence construction without county, province (region) and central project approval of the feasibility study reports\. With related stipulations 14 TVEs were approved in Anhui, Guizhou, Jiangxi, Sichuan and Yunnan\. The approved TVEs, five newly established and nine upgraded TVEs, following capital construction procedures, started and finished construction smoothly and timely with a construction period of about one year, and related equipment was purchased according to the approved procurement list and World Bank procurement guidelines\. By April 2003, all the 14 verified and approved enterprises became operational\. The total investment for the 14 enterprises was RMB 46,394,000 Yuan, of which, the World Bank loan provided the equivalent to 22,457,000 Yuan\. The sub-component created about 1,500 full-time jobs either through direct enterprise employment or through supplying raw materials for the enterprises\. More than 60% of the employees were below the poverty line\. TVE employment increased household income by around 1,000 Yuan annually\. From the initial production to end-2005, the 14 enterprises cumulative tax revenues totaled 8,761,300 Yuan\. While producing fair economic and social benefits to the locality, the project - 36 -  supported TVE enterprises also left some lessons for thought and future consideration\. 2\.1\.7 Marketing facility development The marketing infrastructure under FDPA, according to project design, should be built during the last two project implementation years to improve the towns (townships) and village level marketing performance by financing product packaging, cold storage, fresh-keeping equipment and facilities, etc\. of economic tree products to ensure increased income for project farmer participants\. In May 2002, each project province conducted marketing infrastructure investigations\. Based on the provincial investigation results and the suggestions of the project international consultants, PMC submitted to World Bank in January 2003 the FDPA Marketing Facilities Survey Report, indicating that as the private enterprises have established a number of marketing facilities in many of the project areas during the project period, 11 provinces planned to use the existing marketing channels and facilities for the project economic tree crop products and didn't intend to build new marketing facilities, while Shanxi province alone proposed a marketing facility construction plan\. The World Bank approved the marketing facility construction plan of Shanxi Province which included the construction of one air-conditioned fruit storehouse, 60 sets of fruit airing sheds, and 100 farm vehicles\. World Bank loan funds equivalent to RMB 960,000 Yuan was to be used\. With construction efforts for two years, two of the above three approved activities were executed - the airing sheds were not executed because the households decided later to use available yard space and roofs to do the fruit airing\. The storehouse and the vehicles used World Bank loan equivalent to RMB 899,600 Yuan, or 93\.3% of the plan\. The fruit storehouse in Xixian County has functioned satisfactorily by smoothing out seasonal price fluctuations, particularly during harvest season and in mobilizing the local fruit processing industry\. The 66 farm vehicles procured for villagers in Hunyuan County solved the local farmer's problem of transporting fruit to market, accelerated fruit distribution, and added value to the fruit\. 2\.2 Accomplishment of the investment By December 31, 2005, FDPA completed a total investment of 370\.3 million USD (3\.066 billion Yuan equivalent) which is 101\.74% of original project budget of 364 million USD (RMB 3\.021 Yuan equivalent)\. Of the total investment, the World bank loan comprised 193 million USD (RMB 1\.597 million Yuan equivalent the exchange rate 1 USD = 8\.28 RMB during project implementation) accounting for 52\.1% of the total investment; The domestic funds used was 1\.469 billion Yuan in form of counterpart fund making up 47\.9% of the total\. - 37 -  2\.2\.1 Use of the World Bank fund (1) Credit fund\. The project used credit funds totaling 74,049,300 SDR, or 99\.7% of 74\.3 million SDR stipulated in the Project Credit Agreement\. The breakdown of the used credit is as follows: Category I (goods) ­ 9,018,500 SDR; Category II (afforestation) ­ 62,513,100 SDR; Category III (consulting services, etc\.) ­ 450,000 SDR; Category IV (TVE) ­ 2,027,300 SDR; Category V (marketing facility) ­ 40,300 SDR\. (2) Loan fund\. The project used loan funds totaling 94,476,800 USD taking 94\.5% of the 100 million USD stipulated in the Project Loan agreement\. The breakdown of the used loan is as follows: Category I (goods) ­ 6,662,900 USD; Category II (afforestation ­ 87,243,800 USD; Category III (consulting services, etc\.) - 521,900 USD; Category V (marketing facility) ­ 48,300 USD\. 2\.2\.2 National counterpart fund\. The project's domestic counterpart fund totaled RMB 1,469\.17 million Yuan, of which the provincial-level contribution was 281,092,200 Yuan, the prefecture (city) level contributed 56,222,500 Yuan, the county level provided 178,490,000 Yuan, and the afforestation entities contributed 953,362,200 Yuan (including labor value of RMB 734,697,800 Yuan)\. 2\.2\.3 Project investment and scale adjustment\. Two investment and scale modifications to the Project Credit Agreement and Project Loan Agreement in 2002 and 2003 were made, with due consideration to: (1) unchanged project objectives, beneficiaries, and development areas; (2) the changes in macroeconomic and local market situation which created new problems requiring resolution; and (3) actual requirements of the project areas and wishes of farmer households\. These investment and scale adjustments include the following: (1) The unit price of economic tree crops planting\. Because of the rise of the seedling price, the World Bank approved an increased in economic tree crop afforestation unit costs from May 2000; (2) World Bank fund financing rate\. To solve the problem of county level counterpart fund shortages and ensure project planting quality, from January 2002 the World Bank reimbursement rate for afforestation was raised from 50% to 60%; and (3) the adjustment of the funds among the categories\. In May 2003 the World Bank approved a request to reallocate World Bank funds from Category I (goods), Category III (TVE), Category V (marketing facility), as well as Category VI (unallocated) to Category II (afforestation, increasing the planned afforestation area from 545,00 ha\. to 630,000 ha\. Quality Ensuring Measures of Project Implementation FDPA developed measures in addition to those applied in previous World Bank forestry projects to ensure successful implementation quality\. While adopting the successful quality management organizational framework of previous afforestation projects, the participatory method adopted in FDPA gave full participation decisions to the project target group - the poor household farmers\. The participatory method and related monitoring and evaluation - 38 -  work assisted in ensuring high quality project preparation and implementation, offered reliable assurance for a favorable project outcome, and facilitated timely adjustment of activities to achieve the beneficiaries' wishes and realize project targets and objectives\. 3\.1 The systematic and efficient management system The organizational system of FDPA contained two main two parts\. One part was project implementation agencies including the PMC at the central level and the PMOs at the provincial and county levels with specific project implementation and management responsibility\. The other part was the fund management agencies for project fund on-lending, withdrawal, reimbursement and debt obligation management, etc\. , which include the International Department of MOF along with financial departments (bureaus) of the project provinces and counties\. The two parts of government agencies with clearly defined responsibilities cooperated closely to form the project organization system and ensure efficient and smooth project implementation\. To achieve the high standard and high quality requirements of afforestation design, the organization structure of the project embodied a set of functionary organs covering planning management, financial accounting, planting stock development, technical extension, planting technical management, quality inspection, environmental protection, monitoring and evaluation etc, with separate management methods, standards and guidelines\. In planning management, for instance, the compulsory document of FDPA Planning Management Methods was formulated\. And when finalizing the annual afforestation plans for the project areas, the method of "bottom-up plus top-down" was adopted\. In other words, at the beginning of every project year, indicative plans were issued to localities according to the project planting targets, after which PMOs at different project levels would follow the indicative plans to prepare detailed plans for counterpart funds, planting land, working labor, seedling requirements, etc\. Based on the actual situation the PMOs of different levels proposed adjustment options to the indicative plan\. With confirmed preparation acceptance, the formal afforestation plans were finalized and issued\. After the insurance of the formal plan, the plan became the implementation guideline and could not be changed at will\. 3\.2 The pioneering Community Forestry Assessment (CFA) FDPA covered numerous provinces, counties and townships, villages and millions of poor farmer households as the primary beneficiaries and participants, making it distinct from former World Bank afforestation projects\. To adapt to this difference and meet project objectives, significant changes were made in information collection\. During project preparation, and with reference to the Participatory Land Use Planning demonstration in Sichuan and Yunnan in 1980s, the World Bank and Chinese officials agreed to adopt the CFA participatory method by soliciting advice and listening to the farmer to develop project implementation plans\. Project implementation achievements and household survey information confirmed the significant contribution CFA made to FDPA\. Firstly, CFA makes the project farm-level - 39 -  design conform to the actual situation and wishes of the farmers which assured the quality of project feasibility studies\. Secondly the approaches and procedures adopted aroused the sense of responsibility and the enthusiasm of the farmers contributing to the realization of project targets\. Thirdly, the abundance of ongoing information, such as household participation, farmers' preference in species selection and production arrangements, and benefits to the farmers, would be collected, which have provided the bases in project decision-making and adjustments\. The CFA method reflected, to a large extent, the wishes of the beneficiary groups, maximized the number of project beneficiaries, particularly for poor households, minimized the project economic risk, and protected poor household benefits, so represents the future of forestry development\. This was the first time to adopt the CFA process in preparing and implementing a large forestry loan project in China\. 3\.3 The strict, scientific typical household surveys FDPA carried out successive surveys of household/shareholding forest farms to monitor and evaluate the project\. According to the World Bank mission aide-memoire of February 1998, the data for project household income condition should come from typical sample surveys of the households\. Based on World Bank requirements, and with the assistance of the Chinese Academy of Forestry and the Economic Development and Research Center of State Forestry Administration, the FDPA Action Plan for Household Survey was worked out in 1998\. Three surveys were conducted\. The first survey (1999) collected project baseline data\. The second survey (2001) supported the mid-term evaluation and project adjustment; In March 2005 as per the World Bank's request, PMC organized the 12 project provinces to carry out the third household survey during the second half of this year to provide information for project completion\. Each province has identified independent provincial-level socioeconomic institutions to conduct the survey and provide the necessary training to enumerators\. The field survey was conducted strictly and the survey result reflected the project's income improvement accomplishment\. The systematic, stage-based household surveys undertaken in FDPA, adopted consistent uniform survey standards and comparable analysis, making the analysis results highly reliable\. 3\.4 The strict project quality control Quality-assurance relied heavily on the strict inspection and checking acceptance system established\. Firstly, the Four-level Inspection and Checking Acceptance System required actions from the planting entities, the county, the province and the central level\. The field checking was conducted by successive working procedures of site preparation, planting, tending etc\. and the procedural steps must be acceptable before proceeding to the step\. Secondly, high attention was paid to the verification and review of the statement of expenditures\. To achieve this at the central level, the fund claim documentation were crosschecked by integrated responsible reviewers from the planning division, financial division and planting management division\. Any claim that failed to meet the required standards were not accepted\. Thirdly, the proven "reimbursement system" was employed\. - 40 -  The systematic, standard reimbursement verification procedure was an effective fund flow mechanism to provide funds for completed work that reached the required quality standards\. Fourthly, strict fund management and fund use auditing was practiced\. Based on the requirement of the World Bank, every year the National Audit Office sent staff to the project to check and supervise the financial accounting and fund use\. The auditing offices of the grassroots levels, the planting entities, the State and the World Bank, responsibly performed their respective duties\. The management at different levels reacted promptly to follow up the auditing comments on raising fund use efficiency and promoting implementation quality\. 3\.5 Indicator to monitor the implementation progress To monitor the progress of project implementation and project goal realization, the FDPA Indicator Monitoring Table was developed to reflect implementation of project activities by using input and output performance indicators\. The Table was consolidated and submitted to the World Bank on a half-year basis, and proved to be very useful tool for monitoring project progress\. In a word, FDPA adopted appropriate and effective quality-assuring measures, and these measures contributed to raising project operational efficiency, assuring quality implementation progress\. The Implementation Achievements Due to the adoption of the proven practices of the previous World Bank financed forestry projects, international and national advances in technical and management concepts, project implementation processed smoothly towards the project targets and objective\. The project has produced positive economic and social benefits, environmental benefits, and technical management benefits that will become more notable over time\. 4\.1 Economic benefit 4\.1\.1 The 664,500 hectares forest, established in accordance with proven afforestation models, will produce the expected economic benefits\. Based on the calculation of increment standing volume, the established 375,000 ha\. timber plantation will reach 64,924,700 cubic meters, plus 4,064,600 tons of firewood and 111,325,000 kg of rosin\. The 132,400 ha\. of bamboo forest can produce bamboo timber and 11\.77 billion kg\. bamboo shoot, and the 157,000 ha\. economic tree crops can produce 8\.169 billion kg of fruit, leaf and bark, the Eucommia trees can produce 350,000 cubic meters of timber\. 4\.1\.2 The total afforestation income from the project plantations should reach 53\.9 billion Yuan\. The financial NPV after tax is 3\.7 billion Yuan and the dynamic cost recovery period after tax is 11\.3 years, the financial internal rate of return after tax is 23%, which is 3\.2% higher than the project appraisal target\. The above financial and economic analysis results indicate that the economic benefit of FDPA will be very notable\. 4\.1\.3 The income level and assets of project households increased\. The third household survey indicated the household income benefits\. The survey determined that 82 households - 41 -  had a net income greater than 1,500 Yuan in 2005, while in 1999 only 13 households had such an income level\. This indicates that the number of households with this income level in 2005 was 6\.3 times as many households as in 1999\. For the lower income group, the number of households with net income below 500 Yuan decreased from 71 in 1999 to 4 in 2005, representing 41\.0% of the total surveyed households in 1999, but only 2\.3% in 2005\. Household total income rose substantially during project implementation\. For the 173 comparable households in the three surveys, the average annual household income was 13,749\.37 Yuan in 2005, representing an incremental income increase of 5,112\.12 Yuan over 2001 and an increase of 8473\.54 Yuan over 1999\. The household surveys also showed that farmer living conditions improved substantially and included improved housing and drinking water; and more farming equipment, electronic appliances, etc\., were purchased by the households\. A parallel sample survey was carried out along with the third household survey in 19 village communities of the 12 project provinces to understand the early income generation conditions resulting from FDPA\. The results indicate that to the incremental revenues derived from the FDPA project increased per capita incomes of farmers in 2004 by 572\.6 Yuan - 85\.4% above the baseline income level of 670\.5 Yuan before the project\. 4\.2 Social benefit The successful implementation of FDPA is illustrated by its obvious social benefits, especially the poverty reduction benefit\. Throughout the project implementation period, poor farmers remained the major participants and beneficiaries of the project, and the related completion indicators exceeded the designed targets\. 4\.2\.1 The poor household is the major project target group, and the project beneficiary coverage is immense\. The updated 2005 CFA report showed that during FDPA implementation the benefiting townships numbered 1,630 with a benefiting rate of 39%, or 9 percentage points higher than that in 1998\. The number of benefited villages is 9,910 with the village benefiting rate 29%, or 4 percentage points higher than that in 1998\. A total of 973,578 households (including farmers who directly manage the plantations and those who share the benefits from collective forest farms) benefited from the project including 645,185 poor households ­ representing 66% of the benefiting households\. Some 3,834,111 people benefited from the project, of which the poor population was 2,614,381 ­ representing 68\.2% of the total\. These figures indicate that the poor households comprised the main portion of the project, and the poor population was the main beneficiary\. By project closing, 891,695 households directly participated in the project, an increase of 211,807 household or 23\.8% over the appraised target of 679,888 households\. Of the 891,695 households, poor households numbered 598,187 ­ an increase of 88,128 households or 17\.3% over the appraisal target of 510,059 households\. By project completion, 474,299 entities participated in the project, an increase of 72,916 or 18\.2% over the appraisal target of 401,383\. Of the 474,299 entities, 444,844 are individual households with a land management area of 287,210 hectares\. The number of household groups totaled 23,000, - 42 -  managing an area of 186,847 hectares, shareholding farms managing 96,232 hectares numbered 3,586,\. Collective forest farms numbered 2,869 and managed 94,208 hectares\. Individual households and household groups planted the largest land areas while the shareholding forest farms and collective forest farms were of lesser importance\. 4\.2\.2 The general situation of the poor households including the development capability improved\. The household survey analyses showed that the educational level of the project labor force was raised substantially\. Additionally, more than 95% of the households attended technical training courses and learned practical forestry technologies, improved their market economic awareness, and increased their scientific/technological knowledge level\. Project activities improved poor households' access to outside information and technical knowledge, which broadening their vision and spurred the communication activities\. With added income from the project activities, the poor households' long-term development capacity was enhanced\. 4\.2\.3 FDPA promoted surplus labor employment and social development of the poor areas\. Compared with past World Bank projects, afforestation under FDPA offered substantial employment opportunities, alleviating the pressure of the re-employment of the surplus rural labor, through site preparation, planting, and young forest tending of timber plantations; but more particularly by the more labor intensive economic tree crops subcomponent which requires labor for pruning, canopy forming, fertilizer/pesticide application, fruit harvesting, etc\. It was estimated that the project created about 110 million person-days of local employment, including about 60 million person days from the economic tree crops and bamboo forest subcomponents of the project\. Also, under the TVE sub-component numerous poor farmers were employed or benefited directly from the established enterprises\. Additionally, FDPA's poor and minority household selection criteria, the fair, open and just operational measures of CFA work, contributed greatly to the social security and the harmonious development of the project areas\. 4\.3 Environmental Benefit 4\.3\.1 Addition of forest resources of project areas\. The 664,500 hectares\. of high quality plantation, developed consistent with environmental protection guidelines, which increased the local forest coverage and optimized the local forest structure and species structure in the project areas\. In addition, with the maturing of the forest, the severe imbalance between timber supply and demand in the project area will be partially alleviated, and will contribute to natural forest resource conservation\. 4\.3\.2 Environmental improvement with reduced soil and water erosion, and protection of local biodiversity\. By strict adherence to the Environmental Protection Guidelines the established plantations reduced local soil and water erosion substantially while promoting water retention capacity\. At the same time, the measures of strict selection of planting land, the afforestation models, the high diversity of tree species, site vegetation maintenance for wildlife habitat, integrated pest/disease management by protecting the pest predators and mitigating chemical pesticide application, etc, contributed - 43 -  to biodiversity conservation and ecological environment improvement in project area\. 4\.3\.3 Carbon sink benefit\. Global warming is a problem affecting the survival and development of humankind\. Greenhouse effect has proven to be a very important accelerating factor for global warming, though the unusual global climatic changes cannot yet scientifically explained\. Trees that absorb atmospheric carbon dioxide and store it through photosynthesis reduces the greenhouse effect\. The carbon sink impact of FDPA afforestation was calculated by experts of Chinese Academy of Forestry\. The carbon sink of the timber plantation increases with the increase of the standing volume, the carbon sink of the economic tree crops obviously increases for the first five years after afforestation, and for the bamboo forest, the carbon sink capacity increases in the first six years following the planting or rehabilitation as the bamboo grows more dense and increases in diameter\. The 664,500 hectares of FDPA plantation within its in entire growth period, can store about 407,354,931 tons of carbon, equivalent to carbon emission of burning 581 million tons standard coal\. 4\.4 Technological progress Compared with former World Bank loan forestry projects, the technological progress in FDPA is obvious, as shown below\. (1) Learning from previous projects, a series of technical and management standards and guidelines were designed and executed\. Additional afforestation models were explored and extended\. Afforestation site preparation methods were improved, the planting density was reduced, species diversity increased, etc, all of which laid a good foundation for high standard, scientific management\. (2) More superior varieties/species and advanced forestry technologies were applied\. Seedling production technologies were extended and improved planting/forest management technologies such as fruit tree pruning and forming, etc\. strengthened technical afforestation\. (3) The FDPA intellectual development impacts are notable\. In the course of project implementation, the domestic and international study tours and training, expert consultancy, as well as management practices combined to produce a number of highly competent forestry technicians and managers at provinces, counties, and townships and a great number of project beneficiaries, especially the poor, learnt how to manage forests\. Project Implementation Lessons and Suggestions FDPA is a large-scale forestry project, government implemented with World Bank financial assistance in the underdeveloped central and western Provinces of China\. The project implementation period was seven years, during which time experience was accumulated in forestry development aspects that should be considered in future projects using international donor funds\. - 44 -  5\.1 Lessons from FDPA implementation 5\.1\.1 Learning from the past World Bank projects with a spirit of innovation established a solid foundation for the smooth execution of FDPA The World Bank financed NAP and FRDPP were successful with notable impacts, and provided a good foundation for FDPA implementation\. However, FDPA contained various innovations and new developments, including bamboo forests, economic tree crops, and town and village enterprises development\. In terms of the implementation entities, the project concentrated to the individual households especially the poor households; The CFA methodology was adopted for the selection of beneficiary groups, and FDPA focused its technical development efforts on dissemination of advanced, practical technologies improving the farmer capacity and land productivity\. The training program focused on these new developments and innovations and represented an important new direction for World Bank financed Chinese forestry projects; a move toward higher standards and innovative development\. FDPA adopted CFA, an open, transparent procedure to carry out project feasibility and design according to farmers' wishes\. The three systematic socioeconomic surveys on households' survey across the 12 provinces, as well as other M & E measures, helped monitor the project implementation moving towards the project objectives, which produced notable results\. The added economic tree crops and bamboo forest components allowed farmers to generate income benefits within a few years of project implementation\. On technical management, the training and extension work provided the project with needed high quality provenance, the increased application of clonal stock, etc\. ensured the realization of high planting quality and more rapid income, thereby contributing to poverty reduction and improved living conditions of farmers\. FDPA made major progress in adding other objectives to its afforestation objective (Table 4)\. Table 2: FDPA vs\. NAP and FRDPP in afforestation Project NAP FRDPP FDPA Objective Fast-growing and Expanded forest resources to Afforestation to add high-yielding timber reduce natural forest cutting forest resources, reduces plantation to solve the timberpressure and protect the poverty, and improves supply problem environment the environment\. Scale 985,000 ha 900,000 ha 545,000 ha Types Timber plantation Timber plantation, Timber plantation, protection forest bamboo forest, economic tree crops Species 20 afforestation models 29 afforestation models 34 afforestation models, tree species highly diverse Entities State/collective forest farms Collective forest farms Households 13,000 entities 104,000 entities 470,000 entities Beneficiaries State/collective forest farms Collective forest farms 68% are poor households CFA No No Yes - 45 -  5\.1\.2 Improved organization and strengthened technical management built up firm institutional and quality-assuring basis for a successful project FDPA had a complicated design with multiple objectives covering 12 provinces\. Thanks to government leader's high attention to the project at all levels, cooperation and collaboration among different departments and sectors were close and efficient, so that necessary human, financial and physical resources were mobilized to serve project operations\. In the aspect of organizational structure, FDPA extended the NAP/FRDPP institutional framework\. At the central level, the FDPA Leading Group was set up with the SFA administrator as the group leader, and heads of related departments as the leading group members (such as Afforestation Department, Chinese Academy of Forestry, the Forestry Planning and Design Institute, the general Station of Forest Farms and Tree Nurseries, PMC, etc\.)\. The central-level leading group took the responsibility for establishing project principles and strategies and solving significant problems, and the routine project implementation management work was conducted by PMC\. Similarly, project leading groups were set up in the provinces and counties with the key government leaders of the same level as the group leader and the group members including, planning commission, finance, forestry, etc\. and PMOs who would be responsible for the project implementation were of the same administrative level\. Each of the functionary components, including planning management, financial accounting, planting stock development, technical extension, planting technical management, etc\. of project management was provided with staff and specific duties, making a responsibility-clear, efficient, and integrated project management structure\. To improve implementation management, PMC formulated a set of technical guidelines, management regulations and standards, and accordingly the provincial PMOs established implementation schemes or supplementary guidelines based on their particular situation for standardized and consolidated project implementation\. PMC formulated 21 standards, management methods and technical guidelines, which were well implemented across the project provinces\. 5\.1\.3 Compliance with the requirement of market economic laws and the wishes of beneficiary groups, created a favorable condition to realize project targets FDPA was a large-scale forestry loan project\. To realize the project targets it was necessary to follow market economy principles to maximize the resource use benefits by treating the households as primary stakeholders\. In practice, the production scale, species selection and management arrangements were determined based on the costs and profit analysis and market survey to ensure efficient and optimal fund was used by the households\. In addition, The CFA process reflected the wishes of farmers and ensured their participation in both the design and implementation of the project, which are undoubtedly requisites of project target realization\. - 46 -  5\.1\.4 Technical extension as important component to raise the project forest land productivity and reduce poverty Science and technology combined with technical extension and training improved farmer productivity, reduced poverty, and met afforestation targets\. FDPA technical development concentrated technical extension and training on households and planting entities\. (1) The 4-level technical extension and training system of central, provincial, county and town levels were established; (2) Multi-level, multi-disciplinary well-targeted technical training was conducted with notable effect; (3) The research technologies promoted increased growth, productivity/production, and quality\. Statistics show that during FDPA implementation, 121,066 leading farmers participated in the township level technical extension and training groups, implying that there were 74 leading or key farmers in every project township or 12 key farmers in every project village\. This also means one key farmer who has been well trained and grasps modern planting management technology is available for every 30 farmer beneficiaries\. This is a farmer-based, large forestry project with good potential to benefit poor households in long term due to the technical and knowledge upgrading of the households\. This level-by-level training practice, extension/training topic selection based on project demands, and establishment of demonstration households targeted at the poor, were both effective technical extension mechanisms for the Chinese situation and an indispensable mechanism to raise land productivity in rural forestry projects, thereby improving the welfare of poverty-stricken farmers\. 5\.1\.5 Reinforced development of planting stock is a crucial measure of the implementation of high-standard and high-quality afforestation projects "Superior seeds and vigorous seedlings" was the first and basic linkage for successful afforestation\. All the World Bank financed forestry projects in China prioritized Planting Stock Development Plan in project implementation\. This project built on past Planting Stock Development Plans by greater use of new technologies and improved standards\. The decision to emphasize superior planting stock selection and improved technology extension strengthened nursery management and facilitated higher quality afforestation; (1) The project established at the central, provincial and county levels the "FDPA planting stock leading group" comprised of specialized technical staff of the departments of research, technical extension and seed/seedling production; (2) By focusing on the "central nurseries", the planting stock production technologies were improved dramatically with special attention to the technologies used for initial planting stock production procedures; (3) Strengthened extension and application of practical technologies and research improved all-around quality of project afforestation planting stock\. Project practice proves that the "three fixations (fixed supplier of seeds, fixed place for seedling production, fixed high quality supply of planting stock)", "two certificates" (quality seed use certificate, Grade I seedling certificate), improved nursery management/technologies, and increased use of clonal planting stock, were all consistent with project demands\. It is these measures that led to achieving superior planting stock development performance indicators ­ such as high quality seed use rate 99%, Grade I seedlings rate 95%, clonal planting stock rate 25% all of which helped raise project - 47 -  afforestation quality\. 5\.1\.6 Adjustment to the plans at appropriate time and to appropriate extent based on project practical needs is a prerequisite of project smooth implementation In the implementation and preparation of FDPA, adjustments were made regarding the project activities, financing categories, financing ratio, unit planting costs, chemical fertilizer procurement method, etc\. These project implementation adjustments were timely and accurately reflected the objective requirements of the project and market changes\. Consequently, these adjustments optimized the structure and efficiency of the project's financial resources and played a very important role in improving project operational efficiency\. In 2001, adjusting the method of chemical fertilizer procurement from PMC based unified bidding to provincial/county shopping, was not only economical, but also promoted timely fertilizer use\. According to the application of the provinces, based on the requirement of project households, two major financing category adjustments were made in 2002 and 2003 to reflect macro changes in project operation and the fundamental interests of project beneficiaries\. The seven-year-long implementation period of FDPA proved that timely and appropriate plan adjustments were feasible, while continuing to focus on the original project objectives and still achieve smooth project implementation and realization of expected targets\. 5\.2 Lessons and suggestions FDPA despite its successful implementation and good practice had some lessons requiring further attention in the future similar projects\. 5\.2\.1 More efforts can be adopted to resolve the contradiction between artificial forest long income generation period and the short-term project loan repayment requirement\. The FDPA afforestation implementation shows that tree species such as Masson's pine, Loblolly pine, Slash pine, etc\. with longer rotation period (15-20 year) were rarely sought by the project planting entities and so target achievements were lower\. With a seven-year loan repayment grace period, these types of trees are incapable of producing any profit by the initial repayment time\. FDPA entities are mainly farmers located in the mountainous areas, where transportation, production and living infrastructure, and general economic conditions are poor, and make this contradiction even more severe\. To substantially solve this problem, apart from integrated design to combine short-term, medium-term and long-term benefit-generating species and activities, other measures should be adopted including more preferential polices and assistance by different levels of government to build up a steady income mechanism for participating poor households, or adding diverse rural short-term production project activities, etc\. - 48 -  5\.2\.2 There is potential to further improve the procurement method of chemical fertilizers\. Though the project chemical fertilizer procurement process has been improved by decentralizing the procurement from central project implementation agency to the lower level, however it was found that the procurement process was not as satisfactory enough as expected\. The related investigation discovered the following reasons: (1) The small procurement quantity made the manufacturers unwilling to offer bid quotations, slowing down the procurement progress; and (2) The small local manufacturer usually doubts the required "provide goods, followed by payment" project practice so they request partial payment for the goods\. Therefore, a number of necessary fertilizers under the project have been purchased by the county PMOs using counterpart funds and by farmers using their own funding\. In addition, organic manure has been largely applied\. In view of these factors, it is suggested more flexibility be allowed for project procurement of chemical fertilizer, for example, by using counterpart fund for the procurement, or incorporating the fertilizer (chemical and organic) requirement into the unit cost of the afforestation for reimbursement\. 5\.2\.3 Improvement of the performance of the township and village enterprises needs more cautious operations Judging from the present outcome and the implementation of the TVEs, the general design of the TVE subcomponent was correct ­ and the execution, management of the subcomponent were strict\. Nevertheless, in comparison with project design and the expectations, the operating conditions of some of the 14 enterprises financed were not satisfactory\. Investigation revealed the following reasons: (1) The macro policy adjustment following the National Natural Forest Protection\. The logging ban policy, etc\. led to raw material supply shortages of some of the enterprises that then could not produce normally; (2) Some of the TVEs were part of the production lines of the other enterprises whose breakdown led to production stoppages of the project enterprises; (3) The small scale, weak competitive strength and market risks, and the poverty reduction responsibility (by employment), etc\. made enterprise survival difficult or less profitable; and (4) The enterprise project preparation time with the examination/approval procedures was long and complicated, making some enterprises miss the best market opportunities\. Therefore, it is suggested that in the future a more cautious attitude be adopted regarding TVE investment\. World Bank Participation The successful implementation and accomplishment of FDPA is the result of concerted efforts of World Bank and Chinese government officials\. Executives and working teams of the World Bank exerted great efforts over the seven years of FDPA implementation by dispatching 12 missions to China for site inspection and supervision\. These missions not only helped the Chinese team solve problems and difficulties encountered during project implementation, but also offered constructive suggestions and proposals for project management improvement\. In a word, the distinguished performance of World Bank in guiding and monitoring the project laid a firm foundation for the project success\. - 49 -  6\.1 Adherence to scientific approaches for assessment One feature of FDPA is the adoption of a participatory methodology, mainly through CFA, for project preparation and implementation, a methodology not employed by the previous World Bank forestry projects in China\. For a forestry development project involving tens of thousands of poor households, the World Bank working teams and the international consultants were of great help in familiarizing the staff of PMC and PMOs with this approach\. The success of FDPA indicates that the participatory method (CFA approach) is a scientific and feasible project preparation and implementation methodology for maximizing the project beneficiaries\. 6\.2 Flexibility and operational practicality FDPA is a complex project involving numerous factors subject to changes in policies and market demands, and affect afforestation, TVE, and marketing infrastructure, and therefore making implementation complex\. In recognition of this complexity the World Bank demonstrated timeliness and flexibility by accepting and approving China's suggestions for project modification, which in turn, contributed to the smooth completion of the activities\. One example is the modification in the selection of project sites at the initial stage of FDPA when China's National Natural Forest Protection Program was launched\. Taking into consideration the difficulties that poverty-ridden counties have in providing the counterpart funds, World Bank agreed to raise the financing rate for afforestation from 50% to 60% providing needed help to these counties\. 6\.3 Rigorous inspection and effective guidance Over the 10 years from FDPA preparation to its conclusion, the World Bank sent a total of 16 missions (4 during project preparation) to China, involving more than 70 professional staff\. World Bank officials Mr\. Rick Scobey, Madam Liu Jin served as FDPA project managers successively\. With other officials and international/domestic consultants, the World Bank task team visited project sites for inspection and provided guidance\. Their effective work improved project quality and their devotion inspired their Chinese counterparts and enhanced the local farmers' confidence in attaining project objectives\. Following each supervision, the mission completed a detailed memorandum, and the higher-level World Bank executives wrote separately to the MOF, SPC, SFA of China commenting on achievements as well as on key problems identified\. World Bank's code of conduct, highlighted by discussion, to solve the problems encountered and strict compliance to agreed problem-solving measures, wins widespread affirmation of Chinese colleagues and individuals regardless of whether or not they were involved in project implementation\. 6\.4 Friendly cooperation The success of FDPA provides one more testimony for the satisfactory cooperative relationship between the Chinese government and World Bank\. For instance, in the World - 50 -  Bank working teams' visits to the grass-root level of project sites, they patiently listened to the Chinese technicians and rural population to hear and understand the particular situations and local concerns which greatly facilitated project implementation\. Meanwhile the specialists and officers of procurement, payment and finance, social management of World Bank Office in China, readily and efficiently addressed the problems raised by their Chinese counterparts\. This friendly cooperation and working relations provided the foundation for a successful project\. The Post-Management Plan 7\.1 General requirement After the completion of FDPA, the protection and management of the young forests become important tasks\. In the years from 2006 through 2021, operational priorities would be given to appropriately maintaining and improving the management of the plantation established under the project\. The follow-up management plan by integrating technical measures with policy and administrative measures are developing by the provincial and county PMOs and the Governments of project counties have committed to provide the support in terms of project management and necessary finance support to the poor farmers\. 7\.2 Actions to be taken 7\.2\.1 An institutional capacity corresponding with the demands of post-management would be maintained After project completion, the project implementing agencies will continue to provide the support to the project management\. However, the main responsibilities would shift from organizing plantation establishment to plantation management\. Consequently, capacity development to enable the staff to meet the demands of post managerial operations becomes an imperative task of the administration\. Under the guidance of the provincial PMOs, the county PMOs are expected to maintain a relatively stable work team, with each member given specific responsibilities to ensure that effective and timely guidance/assistance be provided to the project afforestation entities and farmers\. 7\.2\.2 Forest classified management to be worked out in accordance with quality of the forests at present The young plantation quality inventory survey in 2005 revealed that the quality of majority of project plantations have reached or exceeded the project growth standards and a few portion of plantations growth still need to be further improvement\. The post management Plan would specify the technical and management measures to all types of the plantation to ensure that the post plantation management or maintenance will be guided appropriately\. - 51 -  7\.2\.3 Preventive measures are to be taken to guard the healthy growth of the forests It is committed by the project provincial and county forestry agencies that the preventive measures, namely protecting the forests from fire, disease/pest injuries, and man/animal-induced damage, will be incorporated into the routine work of the local government and its forestry authorities\. Arrangements in such aspects as staffing, funding and regulations would be in place to ensure that the young forests are not subject to natural or man-induced damages\. Firstly, these measures will take full advantages of the existing capacity for predicting and fighting fire, pest and disease\. Secondly, by the implementation of the principle "active prevention and complete elimination", related work would be carried out including publicity and education efforts to enhance the local people's awareness for forest protection\. Thirdly, incentive measures would be taken to mobilize grass-root governments and village committees to arrange for routine surveillance and patrolling of the forests to ensure their healthy development\. 7\.2\.4 Technical and information aid would be made readily accessible to the farmer households Technical training and demonstration programs for forest tending and thinning practices would be made available to the forest entities by the forestry administration at each level ­ with the coordination of the provincial PMOs\. Providing technical services to the households and planting entities would rely on the existing agriculture and forestry extension system by using the public funding, which have been committed by the government\. Market information concerning the demands and supplies of forest products such as timber, fruits, etc would be made readily accessible to the farmers through the forestry administrative/extension departments of each level\. The farmers would also be encouraged to set up corresponding associations to strengthen their independent marketing capacities\. 7\.2\.5 Clarified debt relations to ensure the World Bank loan is repaid on secured and timely basis Clarification of the debt rights and obligations is essential for repaying the World Bank loan and the resources of repayment have been identified\. A mechanism and arrangement will be established to ensure the borrower at each administrative level is firmly responsible, in accordance with corresponding on-lending agreements, and the fund for annual repayment is arranged in advance to guarantee that the project repayment is made on a secure, timely basis\. - 52 -  - 53 -

REVIEW

P039292

 ICRR 11592 Report Number : ICRR11592 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/29/2003 PROJ ID : P039292 Appraisal Actual Project Name : Social Investment Fund Project Costs 11\.67 14\.05 US$M ) (US$M) Country : Belize Loan/ US$M ) 7 Loan /Credit (US$M) 8\.4 Sector (s): Board: SP - General water Cofinancing 0 2\.1 sanitation and flood US$M ) (US$M) protection sec (30%), Other social services (20%), Health (20%), General education sector (15%), Roads and highways (15%) L/C Number : L4142; LP288 Board Approval 97 FY ) (FY) Partners involved : IDB, DFID, PAHO Closing Date 12/31/2001 03/31/2003 Prepared by : Reviewed by : Group Manager : Group : Soniya Carvalho Howard Nial White Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The overall objective of the project is to improve the access of the poor in relatively disadvantaged communities to basic social and economic infrastructure and services, largely by supporting small -scale projects, which are identified and implemented with a high degree of community participation \. Achieving this objective would contribute to the country's poverty reduction goal \. The project would support the government of Belize in : (i) establishing an efficient, transparent, demand-driven participatory mechanism for financing basic services and infrastructure to targeted groups; and (ii) channeling resources to community projects involving social assistance, basic infrastructure and small-scale productive activities (PAD Page 1)\. b\. Components COMMUNITY PROJECTS - would be sponsored by public or private organizations able to design community projects to meet the Social Investment Fund's (SIF) established criteria\. Community project generation would be demand-driven, but would be combined with promotional efforts to develop institutional capacity as needed, to target the poorest communities\. Communities would make a 5-10% cash or in-kind contribution, depending on the type of community projects\. MICROENTERPRISE CREDIT (no Bank financing) - would provide credits to community -based microenterprises\. Management of credits and training to community groups would be sub -contracted to a NGO or a financial intermediary with demonstrated experience [financed by European Union]\. INSTITUTIONAL SUPPORT - would help develop a viable, autonomous institution to manage the Fund and to finance the administrative and operational costs of the organization for a four year period \. c\. Comments on Project Cost, Financing and Dates The original loan amount was 7 million and a supplement was approved in FY 01 for 1\.4 million to "compensate for the amount of loan that was diverted, with Bank agreement, for urgent repair and rehabilitation activities " following Hurricane Keith (ICR page 2)\. The project closed 15 months later than originally planned \. Cofinancing was mobilized from IDB, DFID, and PAHO although there was none at appraisal \. 3\. Achievement of Relevant Objectives: The project channeled resources to community subprojects and expanded the population's access to small -scale infrastructure\. However, the project's poverty targeting, community participation, and social assistance -support objectives were only partially met, and there are issues about the project's efficiency \. The project under-spent the target amount in the poorest Districts, and poverty targeting for communities "showed a substantial bias in favor of medium -income communities\." even considering only the resources devoted to non-emergency activities (ICR page 9)\. Table 2 on ICR page 8 shows that Medium Poverty Areas received 186 percent of the target amount, Low Poverty Areas 71 percent of the target amount, and High Poverty Areas only 60 percent of the target amount\. "Had the SIF staff devoted more time and effort to preparing the High Poverty communities to develop and submit subproject proposals, this leakage of SIF resources to the less -poor might have been avoided" (ICR page 9)\. Subprojects were implemented with varying degrees of community -involvement as against the project objective of "supporting small-scale projects, which are identified and implemented with a high degree of community participation"\. "Project start-up delays put pressure on the SIF team to get subprojects on -line quickly\. They succeeded in this respect, but this lack of time may have contributed to insufficient effort being dedicated to promoting substantial, broad-based, and up-front community participation in the subproject identification process " (ICR page 6)\. The project financed relatively few social services and training subprojects \. "The SIF staff had a strong engineering background and, initially, tended to promote physical output against "softer" subprojects and activities \. These tendencies were reinforced by the need to show quick, visible results after a slow project start, and by the need to respond to hurricane damage in late 2000 and again in 2001" (ICR page 10)\. "\.the portfolio of SIF subprojects might have looked somewhat different had the SIF used a more proactive participatory needs assessment process up-front, ensuring a broader representation of community members and specific consultations with women " (ICR page 6)\. The number of subprojects also fell short of targets --although the project planned to implement over 500 subprojects, it was only able to implement 187 even with the supplement\. The main reasons given by the ICR are underestimation of costs at appraisal, lower than expected demand for social assistance programs, infrastructure designs to better tolerate future hurricanes, and price increases as a result of the difficulty in getting inputs after the hurricane \. An unanswered question is whether the kind and quality of the infrastructure built justified the average subproject cost which for water facilities and schools was $ 110, 000 (compared with the overall average cost of $ 20,000 estimated at appraisal)\. The extent to which the project succeeded in creating an "efficient mechanism" for financing basic services and infrastructure is also unclear \. "Over the life of the project, administration costs as a percentage of subproject investments were about 21 percent\." (compared with the 15 percent estimated at appraisal )\. "The relatively high cost of administration can be explained by the relatively low volume of investment expenditure, which did not enable the SIF to achieve the economy of scale of most other funds and, thus, resulted in a higher than average overhead rate" (ICR page 13)\. 4\. Significant Outcomes/Impacts: The ICR contains limited data on outcomes /impact--a proposed impact evaluation was much delayed and not available at the time of the ICR\. SIF constructed small-scale infrastructure and drew attention to the concepts of poverty targeting and community participation\. SIF showed flexibility and played a critical role in the aftermath of Hurricane Keith, as it was "among the very few national agencies able to respond quickly and well to the communities' emergency repair needs "\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Pressure to implement physical outputs came at the expense of more systematic community capacity building \. Some critically needed activities were not financed by SIF although resources were available for them \. "Organizational strengthening allocation for up -front investment in training community groups, government agencies, and NGOs in participatory subproject identification and preparation were virtually untouched " (ICR page 10)\. There was a "missed opportunity for community leaders to learn participatory techniques to facilitate a community-wide process to define integrated village development plans " (ICR page 12)\. There were coordination problems with ministries which, inter alia, reduced the project's effectiveness in engaging communities\. It is "noteworthy that the original proposal that the SIF use the services of Community Development Officers of the Ministry of Human Development never materialized \. With a few exceptions, those officers, although residing in the Districts, were not available to provide the facilitation and community training expected at appraisal as an integral part of SIF operations " (ICR Page 12)\. The use of Rural Development Officers of the Ministry of Rural Development was slightly better, but also problematic (ICR page 15)\. The SIF tended to consult with the communities during the Community Needs Assessment exercise only after having received a specific subproject request from the Village Councils (which are the legitimate political community representatives, but do not necessarily reflect the needs of the poorest )" (ICR page 6)\. "While the Beneficiary Assessment conducted in August 2000 confirmed that the selected subprojects were considered priorities by the communities, the portfolio of SIF subprojects might have looked somewhat different had the SIF used a more proactive participatory needs assessment process up -front, ensuring a broader representation of community members and specific consultations with women " (ICR page 6)\. The Beneficiary Assessment pointed out that "\.there is a need (to) focus much more on the quality of community participation and contribution in terms of decision-making processes, equal participation opportunities for men and women, information sharing, democratic communication and leadership " (ICR page 15)\. The ICR notes that "\.the risk of not investing ample time in empowering communities to analyze and prioritize community needs, plan, and implement the subprojects financed by the SIF is that funds are spent in ways that are not considered to be the highest priority in the beneficiary communities and that communities fail to maintain these facilities once they are built " (ICR page 18), and that "\.no quantitative data are available to substantiate the report's conclusion that the SIF output met the community demands" (ICR page 19)\.  Monitoring and evaluation was particularly weak \. The Living Standards Measurement Survey (LSMS) which would have provided more substantive data on the impact of SIF -funded activities was delayed due to lengthy design and implementation discussions, lack of experience of local statistics staff, and hurricane Keith, and was not available at the time of the ICR\. The project's MIS was a problem throughout project implementation and had yet to become fully operational at the time of the ICR \. Data provided by it was sometimes of questionable reliability\. There were time delays in executing the project cycle \. "Still, in some cases, the project cycle was slow \." (ICR page 13) and "A number of NGOs were of the opinion that the SIF's procedures were too involved, bureaucratic, and time consuming\. The months that passed between proposed preparation and disbursement of sub -project funds caused the NGOs to lose credibility in the eyes of their beneficiary groups " (ICR page 10)\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Major weaknesses in poverty targeting, Unsatisfactory less community participation than indicated by the project's objective ("supporting small-scale projects which are identified and implemented with a high degree of community participation "), a major shortfall in delivering the expected number of community projects (187 against the appraisal figure of "over 500"), an administrative cost exceeding that projected at appraisal (about 21 percent against the 15 percent appraisal figure), and a very weak MIS (despite the project's objective of creating an "efficient, transparent" financing mechanism)\. See Sections 3 and 5 above\. Institutional Dev \.: Modest Modest Sustainability : Likely Likely Additional information further to the ICR provided by the Region that there was good coordination between the Social Investment Fund and the Ministry of Education with the latter meeting its obligations for both the operations and the maintenance of the schools financed through the Social Investment Fund, and that "each beneficiary community was subject to a rapid needs assessment and had to establish a user committee, \.each user committee received training on O&M from SIF staff"\. Bank Performance : Satisfactory Satisfactory Satisfactory overall but greater attention to poverty targeting, community participation, subproject costs and demand for different types of subprojects, and monitoring and evaluation would have enhanced Bank effectiveness \. Borrower Perf \.: Satisfactory Satisfactory Satisfactory overall but greater attention to SIF management capacity (weaknesses in which caused substantial delays in project start-up), composition of staff skills mix (with appropriate balance between engineers and community development experts), and due priority to monitoring and evaluation (with strong MIS and impact evaluation) would have improved Borrower Performance\. Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Based on the ICR, key lessons include : Poverty targeting needs special attention in a demand -driven approach which, as in Belize, tends to favor communities better able to prepare viable subproject proposals who typically are the less poor \. The trade-off between operational speed and intensive community participation is a real one and should be explicitly acknowledged and addressed, and reflected in performance indicators \. It is difficult to transform a SIF from an engineering outfit to a community development organization \. In Belize, a successful transformation would have required a culture change within the SIF and was not easy \. The appropriate role and focus of the social fund agency should be anticipated to the extent possible from the outset and SIF staffing and institutional arrangements should reflect that \. Inter-agency cooperation needs considerable and explicit attention and cannot be taken for granted \. There must be appropriate incentives for cooperation on both sides \. 8\. Assessment Recommended? Yes No Why? It would contribute to OED studies on community driven development and on natural disasters \. It would also help to verify the ratings \. 9\. Comments on Quality of ICR: A good ICR overall that points to useful lessons \.

REVIEW

P000926

 ICRR 12807 Report Number : ICRR12807 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 12/26/2007 PROJ ID : P000926 Appraisal Actual Project Name : Gh-Thermal Power US$M ): Project Costs (US$M): 339\.3 180\.6 SIL 5 (fy95) Country : Ghana Loan /Credit (US$M): Loan/ US$M ): 175\.6 170\.7 Sector Board : EMT US$M): Cofinancing (US$M ): Sector (s): Power (100%) Theme (s): Regulation and competition policy (29% - P) Other financial and private sector development (29% - P) Decentralization (28% - P) Environmental policies and institutions (14% - S) L/C Number : C2682 Board Approval Date : 02/16/1995 Partners involved : Closing Date : 06/30/2001 12/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Robert Mark Lacey Kris Hallberg Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The objectives of the Project, according to the PAD, were to (a) enable the Volta River Authority (VRA) – the entity responsible for operating most of Ghana’s power generating facilities, both hydro and thermal – to maintain the country’s electricity supply by providing the generating capacity necessary to meet electricity demand; (b) enhance operational efficiency through generation, transmission and distribution system improvements; (c) moderate demand growth through economic demand side management programming; and (d) strengthen the institutional capabilities of the power sector and of VRA by supporting its ongoing program of institutional development to meet the requirements for the mid-1990s and beyond\. The institutional strengthening would include development of new regulatory arrangements for the sector, as well as measures to (i) encourage private sector participation in the development of power supply, and (ii) assure the financial viability of Ghana’s power sector\. These objectives differ significantly from those in both the original DCA of June 30 1995, and in the amended DCA following project restructuring in 2004, when cost savings on the thermal plant construction were reallocated to a distribution system upgrade\. The objectives in the original DCA were to: (a) increase VRA’s generating capacity to meet increasing electricity demand; (b) improve VRA’s operational efficiency and strengthen its institutional capacity; and (c) improve the Borrower’s management of the power sector\. The amended DCA made the following additions to the original objectives: (i) improve power sector financial sustainability; (ii) facilitate distribution improvement; and (iii) strengthen institutional capabilities in the power sector\. There are no specific references in the original or amended DCA to three PAD objectives: moderating demand growth, developing new regulatory arrangements, and encouraging private sector participation\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? Yes Date of Board Approval: 02/16/1995 c\. Components (or Key Conditions in the case of DPLs, as appropriate): There were four original components and a fifth added at restructuring in 2004\. Component one helped to finance the construction of the first Takoradi thermal power plant (TK-1) -- US$ 258\.2 at appraisal, US$161\.8 at closure\. The plant, consisting of three turbine (one steam and two combustion) generators with a total production capacity of 330 MW, was meant to complement Ghana’s hydro generation facilities on which the country had largely depended, and which were themselves in need of upgrading and improved reservoir management\. The second component consisted of support to the Ministry of Energy for the development of improved regulatory arrangements and of policies to attract private investment\. The third component supported VRA’s institutional development, principally through training and technical assistance to upgrade its capabilities in managing and operating thermal power generation, and implementation of the project’s Environmental Impact Mitigation Program\. The combined costs of the second and third components were estimated at US$4\.0 million at appraisal and US$3\.6 million at closure\. The fourth component was to involve the development and implementation of market-based policy instruments, institutional arrangements and interventions to promote electricity demand management through more energy efficient practices by consumers (US$4 million at appraisal, US$0\.4 million at closure)\. The new fifth component reallocated part of the savings from the thermal plant construction to a distribution system upgrade\. As well as the investments in the distribution networks, training in treasury management and tariff formulation was provided for the staff of the Electricity Company of Ghana (ECG), the transmission and distribution company which buys power from the generating companies, mainly the VRA\. The component cost US$14\.8 million\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost\. Total project costs at closure were US$180\.6 million, about 47 percent lower than the US$339\.3 million estimated at appraisal, despite the funding of the distribution system upgrade\. The only reason cited in the ICR for the cost savings is the appreciation of the SDR against the US dollar, but it seems unlikely that this was the only factor\. When the project was reconstructed in 2004, US$14\.8 million of these savings were used for the distribution system upgrade\. Financing\. The presentation of project financing in the ICR is unfortunately extremely confused\. According to Annex 1, 90\.5 percent of the total project cost at appraisal (US$307\.1 million) was to have been provided by external donors, of which US$175\.6 million from IDA\. The rest was, presumably, the Government’s contribution\. At closure, the total project cost is estimated at US$180\.6 million, of which US$170\.7 was funded by the IDA Credit\. The Annex, however, still lists a number of other donors with a total financing of US$118\.4 million\. Together with the IDA credit, external financing therefore exceeds the project cost by US$108\.5 million\. One possible interpretation is that other donor financing was, in fact, withheld since the thermal power station costs were so much lower than originally estimated\. Under this hypothesis, the IDA credit financed all but US$9\.9 million of the total project cost, the rest coming from Government\. Dates\. There was a 20 month gap between appraisal in June 1993, and Board approval in January 1995\. This was due to the time taken by the Government to endorse the increases in electricity tariffs deemed necessary at appraisal\. There was a further delay of eleven months, unexplained in the ICR, before the project became effective in November, 1995\. Project implementation took 12 years\. The original closing date of June 30 2001, was extended three times: the first until the end of 2002, the second until December 31 2003, and the third, following the restructuring and the addition of the distribution upgrade component, until December 31, 2006\. Although plant construction was largely complete by mid 2001, the policy components were taking considerably longer\. The first two extensions were justified by the absence of other lending instruments to maintain the reform dialogue in the sector\. The 2004 restructuring, which caused the third and longest delay, took place far too late in the project cycle (see Section 9 below), and should have been undertaken either at the Mid Term Review in May 1998, or after the completion of the plant construction in 2001\. 3\. Relevance of Objectives & Design: Relevance of objectives and design was substantial\. The project’s objectives were highly relevant to the needs of Ghana’s economy and power sector, and responded to the key themes of the Bank’s strategy at the time, including stimulating private-sector led growth through improved infrastructure services\. The project remains highly relevant to Ghana’s current priorities as set out in its PRSP and to the Bank’s strategic focus on maintaining macroeconomic stability and increasing production and employment through the removal of constraints to private-sector-led growth\. The relevance of project design to prevailing circumstances in Ghana can, however, be faulted on three grounds\. First, the choice of VRA as implementing agency for the construction and operation of the thermal plant involved risks which were insufficiently mitigated\. VRA had an excellent record as an operator of hydro generation, but no experience in operating thermal facilities\. If setting up a new, specialized operator was ruled out at the time (though it has subsequently been established by the Government), a longer term supervision consulting contract than the three-and-a-half years actually allowed for should have been foreseen\. As it was, the contract had expired before the plant was completed, and pressure resulting from the energy crisis of the late 1990s led to a rush to commission the plant and acceptance of sub-quality products\. Second, the PAD contains no results framework and no systematic, time-bound targets to measure progress in reaching project objectives (though it should be pointed out that M&E design was habitually more rudimentary at the time than has since become accepted practice)\. Third, although the decision to wait until tariffs had been brought initially in line with costs before proceeding to Board presentation was appropriate, the assessment of the Government’s willingness and ability to allow adequate future tariff adjustments did not take sufficient account of political realities,\. The Bank did not appear to have any instruments, other than this project, to carry the dialogue forward on tariff-related issues\. 4\. Achievement of Objectives (Efficacy): The degree of attainment of the project’s objectives is modest\. Objective (a) – enabling VRA to maintain the country’s electricity supply by providing the generating capacity to meet electricity demand – has been met to a modest extent\. The new capacity was installed, and the plant commissioned, albeit with serious delays\. By 2006, the plant supplied 17 percent of total power sales in Ghana\. However, plant availability and performance quality have on a number of occasions slipped below standard industry levels, requiring remedies to be put in place\. Power supply from the plant into the national grid was unavailable for long periods even after the last unit was commissioned in 2001\. According to the results framework analysis in the ICR, average monthly availability of TK-1 was 72 percent at the end of 2006, compared to a target of 90 percent (although this is contradicted by the text which states on page 12 that availability had attained 88 percent by 2006)\. Moreover, except for an additional 220 MW open cycle generation plant (TK-2), built under a public-private partnership arrangement, planned complementary investments in hydro and thermal facilities have not materialized\. TK-1 has, therefore, not prevented major load shedding in 2006-2007, with adverse consequences for investment, growth and employment\. Ghana’s hydro facilities continue to suffer from intermittent but recurrent low production due mainly to inadequate water levels in the Volta River\. The country has become dependent on thermal power generation at the margin, precisely at a time when fuel costs are breaking new records on the international markets\. The degree of attainment of Objective (b) – enhancing operational efficiency through generation, transmission and distribution system improvements – has been modest \. 500 kilometers of transmission lines and substations were constructed and utilized, and there has been a slight reduction in transmission losses from 5 percent at project inception to a current (acceptable) 4\.5 percent\. The distribution system upgrade added to the project at restructuring has led to greater reliability and slightly reduced distribution losses in Accra and two other major urban load centers to 24 percent\. However, these losses are still higher than the end-project target of 21 percent\. Neither the transmission nor distribution investments have led to significant improvements in operating efficiency in either VRA or ECG, the two companies respectively concerned\. VRA’s finances are in disarray (see discussion on Objective (d) below)\. While ECG has made modest profits in recent years, project investments in capital stock and treasury management have not yet been reflected in significant non-technical loss reductions\. Efforts to introduce a Management Support Services Agreement (MSSA) to strengthen ECG are stalled\. The component supporting objective (c) -- moderating demand growth through economic demand side management programming – was discontinued after 1997 when the Energy Foundation was set up by the Ministry of Energy with support from business associations and USAID\. Only US$0\.4 million of the US$4 million allocated for this component was disbursed\. This nonetheless enabled initial steps to be taken to moderate demand growth through legislation and increased public awareness\. Energy audits for some 30 enterprises were completed, and easier access to credit for energy efficient investments had been established\. Studies were completed showing, for example, the benefits of using compact fluorescent lamps\. The work has been continued by the EF, and even though this latter cannot be attributed to the project, the achievement of this objective can be classified as substantial \. Objective (d) -- Strengthening the institutional capabilities of the power sector and of VRA by supporting its ongoing program of institutional development – has been achieved only to a modest extent\. On the positive side, the project helped in setting up a regulatory framework aimed at attracting private investment to the sector, including the Public Utilities Regulatory Commission (PURC) and the Energy Commission (EC)\. PURC is allowed to act independently in recommending tariff adjustments\. VRA’s environmental management capabilities have also been enhanced (see Section 11 below)\. However, the Government’s recent decisions to absorb tariff increases awarded by PURC have seriously undermined the sector’s financial viability\. At the current bulk tariff level, VRA cannot cover the fuel costs of running TK-1 and relies on the Government to pay for supplies\. In 2006, the entity sustained a loss of US$160 million, it has accumulated large payments arrears to suppliers, and its financial situation continued to deteriorate in 2007\. Other than the relatively modest TK-2, there have been no private sector investments in generation or distribution, which is unsurprising given the sector’s current financial disequilibrium\. 5\. Efficiency (not applicable to DPLs): At appraisal, the economic costs and benefits of TK-1 were assessed in the context of the plant’s role as part of a least cost expansion plan for the power sector\. No separate ERR was calculated for the plant, and the rate of return of the entire power sector investment program was calculated to be 18 percent\. At closure, the context had changed\. With the exception of TK-2, none of the planned generating facilities have yet been constructed\. Consequently, the ex-post evaluation of TK-1 focused on the incremental contribution of the plant from the beginning of construction in 1996 through 2006\.The costs were those of investment, operation and maintenance (including transmission,distribution, and adjustments to the real cost of fuel), and the benefits were the economic value of the electricity to customers at the time of appraisal\. The result of the analysis was an ERR of 26\.4 percent\. The analysis was not carried further into the future since it becomes complicated by the likely addition of new generating facilities (both hydro and thermal), and because the ERR is already satisfactory\. The higher ERR reflects in part the failure to undertake other planned investments, thereby increasing the economic importance of TK-1\. Because tariffs are set at below cost recovery levels, the financial rate of return (FRR) of the project is negative\. If it is (rather heroically) assumed that in future VRA’s tariffs are set at full cost recovery, the FRR of the whole system’s generation and transmission investments over a 20 year period would be 13\.5 percent\. Although the project’s ERR is satisfactory, other efficiency dimensions are less so\. The project took 12 years to implement\. Its prolongation for five years after the major physical investment was completed in the pursuit of policy reforms that largely failed to materialize, and then a late restructuring to finance a distribution system upgrade that failed to meet its target, were inefficient both in terms of the use of scarce IDA resources and Bank costs\. Overall, however, the project’s efficiency is rated as substantial thanks to the satisfactory ERR\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re-estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 18% 100% ICR estimate Yes 26\.4% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The outcome of the project is rated as Moderately Unsatisfactory\. Relevance is substantial, as is efficiency\. Efficacy, however, is modest – only one of the four development objectives was achieved to a substantial extent, and even that was a small component, the responsibility for which was shifted to other donor-financed activities\. One of the consequences of the changed generation mix, with its considerably higher thermal content, has been that the cost of services is no longer affordable to the urban poor or to a large number of rural residents\. An attempt to introduce targeted lifeline tariffs has been suspended\. The power sector is in deep financial crisis\. The risks to development outcome are consequently high\. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risks are significant\. Although Ghana’s political situation is relatively stable, and the institutional capacity building for environmental and thermal power management is likely to be sustained, the project’ s broader development contributions are seriously threatened by VRA’s precarious financial situation\. Unless tariffs are adjusted to cover full costs, VRA is unlikely to be able to fund plant operation and maintenance or the training necessary to enhance staff performance in thermal operations\. Moreover, it will be difficult to attract private operators into the sector in the face of constant government undermining of the regulatory function\. According to the ICR, there is unfortunately little sign of a change of policy in this respect\.  a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: Quality at entry was Moderately Satisfactory\. The strategic and contextual relevance of the project were high\. The task team consulted widely on the project content and made considerable efforts to ensure the full participation of the Borrower in design and preparation\. Institutional development was given appropriate priority, and has led to the development of, for example, a well-functioning environmental unit in VRA\. The quality of the financial and economic analysis was substantial\. There were suitable financial covenants, and it was correct to hold back Board presentation until the Government had agreed to tariff adjustments\. However, procedures for project implementation arrangements took insufficient account of VRA’s inexperience in construction, operation and management of thermal power plants\. The choice of VRA as implementing agency was questionable; but once this choice was made, the arrangements for the supervision of engineering, procurement and construction were insufficient\. The supervision contract was too short, and a single contract would have been preferable to individual awards for sub-tasks of plant construction\. In accordance with the Bank’s approach to power sector development in Sub-Saharan Africa at the time, it was anticipated that there would be considerable private investment in thermal power generation in Ghana\. Accordingly, this project was the only available Bank lending instrument for supporting power sector reform for the following decade\. However, private investment largely failed to materialize, due to both inappropriate national policies and changing international circumstances\. The quality of M&E design was negligible, even taking account of the fact that at the time a full results framework was not customary for Bank projects\. Risk assessment was also poor – in particular there was inadequate mitigation of the considerable risk -- which in fact materialized -- that tariffs would not be adjusted in accordance with costs\. Supervision was Unsatisfactory\. There was a high rate of turnover of TTLs – eight during the twelve year life of the project – and frequent changes in the composition of the task team\. The team was, moreover, inadequately staffed – there were considerable periods when it lacked engineering skills in thermal power technology\. During these periods, the Bank was consequently unable to provide proper support and advice to the Borrower\. The dialogue on key issues, such as tariff policy, was poorly conducted\. Even though no further energy operation was planned, it is disturbing that power sector issues were not taken up more forcefully in the broader policy dialogue with Ghana\. There was a lack of clarity within the Bank as to who had the responsibility for conducting policy dialogue in the sector\. The failure to address the tariff issue led directly to the financial crisis facing VRA in 2007\. The project was restructured in 2004 with the power plant completed and only 15 percent of credit proceeds uncommitted\. This was too late\. Moreover, the remaining funds might more appropriately have been spent on addressing the considerable technical and operating difficulties prevalent at the newly completed power plant, the needs of the distribution system notwithstanding\. Despite major prevailing problems, the project was rated Satisfactory in all ISRs from 1998 until late 2004, when a QAG Supervision Assessment judged it Moderately Unsatisfactory\. The ICR reports serious failings in project filing – not only was the Bank’s internal filing unsystematic, but for the period 2003/2004 files were available only from the Borrower as the Bank team failed to keep any records\. This meant, inter alia , that the frequently changing TTLs and other team members were unable to acquaint themselves easily with key project issues\. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Unsatisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: Although the Government demonstrated commitment to the project’s goals during preparation and appraisal, these waned during implementation\. There was little attempt to achieve the necessary political consensus for sector reform, and especially for tariff adjustments in the face of mounting fuel costs\. There was no campaign to raise public awareness of the issues\. There was, rather, constant political interference in the tariff setting process, while other reforms were not implemented in a timely fashion\. Partly as a result of unclear signals, hoped for private investment in power generation has thus far largely failed to materialize\. Government indecisiveness was exacerbated by frequent changes of sector Ministers, of whom there have been eight since 1995\. The performance of the implementing agencies, VRA, and ECG, was mixed\. VRA’s satisfactory management of transmission line construction, social investments and environmental dimensions must be set against its below par conduct of the building and operation of TK-1\. VRA should have been more assertive in enforcing contracts and minimizing delays\. The distribution system investments for ECG were completed largely on time after project restructuring, and have contributed to more reliable electricity supply and some reduction in technical losses\. Continued heavy non-technical losses and the deteriorating state of ECG’s finances cannot be blamed on the company\. They are due to government decisions to interfere in tariff setting, not to pay for electricity supplied to the public sector, and to halt the proposed MSSA\. a\. Government Performance :Unsatisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: M&E design was negligible, and implementation moderate\. The PAD contains no clear, quantifiable indicators of progress in project implementation or of achievement of development objectives\. There are no baseline values\. Although Bank practice at the time did not require a rigorous results framework, much more could nonetheless have been done in presenting at least rudimentary performance indicators\. Fortunately, VRA kept reasonably full and up-to-date records, and these were used during implementation to monitor the project’s development impact\. Baseline and key performance indicators were formally included during the 2004 restructuring\. Even these, however, are output rather than outcome oriented\. They do not contain, for instance, service quality indicators such as load shedding, or the percentage of the population with access to electricity\. Even the performance indicators for the distribution system component which were added at restructuring did not include baseline values of the level of technical and non-technical losses in the targeted areas\. Capacity building in the implementing agencies has fared better – VRA now have a robust management information system which provides reliable, real time information to key stakeholders, and ECG data collection and analysis capabilities have also been strengthened\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Environment: An environmental mitigation plan was prepared at appraisal in accordance with Bank procedures\. The major issues identified by the Plan were the effect of used cooling water on marine life; air quality impact; and potential oil spillage\. The project introduced technologies new to Ghana to address these\. The technical design of the plant was changed because of concerns that the originally proposed “once throughâ€? cooling system to dissipate waste heat from the generators could harm marine life\. The cooling tower system installed instead led to rust problems from the ingestion by the turbines of sodium-laden mist\. This was, however, the result of poorly supervised construction rather than an inherent fault of the cooling tower system which has been satisfactorily used elsewhere\. Since construction, plant operators applied appropriate environmental vigilance, and the Mitigation Plan has been satisfactorily implemented\. VRA’s environmental unit has been considerably strengthened, and is now at the cutting edge of environmental practices in Ghana\. In partnership with the Environmental Protection Agency, it has introduced safeguard practices which have been judged by IDA to be equivalent in a number of cases to its own standards\. Resettlement: There was loss of land for transmission rights of way, and a small number of subsistence farmers had to make way for plant site development\. In all cases, appropriate compensation was paid\. Moreover, VRA has helped local communities through social investments in clinics, community schools, paved highways, a market and a cold storage facility for the fishing industry\. Fiduciary: VRA and ECG kept good records on financial management, audits were provided on time in accordance with the DCA, and issues raised by the auditors addressed in a timely fashion\. The covenant requiring an 8% return on VRA and ECG assets was not complied with due to the failure to adjust tariffs adequately\. There were a number of procurement issues\. VRA failed to inform the Bank of additions made to contracts instead of reducing contract values by the amount of agreed damages\. A post-procurement review undertaken in 2007 revealed that several large equipment and goods packages were acquired using the shopping method instead of ICB in an attempt to expedite plant construction\. Not only was this goal not achieved, but a significant number of sub-standard products were procured\. Procurement shortcomings were doubtless exacerbated by poor Bank supervision – the Borrower could not be blamed for mis-procurement since the Bank provided the necessary non-objections\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Unsatisfactory Unsatisfactory Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. Regional and Country Management should clearly allocate responsibilities for policy dialogue in the power sector, and supply those responsible with the support and the instruments they need\. 2\. Among such instruments would, in the great majority of cases, be a continued Bank presence as a lender to the sector\. 3\. Greater efforts should be made to ensure greater continuity of task team leadership and adequate technical staffing of task teams, especially when the operation concerned is likely to be the only one in the sector for the foreseeable future\. 4\. Choice of the main implementing agency should be based on a thorough assessment of the entity’s technical skills in the specialized area concerned and not on its high level of performance in operating different technologies\. 5\. When, in practice, there is little choice but to select an inexperienced entity, the supervision consultancy contract should be designed so as to provide the maximum of high quality support for as long as it is likely to be needed\. 6\. Where sensitive policy issues, such as electricity tariffs, are involved, a thorough assessment should be carried out of the degree of political commitment\. Once it is clear that this exists, a professional campaign should be conducted to raise public awareness of the issues involved\. (This was done in Ghana in the case of petroleum products, but not for electricity)\. 7\. The lesson, based on the experience of Ghana and other Sub-Saharan African countries, that private investment cannot be relied upon to carry the main burden of financing power sector development, has already been learned\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is thorough and clearly written, and contains all the elements necessary to arrive at an informed judgment on the project\. It is commendably frank in its analysis, the results of which are well reflected in its performance ratings\. There are a few shortcomings: The project financing information is confused and contradictory\. More information should have been provided on the reasons why the thermal power plant construction cost so much less than the appraisal estimate\. There are no reasons given for the long delay (9 months) between Board approval and effectiveness\. There is a contradiction between the results framework and the text concerning the power plant’s average monthly availability\. A fuller discussion of the failure to meet the financial rate of return covenant would have been useful, though this is dealt with by implication\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P103466

 ICRR 13343 Report Number : ICRR13343 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/19/2010 PROJ ID : P103466 Appraisal Actual Project Name : Prsc 2 US$M ): Project Costs (US$M): 42\.0 42\.6 Country : Mali Loan/ US$M ): Loan /Credit (US$M): 42\.0 42\.6 Sector Board : PO US$M): Cofinancing (US$M ): Sector (s): Central government administration (38%) General transportation sector (25%) General finance sector (13%) Health (12%) Irrigation and drainage (12%) Theme (s): Public expenditure financial management and procurement (29% - P) Regulation and competition policy (29% - P) Trade facilitation and market access (14% - S) Standards and financial reporting (14% - S) Rural services and infrastructure (14% - S) L/C Number : C4388 Board Approval Date : 02/05/2008 Partners involved : Closing Date : 12/31/2008 03/31/2009 Evaluator : Panel Reviewer : Group Manager : Group : Rene I\. Vandendries Kris Hallberg Ismail Arslan IEGCR 2\. Project Objectives and Components: a\. Objectives: The Program Development Objectives of PRSC 1 and PRSC 2 were essentially the same\. The operations supported implementation of Mali's Growth and Poverty Reduction Strategy Framework (GPRSF), including policy measures intended to: (1) strengthen the macroeconomic and budget frameworks, particularly their links to the poverty reduction strategy, and strengthen public finance management, namely management, accountability and transparency of budget execution as well as procurement; (2) support growth enhancing measures in the financial sector, private sector, electricity (only in PRSC 1), transport and transit facilitation,  Office du Niger irrigation, and cotton sectors; and (3) improve access to basic social services, notably health and social development, and rural water supply and sanitation \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): As mentioned, the two PRSCs were focused on three major policy areas \. Policy area 1: Budget framework, poverty reduction strategy and public financial management - The objective of the PRSCs in this area was on strengthening the link between the poverty reduction strategy and the budgets through development of MTEFs, and on improving the financial management system through better monitoring and reporting\. In the procurement area, the focus was on information improvement and better control and regulatory functions\. Policy area 2: Support to growth - The areas covered by the PRSCs were the financial sector, private sector development, transport and transit facilitation, the energy sector (only in PRSC 1), the agricultural sector, and the Niger River Irrigation Office (ON)\. Financial sector - The main objectives were cleaning up the non -performing loan portfolios in the banking system, and further efforts at restructuring two major state -owned banks, the International Bank for Mali (BIM), a commercial bank, and the Housing Bank (BHM)\. Private sector development - The focus was on a variety of regulations that enhance (or constrain) business activity, as reported in the Doing Business reports \. Studies on corporate taxation and labor market competition were also planned under PRSC 2\. Transport and transit facilitation - The main objectives were to strengthen road maintenance, strengthen incentives for private sector transport operators and improve customs administration and control \. The energy sector - PRSC 1 supported the government's plan to restructure the water and power utility (EDM), following failed privatization efforts in the early 2000s\. The cotton sector - The PRSCs focused on continued implementation of a 2005 producer price mechanism to help protect farmer income, and preparation for the privatization of the state cotton company, CMDT \. The irrigation sector (ON) - The objectives were to improve ON management and promote irrigation, including private irrigation development \. Policy area 3: Access to basic social services - The main focus in this area was on ensuring adequate budget resources for the ministries of health and of social development to help improve social service delivery, and on increasing reliable access to potable water for the rural population \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: PRSC 1 was approved on March 6, 2007 for US$45 million equivalent, fully disbursed upon effectiveness, and closed on schedule on March 31, 2008\. The difference between the appraisal amount (US$45 million equivalent) and actual disbursements (US$45\.9 million) is due to exchange rate changes \. PRSC 2 was approved on February 5, 2008 for US$42 million equivalent, fully disbursed upon effectiveness, and closed on March 31, 2009 with a three month delay\. The difference between the appraisal amount (US$42 million equivalent) and actual disbursements (US$ 42\.6 million) is due to exchange rate changes \. IDA provided supplemental grant financing for PRSC 2 of US$5 million in December 2008 (additional to the US$ 42 million) to help fill an unanticipated financing gap as a result of a food crisis \. There was no cofinancing\. 3\. Relevance of Objectives & Design:  The original intent was a series of three PRSC operations \. However, because of limited progress being made in the growth support agenda (policy area 2) the series was discontinued after PRSC 2 and a new PRSC series was initiated with focus on public finance management, governance and the delivery of basic services \. The objectives of PRSC 1 and 2 were relevant in the sense that they were in line with the government's objectives, were complemented by several ongoing bank -financed projects in relevant sectors (finance, transport, growth, agriculture) and were closely coordinated with IMF programs \. But the relevance of both objectives and design were seriously compromised in two ways \. First, the PRSCs were aimed to address too many issues all at once, many of which had been addressed in many earlier Bank operations and proven intractable \. In other words, there was no focus\. Second, and partly as a result of the above, the design of the PRSCs was complex, focused on processes rather than outcomes, and linkages between these processes and indicators of achievement were often vague \. To illustrate, there were 13 prior actions for PRSC 1 and nine for PRSC 2, but most of these were mere indications of intent to reform rather than concrete reform measures --adopt the findings of a report, meet with the banks, study an issue \. Furthermore, the number of PDO indicators was inordinately large, 55 in PRSC 1 and 54 in PRSC 2 (the power sector was dropped from consideration ) while data to measure results were often not available, thereby defeating the objective of promoting results -based management\. The ICR recognizes these shortcomings when it notes ( in para\. 97) that the PRSC series "did not make a real break from the past" in terms of lack of selectivity and a focus on processes rather than outcomes, which led to results that were similar to those achieved during the previous ten years \. Lessons from previous operations were clearly not taken into consideration \. In sum, the relevance of objectives and design of PRSC 1 and PRSC 2 was modest, at best\. 4\. Achievement of Objectives (Efficacy): Policy area 1: Budget framework, poverty reduction strategy and public financial management - There was some progress in this area in expanding the MTEF process, thereby improving the dialogue between sector planners and the Ministry of Finance, and strengthening the link between poverty reduction and sectoral strategies\. However, alignment of the budget with MTEFs remains deficient and budget implementation remains slow as does reporting on budget execution \. In terms of procurement reform, the CPAR was adopted under PRSC 1 and the Procurement Department database was strengthened; a procurement decree was approved under PRSC 2 and databases installed in four ministries\. But there has been no implementation progress to date \. Efficacy for policy area 1 is rate modest\. Policy area 2: Support to growth - In the financial sector, one major commercial bank (BIM) was successfully privatized, but attempts at restructuring of the Housing Bank (BHM) have continued to fail\. The target for the ratio of non-performing loans in the banking system's portfolio was not met primarily because of the lack of progress in restructuring BHM\. Progress towards improving the investment climate was minimal\. There were numerous PDO indicators in this area such as the number of procedures necessary to create an enterprise, the time taken to create an enterprise, tax measures, or the cost of creating an enterprise \. The target for the latter indicator was the only one met\. There was no significant change in Mali's ranking on the Ease of Doing Business indicators over the PRSC period \. Studies planned as part of the operations on corporate taxation and on competitiveness of the labor market were not completed \. Little progress was also made towards increasing the efficiency of the transport and transit system \. The share of the road network that is maintained has increased marginally from 65 to 66 percent (meeting the target) but road maintenance remains a major issue with 40 percent of the roads that are maintained reported to be in poor condition\. There are no data to judge developments in the areas of transit and customs \. Road barriers and irregular practices at these barriers remain an issue, and planned regulations were not implemented; nor were planned studies on road taxation and on a competitive freight exchange completed \. PRSC 1 supported the government's action plan for the restructuring of the power and water company, including technical studies on institutional arrangements, tariffs, least -cost investment plans, and audits \. But the financial situation of the company has worsened further \. The government has now adopted a restructuring plan and Bank support will be provided through an investment loan \. In the cotton sector area, several of the PDO indicators set were either not met or no data exist to evaluate progress \. Most importantly, the cotton parastatal (CMDT) has continued to suffer from poor management and large financial losses, hence requiring further subsidies, contrary to the objectives of the PRSC series \. An earlier (2005) reform time table was not implemented as scheduled\. Cotton production has declined precipitously \. The privatization of CMDT is now embedded in a newly approved law \.  There has been little progress towards improving the effectiveness of the irrigation department (ON)\. Irrigation maintenance remains a major challenge primarily because of a lack of government assistance \. A new master plan for development of ON was adopted in December 2008, but ON's role and responsibilities in many areas--water management, land tenure, land use --remain unclear\. On balance, efficacy in policy area 2 is rated negligible\. Policy area 3: Access to basic social services - Some progress was made in this area \. PRSC 1 focused on ensuring additional budget resources for the health and social development ministries, while PRSC 2 helped ensure that the budget for the two ministries was aligned with their MTEFs and, in addition, included actions to increase the supply of potable water \. The resources allocated to the two ministries were slightly short of target for PRSC 1 but were on target for PRSC 2, and the target rate of assisted childbirths was met for both PRSCs \. On the other hand, the coverage of community -based health insurance did not expand, and access to basic social services by the poor continues to be inadequate \. The share of the rural population with access to a potable water point was below target for PRSC 1 but was exceeded for PRSC 2, but the share of potable delivery systems which are functional did not improve \. Efficacy in policy area 3 is rated substantial \. 5\. Efficiency (not applicable to DPLs): Not applicable\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: While economic growth over the period was a respectable 4\.5 percent per annum, it was far from sufficient to have any impact on poverty levels, especially given the continued high level of population growth at about 3 percent per year\. The growth was fueled primarily by donor -supported public infrastructure investments and increases in food crop production, and not the result of any potential impact of the PRSCs \. On the contrary, This series of PRSCs was a failure in many respects and had to be discontinued \. It was overly ambitious in attempting to address too many of Mali's development challenges all at once, while, at the same time, the individual reform proposals were too timid \. Some progress was made towards improving public financial management and the delivery of basic social services, but little was achieved in the all -important area of growth stimulation\. The combined ratings for relevance and efficacy suggest an unsatisfactory outcome rating \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk of reversal in the progress achieved in public financial management is small because the improvements made are by now well entrenched in government policy making \. The risk of reversal in the advances made in social service delivery are also small because of expected continued strong support from the donor community as a whole\. There is little risk of reversal in the area of support for growth because little was achieved, even though external developments (export prices, the global economic crisis ) may intensify the severity of the challenges\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: In preparing the PRSC series, the Bank worked closely with the government and with the donor community on developing the policy agenda \. The Bank was also well-prepared on the basis of its ESW and was simultaneously supporting several projects in relevant sectors \. But the program was too ambitious, complex and diffuse, and the reform proposals themselves were too timid to be meaningful \. The design included too many indicators, several of them of little relevance and many that were not monitorable \. Supervision reports were unable to track developments in the multiple PDO indicators and ended up being superficial \. Supervision was also compromised by the high turnover of Task Team Leaders (TTLs): there were four different TTLs over the two and a half years period between the concept review meeting for PRSC 1 and the closing of the series\. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Unsatisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: While the government's Growth and Poverty Reduction Strategy Framework (GPRSF) stressed the need to accelerate growth (and reduce population growth ) as a prime prerequisite for poverty reduction, it did not develop a concrete agenda for achieving growth and made hardly any progress in tackling long overdue reform measures (in banking, power, cotton, irrigation ) to facilitate growth\. Performance of the ministries involved in PRSC implementation was deficient because virtually no effort was made to generate the information and data needed for adequate monitoring of the reform program \. a\. Government Performance :Unsatisfactory b\. Implementing Agency Performance :Unsatisfactory c\. Overall Borrower Performance :Unsatisfactory 10\. M&E Design, Implementation, & Utilization: It was unrealistic to expect that a monitoring system could be designed given the exceedingly large number of PDO indicators, the preponderance of output /process indicators rather than outcome indicators, the paucity of data and lack of baselines, and the often weak linkages between proposed policy actions and PDO indicators \. The ISRs ended up choosing arbitrarily a very few of the indicators to report on \. The absence of a credible monitoring and evaluation framework meant that there was no implementation, with incomplete collection of monitoring data and little government ownership \. There was also no utilization of M&E : the focus was on prior actions and triggers, rather than on results and use for policy adjustments\. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The following is a summary of the ratings for the two PRSCs \. Ratings ICR IEG Review Reason for Disagreements/Comments Outcome  PRSC 1 Moderately Unsatisfactory Unsatisfactory See Section 6\. Progress PRSC 2 Moderately Unsatisfactory Unsatisfactory made was minor, almost insignificant\. Risk to Development Outcome PRSC 1 Moderate Moderate PRSC 2 Moderate Moderate Bank Performance PRSC 1 Moderately Unsatisfactory Moderately Unsatisfactory PRSC 2 Moderately Unsatisfactory Moderately Unsatisfactory Borrower Performance PRSC 1 Moderately Unsatisfactory Unsatisfactory See Section 9\. The PRSC 2 Moderately Satisfactory Unsatisfactory government's reluctance to reform is long-standing ICR Quality PRSC 1 Exemplary PRSC 2 Exemplary 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Unsatisfactory See Section 6\. Progress made was Unsatisfactory minor, almost insignificant\. Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Unsatisfactory See Section 9\. The government's Satisfactory reluctance to reform is long-standing\. Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR correctly identifies the two prime lessons from this experience \. First, to have impact it is vital to be selective in reform proposals, and understand the political economy for their chance of success \. Technical analyses prior to a PRSC series should be complemented by political economy analyses that can serve to identify reforms that have a reasonable chance of being implemented \. Second, reform proposals should not be confined to statements of intention to reform but rather concretely focused on outcomes \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: This is a very well written, clear and, above all, frank ICR \. In it, a genuine effort is made to go beyond the superficiality of the ISRs and report candidly on the achievements and failures of this series of PRSCs \. It  contains all of the information needed to evaluate the program \. In spite of the deficient M&E system, the ICR made a commendable attempt to separately assess and rate each operation in the series, and provided a clear presentation of what was achieved in terms of prior actions and performance indicators, including assessment of the relevance of the performance indicators \. a\.Quality of ICR Rating : Exemplary

REVIEW

P008860

 ICRR 12754 Report Number : ICRR12754 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/03/2007 PROJ ID : P008860 Appraisal Actual Project Name : Poverty Alleviation 2 US$M ): Project Costs (US$M): 18\.28 21\.33 Project Country : Tajikistan Loan/ US$M ): Loan /Credit (US$M): 13\.8 16\.0 Sector Board : SP Cofinancing (US$M ): US$M): 2\.9 2\.9 Sector (s): Other social services (72%) Sub-national government administration (17%) Micro- and SME finance (11%) Theme (s): Participation and civic engagement (29% - P) Conflict prevention and post-conflict reconstruction (29% - P) Vulnerability assessment and monitoring (28% - P) Gender (14% - S) L/C Number : C3642 Board Approval Date : 05/21/2002 Partners involved : DFID Closing Date : 12/31/2006 12/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Howard Nial White Kris Hallberg Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The DCA gave the objective as "“To improve the living standards of the poor and increase their access to economic and social services"\. The PAD gave a more specifc wording : “to improve the living standards of the poor and vulnerable people through MP, microfinance services and community empowerment in areas served by the project â€?\. The microfinance component was subsequently dropped so the general, outcome -oriented, DCA wording is used in this review\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): US$9\.96 million, 72%: Micro Projects (Appraisal : US$9 18\.83, 72%: Actual : US$ 18\. 89%): provision of grants in the form of (i) 83, 89%): Community-Based / Infrastructure Micro Projects to restore basic social and economic services and infrastructure in response to local priority needs and with the involvement of beneficiaries in the design and implementation of those projects, and (ii) Sponsored Programs to support projects addressing the needs of particular poor and vulnerable groups\. Specific for the sponsored projects was their demand -driven nature and their awarding and implementation through sponsoring organizations (intermediaries) primarily NGOs, since the beneficiaries were lacking the capacity to apply and carry out the projects on their own \. US$ 1\.46 million, 11% Microfinance (US$1 11 %; Actual US$ 0, 0%):%) : provision of credit lines to competitively selected MFIs to expand existing microfinance programs to poor groups, particularly women, and providing technical assistance and training to MFIs to increase their capacity to effectively manage their operations and support their growth in a sustainable manner\. Institutional Strengthening and Project Management (Appraisal : US$2 17 %; Actual : US$ 2\.35 million, US$ 2\.38 million, 17% %): (i) institutional strengthening of the NSIFT as an institution to carry out projects but also to implement 11%): 11 programs financed by other donors, through the provision of training, technical assistance and links with other social funds active in the region; (ii) investment in project management to ensure effective and efficient implementation pf project activities\. The second (microfinance) component was dropped given legislative changes and increased microfinance activity from other agencies\. Note: the budget figures exclude the US$ 2\.9 million from DFID for capacity building in NSIFT and US$ 0\.15 million project preparation facility\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The DCA was amended in May 2006 to reflect the dropping of the microfinance component, and the funds allocated amongst the remaining components \. The agreement was also amended to reflect the DFID cofinancing of NSIFT \. On account of currency appreciation the total loan value was US$ 16\.0 million, compared to US$ 13\.8 million at appraisal\. 3\. Relevance of Objectives & Design: The objectives, design and implementation of the SPAP remain relevant and consistent with Tajikistan's current development priorities outlined in the National Development Strategy (NDS) for 2006–2015 and the second PRSP for 2007–2009, which includes investments in health and education services, empowering communities for development, and strengthening the social partnership \. The NDS identifies obsolete social infrastructure as a core problem, puts forward plans for conducting inventory of infrastructure and sets specific objectives for further increase in the capacity of social institutions and the quality of social services \. The NDS envisages participatory monitoring and assessment of program results with local self -government bodies and civil society \. The SPAP focus on improving the living standards of the poor and increasing their access to economic and social services is compliant with the current Bank country and sectoral assistance strategies and corporate goals outlined in the FY06-09 CPS and IDA’s analytical and advisory services \. The social investment fund type of project remains adequate as an instrument for coping with the shortcomings in regular service provision, fostering local institutional development, and reaching the poor and underserved given the still fragile public sector and limited decentralization \. Geographical targeting was used, ensuring that priority was given to the poorest areas in each region \. This is appropriate with a community-level intervention, although of course operating at the community level means that the non-poor in each community also benefit \. There were however shortcomings; notab ly: (i) the failure to link the MP project concept and capacity building of NSIFT staff to a strategy for NSIFT's institutional evolution ); and (ii) the questionable relevance of the microfinance component which could have been foreseen at appraisal \. 4\. Achievement of Objectives (Efficacy): The end-of-project values of the PDO indicators have been achieved, and the majority of them were surpassed \. For example:  The target number of beneficiaries with access to improved infrastructure and services has been greatly exceeded: 1,488,000 persons compared to the target of 600,000\. The number of fully operating and properly maintained MPs 9 months after project completion reached 217 in the end of 2006\. The prospects of reaching the target of 274 projects are very good\. The targeted number of beneficiaries from especially vulnerable groups (elderly, disabled, etc\.) with improved access to improved infrastructure and services of 4,000 people was surpassed significantly : there being 22,406 direct beneficiaries of 43 sponsored MPs and 664,398 indirect beneficiaries of 41 sponsored MPs\. The MPs have created 3,760 new jobs, including 2,870 temporary and 890 permanent ones\. However, the project did not contribute to increasing poor people ’s access to and use of micro credit services since the microfinance component (amounting to close to 11% of the project funds) was dropped\. The end-of-project beneficiary impact assessment applied the difference -in-differences analytical method to assess whether the SPAP PDO has been achieved \. It concluded that the monetary income (which has been used as a proxy of living standard) has increased more significantly in the NSIFT project beneficiary communities (the treatment group) compared to the control group \. The difference in the increase of 20 somoni in 2002-2007 (22% of the increase in nominal income) is indirectly attributable to the SPAP activities \. The difference in percentage change in household incomes is, however, insignificant (0\.7 percentage points) and does not provide statistically significant evidence in favor of NSIFT ’s contribution to living standards ’ increase in the treatment communities \. Along with the beneficiary impact assessment, in the absence of comparative baseline and end -of project data indicating the change in the living standards of the communities where MPs have been implemented, a positive answer of the question whether the PDO has been achieved requires assessing whether : (i) SPAP has reached poor communities and poor and vulnerable people; (ii) adequate MPs have been implemented to increase the access of the poor to social and economic services; and (iii) the communities have been empowered as a result of MP implementation\. Has SPAP reached poor communities, poor and vulnerable people? SPAP applied precise ex-ante targeting of the poor and vulnerable\. The Technical Audit of NSIFT (2005) concluded that the poverty targeting of SPAP was effective since most MPs were implemented in poor communities or villages, since these projects appeared as priorities on the lists of the communities and since they have been identified in collaboration of local NGOs at project start-up\. The audit also revealed, however, that the poverty targeting although effective has been uneven between projects\. Since the MPs targeted whole communities, the most poor were not always among those who would be the first to benefit from certain micro project, e \.g\. from the connection to gas or electricity supply \. Were the implemented micro projects contributing to increase in the access of the poor to social and economic services? The infrastructure MPs, the sponsored projects and the innovative job creation projects were designed to increase the access to services \. NSIFT conducted a beneficiary survey with 900 respondents (community members, CDC members, representatives of the local governments, community and NGO activists from the targeted communities) where 94-96% of the respondents confirmed their all members of their community use the facilities delivered by the micro projects; 93-95% found them of good satisfactory quality and relevance, 95-98% believed that the project’s impact on the respective community is positive, and 92-95% reported having saved money and time (for the business development projects they also reported making profit )\. A strong indication of the impact of the micro projects on access to services is the participation of the communities in implementation, their commitment to maintain the facilities in the post completion period and to contribute in kind or cash for maintenance \. Have the communities been empowered as a result of the implementation of micro projects? All communities which have implemented micro projects have established CDCs \. The sponsored MPs have been initiated by initiative groups of citizens which continue to exist after project completion \. They have received training in project management and some have approached other donor agencies with new project proposals \. The target of implementing 5% of the MP through direct contracting by the communities has been surpassed – 33 MP were implemented by communities under the supervision of CDC, instead of 15\. The ICR concludes that the PDO has been achieved by the project since it helped poor people access basic services; generated employment in remote parts of the country where the outreach of central government institutions was not sufficient; encouraged partnerships between communities and local governments for maintenance of the services; empowered communities to take the initiative in resolving their problems; contributed to improving the quality of social services; built institutional, project delivery, monitoring and evaluation capacity in NSIFT, regularly submitted community-level information to inform the PRSP process \. This review agrees with the ICR's assessment that the PDO was substantially achieved \. 5\. Efficiency (not applicable to DPLs):  The Technical Audit (2005) concluded that NSIFT MPs are equally cost efficient compared to similar projects implemented by other agencies while their quality is in the most of the cases higher \. To make this conclusion, the audit looked at the technical quality and sustainability of selected MPs, assessed their cost efficiency, unit costs (price per square meter and spending per beneficiary ) and the price determination mechanisms \. The Audit also assessed the technical compliance, physical completion and price competitiveness of contracts, as well as the compliance with the procedures and guidelines as laid out in the Operations Manual \. The observations of the auditors were confirmed by additional comparisons of unit costs which were commissioned at ICR to a construction engineer\. The unit costs of construction were found closely comparable between rural schools with the same design which were built in one and the same period of time and using the same norms for inputs under SPAP and two other projects\. Unit costs of major refurbishment were also found comparable with the average for the respective region in the same period of time\. NSIFT’s operational costs which could be used as a proxy of efficiency were 9\.93% of all project costs\. They are within the project limits and at the lower end of the average social fund operational costs in ECA, which – according to a recent comparative study – amount to 10-13%\. The NSIFT operational costs were, however, higher in the first 2\.5 years of the project – 14\.7% which is justifiable with the high initial costs of the outreach to the poor and vulnerable communities which are often located in remote mountainous areas with poor communications and physical infrastructure\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The overall outcome rating of the project is satisfactory based on the relevance of its objectives, design and implementation, the achievement of the PDO (see section 4 above), the good quality of MP outputs which was achieved at comparable cost \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to development outcome mainly pertains to the sustainability of the physical infrastructure provided under the SPAP and to the sustainability of community empowerment \. The latter is considered sufficient based on the findings of the beneficiary impact assessment, feedback from NSIFT and from CDC members, which indicate that many CDCs have been registered as NGOs, members continue to meet, discuss development, identify projects, lobby with the local government bodies for financing of priority social infrastructure and services \. The sustainability of the physical infrastructure is being achieved with the project level sustainability / maintenance plans prepared by the service end-users and endorsed by the local governments \. The main threats to sustainability of the physical infrastructure could be associated with : (i) deterioration of the quality of the works which will increase the need for maintenance and make it more expensive and frequent; (ii) missing elements / not fully completed projects, which could impair the quality of, or limit the access to the respective services; and (iii) increasing of the poverty in the community for reasons outside the project which could limit the access to the respective service \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at entry Project preparation benefited from the previous involvement of the Bank in a social fund project and the good understanding of the main sector issues by the Bank team, taking into account major risk factors and lessons learned from PPAP and social funds globally \. The Bank played actively an intermediation and resource mobilization role with respect to other donors \. The project preparation was participatory and supported by the Government of Tajikistan \. On the downside too little attention was possibly given to some design aspects, such as (i) developing a medium term sustainability plan for NSIFT, including vision about its functioning beyond the time frame of the SPAP and in the reduction or absence of donors finance; (ii) strengthening the institutional relations of NSIFT with the line social ministries, formalizing the coordination with them of deliverables and MP post-completion commitments, increasing the level of trust and building partnerships; and (iii) emphasis on outcomes and impact evaluations and on generally more robust M&E arrangements, especially given the troubled history of the preceding project and the well articulated governance risks\. In addition, the relevance of the social fund mechanism for delivery of a microfinance program in the Tajikistan country context could have been assessed more carefully before the start of the project \. Quality of supervision: The project was supervised through regular technically sound missions \. The demand for intensive supervision was high \. As mentioned, at effectiveness, SPAP was a high risk project because of the troubled implementation history of its predecessor and the subsequent likelihood of facing similar issues \. During the first year of project implementation, this rating was revisited and based on SPAP ’s good performance it was changed from high to substantive \. Supervision was generally proactive and forward looking \. The supervision identified the problems with the Microfinance component in a timely manner but formal actions were delayed \. The restructuring of the project could have happened earlier and more extensive and convincing arguments in favor of the restructuring could have been provided in the MTR ISR and AM \. The Bank team worked closely with DFID, including through joint supervision missions \. Given the reported high number of beneficiaries, the team could have strived for more visibility and dissemination of results, as well as higher involvement and buy -in by MOF, the President's and Prime Minister's offices and social and economic ministries \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government performance: The commitment of the government was stated clearly in Decree No \. 67 “On the National Social Investment Fund of Tajikistan â€? of February 27, 2002 which regulated the provision of counterpart funds by the Ministry of Finance, the financing of staff salaries, administrative and recurrent costs of NSIFT \. The government contribution amounted to US$ 3,8 million (20\.8% of the initial and 17\.7% of the actual project cost in US dollars)\. In the future, the NSIFT’s community outreach and empowerment expertise and its capacity to deliver social services to the poor could be linked more closely with the poverty alleviation policies of the government and with local government planning of social service provision \. Implementing Agency or Agencies Performance : The implementing agent’s (NSIFT) satisfactory performance rating is justified for several reasons : (i) the project met its PDO; (ii) it was implemented within the original project time frame; (iii) NSIFT demonstrated capacity to manage additional funds (provided by DFID and KfW) in a transparent and effective manner; and (iv) NSIFT demonstrated ability to: (a) reach the poor and vulnerable more quickly and more flexibly compared to the state institutions; (b) create conducive conditions for the participation of the poor and vulnerable in decision making at local level; (c) engage local governments is a dialogue with communities and facilitate sustainable arrangements for local governments ’ participation in community needs assessment and in project post -completion maintenance\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: The project design identified indicators and possible data collection methods to monitor progress towards the PDO outcomes and component results \. The PDO indicators were updated in the second half of 2003 to better capture the focus of the project, become more measurable, concrete and amenable to data collection \. The update was followed by a workshop on mechanisms for collecting and processing data, definitions of indicators and their use in the decision making process\. The information for tracking these indicators was supposed to be generated internally – by NSIFT, through the MIS, the data collecting in the regional offices, site visits and inspections, NSIFT annual reports \. External sources were envisaged as well, as data submissions by NGOs, Bank supervision missions, MTR and post-completion visits\. These data were collected regularly \. Along with that, extensive administrative socio -economic data and household-level data on consumption, incomes and assets was collected at project inception and used to underpin the poverty targeting of MPs \. The project level data collected through the MIS and in other ways was used for management and reporting purposes\. The development of MIS modules started under the SPAP while the DFID grant allowed integration of the modules into a M&E system\. The NSIFT regional offices supplemented the MIS data with surveys of the beneficiary satisfaction with the MP and the participatory process, other qualitative and anecdotal data \. The physical monitoring of the implementation of micro projects was done through routine visits of NSIFT staff and consultants from the central and regional offices to check the progress and quality of the works \. Technical and monitoring data were recorded in the project dossiers \. At the time of the Technical Audit, the MIS capacity for recording of unit costs, analysis of costs and efficiency at project level had been found insufficient \. Since then the analytical and informative value of the MIS data for construction works had improved and the system has become capable of generating the missing data\. There were four major weaknesses in the M&E design, which affected implementation and utilization, and which are also the sources of the gap in the information needs for this ICR : (1) Absence of baseline indictors of living standards in the poor regions and communities; (2) A beneficiary impact assessment was not envisaged ex ante in the project design, and only became possible shortly after the completion of SPAP thanks to the DFID co -financing grant which was extended in 2004; (3) the PDO was to target the poor, but data are not disaggregated by poverty status; and (4) the indicator system is output -oriented (MPs completed), with insufficient use of household level data on access and quality of services provided \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): None 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR draws the following lessons : Social funds continue to be relevant as instruments for maximizing the development impact through reaching remote communities which are underserved by government institutions and the NGO sector : SPAP made systematic efforts to target the poor and vulnerable, to reach them with projects and to foster community empowerment\. This effort confirmed that social funds, NSIFT included, have comparative advantages as multi-sectoral, demand-driven and pro-poor instrument for community mobilization, but are less cost -effective as management and implementing agency for micro projects \. The community social infrastructure investments cannot be sustainable, especially in the long run if they are not incorporated a priori in local government development strategies and coordinated with line ministries \. Central and local governments buy -in as early as at the planning stage is important to ensure the sustainability of the newly created services by their integrating in the overall social service network \. It is also important for ensuring long-term financing, optimal regional distribution of services (equality of access) and compliance with standards for quality\. Maximizing the developmental impact requires that the social fund type of interventions are integrated well in the government policy making process \. Social funds accumulate knowledge on social service delivery and generate information with potential value for policy making, e \.g\. design of targeted anti-poverty measures, selection of appropriate mechanisms for outreach and delivery, involvement of communities to increase the relevance of the programs and reduce the costs of delivery \. However, they often address mainly current acute problems that are not mainstreamed in the long -term priorities, thus aid is not always used as effectively as it might be\. A long-term government vision about the role of social funds at different stages of socioeconomic development is needed, and a strategy and action plan to facilitate this integration \. Maximizing the developmental impact requires that interventions align capital investments with capacity building, testing, documenting and disseminating innovative good practices, analysis and knowledge sharing \. Investment in people increases the stream of benefits and the impact of development project resources, especially when the technical assistance is of high quality and demand -driven\. Knowledge sharing, analysis and dissemination of innovations beyond the communities where the specific social funds projects are implemented is a cost effective way of expanding the geographical outreach of social funds as well as augmenting their impact on policy making \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR gives a systematic, comprehensive and balanced account of the project \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P073020

IEG Report Number: ICRR14741 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 07/31/2015 Country: Cameroon Is this Review for a Programmatic Series ? Yes No How many operations were planned for the 2 series? How many were approved ? 2 Series ID: S073020 First Project ID : P070656 Appraisal Actual Project Name: Forest And Project Costs (US$M): Environment Development Program L/C Number: CH207 Loan/Credit (US$M): 25 8\.83 Sector Board: Agriculture and Rural Cofinancing (US$M): 10 3\.8 Development Cofinanciers: GEF Board Approval Date : 02/28/2006 Closing Date: 12/31/2009 12/31/2011 Sector(s): Forestry (36%); General agriculture fishing and forestry sector (32%); Central government administration (25%); Sub-national government administration (5%); Law and justice (2%) Theme(s): Other environment and natural resources management (29% - P); Environmental policies and institutions (29% - P); Biodiversity (14% - S); Other rural development (14% - S); Administrative and civil service reform (14% - S) Second Project ID :P073020 Appraisal Actual Project Name: Cameroon Forest & Project Costs (US$M): Environment Sector Program (fesp) L/C Number: Loan/Credit (US$M): 10 3\.8 Sector Board: Agriculture and Rural Cofinancing (US$M): Development Board Approval Date : 06/20/2006 Cofinancers: Closing Date: 12/31/2009 12/31/2011 Sector(s): Forestry (35%), General public administration sector (33%), General agriculture, fishing and forestry sector (32%) Theme(s): Biodiversity (100%) Evaluator: Panel Reviewer: ICR Review Group: Coordinator: Stephen Hutton William R\. Sutton Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: No statement of objectives was present in the Development Grant Agreement\. The Program Development Objective as listed in the Program Document is "to strengthen public and private efforts to achieve socially-, economically-, and ecologically sustainable use of national forest and wildlife resources\." (page 14)\. The GEF cofinancing uses the same Program Document and objective, but is labeled the Cameroon Forest & Environment Sector Program (FESP), P073020\. Measures to support socially, economically, and ecologically sustainable resource use overlap, so this review will evaluate the objective as a whole rather than subdividing it\. The ICR argues (page 17) that the objective is too broad or vague to be evaluable\. However, it would in principle be evaluable to assess whether social, economic and ecological sustainability of natural resource use was improved\. b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: The operation had five policy areas (described in some places in the Program Document as components and subcomponents): 1\. Environmental regulation and information management\. This included support for an environmental impact mitigation plan, regulations on environmental impact assessment, improved monitoring, and improved transparency and civil society involvement\. 2\. Sustainable management of production forests\. This supported the implementation of forest management plans for commercial forest concessions, and a regulatory system for tracking timber custody and enforcing forest laws\. It also provided some support for forest estate zoning and for production of nontimber forest products\. 3\. Management of wildlife and protected areas\. This included preparation and implementation of work programs for protected areas and collection of data to measure management effectiveness\. 4\. Community management of forest resources\. This included restructuring of the forestry agency, implementation of community-based management plans, and transfers in management of plantations on state-owned land\. 5\. Strengthening institutions\. This included capacity building in forestry and environment agencies, including in staffing, financial management, procurement, work planning, and management and control systems\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The Bank provided budget support through a single development policy operation with two financing sources: an IDA grant (the Forest and Environment Development Program) and a Global Environment Facility (GEF) grant (the Forest & Environment Sector Program)\. The single operation was designed to be disbursed in three tranches, each with tranche release conditions, for a total of SDR 17\.3 million (USD $25 million) in IDA grants and a total of USD $10 million in GEF grants\. According to the ICR, OP 9\.01 related to the Procedures for Investment Operations under the GEF was waived for the first time to enable the GEF funds to be fully blended with IDA financing to support a DPO (p\. 4)\. The conditions for the second tranche were not fully met, even after an extension in closing date from 2009 to 2011, and so the operation closed in December 2011 with only the first tranche disbursed ($8\.83 million from the IDA grant, $3\.8 million from the GEF grant)\. DFiD was also to provide $6\.8 million of financing in parallel to the Bank-financed operation; the ICR does not report on the amount of parallel financing actually provided by DFiD\. A large number of development partners led by the World Bank aimed to harmonize their support for Forest and Environment policy reforms in Cameroon\. There was parallel financing of the government's program through a Basket Fund to support technical assistance, which the Bank did not contribute to and which was not formally part of the Bank's operation but was part of the overall donor support\. The Basket Fund received $24\.3 million from the UK Department for International Development (DFiD), Canadian International Development Agency (CIDA), German International Development Bank (KfW), and Agence Française de Développement (AFD)\. There was other parallel support from the African Development Bank (AfDB), Food and Agriculture Organization (FAO), United Nations Development Programme, World Wide Fund for Nature (WWF), International Union for the Conservation of Nature, and SNV (Netherlands Development Organization)\. All these partners signed a code in January 2006 to harmonize monitoring and evaluation systems and conduct joint review missions\. As the operation was a Development Policy Operation (DPO) for general budget support, no Borrower Contribution was expected\. The operation encountered major delays\. Six and a half years passed between concept note and effectiveness, and five years from effectiveness until closing\. The ICR explained that these delays were due to the change of instrument from a Specific Investment Loan to a Development Policy Operation, delays in the Government's adoption of the program, and delays in completion of some prior actions and tranche release conditions\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Forest resources provide a significant contribution to the economy, contributing an average of 8\.9% of GDP over 1992-2000, accounting for 28\.2% of nonoil exports, and providing the largest source of employment in rural areas\. While there had been growth in timber production, this had not been matched by improvements of sustainable forestry management or protection of forest ecosystems, leading to a rate of forest lost off 0\.65% per year, driven mostly my expansion of agriculture and consumption for fuel wood\. Cameroon has a high level of biodiversity and a high proportion of land dedicated to conservation, but these were threatened by weak management\. The Program Document notes (page 15) that Cameroon had adequate environmental laws, but very little ability to implement the laws due to institutional weakness and a lack of monitoring\. The objectives were relevant to the Country Assistance Strategy at approval, which aimed to improve management of forest resources and had "sustainable management of forests and effective protection of national parks and biodiversity reserves" as a targeted outcome\. The objectives were relevant to the country's forest and environment strategy\. The objectives were less relevant to the country strategy at the time of closure, which focused on "activities geared toward ensuring the transparent,equitable, and sustainable use of natural resources, including mining, agriculture, fisheries, and protected areas" rather than on forestry\. This reflected changing government and Bank priorities\. Forest and environment sectors are not priorities in the government's Vision 2035 strategy or the PRSP for 2010-20\. However, though deprioritized as compared to the time of approval, the forest sector remains an important source of employment and livelihood and remains under threat\. The language of the objective could have been framed more directly (e\.g\. to increase the social, economic, and ecological sustainability of use natural resources and wildlife) rather than the weak framing of "strengthen[ing] public and private efforts", and improving transparency and governance was a goal of the operation and so could have been included in the objective, but overall the objective was still relevant\. Relevance of objectives is rated Substantial\. b\. Relevance of Design: The Government of Cameroon had devised a 10-year policy for forest reforms in 2004, the Forest and Environment Sector Program\. The Bank and other donors, trying to work in a harmonized fashion following the Paris Declaration on Aid Effectiveness, worked to jointly support this program\. The broad design of the program included aspects that could help to increase sustainability of forest and wildlife resources\. The design of the main policy reform was reasonable\. Reviewing forestry concessions, issuing forestry regulations, establishing new contracts with sustainable forest management plans, and enforcing these plans could help to improve the sustainability of the forestry sector\. Other policy reforms may also have supported the program objectives: issuing regulations on environmental impact assessment could improve environmental outcomes in forest polices and programs, restructuring the forestry ministry to separate environmental protection from production-focused roles could help to encourage sustainable management\. However, the remaining elements of the policy matrix were largely institutional capacity building outputs (which may have been more suited to an investment lending) or were indicators (along the lines of a P4R operation - which did not exist as an instrument at the time) rather than policy actions\. These might have been better suited to investment lending than to a policy lending instrument\. For example, the protected areas and wildlife component was not centered around a policy reform: its prior actions were the establishment of work programs in protected areas and measurement of baseline data, and its triggers were to achieve certain scores of management effectiveness\. A trigger for tranche three was for illegal logging to be "under control" in forest areas and protected areas\. Some other triggers were narrow and specific outputs (eg establishing premises and staffing for a team for implementation monitoring) rather than being critical policy reforms\. Relevance of design is rated Modest\. 4\. Achievement of Objectives (Efficacy): Outputs: Progress was achieved in a number of areas surrounding budget allocations and processes, environmental and social monitoring, capacity building, forest sector regulation, and management of conservation areas\. The ICR reports that existing management plans were reviewed for 100% of forest units, 90% of forest units had a forest management plan, 33% had a signed final concession agreement, 26% had a reviewed management plan and gazette degree\. 12 communal forests had a gazette decree and 6 had a management plan approved\. However, the trigger on sustainable forest management for the second tranche was not met, and this led to the cancellation of the operation\. This trigger required review of existing forest management areas, enforcement of sustainable management obligations including termination of concessions in violation, and issuance of new concessions that would follow these obligations\. The ICR notes that "Achievement of this trigger was the most important element of the DPO with respect to long-term sustainability of the forest sector\. Without it, the long-term management of forests remains uncertain" It also notes that 19 of the 20 new concession agreements signed included provisions for mining activities, which would be in conflict with sustainable forest management (page 8)\. The ICR reports (page 13) that the official reason concessions were not finalized was that the Prime Minister's office did not sign the concession agreements, for a range of reasons including noncompliance with forest law provisions that required a mill in every management area\. A shift in government priorities to mining may also have been relevant\. Most third tranche activities were also not completed, and there were gaps in important activities on land use planning, forest law enforcement, community participation in protected areas and hunting zones, and implementation of biodiversity protection measures by logging companies\. Outcomes: The ICR does not provide evidence on social, economic, or environmental sustainability of resource use\. The ICR does not report on whether the management plans were implemented, or whether the related agreements were enforced, or on whether they contributed to positive outcomes for forest sustainability\. Protected area management effectiveness was increased by a significant amount in 8 key protected areas, as measured by a Management Effectiveness Score assessed by the Worldwide Fund for Nature\. The ICR states (page 19) that illegal logging has been significantly reduced, though the formal satellite image assessment for the indicator for this was not carried out\. The ICR states (page 25-26) that civil society organizations reported that the program had improved community access to natural resources, and that communities had benefited from regulations that redistributed forestry fees, and that the program played a major role in altering the forest taxation system to transfer revenues to local bodies for development purposes\. The achievement of objectives is rated as Modest\. 5\. Efficiency (not applicable to DPLs): 6\. Outcome: Though the objectives were substantially relevant, there were weaknesses in design of the operation and choice of instrument, the operation was cancelled without disbursing the second or third tranche as key activities had not been completed, and little evidence was provided on the effects of the operation on the social, economic, or ecological sustainability of forest use\. a\. Outcome Rating: Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The ICR argues that institutional capacity building efforts are likely to be sustained, though cumbersome and non-transparent procurement procedures still pose a risk\. Improvements in the management of protected areas face risks from the lack of predictable and adequate funding, pressure from forestry and mining sectors, and the absence of agreement between ministries on land allocation measures and land use\. Improvements in the sustainability of forestry areas are threatened by policies that allow mining in those areas\. The ICR reports (page 26) that there are already many examples where mining exploration permits have been issued in areas with protected areas and forest concessions\. The ICR states that the risk to reforms that shifted forest revenues to local governing bodies is low\. There is also a risk from declining government ownership and commitment to forest reforms, though the ICR notes that the government signed a Voluntary Partnership Agreement with the EU on establishing a supply chain for legal timber, which demonstrates some ongoing commitment\. The progress on a transparent environmental information system does not appear to have been sustained; at the time of this ICR Review the website for the system http://www\.sie-cameroun\.com/ was not functional\. a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance:  a\. Quality at entry: The operation was built on a long history of involvement in the forest sector in Cameroon, and a significant body of analytic work, including a 2002 evaluation of World Bank involvement in the forest sector in Cameroon\. The program document reports that a wide range of stakeholders were consulted\. The operation was originally designed as an investment loan, and was then converted into a DPO during preparation\. This conversion contributed to delays, with 6\.5 years from concept note to effectiveness\. The conversion also contributed to some weaknesses in design, as while some policy reforms were an important part of the results chain, other elements such as institutional capacity building, protected area management, and others may have been better suited to an investment lending operation\. The ICR argues (page 3) that the Bank had considered providing capacity building support through a parallel project, but that this did not occur because of IDA resource constraints, and that the Bank's inability to provide capacity building support constrained the Bank's ability to affect implementation\. Instead, the operation ended up including elements of investment lending design (ICR page 28), and parallel technical assistance was provided by the Basket Fund financed by other donors\. Though a number of financial risks were identified, the political risks surrounding the signature of the concession agreements was not adequately identified at the time of design\. These weaknesses contributed to the failure of the operation to achieve its objectives\. A further weakness was that the operation did not follow good practice for use of DPOs, which are intended to be general budget support\. Instead, the Bank required DPO financing to be used specifically for financing forestry and environmental agency activities (see section 11b below)\. Many of the activities being supported were operational in nature - preparation and implementation of management plans, capacity building of agencies, enforcement activities, protected area management, etc\. - and may have been better supported through investment lending\. If the goal of the DPL was to specifically channel funding to the forestry and environment agencies, then this can be better supported through investment lending than through a DPO, which is intended to provide general budget support\. The M&E design was overly complex and detailed; its design appeared to micromanage rollout of the government's program, which is in conflict with the purpose of the DPO instrument as supporting government ownership and control of programs\. Despite the level of detail of the M&E system, it failed to include indicators to track achievement of the high level outcomes targeted by the program objectives\. Quality-at-Entry Rating: Unsatisfactory b\. Quality of supervision: The official barrier to signing concession agreements (the missed trigger for tranche 2) was that concessions were not in compliance with the Forest Law, which required that a sawmill be present in each forest area\. The Bank noted that there was already excess capacity of mills and Bank staff and management worked with the government to change the law, but were unsuccessful in doing so, in part because of a view by the government that no longer favored timber concessions and a change in government priorities and strategy\. The ICR also reports (page 13-14) that this attempt was undermined by some supervision missions, which suggested that the tranche trigger could be reformulated or postponed, and so potentially gave the impression to government that the tranche could potentially be released without meeting the trigger\. Bank management did not approve these strategies, as weakening the trigger would have created risks for the operation\. The ICR also notes (page 34) that the Bank could have more clearly conveyed to the government the obligation of the government to meet the Bank's legal agreement, even though this contained restrictions not required by other donors\. The Bank deserves credit for cancelling the operation when it became clear that the trigger condition would not be met: Continuing to disburse the tranche despite nonperformance could have undermined the credibility of the Bank in establishing DPO triggers\. However, arguably this should have been carried out earlier, rather than leaving the operation open for 5 years\. The efforts to harmonize support with other donors created problems for the supervision phase\. The Bank and other donors carried out joint donor supervision missions and carried out reports on the broad overall government program supported by a large pool of donors\. But the Bank's procedures also required it to create separate supervision documents for its DPO, which was a subset of the overall donor-supported government program\. This created tension with the overall unified approach, and contributed to mixed signals being sent to the government from donors\. However, the ICR also notes that generally the donor coordination was effective and that the donors were able to speak with one voice and act in a coordinated manner (page 34)\. The Bank's supervision was hindered by turnover in TTLs, with five TTLs over the course of the operation including four TTLs over 2009-11\. Quality of Supervision Rating : Unsatisfactory Overall Bank Performance Rating : Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The government did not appear to remain committed to the design of the operation\. Long delays contributed to reform fatigue, and the government's strategy shifted from support for forestry to mining and industrial plantations, from a focus on growth and employment\. The operation was cancelled due to government decisions that prevented meeting a key trigger for the second tranche\. The ICR also notes that there were some weaknesses in performance by key ministries; the economy ministry was the main counterpart to the Bank, but did not adequately coordinate interministerial issues between the forestry and environment ministries\. The finance ministry should also have been clearer in explaining to line ministries the process of a DPO, and helping them to understand that the funds for carrying out the overall government forestry program would be provided through the government budget, not from donor funds\. Government Performance Rating : Unsatisfactory b\. Implementing Agency Performance: The project was implemented by the forestry and environment ministries\. The ICR notes that the environment ministry performed well in producing the outputs it was responsible for, while the forestry ministry had mixed performance\. Implementation was delayed in part due to staff turnover in the implementing ministries, as the staff who had been the main champions during preparation were no longer present during implementation\. The ICR reports that the level of interministerial cooperation was poor, especially between the environment and forest ministries, which became separate agencies during preparation\. Weak cooperation between the forest and planning ministries also stalled progress on some activities\. Regional planning committees established under the operation did not meet regularly or monitor program implementation effectively\. The ICR reports (page 13) that one reason behind failure to achieve concession agreements was that the forestry ministry had inefficient processing of documentation, including losing key documents such as environmental assessments and gazetting decrees\. The ICR states (page 12) that the overall facilitation committee chaired by the finance minister (and designated subordinates) had difficulty making decisions because its members did not have sufficient authority\. Implementing Agency Performance Rating : Unsatisfactory Overall Borrower Performance Rating : Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The Program Document included a complicated system for tracking production of policy actions, triggers, and benchmarks, with roughly 100 indicators, each with a verification source (Annex 10)\. Many indicators were binary output measures (X has been done or not done) or input measures\. With some important exceptions (on wildlife and protected areas and on using satellite data to measure illegal roads as a proxy for illegal forestry), the indicators did not include outcomes, and so provided little evidence on which to assess progress on achieving the objectives of the program\. The responsibility for collecting M&E data was assigned to the forestry ministry, and specifically to a monitoring unit within the ministry\. b\. M&E Implementation: The complex M&E design created a burden on government for tracking and managing the project\. The ICR notes (page 15) that funding constraints meant that M&E was not prioritized, data collection was incomplete, reporting on indicators was sometimes superficial, and there was little field-based verification of data\. The ICR notes that external monitoring did not seem to make a real difference to M&E implementation\. The degree to which data was collected and reported is not clear\. The ICR did not report on the majority of indicators, though it may not have been useful to do so\. The ICR reported on 9 indicators related to the production of tranche release triggers, but useful indicators such as additional length of illegal roads were not documented\. c\. M&E Utilization: The M&E system was used largely as a reporting tool and for tracking tranche release triggers, rather than for informing program management\. M&E Quality Rating: Negligible 11\. Other Issues a\. Safeguards: As a Development Policy Operation, the operation is not subject to the traditional "safeguard" policies on environmental impact assessment or others\. However, under OP 8\.60 the Bank is still required to assess the potential for likely significant positive and negative environmental and social effects, and then for any such effects to conduct analytic work, to support government consultations, to assess country systems for managing effects, and to provide support to the government to fill gaps in country systems\. The Program Document noted (page 31) that the operation could have significant effects on the environment and forests, and so the government commissioned comprehensive environmental and social studies, which were publicly disclosed\. The government also produced an indigenous peoples development plan\. The government studies concluded that the environmental impacts of the program would be mostly positive, that there would be no large scale or irreversible adverse environmental effects, displacement of people, or large scale infrastructure\. The social studies concluded that the legal framework for managing environmental risks was sufficient, but identified gaps in the capacity of the environmental and forestry management agencies, which the operation then aimed to mitigate by supporting capacity development\. The program document reports that a wide range of stakeholders were consulted, including on forestry issues\. Formally applying only the environmental and social requirements of OP8\.60 was problematic, because as described below the operation did not provide general budget support but rather financed the operations of the line agencies\. The Borrower made an effort to mimic elements of investment lending safeguards requirements, but arguably with less oversight than would have occurred from investment lending safeguards\. b\. Fiduciary Compliance: The ICR refers (page 7, 8) to a trigger on budget allocation and execution, which is not in the policy matrix of the Program Document, but refers to content on page 15 and 16 of the Development Grant Agreement, which states requirements for the government commit "not less than 75% of the fraction of its Forest and Green Environment Sectoral Annual Budget financed out of the Grant, the GEF Trust Fund Grant and its own resources"\. The language implies that the IDA Grant and GEF Grant are specifically financing the Borrower's Forest and Green Environment Sectoral Annual Budget, which the Borrower is then legally required to commit\. This makes it appear that the Bank was not providing general budget support to the government of Cameroon, but instead was financing forest and environmental expenditures\. This is not encouraged under the Bank's guidance on DPOs\. Similarly, the ICR's discussion of implementation (page 11) makes it appear that DPO funds were intended to be specifically used by implementing agencies for achieving the DPO objectives\. The ICR states that one cause of delays in project implementation was that DPO funds were deposited in a central bank account but that delays in drawing on this account and disbursing funds to line ministries hampered implementation\. The ICR also states (page 32) that fiduciary design elements such as traceability audits were not well adapted to a DPO\. The Program Document (page 8) includes a costing of the Government's program by component, implying that the DPO funds were to be used to finance the program rather than provide general budget support\. A copy of the budget for the Ministry of Environment and Forestry stored by the Bank in project files indicates that IDA and GEF funds were to be used to finance a number of specific activities\. The ICR also notes (page 11, page 24) that the environment ministry did not understand the financial arrangements of the DPO instrument: it expected to receive funds directly from the Bank, and it expected to be reimbursed for activities it carried out related to the second tranche phase of the operation\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Unsatisfactory Unsatisfactory Risk to Development Significant High The risk of mining in forest and Outcome: protected areas is a significant risk to the accomplishments of the program\. Bank Performance: Moderately Unsatisfactory The efforts by the task team to continue Unsatisfactory the program by delaying or dropping a key trigger did not serve to support the objectives of the operation\. Borrower Performance : Moderately Unsatisfactory The declining government commitment Unsatisfactory to the operation goals, the extreme delays and the inability to meet trigger conditions constitute a significant drawback\. Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR notes that:  Elements of DPOs and SILs should not be mixed in a DPO\. The DPO was used to try to increase government ownership of the program to overcome political risks, but the program maintained many elements of investment lending including intensive supervision\.  DPOs need parallel technical assistance, and this should be well coordinated with the DPO\. In this operation, the technical assistance was provided by other donors, and this reduced the level of coordination\.  Using GEF funds to cofinance a multitranche or programmatic policy reform program is risky, in that even if environmental objectives are being met, the operation and disbursements may fail due to barriers in other sectors\. In this operation, progress on environmental ministry activities was harmed by the inability to disburse future tranches due to the failure to meet the disbursement conditions\.  M&E indicators should be selected to support the program objectives\.  High turnover in government and Bank staff weakens institutional memory and the ability to carry out effective implementation\.  Bank task teams should ensure that recommendations in aides memoires do not conflict with the policy dialog carried out by Bank management\.  There are tensions between Bank procedures and the desire to carry out harmonized donor programs\. IEG also notes that:  Mixing elements of SILs into a DPO created confusion for the client, and could have undermined the requirements for E&S risk management under the DPO instrument\. 14\. Assessment Recommended?  Yes No 15\. Comments on Quality of ICR: The ICR was well written and clear\. It provided a detailed and candid description of implementation challenges on the government side, including financial arrangements and lack of cooperation and coordination\. It provides a similarly detailed description of the reasons why the tranche condition was not met, including discussion of weaknesses in the Bank's supervision\. It provided a candid assessment of the relevance of objectives, noting the shift in the government's strategy away from forestry and natural resource management as a priority area, but did not specifically assess the relevance of design of the operation, despite a number of weaknesses in design\. It should be commended for noting some of the problems resulting from committing DPO disbursements to financing line ministry operations\. The ICR included a useful section and annex on beneficiary assessment, and included a number of useful and relevant lessons\. A weakness in the ICR is that it declares the project objectives to be unevaluable, and instead evaluates only against intermediate outcomes\. This is understandable given the lack of evidence on outcomes produced by the M&E system, but a stronger M&E design could have measured economic, social and ecological sustainability\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P038661

 ICRR 10834 Report Number : ICRR10834 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 02/26/2001 PROJ ID : P038661 Appraisal Actual Project Name : Financial/Private Sector Project Costs 7\.92 6\.12 Capacity Building Project US$M ) (US$M) Country : Mauritania Loan/ US$M ) 7\.2 Loan /Credit (US$M) 6\.12 Sector (s): Business Environment Cofinancing 0\.7 0\.7 US$M ) (US$M) L/C Number : C2730; CP799 Board Approval 95 FY ) (FY) Partners involved : None Closing Date 12/31/1999 05/31/2000 Prepared by : Reviewed by : Group Manager : Group : 2\. Project Objectives and Components a\. Objectives The objective of this TA project was to promote private sector activities particularly in mining and fishing areas through: (i) reforming the regulatory framework, (ii) strengthening institutional capacities, and (iii) enhancing the financial sector\. b\. Components The project overextended itself by suggesting three to seven interventions in each of the following four sectors \. First, financial sector reform (US$1\.1 million) consisted of the following subcomponents : upgrading credit risk information, training in banking, and formulation of a strategy for financial sector development \. Second, private sector institutional and regulatory framework component (US$3\.5 million) included strengthening of legal and judiciary reform, upgrading accounting and audit framework, and providing support for the Chamber of Commerce reform\. Third, mining sector development (US$1\.1 million) encompassed a strategy formulation, reorganization, and staff training\. Fourth, fishing sector reform (US$0\.5 million) covered a survey, establishing a monitoring system for foreign exchange flows in and out of the sector, and capacity building \. At the Mid-Term Review, support for the start-up of a microfinance scheme was added (US$0\.4 million)\. Also, provision was made to support : (a) privatization of Air Mauritania, (b) the preparation of a land transport study, and (c) the electronic archiving of important project documents pertaining to private sector development \. The survey of fisheries resources was abandoned because it was already being conducted with other resources \. c\. Comments on Project Cost, Financing and Dates The loan was closed in May 2000, five months behind schedule \. A small undisbursed balance was canceled \. This TA supported a parallel private sector development program being carried out under a structural adjustment credit (Cr\. 2726-MAR) which became effective in June 1995, three months before this TA\. The SAC objectives are similar to this TA, including improving the investment incentive structure and developing the financial, mining, and fisheries sectors\. 3\. Achievement of Relevant Objectives: The project was successful in creating and /or strengthening several institutions that contributed to enhancing the environment for private sector development \. First, the financial sector component achieved almost all of its objectives including (a) upgrading credit risks and borrower arrears information database, (b ) a banking training center, providing professional training to bank employees, and (c) preparation of the regulatory framework and the support to microfinance institutions expansion \. However, the financial sector study, completed in 1997, was unsatisfactory in terms of meeting the challenge of suggesting solutions for expanding the coverage of the financial system to include small and medium enterprises \. Second, the private sector institutional and regulatory framework component was achieved, including (a) a one-stop center, simplifying the investment procedures, (b) a business information flow to and from the private sector, (c) modernization of accounting and audit framework and of business legislation, and (d) legal and judiciary reform consisting of revising various codes such as the commercial code and the obligation and contract code \. Third, the mining sector objectives consisting of : (a) preparation of a sector strategy paper, (b) adoption of a new mining code and a tax code, and (c) granting licenses to about 12 international companies to explore various minerals, were fully achieved \. Fourth, the fishing sector component was unsatisfactory: Bank support to the national oceanographic and fisheries research center on environmental capacity building and quality control did not materialize \. Finally, the three objectives added at the Mid -Term Review were achieved with the exception of the transport study which was financed under the parallel Public Resource Management Credit (Cr\. 2887-MAR)\. 4\. Significant Outcomes/Impacts: Improved access to detailed information on the credit standing of borrowers and on arrears through revamping the Credit Risk and Borrower Arrears Information Database has contributed to managing the risk exposure and improving the credibility and soundness of banking operations \. Over 3,000 borrowers were listed in the database, substantially in excess of the appraisal estimate of 1,100 borrowers\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The scope of this project was very ambitious, involving too many activities and institutions, and hence some of them were uncompleted by the closing date \. For example, the reform of the Chamber of Commerce was not completed, and the strengthening of the fishing sector remained below expectations \. On the other hand, many laws and codes were enacted just a few months before the closing date \. The modification of the Chamber's legal status was adopted by Parliament in January 2000, however, implementation decrees have not yet been adopted \. The commercial law was only enacted in January 2000 and expected to become effective in 2001\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory The Bank managed to compensate for the project's complexity with quality supervision\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The legal reform process takes a great deal of time and effort; a consensus -building process including the stakeholders had to be carried out before the laws could be finalized, adopted and effectively implemented \. 8\. Assessment Recommended? Yes No Why? Consider auditing in the future as a cluster with two parallel projects, Private Sector Development Credit (Cr\.2726-MAR) and Public Resource Management Credit (Cr\.2887-MAR)\. As indicated in Section 2, this TA and the Private Sector Development Credit have common objectives \. 9\. Comments on Quality of ICR: The ICR is of satisfactory quality \. It covers almost all relevant aspects of an ambitious project \.

REVIEW

P161136

Document of  The World Bank  FOR OFFICIAL USE ONLY      Report No: ICR00004647            IMPLEMENTATION COMPLETION AND RESULTS REPORT  <IDA‐59750 IDA‐59760 IDA‐59770>   ON A  CREDIT    IN THE AMOUNT OF SDR 222\.1 MILLION  (US$ 301\.60 MILLION EQUIVALENT)  TO     THE ISLAMIC REPUBLIC OF PAKISTAN    FOR THE    FINANCE FOR GROWTH DEVELOPMENT POLICY CREDIT (FGDPC)     December 10, 2019                                                                                                                                                                                                               Finance, Competitiveness and Innovation Global Practice  South Asia Region     The World Bank      Finance for Growth Development Policy Financing (P161136)            CURRENCY EQUIVALENTS Exchange rate effective as of January 31, 2017 Currency Unit = Pakistani Rupees US$ 1\.00 = PKRs 104\.805 US$ = SDR 0\.73593 FISCAL YEAR July 1 – June 30 Regional Vice President: Hartwig Schafer Country Director: Patchamuthu Illangovan Regional Director: Zoubida Kherous Allaoua Practice Manager: Nabila Assaf Project Team Leader: Gabi George Afram ICR Team Leader: Namoos Zaheer ICR Team Author: William Wallace   Page 2 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)          ABBREVIATIONS AND ACRONYMS  Anti‐Money Laundering / Combating AML/CFT Financing of Terrorism NPLs Non‐performing loans BOP Balance of Payments PKR Pakistan Rupee CAS Country Assistance Strategy RAS Reimbursable Advisory Service CDNS Central Directorate for National Savings ICR Implementation Completion Report CFAA Country Financial Accountability Assessment JSAN Joint Staff Advisory Note Competitiveness and Growth Development CGDPF Policy Financing KYC Know‐your‐customer CPEC China Pakistan Economic Corridor LDP Letter of Development Policy DFID Department for International Development MDGs Millennium Development Goals DTA Digital Transaction Accounts MOF Ministry of Finance DPC Development Policy Credit MTEF Medium‐Term Expenditure Framework DPO Development Policy Operation NFIS National Financial Inclusion Strategy ECC Economic Coordination Committee NICL National Insurance Company Limited EFF Extended Fund Facility NRA National Risk Assessment EMBI+ Emerging Market Bonds Index Plus NSS National Savings Schemes FATF The Financial Action Task Force PDF Pakistan Development Fund Public Expenditure and FBR Federal Board of Revenue PEFA Financial Accountability FDI Foreign Direct Investment PER Public Expenditure Review FGDPC Finance for Growth Development Policy Credit PFM Public Financial Management FIIP Financial Infrastructure and Inclusion Project PPAF Pakistan Poverty Alleviation Fund FRDLA Fiscal Responsibility and Debt Limitation Act PRCL Pakistan Reinsurance Company Limited FSAP Financial Sector Assessment Program REER Real Effective Exchange Rate Report on the Observance of Standards FSIG Fiscally Sustainable and Inclusive Growth ROSC and Codes GCC Gulf Cooperation Countries SBP State Bank of Pakistan GDP Gross Domestic Product SDR Special Drawing Rights Securities and Exchange Commission GNP Gross National Product SECP of Pakistan GOP Government of Pakistan SLIC State Life Insurance Corporation GRS Grievance Redress Service SOE State Owned Entities IBRD International Bank for Reconstruction and UNDP United Nations Development Program D l IDA International Development Association S&P Standard & Poor’s IFC International Finance Corporation SMEs Small and Medium Enterprises IMF International Monetary Fund SROs Statutory Regulatory Orders ISR Implementation Status and Results Report TA Technical assistance International Organization of Securities Trust Fund for Accelerating Growth IOSCO TAGR and Reforms Commissions United States Agency for International MSCI Morgan Stanley Capital International USAID Development NEPRA National Electric Power Regulatory Authority WB World Bank NIFT National Institutional Facilitation Technologies WBG World Bank Group   Page 3 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)        ISLAMIC REPUBLIC OF PAKISTAN Finance for Growth Development Policy Financing     Contents  A\. BASIC INFORMATION  _______________________________________________ 6  B\. KEY DATES  _________________________________________________________ 6  C\. RATINGS SUMMARY  ________________________________________________ 6  C\.1 Performance Rating by ICR ___________________________________________ 6  C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) ______________ 6  C\.3 Quality at Entry and Implementation Performance Indicators ______________ 7  D\. SECTOR AND THEME CODES  ________________________________________ 7  E\. BANK STAFF  ________________________________________________________ 7  F\. RESULTS FRAMEWORK ANALYSIS ___________________________________ 8  F\.1 Program Development Objectives _______________________________________ 8  F\.2 PDO Indicator(s) _____________________________________________________ 8  G\. RATINGS OF PROJECT PERFORMANCE IN ISRs ______________________ 10  H\. RESTRUCTURING __________________________________________________ 10  1\.  PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN ___ 10  1\.1  Context at Appraisal _______________________________________________ 12  1\.2  Original Project Development Objectives (PDO) and Key Indicators _______ 14  1\.3  Revised PDO and Key Indicators, and reasons/justification _______________ 15  1\.4  Revised Policy Areas _____________________________________________ 18  1\.5  Other significant changes __________________________________________ 18  2\.  KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES __ 19  2\.1  Major Factors Affecting Implementation ______________________________ 19  2\.2  Monitoring and Evaluation (M&E) Design, Implementation and Utilization _ 22  3\.  ASSESSMENT OF OUTCOMES  _____________________________________ 23  3\.1  Relevance of Objectives, Design and Implementation ____________________ 23  3\.2  Achievement of Program Development Objectives_______________________ 23  a\.  Efficiency ________________________________________________________ 27  b\.  Justification of Overall Outcome Rating _______________________________ 27  Page 4 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      c\.  Overarching Themes, Other Outcomes and Impacts _____________________ 27  4\.  ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME _____________ 28  5\.  ASSESSMENT OF BANK AND BORROWER PERFORMANCE _________ 29  6\.  LESSONS LEARNED ______________________________________________ 31  7\.  COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS  ___________________________________________ 32  Annex 1: Financial Sector Prior Actions from FISG series and CGDPF __________ 33  Annex 2: Bank Lending and Implementation Support/Supervision Processes _____ 34  Annex 3: Summary Of Borrower's ICR and/or Comments On Draft ICR (if any)  _ 35  Annex 4: List of Supporting Documents  ____________________________________ 36  Annex 5: Key Economic Priorities of the Government of Pakistan  ______________ 37  Annex 6: Analytical Underpinnings ________________________________________ 38  Annex 7: Letter from Ministry of Finance (non -public results targets)  __________ 39          Page 5 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      A\. BASIC INFORMATION Country: Pakistan Program Name: Pakistan: Finance for Growth DPC Program ID: P161136 L/C/TF Number(s): IDA-59750,IDA- 59760,IDA-59770 ICR Date: 10/09/2018 ICR Type: Core ICR Financing Instrument: DPL Borrower: ISLAMIC REPUBLIC OF PAKISTAN Original Total USD 301\.60M Disbursed Amount: USD 301\.38M Commitment: Revised Amount: USD 301\.60M Implementing Agencies: Co-financiers and Other External Partners: B\. KEY DATES Process Date Process Original Date Revised / al Date Concept Review: 09/29/2016 Effectiveness: 04/05/2017 Appraisal: Restructuring(s): Approval: 03/15/2017 Mid-term Review: Closing: 06/30/2018 06/30/2018 C\. RATINGS SUMMARY C\.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Unsatisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Unsatisfactory Quality of Supervision: Moderately Satisfactory Implementing Moderately Agency/Agencies: Unsatisfactory Page 6 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Overall Bank Moderately Satisfactory Overall Borrower Moderately Performance: Performance: Unsatisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation Indicators QAG Assessments (if Rating Performance any) Potential Problem Program No Quality at Entry (QEA): None at any time (Yes/No): Problem Program at any No Quality of Supervision None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D\. SECTOR AND THEME CODES Original Actual Sector Code (as % of total Bank financing) Financial Sector Insurance and Pension 10 10 Banking Institutions 90 90 Theme Code (as % of total Bank financing) Finance 40 40 Finance for Development 20 20 Infrastructure Finance 20 20 Financial Infrastructure and Access 40 40 Financial inclusion 40 40 Financial Stability 40 40 Financial Sector Integrity 30 30 Human Development and Gender 10 10 Gender 10 10 Private Sector Development 10 10 Business Enabling Environment 10 10 Investment and Business Climate 10 10 E\. BANK STAFF Positions At ICR At Approval Vice President: Hartwig Schafer Annette Dixon Page 7 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Country Director: Patchamuthu Illangovan Patchamuthu Illangovan Practice Manager/Manager: Nabila Assaf Niraj Verma Project Team Leader: Gabi George Afram Gabi George Afram ICR Team Leader: Namoos Zaheer ICR Primary Author: William Wallace   F\. RESULTS FRAMEWORK ANALYSIS   F\.1 Program Development Objectives The development objective (DO) of the operation was to support the Government of Pakistan’s efforts in promoting an inclusive and transparent financial sector, that is better able to intermediate resources for long-term finance\. The DO was achieved through the following three pillars: (i) Improving access to finance and enhancing financial inclusion; (ii) Fostering long-term finance; and (iii) Enhancing transparency of the financial sector F\.2 PDO Indicator(s) Pillar 1: Improving access to finance and enhancing financial inclusion Formally Original Target Actual Value Baseline Value Revised Indicator Values Achieved at (July 1, 2016) Target (June 30, 2018) Target Date Values Number of 45 million 50 million 53 million transactional accounts; N/A Segregated by 7 million (female) 7\.5 million 15\.2 million gender Comments: The target was achieved; however, this may not be directly attributable to the Prior Action since the Digital Transaction Account which was approved as the action was not implemented by the target date\. However, the Bank’s ongoing technical support on financial inclusion (though a Trust Fund and an IPF) may have contributed to the increase in number of transaction accounts overall\. (%) NSS profits 5% of 7 million 2\.8% of 2\.4 distributed through 0% N/A NSS accounts million accounts bank accounts Comments: The target was partially achieved\. However, while the target suggests there are 7 million NSS accounts; there are 2\.4 million accounts and 7 million investments\. (Each account holder can have multiple investments through different savings certificates)\. Regardless, strong progress was made because of this action\. Page 8 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Number of Registered 65,735 70,000 N/A 85,401 Companies Comments: The target was more than achieved\. The achievement of this result is directly attributable to the Prior Action as the consolidation of the Companies Act can be directly attributed to the increase in number of registered companies\. Deposit Base of PKR 12\.5 PKR 11 trillion PKR 12\.5 trillion N/A Banking Sector trillion Comments: While the target was achieved, for the Deposit Protection Act to be implemented the Deposit Protection Corporation needs to be established\. The Corporation was formally established on June 1, 2018, almost at the target date\. However, the passing of the law may have served as a signal to the market and boosted depositor confidence, leading to an increased depositor base\. Pillar 2: Fostering long-term finance Long-term loans 8\.8% (> 5 years) as % of (June 2015; data not 10% N/A 8\.9% available for baseline banking sector loans date) Comments: The target was not achieved but there was an upward movement\. However, this was a very marginal increase, even though the baseline was from 3 years prior\. Pillar 3: Enhancing transparency of the financial sector Adjudicating Adjudicating No No Adjudicating Authority appointed Authority appointed N/A Adjudicating Body in place & operationalized & operationalized Body in place Comments: Target not achieved\. An Adjudicating Body for Benami accounts would have been put in place only after the rules and regulations for the newly enacted Benami Law were in place\. These rules and regulations were formally launched after significant delay in March 2019\. Only verifiable Pakistan remains in Pakistan in Pakistan remains in after target date compliance with compliance with compliance with N/A due to timing of FATF FATF FATF compliance Recommendation-1 Recommendation-1 Recommendation-1 review Comments: Only a Mutual Evaluation can determine if a country is complaint with FATF Recommendations\. Pakistan’s Mutual Evaluation process was completed in late 2019, as such, we could not confirm the status of this results indictor by the target date\. Pakistan was put on the FATF grey list in June 2018 and this was reconfirmed after the Mutual Evaluation in October 2019, this would indicate weaknesses in compliance with Recommendation 1\. Value of registered bonds as % of 0% 2% N/A 0\.7% outstanding bonds Comments: Target partially met\. Moving from 0 percent registered bonds to 0\.7 percent registered bonds in a couple of years is reasonable outcome\. Chairman & CEO Chairman & CEO Chairman & CEO of Chairman & of SLIC meet fit & roles merged SLIC meet fit & N/A CEO roles proper criteria therefore do not proper criteria remain merged Page 9 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      meet fit & proper therefore do not criteria meet fit & proper criteria Comments: Target not achieved, due to limited buy-in from key stakeholders\. G\. RATINGS OF PROJECT PERFORMANCE IN ISRs Not Applicable No\. Date ISR GEO IP Actual Archived Disburs ements (USD millions ) H\. RESTRUCTURING (IF ANY) Not Applicable        1\. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1\. This Implementation Completion and Results Report (ICR) assesses the results of the Finance for Growth Development Policy Credit (FGDPC) to the Islamic Republic of Pakistan\. The operation aimed to support the Government of Pakistan’s (GoP’s) financial sector development and reform agenda\. The focus was on building an inclusive and transparent financial sector, better able to intermediate resources, including for long term finance\. The US$ 301\.6 million International Development Association (IDA) and IDA Scale up Facility (IDA SUF)1 DPC was approved by the Board of Directors March 15, 2017 and closed on June 30, 2018\. 2\. Upon taking office in 2013, the previous government introduced a program of stabilization measures to address the country’s macroeconomic imbalances and initiated reforms to improve overall economic efficiency\.2 These reforms complemented, and were reinforced by, an International Monetary Fund (IMF) Extended Fund Facility (EFF)\. The World Bank’s technical assistance and lending program was also designed to support the ongoing reform agenda of the government\. The World Bank’s program focused on growth- enhancing reforms, building on the diagnosis done for the World Bank’s Country Economic Memorandum (June 2013)\. This was incorporated in the Country Partnership Strategy                                                              1 IDA SUF is a hybrid between an IDA credit and standard International Bank for Reconstruction and Development (IBRD) loan\. 2 At inception these included reforms to the energy sector, privatization, tax reform, financial inclusion, tariff rationalization and investment (around Doing Business Indicators)\. See Annex 6 for more details\. Page 10 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      (CPS) 2015-2019 which was subsequently extended to 2020 through a Performance and Learning Review (March 2017)\.3 3\. Bank support was provided through increased investment and development policy lending, along with strategic guarantees designed to leverage private sector financing\. Development policy operations included a two series Development Policy Credit (DPC) titled Fiscally Sustainable and Inclusive Growth (FSIG) in May 2014 and June 2015 and a subsequent stand-alone operation titled Competitiveness and Growth Development Policy Financing (CGDPF) in June 2016\. In addition to the DPF, the CGDPF included a policy-based guarantee to increase and diversify the government’s sources of finance\. All these operations were successful; both the FSIG series and CGDPF had Moderately Satisfactory outcome ratings\. These operations were complemented by a parallel series of development policy credits in the power sector\. 4\. There was, largely, continued success in the financial sector measures which were part of FSIG and CGDPF, however further strategic interventions were required to unlock constraints in developing Pakistan’s financial sector\. The government was very committed to developing the financial sector at the time, so there was reform momentum which could be leveraged\. The Development Module Financial Sector Assessment Program (FSAP) completed in 2016 also highlighted the need for greater financial intermediation in Pakistan to achieve sustained growth going forward\. In addition to this, the Bank was developing a financial sector investment operation (the Pakistan Financial Inclusion and Infrastructure Project- P159428) and a Housing Finance Project (P162095) was also in the pipeline\. Concurrently, the Bank had multiple technical assistance programs which were supporting the development of the sector\. The technical assistance running in tandem with FGDPC included work on digital payments, AML/CFT, insurance sector reform and secured transactions (to name a few)\. Preparation of the FGDPC was initiated right after the completion of the Development Module FSAP\. The financial sector in Pakistan primarily intermediates for the government, substantially crowding out the private sector\. Broadening the financial sector (by increasing access to finance) and deepening it (by developing infrastructure finance and capital markets) while enhancing its transparency and governance were the three key emphasis areas of the FSAP, which were the reform areas FGDPC took forward\. 5\. These reforms were required as they would lead to increased savings and investment which are much needed in Pakistan\. Pakistan has one of the lowest savings rates in the region (10\.6 percent of GDP in FY18) and its investment to GDP is also very low compared to peer countries (16\.4 percent in FY18, of which only 10% was private sector)\. This package of support was designed to yield significant economic impacts by expanding and deepening the financial sector\. As such, the Bank developed another stand-alone DPC operation, focused on financial sector actions titled the Finance for Growth Development Policy Credit (FGDPC); the subject of this ICR\.                                                              3 The CPS focused on (i) transforming the energy sector; (ii) developing the private sector; (iii) reaching out to the underserved, neglected, and poor (including micro, small, and medium enterprises); and (iv) improving service delivery (reduce vulnerability to income shocks, accelerate improvements in services, increase revenue to fund service delivery)\. Page 11 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      1\.1 Context at Appraisal 6\. The economic slowdown between 2008-2013 had added considerable pressure on the financial sector’s resilience to credit, market and liquidity risks, with mixed outcomes across the financial sector\. Prior to this, the newly reformed banking sector was lending quite aggressively to the private and consumer sector; spurred by the fact that the government’s borrowing needs were limited due to significant external inflows at the time\. However, the energy crisis and a worsening security situation negatively impacted private sector development and NPLs rose rapidly\. In this environment, (from 2008-2014), commercial banks substantially restricted their lending to the private sector, especially to SMEs\. At the same time, the government’s spending started growing rapidly and external inflows decreased\. In the face of low revenue collection, its borrowing requirement from domestic commercial banks grew dramatically\. This period of increased lending to the government fundamentally altered the risk appetite and intermediation role of the financial sector\. Since then, the government remains the dominant borrower in Pakistan’s financial markets\. Investments in government paper constitutes about 45 percent of banking sector assets\. 7\. While volatile private sector credit was partly a result of increased government borrowing, there remained significant gaps in Pakistan’s financial infrastructure and legal framework which further reduced commercial banks appetite to lend to the private sector\. The financial sector reforms in FSIG I & II, CGDPF and finally in FGDPC, were designed start the process of systematically tackling these structural issues by creating the enabling environment for improved access to credit for the private sector\. The financial sector actions from FSIG I & II and CGDPF are in Annex 1\. Table 1: Pakistan Key Macroeconomic Indicators (FY 14/15 to FY 18/19) FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 Real Economy GDP growth (factor cost) 4\.1 4\.6 5\.2 5\.5 3\.3 Gross Investment (% GDP) 15\.7 15\.7 16\.1 16\.4 15\.4 Consumer prices (per avg) 4\.5 2\.9 4\.2 3\.9 7\.1 Fiscal Sector Revenue 14\.3 15\.3 15\.4 15\.2 15\.7 Overall budget balance -5\.3 -4\.6 -5\.8 -6\.6 -7\.0 (ex grants) Total public debt 64\.3 68\.7 67\.9 73\.5 82\.3 Monetary/Financial Sector Credit to private sector 5\.9 11\.2 16\.8 14\.9 14\.3 Real deposit rate 1/ 1\.0 1\.3 -0\.8 -0\.4 -1\.2 Gross savings (% of GDP) 2/ 14\.7 14\.0 12\.0 10\.6 10\.8 Non-Performing Loans (%) 3/ 13\.3 12\.2 11\.0 9\.2 8\.1 Balance of Payments Page 12 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Current account balance 4/ -1\.0 -1\.7 -4\.1 -6\.1 -5\.6 Export growth (%) -3\.9 -8\.8 0\.1 12\.8 1\.5 Import growth (%) -0\.7 -0\.2 18\.0 15\.0 -1\.8 Capital financial balance 2\.0 2\.5 3\.5 4\.4 5\.7 Gross reserves (USD) 5/ 14,836 19,446 17,550 11,364 12,273 Gross reserves (mth) 6/ 3\.6 4\.0 3\.1 2\.1 2\.4 Sources: Pakistan authorities, World Bank Staff Estimates, Global Economic Prospects Report Notes: 1/ Average weighted; 2/ Gross investment plus current account balance; 3/Share to gross advances; 4/ Including transfers; 5/SBP gross reserves (eop); 6/In months of imports of goods and services 8\. At the time the FGDPC was prepared (end 2016), the reforms around fiscal consolidation and revenue mobilization instituted by the government appeared to be paying off\. However, despite the improving macro-economic indicators, investment rates and financial intermediation remained low, creating a major constraint to private sector growth and development\. The government’s target was to raise growth to 6-7 percent and create quality jobs for the two million additional youth entering the labor force every year; this would require doubling investment to 30 percent of GDP\. Improving the investment climate, along with reducing the governments crowding out and improving overall access to finance, would encourage private sector credit and investment required to achieve this goal\. 9\. Despite the government’s strong initial push for reform, once the IMF program ended in 2016, macroeconomic difficulties were re-emerging at the time of appraisal (early 2017)\. Pakistan’s economic landscape has been dominated by periods of higher consumption driven growth (as was evident from 2014 to 2016) followed by a severe contraction (which was becoming the case in early 2017)\. Fiscal discipline started slipping after the end of IMF program and the exchange rate, already overvalued, did not adjust in line with the changing economic conditions\. By mid-2017, election mode had set in; the government’s FY18 budget reduced income tax thresholds, increased fiscal exemptions, increased import tariffs and kept the exchange rate overvalued4\. Exports fell (-8\.8 percent YoY in FY 15/16), resulting in a rapidly widening current account deficit5\. Public debt levels remained above their legislative threshold, and deficits were financed through substantial increases in borrowing from the banking system, exacerbating the ongoing crowding out problem\. The changing political environment due to the extenuating circumstances at the time, resulted in a considerable slowing down of the reform momentum6\.                                                              4  These measures were further amplified in the FY 19 budget\.  5  The government did make some efforts to adjust the exchange rate at time, but in the absence of a policy for a more flexible exchange rate, the impact was limited\.  6  The Panama Papers in mid-2016 were an unprecedented leak of 11\.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca\. Twelve national leaders were among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens\. Nawaz Sharif, the Pakistani Prime Minister at the time, was one of the national leaders implicated\.     Page 13 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      1\.2 Original Project Development Objectives (PDO) and Key Indicators   10\. The FGDPC operation supported the GoP’s efforts to create an inclusive and transparent financial sector, better able to intermediate resources including long term finance\. The operation was structured around three pillars: (i) Improving access to finance and enhancing financial inclusion; (ii) Fostering long‐term finance; and (iii) Enhancing transparency of the financial sector\. Table 2: List of Actions and Related Results Prior Actions Results (Target= June 30, 2018; Baseline= July 1, 2016) Pillar 1: Improving access to finance and enhancing financial inclusion The NFIS Council has approved the Digital Transaction Results Indicator: Number of transactional Accounts (DTA) scheme\. accounts, segregated by gender Baseline: 45 million (women 7 million) Target: 50 million (women 7\.5 million) The SBP has granted clearinghouse membership of the Results Indicator: (%) of NSS profits distributed National Institutional Facilitation Technologies (NIFT) to through bank accounts the Central Directorate of National Savings (CDNS) to Baseline: 0% allow for distribution of NSS profits through bank Target: 5% out of more than 7 million NSS accounts\. accounts The National Assembly has approved the new Companies Results Indicator: (%) increase in number of Bill to modernize the regulatory framework for companies companies registered Baseline: 65735 (source: SECP website) Target: 70000 The Deposit Protection Corporation Act 2016 has been Results Indicator: Deposit base of banking sector approved by Parliament\. Baseline= PKR 11 trillion (US$ 105 billion) Target = PKR 12\.65 trillion (US$ 120\.7 billion)(15 percent) Pillar 2: Fostering Long-term finance The ECC has approved the National Policy on Results Indicator: long-term loans (contractual Infrastructure Finance tenor greater than 5 years) as (%) of total banking The SBP has issued Prudential Regulations for long-term sector loans finance (in line with Basel III requirements) Baseline: 8\.8% (June 2015) Target= 10% Pillar 3: Enhancing Transparency of the financial sector The Benami Transaction Prohibition Bill has been Results Indicator: Adjudicating authority approved by Parliament\. appointed and operationalized Baseline: No Adjudicating body in place Target: Adjudicating authority appointed and operationalized The Ministry of Finance has completed the National Risk Results Indicator: Pakistan remains in compliance Assessment (NRA) for Anti-Money Laundering and with FATF Recommendation-1 Combatting Financing of terrorism (AML/CFT)\. Baseline Pakistan has been in compliance with FATF Recommendation-1 since 2014 Target: Pakistan remains in compliance with FATF Recommendation-1 Page 14 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      The Cabinet has approved the rules for a new registered Results Indicator: value of registered prize bonds prize bonds scheme with denomination of PKR 40,000 as a share of outstanding prize bonds and above Baseline: 0 percent Target: 2 percent The Ministry of Commerce and SECP have completed the Results Indicator: The Chairman and Chief Corporate Governance Assessment for SLIC to monitor Executive Officers (CEOs) of SLIC meet the fit compliance with the Public Sector Companies (Corporate and proper criteria Governance) Rules 2013\. Baseline: Chairman and CEO role is merged and thus not fit and proper Target: Fit and Proper Chairman and CEO   1\.3 Revised PDO and Key Indicators, and reasons/justification  There were no revisions to the PDO and key result indicators\. Original Policy Areas Supported by the Program   11\. Pillar 1: Improving Access to Finance and Enhancing Financial Inclusion: The FGDPC, built on Pakistan’s National Financial Inclusion Strategy (NFIS; 2015) to address issues of financial inclusion and access to credit\. Two measures focused on improving access to formal financial systems with the expectation that this would lead to increased savings, particularly in banks\. A third measure focused on improving corporate access to credit\. A fourth measure aimed at increasing savings and intermediation focused on the creation of a Deposit Insurance Corporation, to improve depositor confidence\. 12\. Digitizing the Financial Sector – while Pakistan’s overall financial sector is underdeveloped, mobile banking is comparatively more advanced\. In Pakistan, 5\.8 percent of the adult population has mobile accounts, compared to the South Asian average of 1\.9 percent, with a far higher percentage of these accounts (compared to peer countries) held by women\. However, this expansion was limited by a lack of interoperability among providers and platforms (for technical and competitive reasons)\. Thus, the FGDPC supported the approval of a DTA scheme (designed by the Central Bank), the implementation of which would develop an affordable, accessible, inter-operable and technology-led platform for financial services\. 13\. Linking the National Savings Scheme (NSS) to the banking system\. – Pakistan’s NSS, administered by the Central Directorate of National Savings (CDNS), has been a large part of the financial sector for many years\. Its investments amounted to 30 percent of banking deposits and 24 percent of the GoP’s domestic debt\. Most NSS transactions, including purchases, interest payments and retirement of savings certificates have historically been done in cash at a CDNS outlet with limited KYC requirements\. As a first-step to integrate these accounts into the financial sector, the CDNS needed to gain clearinghouse membership in the National Institutional Facilitations Technologies (NIFT), which this operation supported\. NIFT is responsible for the establishment and management of automated clearinghouse facilities in Pakistan\. With this membership, the NSS will be able Page 15 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      to issue cheques to distribute NSS profits (interest) and other transactions to customer bank accounts and motivate them to obtain and/or use bank accounts\. 14\. Improving corporate creditworthiness– The GoP remains focused on improving private- sector performance and access to credit\. This was to be achieved in part, through the approval of a revised Companies Bill\. The old legislation was an amalgam of amendments to a 1984 Companies Ordinance that had resulted in layers of subsidiary legislation\. The revisions to the Company Bill enhanced reporting, streamlined company procedures, encouraged electronic business registration and fostered better use of technology\. These measures were designed to increase formality and efficiency, improve access to credit and spur investment\. 15\. Increasing depositor confidence — The FGDPC supported the enactment of the Deposit Protection Act which would lead to the establishment and operationalization of a Deposit Protection Corporation (DPC)\. An operational DPC would increase depositor confidence, assist in the resolution of troubled/failed banks and level the playing field between smaller and larger banks\. International experience indicated that institutions like the DPC increase confidence in the banking system and therefore foster greater financial inclusion\. 16\. Pillar 2: Fostering long-term finance\. The banking sector’s deposit-to-GDP ratio was about 37\.6 percent at the end June 2016\. Most of these deposits were of shorter maturity\. This clearly hampered the ability of banks to provide longer-term financing, which is generally required to make capital investments\. Long-term finance is particularly important for infrastructure investments like those required under the China–Pakistan Economic Corridor (CPEC)\. Pakistan will need to develop and finance corollary infrastructure which, in turn requires increased long-term finance out of Pakistan’s own financial sector\. The measures in the FGDPC focused on the GoP’s efforts to foster long-term finance for infrastructure and mitigate risks involved in extending loan maturities\. Two measures drawn from the 2016 FSAP were included\. 17\. Mobilizing Infrastructure finance – The operation supported the development of a National Policy on Infrastructure Finance\. After an extensive consultation process the policy proposed to create synergies between local sources of finance (GoP budget, banks, Islamic institutions, cash in SOEs and capital markets) and international sources (FDI and development partners)\. 18\. Mitigating long-term finance risks – The operation supported development of Prudential Regulations for long-term finance\. In the case of Prudential Regulations supported in this Prior Action, there was a focus on infrastructure project finance, guidance on liquidity mismatch reporting, credit appraisal and collateral arrangements\. The dissemination of these regulations/guidelines was expected to increase banks engagement in infrastructure finance\. Page 16 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      19\. Pillar 3: Enhancing Transparency of the Financial Sector : Pakistan’s FSAP completed in 2016 identified the need for strengthening the financial sector’s resilience and stability\. This could be achieved by reinforcing the regulatory and supervisory frameworks as a priority\. Improving the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) legal framework was (and remains) a priority for financial integrity and stability\. Additionally, it was (and remains) very important to have systems and controls to detect the flow of proceeds of corruption, and to ensure tax compliance\. 20\. Curbing Money Laundering and Terrorist Financing— The completion of a National Risk Assessment (NRA) for AML/CFT was needed to identify risk mitigation strategies that would allow Pakistan to move towards greater compliance with the Financial Action Task Force (FATF)\. As a result of the NRA, an AML/CFT Strategy was to be developed\. The strategy should include an implementable and time bound action plan with roles and responsibilities\. The NRA identified the AML/CFT risks and based on these Pakistan’s law enforcement agencies were to be tasked with the development of risk mitigation strategies\. 21\. Prohibiting Benami transactions – Prevalence of Benami transactions, wherein a property transaction is done in the name of someone else (not the property holder and often fictitious) led to money laundering and tax avoidance in Pakistan\. The Benami Transactions Prohibition Bill and the appointment and operationalization of the Adjudicating Authority for Benami transactions, was seen to address this problem\. The Bill forbade holding property in Benami and limited the transfer of existing Benami property\. With the new law, the onus of proving ultimate ownership of a property now falls on the owner, failure to do so leads to confiscation, with possible criminal charges\. 22\. Formalizing Prize Bonds -- Prize Bonds are opaque open-ended bearer instruments used to tap long-term retail savings by the GoP and are often used as a currency substitute\. They amounted to close to 20 percent of currency in circulation in FY17\. The unregistered nature of these bonds leads to tax avoidance and money laundering\. The operation supported the formalization of bonds with a domination of PKR 40,000 and above (around 250 USD) through registration of these instruments\. The expansion of registered bonds would, it was hypothesized, lead to greater transparency and to substitution from these into conventional banking products improving intermediation\. 23\. Improved governance in the insurance sector – The final measure supported a Corporate Governance Assessment of the State Life Insurance Company (SLIC)\. SLIC holds almost 50 percent of the life insurance market of Pakistan\. Given its dominant role and the risks this creates, improved corporate governance for SLIC is very important\. SLIC is also constraining the development of insurance more broadly, i\.e\. the entry of private sector competitors\. Previous operations (CGDPF) supported the corporatization of SLIC (2016)7; this action was rolled back as the law was passed by the Parliament but not the Senate\. The Corporate Governance Assessment, done by the IFC in late 2016 focused on SLIC’s compliance with underlying Public Sector Company Corporate Governance Rules (2013),                                                              7 The corporatization of SLIC was not achieved as expected under the previous operations\. Page 17 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      SECP Codes of Corporate Governance for Insurers (2016) and international best practices\. The Prior Action was the endorsement of this Assessment by the Ministry of Commerce (under which all public sector insurance companies fall) with the understanding that once endorsed, remedial actions recommended in the Assessment would be undertaken leading to improvements in SLIC’s corporate governance\. 1\.4 Revised Policy Areas N/A   1\.5 Other significant changes N/A Page 18 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES  2\.1 Major Factors Affecting Implementation Soundness of Background Analyses: 24\. The FGDPC continued to build on the financial sector themes in the CGDPF and prior FISG operations\. As such, it leveraged the analysis and experience from those operations\. More specifically, the reform actions in this DPC were chosen from the analytical work done for Pakistan’s National Financial Inclusion Strategy (2015) and it’s eight complimentary Technical Notes\. (Completed under Reimbursable Advisory Services (RAS) to the State Bank of Pakistan8)\. The most recent analytical work was the Development Module FSAP from 2016\. This was complemented by separate FSAP Technical Notes on Islamic Finance, Financial Sector Intermediation (Sources and Uses of Funds), Debt Capital Markets and Infrastructure Finance\. The analytical sources for each action in FGDPC are found in Annex 6\. The macroeconomic analysis drew on the previous operations and the Bank’s engagement with Ministry of Finance around them\. Operation Design:   25\. The FGDPC design built upon the reform agenda from previous development policy lending operations and was also designed to complement existing and proposed financial sector engagements\. The FGDPC was conceived at a time when the Bank had an extensive technical assistance program on Pakistan’s financial sector\. With financial intermediation in all sub-sectors of the financial sector much lower than in peer countries, the World Bank Group teams deployed (over the period FY15-FY18) several operations using a variety of instruments to support the development of Pakistan’s financial sector\. These efforts included: ï‚ TA to revamp the insurance sector’s legal and regulatory framework (FY15-16) ï‚ TA to develop and help implement National Financial Inclusion Strategy (NFIS) (FY15-18) ï‚ TA to support the AML/CFT framework, including preparing the NRA (FY13-17) ï‚ TA on setting up a Secured Transition Registry (FY15-19) ï‚ TA on improving credit information (FY14-18) ï‚ IPF to support the microfinance sector, financial inclusion, payment systems reform, and reforms to the CDNS (FY17-21) - Financial Infrastructure and Inclusion Project (FIIP) 26\. This intensive program of technical assistance and related lending operations were undertaken in support of the policy areas covered by the three pillars of the FGDPC\. In addition to this, the CGDPF financial sector reforms had gone relatively well and the government’s commitment seemed to be on-track; this created space for a stand-alone financial sector DPC\. The operation was designed to take advantage of the NFIS, FSAP and other analytics, and built on the ongoing TA program, as such, it stood a strong                                                              8 These RAS Technical Notes were on: (1) Digital accounts, (2) agriculture finance, (3) housing finance, (4) insurance, (5) Islamic finance, (6) Medium, Small and Micro enterprise (MSME) finance, (7) payment systems and (8) pensions\. Page 19 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      chance of being successful despite the looming election\. In addition to this, the operation demonstrated the following strengths: ï‚ To minimize reversals (a lesson from earlier operations), legal prior actions had extensive stakeholder consultation\. ï‚ Complementary technical assistance continued to be provided in parallel, by the WBG and other partners, including the IMF, Gates Foundation, DFID and USAID\. All this contributed to improved supervision and monitoring\. ï‚ Another lesson learned from CGDPF was on the need to redefine and or drop engagements to make them more tenable yet still have impact\. For example, the FGDPC engagement on insurance sector governance was scaled back (from measures in the CGDPF) to something the team felt was achievable9\. On a less positive note, the design had certain deficiencies, particularly regarding some of the prior actions chosen: ï‚ Actions such as the National Infrastructure Policy and the National Risk Assessment for AML/CFT represent the very beginning of a reform process, so they may have been too far upstream and would demand a high-level of persistent government commitment through multiple subsequent stages to ensure results would be achieved\. Having said that, the reform momentum at the time of the design of the operation had been strong enough to warrant this kind of optimism in the design of the operation\. ï‚ Some of the results indicator’s formulations would have benefited greater specificity and alignment with outcomes\. For others, timelines were over ambitious given the time frame of the operation, and more careful wording would have been appropriate\. 27\. A reform operation this close to election year/time carries risks, as momentum to carry out reforms could be lost\. This can be especially true for Pakistan where a caretaker government steps in before elections, affecting both the will and actual time available for the government to push the reforms\. While the GoP demonstrated a strong commitment to reforms at the time this operation was being prepared, the proximity to elections did, to an extent, negatively impact the results of this operation\. Additionally, the end of the IMF program, the removal of Prime Minister in July 2017 and the subsequent appointment of a new Prime Minister in August 2017; all contributed to the reduced reform momentum\. Thus, a combination of the sliding economic conditions, looming elections and change in the senior echelons of government resulted in a markedly slowed down reform momentum\. Government Commitment:   28\. The FGDPC operation was approved in March of 2017, nine months after the previous CGDPF operation (approved June 2016)\. In late 2016, as the FGDPC was being prepared, the government seemed in a position to drive reforms up to and through the elections in 2018\. However, at the time this operation became effective, reform momentum had already slipped (as explained in paragraph 9), notably around structural issues linked to privatization, import tariff reform and the exchange rate remained overvalued\. It should be noted that the government did make some efforts to adjust the exchange rate at time, but in the absence of a policy for a more flexible exchange rate, the impact was limited\. As such, Pakistan seemed to have once again slipped into its expansion to contraction pattern\. The period of stabilization                                                              9 The CGDPF had a prior action on passing of the SLIC (Reorganization and Conversion) Bill; this action was rolled back\. Page 20 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      under the IMF Program and the enthusiasm for reform of the government seemed to be slipping by early 2017\. 29\. Economic policy-making slowed down, and there was limited broader political ownership of the reform efforts\. The Prime Minster was removed from office in July 2017 and the Finance Minister resigned soon after\. Fiscal discipline was further relaxed in the budget announced for FY18 and the exchange rate misalignment grew\. The IMF EFF program also came to an end in September 2016; thus, the twin deficits began to creep up once more\. 30\. All the actions under the operation required significant follow-up from the government to achieve the desired results\. However, as described above, the changing economic conditions, removal of Prime Minster, change in leadership in the Ministry of Finance and changing priorities in the run-up to the election, meant that the impact of the FGDPC operation was limited\. Relevance of risks identified: 31\. The FGDPC project document judged the operation to be moderately risky and highlights the following specific risks (rearranged for exposition): ï‚ Political (Rated: high) ï‚ Macro (Rated: substantial) ï‚ Institutional: (Rated: Substantial) ï‚ Technical design (Rated: low) ï‚ Institutional capacity and sustainability: (Rated Moderate) ï‚ Fiduciary: (Rated: substantial) 32\. The risk matrix is comprehensive\. The global environment (over the course of the operation) remained mostly supportive, there were no severe natural disasters and Pakistan’s security situation improved\. However, the political and macro risks did materialize and their rating of them as high and substantial (respectively) were thus appropriate\. However, the timing of the operation in the run up to an election, suggests that there should have been more thought on the specific risks involved (i\.e\. more specific than laid out in the PAD) and why and/or how these could be mitigated\. As such, while the identification of the risks was accurate, more mechanisms should have been in place to mitigate those risks that were identified\. 33\. The combination of political developments, the end of the IMF program and an approaching election resulted in the political and macroeconomic risks materializing and this negatively impacted the operation’s success\. An additional factor was the change in the overall political environment at the time\. The design of the operation could not be expected to mitigate such events\. The operation was designed to mitigate institutional risks through Bank engagements with the agencies responsible for delivering the actions and outcomes\. However, as always, the capacity gaps can be large, the institutional rigidities difficult to navigate, with limited space for the capacity building required for follow-through\. 34\. In conclusion, given the risk assessment in the document, as well as faltering reform momentum (hinted at but not detailed), the political uncertainty and the importance of politics Page 21 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      in the run up to the election (not really flagged), the overall operation risk should have been rated substantial not moderate\. 2\.2 Monitoring and Evaluation (M&E) Design, Implementation and Utilization   Design:     35\. While the focus areas were well chosen and prior actions logical, the intended results could have been better selected\. Timelines for the results were often too short for a stand-alone operation, as they did not anticipate the needed follow-on actions\. For example, to be effective, the Deposit Protection Act would require underlying rules and regulations to be in place before a Deposit Protection Corporation could be set up, hence the impact on the deposit base could not reasonably be achieved in the timeframe of the operation; having said that, it could be argued that the passing of the law gave depositors some comfort which led to increased deposits\. Similarly, while the DTA scheme was approved, it suffered a delay in its launch, and was not operational by the target date\. The increase in transaction accounts cannot therefore be directly attributed to it\. (More details on design issues are provided in Section 3)\. However, as has been stated earlier, since there were numerous complimentary TA activities on-going, it was reasonable to assume progress on results could be achieved in the defined timeframes10\.   Implementation and Utilization: 36\. For many (if not most) of the ten prior actions in the FGDPC, there were follow on actions needed to achieve the desired results\. This is not a deficiency in and of itself, and many follow- on actions were part of either on-going TA or on-going investment lending operations\. However, the level of ambition expressed in the results was somewhat unrealistic, mainly due to timing\. The choice of results for some of the indicators didn’t match the timeline for the operation or for that of the supporting activities (whether TA or IPFs)\. However, better links between prior actions and results would probably not have materially affected results, given the political and economic developments which affected progress on those results\. 2\.3 Expected Next Phase/Follow-up Operation 37\. Pakistan has embarked on a new IMF EFF program and the World Bank is preparing a two- part DPL series to complement the IMF program: Resilient Institutions for Sustainable Economy (RISE) and Securing Human Investments to Foster Transformation (SHIFT)\. Financial sector measures feature in the RISE actions, and the impact and lessons learned from this operation will also be relevant\. Breaking the recurrent patterns of consumption driven growth that overheats the economy, which often derails the reform momentum in Pakistan (as evidenced in this operation), is at the core of the RISE DPL\. 38\. The FIIP which became effective shortly after FGDPC in FY17 continues to support some of the key reform areas of the operation\. The digital transactions accounts agenda was ramped up through planned investments in the upgradation of the payments systems\. The                                                              10 TA activities were ongoing on financial inclusion, long-term finance, AML/CFT, secured transactions, credit information and an IFC TA on infrastructure finance etc\. In addition to this, The Bill & Melinda Gates Foundation, USAiD and DFiD also had deep TA engagements on financial sector reform on-going at the time\. Page 22 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Bank has also assisted the SBP in developing a National Payments Systems Strategy which is expected to spur growth in digital finance going forward\. The automation of CDNS is also a key component of FIIP\. Additionally, FIIP has a significant focus on access to credit for SME’s though the design and implementation of a SME Credit Guarantee Facility\. The long-term finance agenda has also been picked up in another IPF (Pakistan Housing Finance Project - P162095)\. While this project focuses on long-term housing finance, developing capital markets is also part of its development objective\. Capital market development is essential to foster long-term finance in any economy\. In addition to this, the Bank has commenced analytical work on development and long-term finance in collaboration with SBP, MoF and SECP; this will feed into a reform agenda to unlock this space\. 3\. ASSESSMENT OF OUTCOMES 3\.1 Relevance of Objectives, Design and Implementation (a) Relevance of objectives: Satisfactory 39\. The overall objective of the FGDPC was in line with the GoP’s reform agenda and the World Bank’s strategy when the loan was approved and remains so at the time of the ICR\. Pakistan will need to address its low savings (and investment) rate to sustain and accelerate growth\. The World Bank published a flagship report, Pakistan@100: Shaping the Future in March 2019\. The Report articulates the reforms that are necessary for Pakistan to accelerate and sustain growth and boost shared prosperity for all by the time it is 100 years old in 204711\. Amongst other things, this will require a focus on financial deepening including access and inclusion, long-term finance and transparency/governance of the sector\. (b) Relevance of design: Moderately Satisfactory 40\. The FPDPC has relatively well-defined prior actions (i\.e\. without confusing subordinate clauses) but, as explained earlier, there were weaknesses identified in some of the results indicators\. Additionally, two measures: 1) the National Policy on Infrastructure Finance, and 2) improved governance in the insurance sector (of SLIC) seem either tangential or misplaced\. The link between developing an Infrastructure Finance Policy and increasing long-term finance lending is not very strong and is not well explained in the PAD\. As such, building the pillar on enhancing long-term around the Infrastructure Finance Policy seems incongruous\. Additionally, while reform in the insurance sector is very much required in Pakistan, the isolated action on governance reform in SLIC seems misplaced\. 3\.2 Achievement of Program Development Objectives Pillar 1: Increasing access to finance and enhancing financial inclusion Rating: Moderately Satisfactory                                                              11 https://www\.worldbank\.org/en/region/sar/publication/pakistan100-shaping-the-future Page 23 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      41\. Results indicators for “Increasing access to finance and enhancing financial inclusion” include: (1) increasing the number of transaction accounts, (2) an increased share of NSS profits (interest) distributed through the banking system, (3) an increase in the number of companies registered, and (4) an increase in banking system deposits; with the relevant indicators to have been met by end June 2018\. Three of these results were fully achieved, however, this ICR finds that not all of these can be attributed to the Prior Actions\. 42\. Increasing the number of transaction accounts (segregated by gender)\. This result was to be achieved through the implementation of an integrated platform for digital transactions (the DTA scheme was to be delivered through the Asaan Mobile Accounts (AMA) scheme)\. This scheme was envisaged as indispensable to reducing frictions in the digital ecosystem due to its interoperability\. While the results indicator was achieved for this action (both the total number of accounts and women’s accounts exceeding targets), this may not be entirely attributable to the prior action\. The DTA was approved as the Prior Action, however, the approved scheme was only recently formally implemented (the first pilot was launched in January 2018)\. As such, the increase in transactional accounts may be more directly attributed to the ongoing technical support the Bank is providing though Trust funds and FIIP\. Additionally, elements of the growth may also be organic due to greater private sector investments in the fintech sector\. 43\. An increased share of NSS profits (interest) distributed through the banking system\. This target was partially achieved\. However, there was a problem in the structure and accuracy of the results trigger\. While the results indicator is a percentage of NSS profits remitted through the banking system, the target is represented as these profits as a percentage of the number of NSS accounts\. In addition to this, there is a factual inaccuracy in the target indicator\. The target suggests there are 7 million NSS accounts; there are 2\.4 million accounts and 7 million investments (each account holder can have multiple investments through different savings certificates)\. The indicator would have been better designed as the number of account holders (or investments) which have opted for non-cash-based profit distribution as a percentage of total NSS accounts (or investments)\. With either formulation, this target has been partially met\. 44\. An increase in the number of companies registered\. The new Companies Act supported by the FGDPC synthesizes the fragmentation, streamlines corporate procedures and encourages electronic filing\. This in turn increases ease of doing business which should lead to increased formality and creditworthiness of firms\. This was a very successful action with the result exceeding the target\. 45\. An increase in banking system deposits\. This was achieved, but there is an issue of attribution\. While the Deposit Protection Corporation Act was enacted, the Act needs to be implemented by the Deposit Protection Corporation to be operational\. The Corporation was only formally established on June 1, 2018, while the results indicator has been met as of June 30, 2018\. Thus, this result may not be directly attributed to the Deposit Protection Corporation, since it was not up and running at the time\. However, international experience shows the passing of such a law is a good signal to the market and this may have further contributed to boosting depositor confidence\. 46\. In sum, there was some progress made under this pillar\. The prior actions are mostly appropriate, but results are not all necessarily directly attributable\. Page 24 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Pillar 2: Fostering long-term finance Rating: Moderately Unsatisfactory 47\. Increase in the share of long-term credit in the banking system\. The results indicator for long-term finance is the share of long term (>5 year) loans to total loans\. There were no separate indicators for the National Infrastructure Finance Policy and the SBP regulations on long-term finance\. The value of the underlying actions for financial sector development is mixed\. The core infrastructure challenge is almost certainly the lack of bankable projects and lack of long- term financing (asset mismatch)\. While the FSAP recommended the development of a National Infrastructure Policy, there appears to have been limited buy-in of it within the government\. The SBP’s issuance of improved and clarified regulations for long-term lending could be an important financial sector reform as data on sources and uses of funds would improve the ability to identify and address maturity mismatches\. However, during implementation, the team found it difficult to obtain information on outcomes, suggesting data may not have improved significantly\. The results target was partially met with 8\.9 percent of loans being long-term versus the targeted 10 percent (short by 1\.1 percent); however, the baseline was 8\.8 percent in 2015, therefore this was a very marginal improvement over three years\. However, Project Finance for the energy sector and Public-Private Partnerships have been on the rise, demonstrating that long-term finance has been mobilized to an extent\. The Infrastructure Policy and Prudential Regulations may have contributed to this as a signal of the government’s commitment to infrastructure development in Pakistan\. Pillar 3: Enhancing Transparency of the Financial Sector Rating: Unsatisfactory 48\. The results indicators for Pillar 3, Enhancing Transparency of the Financial Sector include: 1) an adjudicating body for Benami transactions, 2) remaining in compliance with FATF Recommendation 1, 3) an increase in the share of registered prize bonds, and 4) that the CEO and Chairman of SLIC have passed a fit and proper test\. These should have been achieved by June 30 2018\. None of these targets were fully achieved by the target date\. 49\. An Adjudicating Body for Benami transactions be in place\. While the Benami Law was enacted as the Prior Action, the Adjudicating Body was not appointed by the target date\. The establishment of an Adjudicating Body for Benami accounts could only occur after operational rules and regulations underpinning the Law were established (these Rules were put in place in March 2019)\. The Benami system is deeply entrenched in Pakistan and the passage of this law was a very significant and far-reaching action\. While there was a delay in implementation of the law, the Rules that were eventually enacted have further deepened the impact of the legislation on the financial sector\. While the original Law envisaged criminalizing only Benami transactions in property, the Rules recently enforced have broadened the scope of the law to cover Benami bank accounts\. The SBP has recently been investigating the churning of large amounts of money (by some estimates up to PKK 200 billion) through fictitious bank accounts (opened in the names of unaware third parties)\. By criminalizing the use of these Benami bank accounts, the Law has further deepened the controls for AML\. Page 25 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      50\. Pakistan remains in compliance with FATF Recommendation 1\. Pakistan’s compliance with the FATF is important for the operation of its banking system especially as it connects to the rest of the world\. The completion of the National Risk Assessment (NRA) is the first step in establishing FATF compliance, and no country undergoing a Mutual Evaluation can do without it\. There was an error in the formulation of the results indicator for the completion of the NRA for AML/CFT\. The PAD states that “completion of the NRA will help Pakistan to achieve compliance with FATF Recommendation-1” and as such, the target result is that Pakistan remains compliant with FATF Recommendation-1\. Only a Mutual Evaluation can determine if a country is complaint with FATF Recommendations\. Pakistan’s Mutual Evaluation was completed in October 2019, as such, we could confirm the status of this results indictor by the target date\. As the Mutual Evaluation was always planned to take place after June 2018, this indicator was incorrectly chosen\. Pakistan was placed on the FATF Grey List in June 2018, thus, at the time there were deemed to be gaps in Pakistan’ systems and controls for mitigating AML/CFT risks\. Pakistan’s Mutual Evaluation was completed in October 2019 and confirmed that Pakistan remains on the Grey List, which would indicate it is not fully complaint with FATF Recommendation 1\. 51\. An increase in the share of registered prize bonds\. The target was that 2 percent of all outstanding prize bonds would be registered and this was partially met (0\.7 percent as at June 2018)\. Formalizing/registering prize bonds (bearer instruments), i\.e\. requiring KYC procedures for denominations over 40,000 PKR (around 250 USD) was expected to reduce their use for money laundering\. However, this action does not make it mandatory to register these bonds, it gives the option to register; the impact therefore is limited\. The prize bond indicator is appropriate\. Moving from 0 percent registered bonds to 0\.7 percent registered bonds in a couple of years is reasonable outcome given overall prize bonds outstanding represent 20 percent of currency in circulation\. 52\. Since February 2019, the CDNS has discontinued the issuance of Prize Bonds with a donation of PKR 40,000 and above, thus there does not seem to be a long-lasting impact of this particular action\. On a positive note, the government has recognized the risks of unregistered bearer instruments in the economy and has commenced a program to gradually register all prize bonds currently in circulation\. The RISE DPL currently under preparation is also reinforcing this action\. 53\. The CEO and Chairman of SLIC have passed a fit and proper test\. SLIC is the dominant player in Pakistan’s life insurance market but poses risks and prevents development of the sector since it remains uncompetitive\. Amendments to the SLIC Act had been proposed in the previous DPL (CGDPF) to reduce its monopoly hold on the sector and to instill better corporate governance practices\. The action was rolled back but this slightly watered-down action was included in FGDPC to demonstrate the importance of this reform\. It was believed that this action would be a more realistic way to start the reform process at SLIC\. Unfortunately, once again, there was very little traction on this agenda and the results target was not met\. The government has placed SLIC on the national privatization list in 2019, so this may open the space for reform; this is thus a positive development for the sector\. 54\. In sum, for this Pillar, the Benami Law was a very significant action\. The completion of the NRA was important for AML/CFT but the target result was misaligned\. It should be noted that recent developments on SLIC have been encouraging; this may have been the result of the messaging and policy dialogue in this space\. Page 26 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      a\. Efficiency N/A   b\. Justification of Overall Outcome Rating   Rating: Moderately Unsatisfactory 55\. The FGDPC operation was relevant in that most prior actions were in areas that would, i successful, improve access to, deepen and enhance transparency of Pakistan’s financial system The ongoing complementary TA work and the reform momentum in the run-up to the FGDPC made this operation part of a package of support on Pakistan’s financial sector\. The robust TA and lending program that was designed to support the implementation of these action continues till date\. The limited follow through on some of the actions within the timeframe o the operation stemmed more from the political economy at the time than with the design of the operation\. This operation had numerous stakeholders to drive the reforms (SBP, CDNS, SLIC FBR etc\.); however, MoF was the key counterpart\. The slipping economic conditions and the changing political environment resulted in a significant slow-down in the momentum fo reform\. 56\. Pillar 1 had several relevant actions and they achieved most of their results\. However, in several cases, the direct link between the action and results indicator did not exist or wa ambiguous\. Pillar 2’s focus on the Infrastructure Finance Policy represented an early stage o reform in this area and yielded limited impact since there is no evidence of the Policy being used a strategic tool by the government\. The SBP measures to provide information on maturity and possible mismatches would be important but it is unclear how these have worked in practice\. Pillar 3 focused on significant governance problems in Pakistan’s financial sector However, the admirable reform ambition was impacted by the political and economic environment\. It must be noted, however, that policy dialogue in this space has once again picked up in the last year\. 57\. The combination of relevance (Moderately Satisfactory), Pillar 1 (Moderately Unsatisfactory) Pillar 2 (Moderately Unsatisfactory) and Pillar 3 (Unsatisfactory) gives an overall rating o Moderately Unsatisfactory\. c\. Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 58\. The FGDPC was focused on Pakistan’s financial sector and more specifically on its low sa limited financial intermediation\. Moving the needle on these even slightly could help Pakistan the fiscal resources needed for poverty reduction\. Page 27 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      59\. The actions targeting inclusion are especially important for poverty, gender and social development\. Lack of financial inclusion restricts the availability of domestic savings\. According to FinDex 2017 (World Bank, 2017), only 21 percent of adults in Pakistan have bank accounts, up from 13 percent in 2014\. This shows relatively little progress since 2014 and puts Pakistan behind most of its neighbors\. Moreover, this increase in account ownership has not benefited all groups equally\. While accounts held by women increased by 100 percent between 2016 and 2018 and rising from 14 percent of all accounts to 26 percent, the gender gap between account ownership is almost 30 percentage points\. However, this does not mean that adults in Pakistan do not save at all\. As the FinDex report notes, Pakistan is among the few developing economies where 20 percent of adults cited savings as the main source of funds, but only 1 in 10 reported having saved in a financial institution, with the remainder saved in non-formal ways\. Thus, increasing digital services, creating security for account holders (deposit protection) and improved linkages from NSS to the banking system should support increased inclusion\.   (b) Institutional Change/Strengthening There was no marked institutional change/strengthening as a result of this operation (c) Other Unintended Outcomes and Impacts (positive or negative, if any)  No unintended outcomes were observed (d) Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops There was no beneficiary survey or stakeholder workshop 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Substantial 60\. Progress on improving financial access and facilitating financial inclusion will almost certainly continue given the development needs in Pakistan\. There is once again, political appetite for reform, and the previous reform agenda (although unfinished) provides a strong foundation to build on\. For example, the NFIS targets have recently been made more ambitious and there are increasing efforts to find digital solutions to foster more inclusion\. The automation and formalization of NSS has become ever more critical\. The Deposit Insurance Corporation is now up and running so while it did not meet the operation’s target date, the work has continued\. 61\. There is some progress on the removal of constraints to long-term finance\. However, besides targeting supply side issues to encourage banks to lend long term, there is need to ramp up reform on the demand side\. Banks cite issues of bankability and profitability of infrastructure finance proposals\. Unless the challenges faced are approached holistically the reform agenda may lag\. The new government recognizes the need for long-term finance to spur growth in the economy and is engaging with the Bank to help unlock this space in Pakistan\. Capital market development is a key priority for the government going forward and the WBG is actively engaged in building a program of support in this space\. 62\. In terms of improving transparency of the financial sector, while progress was limited by the target date, at the time of this ICR, we see progress in three of the four actions\. Before the Adjudicating Body for the Benami Law could be established, the underlying Rules and Page 28 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Regulations of the Law had to be put in place; this was done in March 2019\. To establish if Pakistan remained in compliance with Recommendation 1 of FATF, the Mutual Assessment of the systems and controls around AML/CTF had to be completed; this Assessment has been completed\. For Prize Bonds, the new government, recognizing the AML risks inherent in the unregistered instrument, discontinued the assurance of the PKR 40, 000 domination bond in February 2019\. In addition to this, the new government has commenced a program to gradually register all outstanding prize bonds to help abate the AML risks The SLIC action, which floundered in CGDPF also, now has some traction as the new government has placed SLIC on the privatization list\. 5\. ASSESSMENT OF BANK AND BORROWER PERFORMANCE d\. Bank Performance Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 63\. Pakistan’s low savings/investment rate is, along with fiscal crowding out of private sector credit, linked to limited financial access/inclusion coupled with a lack of long-term finance and weaknesses in the sectors overall transparency\. Thus, improvements in these areas were in line with the government’s (previous and current) and WBG priorities\. The FSAP recommendations, ongoing TA work along with a diversified financial sector lending program on financial inclusion and housing finance, justified an operation specific to this sector\. The access/inclusion focus (and to a lesser extent actions) in Pillar 1 and especially the governance focus (and actions) in Pillar 3 would have advanced reform and, over time, outcomes in Pakistan’s financial sector\. As such, the reform areas identified were relevant and timely\. 64\. The FGDPC was designed as a standalone operation (2nd in a row), linked to the previous operation through a focus on the financial sector, although in the case of the FGDPC, the focus was entirely on the financial sector, whereas CGDPF was broader\. This decision for a standalone operation was based on the strong complementary lending TA program in the financial sector and the proximity to elections\. The breadth and depth of the ongoing TA work (by WBG and other donors) set the stage for the set of policy reforms in the FGDPC\. A weakness noted in the design of the operation was the seemingly limited attribution between the actions and results, and lengthy timeline and chain of intermediate steps to achieve results\. This risk was meant to be countered with the lending and TA work which was designed to support implementation in these areas\. An additional complication was that the operation was set to deliver reforms (and results) just prior to elections which ran the risk of government attention being diverted\. This could have been supported by a better mitigation discussion in the operation’s design\. e\. Quality of Supervision Rating: Moderately Satisfactory   Page 29 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      65\. Once the Prime Minister stepped down and the Minister of Finance effectively left office, progress lagged\. As the Bank had an ongoing support program in the financial sector, some work continued at the operational level\. In particular, the recent resumption of the reform momentum in these areas demonstrates that technical dialogue was sustained by the task teams\. 66\. The previous operation (CGDPF) had an effective monitoring matrix that tracked actions and follow-ons (if needed) and the use of this tool may have also helped FGDPC in the supervision process\. c\. Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory   67\. The overall objective of the FGDPC was in line with the GoP’s reform agenda and the World Bank’s strategy when the loan was approved and remains so at the time of the ICR\. Pakistan will need to address its low savings (and investment) rate to sustain growth\. This cannot be achieved without more meaningful intermediation by the financial sector\. 68\. The FGDPC design built upon the reform agenda from previous DPL operations and was also designed to complement existing and proposed financial sector engagements\. The FGDPC was conceived at a time when the Bank had an extensive technical assistance program on Pakistan’s financial sector\. With financial intermediation in all sub-sectors of the financial sector much lower than peer countries, WBG teams deployed several operations using a variety of instruments to support the development of Pakistan’s financial sector (between FY15-FY18)\. 69\. Admittedly, it was not possible to anticipate in any meaningful way the outcomes of the changing political conditions; these, along with an ending IMF program and looming elections, compounded the slowing reform momentum\. The ongoing TA program was a key part of supervision; as such, the design of the project cannot be faulted for the slowdown in the reform momentum, but deficiencies in the selection of some results indicators were noted, hence the moderately satisfactory rating\.  Borrower Performance: Government Performance Rating: Moderately Unsatisfactory 70\. The FGDPC operation was approved in March of 2017, nine months after the previous CGDPF operation (approved June 2016)\. In early 2017, as the FGDPC was being prepared, the government seemed in a position to drive reforms up to and through the elections in 2018\. However, at the time this operation became effective, reform momentum had begun to slip (as explained in paragraph 9), notably around structural issues linked to privatization, tariff reform and adjustments to the overvalued exchange rate\. Fiscal discipline started slipping after the end of IMF program and the exchange rate, already overvalued, did not adjust in line with the Page 30 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      changing economic conditions12\. By mid-2017, election mode had set in; the government’s FY18 budget reduced income tax thresholds, increased fiscal exemptions, increased trade tariffs and kept the exchange rate overvalued\. The period of stabilization under the IMF Program and the reform momentum of the government seemed to be slipping soon after the FGDPC was approved (early 2017)\. 71\. Economic policy-making slowed down, and there was limited broader political ownership of the reform efforts\. The Prime Minster was removed from office in July 2017 and the Finance Minister resigned soon after\. A new Prime Minister and an Adviser for to the Ministry of Finance were appointed in August 2017 but the political imperatives were very different by this time\. Elections were approaching and as a result, fiscal discipline was further relaxed in the new budget announced for FY18\. 72\. If not for the unprecedented events of the changing political environment, and based on the government’s track record for reform, the operation could have seen better results\. The timing of the FGDPC was unfortunate in that results had to be achieved in a time of a slowdown in reform momentum\. Having said that, greater commitment across the implementing agencies and various layers of the government should have helped ensure that reforms were not significantly derailed, but unfortunately this did not happen in practice\. 6\. LESSONS LEARNED   While the FGDPC focused on an important policy area for Pakistan; deepening the financi sector’s intermediation role is imperative for sustained and inclusive growth in Pakistan, th stand-alone nature of the operation created several problems\. The key lessons learnt from the operation are as below:   ï‚ The design of the results indicators, the theory of change and attribution should have been brought out more, explained better and measured more robustly\. ï‚ Some actions required intermediate steps to achieve the target results\. More attention was needed on how to draw out clearly the sequence of actions required to deliver results\. These should have been better spelled out in the PAD and agreed with the government\. ï‚ Undertaking a DPC so close to election year should be avoided given that the governments focus is very likely to be diverted close to the election\. ï‚ It is not enough to identity and rate risks effectively; mitigation steps need to be incorporated at the design stage\.                                                                   As stated earlier, the government did make some efforts to align the exchange rate better at the time but in the 12 absence of a more flexible exchange rate policy, the impact was limited\.   Page 31 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      7\. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/Implementing agencies N/A (b) Co-financiers N/A (c) Other partners and stakeholders N/A                                         Page 32 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 1: Financial Sector Prior Actions from FISG series and CGDPF FSIG I The Ministry of Finance has submitted the Credit Bureau Bill, 2014 to the National Assembly for Approval The Securities and Exchange Commission of Pakistan has approved the Securities and Exchange Commission (Micro-insurance) Rules, 2014 FSIG II The National Assembly has approved the Credit Bureau Act CGDPF The National Assembly has passed the Financial Institutions (Secured Transactions) Bill The National Assembly has passed the amendments to the Credit Bureau Act The National Assembly has passed the amendments to Securities And Exchange Commission Act The Securities and Exchange Commission has issued an order for the integration of the three stock exchanges\. The National Assembly has passed the Financial Institutions (Recovery of Finances Amendment) Bill The National Assembly has passed the State Life Insurance Corporation (Re-organization and Conversion) Bill                                   Page 33 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 2: Bank Lending and Implementation Support/Supervision Processes   Task Team Members Name Unit     Namoos Zaheer GFCSN     Khalid Bin Anjum GGOPZ     Akram El-Shorbagi GGOAP     Aza A\. Rashid GFCSS   Connor P\. Spreng GFCSN     Enrique Armas GMTSA     Gabi Afram GFCAE     Muhammad Waheed GMTSA     Sarmad Ahmed Shaikh GFCSN     Sarwat Aftab   GFCSN           Year Labor Travel Other Total 2017 94,397\.99 18,408\.96 10,857\.57 123,664\.52 2018 51,195\.75 12,924\.17 7,611\.72 71,731\.64 2019 48,221\.64 1,337\.13 15,037\.99 64,596\.76 Grand Total 193,815\.38 32,670\.26 33,507\.28 259,992\.92                 Page 34 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 3: Summary Of Borrower's ICR and/or Comments On Draft ICR (if any) Page 35 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 4: List of Supporting Documents 1\. Finding the Path to Job-Enhancing Growth: A Country Economic Memorandum, Report No 75521-PK, World Bank, 2013\. 2\. Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility, IMF Country Report 13/287, September 2013\. 3\. Pakistan First Fiscally Sustainable and Inclusive Growth (FSIG 1) Development Policy Credit, Program Document, Report No\. 86373-PK, April 3, 2014\. 4\. Pakistan, Country Partnership Strategy for the period 2015-2019, Report No\. 84645-PK, April 4, 2014\. 5\. Pakistan Second Fiscally Sustainable and Inclusive Growth (FSIG 2) Development Policy Credit, Program Document, Report No\. 99376-PK, May 15, 2015\. 6\. Competitiveness and Growth Development Policy Financing, Program Document, Report No\. 105825-PK, May 23, 2016 – includes Letter of Development Policy\. 7\. Finance for Growth and Development Policy Credit, Program Document, Report No\. 112795-PK), February 6, 2017\. 8\. Finance for Growth Development Policy Credit, Report No\. 112795-PK, February 14, 2017\. 9\. Performance and Learning Review for the Islamic Republic of Pakistan, Report No\. 113574, May 18, 2017\. 10\. Pakistan 2017, Article IV Consultation, IMF Country Report 17/212, May 2017\. 11\. Pakistan Financial Inclusion and Infrastructure Project, Project Appraisal Document (PAD), Report No\. PAD2012, May 15, 2017\. 12\. Pakistan Development Module FSAP, Aide-Memoire (April 2016) 13\. Pakistan Development Module FSAP: Infrastructure Finance Technical Note (2016) 14\. Implementation Completion and Results Report for Fiscally Sustainable and Inclusive Growth Development Policy Credit, Report No\. ICR00003946, June 15, 2017\. 15\. Pakistan Development Update, November 2017\. 16\. Pakistan, First Post Program Monitoring Discussions, IMF Country Report 18/78, March 2018\. 17\. World Bank notes on Pakistan’s Economy (Oct 2018) 18\. Implementation Completion and Results Report for Competitiveness and Growth Development Policy Financing, December 10, 2018\. 19\. Pakistan Financial Inclusion and Infrastructure Project, ISR, December 21, 2018\. 20\. Pakistan Ministry of Finance Note on State of Pakistan’s Economy (January 2019) 21\. Pakistan@100: Shaping the Future (March 2019) Page 36 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 5: Key Economic Priorities of the Government of Pakistan The government envisages stabilizing the economy, bringing inflation down to the 6–7 percent range, and achieving growth rate targets of 6–7 percent by 2017/18 or earlier\. To do this, it has set the following goals and comprehensive policy agenda: Stabilization Moving to fiscal consolidation\. Reducing the fiscal deficit from 8\.3 percent of GDP in 2012/13 to 3\.5-4 percent in 2016/17 by increasing revenues by around 3 percent of GDP, eliminating tax exemptions; imposing austerity in expenditure management, cutting down subsidy outlays; protecting the priority safety net (BISP); and carrying on active public debt management\. Rebuilding the external position to no less than 3 months of imports and tightening monetary policy\. Scaling back monetary accommodation of fiscal deficits and setting up policy rates to keep positive real interest rates; strengthening the central bank’s independence; and protecting the external position by repurchasing reserves to cushion against major shocks\. Main growth-enhancing reforms Comprehensive power sector reform\. Reducing power subsidies; restructuring boards of power distribution and generation companies; making new investments; strengthening the power sector regulator; and expanding alternative sources of energy\. Reforming or privatizing SOEs\. Privatizing by equity or strategic sales; or if restructuring, then requiring professional chief executives and board members and their compliance with Public Sector Companies (Corporate Governance) Rules 2013\. Improving trade competitiveness\. Simplifying tariffs, with four slabs and 1–25 percent rates, and phasing out trade-distortive statutory regulatory orders (SROs) on some 4,000 products\. Expanding trade relations with neighbors\. Facilitate regional trade and take full advantage of trade preferences available from the European Union\. Enhancing the investment climate\. Establishing a One Stop Shop for registering limited liability companies; and strengthening of the BOI in implementing a plan for improving the business environment and investment-friendly special economic zones\. Expanding access to finance\. Developing the SBP’s Financial Inclusion Program to enhance access of SMEs to financial services through regulatory reforms, product innovation, financial literacy, and consumer protection\. Source: ICR, FSIG DPC-1, P147557 Page 37 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 6: Analytical Underpinnings Prior Actions Analytic Underpinnings Pillar 1: Improving access to finance and enhancing financial inclusion The NFIS Council has approved the Digital Transaction ï‚ National Financial Inclusion Accounts (DTA) Scheme\. Strategy (NFIS) ï‚ Financial Sector Assessment Program FSAP 2016 ï‚ Debt Capital Markets Technical Note (TN) The SBP has granted clearinghouse membership of the ï‚ NFIS National Institutional Facilitation Technologies (NIFT) to ï‚ FSAP 2016 the Central Directorate of National Savings (CDNS) to allow ï‚ Debt Capital Markets Technical for distribution of NSS profits through bank accounts\. Note (TN) The National Assembly has approved the new Companies ï‚ Accounting & Auditing Report on Bill to modernize the regulatory framework for companies Observance of Standards and Codes (ROSC) ï‚ Business Registration Diagnostic ï‚ Doing Business Surveys The Deposit Protection Corporation Act 2016 has been ï‚ FSAP 2010 approved by Parliament\. ï‚ IMF Technical Assistance (TA) Pillar II: Fostering Long-term finance The ECC has approved the National Policy on Infrastructure ï‚ FSAP 2016 Finance The SBP has issued Prudential Regulations for long-term ï‚ Infrastructure Finance Technical finance (in line with Basel III requirements) Note Pillar III: Enhancing the Transparency of the Financial Sector The Benami Transaction Prohibition Bill has been approved ï‚ IMF TA by Parliament\. The Ministry of Finance has completed the National Risk ï‚ AML/CFT Assessment Assessment (NRA) for Anti-Money Laundering and ï‚ WBG TA Combatting Financing of Terrorism (AML/CFT)\. The Cabinet has approved the rules for a new registered ï‚ NFIS prize bonds scheme with denomination of PKR 40,000 and ï‚ FSAP 2016 above The Ministry of Commerce has endorsed the Corporate ï‚ FSAP 2016 Governance Assessment for SLIC to monitor compliance ï‚ Insurance TN (NFIS) with the Public Sector Companies (Corporate Governance) Rules 2013\. Page 38 of 39    The World Bank      Finance for Growth Development Policy Financing (P161136)      Annex 7: Letter from Ministry of Finance (non -public results targets) Page 39 of 39 Â

REVIEW

P070088

 ICRR 12318 Report Number : ICRR12318 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/21/2006 PROJ ID :P070088 Appraisal Actual Project Name :Trade & Transport Project Costs 22\.0 24\.4 Facilitation In Southeast US$M ) (US$M) Europe Country :Croatia Loan/ US$M ) Loan /Credit (US$M) 13\.9 16\.1 Sector (s):Central ): government US$M) Cofinancing (US$M ) 1\.9 1\.8 administration L/C Number :L4582 FY ) Board Approval (FY) 01 Partners involved : USAID Closing Date 03/31/2004 03/31/2005 Evaluator : Panel Reviewer : Division Manager : Division : Michael R\. Lav Peter Nigel Freeman Kyle Peters IEGCR 2\. Project Objectives and Components a\. Objectives (i) reduce non-tariff costs to trade and transport; and (ii) reduce smuggling and corruption at border crossings These objectives were not revised \. b\. Components (or Key Conditions in the case of Adjustment Loans ): 1\. Institutional Reform of Customs Procedures (US$1\.4 million, appraisal and actual) comprising: (i) technical services to define and prepare required legal amendments, bylaws, and administrative regulations; (ii) technical services to prepare and introduce new customs procedures and documentation including paperless transactions; (iii) technical services to reform the Customs Directorate of the Republic of Croatia (CDRC);(iv) technical services to monitor CDRC performance; (v) technical services to streamline operations at three border posts and one inland terminal on a pilot basis; and (vi) training to enhance inter-agency awareness and cooperation \. 2\. Trade Facilitation Development (US$0\.4 million appraisal estimate, US$1\.4 million actual) comprising: (i) provision of conventional and distance learning to participants in trade, logistics and international freight transport; (ii) improvement of cooperation between public and private parties using a virtual forum; and (iii) creation of a website and provision of corresponding equipment to support information availability \. 3\. Support to CDRC Information System Improvement (US$6\.8 million appraisal estimate, US$10\.6 million actual) comprising: (i) software and technical services to enable exchange of trade -related information with other border inspection agencies, users, and neighboring countries; (ii) hardware needed to improve the current information system at border crossings and customs offices; and (iii) a regional experience-sharing program on integrated systems for border agencies to stimulate regional and interagency cooperation \. 4\. Improvement of Border Crossing Facilities (US$9\.8 million appraisal estimate, US$11\.9 million) comprising improvements of the border crossing facilities at Slavonski Brod, Gunja, Malijevac and Samac \. 5\. Program and Project Implementation (US$0\.6 million appraisal estimate, US$0\.1 million actual)\. 6\. Contingencies at appraisal were US$ 3\.0 million\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The project cost US$24\.4 million (with much of the excess over PAD estimates due to currency fluctuations ) financed by an IBRD loan for US$16\.1 million, contribution from USAID of US$1\.8 million, and Borrower (government) contribution of US$6\.5 million\. The project was appraised in June, 2000, approved by the Board on October 26, 2000, made effective on May 2, 2001, and closed on March 31, 2005, one year behind schedule, to allow full implementation of the paperless transactions package for Customs \. 3\. Relevance of Objectives & Design : The objectives and design of this project were fully relevant to the needs and constraints facing Croatia \. The Croatia CAS (June 3, 1999) and the regional program for Trade and Transport Facilitation in Southeast Europe (TTFSE) provided the substantive, regional, and country contexts for this operation, and the operation was designed to address the issues and pursue the objectives set out in those documents \. 4\. Achievement of Objectives (Efficacy) : 1\. Reduce non-tariff costs to trade and transport - substantial achievement\. Data from the pilot terminals show substantial decreases in import clearance times and reduced border exit and entry times (with reductions of more than 50% in most cases) which were the result of improved procedures, better targeting of trucks for physical examination, and fewer irregularities \. 2\. Reduce smuggling and corruption at border crossings - Modest Achievement\. The ICR gives no direct evidence on this point\. This review infers that some progress was made, based on improved practices (including better targeting of trucks for physical inspection based on the introduction of risk management and selectivity concepts, and use of x-ray equipment), communications including with customs staff from neighboring countries, and staff training, In the absence of direct evidence, a rating no higher than "Modest Achievement" is warranted\. 5\. Efficiency : Even though costs increased from the PAD estimate of US$ 22\.1 million to US$24\.4 million, this was largely due to currency fluctuations\. The estimated rate of return of the project was in excess of 75 percent, higher than the originally anticipated rate of 49 percent\. It should be noted that this estimate is in large part based on time savings induced by the project as applied to an average value of time for trucks of US$ 340/day, which was based on interviews\. The ICR could have confirmed this estimate reported in the PAD (see Annex 4, page 3) since this is the basis for the economic analysis \. At a minimum, the ICR could have given comparators \. For example, the ICR could have strengthened its argumentation by referring to the Trade and Transport Facilitation in Southeast Europe Program Progress Report, which offers an estimate of US$ 300/day for the time value of a truck in the TTFSE region \. In addition, the ICR assumes a trade benefit equal to 20 percent of transport benefits, but does not present a justification for this assumption \. This may or may not be an underestimate as claimed by the ICR \. The ICR missed an opportunity to shed more light on this which could have been done by analyzing differences (if any) between traffic patterns at border posts covered by the project and those which were not covered by the project \. Despite all of these concerns, the rate of return estimate is high enough so that it is in the satisfactory range, even if questions arise about the precise estimate\. 6\. M&E Design, Implementation, & Utilization: Monitoring and Evaluation to track progress on the project's first objective were built into the project with indicators specified in the PAD and discussed in the ICR \. However, the project does not seem to have incorporated any monitoring or evaluation indicators which directly bear on the second objective (reduction of corruption and smuggling)\. The PAD refers to an annual report from the Customs agency, discussion of which might have been useful in this regard\. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): Safeguards and Fiduciary aspects of the project have been addressed in the PSRs and raise no special issues \. There appear to have been no unintended impacts \. 8\. Ratings : ICR ICR Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory In the absence of evidence on the reduction of smuggling and corruption, a "benefit of the doubt" outcome rating of Moderately Satisfactory is appropriate \. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: 1\. A comprehensive approach to the question of trade facilitation, including joint -border facilities, institutional support, information technology, and training appears to be important for the success of this kind of project \. Interagency cooperation at border crossing points, and across border cooperation of agencies, are two especially important aspects of such a comprehensive approach \. Since this kind of cooperation has not always been the case in other TTFSE projects, it is certainly worth some attention \. 2\. Targeted, in-depth customs inspections that are based on risk analysis of intelligence data yield better results than attempts at more comprehensive inspections \. Therefore, it is important to focus on enhancing risk analysis capacity and implementation \. 3\. For further lessons, while more in-depth work would be desirable, this ICR Review does not recommend a performance assessment because of ongoing work by IEGCM which will prepare equivalent material for other projects in the Trade and Transport Facilitation in Southeast Europe cluster \. While that review is focussing on TTFSE projects in Romania, Bulgaria, Serbia, and Macedonia, it might be useful for it to also incorporate some material on the Croatia TTFSE project\. 10\. Assessment Recommended? Yes No 11\. Comments on Quality of ICR: The ICR covers many of the basics, places the project in context, and provides adequate detail and presentation of indices to show the impact of the project on trade and its importance to Croatia \. However, the ICR should have presented more information on any reduction in smuggling and corruption \. Concerning the rate of return calculation, the ICR could have explained more clearly why the estimate of the net present value of the project declined from US$25\.5 million given in the PAD to US$23\.3 million while at the same time the estimated rate of return increased from the 49 % calculated in the PAD to an estimated 75% as given in the ICR\. The ICR gives the explanation that the delay in disbursements caused this increase in the estimated rate of return, while improvements in performance were occurring, but presumably this should move the net present value and the rate of return in the same direction \. However, both are high enough to show that the project had a positive impact and was an efficient investment \. There are discrepancies between the cost data shown in Annex 2 (and used in this ICR Review) and the cost data given in the text for each of the components \. Finally, the ICR could have also commented more fully on the reasons why effectiveness was delayed for 6 months after Board approval\.

REVIEW

P006003

 ICRR 10840 Report Number : ICRR10840 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 04/19/2001 PROJ ID : P006003 Appraisal Actual Project Name : Road Maintenance and Project Costs 756\.0 614\.6 Rehabiliation US$M ) (US$M) Country : Argentina Loan/ US$M ) 340\.0 Loan /Credit (US$M) 329\.0 Sector (s): Highways Cofinancing US$M ) (US$M) L/C Number : L3611; LP145 Board Approval 93 FY ) (FY) Partners involved : Closing Date 06/30/2000 06/30/2000 Prepared by : Reviewed by : Group Manager : Group : 2\. Project Objectives and Components a\. Objectives The project objectives were to : (a) Maintain and/or Rehabilitate non-concessioned National Roads (b) Strengthen quality and financial supervision of maintenance in concessioned roads (c) Support institutional reform of National Highway Department (NHD) (d) Assist in establishing an optimal distribution of road works by provincial government, privatization, and national budget (e) Assist with creation of a unit for the preparation and monitoring of environmental assessments b\. Components (i) A 4-year tranche rehabilitation and maintenance program for the non -concessioned network (ii) Flood emergency works (iii) Technical assistance for reorganizing NHD (iv) Management training and technical assistance (v) Implementation of action plans in pilot provinces The project was revised in 1996 to include financing of 5-year term, performance-based contracts (CREMAs) that include initial rehabilitation and subsequent maintenance of a road sub -network on a lump-sum basis\. c\. Comments on Project Cost, Financing and Dates Project costs were lower than estimated despite the fact that more works than expected were done \. 3\. Achievement of Relevant Objectives: The project achieved all its objectives \. 9,940 km of roads were rehabilitated, exceeding appraisal targets by 22%\. Supervision of maintenance in the concessioned roads is adequately carried out \. A number of institutional reforms were carried out, including a drastic increase of the private sector in the maintenance of the network, diversifying modalities for maintenance, including toll concessions, CREMAs, and mandates from the Federal to the provincial governments\. At the same time, highway agency personnel was reduced from 4,000 to less than 3,000 over the project period\. An Environmental Unit was set up in the Highway Department and is implementing satisfactory environmental standards and guidelines \. A comprehensive training program was carried out \. 4\. Significant Outcomes/Impacts: -A major increase in the role of the private sector in the maintenance management of the system through the introduction of the CREMA contracts \. - The risk of cost overrun has been drastically reduced, since contracts are fix price \. - A dramatic improvement in the quality of the network, as paved roads in poor condition, as percentage of the national network, decreased from 35% at appraisal to 10% at completion\. - Private participation in the management of the maintenance of the 29,000 km non-concessioned national network increased dramatically: from no role at the beginning of the project to doing 80% of the maintenance work by project completion\. - A significant increase in highway management efficiency, as the number of kilometers per highway staff in non-concessioned roads increased from 7 to 11\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): No major shortcoming 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Highly Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: -Performance contracts for road maintenance (such as CREMAs), combining road rehabilitation and maintenance provide strong incentives for high quality work -Strong government ownership and commitment can bring about significant changes in highway management policies and approaches in relatively short time - An economic crisis (stemming from Mexico's Tequila effect crisis ) can be turned into an opportunity for : (i) emphasizing the need for stable financing mechanisms and improve efficiency and public accountability in road maintenance operations, (ii) introducing the highly successful CREMA contracts, a project instrument not originally conceived in the initial project design \. This lesson is of general applicability during financial /political crises\. 8\. Assessment Recommended? Yes No Why? To learn from innovative CREMA contracts and other institutional reforms likely to be valuable for many Bank borrowers\. The strong role of private sector should be an important input to OED review of privatization in the transport sector\. 9\. Comments on Quality of ICR: The ICR is satisfactory

REVIEW

P122195

 Document of The World Bank Report No: ICR2593 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA CREDIT NOS\. 46220, 50540,48380) (IBRD LOAN NOS\. 81250, 79810) ON CREDITS IN THE AMOUNTS OF: US$60 MILLION EQUIVALENT US$21 MILLION EQUIVALENT US$50 MILLION EQUIVALENT AND LOANS IN THE AMOUNTS OF: US$ 4 MILLION EQUIVALENT US$30 MILLION EQUIVALENT TO THE REPUBLIC OF ARMENIA FOR DEVELOPMENT POLICY OPERATIONS 1-III June 5, 2013 Poverty Reduction and Economic Management South Caucasus Country Unit Europe and Central Asia  CURRENCY EQUIVALENTS (Exchange Rate Effective June 5, 2013) Currency Unit = Armenian Dram (AMD) 1\.00 AMD = US$ 0\.002 US$1\.00 = 416\.02 AMD FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Services ADS Armenia Development Strategy AMD Armenian Dram ANQA Armenian National Quality Assurance BEEPS Business Environment and Enterprise Performance Survey BPR Business Process Reengineering CAR Capital Adequacy Ratio CPS Country Partnership Strategy CSO Civil Society Organizations DPO Development Policy operation EIA Environmental Impact Assessment FB Family Benefits FDI Foreign Direct investment GDP Gross domestic Product ICT Information and Communication Technology IFC International Finance Corporation IT Information Technology M&E Monitoring and Evaluation Mbps Mega Bits Per Second MTEF Medium-Term Expenditure Framework NCD Non Communicable Diseases PDO Program Development Objectives PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PPA Project Preparation Advance PPP Public Private Partnerships PRSC Poverty Reduction Support Credit SCPEC State Commission for Protection of Economic Competition SDP Sustainable Development Program SRC State Revenue Committee TA Technical Assistance TWM Trade World Manager Vice President: Philippe Le Houerou Country Director: Henry G\. Kerali Sector Manager: Ivailo V\. Izvorski Task Team Leader: Ulrich Bartsch ICR Team Leader: Mona Prasad  ARMENIA DEVELOPMENT POLICY OPERATION I-III IMPLEMENTATION COMPLETION REPORT CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\.  Program Context, Development Objectives and Design \. 1  2\.  Key Factors Affecting Implementation and Outcomes \. 6  3\.  Assessment of Outcomes\. 11  4\.  Assessment of Risk to Development Outcome \. 21  5\.  Assessment of Bank and Borrower Performance \. 22  6\.  Lessons Learned \. 23  7\.  Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 24  Annex 1: Bank Lending and Implementation Support/Supervision Processes \. 25  Annex 2:\.Beneficiary Survey Results \. 27  Annex 3: List of people consulted during ICR preparation \. 28  Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR \. 29  Annex 5: Comments of Co-financiers and Other Partners/Stakeholders \. 37  Annex 6: List of Supporting Documents \. 38  MAP \. 39  Tables Table 1: Schematic Illustration of Armenia’s DPO Series \. 7  Table 2: DPO Prior Actions and Status \. 8  Table 3: Selected Economic Indicators, 2010-14 \. \.13  Table 4: Outcome Indicators for the First Pillar \. 14  Table 5: Outcome Indicators for the Second Pillar\. 17  Table 6: Examples of AAA and TA \. 21  i  REPUBLIC OF ARMENIA DEVELOPMENT POLICY OPERATIONS I-III A\. Basic Information Program 1 Armenia First Development Country Armenia Program Name Policy Operation Program ID P115626 L/C/TF Number(s) IDA-46220 ICR Date 05/24/2013 ICR Type Core ICR Lending Instrument DPL Borrower REPUBLIC OF ARMENIA Original Total XDR 40\.40M Disbursed Amount XDR 40\.40M Commitment Implementing Agencies Ministry of Finance and Economy Cofinanciers and Other External Partners Program 2 Second Development Policy Country Armenia Program Name Operation Program ID P116451 L/C/TF Number(s) IBRD-79810,IDA-48380 ICR Date 05/24/2013 ICR Type Core ICR Lending Instrument DPL Borrower REPUBLIC OF ARMENIA Original Total USD 25\.00M Disbursed Amount USD 25\.29M Commitment Implementing Agencies Ministry of Finance and Economy Cofinanciers and Other External Partners Program 3 Third Development Policy Country Armenia Program Name Operation Program ID P122195 L/C/TF Number(s) IBRD-81250,IDA-50540 ICR Date 05/24/2013 ICR Type Core ICR Lending Instrument DPL Borrower REPUBLIC OF ARMENIA Original Total USD 80\.00M Disbursed Amount USD 80\.01M Commitment ii Implementing Agencies Ministry of Finance and Economy Co-financiers and Other External Partners B\. Key Dates Armenia First Development Policy Operation - P115626 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/01/2009 Effectiveness: 10/05/2009 10/05/2009 Appraisal: 05/22/2009 Restructuring(s): Approval: 07/02/2009 Mid-term Review: Closing: 12/01/2009 12/01/2009 Second Development Policy Operation - P116451 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/17/2010 Effectiveness: 04/15/2011 05/05/2011 Appraisal: 10/25/2010 Restructuring(s): Approval: 01/11/2011 Mid-term Review: 05/02/2011 Closing: 06/30/2011 06/30/2011 Third Development Policy Operation - P122195 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/06/2011 Effectiveness: Appraisal: 12/12/2011 Restructuring(s): Approval: 02/14/2012 Mid-term Review: 06/04/2012 Closing: 12/31/2012 12/31/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory iii C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators Armenia First Development Policy Operation - P115626 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Second Development Policy Operation - P116451 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status Third Development Policy Operation - P122195 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status iv D\. Sector and Theme Codes Armenia First Development Policy Operation - P115626 Original Actual Sector Code (as % of total Bank financing) Banking 12 Central government administration 40 38 General education sector 15 General energy sector 15 General industry and trade sector 13 Health 15 Other Mining and Extractive Industries 15 Public administration- Other social services 37 Theme Code (as % of total Bank financing) Corporate governance 14 12 Environmental policies and institutions 14 Regulation and competition policy 29 13 Social safety nets 14 37 Tax policy and administration 29 38 Second Development Policy Operation - P116451 Original Actual Sector Code (as % of total Bank financing) Central government administration 30 60 General education sector 15 10 General information and communications sector 10 10 Health 20 10 Other Mining and Extractive Industries 25 10 Public administration- Other social services Theme Code (as % of total Bank financing) Environmental policies and institutions 10 10 Injuries and non-communicable diseases 10 10 Regulation and competition policy 30 30 Social safety nets 30 30 Tax policy and administration 20 20 v Third Development Policy Operation - P122195 Original Actual Sector Code (as % of total Bank financing) Central government administration 37 25 General industry and trade sector 24 25 Health 13 13 Other Mining and Extractive Industries 13 25 Tertiary education 13 12 Theme Code (as % of total Bank financing) Education for the knowledge economy 13 13 Health system performance 12 12 Regulation and competition policy 50 50 Social safety nets 13 13 Tax policy and administration 12 12 E\. Bank Staff Armenia First Development Policy Operation - P115626 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Henry G\. R\. Kerali Asad Alam Sector Manager: Ivailo V\. Izvorski Kazi Mahbub-Al Matin Task Team Leader: Robert R\. Taliercio Robert R\. Taliercio ICR Team Leader: Mona Prasad ICR Primary Author: Mona Prasad Second Development Policy Operation - P116451 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Philippe H\. Le Houerou Country Director: Henry G\. R\. Kerali Asad Alam Sector Manager: Ivailo V\. Izvorski Kazi Mahbub-Al Matin Task Team Leader: Pedro L\. Rodriguez Pedro L\. Rodriguez ICR Team Leader: Mona Prasad ICR Primary Author: Mona Prasad vi Third Development Policy Operation - P122195 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Philippe H\. Le Houerou Country Director: Henry G\. R\. Kerali Asad Alam Sector Manager: Ivailo V\. Izvorski Ivailo V\. Izvorski Task Team Leader: Ulrich Bartsch Souleymane Coulibaly ICR Team Leader: Mona Prasad ICR Primary Author: Mona Prasad F\. Results Framework Analysis Program Development Objectives (from Program Document) The original Program Development Objective (PDO) was to address vulnerability by protecting the poor and supporting greater human capital development, while improving competitiveness by alleviating a selected set of private sector and governance constraints\. The DPO series supported the government’s reform program under two pillars: ï‚ Address vulnerability by protecting the poor and supporting greater human capital development to ensure that the poor and vulnerable are not unduly affected by the global crisis and to improve the quality of labor resources in the long-term by strengthening the effectiveness and efficiency of social nets, improving the overall quality and management of higher education and enhancing the preschool system, and providing more affordable health services by reforming health financing and expanding service delivery by strengthening non-communicable disease interventions\. ï‚ Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance to remove regulatory barriers to enterprise start-up and operations and strengthen competitiveness and efficiency through private sector-led growth by improving the business environment, strengthening the regulatory environment in infrastructure, promoting sustainable use of energy and improving public sector efficiency\. Revised Program Development Objectives (as approved by original approving authority) In the course of the DPO series, the program development objectives did not change\. Some adjustments were however made within the pillars in view of emerging fiscal pressures and some reforms getting subsumed under other projects\. ï‚ DPO1 supported reforms in the following policy areas: social protection, education and health under the first pillar and private sector development, public financial management and public sector management under the second pillar\. ï‚ The policy areas under DPO2 remained the same\. However, under education, instead of dealing with the preschool education system as a whole, the government decided to focus only on a specific component of it because of fiscal pressures\. In addition, under public financial management, greater specificity and clarity was introduced to tax and customs administration in view of fiscal pressures and an ambitious initial agenda under customs which envisaged a fully functioning ‘green channel’ in DPO2\. vii  ï‚ In DPO3, the policy areas did not change\. However, there were some additions, deletions and modifications within some of the policy areas to provide greater clarity to the triggers and streamline and consolidate the operation which was thinly spread out in several areas\. Most of the changes were under private sector development and public financial management\. To reflect changes within the policy areas of the DPO series, the key outcome indicators were changed\. (a) PDO Indicator(s) Armenia First Development Policy Operation - P115626 Second Development Policy Operation - P116451 Third Development Policy Operation - P122195 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Social protection and pensions as a share of total spending increased from 26\.2 Indicator 1 : percent in 2008 to 27\.2 percent in 2011 Value (quantitative or 26\.2 percent 27\.2 percent 26\.0 percent Qualitative) Date achieved 12/31/2008 12/31/2011 12/31/2011 Comments Not met\. (incl\. % achievement) Coverage of the poor by the Family Benefit (FB) program increased from 34 Indicator 2 : percent in 2007 to 40 percent in 2011 Value (quantitative or 34 percent 50 percent 40 percent 37 percent Qualitative) Date achieved 12/31/2007 12/31/2011 12/31/2011 12/31/2011 Comments Not met but progress made\. (incl\. % achievement) Leakage of FB resources to the non-poor decreased from 28\.8 percent in 2007 Indicator 3 : to 20 percent in 2011 Value (quantitative or 28\.8 percent 20 percent 25\.6 percent Qualitative) Date achieved 12/31/2007 12/31/2011 12/31/2011 Comments (incl\. % Not met but some progress made\. achievement) viii  Consolidated government spending on preschool education increased from 7\.5 Indicator 4 : billion AMD in 2008 to 10\.9 billion AMD in 2011 Value (quantitative or 7\.5 billion AMD 10\.9 billion AMD 10\.7 billion AMD Qualitative) Date achieved 12/31/2008 12/31/2011 12/31/2011 Comments (incl\. % Not met but substantial progress made\. achievement) Health spending as a share of GDP increased from 1\.4 percent in 2008 to 1\.7 Indicator 5 : percent in 2011 Value (quantitative or 1\.4 percent 1\.8 percent 1\.7 percent 1\.7 percent Qualitative) Date achieved 12/31/2008 12/31/2011 12/31/2011 12/31/2011 Comments Met\. (incl\. % achievement) Utilization of health services by poor increased from 16 percent in 2008 to 20 Indicator 6 : percent in 2011 Value (quantitative or 16 percent 20 percent Not available Qualitative) Date achieved 12/31/2008 12/31/2011 Comments This indicator could not be calculated because of lack of information\. (incl\. % achievement) Capital Adequacy Ratio (CAR) maintained at the 2008 level of 27\.5 percent in Indicator 7 : 2012 Value (quantitative or 27\.5 percent 30 percent 27\.5 percent 17\.4 percent Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 10/31/2012 Comments (incl\. % Not met\. achievement) Number of enterprises using the one stop shop per year increased from zero in Indicator 8 : 2008 to 500 in 2012 Value (quantitative or 0 500 16135 Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) ix  Number of days required to start a business according to the doing business Indicator 9 : report reduced from 17 in 2008 to 8 in 2012 and the cost reduced from 3\.6 percent of per capita income to 2\.9 percent Value 17 days 3 days 8 days 8 days (quantitative or 3\.6 percent 2 percent 2\.9 percent 2\.5 percent Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) Maintain the baseline value of 5 for disclosure index and investor protection Indicator 10 : index (according to Doing Business report) in 2012 Value 5 7 5 6 (quantitative or 5 7 5 6\.7 Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) Monthly cost of broadband Internet access for 1 Mbps reduced from US$98 in Indicator 11 : 2008 to US$49 in 2012 and broadband Internet penetration increased from 0\.16 subscriptions per 100 inhabitants to 0\.32 during the same period Value $98 $49 $10 (quantitative or 0\.16 0\.32 13\.39 Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) Number of new general exploration licenses issued for metallic minerals Indicator 12 : increased from 1 in 2008 to 6 in 2012 Value (quantitative or 1 6 6 Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) According to Doing Business, number of tax payments per year reduced from Indicator 13 : 50 in 2008 to 34 in 2012, time required reduced from 958 hours per year to 500 hours per year and tax rate increased from 36\.6 percent of profit to 40\.9 percent Value 50 34 13 (quantitative or 958 500 380 Qualitative) 36\.6 40\.9 38\.8 Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl\. % Met for the first two sub-indicators but not for the third\. achievement) x  Cost of tax compliance reduced from 600 hours in 2009 to less than 600 hours Indicator 14 : in the next survey which is planned for 2014 Value Not available\. Next (quantitative or 600 less than 600 survey planned in Qualitative) 2014 Date achieved 12/31/2009 03/17/2013 Comments Actuals not available because indicator based on a periodic survey which has (incl\. % not been carried out yet\. achievement) Number of electronically filed returns increased from zero in 2008 to 3000 in Indicator 15 : 2012 Value (quantitative or 0 3000 531007 Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl\. % Met\. achievement) Share of green channel releases increased from zero percent of all declarations Indicator 16 : in 2008 to 30 percent in 2011 Value (quantitative or 0 30 percent 68\.7 percent Qualitative) Date achieved 12/31/2008 12/31/2011 12/31/2011 Comments Met\. (incl\. % achievement) Score for logistics performance index improved from 2\.14 in 2008 to 2\.59 in Indicator 17 : 2012, customs score improved from 2\.1 to 2\.35 and timeliness score from 2\.67 to 3\.40\. Ranking on 'trading across borders' improved from 143 to 104 2\.14 2\.59 2\.56 Value 2\.10 2\.35 2\.27 (quantitative or 2\.67 3\.40 3\.07 Qualitative) 143 104 107 Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Not met but substantial progress made on the ranking in 'trading across (incl\. % borders'\. achievement) Number of individuals submitting an income and asset declaration form Indicator 18 : expressed as percent of the number required to submit increased to 100 percent in 2013\. Baseline figures were however not available Value (quantitative or Not available 100 percent 99\.7 percent Qualitative) Date achieved 03/17/2013 12/31/2012 Comments (incl\. % Not met but substantial progress made\. achievement) xi (b) Intermediate Outcome Indicator(s) Not applicable\. G\. Ratings of Program Performance in ISRs Second Development Policy Operation - P116451 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 03/17/2011 Satisfactory Highly Satisfactory 0\.00 Third Development Policy Operation - P122195 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/29/2012 Satisfactory Satisfactory 79\.94 H\. Restructuring (if any) Not applicable\. xii 1\. Program Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The main purpose of the Armenia Development Policy Operation (DPO) series was to provide support to the government in the context of the global financial crisis and to strengthen competitiveness for rapid growth in the post-crisis period\. With a newly formed government under President Serzh Sargsyan, Armenia launched its second-generation reforms in 2008 to strengthen global competitiveness\. However, due to the global financial crisis, the economy contracted by 14 percent in 2009\. This negatively impacted revenues and the government faced the specter of a 20 percent across the board cut in expenditures\. The crisis also brought to the fore the binding constraints to growth which included weak conditions for fair competition, high administrative and regulatory costs to firms, insufficient and low quality infrastructure and under-investment in human capital\. The DPO series was initiated against this backdrop to help the government tide over the crisis and as part of a longer term engagement on growth and competitiveness\. 2\. When the first operation (DPO1) was appraised in May 2009, Armenia was reeling under the impact of the global economic crisis\. There was output contraction and a current account deficit in excess of 11 percent of GDP in 2008\. The peg to the dollar was abandoned in March 2009 resulting in a 20 percent devaluation of the dram\. However, the financial system was well capitalized, the fiscal deficit was low at 1\.3 percent of GDP in 2008 and public and publicly guaranteed debt was also low at 17\.8 percent of GDP\. The government confronted a challenging reform agenda related to the need to protect social expenditures in the face of declining revenues and spur growth by focusing on infrastructure development and alleviation of private sector and governance constraints\. In this context, DPO1 focused on protecting the poor and laying the groundwork for strengthening competitiveness\. This included measures to increase funding for social safety nets, strengthening of the financial sector, reduction in costs of business registration, improved public financial management and enhanced public sector efficiency\. 3\. By the time the second operation was appraised in October 2010, a fragile recovery was underway with growth of 2\.8 percent in the first three quarters of 2010 but Armenia still confronted difficult social and economic realities\. Nearly 40 percent of households suffered from lost or reduced wages, farm income and remittances\. The incidence of poverty rose\. The crisis impact also revealed the urgency of improving competitiveness, especially in the tradable sectors\. In addition, lower revenues because of the economic downturn coupled with fiscal stimulus spending led to a widening of the fiscal deficit to 7\.6 percent of GDP in 2009 and to an increase in government debt to 40\.2 percent\. With economic recovery, medium-term fiscal consolidation was required while safeguarding crucial social and infrastructure programs\. Thus, DPO2 continued support for government measures to maintain social spending and strengthen competitiveness to revitalize growth prospects\. The operation supported greater human capital development, formulation of a new mining code, modernization of telecommunications, and improvements in tax and customs compliance\. 4\. When the third operation was appraised in December 2011, recovery was underway and growth was expected at 4\.6 percent during the year\. However, the recovery remained fragile in the context of Armenia’s vulnerability to the Eurozone crisis, with trade, remittances and FDI inflows serving as the main channels for transmitting turbulence\. Some progress was made on fiscal consolidation with the deficit declining from 7\.6 percent of GDP in 2009 to 4 percent in 2011\. However, this was achieved by reducing expenditures with limited improvements in revenue collection\. Both poverty and inequality also increased significantly in the wake of the crisis\. Consequently, DPO3 continued supporting the reform program under the 1 two broad pillars of enhancing social and human capital expenditures and improving conditions for post-crisis growth and recovery\. In particular, it built on the approved pieces of legislation including the Mining Code, Competition Law and Law on Public Service\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators 5\. The original Program Development Objective (PDO) was to address vulnerability by protecting the poor and supporting greater human capital development, while improving competitiveness by alleviating a selected set of private sector and governance constraints\. The DPO series supported the government’s reform program under two pillars: (i) Address vulnerability by protecting the poor and supporting greater human capital development to ensure that the poor are not unduly affected by the global crisis and to improve the quality of labor resources in the long-term\. This would be enabled by strengthening the effectiveness and efficiency of social nets, improving the quality and management of higher education and enhancing the preschool system, and providing more affordable health services by reforming health financing and expanding service delivery\. (ii) Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance\. This would be achieved by improving the business environment, strengthening the regulatory environment in infrastructure, promoting sustainable use of energy and enhancing public sector efficiency\. The main outcome indicators focused on: Address vulnerability by protecting the poor and supporting greater human capital development (i) Share of social protection and pensions in total spending increased to 27\.2 percent in 2011 from 26\.2 percent in 2008\. (ii) Coverage of the poor by the Family Benefits (FB) program increased to 50 percent in 2011 compared with 34 percent in 2007\. (iii) Leakage of FB resources to the non-poor reduced from 28\.8 percent in 2007 to 20 percent in 2011\. (iv) Consolidated government spending on preschool education increased from AMD 7\.5 billion in 2008 to AMD 10\.9 billion in 2011\. (v) Health spending as a share of GDP increased from 1\.4 percent in 2008 to 1\.8 percent in 2011\. (vi) Utilization of health services by poor increased from 16 percent in 2008 to 20 percent in 2011\. Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance (vii) Capital adequacy ratio increased from 27\.5 percent in 2008 to 30 percent in 2012\. (viii) According to the Doing Business report, time required to start a business decreased from 17 days in 2008 to 3 days in 2012 and the cost reduced from 3\.6 percent of per capita income to 2\.0 percent over the same time period\. (ix) The disclosure index under ‘Protecting Investors’ in the Doing Business report increased from 5 in 2008 to 7 in 2012\. Investor protection index also increased from 5 to 7\. 2  (x) Monthly cost for broadband internet access for 1 Mbps decreased from US$98 in 2008 to US$49 in 2012 and broadband internet penetration increased from 0\.16 subscriptions per 100 inhabitants to 0\.32 during the same period\. (xi) Number of payments per year under ‘Paying Taxes’ in the Doing Business report reduced from 50 in 2008 to 34 in 2012, the time in hours per year reduced from 958 to 500 and tax rate increased from 36\.6 percent of profit to 40\.9 percent\. (xii) Cost of tax compliance reduced from 600 hours in 2009 to less than 600 hours in the next survey which is planned for 2014\. (xiii) Share of green channel releases increased from zero percent of declarations in 2008 to 30 percent in 2012\. (xiv) Overall score for the logistics performance index improved from 2\.14 in 2008 to 2\.59 in 2012, the score for customs improved from 2\.1 to 2\.35 and for timeliness the score improved from 2\.67 to 3\.40 over the same period\. (xv) Budget for 2012 approved by the National Assembly in program form\. (xvi) Improvements in selected PEFA indicator targets from the PFM reform strategy\. (xvii) Number of individuals submitting an income and asset declaration form expressed as percent of the number required to submit increased to 100 percent in 2012\. Baseline figures were however not available\. (xviii) 10 percent of civil servants compensated according to performance-based criteria by end-2011 from zero in 2008\. 1\.3 Revised PDO and Key Indicators, and Reasons/Justification 6\. In the course of the DPO series, the program development objectives did not change though some adjustments were made within the two pillars\. The overarching PDO for all three operations was to address vulnerability by protecting the poor and supporting greater human capital development, while improving competitiveness by alleviating a selected set of private sector and governance constraints\. The two pillars also remained relevant through the three operations, although some adjustments were made within the pillars in view of emerging fiscal pressures and some reforms getting subsumed under other projects\. (i) The DPO series supported reforms in the following policy areas: social protection, education and health under the first pillar and private sector development, public financial management and public sector management under the second pillar\. (ii) The policy areas under DPO2 remained the same\. However, under education, instead of dealing with the preschool education system as a whole, the government decided to focus only on a specific component of it because of fiscal pressures\. In addition, under public financial management, greater specificity and clarity was introduced to tax and customs administration in view of fiscal pressures and an ambitious initial agenda under customs which` envisaged a fully functioning ‘green channel’ in DPO2\. (iii) In DPO3, the policy areas did not change\. However, there were some additions, deletions and modifications within some of the policy areas to provide greater clarity to the triggers and streamline and consolidate the operation which was thinly spread out in several areas\. Most of the changes were under private sector development and public financial management\. 7\. To reflect changes within the policy areas of the DPO series, the key outcome indicators were also changed\. The final key outcome indicators of the DPO series included the following: 3 Address vulnerability by protecting the poor and supporting greater human capital development (i) Share of social protection and pensions in total spending increased to 27\.2 percent in 2011 from 26\.2 percent in 2008\. (ii) Coverage of the poor by the FB program increased to 40 percent in 2011 compared with 34 percent in 2007\. (iii) Leakage of FB resources to the non-poor reduced from 28\.8 percent in 2007 to 20 percent in 2011\. (iv) Consolidated government spending on preschool education increased from AMD 7\.5 billion in 2008 to AMD 10\.9 billion in 2011\. (v) Health spending as a share of GDP increased from 1\.4 percent in 2008 to 1\.7 percent in 2011\. (vi) Utilization of health services by poor increased from 16 percent in 2008 to 20 percent in 2011\. Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance (vii) Capital adequacy ratio maintained at the 2008 level of 27\.5 percent in 2012\. (viii) Number of enterprises using the one stop shop per year increased from zero in 2008 to 500 in 2012\. (ix) Time required to start a business decreased from 17 days in 2008 to 8 days in 2012 and the cost reduced from 3\.6 percent of per capita income to 2\.9 percent over the same time period\. (x) The disclosure index under ‘Protecting Investors’ in the Doing Business report maintained at the 2008 level of 5 in 2012\. Investor protection index also maintained at the baseline level of 5\. (xi) Monthly cost for broadband internet access for 1 Mbps decreased from US$98 in 2008 to US$49 in 2012 and broadband internet penetration increased from 0\.16 subscriptions per 100 inhabitants to 0\.32 during the same period\. (xii) Number of new general exploration licenses issued for metallic minerals increased from 1 in 2008 to 6 in 2012\. (xiii) Number of payments per year under ‘Paying Taxes’ in the Doing Business report reduced from 50 in 2008 to 34 in 2012, the time in hours per year reduced from 958 to 500 and the tax rate increased from 36\.6 percent of profit to 40\.9 percent during the same period\. (xiv) Cost of tax compliance according to the tax compliance costs survey reduced from 600 hours a year in 2009 to less than 600 hours at the time of the next survey\. The next survey is planned for 2014\. (xv) Number of electronically filed tax returns increased from zero in 2008 to 3,000 in 2012\. (xvi) Share of green channel releases increased from zero percent of declarations in 2008 to 30 percent in 2012\. (xvii) Overall score for the logistics performance index improved from 2\.14 in 2008 to 2\.59 in 2012, the score for customs improved from 2\.1 to 2\.35 and for timeliness the score improved from 2\.67 to 3\.40 over the same period\. Ranking on the ‘Trading across borders’ in the Doing Business report improved from 143 in 2008 to 104 in 2012\. 4  (xviii) Number of individuals submitting an income and asset declaration form expressed as percent of the number required to submit increased to 100 percent in 2013\. Baseline figures were however not available\. 1\.4 Original Policy Areas Supported by the Program (as approved): Social Protection 8\. The DPO series supported the government’s objective to protect the poor and vulnerable through strengthened social safety nets\. The global crisis had a sizeable impact on the poor in Armenia through sharp contractions in growth, employment and remittances\. Increased funding for social safety net programs, including FB and pensions, and improvement in the functioning of the FB program was intended to ensure that the poor and vulnerable were not overly affected by the global crisis\. Improving the targeting efficiency of the FB program was also intended to increase budget savings so as to expand coverage of the poor\. The DPO series supported these objectives by increasing or maintaining the shares of social safety nets, pensions and priority social expenditures in total spending\. Education 9\. Through legislative changes, the DPO series supported the government’s efforts at improving pre-school and tertiary education\. Access to education and quality assurance, especially at the preschool and tertiary level, are key challenges in the sector\. Reforms in these two sub-sectors are crucial for enhancing pro-poor outcomes and for improving workforce skills\. The DPO series supported these objectives through legislative changes to cover recurrent costs for the one year school readiness program and state accreditation of tertiary level institutions and academic programs in the country\. Health 10\. The DPO series enabled changes in the health sector to address the problems of high out-of pocket payments and high incidence of non-communicable diseases\. The high out-of- pocket payments were essentially the result of low level of government health spending\. Reforms in this sector were intended to further invest in human capital to improve workforce skills\. The DPO series enabled this through the issuance of a decree on non-communicable diseases, a comprehensive policy for copayments, and the launch of the performance based contracting system at the primary health care level\. Private Sector Development 11\. The DPO series supported the development of the private sector in an effort to lay the foundations for strong post-crisis growth\. Improving Armenia’s international competitiveness and deepening domestic competition were key priorities as spelt out in the government’s sustainable development program\. This was needed to lay a strong foundation for post-crisis growth in a context where medium-term growth was at risk due to the global crisis\. The DPO series supported these objectives through key actions in the financial sector, business registration and inspections, and a strengthened pro-competition institution\. Efforts were also aimed at improvements in information and communication technology, especially broadband Internet, infrastructure and sustainable use of energy and natural resources\. 5 Public Financial Management 12\. The DPO series supported the government’s efforts at reducing the administrative burden on businesses of complying with tax and customs rules\. This would contribute towards an improvement in the overall climate for doing business\. The DPO series supported these objectives through the approval of a Public Finance Management reform strategy, implementation of e-filing of tax returns and operationalization of a fully-functional ‘green channel’ under customs\. Public Sector Management 13\. The DPO series supported the government’s efforts at improving transparency in public service\. Prevention of conflict of interest in public service was crucial because of the business interests of several public sector officials and decision makers\. This was again an effort to improve the business environment by increasing transparency\. The DPO series supported this by approving a Law on Public Service\. 1\.5 Revised Policy Areas 14\. There were no changes to the policy areas across the three operations supported by the DPO series\. 1\.6 Other Significant Changes 15\. There were no other significant changes in the design, scope and scale, implementation arrangements and schedule or funding allocations\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance 16\. This DPO series was delivered in a timely manner and responded well to government needs in light of the crisis and thereafter\. As the DPO series advanced, the scope of the second and third operations were streamlined in response to evolving government needs and constraints\. While the number of prior actions for DPO2 remained the same, the scope for some of them was changed\. In addition, for DPO3, the number of prior actions was reduced from 10 to 8\. The first operation had eight` prior actions (Table 1 and 2)\. 17\. There was some variation between the triggers proposed initially and the actual prior action for subsequent operations\. The triggers were adjusted to make the program more manageable and focused on government priorities in the face of increasing fiscal pressures\. The government continued to advance structural reforms to address mitigation and recovery in the aftermath of the global crisis\. 18\. In the case of DPO2, three changes were made to existing triggers\. These included: (i) On education, the government preferred to focus on just a component of preschool education instead of the whole in light of fiscal pressures\. While this action reduced the scope of the original trigger, the sub-component that was chosen was deemed to have the largest social payoff\. (ii) On tax administration, the original prior action was revised to introduce greater specificity and clarity to the measure by decomposing it into specific steps identified as essential for full achievement of targets under DPO3\. This change 6  however did not affect program performance\. However, the piloting of the data processing center was dropped due to fiscal pressures and was to be supported through an investment operation\. (iii) On customs administration, the prior action on the introduction of the ‘green channel’ was modified to ensure that all legal pre-conditions were in place for full implementation\. The prior action on a fully functional green channel was moved from DPO2 to DPO3 because it proved to be too ambitious for DPO2 essentially due to delays in the procurement of the required software\. 19\. For DPO3, five triggers were dropped, three new triggers were introduced and modifications were made to an additional two triggers\. As a result, the total number of triggers was reduced from 10 to 8\. (i) Two triggers were dropped because they were no longer perceived as priorities by the government\. These included the legislative package detailing a regulatory framework for public-private-partnerships (PPP) and implementation of program budgeting\. The trigger on the social protection management information system was dropped because it was being supported by another Bank sponsored project\. Fiscal pressures deterred the government from going ahead with piloting the performance based remuneration system in selected ministries\. In addition, regulations for enhanced competition in the telecommunications sector were well under implementation and therefore the government wanted to focus on another area where reforms were needed but not much progress was made\. (ii) To further improve the business environment, the authorities requested for the introduction of two new prior actions: the first was to make the one stop shop for business registration fully functional in Yerevan and the second was to submit to the National Assembly amendments to the Law on inspections\. Another trigger was added on the mining sector to make it more attractive for FDI\. (iii) Under tax administration, it was difficult to operationalize the data processing centers due to fiscal pressures\. Hence, the data processing centers were to be supported through an investment project on tax administration\. Table 1: Schematic Illustration of Armenia’s DPO Series DPO1 DPO2 DPO3 Address vulnerability by protecting the poor and supporting greater human capital development Social safety nets 3 2 1 Education 1 1 Health 1 1 Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance Strengthen economic competition 2 1 2 Information and Communication Technology 1 Sustainable use of energy 1 1 Public financial management 2 3 2 Public sector management 1 Total Prior Actions 8 10 8 Source: World Bank 7  Table 2: DPO Prior Actions and Status Policy Action Status First Development Policy Operation Pillar I: Address vulnerability by protecting the poor and supporting greater human capital development Increase funding for social safety net programs, including FB and pensions in the 2009 budget law Fulfilled (relative to 2008), increase funding for unemployment insurance (based on actual numbers of unemployed), and protect from any reductions\. Restore funding for selected priority programs for the poor and vulnerable in health, education, and Fulfilled agriculture in accordance with the original 2009 budget\. Undertake a review of FB program beneficiaries and exclude non-eligible households to improve Fulfilled targeting efficiency, and use FB budget savings to expand program coverage of the poor\. Pillar II: Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance Strengthen banking sector surveillance and liquidity by undertaking frequent banking system stress Fulfilled tests and introducing enhanced reporting requirements, and making available liquidity to banks on a temporary basis through accepting a wider range of collateral\. Reduce costs of business registration by removing: minimum capital requirement, seal requirement, Fulfilled and charter approval\. Adopt an action plan with a timeline and key performance indicators for priority State Revenue Fulfilled Committee reforms, and commit to adequate funding from 2009-2011\. Prepare and publish official PEFA assessment to serve as a baseline for future reforms\. Fulfilled Submit to the National Assembly the Law on the Public Service, including conflict of interest Fulfilled provisions necessary to ensure the framework for further implementation\. Second Development Policy Operation Pillar I: Address vulnerability by protecting the poor and supporting greater human capital development Ensured protection of social safety nets, pensions, and priority social spending programs for the Fulfilled poor and vulnerable by maintaining their shares in the 2010 State Budget (as compared to 2009) approved by Parliament on December 10, 2009 and by making available, via the Government Decrees #275-N and 276-N/ dated March 25, 2010 and #1238/N dated September 9, 2010, an additional 6\.1 billion Armenian Drams for public spending for the poor and vulnerable\. Strengthened the management and monitoring of social safety net programs to improve targeting Fulfilled efficiency and increase public awareness by establishing an inter-agency working group through a Government Protocol Decree #23, dated June 17, 2010 and by the Order of the Minister of Labor and Social Issues # N86-A/1 dated July 9, 2010\. Issued Government Protocol Decree #38 dated September 30, 2010 adopting financing mechanisms Fulfilled to cover recurrent costs for the one-year school readiness program for 4\.5-5\.5 years old children\. Issued a Government Protocol Decree #3 dated January 29, 2010 on Non-Communicable Diseases Fulfilled (NCDs) and launched performance-based contracting at primary health care level, including defined NCD services\. Pillar II: Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance Submitted to the National Assembly through Prime Minister’s letter #01/23\.6/14392-10 dated Fulfilled November 16, 2010 revisions to competition-related legislation which aims at strengthening the autonomy and enforcement capacity of the State Commission for Protection of Economic Competition (SCPEC), and harmonizing key elements of the legislation with international best practice\. Conducted an assessment of the improvement in spectrum management and monitoring, discussed it Fulfilled with all spectrum stakeholders, and submitted to the Bank the minutes of the Borrower’s Board of the Broad Band and IT Security meeting of October 27, 2010, which includes key next steps in this area\. Submitted to the National Assembly through Prime Minister’s letter #01/24\.1/13011 dated Fulfilled November 10, 2010 a new Mining Code adhering to international best practice for fiscal, environmental, social, and licensing standards\. Achieved satisfactory progress towards business process reengineering (BPR) by: Fulfilled ï‚ Contracting an external firm to advice on the BPR (contract # 09/101) with KPMG dated February 26, 2010 and submitting to the Bank on November 1, 2010 the full draft report after 8  formal discussions within the State Revenue Committee\. ï‚ Issuing a Government’s Protocol Decree # 36 dated August 26, 2010 on the Relevant Legislative Changes to Streamline Tax Registration Procedures and sending to Parliament by the Government letter # 01/23\.2/1899-10 dated September15, 2010\. ï‚ Developing a Concept Note on Risk-based Audit Selection and adopting it through Government Protocol Decree # 23 dated June 4, 2010; and ï‚ Submitting to the National Assembly through a Government letter # 01/23\.2/3412-10 dated March 31, 2010 Amendments to Legislation or Procedures on the Review of high risk value added tax refund claims\. Approved by a Government Protocol Decree # 36 dated August 26, 2010, the necessary legislative Fulfilled framework for improving functioning of Green-Channel operation, including allowing the incorporation of the e-signature module to the trade world manager software\. Approved by a Government Protocol Decree #42 dated October 28, 2010, a Public Finance Fulfilled Management Reform Strategy\. Third Development Policy Operation Pillar I: Address vulnerability by protecting the poor and supporting greater human capital development Maintained social safety nets, pensions, and priority social spending programs for the poor and Fulfilled vulnerable by maintaining their shares in the 2011 budget\. Issued a Decree No\. 978 - N on the “Status of the State Accreditation of Tertiary Level Institutions Fulfilled and Academic Programs in the Republic of Armeniaâ€? including tertiary education quality assurance policy, standards, criteria, procedures and guidelines after consultation with stakeholders, institutions, and employers\. Implemented: (a) comprehensive policy for copayments by issuing a Decree 1762-N dated Fulfilled December 23, 2010; and (b) co-payment for emergency and gynecology programs, including expanded protection for the poor by issuing Decrees Nos\. 91-N dated January 27 2011, 101-A dated January 31, 2011, 232-A dated February 18, 2011, 314-A dated February 25, 2011, and 613-A dated April 6, 2011\. Pillar II: Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance Made the One Stop Shop for business registry fully operational in the city of Yerevan and Fulfilled established online linkages for enterprise registry in other municipalities\. National Assembly has adopted amendments to the Law on “Organizing and Conducting Fulfilled Inspections in the Republic of Armeniaâ€? dated June 23, 2011, to introduce risk-based approaches, reduce discretionary powers and increase transparency\. Implemented measures to ensure efficiency, transparency, and accountability in private sector Fulfilled participation, in accordance with the extractive industries transparency initiative principles and increased mining sector attractiveness to private investors by issuing: (a) a Decree of the Government No\. 1901-N dated December 29, 2011 on the “Approval of Procedure for Calculation of Royalty on Earnings from Salesâ€?; and (b) an Order of the Minister of Energy and Natural Resources No\. 249-A dated December 30, 2011 on the “Requirements for the Mine Closure Plan and Nature and Environmental Impact Assessment as an Attachment to the Application Requesting the Mineral Extraction Rightâ€?\. Has achieved further progress in Business Process Reengineering (BPR) by: (a) approving a BPR, Fulfilled satisfactory to the Bank, and the associated time bound action plan by the Government’s decree No 1017-N dated June 30, 2011 for its implementation; (b) putting in place fully operational system of risk based audits based on Government’s Decree No\. 1636 -N dated November 10, 2011; (c) implementing e-filing of tax returns pursuant to the Laws on Amendments to the Law on Taxes (No 194-N dated October 27, 2009, No 197-N dated December 8, 2010 and No 218-N dated June 23, 2011\. Has implemented a fully functioning “green channelâ€? to facilitate the operation of customs Fulfilled clearance by default (backed by post release verifications, controls, audits, and investigations) and to strengthen the customs preventive and enforcement capacity by amendments to the Customs Code dated January 15, 2011 (25-N)\. Source: Program Documents\. 9 2\.2 Major Factors Affecting Implementation: Relevant Program Content 20\. The program focused on areas of strategic importance and where the Bank had an established track record of strong technical capacity\. The consolidation and refocusing at the time of the second operation helped streamline the program and was well justified\. Despite the streamlining, focus on the key policy areas identified earlier was maintained\. Strong Analytical Underpinnings 21\. The design of the DPO series was based on substantive and wide-ranging economic and sector work\. For the first operation, these included the poverty and social assessments (2006-08), the economic report (2007), and the programmatic PERs conducted between 2005 and 2008 which focused on public expenditure management, infrastructure investments, energy efficiency and the efficiency of health expenditures and social protection programs\. Sectoral reports and client-driven policy notes (2007-08) were also instrumental\. These included reports on taxes and subsidies in energy, corporate governance reforms, competition policy and conflict of interest, customs, tax policy and tax administration reforms, public expenditure management and education sector reforms\. These policy notes also informed the preparation of the government’s own sustainable development program\. For the second and third operation, the program also drew on ongoing analytical work on poverty, results from the Doing Business report and BEEPS survey and programmatic public expenditure reviews and other fiscal work\. This analytical base was crucial for selecting reform areas to be supported by the DPO series and informing the design of policy reforms\. In addition, several technical assistance efforts were initiated or completed to inform policy dialog in DPO related areas\. The Armenian government also requested project preparation advance (PPA) for DPO2 which was used to support policy development and implementation in key areas of the program\. Political Stability and Government Ownership and Partnership 22\. For all the three operations under the DPO series, the same government was in place and there was political stability\. Government ownership was crucial for the success of reforms, especially in a program which required several legislative changes\. Emphasis on reforms which were critical for the government facilitated political ownership\. The DPO series also effectively responded to the changing needs of the government and was well aligned with the government’s own development agenda\. Global Economic Crisis 23\. The crisis introduced a sense of urgency for undertaking reforms to support recovery\. This enabled faster implementation of prior actions\. Armenia was affected by the global economic crisis mainly through three channels — trade, remittances and FDI and the economy contracted by over 14 percent in 2009\. The crisis also exposed weaknesses in the policy and institutional spheres like those in infrastructure provision, regulatory environment, public financial management, revenue mobilization and economic competitiveness\. Had Armenia capitalized more on its growth dividend of the early 2000s, it could have weathered the effects of the crisis better\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: 24\. Monitoring of the DPO series was based on continuous dialog with government counterparts to assess progress and address potential bottlenecks\. The whole process was 10 very collaborative and flexibility at both ends eased the process\. With Bank team members in the field, monitoring was done on an on-going basis and supported by TA and AAA activities\. 2\.4 Expected Next Phase/Follow-up Operation: 25\. Discussions on the next DPO series are already underway\. The new series will span three operations covering the period 2013-15 and will focus on strengthening competitiveness and ensuring sustainability for growth and prosperity\. The new DPO series will support Armenia’s growth agenda through inspection reforms, move towards e-governance, civil service reform, export development, environmental sustainability and reforms in public financial management\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: Satisfactory 26\. The DPO’s focus was aligned with the CPS\. The CPS for FY09-12 was prepared in the context of the global economic crisis and its impact on the country\. It therefore focused on the need to mitigate the adverse poverty effects of the crisis and lay the foundations for medium-term competitiveness and growth\. The DPO series was a central instrument of the CPS to continue and reinforce the policy dialog\. The CPS progress report reaffirmed the strategic focus and relevance of the two pillars\. A new CPS is expected to be prepared by September 2013\. 27\. The main objective of the DPO series and the pillars were highly relevant to the government’s own development strategy\. The government’s development strategy, the Sustainable Development Program (SDP) of October 2008, underwent significant change because of the global crisis and had to be refocused on crisis mitigation and recovery\. The unexpectedly large contraction of the Armenian economy in 2009 put into question the usefulness of continuing to implement the government’s SDP, originally focused on growth and competitiveness\. The government therefore refocused its efforts at crisis mitigation and growth recovery which were also reflected in the two pillars of the DPO series\. With recovery under way, the government has resumed long-term policy planning and is finalizing the Armenia Development Strategy (ADS)\. It is intended as a more operational document to guide policy decisions in the medium to long term\. The program’s objective is to reduce poverty through sustainable and accelerated economic growth\. Hence, focus on the two broad pillars continues\. 28\. The design and implementation arrangements for the DPO were also adequate\. The design was based on prior analytical work while implementation arrangements benefited from previous experience with Poverty Reduction Support Credits (PRSCs)\. 3\.2 Achievement of Program Development Objectives Overall Achievement of Objectives: Rating: Satisfactory 29\. On overall achievement of objectives, performance of the Armenia DPO series was satisfactory\. The satisfactory rating takes into account the completion of all prior actions for all the three operations, progress on most of the outcome indicators under the first pillar of social protection and human capital development and significant progress under the second pillar of enhancing competitiveness for growth\. Majority of the reforms are still in place and some of them like civil service and mining sector reforms are being advanced in the next DPO series\. 11 30\. Government efforts to maintain public spending on social protection and to improve targeting of safety net programs helped avoid worse social outcomes\. In 2009, poverty would have increased from the actual 34\.1 percent to 51\.7 percent in the absence of social safety net transfers\. The increase in 2010 would have been to 54\.2 percent instead of the actual 35\.8 percent\. Hence, poverty was substantially lower than what would have occurred in the absence of public policy measures\. While the amount of financial resources contributed through the DPO series was only a fraction of the total social spending of the government (annual government spending on social protection and pensions was about $630 million in 2011 compared with a total amount of $165 million for the 3 operations under the DPO series), an added benefit was the ability of the government to get additional donor support because of the program with the Bank\. 31\. Armenia’s growth recovery suggests that the government managed to strike the right balance between crisis management and structural reform\. The recovery from the 2009 recession is on track, but at risk from possible renewed instability in the global economy\. Real GDP expanded by 4\.7 percent in 2011, and growth reached 7\.2 percent in 2012, mainly supported by the mining sector and agriculture\. High prices for base metals have supported growth\. Increase in exports contributed to improving external balances but FDI inflows remained weak, in particular those from Russia\. Fiscal consolidation took place at a faster-than-expected pace\. The fiscal deficit declined to 2\.8 percent of GDP in 2011, well below the initial target of 4\.1 percent\. This was achieved mainly through expenditure compression in areas other than social spending, (primarily capital expenditures), while tax revenue collections kept up with the targets\. 32\. Policy reforms supported by the DPO series have contributed to the government’s success during 2009-12\. In particular they have: ï‚ Contributed to improved social outcomes in the face of economic slowdown (maintained social safety net spending (DPO1, DPO2 and DPO3) and improved targeting of the FB program (DPO1 and DPO2))\. ï‚ Improved the overall business environment (reduced cost of business registration (DPO1), revised competition related legislation (DPO2) and made one stop shop fully functional (DPO3))\. ï‚ Reduced the administrative burden of compliance with tax and customs rules (operationalized risk based audits and implemented e-filing of tax returns (DPO3) and made the customs green channel fully functional (DPO3))\. Recent Macroeconomic and Fiscal Trends 33\. Economic growth in Armenia rebounded strongly to 7\.2 percent in 2012 from 4\.7 percent in 2011\. The real value of Armenia’s output has now almost reached its pre-crisis level\. Output in most sectors surpassed the 2008 level, and only the construction sector is lagging\. Despite headwinds from the subdued international economic environment, external balances improved, and inflation remained low (Table 3)\. However, the 2010-12 economic recovery was buoyed by high international prices for copper and good weather conditions for agriculture\. During 2012, significant institutional, structural and economic reforms were targeted at improving the business environment, promoting exports, preparing for the introduction of the second pillar pension scheme, and improving tax legislation and administration\. 12  Table 3: Selected Economic Indicators, 2010-14 (In percent of GDP unless otherwise indicated) 2010a 2011a 2012e 2013e 2014p Nominal GDP (in billions of drams) 3,460 3,778 3,998 4,323 4,676 Nominal GDP (in millions of U\.S\. dollars) 9,260 10,142 9,955 10,352 10,976 Real GDP (growth in percent) 2\.2 4\.7 7\.2 5\.0 5\.0 GDP per capita (in U\.S\. dollars) 3,120 3,423 3,358 3,486 3,690 Consumer prices (12 month percent change, eop) 9\.4 4\.7 3\.2 4\.0 4\.0 Consumer prices (12 month percent change, average) 8\.2 7\.7 2\.6 3\.1 2\.7 Investment and savings Investment 33\.4 26\.1 23\.7 29\.6 29\.5 Public 5\.5 4\.6 3\.3 4\.0 4\.0 Private 27\.9 21\.5 20\.4 25\.6 25\.5 Savings 18\.6 15\.2 13\.1 20\.0 20\.1 Public 0\.5 1\.8 1\.0 1\.7 2\.2 Private 18\.1 13\.4 12\.1 18\.3 17\.9 Savings-investment balance -14\.8 -10\.9 -10\.6 -9\.6 -9\.4 General government finances Total revenue and grants 21\.6 23\.3 23\.2 23\.6 24\.3 Of which: Tax revenue 19\.3 20\.6 21\.5 22\.8 23\.5 Total expenditure (including net lending) 26\.6 26\.1 24\.7 26\.3 26\.5 Of which: Current expenditure 21\.1 21\.5 21\.4 22\.0 22\.0 Capital expenditure 5\.5 4\.6 3\.3 4\.3 4\.5 Overall fiscal balance -5\.0 -2\.8 -1\.5 -2\.7 -2\.2 Primary balance -4\.1 -2\.5 -0\.5 -1\.2 -0\.8 Primary balance (excluding grants) -5\.0 -4\.1 -1\.0 -1\.6 -1\.1 Total public debt 39\.9 42\.2 44\.4 43\.3 41\.9 Banking sector Reserve money (percent change, eop) -0\.8 32\.3 1\.9 -1\.0 \. Broad money (percent change, eop) 10\.6 23\.6 19\.6 13\.1 \. Credit to private sector (percent change, eop) 26\.7 35\.3 27\.6 \. \. Credit to private sector 28\.3 35\.1 42\.5 \. \. Velocity of broad money 3\.8 3\.4 3\.0 2\.8 \. External sector Current account balance -14\.8 -10\.9 -10\.6 -9\.6 -9\.4 Export of goods and services (in millions of US dollars) 1,937 2,407 2,491 2,800 3,322 Export growth (percent change) 45\.0 24\.3 3\.5 12\.4 9\.0 Import of goods and services (in millions of US dollars) 4,212 4,797 4,896 5,128 5,520 Import growth (percent change) 14\.4 13\.9 2\.1 4\.7 7\.6 Gross international reserves (in millions of US dollars) 1,866 1,932 1,799 1,585 1,646 Gross reserves (months of next year imports, eop) 4\.7 4\.7 4\.2 3\.4 3\.3 External public debt outstanding 34\.7 36\.4 37\.7 37\.2 35\.6 External public debt service to export ratio (in percent) 4\.7 4\.2 9\.8 15\.1 9\.6 Sources: Armenian authorities, IMF and World Bank staff calculations\. Note: a=actual; e=estimate; p=projection\. 34\. Fiscal policy was contractionary in 2012 leading to greater fiscal consolidation than envisaged\. Revenue collections were close to the revised target\. However, capital expenditures were lower because of delays in investment projects\. The estimated under-execution of capital expenditures was 0\.8 percent of GDP and this helped reduce the fiscal deficit to 1\.5 percent of GDP instead of the planned 3\.1 percent\. 13 Pillar I: Address vulnerability by protecting the poor and supporting greater human capital development Rating: Moderately Satisfactory 35\. On the first pillar under the DPO series, performance was moderately satisfactory\. Many of the outcome indicators (Table 3) could not be met because of fiscal pressures\. Table 4: Outcome Indicators for the First Pillar (In percent except where otherwise indicated) Indicator Baseline (2008) Target (2011/12) Actual 2011/12 Comments Social Safety nets Social Protection and pensions as a 26\.2 27\.2 26\.0 (2011) Not met\. share of total spending Coverage of the poor by the FB 34\.0 (2007) 40\.0 37\.0 (2011) Not met but program progress made\. Leakage of FB resources to the non- 28\.8 (2007) 20\.0 25\.6 (2011) Not met but some poor progress made\. Education Consolidated Government spending 7\.5 bln AMD 10\.9 bln AMD 10\.7 bln AMD Not met but on preschool education (2011) substantial progress made\. Health Health spending as a share of GDP 1\.4 1\.7 1\.7 (2011) Met\. Utilization of health services by poor 16 20 Not available This indicator could not be calculated by the government or the Bank team\. Source: World Bank and Ministry of Finance Social Safety Nets 36\. The DPO series supported measures aimed at initially increasing funding for social safety net programs and later maintaining that expenditure as a share of the total\. Other measures included restoring funding for selected priority programs for the poor in health, education and agriculture and improving the targeting efficiency of the FB program\. The government has been able to broadly maintain social safety net expenditures at the 2008 level but could not meet the DPO series target of 27\.2 percent of total spending because of emerging fiscal pressures\. However, the government is committed to adhering to its Medium Term Expenditure Framework (MTEF) targets on social safety net spending\. 37\. Progress has also been made in strengthening the management and monitoring of social safety net programs to improve targeting efficiency\. Cross-checking of data declared by the families registered in the FB system is underway by comparing them with the data available in the databases of other ministries\. From January 2011 a requirement was introduced to produce a reference from the state registry of population for determining family composition in order to be registered under the FB program\. Changes to the registration process have led to improved targeting as a result of which leakage of FB resources reduced to 25\.6 percent in 2011 from 28\.8 percent in 2007\. This was however below the targeted level of 20 percent\. Families of deceased military personnel were removed from the FB program in 2011 and were instead paid from 14 veteran benefits\. If one excluded these families, coverage under the FB program would fall to 33\.6 percent\. Education 38\. Armenia continued its efforts at improving human capital by addressing the two weakest links in the education sector – preschool and tertiary education\. In preschool education, DPO2 supported the adoption of financing mechanisms to cover recurrent costs for the one year school readiness program for 4\.5-5\.5 year old children\. DPO3 supported efforts aimed at the accreditation of tertiary level institutions and academic programs\. 39\. On preschool education, the objective was primarily to increase the enrolment rate which had decreased to about 20 percent in the 1990s\. As a result, most of the children were coming to primary schools without any prior preparation or social skills\. The law supported by DPO2 enabled the provision of budget allocations for funding preschool education in rural areas and small towns\. As a result, the enrolment rate increased to 45 percent in 2011 and the target is to reach 80 percent by 2015\. Budget allocations in this area have been sufficient to cover costs, mainly salary payments\. Government spending on preschool education has increased but was a little under the target of AMD 10\.9 billion\. 40\. Governance and quality assurance in tertiary education are weak and lead to pervasive corruption\. This affects access to tertiary education as well as the suitability of the graduates to the requirements of the job market and mobility in other European countries\. The law supported by DPO3 set in motion the process of institutional and program accreditation\. There are 22 public and 40 private universities in Armenia\. The accreditation process, which takes two years, has been completed in five universities so far – three state and two private\. The Armenian National Quality Assurance Agency (ANQA) is taking a lead on this initiative and this is an on-going exercise\. Health 41\. The DPO series supported reforms in the health sector which aimed to provide more affordable services to the poor and increase access\. There were three important reforms which included strengthening of efforts aimed at prevention of non-communicable disease (NCD), launching of the performance based contracting system and introduction of copayments\. DPO2 supported the adoption of a protocol on NCD and launched performance-based contracting at the primary health care level\. This was intended to reduce the incidence of NCD and reform health financing\. DPO3 supported the adoption of copayments in an effort to reduce out-of-pocket spending and increase resource availability for the health care system\. Alongside, the government has also increased health spending from 1\.4 percent of GDP in 2008 to 1\.7 percent in 2011\. 42\. The adoption of the protocol on NCD has resulted in strengthening preventive interventions in the areas of diabetes, cardio-vascular diseases and oncology\. All primary health care centers have guidelines on the required interventions for screening for these diseases, including blood tests that are needed\. The government is in the process of expanding screening on NCDs to a nation-wide level and this will be implemented over the next 3-4 years\. 43\. The performance based contracting system was initiated in 2010 with health care centers being evaluated on the basis of 10 indicators\. This was increased to 30 in 2013\. The system has increased the reporting requirements of health centers which need to give monthly updates but the incentives are working well\. At the end of the year, those institutions which perform well on the indicators get additional budget funding which results in a 10-15 percent 15 increase in salaries of health care professionals\. Around 60 percent of primary care physicians got bonuses in 2011 and the number increased to 94 percent in 2012\. 44\. The DPO supported the system of copayments which increased government revenues, salaries of health care professionals and non-budget funding of healthcare institutions\. Copayments of about 50 percent were introduced for emergency and gynecology programs in 2011 and coverage was expanded to oncology and sexually transmitted diseases in 2012\. To avoid the impact of copayments on the poor, some of them (those with a score of 36 in the FB program, or about 3 percent of the population) were exempted\. While the original outcome indicator could not be calculated, data on the lowest consumption quintile shows that healthcare utilization by this group largely stagnated between 2008 and 2011\. Outpatient healthcare utilization rate by the lowest quintile was 10\.4 percent in 2008 and 10\.7 percent in 2011\. Inequality in health care utilization in Armenia is the second highest in the ECA region\.1 45\. However, introduction of copayments was done under the DPO series without sufficiently protecting the poor\. There was a long-standing policy dialogue around a proposal to expand the exempt population (e\.g\., by changing the eligibility score from 36 to 30, which would have raised the exempt population to about 10%), but ultimately no changes were made\. As a result, some of the poor (with a score between 30 and 36 in the FB program) had to pay their share of copayments\. In order to exempt all the poor from copayments, coverage might be enhanced to a score of 30 in the FB program under the new DPO series\. In addition, one of the outcome indicators–utilization of health services by the poor–could not be calculated because neither the government nor the bank team was aware of the baseline definition and calculation\. Hence, the figure could not be replicated for 2011/12\. Pillar II: Strengthen competitiveness for sustained post-crisis growth by providing a more favorable private sector environment and strengthening governance Rating: Satisfactory 46\. On the second pillar under the DPO series, performance was satisfactory\. The country made significant improvements in its business climate, adopted a new mining code and enhanced public financial management\. Targets for some of the indicators (Table 4) were not met but progress was made\. Economic Competitiveness 47\. Strengthening competition, both international and domestic, is an integral part of the government’s development strategy to support medium-term growth prospects\. The DPO series supported this agenda through various actions in all the 3 operations\. DPO1 ensured a fortified financial sector and reduced costs of business registration\. DPO2 enabled revisions to competition related legislation while DPO3 made the one stop shop for business registry fully functional and supported amendments to the law on conducting inspections\. 1 Regional Health Report, World Bank 2013, Forthcoming 16  Table 5: Outcome Indicators for the Second Pillar Indicator Baseline Target Actual for Comments (2008) (2011/12) 2011/12 Economic Competition Capital adequacy ratio (percent ) 27\.5 27\.5 18\.3 (2011) Not met\. 17\.4 (Oct- 2012) Number of enterprises using the one stop 0 500 16,135 Met\. shop per year “Starting a businessâ€? (according to Doing Business Reports 2009 and 2013) Time (days) 18 8 8 Met\. Cost (percent of per capita income) 3\.6 2\.9 2\.5 Met\. “Protecting Investorsâ€? (according to Doing Business Reports 2009 and 2013) Disclosure index 5 5 6 Met\. Investor protection index 5 5 6\.7 Met\. Information and Communication Technology Monthly cost of broadband Internet access US$98 US$49 $10 Met\. for 1 Mbps (ADSL) (basket) Broadband Internet penetration (subscriptions 0\.16 0\.32 13\.39 Met\. per 100 inhabitants) Mining/Sustainable use of energy Number of new general exploration licenses 1 6 6 Met\. issued for metallic minerals Public Financial Management “Paying taxesâ€? (according to Doing Business Reports 2009 and 2013) No\. of payments per year 50 34 13 Met\. Time (hours per year) 958 500 380 Met\. Tax rate (percent of profit) 36\.6 40\.9 38\.8 Not met\. Cost of tax compliance according to the tax 600 Less than N/A Next survey planned compliance costs survey (hours per year) (relates to 600 for 2014\. FY2009) Number of electronically filed returns 0 3000 531,007 Met\. Share of green channel releases (% of all 0 30 68\.7(2011) Met\. declarations) Logistics Performance Index (according to World Bank’s LPI 2007 and 2012) Overall score 2\.14 2\.59 2\.56 Not met\. Customs 2\.10 2\.35 2\.27 Not met\. Timeliness 2\.62 3\.40 3\.07 Not met\. “Trading across Bordersâ€? (according to 143 104 107 Not met but Doing Business Reports 2009 and 2013) substantial progress made\. Public Sector Management Number of individuals submitting an income N/A 100% (2013) 99\.7% Not met but and asset declaration form expressed as substantial progress percentage of the number required to submit made\. Source: World Bank and Ministry of Finance 48\. In the wake of the crisis, DPO1 sought to strengthen the banking system through increased surveillance, enhanced reporting requirements and frequent stress tests\. In the current environment, with the crisis behind them and recovery underway, the frequency of these 17 reporting requirements and stress tests has gone down\. The capital adequacy ratio (CAR) which was targeted at 27\.5 percent in 2012 was however on the higher side\. As the economy recovered and credit off-take improved, the CAR decreased\. Credit growth was 40 percent in 2012 and the CAR was 17\.4 percent in October 2012 which was close to the central bank targeted level of 17 percent\. In addition, increased loan-loss provisioning and higher risk weights were imposed on foreign exchange loans to stem the rapid pace of dollarization in the economy\. 49\. The revisions to competition related legislation under DPO2 strengthened the autonomy and enforcement capacity of the State Commission for Protection of Economic Competition (SCPEC)\. Fines for anti-competitive practices were increased and capacity building and outreach efforts are underway for journalists, businesses and civil society organizations\. However there are some outstanding issues in terms of the powers of SCPEC to carry out full-fledged inspections, technical capacity of the staff and inadequacy of resources allocated to the agency\. 50\. Over the course of the DPO series, the government made improvements in the regulatory environment for businesses\. DPO1 enabled the removal of minimum capital requirement, seal requirement and charter approval while DPO3 operationalized the one-stop- shop for business registry\. All companies registered through the one-stop-shop in 2012\. As a result, Armenia’s ranking on ‘starting a business’ improved\. DPO3 also supported amendments to the law on inspections, the implementation of which has not been very successful\. There has been significant opposition to the implementation of risk-based inspections by the 18 inspection agencies\. Development of the risk criteria requires an extensive database and methodology and is different for each inspection agency\. Checklists are currently under preparation and the frontrunner in risk based audits has been the tax agency where the system has been implemented\. Information and Communication Technology 51\. DPO2 supported improvements in the regulatory environment and infrastructure provision in the area of broadband internet access\. This increased competitiveness in the sector with significant gains for the end-users\. New wireless broadband service providers used more advanced technologies and expanded coverage, resulting in a significant reduction in costs\. The coverage of broadband has increased to 98 percent of the population who can potentially have access\. Subscriptions have increased to nearly 13 per 100 inhabitants and the cost of internet access for 1 Mbps has come down from US$98 in 2008 to US$10 in 2012\. Mining 52\. The DPO series supported the government’s efforts to change the mining code in an effort to improve competitiveness in the sector\. The second and third DPO helped develop and approve the new mining code which provided for appropriate licensing and fiscal, environmental and social regimes\. Most of the legwork in terms of developing and drafting the mining code was done under DPO2 with significant TA from the Bank while the approval took place under DPO3\. The simplification and clarification of processes resulted in an increase in the number of new exploration licenses issued\. The mining department is however facing an uphill task implementing the new code which requires supporting secondary legislations, capacity building for implementation and training within the government and for key stakeholders\. 60 supporting legislations have already been adopted and around 10 more are in the pipeline\. The government needs additional TA and financial resources for implementation of the new code\. It has run into problems with some of the provisions of the code or lack thereof\. For example, the new mining code does not address the issue of treatment of existing licenses\. In addition, the environmental impact assessment (EIA) law that was passed was considerably watered down during discussions 18 in Parliament due to which the new DPO series includes triggers to pass a new EIA law and operationalize a one-stop shop for mining licenses in line with environmental and social guidelines\. It also seeks to amend the law on waste to reflect provisions in the new EIA law\. Public Financial Management 53\. The DPO series supported measures aimed at reducing the administrative burden of tax and customs compliance and better public financial management\. DPO1 supported reforms in the State Revenue Committee (SRC) and preparation and publishing of the PEFA\. DPO2 furthered SRC reforms and supported streamlining of tax registration procedures, development of risk based audit and amendments to procedures on the review of high risk tax refunds\. It also enabled legislative approval for the improved functioning of the customs green channel and the Public Finance Management Reform Strategy\. DPO3 operationalized risk based audits, e-filing of tax returns, and ensured a fully functioning customs green channel\. 54\. Reforms in the SRC, while slower than envisaged, were satisfactory\. Improvements are underway to increase the efficiency of business processes and simplify tax administration, improve and harmonize the standard of the tax inspectorates and increase the level of services\. The number of inspectorates has been brought down to 24 currently and there is an effort to reduce it further\. Several processes have been automated and nearly 99 percent of tax returns are now filed electronically\. 11 service centers are in operation in the country out of which seven are in Yerevan and these centers cater to tax and customs needs of businesses\. As a result, there has been significant improvement in the ease of paying taxes though the total tax rate target could not be met\. The tax compliance cost survey will be undertaken only in 2014 and we do not have any measure of current performance\. 55\. The second and third operation under the DPO enabled a fully functioning green channel by default in customs\. Amendments made to the Customs Code under DPO2 supported operationalization of the green channel under DPO3\. To reduce the interface between trade operators and customs officers, the government also upgraded the customs Trade World Manager (TWM) software to allow for on-line submission of customs declarations\. Amendments to the TWM software functionalities facilitated the green channel by default including e-payment and e- filing applications though e-signature is still not functional\. This reduced the time required for customs formalities thereby improving customs administration\. These efforts have resulted in significant improvement in Armenia’s ranking in ‘trading across borders’ though it fell short of its targeted ranking by a small margin\. Further efforts are intended in the area of improving the post-release verification process, assessing cost effectiveness of physical inspections and simplification of border crossing\. 56\. Progress continues on the public finance management reform strategy adopted under DPO2\. The government is essentially focusing on moving towards program budgeting and monitoring and assessment of program performance\. Public Sector Management 57\. The conflict of interest legislation supported by DPO1 was intended to increase public sector transparency and governance in an effort to improve the business environment\. It was submitted to the National Assembly under DPO1 but was adopted only when DPO3 was under preparation\. It faced stiff opposition from vested interests in public service and hence took a long time and persuasion to be finally adopted but with modifications\. It limited the scope to 500 top ranking officials and did not specify consequences for failing to declare\. Disclosure of income and assets is now required from the top 500 political officials and 19 their close relatives and is monitored by the ethics committee\. Declarations were made by all these 500 officials in 2012 with the exception of two\. 3\.3 Justification of Overall Outcome Rating Rating: Satisfactory 58\. The program development objective set at the time of approval of the first operation still remains highly relevant\. The overall DPO series has achieved satisfactory progress in the areas targeted\. Despite the uncertainties in the global environment, the reform agenda of the government was not compromised\. Some adjustments were made to the scope at the time of the second operation which were well justified in the face of emerging priorities and constraints\. The program was largely implemented as planned and the foreseen program outcomes were achieved\. 59\. Overall, the DPO series has satisfactorily addressed various reforms under the two pillars\. It has supported protection of the poor and greater human capital development\. It has also, to an extent, strengthened competitiveness for sustained post-crisis growth\. While the outstanding reform agenda is still significant, the institutional and policy foundations for future reforms appear stronger in each of the pillars\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 60\. Notwithstanding significant progress during the last decade, poverty reduction will continue to be one of the most important goals for Armenia in the medium term\. The poor and vulnerable rely heavily on government transfer programs\. Public transfers account for 60 percent of the income of the extreme poor either in the form of pensions or FB program\. Some of the gains in poverty reduction over the past few years were reversed as a result of the crisis with the poverty rate increasing from 27\.6 percent in 2008 to 35\.8 percent in 2010 despite support through the DPO series and from other donors\. 61\. The DPO series attempted to address the poverty and human capital growth agenda by supporting the following: (i) Measures aimed at increasing and then maintaining social safety net expenditures as a percent of total spending; (ii) Undertaking reforms in health and education to support greater human capital development (preschool and tertiary education, NCD interventions, copayments and performance based contracting); (iii) The government’s policies which addressed crisis mitigation and growth recovery\. The government also undertook fiscal consolidation which is crucial for a sustainable recovery of growth\. These efforts will in turn facilitate employment creation and poverty reduction over time\. (b) Institutional Change/Strengthening 62\. Technical assistance activities under the umbrella DPO series have had a more direct impact on institutional development than the loans per se\. The DPO series supported several reforms aimed at institutional strengthening across the three operations and the two pillars\. The Bank (including IFC) has provided technical assistance in key areas (Table 5), such as social protection, public financial management (including revenue administration), mining taxation and 20 private sector development\. In addition, several Bank investment projects or donor supported programs are helping with institutional capacity building in key policy areas covered by the DPO\. Table 6: Examples of AAA and TA Area AAA or TA Financial Crisis Social implications of global economic crisis Public Financial Management Assistance in conducting the PEFA Programmatic PERs Training on debt sustainability analysis and medium term debt strategy TA provided by EU on customs and trade issues Social Assistance Programmatic poverty work Private Sector Development IFC investment climate advisory services Tax compliance survey Strengthening regulatory framework for competition policy Assistance with development of energy efficiency action plan Public Sector Management Institutional and governance review Source: World Bank (c) Other Unintended Outcomes and Impacts 63\. The DPO series provided continuity to and strengthened Bank-government relations in the area of policy based lending\. It also helped the government tide over the crisis through monetary support and technical assistance\. The DPO series also laid the groundwork for the next DPO program and some investment loans in the area of tax administration, health and education\. 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable\. 4\. Assessment of Risk to Development Outcome Rating: Moderate Economic risks 64\. The impact of the global economic crisis on growth in Armenia was a significant risk for DPO1 and DPO2 but it moderated during DPO3\. The government’s policy responses to the deteriorating macroeconomic situation proved to be an important mitigating factor\. In addition, the government actively sought donor assistance and intensified macroeconomic monitoring\. In the context of the global crisis, the economic risks were to a large extent beyond the government’s control\. Nearly 50 percent of Armenia’s exports are to the EU and Russia is an important source of remittances for the country\. A worsening in the external environment would therefore adversely impact trade, remittances and FDI and thereby slow down growth\. Political risks 65\. Throughout the DPO series, political risks were moderate\. The key risks arose from the possibility of opposition (to reforms) by vested interests gaining political support\. Program outcomes could also be undermined if key pieces of legislation were not approved or were changed substantially during Parliamentary discussions because of business interests of key politicians\. This was essentially mitigated through increased outreach efforts by the government 21 to gain political support for the reforms\. These efforts were targeted at beneficiaries (poor and middle class), parliamentary commissions and Civil Society Organizations (CSOs)\. Institutional capacity risks 66\. The risk of insufficient institutional capacity that would impede the reform process in Armenia was moderate\. Reform efforts could be compromised by weak implementation capacity (particularly at the middle management levels of the civil service) or if the legislative/regulatory changes were not followed up by proper institutional building in implementing agencies\. Sometimes technical and administrative capacity in some line ministries was weaker than desirable\. Despite this, progress on reforms was sustained\. The DPO series helped to strengthen technical/administrative capacity through analytic and advisory services and through technical assistance\. It also helped bring in other donors who helped the government in specific areas\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 67\. The Bank’s performance in ensuring quality at entry was satisfactory and was aided by several factors\. These included strong analytical underpinnings, continuous policy dialog and technical assistance\. The work was also well coordinated within the Bank’s multi-sectoral team\. However, the original results framework was quite ambitious and had to be pared down in subsequent operations\. The Bank team nevertheless managed to flexibly adjust the program to changing government priorities and constraints\. As a result, the DPO series was delivered in a timely manner\. (b) Quality of Supervision Rating: Satisfactory 68\. Supervision was embedded in the preparation of each DPO and this was the reason why all prior actions were completed before the operations went to the Board\. The groundwork for subsequent DPOs entailed continuous dialogue with the Government and follow- up on triggers, which served as the de facto focus of supervision\. With team members in the field, monitoring of progress towards outcome indicators was done on a relatively continuous basis\. The process was supported by various ministries and data was provided by the authorities when requested\. In addition, the dialogue with the government was supported by technical assistance activities directly or indirectly supported by the DPO series\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 69\. Bank performance both at entry and supervision benefited from the close linkages with the government’s own priorities\. As a result, there was strong ownership of reforms which limited the scope of delays and deviations\. This was complemented with a responsive and flexible Bank team\. 22 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 70\. The government’s performance was satisfactory and was driven by a sense of ownership and commitment to the implementation of the reform program\. Prior experience with PRSCs had helped establish the machinery for implementation and monitoring arrangements\. The technical capacity of higher level staff was adequate and key counterparts at the Ministry of Finance facilitated communication with other ministries and followed up with other units on the status of triggers and for purposes of monitoring\. There was also support from the political leadership, especially the prime minister, who took active interest in the progress of the DPO series\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 71\. The Ministry of Finance was the key implementing agency and played a consistent and effective role in maintaining progress on the triggers\. The Ministry also used the DPO series to strengthen inter-ministerial coordination\. Nevertheless, the performance of implementing line agencies was mixed\. While some agencies were very responsive, others were less so\. There were also differences in the technical capacity of staff in the different line agencies\. However, the overall performance was satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 72\. The government was attentive to the prior actions needed for each operation and cooperated with the Bank on progress and monitoring\. As a result, the operations were completed without any major obstacles and the Bank and the borrower worked closely through the DPO series\. 6\. Lessons Learned 73\. Meaningful reforms may take years to complete and need to be followed up with continuous policy dialog\. The development and adoption of the mining code in Armenia, for example, was an integral part of DPO2 and DPO3\. However, there is still a big outstanding agenda on the implementation of the new code and as a result it is a core component of the new DPO series as well\. Similarly, the Law on Public Service was submitted to the Parliament at the time of DPO1 but was approved only when DPO3 was under preparation\. Hence, continuous follow-up and technical assistance, if needed, is required to ensure sustenance of difficult reforms\. 74\. Outreach efforts can be effective in overcoming opposition to crucial reforms\. The government of Armenia used it very effectively while trying to get the National Assembly to adopt the law on ‘conflict of interest’\. These outreach efforts were targeted at beneficiaries (poor and middle class), parliamentary commissions and Civil Society Organizations (CSOs) and finally led to the adoption of the law\. 75\. A well-designed development policy operation can be effectively used to garner additional donor resources\. In the wake of the crisis, Armenia’s engagement with the Bank in 23 2009 under the DPO series helped it to get additional funding and technical assistance from other donors like the Asian Development Bank, the European Commission, and the United States Agency for International Development\. 76\. Result indicators need to be measurable, relevant, and with an appropriate level of ambition\. Using international rankings is inappropriate because rankings are determined by relative performance and do not depend solely on the individual government’s efforts\. In addition, result indicators should be monitorable on an annual basis and should not be based on periodic surveys\. This was the case for the cost of tax compliance survey which was undertaken in 2009 and is now scheduled for 2014\. Indicators should also be clearly defined (what do we mean by ‘poor’) and realistic – maintaining an existing CAR in the banking sector is understandable at the time of crisis but targeting a CAR of 28 percent over the medium-term is not very realistic\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 77\. The Government of Armenia provided comments on the draft ICR\. Most of these comments were on data updates and revisions\. All these suggestions have been incorporated in the main text of the report\. The comments are presented in Annex 4\. (b) Co-financiers Not applicable\. (c) Other partners and stakeholders Not applicable\. 24 Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Development Policy Operation - P115626, P116451, P122195 Responsibility/ Names Title Unit Specialty Lending Adriana Maria Eftimie Operations Officer CSBCI Operations Aghassi Mkrtchyan Consultant IEGPS Consultant Alexander Astvatsatryan Sr\. Procurement Specialist ECSO2 Procurement Anarkan Akerova Counsel LEGCF Counsel Ani Balabanyan Sr\. Energy Specialist ECSEG Energy Arman Vatyan Sr\. Financial Management Finance Management ECSO3 Specialist Arsen Nazaryan Operations Officer CEUIC Operations Arthur Kochnakyan Energy Economist ECSEG Energy Darejan Kapanadze Sr\. Environmental Specialist ECSEN Environmental Specialist Public Sector Management ECSP4 Public Sector Management Davit Melikyan Specialist Enrique Fanta Ivanovic Sr\. Public Sector Specialist LCSPS Public Sector Specialist Gohar Gyulumyan Sr\. Economist ECSP1 Economist, Co-TTL Ida Car Finance Specialist CTRLA Financial Specialist Jens Kromann Kristensen Lead Public Sector Specialist AFTP3 Public Sector Specialist John Strongman Consultant Consultant Joseph Formoso Sr\. Finance Officer CTRLA Financial Management Juan Manuel Moreno Education Sr\. Education Specialist MNSHE Olmedilla Karen Grigorian Sr\. Operations Officer OPCSRS Operations Lire Ersado Sr\. Economist MNSSP Economist Martha Martinez Licetti Sr\. Economist CICIS Economist Matin Kholmatov Consultant Consultant Michael Edwards Lead Financial Sector Specialist ECSF1 Financial Management Michel Zarnowiecki Consultant Public Sector Munawer Sultan Khwaja Sr\. Public Sector Specialist ECSP4 Public Sector Nancy Davies-Cole Program Assistant ECSP2 Program Assistant Nelli Khachatryan Program Assistant ECCAR Program Assistant Owen Smith Health Economist ECSHI Health Pedro L\. Rodríguez Lead Economist ECSP2 Economist, TTL Ramya Sundaram Sr\. Economist ECSH4 Economist Renee Desclaux Sr\. Finance Officer AFCCM Financial Management Richard Messick Consultant Consultant Robert R\. Taliercio Lead Economist EASPR Economist, TTL Ruxandra Maria Floroiu Sr\. Environment Engineer EASER Environment Engineer Sachiko Kataoka Education Economist ECSH2 Education Sandra Sargent Sr\. Operations Officer TWICT Sarah Nankya Babirye Program Assistant ECSP1 Program Assistant Saumya Mitra Consultant Consultant Siddhartha Raja ICT Policy Specialist TWICT ICT Specialist Souleymane Coulibaly Sr\. Economist ECSP1 Economist, TTL Susanna Hayrapetyan Sr\. Health Specialist ECSHI Health Tigran Kostanyan Economist ECSP1 Economist Veronica Gana Consultant Consultant 25 Zakia Nekaien-Nowrouz Program Assistant ECSP1 Program Assistant     Supervision/ICR Adriana Jordanova Lead Environmental Specialist ECSEN Environmental Specialist Damianova Arusyak Alaverdyan Operations Officer ECSAR Operations Officer Erwin H\. R Tiongson Sr\. Economist LCSPP Economist Georgiana Pop Economist CICIS Economist Gohar Gyulumyan Sr\. Economist ECSP1 Economist Karen Grigorian Sr\. Operations Officer OPCSRS Operations Officer Hrant Avetisian Consultant Consultant Josefina Posadas Economist PRMGE Economist Madjiguene Seck Communications Associate PRMKQ Communications Ruxandra Maria Floroiu Sr\. Environment Engineer EASER Environment Specialist Martha Licetti Martinez Sr\. Economist CICIS Economist Mona Prasad Sr\. Country Economist ECSP1 ICR, TTL Rashmi Shankar Lead Economist ECSP1 Economist Ronald B Anderson Consultant Consultant Souleymane Coulibaly Sr\. Economist OPSPQ Economist Tigran Kostanyan Economist ECSP1 Economist Ulrich Bartsch Sr\. Country Economist ECSP1 TTL Zaruhi Tokhmakhian Sr\. Infrastructure Specialist ECSUW Infrastructure Specialist (b) Staff Time and Cost P115626 - First Development Policy Operation Staff time and cost (Bank budget Only) Stage USD thousands (including No\. of staff weeks travel and consultant costs) Lending 58 319,625 Supervision 00 00 P116451 – Second Development Policy Operation Staff time and cost (Bank budget Only) Stage USD thousands (including No\. of staff weeks travel and consultant costs) Lending 131 709,845 Supervision 00 00 P122195 - Third Development Policy Operation Staff time and cost (Bank budget Only) Stage USD thousands (including No\. of staff weeks travel and consultant costs) Lending 70 434,277 Supervision/ICR 31 163,507 26 Annex 2: Beneficiary Survey Results Not applicable\. 27 Annex 3: List of people consulted during ICR preparation Name Ministry/Department Ms\. Karine Minasyan Ministry of Economy Mr\. Artem Asatryan Ministry of Labor and Social Issues Mr\. Artak Shaboyan State Commission for Protection of Economic Competition (SCPEC) Mr\. Samvel Arabajyan Public Regulatory Committee on Telecommunications Mr\. Artavazd Sargsyan Central Bank of Armenia Mr\. Nerses Yeritsyan Central Bank of Armenia Mr\. Vaghtang Mirumyan State Revenue Committee Mr\. Vardan Vardanyan Mining Department Mr\. Sergei Khachatryan Ministry of Health Mr\. Vardan Aramyan Ministry of Finance Mr\. Miakel Pashayan IT Head for Customs 28 Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR Ministry of Finance Development Policy Operation (2009-2012) Implementation Completion Report (January 21, 2013) The large-scale economic crisis of 2009 was followed by gradual recovery of the Armenian economy in 2010-12\. In 2010, the real growth was 2\.2 percent, while in 2011 it speeded up to almost 4\.7 percent\. Such speedy growth lasted in 2012 - a 7\.1 percent annual GDP growth is expected\. The growth of 1\.9 percent in the service sector had the largest contribution to the recovery, the second is the industrial sector with its 1\.6 percent growth\. Increased demand for mining products and the improvement of the competitiveness of the economy have contributed to the growth of the mining industry\. In 2011-12, high agricultural growth also significantly accelerated the recovery of the economy\. The recovery trends started in the construction sector in 2012, facilitated by construction works carried out at the expense of the population as well as companies\. During nine months of 2012, the consumption was restored by 9\.0 percent, however, the investments of 2011 keep on decreasing (12\.8 percent)\. Having started from a strong position at the beginning of the crisis, the Government initiated policy relevant timely actions to adapt to the global crisis\. In 2009, following the budget deficit and increase in debt, the Government adopted a significant fiscal consolidation program, which was successfully implemented, and its continuity was reflected in the MTEF 2013-15\. Moreover, a budget deficit of 2\.0 percent is anticipated by the end of 2015\. The Strategic Program of RA Government Debt Management for 2013-15 includes the strategy for involving loan funds required for financing the state budget deficit as defined in the RA legislation and the Economic Development Programs of the Republic of Armenia Government, as well as the resulting modification change in the burden of public debt, and risk management\. The management of the government debt targets at continuous cooperation with bilateral and multilateral partners\. Moreover, preference will be given to enhancing the cooperation with creditors offering soft loans, as well as to loans offered at freely convertible currency and fixed interest rate, loans with at least five years grace period, with consideration of the groupings of repayment of the IMF and Russian credits\. Special attention is paid to coordination between the fiscal and monetary policies\. The process of fiscal consolidation was mainly conditioned by gradual termination of countercyclical expenses\. The total budget deficit decreased from 7\.6 percent in 2009 to 1\.5 percent of GDP in 2012, according to preliminary estimations (Table 3)\. The large portion of the mentioned decrease took place in the expenditure budget line, while basic level of expenses for the social security net was maintained\. Still, the improvement of the rate of tax revenue collection also contributed to the reduction of the deficit\. However, the level of tax collection still cannot be assessed as adequate\. DPO series have assisted the Anti-crisis Action Plan of the Government, as well as supported the Government Agenda on strengthening the competitiveness and growth\. During the recession, they constituted the major part of donor assistance provided to the Government\. It ensured contribution into the Anti-crisis Action Plan of the Government approved 29 by Resolution No 1016-A of December 17, 2008, aimed at mitigating the impacts of the crisis on the economy and providing fiscal incentive to the real sector\. Within the context of policy discourse supported by the DPO, the Government reviewed and strengthened the legal framework for civil actions, which jointly with the increase of the budgetary funds allocation for the mentioned program, had a positive effect on the livelihoods of the disadvantaged and vulnerable layer of the population\. The fiscal policy of the Government is reflected in the 2012-14 Mid-Term Expenditure Framework (MTEF)\. The MTEF was suspended in 2009, when the Government focused on the crisis management, and resumed in 2010 with the midterm strategy of debt management\. Under conditions of absence of the MTEF, the DPO provided for the social expenses and saved the budget from de facto sequester despite the crises\. The programmatic DPO series are the focus of the current Bank Country Partnership Strategy (CPS), which was prepared against the background of the global economic recession of 2009 to support the Government efforts to eliminate the vulnerabilities caused by the crises and the strengthening of the competitiveness to ensure post-crisis growth\. DPO 1 (approved by the Board on July 2, 2009) targeted the elimination of vulnerabilities revealed through the 2009 crisis and aimed to protect the disadvantaged, while paving way for strengthening the competitiveness\. DPO 2 (approved by the Board on January 11, 2011) focused mostly on actions to improve the post-crisis growth and the conditions for recovery, while continuing to maintain the expenditures for the social security net, since the impact of the crises on the disadvantaged was extended\. The third Development Policy Operation (DPO-3) of 80 million USD supported the Reform Program through (i) mitigating the vulnerability by protecting the disadvantaged groups and supporting greater development of the human capital and (ii) ensuring favorable environment for the private sector and strengthening the management to increase the competitiveness\. DPO-3 supported activities covered the expenses of the basic social security net, along with improving the targeting, and the access and quality of basic social services for the preschool and hospital services\. The Program supported increased investments for actions to establish the one-stop-shop for the business ledger, amend the Law on Inspections and achieve greater transparency, to introduce the green line as the major approach of the customs clearance and adopt regulations for the enforcement of the new Mining Code\. The funding of DPO 3 was increased to assist the Government efforts to better prepare for possible negative impact of the Eurozone crisis\. Within the scope of DPO series, the Reform Program had appreciable and already achieved results\. Moreover, the economy of Armenia was very vulnerable against deeper crises of the Eurozone, which may include irregular state defaults – failure to fulfill debt obligations and ubiquitous economic decline in the EU\. Given the above- mentioned considerations, as well as the appreciable progress achieved under the first two Operations of this series, the funds for DPO 3 were increased from the IDP initial 30 million USD planned for in the CPS progress report for 2009-13 to IDP 50 million USD plus the IBRD 30 million USD\. The proposed funding is in line with the request of the Government to strengthen the fiscal position in a situation of anxious external environment\. Substantial results have been achieved through DPO series\. For instance, the share of social protection and pension expenses in the total expenditures increased from 24\.8 percent in 2008 to 31\.7 percent in 2011, even under implementation of the fiscal consolidation program\. Although the coverage of family allowances decreased from 33\.8 percent in 2008 to 26\.3 percent due to failure to include families which did not meet the agreed criteria, the outflow of the resources for family allowances to the non-disadvantaged decreased from 34 percent in 2008 to 24 percent in 2010\. New funding was allotted to the one-year pre-school preparation program for children of 4\.5-5\.5 ages\. The ratio of healthcare expenditures in the GDP also 30 increased: as compared to 1\.4 percent in 2008 it is expected to be 1\.7 percent\. As to the tax and customs administration, the number of electronic filing has increased during 2008-2011 from 0 to 20 percent, while the share of customs clearance through the green line (the ratio against all declarations) has increased in the same period from 0 to 15 percent\. In the “Doing Businessâ€? Report, Armenia has improved its rating for the “Cross border tradeâ€? criteria to 104th position in 2011 as compared to 143rd position in 2008\. The Government Reform Program was not limited to the prior actions of the New DPO\. For instance, in addition to the new Mining Code, the Government has reviewed the Law on the Environmental Impact Expert Assessment in order to ensure the compliance of the latter with the new Mining Code and to reflect the international good practice\. The amendments to the RA Law on Nature Protection and Nature Utilization Payments (which define the royalties for the mining industry) focus on the metal minerals, in accordance with the DPO, have been replenished by Government Resolution, according to which the rate of royalty for the metal minerals was increased pursuant to the RA Law on Nature Protection and Nature Utilization Payments\. In the sphere of tax administration, since January 2012 Armenia has introduced the risk based audit selection criteria, which should reduce the number of audits to a level lower than two percent of the taxpayers\. Moreover, the amendments to the RA Law on Inspections are entering a phase of full enforcement\. From the social point of view, the Government has drafted a new Concept Paper which reflects the international best practice, and after its adoption will improve the efficiency of expenditures for the disability program\. The DPO series may also provide information for the new strategic development program\. The Government aims to prepare strategic development plan to define the policy directions until 2020 and focus on job creation, acceleration of revenue growth, poverty reduction and strengthening of competitiveness to ensure progress\. DPO series may also provide information for the Government Strategic Development Program, since they list the achievements and reveal the development barriers in various key areas\. Significant technical action and policy discourse focus on the areas of DPO prior actions and launching mechanisms\. This action and discourse are relevant for the macroeconomic and fiscal sustainability, tax administration reform, improved social security nets, increased use of healthcare and educational services especially by the disadvantaged and the vulnerable, strengthening the financial management strategy, more reliable management of conflict of interests, more advanced regulation of the infrastructure, including the telecommunications, public-private partnerships, and ensuring a more favorable environment for the private sector, including the mining industry\. As specified in the CPS, the Development Policy Loan will continue to be the key instrument to assist the Government Reform Program\. 31 32  Republic of Armenia State Commission for Protection of Economic Competition Chairman 5b Mher Mrktchyan Str\., Yerevan 0010, Republic of Armenia; Phone: (+374 10) 54 56 37; Fax:(+374 10) 54 39 85 E-mail: info@competition\.am; website: http://www\.competition\.am April 30, 2013 ASh-778 Ms\. Naira Melkumyan Acting Country Manager for Armenia The World Bank Your letter of April 16, 2013 No WB-78/13 Dear Ms\. Melkumyan, The State Commission for Protection of Economic Competition (hereinafter, the Commission) does not have comments or suggestions on the paragraphs pertaining to the Commission’s powers included in the draft Implementation Completion and Results Report for the Programmatic Development Policy Operation (DPO 1-3), 2009-12 (hereinafter, the Report)\. Also, please be advised that the Armenian translation of the paragraphs pertaining to the Commission will be sent electronically with corresponding corrections\. Sincerely, A\. Shaboyan International Cooperation Department Prepared by A\. Milaelyan, phone: (37410) 54 56 79 33  REPUBLIC OF ARMENIA STATE REVENUE COMMITTEE CHAIRMAN Yerevan-0015, 3, 7 M\. Khorenatsi street N\. Melkumyan Deputy WB country office director Dear Mrs\. Melkumyan, Reference to your letter WB-78/13, dated 16\.04\.2013, on 2009-2012 draft DPO 1-3 performance report, please note: ï‚ â€œDoing Businessâ€? indicators provided in the report are different from data on various years included in the WB Doing Business report\. In particular, annual cost of business in terms of time spent by taxpayers in 2008 was 581 hours (instead of 958); in 2008 the share of taxes within total income was 38\.6 percent (instead of 36\.6) and in 2012 it was 38\.8 percent (instead of 40\.9 percent); ï‚ Given that the aforementioned indicators are regularly updated in the Doing Business reports (including the last year report), it would be feasible in terms of their dynamics to replace 2012 indicators with those for 2013; ï‚ There is a need to clarify the time periods when the number of tax inspectorates was set as 72 and 26 (as currently there are 24 inspectorates); ï‚ In Table 5 of the draft (paragraph 49) target and actual figures are provided, from comparison of which it follows that some of the targets were missed\. Given that Doing Business reports and DPO 1-3 papers do not establish the targets provided in Table 5, it would be good to provide sources of those targets together with the content and methodology of estimation of “Performance indicator on logisticsâ€?\. Yours sincerely, Gagik Khachatryan Department of International Cooperation Tel\. 060 544 349, 060 544-650 34  Comments by the Ministry of Finance on Report “Implementation Completion and Resultsâ€? (Report) delivered by the World Bank on April 16, 2013 (Letter Re\. No 78/13) Concerning figures provided in Table 3 “Selected Economic Indicators 2010-14â€? of the Report, we recommend to introduce certain changes, in particular: ï‚ Replace 2012 Current account/GDP figure of -10\.8 by -10\.6; ï‚ Replace 2012 Exports of Goods and Services (mln US$) figure of 2,700 by 2,491\. We think, that the same figures in 2013 and 2014 projections should be revised, given that due to the government policies aimed at fostering exports, trends on growth of exports of goods and services will most probably continue in 2014 as well, furthermore growth rate of exports in 2014 will surpass that for 2013; ï‚ Replace 2012 Imports of Goods and Services (mln US$) figure of 4,880 by 4,896- Õ¸Õ¾; ï‚ Replace 2010 outstanding public debt vs\. GDP figure of 37\.2 by 34\.7, and for 2011, 36\.6 by 36\.4; ï‚ Replace 2011-2012 GDP nominal indicators of AMD 3,776 and 3,981 billion by AMD 3,778 and 3,998 billion, respectively; ï‚ Replace 2011-2012 GDP nominal indicators (million US$) of 10,138 and 9910 10,142 and 3,998 (AMD billion), respectively; ï‚ Replace 2010-2012 investment figures of 33\.8, 27\.7 and 26\.6 by 32\.9, 27\.9 and 23\.8, respectively; ï‚ Regarding incidence of broadband Internet among population, the Report states that as of December 31, 2012, actual number of broadband Internet subscriptions per 100 people totaled 4\.98\. However, according to statistical data, the actual number of broadband Internet subscriptions per 100 people totaled 13\.39, excluding subscribers of 3G broadband Internet by mobile phone, and 32\.64 including subscribers of 3G broadband Internet by mobile phone\. 35  Republic of Armenia Ministry of Health Chief of Staff Government Building No\.3, Yerevan 0010, Republic of Armenia; Phone: (+374 10) 56 43 20; Fax:(+374 10) 52 68 44 e-mail: info@moh\.am May 2, 2013 No\. SQ/06\.1/492713 Ms\. Naira Melkumyan Acting Country Manager for Armenia The World Bank Dear Ms\. Melkumyan, In response to your letter dated April 16, 2013 No\. WB-78/13, please find below the comments from the Ministry of Health on the draft Implementation Completion and Results Report for the Programmatic Development Policy Operation (DPO 1-3)\. 1\. Paragraph 43: the number of indicators in the evaluation system reached 30 in 2013 rather than 40 in 2012 as indicated in the document\. As a result of performing on the indicators in the introduced evaluation system, additional funding was made available only to primary care physicians, i\.e\. family doctors, therapists, pediatricians rather than health care professionals\. 2\. Paragraph 44: “a score of 30â€? should be substituted for “a score of 36\.0â€?\. As far as the healthcare utilization is concerned, it should be noted that while there was no significant increase for families with a score of 36 and higher covered in the Family Benefit Program, for those in the vulnerable and special groups the utilization rate increased by 42 % in 2011 compared to 2008\. Sincerely, Suren Qrmoyan Prepared by Artur Atoyan Finance and Economic Department Phone: 56 41 21 36 Annex 5: Comments of Co-financiers and Other Partners/Stakeholders Not applicable\. 37 Annex 6: List of Supporting Documents 1\. Program Documents: Report No 48605-AM, Report No\.57267-AM, and Report No\.66166-AM 2\. Country Partnership Strategy for the Republic of Armenia, FY2009-12, Report No\. 48222-AM 3\. Progress Report on the Country Partnership Strategy 2009-2013, June 2011, Report No\. 58299-AM 4\. Republic of Armenia: Sustainable Development Program, October 2008 5\. Final Draft of the Armenia Development Strategy for 2012-2025, November 2012 6\. Implementation Status and Results Report for DPO1, DPO2 and DPO3 7\. IMF Article IV Report, February 2013 38  43°E To T’bilisi To T’bilisi 46°E 47°E 44°E GEOR GI A G E OR G IA To Borjomi L e s s Tashir Tashir er C Alaverdi To Gäncä auc Ku asu ra Mingechevir 41°N 41°N Stepanavan s M To Gäncä Reservoir ou LORRI nt SHIRAK ai Ijevan n s Gyumri Vanadzor Vanadzor AV U S H T AV To Kars Dilijan Artik Artik Artsvashen Artsvashen Karmir Karmir Aragats Sevan To pa Gäncä Ar (4090 m) ARMENIA Hrazdan A R A G AT S O T N Hraz d a n KO Gavar Lake Ashtarak T UR KEY Sevan TA GEGHARK’UNIK’ YK YEREVAN YEREVAN Vardenis Vardenis ’ Aras AV I R A R M AV YEREVAN YEREVAN Armavir Armavir Martuni Martuni nge ni s Ra 40°N 40°N r de Artashat Artashat Va A R A R AT This map was produced by the Map Design Unit of The World Bank\. VAY V AY O T S ’ Ar Ararat as The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Jermuk Jermuk Group, any judgment on the legal status of any territory, or any DZOR endorsement or acceptance of such boundaries\. Yegegnadzor Yegegnadzor 43°E 44°E Arpa AZ E RB AIJ AN Vaik Vaik To Naxçivan Angekhakot ARM E NI A To Goris Qubadli Vo o tan r Z To Naxçivan A To ra a SELECTED CITIES AND TOWNS Qubadli s ng PROVINCE (MARZ) CAPITALS A ZERBA IJA N SYUNIK’ ez I SLA MIC REPUBLIC Kapan ur NATIONAL CAPITAL RIVERS O F IRA N Ra ng MAIN ROADS 0 10 20 30 40 50 Kilometers s e RAILROADS Ara 39°N SEPTEMBER 2004 IBRD 33364 PROVINCE (MARZ) BOUNDARIES 0 10 20 30 Miles To Füzili INTERNATIONAL BOUNDARIES Megri 45°E To Ordubad 47°E

REVIEW

P007455

 Population and health project Report No: ; Type: Report/Evaluation Memorandum ; Country: Jamaica; Region: Latin America And Caribbean; Sector: Targeted Health; Major Sector: Health Nutrition & Population; ProjectID: P007455 The Jamaica Population and Health project, supported by Loan 2851-JM for US$10 million equivalent, was approved in FY87\. When the loan closed on December 31, 1995, after a one-year extension, an undisbursed balance of US$3\.8 million was canceled\. The United Nations Fund for Population Activities (UNFPA) cofinanced the project\. The Latin America and the Caribbean Regional Office prepared the Implementation Completion Report (ICR)\. The borrower’s contribution to the ICR is attached to the ICR and UNFPA’s evaluation of the training component is in the project files\. The objectives of the project were to reduce human fertility, integrate population concerns into public and private sector development programs, and develop more cost-effective health services\. The project had four main components\. It was to strengthen the capabilities of the Ministry of Health (MOH), the National Family Planning Board (NFPB) and the Planning Institute of Jamaica (PIOJ) to plan and implement population and family planning programs; improve MOH’s ability to plan and operate health services; design and introduce improved methods of financing health services; and design and test innovative schemes to increase the population’s acceptance of health and family planning programs\. The quality of the project was unsatisfactory at entry\. The over ambitious and complex design exceeded the implementation capabilities of MOH and NFPB, and the project was eventually reduced in size\. (The borrower notes that the consequent cancellation of 38 percent of the loan at closing resulted in wasted commitment fees\.) PIOJ performed so well that it was allocated more funds to extend its activities\. Numerous problems, some of which should have been identified and resolved during appraisal, slowed implementation, especially during the first three years\. Fiscal constraints, cumbersome procedures and poor management delayed local financing, procurement, staff appointments and training courses\. Staff turnover was unacceptably high, among both project and Bank staff (there were six different Bank task managers over eight years)\. The Government’s onerous contracting procedures, combined with what the borrower regarded as inflexible Bank procurement procedures, caused long delays\. The procurement agent, UNICEF, was slow to process procurement documents for furniture, equipment and supplies\. This function was eventually taken over by the project management unit, which was not prepared for the task\. Neither the Urban Development Corporation, which first had responsibility for civil works, nor MOH, which took over that responsibility, had sufficient experience of construction management\. This poor implementation performance was exacerbated by lack of timely policy decisions, especially the failure to take action to address the important issue of financing the health system\. Despite implementation problems, the project eventually met or exceeded its reduced physical targets\. All civil works were completed (mainly the construction and rehabilitation of health centers), most of the planned furniture, equipment and vehicles were obtained, and training targets were exceeded (albeit after a slow start)\. The project’s main institutional objectives were only partially achieved, however, because the borrower was reluctant to use loan funds for technical assistance and fellowships\. The project strengthened the institutional capacity of PIOJ, but did not greatly enhance the capacities of MOH and NFPB because of the constraints discussed above\. Achievement of the sector developmental objectives (reducing population growth and improved health status) is difficult to judge because project documents did not include indicators and there was no monitoring of outcomes and impact\. The ICR offers limited information on use of health services and none on health status, but notes that project impacts range from substantial (increased contraceptive prevalence) to negligible with respect to health service financing\. Also, the causal link between project inputs and effects is difficult to isolate and many project activities were completed so far behind schedule that impacts are only now appearing\. Data indicate that the use of family planning services is increasing, and quality of service is improving, but the ICR does not attribute these results directly to the project\. In the absence of data on unit costs, the ICR makes no comment on the cost-effectiveness of health and family planning services\. The Operations Evaluation Department (OED) agrees with the performance ratings indicated in the ICR: outcome, unsatisfactory; institutional development impact, modest; sustainability, uncertain; Bank performance, unsatisfactory\. The project design took little account of implementation capacities, learned too little from the lessons of earlier operations, and paid inadequate attention to developmental objectives, indicators and monitoring\. Supervision, especially follow-up, did not address the project’s problems aggressively enough\. The ICR is satisfactory but did not include the ICR mission’s aide-memoire or an operation plan for the project\. Some familiar lessons are well presented, including the need to carefully formulate developmental objectives, identify relevant indicators, and monitor outcomes and impacts as measured by these indicators\. No audit is planned\.

REVIEW

P035825

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 30066 IMPLEMENTATION COMPLETION REPORT (IDA-28330) ON A CREDIT IN THE AMOUNT OF SDR235\.5 MILLION (US$350\.0 MILLION EQUIVALENT) TO THE GOVERNMENT OF INDIA FOR A STATE HEALTH SYSTEMS DEVELOPMENT PROJECT II September 21, 2004 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective May, 2004) Currency Unit = Rupee (Rs\.) Rs\. 44\.90 = US$ 1\.00 US$ 0\.02227 = Rs\. 1\.00 FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS AMs Aide-memoires ANMs Auxiliary nurse midwife BOR Bed Occupancy Rate CAS Country Assistant Strategy CHC Community Health Center DOs Development Objectives DOF Department of Finance GOI Government of India FM Financial Management HMIS Health Management Information System HNP Health, Nutrition, and Population IDA International Development Association IEC Information, Education and Comunication MDGs Millennium Development Goals MHCS Mobile health care service NGO Non-government Organization PGB Project Governing Board PHC Primary Health Center PHSC Punjab Health System Corporation PMC Project Management Cell PSR Project Status Report PSS Patient Satisfaction Survey QAG Quality Assurance Group RCH Reproductive and Child Health SAR Staff Appraisal Report SHS State Health System SPC Strategic Planning Cell WMS Waste Management System Vice President: Praful C\. Patel Country Director Michael F\. Carter Sector Manager/Director Anabela Abreu/Julian F\. Schweitzer Task Team Leader/Task Manager: Preeti Kudesia  INDIA STATE HEALTH SYSTEMS DEVELOPMENT PROJECT II CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 8 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Learned 13 9\. Partner Comments 14 10\. Additional Information Annex 1\. Key Performance Indicators/Log Frame Matrix 16 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 21 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Borrower's Evaluation Reports 28  Project ID: P035825 Project Name: STATE HEALTH SYS II Team Leader: Preeti Kudesia TL Unit: SASHD ICR Type: Core ICR Report Date: September 28, 2004 1\. Project Data Name: STATE HEALTH SYS II L/C/TF Number: IDA-28330 Country/Department: INDIA Region: South Asia Regional Office Sector/subsector: Health (95%); Sub-national government administration (5%) Theme: Health system performance (P); Rural services and infrastructure (P); Other communicable diseases (S); Participation and civic engagement (S) KEY DATES Original Revised/Actual PCD: 01/31/1995 Effective: 04/18/1996 06/27/1996 Appraisal: 10/03/1995 MTR: 06/30/1999 10/27/1999 Approval: 03/21/1996 Closing: 03/31/2002 03/30/2004 Borrower/Implementing Agency: GOI/DEPT OF HEALTH & FW; GOVT OF KARNATAKA; WEST BENGAL; PUNJAB Other Partners: STAFF Current At Appraisal Vice President: Praful C\. Patel Joseph D\. Wood Country Director: Michael F\. Carter Heinz Vergin Sector Manager: Anabela Abreu Richard Skolnik Team Leader at ICR: Nga Nguyet Nguyen Tawhid Nawaz ICR Primary Author: Nga Nguyet Nguyen 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The State Health Systems Project II (SHS II) was designed to respond to particular problems manifested in the health care systems of Karnataka, Punjab and West Bengal\. The unfavorable fiscal situation in mid-1990s had resulted in unstable and low levels of public spending in the health sector compared to other countries in the region\. Compounding with the low spending was weak management and planning and systematically inefficient allocation of public resources, with much of budget absorbed by salary costs at the expense of non-personnel inputs and maintenance\. The private sector, a major provider of services, was virtually unregulated and delivered care of widely variable quality\. The SHS II, which was developed and processed quickly, sought to: (i) improve efficiency in the allocation and use of health resources through policy and institutional development; and (ii) improve performance of the health care system through improvements in the quality, effectiveness and coverage of health services at the first referral level and selective coverage at the primary level to better serve the neediest sections of society\. The first referral level was the focus of much of the project's work because of the observed disproportionately high contribution to the tertiary level of health care at the expense of first referral facilities and preventive and promotive care services; and the fact that health facilities at the primary and first referral hospitals in the states continued to face operational deficiencies due to inefficiencies\. In addition in areas where necessary, as in the Sunderbans area of West Bengal, the project also supported interventions in primary health care\. The project's development objectives were appropriate to address key issues in health sector reforms in India in general and in the three states in particular\. They were consistent with government's Eighth Plan (1992-97), which identified health as one of the six priority areas and determined that public investment in health was critical for human development and poverty reduction in India\. The development objectives supported the new commitment to reform the public health system and improve quality of health services, and to engage the private sector in providing better health services in three states\. This commitment is reflected in state governments' Health Sector Development Plans, which were summarized in Annex 2 of the Staff Appraisal Report (SAR)\. The objectives also were consistent with priorities for Bank's involvement as reflected in the Bank's Country Assistance Strategy (CAS) for India, which highlighted the importance of an enabling environment for broad-based, efficient, private sector-led growth while accelerating the development of human resources\. In the human development sector, the CAS emphasized the need to enhance access to basic services for the poor, including strengthening the performance of state health systems\. In these areas, the Bank was seen as having a comparative advantage\. It is important to note that, whereas the project purports to be about "state health system", in fact it mainly focused on strengthening secondary level services\. Given the government's priorities in improving basic population-level health outcomes, a more comprehensive approach to state level health system might require giving more attention to services focused on these priority outcomes\. 3\.2 Revised Objective: The project's objectives were relevant and remained unchanged through the project's life\. 3\.3 Original Components: The project had three components: Component 1: Management Development and Institutional Strengthening (US$26\.6 million; 7 percent of base costs), with three sub-components: (i) improving the institutional framework for policy development; (ii) strengthening the management and implementation capacity of institutions; and (iii) developing a surveillance capacity for major communicable diseases and response capabilities\. The primary inputs for this component included local training, studies, fellowships, workshops, consultant services, and salaries of incremental staff on a decreasing basis\. In addition, inputs included minor civil works, furniture, vehicles, equipment, and operational expenses\. Component 2: Improving Service Quality and Effectiveness at District, Sub-divisional and Community/Rural Hospitals (US$308\.2 million; 86 percent of base costs) with three sub-components: (i) upgrading community, sub-divisional and district hospitals; (ii) increase effectiveness of clinic and support services; and (iii) improving the referral mechanism and strengthening linkages with the primary and tertiary health care levels\. The primary - 2 -  inputs for this component included civil works, equipment, professional services, building maintenance, and operational expenses, as well as management information system/information, education and communication (MIS/IEC) materials, local training, studies, fellowships, workshops, consultants, and salaries of incremental staff on a decreasing basis\. Component 3: Improving Access to Primary Health Care in Remote and Under-developed Areas (US$24\.3; 7 percent of base costs), with two sub-components: (i) upgrading primary health centers and improving access to primary health care services in the Sunderban area of southern West Bengal; and (ii) increasing access to primary health care services among the scheduled caste/scheduled tribe (SC/ST) population in Karnataka\. The primary inputs for this component included civil works, equipment, furniture, riverine vehicles, medical and laboratory supplies, medicines, and operational expenses, as well as MIS/IEC materials, local training, studies, fellowships, workshops, and professional services\. In general, the design of all components was related to achieving the overall development objectives although the activities were quite limited to project health facilities (mainly in the public sector) and targeted areas\. Thus, in implementation the project was narrower than implied by the more comprehensive / broader scope of the project objectives\. 3\.4 Revised Components: There was no change in the design of the project\. 3\.5 Quality at Entry: Quality at Entry Assessments were not conducted in the Bank in 1995, when the project was initiated\. At the current time, the Project would probably have obtained a satisfactory rating, given the following reasons included in the 1999 Quality Assurance Group (QAG) assessment: (i) consistency of objectives with the priorities for health system development and poverty alleviation; (ii) utilization of lessons learned from previous projects in India and health sector; (iii) demonstrated high commitment from three states; iv) cross-learning among the states involved in both this and other health projects; and v) built-in flexibility and fostering of ownership at the district level\. The QAG assessment also observed that quality at entry might have been improved had the design team opted for three separate projects, one for each of the three states\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Overall, the achievement of the development objectives of this project is rated as satisfactory: the first objective was partially achieved, and most of the targets associated with the second objective were achieved or exceeded, with some exceptions\. With respect to the first objective ­ the efficiency in the allocation and use of health resources was improved as reflected in the overall increases in the share of health resources dedicated to the primary and secondary levels (except in Punjab) as well as increase in government spending for non-salary recurrent costs, particularly for drugs and supplies\. However, state health spending for secondary level declined in absolute terms in the last two-three years in Karnataka and Punjab (see section 4\.2 for details)\. The most significant shortcoming was weakness in maintaining the share of overall public spending for health sector at least at pre-project levels\. Although the SAR stated that the project aimed to "increase financing for the health sector" and that the state governments committed "they would at least maintain the share of health sector allocation within the overall budget at FY94 levels", no specific target was set in the SAR\. Despite this, overall public financing for health was monitored closely in Mid-term Review and all Project Status Reports (PSRs)\. Only Punjab met this commitment (if newly revised baseline share of government spending on health was used instead of the baseline share in the SAR)\. Given the relatively low shares of public spending on health in these states in FY03 and FY04 (around 4 % of total public expenditure) (see Annex 1), the reduction in absolute levels of state government spending on health in the last few years, and the importance of public financing for health in these states, the first objective is considered to be partially achieved\. The achievement of the second objective ­ improving access, quality and effectiveness of the health care system­ was satisfactory\. The project planned to bring benefits to about 17 million beneficiaries\. Estimates in all - 3 -  three states by the project management units show that at the closing of the project, about 50 million people had benefited from the project\. All 571 hospitals were upgraded and re-commissioned\. Major improvements were observed in the following areas: a large increase in admissions, tests, X-rays, and surgeries; increased availability of drugs, supplies, and equipment in completed facilities (see Annex 1 for details); enhancement of clinical skills of doctors, nurses and paramedics through in-service training; and increased access to basic health services in the Sunderban areas in West Bengal through non-governmental organizations (NGOs), and for SC/ST and women in Karnataka\. Data were not available on these indicators for non-project hospitals including private sector to allow for a comparison and an assessment of net impact the project had at the health sector level\. Information from patient satisfaction surveys (PSSs) showed that in general, project hospitals had modestly higher ratings for cleanliness, equipment, as well as staff-related factors (attitude, time spent with patients, guidance, and so forth) compared to pre-project status\. However, some doctor-related indicators worsened slightly between the last two rounds in 2002 and 2003 in West Bengal and Karnataka\. There are some qualifications concerning the achievement of the second objective, primarily because of variation in performance across the states\. First, the poor in West Bengal and Karnataka benefited greatly from facilities improved under the project: 85 percent of patients from upgraded hospitals in West Bengal and 72 percent of out-patients and 48 percent of in-patients in Karnataka were from the below-poverty-line (BPL) group of households\. In Punjab, the experience was different: shares of patients from BPL group declined from 30% of out-patients and 32% of in-patients in the 2002 PSS to only 20% of out-patients and 23% of in-patients in the 2004 PSS\. If the estimated poverty rate of 30% for project districts in Punjab (see the SAR) was taken into account, it seems that the poor did not proportionately benefit from the project\. Secondly, although expenses for medicines were lower and services available in upgraded hospitals were much cheaper than those provided by the private sector, out-of-pocket expenditures for diagnostic services in project hospitals in Punjab were two to three times higher than those in non-project public hospitals\. This is true for all types of hospitals covered by the project including rural hospitals\. This may explain the lower access to upgraded health services in project facilities by the poor\. Thirdly, analysis of the Reproductive and Child Health (RCH) Surveys shows that in all three states, although situation was slightly improved between 1999 and 2003, only about a half of total deliveries were institutional deliveries (IDs) by 2003\. The share of IDs in total deliveries was only a third for the poorest 20% group\. Among total number of IDs, share of IDs provided by the public sector in Punjab declined substantially from 97 % in 1999 to only 26 % in 2003\. In Karnataka, public sector share in total IDs declined from 55% in 1999 to 33% in 2003 (see Annex 1)\. In contrast, in several good performing states -- Andhra Pradesh, Kerala, Tamil Nadu, and West Bengal -- the public sector accounted for more or less the same share in total IDs over this period\. Finally, the impact assessment of SHS II project commissioned by project management in West Bengal expressed a concern that the project may have little impact on the quality of human resources, given the lack of appropriate incentives for more accountability, commitment and patient-friendly attitude\. This was partially addressed through in-service training and better infrastructure in hospitals\. However, absenteeism by physicians continues to be a problem in some upgraded hospitals in Karnataka and patient satisfaction with doctors' performance was lower in 2003 PSS compared to 2002 round in both West Bengal and Karnataka\. Whether this has something to do with the worsening health budget situation is still a question which is beyond the scope of this report\. 4\.2 Outputs by components: The project covered 571 hospitals including district, sub-division, and rural hospitals\. It also supported upgrading of Community Health Centers (CHCs) and block CHCs in remote areas in Sunderban, West Bengal, and developing a network of health check-up camps in Karnataka\. Management Development and Institutional Strengthening\. Implementation of this component is rated satisfactory\. The key outputs of this component were: i) Increased public financing for health sector and improved allocation of public health resources; ii) strengthened capacity of the implementing agencies in sector analysis and - 4 -  management; and iii) enhanced role of the private and voluntary sector in the delivery and management of health services\. Allocation of public health resources was improved in two out of three states in terms of overall increased shares of state health resources dedicated to the primary and secondary levels (from 59 percent in FY94 to 90 percent in FY03 in Karnataka; from 76% in FY96 to 80% in FY01 in West Bengal)\. In Punjab this share declined from 86 % in FY94 to 81% in FY03, and more importantly, share of government health resources allocated to secondary level was reduced from 25% at pre-project to 19% at project completion\. Government health spending on secondary level even declined in absolute term continuously in the last three years in Punjab, and in the last two years in Karnataka (see Annex 1)\. Public health spending for non-salary recurrent costs, particularly for drugs and supplies were increased from the beginning of the project\. It should be noted that for these two targets, baselines were not identified in SAR for West Bengal and Karnataka\. The assessment was based on base-line and actual data recently reported by the government and in aide-memoires (AMs)\. However, overall public financing for health sector measured by shares of total state expenditure allocated to health were lower in FY03 and FY04 as compared to the FY94 levels in Karnataka and West Bengal\. Capacity of the implementing agencies in sector analysis and management has been strengthened in several ways\. A Strategic Planning Cell (SPC) was established in all three states (Punjab Health System Corporation (PHSC) in Punjab) to analyze health sector critical issues, monitor progress and provide analytical support to management in policy development and planning for the health sector\. More than 70 studies and background papers had been done to provide inputs and foundation for policy and institutional development under the project\. For example, the recommendations of the study on microbial contamination in Karnataka had led to the government issuing Executive Order and passing a Government Order for the establishment of the Nosocomial Infection Control Program\. In West Bengal, studies and policy analysis produced by the SPC were used to provide inputs for the formulation of a Health Sector Strategy\. In Punjab, a Study on Female Feticide found a significant improvement in sex ratio, and attributed such improvement to intensive IEC activities\. Situation assessments of health quality had been done to provide inputs for developing standards, performance indicators and assessment methods under a Quality Assurance Program (QAP)\. A computerized Health Management Information System (HMIS) was established at state, district and project-facility levels to provide management at all levels with information to assess hospital performance and provide feedback for follow-up actions\. The QAP with a list of staff and technical norms was applied in project hospitals in order to ensure quality of services provided\. A waste management system (WMS) was deployed in a large number of project facilities (91 percent of project facilities in West Bengal) to promote the incorporation of appropriate health care waste management practices in daily operations\. The waste generated was segregated at the source and collected in bags and bins of different colors, then treated and disposed\. This component was documented as best practice within the Bank due to coordination system established with the enforcement agencies, attempts at waste minimization from procurement stage, revenue generation and development of good quality IEC materials that are being used by the Bank and disseminated in other countries through training videos\. A policy of user charges was implemented in all project facilities for paying beds and wards, diagnostic tests and surgery, out-patient services and health certificates\. Revenues collected were retained at the project hospital level (except in West Bengal) and used for non-salary recurrent expenditure items such as drugs, other medical supplies, and maintenance\. Structured involvement of the private and voluntary sector increased\. Private contractors were involved in providing supporting services such as ambulance, sanitation and maintenance\. 178 out of 214 hospitals in West Bengal, all 154 hospitals in Punjab, and 170 out of 204 hospitals in Karnataka contracted-out supporting services (ambulance, sanitation, and maintenance) to private sector service providers\. Five NGOs were involved in providing non-clinical services as well as IEC in remote and under-served areas\. However, beneficial impacts on private health providers were not fostered through project activities, in general\. There was virtually no clear spill-over impact on the private sector in terms of the development of a regulatory framework to monitor private health sector development and ensure quality of health care provision\. The project mainly focused on contracting out some supporting services (ambulance, sanitation, security and maintenance) to private providers, which does not necessary facilitate engagement and development of "private health sector" as anticipated in SAR and the - 5 -  health sector strategy\. Moreover, services made available at cheaper prices at upgraded hospitals may have crowded-out the private sector in providing health services\. No data collected by the project through the HMIS and PSSs permit comparison on performance between project and private hospitals\. In Punjab, although PSSs permit some comparisons to be made between project and non-project hospitals, results may not be valid due to sample selection problems\. In addition, the project may have missed opportunities to facilitate the engagement of private health sector in providing essential health services where larger and larger numbers of people (including the poor) are obtaining health services as shown by RCH data between 1999 and 2003 (Annex 1)\. Enforcement and implementation of these policy and institutional developments have not been without problems, however\. As already noted, in West Bengal revenues collected were not retained at the facility level, and were not used for paying for non-salary recurrent items\. In such case, collecting more fees from users would not be expected to lead to improved quality of services provided\. Improving Service Quality and Effectiveness at District, Sub-divisional and Community/Rural Hospitals\. This component is rated satisfactory\. The main outputs of this component include renovations and expansions to District, Sub-divisional and Community/Rural Hospitals; more effective and better quality of clinical and support services in project hospitals; and an improved referral system\. All of the key output targets were achieved or exceeded, or major progress had been made, with the exception of targets for bed occupancy rates (see Section 4\.1)\. A total of 571 hospitals were upgraded / renovated / expanded compared to 524 hospitals as planned\. Several output targets were exceeded, including the number of admissions, out-patients, laboratory tests, surgeries, and X-rays\. In Karnataka, the total number of beds at project hospitals was 13,499 at pre-project and increased to 19,206 at project completion compared to 18,690 projected in the SAR\. Approximately 40 thousand medical staff were trained under project's support; all project institutions had implemented Quality Assurance Program to improve service delivery and customers' satisfaction, based on acceptable standards, key indicators, and methods for periodic assessments\. Results were used to identify key areas that need quality improvement and plan of actions; supporting services were contracted out to private sector in all project facilities, etc\. However, there was no clear evidence on the improvement in referral system\. There was some evidence of under-utilization of upgraded facilities\. While actual bed occupancy rates (BORs) were increased from 80% in West Bengal, 37% in Karnataka, and 41% in Punjab at pre-project to 88%, 41%, and 49% respectively at project completion (See Annex 1), the bed occupancy rates did not meet the ambitious targets set in the SAR and the BORs were too low in Karnataka and Punjab\. Project's contribution in terms of increasing number of hospital beds has not been matched by a significant increase in utilization (especially at smaller community hospitals)\. Staff commented in PSSs in Punjab that 27 percent of services provided at project hospitals could have been provided at lower level\. This shows that a tighter link between primary and first referral levels of care as a result of improved referral system could have unloaded hospitals from providing these services\. In West Bengal, government had commented that non-involvement of the prospective users in project preparation and non-availability of properly trained personnel, doctors etc\. had led to non-utilization or under-utilization of some of the equipment in different hospitals\. The Impact Evaluation Report done in West Bengal shows that "in general, an overwhelming feel-good environment exists among the common people regarding infrastructural improvement in the hospitals"\. However, the discussants perceived that: "development in infrastructure could not be enough of a catalyst for improving health care services"; "The change in service delivery system, according to community's perception, still has a long way to go to match with such infrastructural development"; "It is a common concern that the hardware inputs would eventually go astray if supplementary inputs were not put into operation\. The major supplementary inputs include: (1) availability of drugs, (2) the approach and behavior of the hospital staffs towards common patients, (3) availability of doctors and technicians, and (4) change in referring practice\." These, coincidently, were also highlighted in Karnataka's PSSs as the major areas for improvement\. - 6 -  Improving Access to Primary Health Care in Remote and Under-developed Areas\. This component is rated satisfactory\. Key outputs of this component were upgraded Primary Health Centers (PHC) in the Sunderban areas of West Bengal and improved access to PHC services among SC/ST population in Karnataka\. In West Bengal, the project upgraded 28 PHCs and 8 block PHCs in the Sunderban areas\. In addition, three floating medical units were set up to provide health care in riverine areas\. In Karnataka, medical check-ups were made available in health camps to be organized at the headquarters of every auxiliary nurse midwife (ANM)\. This was a special contribution of the project to improve delivery of health care services to these remote and under-served areas\. There was clear evidence of improvement of access to basic health services for the targeted groups\. For example, in Karnataka, 7 million people (mostly ST/SCs) received health check-ups at 48,725 yellow card camps\. In West Bengal, 382 villages were covered by mobile health care services as compared to the target of 351 villages\. And 1\.85 million people were provided with basic health services, including specialist and diagnostic services, compared to target of one million\. In addition, an independent external evaluation of the impact of mobile health care services (MHCS) provided by five NGOs in the Sunderbans area documented the positive impact and greater accessibility to health care provided by these NGOs\. The Impact Evaluation carried out in West Bengal also found a high level of satisfaction ­ "MHCS have huge potential benefits since the dependence of people on local unqualified providers has drastically declined"\. It noted concerns, however: "this component is not well integrated with the existing public health system" and "service delivery system need to be focused to address the community's needs\." 4\.3 Net Present Value/Economic rate of return: Not applicable 4\.4 Financial rate of return: Not applicable 4\.5 Institutional development impact: The Project's Institutional Development impact was positive\. The project aimed to develop two types of institutions: i) management and implementation capacity; ii) institutional framework for policy development\. The management capacity of the Departments of Health and Family Welfare (Government of West Bengal, Government of Karnataka), and Punjab Health System Corporation (Government of Punjab) to make more effective use of their human and financial resources was strengthened\. Resolving skill mismatches and shortage of professional staff in project hospitals, contracting out supporting services to private sector, and/or reallocation of public health resources toward secondary and primary care levels, and toward non-salary recurrent costs are good examples\. The SPCs (in cases of West Bengal and Karnataka) and PHSC (in Punjab) were established under the chairmanship of the Health Secretary\. This arrangement could help to make best use of strengthened capacity of the SPCs and their activities to support the state in planning and making informed decisions concerning sector policy and strategy (see Section 4\.2)\. Staff management capacity at headquarters was enhanced through training and staff were able to undertake increased responsibilities and perform new functions, such as organizing data collection and utilization for planning, policy making and problem solving\. Capacity to manage the secondary level of care at the state, district and facility levels was strengthened\. For example, hospital managers were able to maintain a completely revised medical recording system for in-patient and diagnosis services\. District level managers were able to use HMIS data to rate performance of hospitals based on a set of clinical and quality indicators and make informed decisions as a result\. The project facilitated decentralization of management to district and Block Panchayats levels in West Bengal\. The involvement of the Panchayats in decision making will help to consolidate the decentralized administration of health care delivery\. - 7 -  Major improvements in institutional framework for policy development were observed in areas such as HMIS; user fees; procurement of drugs; equipment maintenance; rational use of drugs; contracting out services to private sector; NGOs contracted for IEC and behavior change communication etc\. While these improvements could have potential impacts at the system level, the spill-over effects to other non-project facilities varied greatly among the states and policy areas, depending considerably on government financial, institutional capacity and its commitment to health sector reforms (see Section 6)\. In West Bengal, for example, a HMIS for the primary, secondary and tertiary levels was developed, operationalized and is now being used for management purposes\. HMIS reporting was extended to all 450 facilities upwards of block-level in the state, beyond the 214 project facilities, and planning, monitoring and follow-up action on the basis of a set of indicators is being undertaken\. However, retaining revenue collected from user fees at facility level is still a major issue to be discussed with state government\. In Karnataka, the shortage of doctors and medical professional staff remained a key problem even in project hospitals as cited by PSSs\. On the positive side, standards of procurement of drugs followed by the project were adopted by the states for procurement unrelated to the project\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: One important factor outside the control of state governments was the deterioration in states' fiscal conditions that led to declines in public spending on health during the last two years of the project (see Section 4\.1)\. In principle, however the project could have been able to protect health spending in the face of fiscal problems\. Its failure in doing this was partially due to the fact that the decisions of budget allocation between sectors were made by Department of Finance (DOF) in each state whose involvement in the project was quite limited\. 5\.2 Factors generally subject to government control: Factors under the control of state governments had a partial impact on the achievement of project objectives\. First, the project benefited from strong commitment and the political support for the health sector reform, except in the area of public financing for health\. This included support for the contracting out of services to private sector and partnership with NGOs, establishment of and using HMIS for management and planning purposes, deployment of WMS, application of drug procurement guideline, etc\. Second, the three-tier organizational structure of project management contributed significantly to the timely decision making and close monitoring of the project\. At the top, a Project Governing Board (PGB)/Board of Directors (BOD) was established, including high-level representatives from all relevant parts of state Government associated with the project\. The PGB/BOD was fully empowered to make major policy decisions and develop a broad policy outline for the project; approve the annual budget; authorize major project revisions as necessary; ratify decisions made by the Steering Committee (in Karnataka); formulate rules and regulations; and undertake annual review of project implementation and monitor overall project progress\. Reporting to PGBs/BODs directly in Punjab and West Bengal, and through Steering Committee in Karnataka, were Project Management Cells (PMCs) headed by an Additional Secretary as the Project Administrator in Karnataka, a Special Secretary as the Managing Director of the PHSC in Punjab, and a Special Secretary as the Project Director in West Bengal\. The functions of the PMCs included all aspects of routine project management, monitoring progress, maintaining flow-of-funds and project accounts, providing technical guidance and general administration, and preparing progress reports\. At the district level, a District Health Committee/Project Implementation Cell facilitated functioning of the various activities to be carried out under the project\. On the other hand, continuation and consistency of commitment from state government played an important role\. Retention of funds at the facility level ­ which was stated in West Bengal Health Sector Development Program ­ did not occur as originally conceived because of continuing objections by the Accountant General\. Increasing of public financing for health is another example of unfulfilled commitment\. These issues were raised repeatedly during supervision missions, and remain to be resolved\. 5\.3 Factors generally subject to implementing agency control: Strong commitment of the implementing agencies enabled the project to achieve most of the targets in the SAR, - 8 -  with a good track record of meeting fiduciary responsibilities and operating smoothly, except on financial management in West Bengal and to a lesser extent in Karnataka\. In general, project units were staffed adequately to carry out functions under the project, although the lack of awareness of Bank's financial procedures in West Bengal resulted in delays in submission of audit reports as well as reports containing large disallowances\. The decision to co-locate all departments in West Bengal ensured effective coordination during implementation\. Several rounds of patient satisfaction surveys helped to assess performance of project facilities and satisfaction of the beneficiaries concerning the services provided by these facilities\. Involvement of NGOs and private sector providers was realized through partnership and the establishment of a contracting-out relationship between the public sector implementing agency and NGOs and private sector in carrying out research and providing supporting services\. Project implementation in West Bengal suffered from delays soon after start-up\. Although the non-infrastructure aspects of the project were implemented quite well from the beginning, it took about two years for the project to initiate the civil works\. This was due to a number of reasons including: inadequate staffing of the PMC, bad selection of consultants (West Bengal), failure of the consultants in preparing bid documents in the first phase of the project, lack of familiarity with the Bank's procurement methods, and difficulties with flow of funds to the PMC\. In Punjab, project start-up was delayed due to the change in management and the continuing debate around the PHSC and the early ambivalence of the new government to the PHSC\. 5\.4 Costs and financing: The total cost of the project at appraisal was estimated at US$416\.7 million\. The project costs in Karnataka, Punjab, and West Bengal were estimated at US$136\.4, US$106\.1 and US$174\.2 million respectively\. Of that US$350 million was to be financed by an International Development Association (IDA) Credit and US$66\.7 million by the Governments of West Bengal, Karnataka, and Punjab\. Because West Bengal had savings of about US$6 million, while Karnataka and Punjab had nearly completed their activities in FY04, the Bank in consultation with the three state governments decided that these savings be re-allocated to Karnataka and Punjab\. The Project became effective on June 27, 1996, and was originally scheduled to close on March 31, 2002\. It was extended by two years and closed on March 30, 2004, due to initial delay and with the intention of strengthening several components including re-opening of all facilities upgraded under the project, installation of equipment; strengthening non-infrastructure components; further improving coordination with primary care in areas such as referral, disease surveillance and health management information system; intensifying supervision and monitoring; and improving practices related to the rational use of drugs, which was not originally included in the project\. By project closing, the IDA Credit of SDR 235\.5 million turned out to be equivalent to US$ 315\.3 million rather than US$ 350 million as had been the case at appraisal\. The distribution of the Credit proceeds in the end was as follow: West Bengal: US$ 129 million; Karnataka: US$ 105 million; and Punjab: US$ 81 million\. The actual/latest estimate of the total cost of the project was US$ 401\.5 million equivalent\. Regarding disbursement, by project closing the IDA Credit of SDR 235\.5 million had been almost fully (99 %) disbursed\. Details are given in Annex 2\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Project sustainability is likely for several reasons\. First, all three state governments show strong political commitment to health sector reform as reiterated in Government's Eighth Plan (1992-97) as well as state governments' Health System Development Programs (Annex 2 in the SAR)\. The strong commitment was shown in implementing as well as maintaining achievements generated by the project\. Second, the project brought major changes in institutional development and management effectiveness\. The HMIS, including the hospital grading system set up under the project has been expanding to outside health facilities in West Bengal\. The state governments continue to address the issues of manpower and staffing where vacancies and inappropriate skill mix exist\. Contracting out support services to private sector and involving NGOs - 9 -  in providing health services in remote areas has proven to be cost-effective and markedly increased patient satisfaction\. Through this practice, the state governments have expressed more acceptance and appreciation of role of private sector in providing support services and NGOs in delivering clinical services to the poor\. The state governments have already shown their intention to continue and expand involvement of NGOs and the private sector\. Other institutional developments and regulations which were developed under the project and shown good effect in project hospitals could be expanded to outside project facilities\. These include quality assurance system, the waste management system, procurement of drugs, hiring practices, equipment maintenance, and so forth\. Third, public spending for secondary level increased during the life time of the project in two out of three states\. The exception was Punjab where the share of health expenditure allocated to secondary level declined significantly from 25% in FY94 to 19% in FY03, including a reduction in absolute terms\. For the future it could be expected that the resources for sustaining the benefits of the project would be available, given strong projected growth of the economy, and likely strong political support for these types of health services\. Financial sustainability of the hospitals may be further aided by user charges\. 6\.2 Transition arrangement to regular operations: State governments are engaged in dialogue with several donors for technical, financial and institutional support to ensure that the gains from this Project will not be eroded\. In West Bengal, the Department of Health and Family Welfare prepared and presented a costed plan to the Department of Finance to sustain key activities and maintain the assets created under the project\. The recurrent funds for the additional staffing and maintenance of facilities created under the project were agreed between the Bank and West Bengal Department of Health and Family Welfare\. There has been on-going dialogue with donors including DFID, EU and KfW/GTZ to maintain strong commitment to health sector reform and consolidate changes in the decentralized administration that the project brought about\. In Karnataka, this will be facilitated by government's strong commitment to health sector reform and the on-going dialogue between the Bank and government with regard to the follow-on project at the primary level\. In Punjab, the State Government has agreed to continue to manage secondary level health care services through PHSC\. It has also decided to provide additional Rs\. 100 million in 2004 to maintain operations of the PHSC and to supplement the supplies being provided to the hospitals under the project\. However, a longer term commitment will be needed to ensure the sustainability of the project\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Satisfactory\. The project was well prepared with strong involvement from both the Bank and governments\. The Staff Appraisal Report is a comprehensive document consistent with both Government and Bank priorities\. For the most part, preparation teams were fielded with the required expertise and the skill-mix was maintained throughout identification, preparation, and appraisal / negotiation\. One important area of expertise, however, was inadequately represented ­ private sector development\. This inadequacy is reflected in a lack of attention to a comprehensive approach toward facilitating engagement and development of the private health sector\. Assessment was slightly hindered by the lack of measurability of development objectives and specifications of performance monitoring indicators (baselines, targets, etc) in the SAR\. 7\.2 Supervision: Satisfactory\. Overall project supervision and reporting was adequate, for the most part, as were mission terms of reference, frequency of supervision and time spent in the field\. Aide-memoires and follow-up letters focused on key, specific detected implementation problems, suggested interventions, and follow-up agreed actions for each state\. The team was innovative and efficient in its use of resources, and made good use of support from the India Country Office; third parties were involved when needed (e\.g\. independent technical audit of unexpectedly high expenditures in one state)\. The supervision effort also deserves credit for fostering learning exchanges between states, and in dealing effectively with implementation barriers\. The team's contribution to project implementation was highly appreciated by the government (see Annex 8: Borrowers' Evaluation Reports)\. More attention could have been paid to net impacts of the project at the sector level (in connection to the - 10 -  non-project public and private hospitals) and its impacts on access to health services by the poor in general to help government to make informed and timely decisions\. For example, early detection of some problems as mentioned above could have prompted further investigation, interventions and / or management decisions\. 7\.3 Overall Bank performance: The Bank's overall performance was satisfactory\. Borrower 7\.4 Preparation: Satisfactory\. The Borrower actively participated in preparing and facilitating preparation of important inputs for the design of the project\. The project design was based on detailed sector analyses conducted in all three states, including Social Assessments, Public Expenditure Review, Beneficiary Need Assessments, Reviews of the Private Sector in Health Care, Site Surveys of First Referral Hospitals, and others\. Strong Borrower commitment to the project was clear and played an important role in successfully preparing the project in approximately one year\. There was close cooperation at the time of preparation between the Government and the Bank, with leadership and vision provided by the main counterparts in each Department of Health\. Representatives from all the counterpart agencies were involved in the preparation of the loan\. 7\.5 Government implementation performance: Satisfactory\. In all three states, Governments showed strong commitment to health sector reform\. Fund flows under the project were largely smooth, except for some specific instances of delays in the initial years in Karnataka and West Bengal\. Counterpart funds were made available through the budgetary route\. A computerized Financial Management System was developed in-house by Karnataka and West Bengal for submitting the project reports and claims and in Punjab a separate legal entity was created to manage the FM arrangements under the project\. Despite initial low disbursement in the first two years, project implementation was accelerated (especially after the Mid-term Review) and the project was effectively implemented in the end\. After the Mid-term Review, the Government and the Project Management Teams took specific actions to show their renewed commitment to the project at the highest level\. For example, in West Bengal procurement and contracting were improved substantially after 1999\. In Punjab, project start-up was delayed due to continuing debate around the PHSC\. However, in the end the PHSC was assigned the role of managing the project and time lost was covered through its excellent management and monitoring of project activities\. Meanwhile, the PHSC was officially recognized as a government organization, and even has more financial and management authority than before\. All legal covenants in accordance with the Development Credit Agreement were complied with except for the covenant on retaining user fees in West Bengal\. 7\.6 Implementing Agency: Satisfactory\. Project units have capable and relevant skilled staff, except more attention should be given to financial management capacity in West Bengal and Karnataka\. Project management units have been able to manage a complicated project with large amount of civil works and challenging policy components without major problems\. As already noted, disbursement was quite high (99 percent) by project closing\. Most of development targets were achieved or exceeded\. Management capacity at district as well as hospital level was strengthened\. Functions of project management units are being transferred to DOH to follow up the project's activities and maintain benefits generated\. Excellent and effective management capacity of the PHSC impressed the government, and the PHSC is formally considered a government agency to manage secondary level hospitals\. All project management units in three states had effectively made maximum use of technical assistance provided to successfully implement project\. In the project, private providers and several NGOs were involved to provide non-clinical services and some clinical services in remote areas\. Stakeholders were consulted and participated during preparation of the project\. However, their participation in monitoring and evaluation of the project's performance was quite limited as noted by the evaluation done in West Bengal and private sector providers\. Overall, the initial slow disbursement was reversed after the Mid-term Review, and the pace of project implementation was maintained at high level, especially in the final year\. Audit reports under the project were generally received much after the due date containing large - 11 -  disallowances, especially for West Bengal and Karnataka\. Most of the disallowances related to the advances to various authorities which were claimed from the Bank and then disallowed by the State AG due to "over reliance of the State AG on the State government financial procedures" and its appreciation on the need to conduct audit timely (comments by borrower from West Bengal)\. Many of these were subsequently recertified requiring re-submission of claims, involving un-productive use of resources\. Monitoring and evaluation of project's performance was done relatively well, though it varied between states\. HMIS was developed and data were collected to assess performance of project facilities, although on a more limited number of indicators than what was described in the SAR\. Several rounds of PSSs were conducted, generating a comprehensive analysis in all three states\. Among other things, PSSs were designed to permit assessment of project impact on access to health services among the poor\. In addition, in Punjab non-project public hospitals were included in the sample so that performance of project hospitals could be assessed against that of their counterparts in the public sector\. It is a pity that the comparisons were not possible due to sample selection issues\. It would have been even more useful if some private health facilities were also included so that further comparison with performance of private sector and assessment of net impacts of the project at the sector level could be made\. Performance on fiduciary responsibilities improved substantially during the course of project implementation\. 7\.7 Overall Borrower performance: The overall performance of the Governments during the SHS II is assessed as satisfactory\. 8\. Lessons Learned Several lessons can be learned which may be important for future state health projects and programs in India, South Asia, and elsewhere\. During preparation to appraisal stage A close link between health system improvements, policy and institutional reforms on one hand, and achieving desired health outcomes on the other hand, should be better reflected in project design and be monitored accordingly\. Achievement of key intermediate indicators such as improvement in institutional delivery, immunization, etc\., and access to basic health services for the poor need closer attention\. Regular policy dialogue to address the problem of low public financing for the health sector is extremely important: Decision on allocation of public monies to the health sector is under the jurisdiction of the state Department of Finance (DOF), with involvement of many other sectors and government agencies\. Thus, increasing public financing for health and improving its management will be achieved only if there was an effective coordination between various government agencies with a strong leadership, participation and support from DOF and regular policy dialogue with relevant government agencies\. This is also important for a project with a component on policy and institutional developments\. In addition, identifying appropriate targets and indicators to monitor improvement in allocation efficiency of health resources is necessary\. In this project for example, share of government health resources allocated for primary and secondary levels taken together is not a very helpful and appropriate indicator, since the share for one level might be changed in undesired direction\. An appropriate approach to improve performance of the public health sector is essential: It is important to sharpen focus of the public sector on service priorities in terms of both resources and management\. These priorities should be developed keeping in view the level and direction of private sector involvement in the sector and the appropriate role of the public sector\. In principle, the public sector should seek to crowd-in rather than crowd-out private health services\. Public sector direct involvement in providing health services, and further investment in public hospitals should generally be based on equity consideration and on existence of public goods, externalities, information deficiency, and insurance market failures\. Regarding public hospitals, more comprehensive approach will be needed to improve their performance including giving more autonomy in combination with tighter budget constraints and some principles on fiduciary management\. An overall regulatory framework for setting public-private partnerships and / or contracting out clinical and non-clinical services to private sector and / or NGOs to make more effective use of public facilities and skills should be developed\. - 12 -  Facilitate development and more engagement of private health sector in delivery of health care to achieve Millennium Development Goals (MDGs) is necessary\. Contracting-out supporting services to private sector is an important step in systematic engagement of the private sector\. In addition, creating a regulatory framework to help improve quality of care provided by the private health sector, contracting-out more health (clinical) services (where the private sector is more efficient in delivering the health services) to private health providers, and minimizing potential negative impacts on their development while creating a level-playing field for them are essential\. These are more urgent when the private sector plays an important role in providing health services for the population including the poor\. And enhancement of the public sector capacity in monitoring and facilitating development of the private sector deserve special attention\. And before decisions are made about upgrading infrastructure, an analysis should be conducted to determine if the most efficient route is to expand and improve the delivery of services through the public sector, or to take advantage of existing private sector investments and use public monies to finance delivery of private services for the poor and thereby to stimulate improvement in the quality of private services\. Financing health services for the poor regardless of who will provide services (such as through health insurance) could be a good example\. During project implementation: The commitment of the government and the political will for the support of the health project / sector and the reforms played a vital role in the project's achievements\. Government support in providing adequate budgetary support, in contracting out non-clinical services to private sector, and in implementation of other reforms, are good examples\. On the other hand, more needs to be done to understand the obstacles to fulfill state governments' commitment on increasing public financing for the health sector\. Measuring and monitoring performance is critical for management decisions and to ensure high impact of project activities on the health sector\. Development objectives should be clearly defined and measurable\. Performance monitoring systems should include measurable intermediate indicators that are essential for achieving better health outcomes, such as institutional deliveries, antenatal care, births attended by professional health workers, immunization, and so forth\. Data collection to monitor performance should be designed in a way that allows assessing net impacts of the project at sector level and/or on overall access to health services for the poor\. For example, PSSs should have included project and non-project hospitals (from both the public and private sectors)\. Sample selection should be paid adequate attention to ensure that data collected could be used for comparison purposes\. Targets should have been set for performance indicators to effectively assess the achievement of the project\. Output / outcome indicators and monitoring and evaluation are useless without solid initial baselines or if baseline levels were modified at project completion\. Although project impacts on outcome indicators can be difficult to measure and monitor frequently, selective and strategic impact evaluation could be done to guide project design and policy formulation, especially when the operations / interventions are likely to be replicated and scaled-up\. To measure the project's impacts on access to health care for the poor, some indicators should be set specifically for them, and systematically measured and monitored\. l Ensuring adequate financial management (FM) capacity: Another lesson learnt is the need to have properly trained financial management staff in place right from the beginning of the project to ensure full financial accountability and adequate follow-up\. The FM arrangements should always be geared to mitigating the disparate arrangements for implementation and yet be simple and flexible to meet the dynamic demands of project implementation\. 9\. Partner Comments (a) Borrower/implementing agency: As this is a complex project covering three large states, full Borrower's Evaluation Reports (ERs) are attached in Annex 8\. Some of the borrower's comments and lessons learned have been incorporated in the relevant sections in the text\. There may be some inconsistencies in data used in the main text and Borrower's ERs as the former uses the most updated data provided by the borrower' Project Management Units\. - 13 -  (b) Cofinanciers: There were no co-financiers, although the project benefited from a number of simultaneous and complementary activities financed in parallel by other donors\. For example, in case of WB other donors such as DFID, GTZ, and KfW have participated and contributed to hold regional workshop to share experience between states\. (c) Other partners (NGOs/private sector): Comments from several NGOs were collected through a questionnaire sent out following the ICR mission\. In general, NGO respondents indicated that they appreciated project benefits in terms of expanding capacity of public secondary hospitals to provide health services for the public, and in improving access for the poor and tribal groups in remote areas\. NGOs acknowledged project contributions in enhancing the role and participation of private and voluntary sector in the delivery of health services, and recognizing their role in improving access to services in remote areas\. They also noted some weaknesses of the project, and particularly the paucity of management and health personnel involved in the project if the project's outputs are going to be maintained and expanded to the whole sector\. Respondents cited the need for effective incentives for and better supervision of health staff at all levels to change attitudes, behavior and accountability to clients, and particularly to the poor\. NGO respondents also mentioned the importance for future projects of integrating Sunderban component's activities into existing health system and of early involvement of NGOs in project preparation to ensure that projects are realistic and cost-effective\. 10\. Additional Information - 14 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Number of institutions under the project Not specified All project facilities utilizing HMIS Percent awareness among doctors of referral PJ: 100 % system (%) Kar: 95% In-patient waiting time (minutes) Kar: 30 PJ: 30; Kar: 20 Out-patient waiting time (minutes) Kar: 45 PJ: 19; Kar: 27 Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Share of total state budget spent on health WB: 5\.3 % (FY96) WB: 6\.4 % (FY01) sector PJ: 7\.2 % (FY94) PJ: 4\.5 (FY01) 3\.8 % (FY03) KAR: 6\.4 (FY95) KAR:6 (FY97-00) 4\.7 (FY03) 4\.3 (FY04) Share of health resources allocated to the WB: 76 % (FY96) WB: 80 % (FY01) primary and secondary levels of health care PJ: 86 % (FY95) PJ: 80\.8 % (FY03) KAR: 59 % (FY95) KAR: 88\.6 % (FY03) Health budget allocations for provisions of WB: WB: Rs\. 107\.65 crore (7%) (FY03) drugs and essential supplies and PJ: Rs\. 7\.9 m (FY96) PJ: Rs\. 224\.8 m (3%) (FY03) consumables KAR: Rs 50,000/PHC (FY01) KAR: 788 m (7%), Rs 85,000/PHC (FY03) Implementation of a user charge policy; WB: Minimum WB: Substantial Revenues collected\. PJ: Rs\. 4 m (FY96) PJ: Rs\. 120 m (FY03) KAR: Rs 3 m (FY97) KAR: Rs\. 145 m (FY02) Number of project institutions implemented None WB: 178 / 74 contracting out of services to private sector PJ: 62 / 58 / 154 (4) KAR: 170 Institutions staffed in accordance with agreed WB: Few WB: All DHs, SDHs and 70 % of RHs norms PJ/KAR: Unsatisfactory PJ: 80 % KAR: 82 % Number of admissions to institutions under WB: 1\.5 m (FY97) WB: 1\.94 m (FY03) the project (% increase) PJ: 0\.2 m (FY96) PJ: 0\.331 m (FY03) (65 % ) KAR: 0\.6 m KAR: 1\.1 m (FY03) Out-patient consultations (number and WB: 14\.8 m WB: 21\.4 m (FY03) percentage increase) PJ: 3\.972 (FY96) PJ: 8\.42 m (FY03) (112 %) KAR: 12\.6 m KAR: 21\.7 m Number of hospital beds under project KAR: 14,858 KAR: 19,206 facilities Punjab: 4,378 Punjab: 6,374 Bed turn over rate WB: 55\.7 / 65\.7 / 74\.3 WB: 78\.60 / 76\.64 / 103\.92 PJ: 38\.84 PJ: 52\.48 Kar: 4\.55 (FY01) KAR: 4\.9 % (FY03) Increase bed occupancy rate to 100% (WB), WB: 81% / 74% / 48% (1) WB: 90\.1% / 85\.22% / 82\.3% 82% (PJ), 78% (KAR) (6) PJ: 43\.1 % (FY96) PJ: 49\.3 % (FY03) KAR: 37 % (FY96) KAR: 41\.2 % (FY03) Reduce average length of stay to 8 (WB), 10 WB: 12 WB: 4\.10 / 4\.05 / 2\.83 (PJ), 8 (KAR) PJ: 12 PJ: 3\.43 KAR: 15 KAR: 3\.5 (FY03) Percent /number of inpatients and outpatients WB: 10\.5% / 5\.6% / 3\.5% (1) WB: 20\.26% / 13\.37% / 7\.27% in institutions under the project receiving PJ: 7\.6 (FY96) PJ: 42\.3 (FY03) diagnostic tests\. KAR: 1 m KAR: 3\.9 m Number of major surgeries (% increase) PJ: 0\.04 m (FY96) PJ: 0\.229 m (472 % (FY03) KAR: 30,425 KAR: 230,000 Number of x-rays (% increase) PJ: 0\.084 m (FY96) PJ: 0\.551 m (556 % (FY03) KAR: 170,909 KAR: 480,000 Number of medical staff trained and number Staff received little or no training since WB: 4312/ 8016/1102/1625/531 (2) - 15 -  of training courses held according to plan completion of degree PJ: 4074 / 1521 / 4019 / 2200 (5) KAR: 2,899 / 0 / 4902 / 4968 Number of institutions under the project that None WB: All project hospitals have implemented Quality Assurance PJ: All project hospitals Program KAR: all 204, 6 had ISO 9002/1994 Certificate Number of Facilities None WB: 213 hospitals completed expanded/upgraded/renovated and PJ: all 154 hospitals operational KAR: all 204 Number of people provided basic health KAR: Piloting in 8 PHCs in Mysore and WB: 1\.85 million services with specialist and diagnostic Hassan Districts KAR: 7 m ST/SC provided with health services\. checkup in 48,725 camps 1End of project (1) District / Sub-divisional / Rural hospitals (2) Mos / Nursing staff / Paramedics / Specialist MO / Management training for nurses and paramedics (3) Number of villages covered by mobile health care services (% of all remote villages in the Sunderbans) (4) Ambulance / Sanitary / Maintenance services (5) Doctors / Nurses / Paramedical Staff / Class IV Employees (6) Baseline values on BORs taken from SAR; Recently AMs and state governments in Punjab and Karnataka use the baseline values of BORs of 43\.1 and 37 respectively\. Table 1: Institutional deliveries in selected states, 1999-2003 Share of IDs in total Share of IDs by public Share of IDs by private State deliveries: sector: sector: 1999 2003 1999 2003 1999 2003 Karnataka 49 53 55 33 45 67 West Bengal 37 49 77 74 23 26 Punjab 42 46 97 26 3 74 Andhra Pradesh 46 59 35 33 65 67 Kerala 97 95 33 35 67 65 Tamil Nadu 81 87 46 47 54 53 Source: Staff's estimates based on RCH Surveys 1999 and 2003 Table 2: Institutional deliveries by the poorest group in selected states, 1999-2003 Share of IDs in total Share of IDs by Share of IDs by State deliveries: public sector: private sector: 1999 2003 1999 2003 1999 2003 Karnataka 30 30 77 75 23 25 West Bengal 16 27 92 93 8 7 Punjab 20 24 91 21 9 79 Andhra Pradesh 29 33 48 47 52 53 Kerala 92 87 55 60 45 40 Tamil Nadu 68 74 66 72 34 28 Source: Ibid\. Table 3: Percentage sought antenatal care during pregnancy for the poorest group, 1999-03 - 16 -  1999 2003 Percentage point increase Karnataka 26\.3 70\.2 43\.9 West Bengal 33\.0 81\.6 48\.5 Punjab 30\.4 68\.5 38\.1 Andhra Pradesh 23\.9 71\.6 47\.8 Kerala 29\.3 99\.3 70\.0 Haryana 30\.4 63\.7 33\.4 Tamil Nadu 27\.9 94\.7 66\.7 Source: Ibid\. Table 4: Percentage sought antenatal care during pregnancy for all, 1999-03 1999 2003 Percentage point increase Karnataka 27\.3 84\.4 57\.1 West Bengal 29\.2 88\.2 59\.0 Punjab 29\.1 85\.8 56\.8 Andhra Pradesh 24\.5 88\.3 63\.8 Kerala 31\.5 99\.4 67\.9 Haryana 30\.5 80\.6 50\.1 Tamil Nadu 28\.0 97\.7 69\.8 Source: Ibid\. Table 5: Proportion of children having partial immunization by sector, 1999-2003 1999 2003 Increase in immunization coverage (% of children) in: Total public sector private sector other Karnataka 30 93 63 42 9 13 West Bengal 29 90 61 52 3 7 Punjab 27 88 60 48 11 1 Andhra Pradesh 26 96 70 52 19 -2 Kerela 31 98 67 52 14 0 Haryana 30 83 53 27 6 19 Tamil Nadu 30 100 70 40 26 3 Source: Ibid\. Table 6: Proportion of poor children having partial immunization by sector, 1999-2003 1999 2003 Increase in immunization coverage (% of children) in: Total public sector private sector other Karnataka 32 88 56 36 0 20 West Bengal 31 90 59 50 1 8 Punjab 26 72 46 39 4 2 Andhra Pradesh 28 93 65 59 7 -1 Kerela 30 98 69 63 6 0 Haryana 31 64 34 8 1 24 Tamil Nadu 32 99 68 57 5 6 Source: Ibid\. Note: Partial Immunization- Percent of surveyed children who received at least one of four vaccinations, namely BCG, three doses of DPT, oral polio, and measles\. The figures are a combination of information recorded on the child's vaccination card, or, in cases where a card was not seen by the interviewer, as reported by the mother\. - 17 -  Table 7: Proportion of children having full immunization, 1999-2003 Poorest group (20%) Better-off (20%) All State 1999 2003 Increase 1999 2003 Increase 1999 2003 Increase Karnataka 19 32 13 21 68 47 20 46 26 West Bengal 11 15 4 16 47 31 14 25 10 Punjab 15 15 0 20 58 37 18 35 17 Andhra Pradesh 17 19 2 15 57 42 17 34 17 Kerela 20 58 38 23 71 48 22 65 43 Haryana 16 4 -12 20 46 26 18 21 3 Tamil Nadu 21 65 44 20 77 57 21 70 49 Source: Ibid\. Note: Full Immunization - Percent of surveyed children who received all four vaccinations, namely BCG, three doses of DPT, oral polio, and measles\. Table 8: Budget allocation for health and its allocation by State (%), 1994-03 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Karnataka Govt\. budget allocated for health (%) 5\.2 5\.8 6\.0 5\.4 6\.0 6\.0 5\.2 5\.1 4\.6 4\.3 Share of health budget for: Primary 23\.5 26\.6 25\.4 32\.1 32\.6 36\.1 36\.2 35\.9 43\.3 44\.9 Seconday 35\.4 32\.6 32\.1 43\.2 43\.8 48\.5 44\.9 42\.0 46\.7 45\.2 Total Primary and Secondary58\.9 59\.2 57\.5 75\.3 76\.4 84\.6 81\.1 77\.8 90\.0 90\.1 Punjab Govt\. budget allocated for health2\.9 2\.5 3\.5 3\.2 3\.3 3\.0 3\.3 4\.5 4\.5 3\.8 Share of health budget for: Primary 61\.0 56\.9 59\.3 54\.8 55\.7 50\.8 49\.9 55\.9 57\.1 61\.7 Seconday 25\.0 25\.0 25\.0 23\.0 23\.9 25\.9 28\.3 25\.1 20\.7 19\.0 Total Primary and Secondary86\.0 81\.9 84\.3 77\.8 79\.6 76\.7 78\.1 81\.1 77\.8 80\.8 West Bengal Govt\. budget allocated for health 5\.1 5\.2 6\.0 4\.8 5\.4 6\.2 5\.4 5\.1 4\.0 Share of health budget for: Primary 31\.0 32\.0 33\.0 34\.0 37\.8 34\.7 29\.6 34\.8 36\.9 Seconday 22\.0 23\.0 24\.0 24\.0 26\.5 24\.2 23\.1 23\.4 27\.4 Total Primary and Secondary 53\.0 55\.0 57\.0 58\.0 64\.4 58\.9 52\.7 58\.2 64\.3 Table 9: Annual increase in government health financing for secondary level (Rs\. Million) Projected annual increase in State Annual increase in health financing for secondary level recurrent cost FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Karnataka 360 245 309 1005 886 800 -23 315 -1 -296 West Bengal 250 289 624 23 1107 341 84 -25 170 Punjab 150 -25 266 117 370 147 360 -195 -26 -173 Note: Revenue from user charges were Rs\. 145m and Rs\. 120m respectively in FY03 in Karnataka and Punjab - 18 -  Annex 2\. Project Costs and Financing 2a\. Project Cost by Component (in US$ million equivalent) Component Appraisal Revised Actual/Latest Percentage Estimate project Estimate of Revised (US$ million) costs (US$ (US$ m) Management Development and 26\.6 29\.7 m) 28\.7 96\.7 Institutional Strengthening Improve Service Quality, Access 308\.2 362\.6 354\.9 97\.9 and Effectiveness Improve Access to Basic Health 24\.3 18\.9 17\.9 94\.4 Services Total Baseline Cost 359\.1 411\.2 401\.5 Physical Contingencies 33\.6 Price Contingencies 24\.0 Total Project Costs 416\.7 411\.2 401\.5 Total Financing Required 416\.7 411\.2 401\.5 2b-1\. Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement method Total Expenditure Category ICB NCB Other (1) N\.B\.F\. Cost 1\. Works 124\.6 17\.6 142\.2 (114\.1) (15\.3) (129\.4) 2\. Goods 66\.2 59\.3 44\.0 169\.5 (62\.27) (52\.7) (36\.7) (151\.7) 3\. Services 30\.9 30\.9 (27\.0) (27\.0) 4\. Miscellaneous 74\.1 74\.1 (42\.1) (42\.1) Total 66\.2 183\.9 166\.6 416\.7 (62\.3) (166\.8) (121\.1) (350\.0) Note: (1) Other methods include NS, LS and others\. Figures in parentheses are IDA's financing 2b-2\. Project Costs by Procurement Arrangements (Revised Estimate) (US$ million equivalent) Procurement method Total Cost Expenditure Category ICB NCB Other (1) N\.B\.F\. 1\. Works 172\.9 25\.7 198\.6 (152\.8) (14\.7) (167\.5) 2\. Goods 26\.2 34\.0 51\.3 111\.5 (16\.9) (24\.5) (37\.2) (78\.6) 3\. Services 2\.8 21\.2 24\.0 (2\.8) (16\.0) (18\.8) 4\. Miscellaneous 77\.1 77\.1 (51\.0) (51\.0) Total 26\.2 209\.7 175\.3 411\.2 (16\.9) (180\.1) (118\.9) (315\.9) Note: (1) Other methods include NS, LS and others\. Figures in parentheses are IDA's financing 2c\. Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) - 19 -  Procurement method Total Expenditure Category ICB NCB Other (1) N\.B\.F\. Cost 1\. Works 171\.47 25\.52 197\.0 (152\.6) (14\.5) (167\.1) 2\. Goods 25\.7 33\.0 49\.7 108\.4 (15\.8) (24\.1) (36\.9) (76\.8) 3\. Services 2\.8 19\.96 22\.7 (2\.78) (15\.8) (18\.6) 4\. Miscellaneous 73\.4 73\.4 (50\.2) 168\.58 (50\.2) Total 25\.7 207\.3 168\.6 401\.5 (15\.8) (179\.5) (117\.4) (312\.7) Note: (1) Other methods include NS, LS and others\. Figures in parentheses are IDA's financing (2) The estimate of actual total disbursement of the IDA Credit of US$ 312\.7 million equivalent (and its breakdown in this table) was provided by the Borrower\. This amount is somewhat lower than the corresponding amount in the Bank's Controller System of US$ 314\.4 million equivalent\. 2d\. Project Financing by Component (in US$ million equivalent) Component Revised Estimate Actual/Latest Estimate Percentage of Revised Bank Govt\. Total Bank Govt\. Total Bank Govt\. Total Management Development & 20\.2 9\.5 29\.7 19\.8 8\.9 28\.7 98\.1 93\.7 96\.7 Institutional Strengthening Improve Service Quality, Access 280\.4 82\.2 362\.6 278\.2 76\.7 354\.9 99\.2 93\.3 97\.9 and Effectiveness Improve Access to Basic Health 15\.3 3\.6 18\.9 14\.6 3\.2 17\.9 95\.6 89\.4 94\.4 Facilities Total Costs 315\.9 95\.3 411\.2 312\.7 88\.8 401\.5 99\.0 93\.2 97\.6 - 20 -  Annex 3\. Economic Costs and Benefits Not calculated - 21 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 11/03/1994 4 Economist (1); Social Dev\. Specialist (1);Public Health Specialist (1); Architect Consultant (1) Procurement Engineer/Specialist (1) 02/23/1995 7 Economist (2); Social Dev\. Specialist (1); Public Health Specialist (2); Architect Consultant (1) Bio-Medical Engineer (1) Procurement Engineer/Specialist (1) Appraisal/Negotiation 10/09/1995 8 Economist (3); Social Dev\. Specialist (1); Public Health Specialist (2); Architect (1); Bio-Medical Engineer (1) Procurement Engineer/Specialist (1) Supervision 03/20/1997 9 Sr\. Economist (1); Bio-Medical S S Engineer (1); Procurement Spec\. (1); Sociologist (1); Architect (2); Public Health Spec\. (2); Medical Waste Spec\. (1) 11/19/1997 6 Sr\. Economist (1); Health S S Systems Spec (1); Soc\. Development Spec (1); Health Care Waste Spec (1); Procurement Spec (1); Architect (1) 06/11/1998 11 Senior Economist (1); Social Dev S S Specialist (2); Economist (1); Health Systems Spec (1); Health Mgmt Specialist (1); Architect (2); Procurement Engineer (1); Public Health Spec (2) 11/24/1998 10 Sr\. Economist (1); Health S S Systems Spec (1); Hosp Management Spec (1); Soc Development Spec (1); Public Health Spec (2); Economist (1); - 22 -  Staff Asst (1); Architect (1); Health Care Waste Spec (1) 02/22/1999 7 Team Leader (1); Hosp Mgmt S S Specialist (1); Public Health Spec (1); Economist (1); Procurement Specialist (1); Architect (1); Soc Dev Specialist (1) 06/1/1999 11 Team Leader (1); Publ Health S S Specialist (3); Oper Analyst (1); Procurement Specialist (1); Architect (1); Social Dev Specialist (1); Biomedical Engineer (1); Management Specialist (1) 10/27/1999 11 Team Leader (1); Publ Health S S Specialist (3); Oper Analyst (1); Procurement Specialist (1); Architect (1); Social Dev Specialist (1); Biomedical Engineer (1); Management Specialist (1) 05/05/2000 8 Team Leader (1); Publ Health S S Specialist (4); Procurement Specialist (1); Architect (1); Fin\. Management Specialist (1) 10/28/2000 7 Mission Leader (1); Public HS S Health Spec\. (2); Procurement Spec\. (1); Biomedical Engr\. (1); Architect (1); Iec Consultant (1); 05/19/2001 9 Mission Leader (1); Sr\. Pub\. HS S Hlth\. Splst\. (2); Pub\.Hlth\.Splst (1); Sr\. Proc\. Specialist (1); Fin\.Mgmt Splst\. (1); Iec Consultant (1); Biomedical Engr\. (1) Ops\. Officer (1) 11/02/2001 8 Team Leader (1); Sr\. Pub\. Hlth S S Splst\. (1); Pub\. Hlth Splst\. (1); Ops\. Officer (1); Sr\.Procurement Splst\. (1); Consultant (2); Consultant Architect (1) 05/21/2002 6 Team Leader (1); Sr\. Pub\. Health HS S Splst\. (2); Sr\. Proc\. Splst (1); Sr\. Fin\. Mgmt\. Splst\. (1); Consultant Architect (2); Iec Consultant (1) 09/25/2002 5 Mission Leader (1); Sr\. Public HS HS Health Specialist (1); Sr\. Proc\. Splst\. (1); Consultant (2) 05/21/2003 5 Mission Leader (1); Sr\. S S Procurement\. Specialist\. (1); Sr\. Financial Management Specialist (1); Consultant (1); Consultant Architect (1) 11/03/2003 4 Mission Leader (1); Lead Impl\. S S - 23 -  Specialist (1); Operation Officer (1); Biomedical Engr\. (1) ICR 02/25/2004 4 Mission Leader (1); Senior S HS Public Health Specialist (1); Senior Health Economist (1); Junior Professional Assistant (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 117 364 Appraisal/Negotiation 55 147 Supervision 328 923 ICR 26 47 Total 526 1481 - 24 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA Involvement of NGOs Intrasectoral coordination - 25 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 26 -  Annex 7\. List of Supporting Documents Title Prepared by Date 1 Staff Appraisal Report, India: State Health World Bank February 1996 System Development Project II\. 2 Development Credit Agreement, Credit February 1996 Number 2833 IN 3 Project Agreement, Credit Number 2833 February 1996 IN 4 ICR Mission Report World Bank 2004 5 Aide-Memoires of the Supervision World Bank Missions for the State Health System Project II, 1998-2004\. 6 Mid-Term Review (MTR)/ Supervision World Bank 1999 Mission Aide-Memoires 7 Government of Karnataka, Mid-Term 1999 Review by World Bank Mission\. 8 Government of West Bengal, Mid-Term 1999 Review by World Bank Mission\. 9 Government of Punjab, Mid-Term Review 1999 by World Bank Mission\. 10 India: Policies to Reduce Poverty and World Bank January 31, 2000 Accelerate Sustainable Development 11 West Bengal: Policy Note (Draft) World Bank February 2004 12 Punjab: Policy Note (Draft) World Bank February 2004 13 Better Health System for Indian's Poor: World Bank 2002 Findings, Analysis, and Options 14 Karnataka State Health System Government of Karnataka April 2004 Development Project: Implementation Completion Report 15 West Bengal State Health System Government of West Bengal April 2004 Development Project: Implementation Completion Report 16 Punjab State Health System Development Government of Punjab April 2004 Project: Implementation Completion Report 17 Patient Satisfaction Survey: Results and Government of Karnataka NA Analysis 18 Measuring Quality Indicators and Patient Government of West Bengal 2003 Satisfaction 19 Measuring Quality Indicators and Patient Government of West Bengal March 2004 Satisfaction 20 Survey of Patient Satisfaction in Project Government of Punjab 2002 and Non-project Hospitals 21 Survey of Patient Satisfaction in Project Government of Punjab April 2004 and Non-project Hospitals 22 Compliance and Status Report: State Government of Karnataka November 2003 Health System Development Project 23 Report on Financial Progress Government of Karnataka October 2003 24 Impact Evaluation of WB HSD Indian Institute of Health April 2004 Development Project II Management Research - 27 -  Jaipur 25 Project Status Report World Bank March 15, 2004 26 Review of Health Care Waste Management World Bank May 2004 Practices in State Health Systems Projects in Karnataka, West Bengal and Punjab 27 Many reports on sub-components from states 28 Evaluation of Karnataka Health Systems Government of Karnataka June 2004 Development Project 29 Borrower's comments ­ Punjab Health Government of Punjab June 2004 System Development Component 30 Borrower's comments - West Bengal Government of West Bengal June 2004 Health System Development Project - 28 -  Additional Annex 8\. Borrower's Evaluation Reports I\. Karnataka Implementation Completion Report of KARNATAKA HEALTH SYSTEMS DEVELOPMENT PROJECT CREDIT NO - 2833 IN Details Original Revised Project & DCA Agreement Date 18th April 1996 Project Commencement Date June 1996 Project Period 5 Years 8 Years Project Closing Date 30th September 2001 31st March 2004 Credit Closing Date 30th March 2002 30th March 2004 Borrower/Implementing Agency: GOVERNMENT OF INDIA / GOVERNMENT OF KARNATAKA Assessment of Development Objective and Design, and quality at Entry Original Objective: The broad objectives of the project are: (a) Improvement in the performance and quality of health care services at the district and sub-district level of the health care system (b) Narrowing the current coverage gaps by facilitating access to health care delivery and (c) achievement of better efficiency in the allocation and use of health resources to (i ) improve efficiency in the allocation and use of health resources through policy and institutional development and (ii) improve the performance of the health care system through improvements in the quality, effectiveness and coverage of the health services at first referral level\. The ultimate goal of the project would be to improve the health status of the people, especially the poor, by reducing mortality, morbidity and disability by creating linkages between different level of the health sector in the state of Karnataka\. The development objectives of the KHSDP were realistic and consistent with the priority needs in the health sector\. The Government of Karnataka has emphasized on commitment to a policy package of health reform reflecting key sectoral development issues for the primary and first referal levels of health care by (a) increasing share of health sector resources to the primary and secondary levels (b) strengthening the capacity of the Implementing Agency by setting up a Strategic Planning Cell (c) Enhancing Public & Private partnership role in health management (d) Implement a user charge policy\. Project Components: The initial SDR Credit allocation to the Project of 68\.9 million was revised to SDR 78\.33 million (US $ 103\.43 million equivalent), consisting of three major components (1) Management Development and Institutional Strengthening (12\.% of base cost): (2) Improve Service Quality, Access and Effectiveness at Secondary Level Hospital ( 76% of base cost) and (3) Improve access and equity to disadvantaged areas (12% of base cost)\. The Project financed for renovation and expansion of hospital buildings, medical equipment, vehicles, medicines, medical lab supplies, MIS/IEC materials, furniture, professional services & consultants, training, workshops, fellowship, studies conducted, salaries & operating cost and maintenance of building & equipments\. Management Development & Institutional Strengthening: (US $ 14\.33 million) Under this component, Project aimed to improve the institutional framework for policy development, strengthening management and implementation capacity and development of surveillance capacity for major communicable diseases\. A Strategic Planning Cell was created with Additional Director (SPC) as the head of the cell to address strategic planning issues in the health sector and provide management with policy options by commissioning studies and organising sensitisation workshops\. Improve Service Quality, Access and Effectiveness: (US $ 89\.29 million) - 29 -  Under this component, Project aimed to renovate and extend 200 community, Taluka & District hospitals and to upgrade their clinical effectiveness\. The clinical effectiveness and quality of services for the existing 13,499 beds would be improved, to 5,191 new beds would be added with improved & updated norms and standards for clinical and support services, improved referral mechanism and linkages with primary & tertiary level, Staffing norms would be adopted and a system for monitoring improvements in the quality of clinical care would be established through the adoption of a quality assurance program\. The capacity of support services would be expanded, and staff skills in clinical and technical areas would be strengthened through training\. 3\. Improve access and equity to disadvantaged areas: (US $ 14\.22 million) Under this component, Project aimed to improve access to health facilities in remote areas of the state with improved transport and communication network in geographical and topographical locations, where there are no major hospitals near to their livelihood\. A system of annual health check-up camps was proposed under the Project for SC/ST population, which account for nearly 20% of the population of Karnataka with improved IEC activities relating to the dissemination of general public health related issues\. Project aims to improve referral mechanism environment to first referral hospitals with more effective & friendly by well maintained master register and issue of health check-up cards free of cost to the neediest people\. Achievement of Objective and Outputs: The achievement of the development objectives of this project is rated as fully satisfactory as most of the targets have been achived or in some cases exceeded in the areas of policy indicators, access and effectiveness indicators, activity indicators\. Policy Indicators: As committed the State Government has increased the allocation to the health sector every year e\.g\. FY 1995-96 Rs\.5,516\.86 million (RE) to FY 2003-04 Rs\.10,689\.81 million (RE), with a maximum allocation of Rs\.11,811\.32 M during FY 2001-02, and maintaining more or less proportional increase / share of health sector around 5\.5 to 6% over state budget\. The share of primary and secondary level allocation in the health sector has been maintained around 90% of total allocation to health sector\. Increased budget for Drugs & Maintenance has been maintained over the project period from FY 96-97 Rs\.377\.24 million to FY 2002-03 Rs\.788\.32 million (200% increase)\. Government has implemented the reforms of contracting out non-clinical services for effective maintenance\. Strategic planning cell has been created and 21 studies were undertaken, and the major recommendations have been implemented resulting in improvement in efficient & effective usage health resources\. The state government successfully implemented user charges concept and collected more than Rs\. 143\.26 million since 1997-98, with an usage autonomy to the hospitals\. The government has appointed specialist, doctors, paramedical staff on contract basis to increase man-power and to reduce the mismatch in hospitals\. As a major step towards reforms in health sector, state government entered into public and private partnership to run a hospital by entrusting the management of OPEC funded hospital in Raichur to APPOLO management, a Mudigere Hospital entrusted to Bapuji Memorial Trust and dietary and ambulance services has been entrusted to a local NGO in a Taluka level hospital at T\.Narasipura\. The Task Force on Health was formed under the chairmanship of Chief Minister and several recommendations have implemented\. Improved technical skill of KHSDP enabled implementation of civil works & procurement for other projects of health department, which resulted in better quality, timeliness and co-ordination between different wings of health department\. Access and Effectiveness Indicator: All the 204 hospitals undertaken by the project have been upgraded and recommissioned, including the four hospitals added at MTR\. In all bed strength of 3774 has been added taking total bed strength to 19,206 as against 18,690 projected in SAR\. In addition project constructed 19 district equipment workshop buildings, 21 district laboratory buildings, 27 blood bank building and 30 trauma care centres\. The project has created 5180 medical and para medical posts to strengthen the referral system\. On recruitment of the specialist and paramedical staff on contract basis by the Government, mismatch between promised facility as per the norms and availability of specialist is drastically reduced during the project period at referral hospitals\. Technical skills have been improved by providing training to 2888 doctors, 4902 paramedical staff and 4968 in administration and 5205 workshop/seminars/conferences conducted\. ISO 9001 /2000 Certificate received for 6 district hospital for blood bank, maternity services and equipment maintenance and quality - 30 -  improvement in other hospitals are underway\. In tune with the objectives, the project was planned, implemented, monitored and supervised and took corrective actions for optimal utilization of all the health care facilities\. The studies and survey carried out by external agencies regarding utilization of facilities and satisfaction by patients has revealed that the project has significantly contributed to improving the health status of the communities\. The survey highlighted an upward trend depicting positive attitudes of both the provider and clients in the health care facilities\. The project implemented yellow card scheme wherein camps and free health services were provided to the lower strata of society ­ scheduled caste and scheduled tribes\. The bed occupancy rate leaped to 63% in 2003 from 49% in 1998\. Similarly, the admissions rose to 6,87,577 in 2003 from 5,17,092 in 1998\. The lab tests being conducted by technicians rose to 29,20,620 in 2003 from 14,96,842 in 1998\. Similarly, radiological investigations carried out in 2003 were 3,83,897, against 2,59,673 in 1998 and the number of ECGs taken in 2003 were 55,813 against 45,004 in 1998\. Project takes pride in placing on record the significant decrease in the Average Length of Stay (ALOS) in the hospitals from 12 days in 1996 to only 3\.5 days during the last year of the project, against the target of 10 days envisaged earlier\. Output by Component: 1\. Management Development & Institutional Strengthening: (US$ 9\.32 million) (i) Improving the Institutional framework for policy development: The Government addressed the management development and institutional strengthening, by setting up of a Strategic Planning Cell (SPC), that undertook 17 studies, that included willingness of people to pay for health care services, implementation of Yellow Card Scheme\. networking of public-private partnership issues etc\. SPC also facilitated the Government in framing guidelines for collection and utilization of user charges\. So far, i\.e\., from 1997 to 2004 the amount of user charges collected is approximately Rs\. 14\.33 crores and that utilized is Rs\. 9\.60 crores\. With the decentralisation policy, the government entrusted the recruitment of specialist on contract basis to the DCs (Deputy Commissioner) to fill the gap\. The government also formed a Task Force on Health under the Chairmanship of the Chief Minister and the project supported the Directorate of Health in implementing the recommendations made by the Task Force\. Karnataka State being the pioneer in the implementation of the Panchayat Raj Institutions, has successfully transferred the ownership and management of hospitals less than 100 beds to Zilla Panchayats and those with bed strength of 100 and above to the State sector\. Similarly those attached to teaching hospitals have been handed over to the Director, Medical Education\. In order to simplify correspondence and procedure at government level, the project created a secretariat wing headed by the Project Administrator, who also function as ex-officio Special Secretary to Government, H & FW Department\. This enhanced timely issue of government orders / other circulars concerning the project\. (ii) Strengthening management and Implementation Capacity: The Project has been implemented and managed by Ex-officio Special Secretary as Project Administrator supported by experienced doctors, engineers, finance & account officers, procurement specialists\. Officials have been trained in their respective discipline through various training institutions, workshops and seminar both at national and at international level, to build their capacity and equip them to effectively implement the project\. IGNOU programmes in Hospital and Health Administration as well as a Certificate Course in Rural Surgery are additional HRD efforts to strengthen the service delivery\. The Project has established an efficient system to monitor the quality of services, hospital waste management, disease surveillance, equipment maintenance, financial progress\. HMIS wing has been formed for updating performance indicators and improve the referral system\. Training on disease surveillance thorough GIS, bio-metric attendance tracking system and computerisation of hospital data have been given due priority by HMIS\. District health committees have formed under the chairmanship of CEO, Zilla Panchayat for regular monitoring of hospital functions\. District and block level referral committees have established to improve the referral mechanism\. A system has been adopted to track the manpower position and mismatch, and minimise the gap by appointing persons with the required skills on contract basis\. (iii) Developing surveillance capacity for major communicable diseases: - 31 -  District Disease Surveillance Units have been formed with logistic as well as technical support to deal with normal and emergency situations\. The Project has established 19 equipment maintenance workshops with adequate trained staff to provide services\. Regular training and workshops were conducted for the medical and para medical staff\. Geographical Information System (GIS) has been developed by the Project and effectively implemented by providing required training to the District level officials\. The GIS data is being transmitted electronically to HMIS section at Bangalore for its consolidation and analysis for effective decision-making\. 2\. Improving Service Quality, Access and Effectiveness: (US$ 120\.32 million) (i) Extending / renovating Community, Taluka and District Hospitals: Improving Access: The Project has completed renovation & expansion of all 204 hospitals compared to 200 in the SAR\. In addition the project constructed 19 district equipment workshop buildings, 21 district laboratory buildings, 27 blood bank buildings and 30 trauma care centres\. Periodical quality audit has been conducted by an external agency during the construction period and defects noticed have been rectified and the recommendations of the quality auditors have been discussed and implemented\. These hospitals and facilities were upgraded by providing latest equipment, supplies, furniture, drugs and vehicles according to clinical norms\. Bed strength has been increased from 15,432 to 19,206 between 1996 to 2004 as compared to SAR target of 18,690\. The Project has constructed staff quarters at all 204 hospital locations, to ensure availability of doctors during emergency and timely delivery of health services\. IEC activities were addressed more during the last two years of the Project\. On completion of the buildings, adequate staff and equipments have been provided\. In order to have greater impact on the IEC activities the project has procured the required IEC materials such as sign Boards, placards, brochures, etc, and these have been displayed at all the hospitals and at prominent places\. IEC aimed at providing required information to both the provider and the beneficiary ­ public at large\. Improve Quality: The Project has created 5180 medical and para medical posts\. Specialists have been appointed on contract basis\. Mismatch in the availability of specialists and their actual place of work has been addressed by recruiting more specialists or by transferring the surplus specialists to needy places\. The mismatch situation of the specialist has been resolved to the maximum\. Dental surgeons, service doctors, specialists & para medical staff have been appointed on contract basis by empowering Deputy Commissioner of respective districts to constitute selection committee comprising CEO ­ Zilla Panchayat, District Surgeon, DHO\. A total of 2888 doctors & 4902 para medical staff have been trained in clinical and managerial aspects during the project period\. A total of 5205 workshops / seminars / conferences were conducted in various disciplines during the project period and 12,994 doctors & para medical staff have attended\. the same\. This has facilitated building up their capacity and to improve their quality of service\. 3 rounds of evaluation and independent patient satisfaction survey indicate increased level of satisfaction in nursing care, cleanliness of the hospital, communication between doctors & patient, drinking water facility, availability of medicine etc\., and efforts are being made to overcome deficiencies observed\. Drug budget of the Government has been increasing over the years reflecting increase in per bed drug budget allocation from Rs\.3,790 in FY 96-97 to Rs\.7,166 in FY 2003-04\. Similarly maintenance budget has increased from Rs\.3\.04 M in FY 96-97 to Rs\.55\.00 M in FY 2003-04\. In addition the hospitals have been authorised to collect the user fee and autonomy given to utilise these funds for upkeep and maintenance of the hospitals\. An equipment maintenance wing has been established in all 27 districts and necessary infrastructure has been provided and they are functioning well\. - 32 -  The improved quality of health services has resulted in obtaining ISO 9002 certification for 6 district hospitals for blood bank, maternity services and equipment maintenance\. Department of H&FW has planned to obtain similar ISO certification for other hospitals developed under KHSDP\. HMIS and GIS systems have been developed, put to use after providing necessary equipments and training at the District level\. The district level data is transmitted to state level periodically for its consolidation and analysis for effective decision-making in combating epidemic diseases\. Improving Effectiveness: Non-clinical services have been outsourced in all the hospitals and the impact is analysed in terms of improved patient satisfaction, in areas of cleanliness, water supply, lighting, gardening etc\. Ambulances have been supplied to needy hospitals during project period and drivers have been appointed through contract basis for efficient use\. This has increased access to government hospitals and improved service delivery\. Major Medical Equipments like X-ray, Ultra sound scanner, endoscopy, QBC equipment have been procured and provided to all 204 project hospitals\. Technical staff have been appointed on contractual basis and trained for effective usage of supplied equipments\. District Equipment Maintenance (DEM) wing has been established in all 19 districts and necessary equipment has been provided\. Vehicle equipped with required tools and kits for carrying out repairs and service have also been provided to each DEM Wing\. Bio-medical engineers have been appointed and trained to service the equipments\. This has resulted in reduced down-time and better usage of the equipments Referral mechanism has been strengthened by introducing referral and feedback cards, implementing referral guidelines, incentives for referred patients, improving transport facility and TOT training to medical officers\. Referral system is functioning well, with formation of District level committees and Taluka level Committees with special emphasis on training and monitoring of the referral activities\. The referral data is being collected periodically from the hospitals through computerised HMIS system\. Effective monitoring through grading of hospitals is being carried out to ensure better and improved service\. Periodic evaluation of usage of facility provided by the Project, patient satisfaction, training provided to medical & para-medical staff has been under taken by external agency for periodic improvement in the services\. Waste management mechanism has been adopted in all hospitals by constructing deep burial pit, provided with waste bins, training on segregation and disposal of waste, in-line with the specified guidelines and ensuring containment of infections\. Collection of User fee has increased over the years from Rs\.3\.12 M in FY 97-98 to Rs\.44\.85 M in FY 03-04, by exempting the poor people\. The user fee concept has increased the level of expectation from the hospitals and has thus contributed towards improved services\. Ensuring optimal utilization of services at the health care facilities by development of Performance Indicators and their analysis, thus bringing about regular performance appraisals through grading and follow-up with additional support has resulted in improved effectiveness\. Improving referral mechanism & linkages with primary & tertiary level: Project has implemented effective referral mechanism by providing technical support to primary level hospitals like PHCs / PHUs to CHCs (FRUs) and TLHs in a phased manner with provision of feedback mechanism to the referring institution\. Referral cards have been provided and feedback received is being analysed for improving service delivery\. - 33 -  Provision of computers, accessories and computer training to hospital personnel of all health care facilities to expedite the transmission of information electronically has enabled smooth flow of data for speedy decision making\. Referral hospital also provides food for needy patient and transport facility\. 3\. Improve Access to Basic Health Services (US$ 7\.18 million) The Project has conducted health check-up camps primarily for SC/ST population with an objective of providing health facilities to the economically backward population\. Vehicles and drugs facilities have been provided at facility level and a total of 52,372 camps have been conducted benefiting 7\.67 million population\. Study by an independent agency has shown high level of satisfaction and good referral system\. Financial Achievement: Project is being implemented with the financial assistance of IDA (The World Bank Credit Number 2833 ­ IN) with March 30th 2004 as Credit Closing date\. The Original Project Cost of Rs\.5,458\.00 Million has been was revised to Rs\. 6,521\.50 Million with the approval of State Cabinet and the World Bank on extension of the Project period by two years\. The Project adopted an efficient financial management system, with a smooth fund flow mechanism and decentralised accounting system\. The computerised accounting system enabled to speedy and accurate compilation of project expenditure and its effective monitoring apart from timely submission of reimbursement of claims\. As on 31st March 2004, the cumulative Project expenditure stood at Rs\.6,245\.41 million (95\.77% of Project Cost)\. Project has submitted all the eligible claims amounting to Rs\.4,725\.06 million\. The World Bank credit to the Project of SDR 68\.9 M was revised to SDR 78\.33 M (on reallocation of unallocated credit and on allocating additional credit of SDR 3\.49 M out of savings from West Bengal state\. Project has utilized SDR Credit of 77\.01 million against the revised allocation of credit of SDR 78\.326 million to the State by indicating disbursement rate at 98\.32%\. In terms of US Dollars, the Project utlised US $ 103\.43 M\. The audit of the Project accounts has been completed upto FY 2002-03 and shortly the audit of accounts for the FY 03-04 will be taken up by the office of the Accountant General\. SUSTAINABILITY: The Government of Karnataka is fully committed to the reforms and many policy level decisions have been already addressed thus paving way for sustaining the reforms and innovations started under the project\. i) Optimum collection of user charges, with the exception of poor people (BPL Patients) ii) Autonomy to the Hospitals / facility level for collection and usage of funds iii) Decentralisation of hospital / facilities with less than 50 beds to District Zilla Panchayats iv) Ensuring the maintenance of the standards at all the health care facilities by strengthening outsourcing of non-clinical services, with adequate budgetary support; v) Ensuring continuation of correct practices in Hospital Waste Management Systems and compliance to legal issues; vi) Sustaining the quality of health care delivery and maintenance of ISO standards all the time, with further training and feedback workshops; vii) Ensuring proper equipment maintenance through timely preventive maintenance plans and immediate repair of critical equipment\. viii) Ensuring right staff at the right place through timely appraisals, appointing specialists on contact basis to reduce mismatch\. ix) Providing adequate budget provision for drugs; x) Exploring and enhancing the scope for private and public partnership; xi) Better monitoring of performance of each hospital / facility with timely data analysis using GIS and HMIS\. xii) Evaluating the performance with grading and timely action to over come the defects / deficiency in service - 34 -  delivery; xiii) Ensuring better attendance of hospital staff with attendance tracking system and enforcement of disciplinary action against erring staff\. xiv) Ensuring appropriate budgetary allocations and its timely utilization by the hospitals\. Project implementing agency's Evaluation of Bank Team: The Project Implementing agency rates the Bank team as "Highly Satisfactory" as without their active support to the Project, it could have been impossible for accomplishing the desired objectives\. All the contributions and the support of the Bank cannot be mentioned here, however significant select areas of direct contribution to the success of the project are mentioned below: Speedy clearances of the designs and drawings by the Bank's architect Speedy clearances of bidding documents / procurement plans etc for procurement of goods and equipments Timely clearances of terms of references and issues of clearances for the procurement for services contract Periodical mission visits (11 times) to the State for Project review and offered necessary guidance and suggestions for the various implementation issues, Aide memoire ­ setting of challenging benchmarks and its periodical review enabled the Project to achieve the Project's Development objectives Review team had interaction with the Project authorities apart from detailed discussion with the senior officers of the Government, such as Chief Secretary, Finance Secretary and Principal Secretary ­ Health and Family welfare, held discussion on the progress as well as on the policy issues during the periodical reviews\. Procurement & Management problems have been addressed during the Project Reviews Field visits to the Hospitals for on-site review of the progress covering all aspects of the Project implementation; Constant consultation by Bank's team with implementing agency, which improved relationship Timely admittance of claims and recommendation for release Timely Disbursement of funds to Special Account Support to Project for reallocation of cost based on field requirement periodically; Support to Project with additional allocation of SDR Credit out of savings from West Bengal The World Bank mission members have provided necessary timely guidance and clarification on various issues viz, Procurement, Disbursement; The Mission members have also shared their experiences in other countries and states Establishing linkages with other health projects in the state such as IPP VIII, IPP IX K, RCH, etc, The Bank also conducted a few national level workshops at Hyderabad, Goa, New Delhi and Bangalore which facilitated the Project in exchanging the views and share the experience with other participants, which enhanced overall capacity of the implementing agency In short the close interaction with the Bank Task Manager and Mission members facilitated finding quick solutions to the problems, educated the Project officials resulted in successful implementation of the project\. Lessons Learnt 1\. The Project envisaged renovation and expansion of hospital building with a survey conducted during 1994-95\. Due to time gap between preparation of Project proposal to the actual implementation period, the condition of the buildings were deteriorated resulting in increase in cost\. 2\. Lack of holistic planning at the project preparation stage such as equipment workshop buildings, office buildings, staff quarters, compound wall, deep burial pits, vehicle garages, glazed tiles, land scaping, solar lighting and water heaters etc, has escalated the civil works cost and also delayed the process of its approval\. 3\. Periodical Technical Audit of civil works quality, has resulted in better quality of construction and defects have been rectified in-time\. 4\. Positioning of technical staff ­ bio-medical engineers has resulted in reduced down-time and effective - 35 -  usage of the equipments; 5\. Efficient funds flow mechanism has contributed for the smooth implementation of the Project and reduced the cost of the Project apart from early completion\. To quote an example the tender premium of civil works in the beginning of the Project were in the range of 20- 25 % over the estimated cost\. After noticing the smooth flow of funds competition developed among the contractors resulting in greater transparency and reduction in the tender percentage to around 5 % leading to lower Project cost\. 6\. The 3 tier organization structure has contributed significantly for the timely decision making and close monitoring of the Project\. With clear delegation of authority the Project and co-ordination of all the departments (sections) of the Project has facilitated in timely completion of the Project\. However, apart from the structure the individual person's interest also makes a significant impact on the team building, direction and pace of implementation of the Project\. 7\. The commitment of the Government and the political will for the support of the health Project / sector and the reforms etc, played a vital role in the success of the Project\. E,g\. in providing adequate budgetary support, in implementation of users charges, appointment of specialists doctors, providing non-clinical services through private sector, etc, This is apart from the adequate budgetary support extended by the Government to the Project, that has contributed for the success of the Project\. 8\. The GOK has introduced the Karnataka Transparency in Procurement Act, and Right to Information Act for establishment of greater transparency and accountability for the use of public money as a governance policy\. The World Bank's procurement procedure has supplemented the Government efforts in good governance and has resulted in establishment of greater transparency and accountability especially in procurement, accounting, financial reporting and in auditing of Project expenditure\. 9\. As the Project is time bound it puts every one on toes, to accomplish their tasks and accelerates the pace of implementation, unlike other Government owned Projects\. The time schedule for various events like procurement, making payments, submission of claims, monthly review meetings, timely audit, credit closing date etc, contributes for speedy decision making and a challenging one to achieve the desired development objectives\. 10\. To meet the requirement of the various stakeholders, there was a need to develop a computerised accounting system\. It enabled multiple reporting of the progress and thus enhanced analysis leading to timely and proper decision making\. Normally the Govt\. classify the expenditure only under the "State Budget Head" and does not classify according to expenditure category, Procurement method, component and sub-components, location-wise etc, Thus facilitating in greater accountability for the Project funds and effective monitoring\. The computerised accounting system enabled timely consolidation of project expenditure and submission of reimbursement claims; 11\. As the outcome of the Project is constantly monitored, it has facilitated better contract management and timely completion of works / supplies\. Any deviations or slow progress will get focused and corrective actions are taken\. 12\. The Project has contributed significantly for the capacity building of the various staff in many disciplines such as procurement, financial management, clinical services and administration\. Significant portion of the staff have undergone training both in India and Abroad, as well participated in the workshops, seminars and trainings and have thus updated their skills and knowledge in their respective fields\. 13\. The efficient financial management system enabled early compilation of annual accounts and its audit thus fulfilling the financial covenants of the DCA and establishment of greater accountability for the use of project funds\. 14\. The Governments move for health reforms has resulted in decentralization of administration and autonomy to hospitals for collection of user charges and also its use\. The collection of users charges / fee has enhanced the expectation of the beneficiary / public and thus facilitate in improving the quality of service\. 15\. The Project has facilitated improving the quality of service at hospitals resulting in international recognition - ISO 9001 /2000 for 6 district hospitals and enhance the reputation of the Govt\. hospitals, setting a challenge to the hospital staff to maintain and improve the quality standards in health services delivery\. 16\. As a financial discipline the Project has been preparing and submitting the reimbursement claim applications on a monthly basis\. This has ensured better financial management and established greater accountability and o It enabled early disbursement from the World Bank o Helped the GoK / State Government ease its finance position - 36 -  II\. West Bengal Partner Comments on Implementation Completion Report of West Bengal Health System Development Project (2833-IN) A\. Project Description In 1996 Government of India negotiated in International Development Agency (IDA) (World Bank) Credit of SDRs 92\.30 million credit, in various currencies equivalent to US $ 174\.23 million, to support the West Bengal Government in strengthening the Secondary Level public health care institutions in the State, in the form of West Bengal Health System Development Project (WBHSDP), for a period of 8 years from April 1996 to March 2004\. The Project worked under the direct control of Department of Health & Family Welfare of the State\. The financial pattern of the project costs is IDA Credit US $ 149\.00 million and Government share of US $ 25\.23 million\. An amount equivalent of SDR 6 million was surrendered\. WBHSDP was approved on 2\.2\.1996, the Development Credit Agreement signed on 18\.4\.1996, and the project launched on 26\.6\.1996\. The effective project closing date, as per Credit agreement, was 31\.03\.2002 and was subsequently extended up to 30th March, 2004 in order to facilitate the completion of some software initiatives\. The ultimate goal of the Project was to improve the health status of the people, especially the poor, by reducing mortality, morbidity and disability\. B\. Project Objectives The Objectives of the Project were to assist the Government of West Bengal to: i) Improve efficiency in the allocation and use of health resources through policy and institutional development; and ii) Improve systems performance of health care through improvements in the quality, effectiveness and coverage of health services at the secondary level by improving clinical and qualitative effectiveness of second tier referral hospitals\. C\. Components of the Project The Project had the following three components : Component I\. Management Development and Institutional Strengthening (7% of Base Costs) 1\. Improving the Institutional Framework for Policy Development\. Sectoral capacity for development of policy would be strengthened in each state through the creation of a strategic planning cell headed by a person of the rank of a Joint Secretary who would report directly to the Secretary, DOHFW in each state\. The planning cell would monitor the critical issues in the health sector in the state by commissioning studies, workshops and seminars and by directly hiring consultants to facilitate these activities\. As noted earlier, some of the issues would include monitoring the development of the private health sector including private and social insurance, reviewing the suitability of present regulations relating the quality of private care provision, evaluating the burden of disease and cost effectiveness of public health interventions and reviewing medical manpower\. In addition, the strategic planning cell in each state would review implementation of cost recovery mechanisms and sectoral resource allocation patterns\. Under this sub-component the project would finance furniture, vehicles, equipment including computers, local training, studies, fellowships, workshops, consultants, operational expenses and salaries of incremental staff on a decreasing basis\. 2\. Strengthening Management and Implementation Capacity\. Project management arrangements in the three states have several common elements and some differences\. Project management arrangements have taken into account the existing organizational set-up and implementation capacity of DOHFW, the health programs currently being implemented by Department and the overall set-up of public administration in the state, especially with - 37 -  regard to the nature of decentralized administration\. The project will be managed and implemented by DOHFW, which will be strengthened under the project to address increased investment at the primary and secondary levels of health care under the project\. Management arrangements in the state would be evaluated from time to time to see whether the management system is producing the best results\. In addition, a review of overall state finances as well as the financial situation of the health sector would be undertaken, and, if necessary, would form the basis of additional measures to achieve financial sustainability of the project\. At Negotiations, the Government of West Bengal provided assurances that not later than June 30, 1999 they would carry out, jointly with GOI and IDA, a detailed mid-term review of project progress including management and financial reviews, in accordance with terms of reference agreed with IDA, and thereafter implement their recommendations\. Staff strength at the Head Office to undertake increased responsibilities and perform some new functions would be enhanced\. Headquarters staff would be increased to meet the increased workload and reorient the structure of DOHFW in West Bengal to meet their new challenges\. The project would: (i) enhance and extend the computerized system through the provision of hardware and software, and consultancy support; (ii) establish trained and equipped information cells at HQ and district levels; (iii) train all management staff in appropriate record keeping; and (iv) introduce a completely revised medical record system for in-patients and diagnostic services\. Under this sub-component the project would finance minor civil works, professional services, furniture, other equipment including computers, vehicles, other supplies, MIS/IEC materials, studies, workshops, local training, fellowships and operational expenses and salaries of incremental staff on a decreasing basis\. 3\. Developing Surveillance Capacity for Major Communicable Diseases\. The surveillance system for major communicable diseases proposed under the project would cover the identification of cases through education of health workers and community involvement; indexing of cases or isolation of cases and treatment; and tracing of contacts for monitoring and evaluation\. In the long-terms, however, the surveillance system would need to be expanded to include preventive examination among those most likely to be infected and carrying out immunization; and an enhanced response capability in case of outbreak or epidemic\. This project would fill some of the gaps in the national disease programs by linking the three elements noted above and providing treatment at the primary and secondary levels\. Explicit criteria for monitoring these communicable diseases would be set to avoid any ambiguity in reporting by different agencies\. Emphasis has been put on a community-based system for early detection and reporting and the full participation of local level institutions working at the village or community will be necessary to make the system more effective\. For example in West Bengal, stamp printed red cards would be introduced for quick transmission of information on communicable diseases, and would contain information such as name, age, sex, address, date of onset, immunization status, date of death (if any) of every patient with or died from a specific communicable disease\. The red card would be used in out-patient departments and entry points of in-patient cases in all health and medical units of the state\. As soon as a case is detected the card will be filled out and posted to the district epidemiological cell which would be provided with the facility under the project to sort, analyze and report such incidences to the appropriate authority for quick follow up action\. The implementation of the health management information system (HMIS) will improve tracing of contacts as well as provide information on other diseases that are slated to be included under HMIS activities\. Component II\. Improving Service Quality and Effectiveness at District, Sub-Divisional and Community/Rural Hospitals (86% of Base Costs) 1\. Renovating/Extending District, Subdivisional and community/Rural Hospitals\. In West Bengal, 15 district, 60 sub divisional & state general and 95 rural hospitals would be renovated/extended\. There would not be any new hospitals built under the project\. The project would create supporting infrastructure for the overcrowded facilities to adequately accommodate the 20,208 beds that are already operating but at a low level\. 2\. Upgrading the Effectiveness of Clinical and Support Services and Quality of Services at District, Subdivisional and Community/Rural Hospitals\. Streamlined norms and standards for clinical and support - 38 -  services would be applied at the first referral hospitals\. Staffing norms conforming to services provided at each type of facility would be adopted, a system for monitoring improvements in the quality of clinical care would be established through the adoption of a quality assurance program and the capacity of support services would be expanded\. Staff skills in clinical and technical areas would be enhanced through the provision of training to improve the quality and range of services\. Management training for professional cadres and on-going in-service training for clinical and technical cadres would also be strengthened\. At the first referral level, the focus of improving management effectiveness would be on strengthening service delivery\. The first referral level would be able to better manage its resources, deliver clinical services effectively, and hospitals will be able to play a more important role within the district health system\. DOHFW in West Bengal would have greater freedom of action with regard to recruitment of staff and revenue raising; establish clarity of goals, objectives and procedures; create opportunities for contracting out services, especially support services; improve medical record-keeping, health management information systems (HMIS) and related evaluation and monitoring capacities; provide management services by enhancing the capacity for equipment maintenance and training\. There is currently no acute shortage of professional staff overall, but there is a shortage of some medical specialities and nurses\. The first step would be to improve recruitment and prompt filling of job vacancies by improving recruitment procedures\. Due to the scope of civil works component and the ensure adequate maintenance of assets as a result, DOHFW in West Bengal would be strengthened by providing them with enhanced management and supervision responsibilities of essential operational activities, including construction and maintenance activities, in collaboration with local Government\. An Engineering Wing in the implementing agency in each state would be set up at the state and district levels, adequate funds would be provided and the flow of these funds would be channeled through the implementing agency\. 3\. Improving Referral System\. The referral system in West Bengal, as in the rest of India, does not function well (see Annex 8)\. Patients perceive the lower level facilities as providing lower quality of services\. As a result, the lower tiers are underutilized since patients directly proceed to higher level hospitals for minor illnesses, thereby overloading the higher level institutions\. The beneficiary assessment study in West Bengal found that about 2% of the patients at first referral facilities were referred from PHCs\. It is estimated that a third of all cases which are currently treated at tertiary facilities could treated, and at lower costs, at first referral facilities if those facilities received adequate inputs\. 2\.32 The referral system would also be strengthened by establishing an incentive system with differentiated user fees for users and non-users and allowing patients to by-pass waiting lines when they carry a referral slip\. Under this sub-component the project would finance vehicles (purchase, hire and maintenance), other supplied, MIS and IEC materials, local training, consultants, fellowships, workshops and operational expenses\. Component III\. Improving Access to Primary Health Care in Remote and under development areas (7% of Base Costs) 1\. Up grading of Primary Health Centers in the Sunderban Area of West Bengal\. The Sunderban area in southern West Bengal, with a population of about 3\.1 million people is among the poorest in the state with a predominance of small and marginal farmers ­ 40% of the population belong to SC/STs\. The 54 islands, interspersed with bodies of water, are covered with forests and swamps\. Transport and communication networks are inadequate in this hostile geographical and topographical location\. Metalled roads comprise about 10% of the total road surface area\. There are no major hospitals in the region and travel time is at least eight hours from the closest point by public transport of Kolkata and its overcrowded health facilities\. The remoteness of the region, the lack of transport, the poverty of the people and lack of access to health facilities have contributed to the health problems of the people in the Sundarban Areas\. It is, therefore, proposed that the project would upgrade all the 28 PHCs and 8 block PHCs in the Sunderban area\. In addition, three floating medical units will be set up to deliver effective health care in the riverine areas and would be supported by wireless connection\. A wireless - 39 -  communication system will also link up the 36 PHCs and block PHCs with the gram panchayat office\. Under this subcomponent, the project will finance civil works, professional services, furniture, riverine vehicles, medical and other equipment, medical laboratory supplies, medicines, other supplies, MIS/IEC materials, local training, studies, workshops and operational expenses\. D\. Achievement of objective and outputs The development objectives of this project are rated as highly satisfactory\. It exceeded many of the targets and has achieved or exceeded its development objectives in the areas of policy initiatives and quality, access and effectiveness indicators\. Major contributions include: (a) substantial strengthening of institutional capacity at the first referral level; (b) establishment of effective institutional mechanisms in the public health sector beyond the first referral level, particularly in the areas of better management practices, drug procurement policy, performance monitoring and service norms in the health sector as a whole; (c) increased allocation of resources for the health sector, increased share of resources to the primary and secondary levels of health, and larger resources for drugs and other non-salary recurrent expenditures; (d) enhanced user charges for secondary level facilities; and (e) effective contracting out of support services in all 214 Project hospitals\. In addition to strengthening the institutions and their planning capacity, including district level coordination and management capacity, expanded access to health services and compliance to referral norms has far exceeded SAR targets\. Some of the key areas which have shown remarkable improvement are as follows: Sl\. No\. Key Indicator Pre Project Post Project 1 Beneficiaries below poverty line 65% 85% 2 Bed turn over rate/month (District Hospital) 4\.64 6\.74 3 Bed turn over rate/month (Rural Hospital) 6\.19 9\.08 4 Bed occupancy rate (for District Hospital) 81\.2 90\.1 5 Bed occupancy rate (for Rural Hospital) 47\.9 82\.3 6 Average length of stay 4\.2 days 3\.7 days 7 Patients availing imaging and electro medical (average of 2\.03% 3\.38% DH, SD/SG and RH) 8 Patients receiving lab\. tests (average of DH, SD/SG and 6\.56% 10\.13% RH) 9 Infant mortality rate per 1000 L\.B\. 55 48\.7 10 Under 5 mortality rate per 1000 99\.3 67\.6 11 Neonatal mortality rate per 1000 L\.B\. 36 31\.9 12 Total fertility rate 2\.6 2\.4 13 Life expectancy at birth (average for M & F) 65\.9 67\.7 14 Female literacy rate 46\.6 60\.2 E\. Achievements Improving Access and effectiveness A government office with delegated powers, functioning like a corporate body\. Decentralised institutions enjoying administrative and financial autonomy\. Ensuring community participation in health programmes and hospital management\. Capacity building of service providers, managers, community and policy makers through skill development programmes, empowerment\. Bed strength has increased from 20,200 to 22,800\. Women comprise 46% of IPD/OPD patients illiterate 50% of IPD/OPD of in-patients and 39% outpatients; and children below 14 years comprise 11% of both in-patients and outpatients\. Hospital based IEC activities have been implemented on drug use, safe injection practices, waste management, equipment safety, referral chin, user charges, health and hygiene messages etc\. IEC in hospitals and IEC strategy implemented for HCPs and general public\. Delegation of financial powers to District Health and Family Welfare Samiti and Chief Medical Officer of - 40 -  Health\. All the Sub-Divisional and State General hospitals having more than 100 beds brought under HMIS Phase-I\. All the District hospitals, Medical Colleges, Speciality hospitals covered under HMIS Phase-I and HMIS Phase-II\. Integrated on-line HMIS by connecting Swasthya Bhavan through a new web portal www\.wbhealth\.gov\.in with hospital upto BPHC level introduced as pilot for on-line data communication\. Introduction of day pay clinics in the SD/SG and District hospitals have been very effective source of motivation for Medical Officers\. A study on rational use of drug introduced as a long term effective measure\. Consultancy for undertaking a study on Impact Evaluation of the project done for long term lessons and replication as a learning process in future project\. Referral loop introduced on a pilot basis\. Out-sourcing through private partnership of facilities and services viz\. security & cleaning, diet, ambulance, transport, generator O & M, laundry, equipment maintenance, diagnostic facilities etc\. A successful venture undertaken for running of mobile health clinic in partnership with NGO\. The government has decided to sustain this programme and to replicate in teagardens and tribal areas\. User charges were introduced and rationalized\. Private Public Participation was introduced and NGO were used to run the MHCS in Sunderban\. Improving Quality A total of 2915 medical, nursing and paramedical staff has been regularly recruited since the project start\. Gaps at higher positions were filled through promotions and contractual appointments\. The skill mismatch situation of the specialist doctors at more than 90% of the project facilities has largely been resolved\. 1,555 doctors and 7,581 nurses have been trained in clinical skills and 4,218 trained for hospital management\. Although not an explicit component of the project, health care waste management is being instituted as an integral part of hospital upgradation\. It is being implemented in all the facilities of District, Area and Community Health Centres\. About 10,614 staff has been trained in health care waste management practices\. 3306 health personnel trained in IT general\. Training facilities created in existing training institutions(tertiary hospitals) for hands-on training of HCPs on equipment\. Personnel Information Systems for HCPs developed\. To provide better quality care to the poor and disadvantaged groups, Quality assurance groups have been constituted at all the District and Area Hospitals in the four specialties namely Obstetrics & Gynecology, Peadiatrics, General Medicine and General Surgery\. Indicators for measuring quality have been developed this Ext\. Quality Assurance and 4 cycles completed and are being used to rank the project hospitals\. 50% increase in major surgeries, 90% increase in radiology and 98% increase in laboratory tests\. Standard Treatment guidelines and Essential Drug List introduced\. User charges introduced in all secondary level hospitals\. Plans for retention of user charges at facility level being chalked out\. On-line integration of Swasthya Bhawan with all the District Head Quarters\. On-line integration of Central Medical Stores with all the Drug Reserve Stores located in District Head Quarters for on-line Drug and Inventory Management Control\. F\. Improving Institutional Linkage The State level steering committee and newly formed Strategic Planning and Sector Reforms Cell is continuously monitoring policy issues and coordination activities of the other project in the department\. The government has formulated health sector strategy 2004-2013, priority and broad objectives of which are as follows: Priority of strategic planning 1\. Reducing neonatal and maternal mortality 2\. Strengthening and developing the HMIS - 41 -  3\. Exploring opportunity for strengthening decentralization and public-private partnership 4\. Reviewing and restructuring HRD systems 5\. Reviewing budgets, patterns of fund flow and financial systems 6\. Strengthening and broadening the strategic planning process\. Four overall objectives: 1\. To improve the accessibility of poor and unreached groups to curative, preventive, promotive and rehabilitative health services 2\. To reduce maternal and child mortality, and the burden of communicable, non-communicable and nutrition related diseases and disorders\. 3\. To ensure quality at all levels of health and medical care services 4\. To maintain excellence in education and research in medicine and all allied professions (including management)\. G\. Sustainability A high priority is given to the health sector in the latest health policy developed by the state government, which aims at maximizing the synergies between different lending and non-lending activities across a wide range of economic activities and through partnership with other donor agencies to strengthen impact\. In addition, the on-going Primary Health Component of the West Bengal Economic Restructuring Project will continue with some follow-on activities and support inputs initiated under this project\. (b) Institutional arrangements are firmly in place and will ensure the sustainability of project benefits realized to date\. The health management information system, including a hospital grading system set up under the project, are the first of its kind in the public health sector in India\. The performance monitoring system is utilized by project management to make strategic decisions on effective use of resources as well as for routine implementation issues\. Performance ratings are discussed regularly with staff\. This has led to a healthy competition among hospitals to improve quality of services\. A geographic information system (GIS) was developed under the project and is used by management to monitor activities\. Independent validation of data has been institutionalized through regular evaluations\. Quality Assurance Groups have been established at District and SD/SG Hospitals in order to provide better quality care to the poor and disadvantaged groups\. The government continues to address the issue of manpower and staffing where vacancies and inappropriate skill mix exist\. The enhancement of clinical skills of medical staff, and the improvement in the functioning of equipment have a positive effect in the operations of these facilities and have added to their credibility; and (c) Financial resources for the health sector have been substantially enhanced during the past six years\. The Government has stated that these trends will continue and resources for assets created under the project will be maintained\. User charges are being collected in project hospitals\. As facilities have been upgraded, collection of user fees has increased substantially, and is expected to increase further\. Contracting out of support services in the 214 upgraded facilities has reduced costs and has markedly increased efficiency as well as patient satisfaction\. Public Private Partnership is firmly in place with the contracting out of diagnostic services to private agencies in rural hospitals\. Revenue collection is being done through statutory usage of Waste Autoclave by nursing homes etc\. which will ensure maintenance of the equipment and revenue growth of the government\. H\. Transition arrangement to regular operations The prospects for continued institutional and policy reforms initiated under the project at the first referral level in the health sector are very positive\. The major challenges now are; (a) addressing overall staffing issues, particularly at the Community Hospital level; (b) addressing overall skill-mix at all facilities; (c) ensuring that management capacity of WBHSDP is not overstretched by adding a large number of additional facilities without providing sufficient technical and managerial staff; and (d) enhancing integration with the primary level and with the ongoing national health programs\. I\. LESSONS LEARNT 1\. The LOC system of fund disbursement has immensely contributed to the speedy disbursal of funds that has, in turn, provided the impetus to the progress of the project\. It helped tremendously in steady flow of funds from the PMC to the nodal engineers and consultants\. 2\. Awareness and motivation of users and stakeholders for scientific waste management should have been - 42 -  initiated earlier\. 3\. The involvement of Bio-Medical Engineer, practicing professionals and actual users is essential during preparation of technical specification\. 4\. Compliance with technical specifications as envisaged in bidding document can't be ensured during bidding stage itself\. 5\. Service of Bio medical engineers should be utilized in inspection team to ensure compliance with specification during manufacturing\. He shall also over-view the erection, testing and commissioning of equipments, supervision of maintenance etc\. 6\. It was also observed that payment schedule is not linked with installation and commissioning or if linked, percentage is so marginal that the supplier after supply shows less interest in installation and commissioning\. 7\. Various reasons, such as non-involvement of the prospective users, non-availability of properly trained personnel, doctors etc\. led to un-utilization or under-utilization of some of the equipment in different hospitals\. 8\. Equipment needing AMC should be identified at the procurement stage itself\. A cushion for ensuring after-warranty maintenance has to be kept\. 9\. Perceived need must match the actual procurements\. 10\. The stakeholders and users should have been more involved during the preparation of designs and drawings to cater to local needs and problems\. 11\. Consultants should have discussed with PMC on soil report before finalizing foundation design\. 12\. Pre-bid meetings with probable bidders before acceptance of tender could facilitate a better transparency and specifications\. III\. Punjab BORROWER'S COMMENTS: PUNJAB COMPONENT Hospital services at secondary level play a vital and complimentary role to the tertiary and primary health care systems and together form a comprehensive district based health care system\. It was noticed that in the state of Punjab, District Hospitals, Sub-Divisional Hospitals and Community Health Centres were having critical gaps in buildings, equipment, manpower, and skills and were unable to provide required basic health care services\. With an objective to improve efficiency and quality of the health care provided at first referral level hospitals, the State Govt\. took an initiative to prepare a proposal for seeking aid from the World Bank\. On the request of the State Govt\., the Bank team visited the State in March-95 to review preparation and pre-appraisal of the proposal for the Health Systems Development Project-II\. On March 21st, 1996, the International Development Association (IDA) approved credit of SDR 235\.5 million (M) (US$ 350 M equivalent) under the multi-states Health Systems Development Project for implementation in the States of Karnataka, Punjab and West Bengal\. The Development Credit Agreement and the Project Agreements were signed on April 18, 1996 on behalf of the Govt\. of India and respective states\. The credit became effective on June 27th, 1996 covering the expenditure relating to project preparation activities after 1st May, 1995 under retroactive financing\. Project Cost & Allocation: The project cost in Punjab was estimated at about US$ 106\.1 M involving IDA finance about US$ 89\.7 M and Govt\. of Punjab US$ 16\.4 M\. Out of the total credit the base line allocation for the Punjab was XDR 55\.60 M (US$ 89\.7 M equivalent)\. SDR 60\.40 M (US$ 79\.91 M equivalent) including unallocated share and revised to the tune of SDR 61\.07 (US$ 81\.14 M)\. - 43 -  Project Approach & Objectives: The project approach was an investment operation with substantial policy contents and addressing priority issues to help the State to put in place the sustainable first referral health system to support rest of the health sectors\. The main objectives were to; (i) Improve efficiency in the allocation and use of health resources through policy and institutional development; and (ii) Improve the performance of the health care system through improvements in the quality, effectiveness and coverage of health services at the first referral level and selective coverage at the primary level to better serve the neediest sections of society\. The achievements of objectives were to be evaluated on the basis of timely implementation of Health Sector Development Programme (HSDP)\. Achievements of Project Development Objectives:- i) DO1: Policy Indicators: (a) Overall %age of the total Govt\. expenditure on health sector increased from 3\.54% in FY 94-95 to 4\.27% in FY 03-04 (BE)\. In absolute term the allocations have increased from Rs\. 2057 M in FY 94-95 to Rs\. 7117\.20 M in FY 03-04 (BE) against the projected level of Rs\. 2956 M\. The per capita expenditure on Health at current price has increased from Rs\.101 in FY 94-95 to Rs\.292 in FY 03-04\. The proportion of health budget spent on primary and secondary level is 86\.34% in the FY 03-04\. A relatively higher share to the secondary and primary has shown the commitment of State Govt\. towards the health care of the poor people\. (b) The State Govt\. has made adequate provisions under the project operating plan and also allowed the PHSC to utilize a Bridge Loan credit limit of Rs\. 350 M from the commercial bank in order to accelerate project implementation activities which clearly indicates the Govt\.'s commitments for timely release of funds to the PHSC\. (c) Adequate budgetary allocations for drugs and essential supplies were made on the existing pattern\. In addition to this, the State Govt\. provided Rs\. 53\.7 M during the FY 02-03 under Non Plan side for supporting sanitation contracts and buildings maintenance services, which was totally not provided by the State Govt\. before the start of the project\. Lessons Learnt: Higher involvement of State Finance Department (Nodal Department for Budgeting) and Department of Health & Family Welfare in analysis of HSE is essential\. (d) Policy as regard to implementation of user charges was placed right from the very beginning\. User Charges collections has increased sharply from Rs\. 4 M in FY 96-97 to Rs\. 125\.37 M in FY 03-04\. This increase has been established by introducing better collection method and increase in the services offered\. Retained user charges are being utilized on defined priorities of essential drugs (45%), patient's facilities (25%), equipment maintenance (15%) and building maintenance (15%)\. DO 2: Quality, Access and Effectiveness Indicators:- In the year 1996 & 1998, the State Govt\. recruited 279 & 785 doctors\. It is being ensured that core team of specialists is being made available in every hospital\. 100% equipment as per the norms has been positioned in all the newly commissioned hospitals\. Preventive maintenance of the vital equipment is being undertaken through AMCs\. Availability of the drugs is being now monitored on monthly basis as a part of the hospital grading exercise\. The State Govt\. has continued providing the supplies of the medicines in hospitals\. Support services i\.e\. ambulance maintenance services at 62 hospitals, sanitation services at 58 hospitals and general maintenance services in all the 154 hospitals has been contracted out as a time gap arrangement waste disposal activities were also contracted out in all the 154 hospitals\. 23396 trainings for the different categories were organized as against targeted number of 10000\. Comprehensive referral system has been established by introducing procedures at the primary level, through Out Reach Camps held in the rural and far-flung areas and by providing incentives for the referred cases at the higher level institutions\. A set of core indicators are being used to grade all the 154 hospitals\. External lab\. quality assurance programme has been introduced\. Regular patient's satisfaction surveys are being carried through external agencies\. DO 3: Hospital Activity and Efficiency Indicators:- Computerized HMIS systems is in position and regular data of the hospital activity and efficiency indicators is collected and analyzed\. Revalidation of the data through external agency is being got done to ensure the reliability and proper recording\. There is 111\.9% and 65\.43% increase in the number of out patients & in patients respectively in the year 2003 from year 1996\. Likewise, there is increase in the BOR from 43\.07% in the year 1996 to 49\.30% in the year 2003\. Average Length of Stay (AVLS) is 3\.43 in the year 2003 as compared to 4\.05 in the year 1996 and Bed Turnover Rate (BTR) is 52\.48 as compared to 38\.84 in the year 1996\. For the efficiency indicators, the number of surgeries has increased 473\.56% in the year 2003 as - 44 -  compared to year 1996 (i\.e\. from 39996 to 229403)\. No\. of deliveries has increased 50% in the year 2003 as compared to year 1996 (i\.e\. from 18026 to 27001)\. No\. of X-rays, No\. of Lab\. tests and Diagnostic tests has increased from 101037, 278092, and, 301836 in the year 1996 to 462002, 3008639 and 3559937 in the year 2003\. PROJECT CONTENT I\. The Reform Programme:- As per the commitment given to a policy package of health sector reform reflecting key sectoral development issues for health care through letter of Health Sector Development Programme\. Details of the reform programmes carried are as under; i) Increase Financing and Improve Resource Allocation for Health Sector by: (a) Increasing overall size of the health budget, (b) Incremental funds for primary and secondary care and (c) Safeguard the operations and maintenance budget -- Issues stands elaborated above in Para "Achievement of Project Development Objectives DO1 ­ Policy Indicators"\. ii) Strengthen the capacity of Implementing Agency in Sector Analysis and Management: Setting up of Strategic Planning Cell\. A Strategic Planning Cell is functioning under the overall supervision of the MD PHSC cum Secretary Health\. Several studies/activities were undertaken which include (i) Equipment Status and Requirement; (ii) Training need Assessment; (iii) Size of Private Health Care and Infrastructure in the State; (iv) Burden of Disease; (v) Preparation of Draft Nursing Home Registration Act; (vi) Manpower Study comprising of analysis of staffing position and requirements; (vii) Analysis on utilization of hospital services and financial analysis on exemptions; (viii) Assessment of drugs availability in the hospitals; (ix) Rational usage of drugs; (x) Mapping pattern of major communicable diseases (GIS); (xi) A draft policy on public private partnership; (xii) Prescribing practices; (xiii) Study on Health Care Waste Management; (xiv) Continuous patient's satisfaction surveys; (xv) Study on Female Foeticide; (xvi) Maternal Death Audit; (xvii) Evaluation of training programmes; (xviii) External validation of HMIS data; (xix) Preparation and analysis of monthly, six monthly and yearly hospital efficiency report; (xx) Implementation of IEC strategy; (xxi) Community perception on utilization of health care services in PHSC versus Private; (xxii) Health Insurance Scheme; (xxii) Documentation of processes; and (xxiii) Revamping /Restructuring of Primary Health Care\. Setting up of Engineering Wing\. A full-fledged Engineering Wing was created for implementation of the project activities\. Lessons Learnt: There is a need for enhancing the State Government's ownership of reform programmes\. iii) Enhance the role of Private and Voluntary Sectors in Delivery and Management of Health Services: A study regarding private practitioners in Punjab was done\. Draft Nursing Home Registration Act was prepared and sent to Punjab Govt\. for enactment\. A draft policy for public private partnership was prepared\. Initiatives have been taken for involving private sector service providers for operation and maintenance of one of the District level Hospital at Amritsar\. Contracting out of Selected Services\. Sanitation services in 58 hospitals, Ambulance Operation services in 62 hospitals, Canteen, Cycle Stand, STD operation services in all 42 hospitals, Hospital Waste Management services in 154 hospitals (as time gap arrangements), Maintenance Services such as electrical and plumbering in all the 154 hospitals have been contracted out to the private providers\. Planning and production in IEC activities were outsourced to private professional agency\. Various voluntary organizations were involved for conducting studies for IEC activities\. NGOs from Canada & U\.K\. were also involved in providing specialized surgical services\. Effective steps have been taken for getting information regarding disease surveillance from private sector providers through Indian Medical Association (IMA)\. Lessons Learnt: (i) Outsourcing arrangements are cost effective and can help in a big way for bringing improvements in the delivery of the services\. (ii) There is a further need for engagement of private sector for delivery of health services to improve health outcomes\. Enhancement in the capacity to monitor the private sector (when it is engaged to provide health services) is required at Govt\. level\. iv) Implementation of User Charges Policy: The regulations by adopting the rates fixed in the year 1991 were framed and implemented to levy charges for various hospitals services which include purchee fee, paying beds, diagnostic and drugs for in and out patients\. Yellow cardholders (BPL) have been exempted from user charges\. Hospital incharge has been authorized to use discretion to provide free treatment to any deserving patient - 45 -  (fulfilling the criteria), who do not possess yellow card\. Requisite guidelines for collection, retention and utilization of retained revenues have been issued\. Income slabs have been removed to avoid discretion and leakages\. Concept of central collection has been introduced and in 50 hospitals computerized billing is being done\. Auditing concepts have been made more meticulous\. All these measures supported by increase in the hospital utilization indices and improvement in the quality of medical services offered has led to remarkable increase in collection of user charges\. User charges collections have increased enormously from Rs\. 4\.08 M in FY 97, Rs\. 12\.03 M in FY 98, Rs\. 19\.92 M in FY 99, Rs\. 27\.38 M in FY 00, Rs\. 43\.54 M in FY 01, Rs\. 76\.14 M in FY 02, Rs\. 104\.70 M in FY 03 and Rs\. 125\.37 M in FY 04\. The retained revenues are utilized for purchase of drugs (45%), improvement of patient's facilities (25%), building maintenance (15%) and equipment maintenance (15%)\. Lessons Learnt: (i) Retained Revenue plays a significant role in bringing autonomy and sustainability in the Health Care delivery and also a sense of belongingness in collection\. (ii) Method and procedures for collection of user charges are much more vital than the rates\. v) Tackling of Gender Issues: Intensive IEC activities have been carried out to promote the cause of the girl child and improve the sex ratio\. The details are; Print Media: Posters/Hand Bills, Booklets, Stickers were disseminated for bringing awareness of PNDT Act\. Separate advertisements were inserted in the leading newspapers to address different target groups i\.e\. Community, Parents, Doctors, Law-Enforcers and Journalists\. Electronic Media: Special jingle and TV spots were coined on AIR and leading channels on prime times against the practices of female foeticide\. Folk Media: Songs and dramas shows were organized at block levels to highlight the repercussion of declining sex-ratio\. Out Door Publicity: Hoardings/Wall Paintings, Bus Boards, Exhibitions have been got painted/organized to promote the cause of girl child\. Other Activities: Workshops, Seminars were organized by involving women groups in the villages known as Istri Sehat Sabha (ISS)\. A study to know the psyche of women who had undergone sex determination test leading to female foeticide was undertaken with a help of ISS members\. Exclusive Girl Child Competitions were organized\. Legal actions were taken against unregistered centres\. Lessons Learnt: Continuity and sustainability of the campaign is necessary to give dent on the social issues relating to mind set\. Impact: In a recent study conducted by DoHFW (period from Nov\.-03 to Jan-04) has shown that now sex ratio involving age group 0-6 years has improved to 894, from a level 793 previously recorded\. II\. Project Investments:- Financing has been made under the two components i\.e\. (i) Management Development and Institutional Strengthening; and (ii) Improving Service Quality and Effectiveness at District, Subdivisional and Community/Rural Hospitals\. Component 1\. Management Development and Institutional Strengthening: (a) Improving the Institutional Framework for Policy Development:- Activities as regard to strengthening of Sectoral Capacity through creation of Strategic Planning Cell has already been elaborated above in Para ­ "Strengthen the capacity of implementing Agency in Sector Analysis and Management"\. (b) Strengthening Management and Implementation Capacity:- The PHSC was incorporated on October 20, 1995 to establish, expand, improve and administer medical care at secondary level of health care services\. The project activities were undertaken by the PHSC and the State Govt\. has ensured that PHSC should function as an autonomous body to bring more administrative and financial flexibility in implementation of project activities\. Due to these advantages, PHSC has been able to attract qualified technical staff in the areas of civil works, financial management, taxation & law, system management, economics, equipment & transport management, procurement, quality assurance, training\. In order to ensure the focus approach for management of secondary level health care services, additional programme officers in the field of Quality Assurance, HMIS, Waste Management, Surveillance, Referral, Training, IEC, Hospital Services, Blood Bank have been positioned at H\.Q\. level and also separate offices were set-up for Deputy Medical Commissioners (DMC)\. Apart from this, in order to enhance the data collection and analysis capabilities, the office of DMCs have been strengthened by providing manpower in the field of accounts and HMIS which support the hospitals in proper recordkeeping and monitoring\. In 50 hospitals and 17 districts H\.Q\.s, capacity has been developed for computerized recordkeeping, which cover records of HMIS, Accounts, OPD/IPD, Blood Banks, and Diagnostic Services\. For this purpose, the concerned staff has been trained - 46 -  and computer operators have been provided\. In-house capabilities have been developed for commercially negotiating with the private partners for outsourcing\. Slowly this capacity is being decentralized for effective implementation\. Two full-fledged training centres have been established under the project to provide in-house training to the doctors and paramedics\. Lessons Learnt: (i) A corporate approach to the project management is key for achieving project objectives and expected outputs\. (ii) Executive mandate and strong political commitment to such set up can do wonders\. (iii) Corporate approach has an edge in outsourcing the clinical & support services\. (c) Developing Surveillance Capacity for Major Communicable Diseases:- 22 communicable and 12 non-communicable diseases prevalent were identified\. In order to strengthen identification of diseases; (i) TOT trainings were got done from NICD, New Delhi\. (ii) 7460 paramedic's staff in all the Blocks in all the districts has been trained\. (iii) 17 special disease surveillance vehicles one for each district has been provided\. (iv) Awareness campaigns for community have been initiated through special IEC component\. For indexing of the cases or isolation of cases and treatment, following steps have been taken; (i) Rapid Response Team headed by Nodal Coordinator (Epidemiologist/DHO/DIO) have been constituted in all the districts\. (ii) Air Conditioning, Isolation Rooms/Wards have been identified in all the district hospitals equipped to tackle emergencies\. (iii) Hospitals have been authorized to purchase required medicines in case of outbreaks (out of user charges to be recouped by H\.Q\.)\. For tracing of contacts for monitoring and evaluation (i) MDRR a standard format for data collection developed and distributed to all health institutions\. (ii) Data is critically analyzed to find: Disease Burden, Trends, Special Trends, Prevalence, Epidemic and reports are prepared with Charts, Graphs & Mapping on GIS\. (iii) Feed back is given for corrective measures to reduce incidence of disease\. For integrating the programme, secondary level data is being transmitted to Directorate\. Necessary infrastructure at Directorate level has been upgraded under the project\. Lessons Learnt: To make more effective programme as regard to early detection of diseases, higher involvement of private sector is necessary\. Private sector reporting is inconsistent and inadequate at primary secondary and tertiary level\. Major causes for epidemic are due to water borne diseases\. Higher involvement of other department not in the purview of health sector like; Public Health Department, Pollution Control can ensure effective implementation of the programme\. Due to lack of NGO base in Punjab innovative thinking has to be evolved for involvement of public reporting system\. Component 2\. Improving Service Quality and Effectiveness at District, Sub divisional and Community/Rural Hospitals\. (a) Renovating/Extending District, Sub divisional and Community/Rural Hospitals:- Civil Works:- As per the SAR 13 district, 2 special, 46 sub-divisional and 91 community hospitals were to be renovated/extended and about 2140 new beds were to be added in the bed strength of 5822 (4378 functional)\. Due to increase in the number of districts, 15 District, 2 Special, 38 Sub Divisional and 100 Area/Community hospitals along with 2 training centres have been renovated /extended\. In 34 hospitals additional facilities for patient's attendants have been augmented\. Additional 2\.40 lac Sq\. Mtr\. covered area of the existing hospitals has been increased by way of extension\. Out of total 157 institutions, renovated / extended under the project, 14 institutions have been constructed at new sites due to inadequate expansion provisions and improper locations for emergency (situated in crowded places)\. Construction activities were to be taken in four phases, but to cover up the initial delays, constructions activities were undertaken in two phases comprising 77 and 80 hospitals/institutions, this has saved again 19 months\. 41 professional consultants were engaged for different types of support services for construction\. - 47 -  CivilConstruction Works Programme Completion Schedule 160 150 140 130 120 110 Start of 100 construction asper 90 SAR 80 ActualStartof HOSPITALSFO\.ON 70 Construction 60 Completionof 50 Constructionasper 40 SAR 30 ActualCompletion 20 ofConstruction 10 0 96- 97- 01-r 01- 02- Sep-96 Dec Mar-97 unJ 97p-eS 97- 98- 98 98- 99- 99- 00- Dec Mar-98 unJ -00c -01c Sep- Dec Mar-99 Jun Sep-99 Dec Mar-00 Jun Sep-00 De Ma Jun Sep-01 De ar-02M -02n Ju Sep-02 Dec Lessons Learnt: (i) Cautious selection of the consultancy and construction agencies, continuation in leadership, effective planning and rigorous monitoring can cover up the delays in construction\. (ii) Observations of the World Bank on preliminary drawings, detailed drawings, and bidding documents should be kept in mind while submitting next cases\. Procurement of Equipment, Repair & Maintenance:- Equipment status survey was got done to identify the availability of the equipments (repairable and non-repairable) against the norms\. By spending around Rs\. 7\.00 M on repair of the 32 types of existing equipment, equipment worth Rs\. 250\.00 M was put in order\. Initially emphasis was made on purchase of the major/minor and other medical equipment which did not require any coordinating civil infrastructure\. 105 types of different major/minor equipments have been purchased and installed\. Right from the very beginning emphasis was given through the project support for preventive maintenance of the equipments through Annual Maintenance Contracts (AMC) and technical staff positioned at three equipment repair & maintenance workshops\. Lessons Learnt: (i) Preventive maintenance is quite essential for achieving highest upkeep time for the vital equipment\. (b) Upgrading the effectiveness of clinical and support services and quality of services: All the renovated/upgraded hospitals have been operationalized along with two training centres\. A set of clinical and staffing norms have been adopted\. Quality Assurance Programme: As per SAR there was a plan for establishment of Quality Assurance Committee and Working Groups to take care of quality assessment evaluation, improvements and criteria and medical audit\. Initially, State level committees along with working groups were constituted\. A set of Core Quality Indicators taking into consideration dimensions of Access to the services; Continuity; Technical Competence; Interpersonal Relations; Efficiency & Effectiveness; Safety; Amenities; Waste Management; Cleanliness; Referral Systems; Vital Drugs; and Swab Tests have been finalized and monthly grading of all the hospitals is being done on the basis of such indictors\. External Quality Assurance Programme has been introduced by tying up the CMC Vellore to check the quality of clinical laboratories\. Presently, some of the laboratories of the PHSC hospitals are among the first ten in the India\. Medical Record Keeping: Checklists and protocols have been introduced in all the hospitals for medical record keeping and ICD coding\. Special trainings have been given to - 48 -  doctors and paramedics\. Prescription Audit to ascertain prescribing practices based on ICD coding was got done\. Patient's Satisfaction: Five rounds of patient's satisfaction surveys have been got conducted, out of which four surveys have been conducted through external agencies\. Regular analysis and feed backs are being given to hospitals\. Lessons Learnt: (i) Grading & acknowledging performance can help in a big way in improving the services\. (ii) Standardize patient satisfaction survey formats & continuous surveys can help in understanding the changing needs of the patients and the level of improvements with different timely interventions\. Waste Management: Guidelines as regard to segregation, storage, disinfection, disposal, sharp management, as per the Biomedical Waste (Management & Handling) Rules, 1998 were issued\. 955 doctors, 2032 paramedics and 2142 class-IV employees were got trained\. On the basis of recommendations and action plan finalized by the consultants hired for preparing a comprehensive plan, protective aids and requisite material like; Needle Syringe Destroyers, Shredders and Autoclaves have been supplied\. Deep burial pits for human anatomical waste have been constructed in all the hospitals and as per the requirements of the law, for some hospitals, arrangements have been made with the private operators for incineration\. Continuous monitoring is being done and special inputs for improving the systems are being provided through specially created programme of Quality Circles\. Manual on standard operative procedures for biomedical waste have been circulated\. Lessons Learnt: Developing quality circles and its monitoring can be helpful in implementing the program in a sustainable manner\. Training: Based on Training Need Assessment done, areas were identified for the training and training curriculums were finalized\. Following different 23396 trainings were organized as against the targeted number of 10000; Category Clinical/Managerial Referral Waste Surveillance Total / Management Hands on Equipment Doctors 2080 2997 955 780 6812 Nurses 1560 1699 2032 7460 1560 Paramedic 1691 12882 s Class IV 2142 2142 Total 5331 4696 5129 8240 23396 Trainings have been organized in prestigious institutions like; PGIMER Chandigarh, CMC Ludhiana, GMCH Chandigarh, AIIMS New Delhi, LBSNAA Mussoorie, NICD New Delhi, MGSIP Chandigarh, CEDTI Mohali, ASCI Hyderabad, Jaipur and Abraod\. Training have been given in the field of clinical skills, managerial skills, hands-on equipment, HMIS, Surveillance, Referrals, Waste Management, Procurement, Computers and Finance\. During the course of implementation of training activities, external evaluation was got done\. Two State level training centres have been constructed to impart in-job trainings to doctors and paramedics\. Apart from this, libraries have been established with internet facility for continuous medical education at H\.Q\. level as well as in all the district level hospitals\. Lessons Learnt: (i) TOT trainings should be discouraged\. Though subsequent trainings imparted by trainers can be cost effective but lack quality\. (ii) Training should also be away from working place\. (iii)Proper pre & post evaluation should be made integral part of the training programmes\. Strengthening of Service Delivery: Autonomy to Hospital: To introduce this concept following steps were taken; (i) Higher financial powers to hospital incharge, DMCs and CSs were given; (ii) Full powers were given to hospital incharge for commercial exploitation for support services for revenue raising, outsourcing of sanitation services, maintenance services of equipment & hospital building and condemnation of unserviceable articles; (iii) Clear-cut guidelines were given for the procedures to be adopted for retention and utilization of user charges; (iv) Direct recommendation for recruitment of critical manpower on contractual terms\. Lessons Learnt: Higher accountability is possible only when higher autonomy is given to the Institutions\. - 49 -  Health Management Information Systems (HMIS): In order to strengthen evaluation and monitoring capacities, managerial training as well as trainings in HMIS was given to the hospitals incharge\. The performance efficiency of the hospitals is being judged through 10 defined Performance Indicators\. Monthly meetings with the Dy\. Medical Commissioners are being conducted to review the performance of the districts\. A continuous monitoring programme has been implemented under which each DMC reviews the overall performance of the hospitals in the district and SMO Incharge review the performance of each specialist doctor in their hospitals against the fixed benchmarks\. Selected hospitals are being computerized to report accurate data and guide information\. All the 17 DMC offices have been computerized to analyze and transfer data of all the health institutions to H\.Q\. through internet\. Special trainings have been given to the existing staff for handling the computers both for public utility and internal information\. Lessons Learnt: Rigorous monitoring can sensitize the management & providers and bring overall improvement in the health delivery\. Improvement of Referral Systems: 133 additional ambulances have been provided\. 324 existing ambulances were repaired\. Referral manual were prepared containing guidelines that specify `what' `when' and `how' of refer\. Colour coded referral cards have been introduced for sub centre level to district level for referring the patients\. Trainings to doctors and paramedics for implementation of referral system were given\. Incentive for referred patients (queue jump, exemption of OP/Admission Charges) have been introduced, referral routes have been established and displayed in all the hospitals\. On pilot basis feedback reports on emergency obstetrics care are being received and reviewed for timely and justified referrals\. This feed back information is being analyzed at H\.Q\. level and sent to referral institution doctor for taking corrective measures if any\. Special tie-up has been made at tertiary level facilities for creation of special window for the referred patients\. Lessons Learnt: Completion of referral loop is quite vital for the referring institutions and can serve as an incentive to the referring doctor\. Increasing Access to Primary Care Services: To reach poor people of the rural and remote areas for their health needs and to create awareness among general public as regard to medical facilities available 426 nos\. of Out Reach Health Camps were organized\. Tracking, complete follow-up, incentives of referral and cost effectiveness of the charges were ensured\. Six mobile hospitals were launched in backward districts to provide services in the rural deficit areas\. Lessons Learnt: Outreach camps give due benefits i\.e\. understanding the health needs of the people, and awareness and building confidence among them as regard to available services\. Information, Education & Communication: Three community based studies were done (i) Study to gauge Knowledge, Attitude and Practice level (KAP) of people regarding issues concerning health; (ii) Study to identify "Barriers in accessing health services" specially by women and poor; and (iii) Study to know the psyche of women undergoing female foeticide (Female Foeticide Myth and Reality)\. A revised focused strategy was developed with the assistance of a professional communication agency on the issues like; Health Seeking Behaviour of the Community, Behaviour of Service Providers, Gender Issues and Water Borne Diseases\. Special focus was given by the professional agency in understanding the needs and the areas of emphasize\. Target Groups for each issue were identified\. The material produced was pre-tested in the Community in order to assess the acceptability as regard to the message to be disseminated\. Production of the tools to address the target groups was done and launched through a multimedia campaign through specially designed Media Plan\. Lessons Learnt: (i) Approach for handling the IEC issue through professional agency is more effective than in-house handling such issues through traditional approach\. (ii) Focussed approach is quite effective in addressing the core issues and can give more impacts\. (iii) More emphasis should be given on capacity building and trainings for innovative thinking in IEC\. Evaluation of own Performance: During the course of project evolution, the State Govt\. expeditiously established the PHSC to implement and manage the project, thus not hampering the project processing\. Project start-up was delayed due to continuing debate around the PHSC and constraint in the flow of funds\. These issues were resolved through excellent management and monitoring and time lost was covered\. Qualitative designing, construction, meticulous and timely execution of extension works brought a great impact on users, providers and Govt\. giving key agency status to the PHSC in health sector\. PHSC executed other health project worth Rs\.1400\.00 M\. The availability and quality of furniture, major/minor equipment, drugs and other supplies brought a new zeal in working environments and professional satisfaction among the providers\. Qualitative trainings in prestigious - 50 -  institutions to all levels has improved the clinical, managerial and equipment handling skills\. Exemplary work has been done in IEC by focusing special issues by hiring private professional agency, implementation of quality assurance and waste management programme especially monthly grading of the hospitals, introduction of external quality assurance programme in the laboratories and creation of waste management quality circles\. Administrative flexibility within the system has given an edge in involving the private sector providers for support & clinical services and brought higher accountability through higher delegations\. Impacts of the project through different gauges: Achievements against various indicators substantiate above claims\. However, impacts of the project are also visible if we apply different gauges as elaborated below\. Issue: Excellent Management & Monitoring Techniques ­ 19 months delay was covered up in execution of civil extension works\. Issue: Faith of Government and Opinion Makers ­ PHSC has been assigned additional project worth Rs\. 1400\.00 M\. Persistent demands are pouring from public for bringing the management of their respective institutions under the ambit of PHSC\. Issue: Focused IEC Campaigns ­ Special campaigns and initiatives for managing gender issues has brought the improvements in the sex ratio\. In a recent study conducted by DoHFW (period from Nov\.-03 to Jan-04) has shown that now sex ratio involving age group 0-6 years has improved to 894, from a level 793 previously recorded\. Issue: Reduction of Out of Pocket Expenses - Special generic campaigns' focusing the availability of improved services at reasonable costs has brought down the open market rates of various tests\. The rates of ECG has come down from Rs\. 120/- to Rs\. 60/-, the rates of Ultrasound from Rs\. 450/- to Rs\. 150/- and rates of X-ray from Rs\. 100/- to Rs\. 60/-\. This has helped the general public by reducing out of pocket expenses\. Issue: Establishment of Referral Mechanism ­ A study shows that there is a trend of decrease of the major surgeries in the Medical Colleges and trend of increase of such surgeries in secondary level hospitals\. %age increase for the indicators like; Admissions, Out Patients, No\. of Surgeries, No\. of Deliveries & Diagnostic Tests in the Community Health Centres is much higher as compare to District Hospitals and Sub Divisional Hospitals\. Issue: Sustaining the project Interventions ­ In view of the good work done by the corporation by effectively implementing the project and bringing radical improvements in the service quality, the State Govt\. in principle has agreed to continue to manage secondary level health care services through PHSC\. A notification to this effect has already been issued on 5\.4\.2004\. The State Govt\. has also decided to provide additional 100\.00 M rupees to continue the additional capacity created as a corporate structure and to supplement the supplies being provided to the hospitals with the World Bank assistance\. Evaluation of Performance of the Bank: 20 World Bank missions visited the State during the identification, preparation, appraisal and implementation of the project activities\. The Bank's input right from the beginning remained noteworthy\. Step wise fixation of benchmarks has played crucial role\. Benchmarking was done not only as per the Project Implementation Plan but was also done keeping in view the capacity and emerged weak areas\. Composition of the mission remained always balanced to suit the inputs and thrust required in the project\. Significant role was played by the Bank missions by timely intervention to address, the constraint as regard to inadequate and untimely flow of funds, at the highest level for corrective measures to ensure timely and effective implementation of the project\. Mission appreciated the good work and helped to overcome the problems which led to non achievement of any target\. Effectiveness of Relationship: Positive attitude of the mission leader and liberty for interaction at any point or at any time created a very healthy atmosphere\. This was further strengthened and broaden by introduction of the concept of the inter-states workshops\. Lessons learnt by other states in implementation of activities were shared, timely corrective steps saved crucial time and costs\. Such workshops became experience sharing forum in which even the other Bank experts contributed to give global wider perspectives of health care issues\. - 51 -  * * * * * - 52 -  - 53 -

REVIEW

P126034

Document of The World Bank Report No: ICR00004018 IMPLEMENTATION COMPLETION AND RESULTS REPORT FOR A SERIES OF IDA CREDITS (Credit No\.5288-KG and Credit No\.5478-KG) IN THE AMOUNT OF SDR 9\.20 MILLION (US$13\.75 MILLION EQUIVALENT) AND SDR 8\.99 MILLION (US$13\.89 MILLION EQUIVALENT) AND SERIES OF IDA GRANTS (Grant No\.H869-KG and Grant No\.H9630-KG) IN THE AMOUNT OF SDR 7\.60 MILLION (US$11\.25 MILLION EQUIVALENT) AND SDR 7\.19 MILLION (US$11\.11 MILLION EQUIVALENT) TO THE KYRGYZ REPUBLIC FOR THE FIRST AND SECOND DEVELOPMENT POLICY OPERATIONS May 19, 2017 Macroeconomic and Fiscal Management Global Practice South Caucasus and Central Asia Country Unit Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2017) Currency Unit = Som US$ 1\.00 = Som 67\.50 FISCAL YEAR: Calendar year ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities Accounting Standards ADB Asian Development Bank ISPs Internet Service Providers BEEPS Business Environment and LDP Letter of Development Policy Enterprise Performance Survey LITS Life in Transition Survey CBEM Capacity Building for Economic MBLIF Monthly Benefit for Low Income Management Project Families CHP Central Heating Plan MoE Ministry of Education CIS Commonwealth of Independent MoF Ministry of Finance Sates MoH Ministry of Health COA Chamber of Accounts MoTC Ministry of Trade and COI Conflict of Interest Communication CPI Corruption Perception Index MTEF Medium-Term Expenditure CPS Country Partnership Strategy Framework CU Customs Union MTTP Medium-Term Tariff Policy DB Doing Business NBKR National Bank of the Kyrgyz DFID Department for International Republic Development NSDS National Sustainable Development DPO Development Policy Operation Strategy DAS Debt Sustainability Analysis PEFA Public Expenditure and Financial EBRD European Bank for Reconstruction Accountability and Development PER Public Expenditure Review ECF Extended Credit Facility PIP Public Investment Program EEU Eurasian Economic Union PFM Public Financial Management EU European Union PPD Public Procurement Department FBO Food Business Operator PPL Public Procurement Law FIAS Foreign Investment Advisory Service PSDP Private Sector Development Program GCI Global Competitiveness Index PSRR Public Sector Reform Roadmap GDP Gross Domestic Product SCA State Communications Agency GoKR Government of the Kyrgyz Republic SDR Special Drawing Rights HACC Hazard Analysis Critical Control SME Small and Medium Enterprise Point SPS State Personnel Service IDA International Development VAT Value-added Tax Association WBG World Bank Group IFC International Finance Corporation WDR World Development Report IMF International Monetary Fund WGI World Governance Indicators IPSAS International Public Sector  Vice President: Cyril Muller Country Director: Lilia Burunciuc Sector Manager: Maria Gonzalez Miranda Task Team Leader: Kamer Karakurum-Ozdemir/ Evgenij Najdov ICR Team Leader: Bakyt Dubashov  KYRGYZ REPUBLIC Development Policy Operations I and II (2013 and 2014) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 10 3\. Assessment of Outcomes \. 17 4\. Assessment of Risks to Development Outcomes \. 24 5\. Assessment of Bank and Borrower Performance \. 25 6\. Lessons Learned\. 28 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 29 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 31 Annex 2\. Beneficiary Survey Results \. 33 Annex 3\. Stakeholder Workshop Report and Results \. 34 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 35 Annex 5\. Comments of Co-financiers and Other Partners/Stakeholders \. 40 Annex 6\. List of Supporting Documents \. 41 i A\. Basic Information Program 1 Programmatic Country Kyrgyz Republic Program Name Development Policy Operation 1 IDA-52880, IDA- Program ID P126034 L/C/TF Number(s) H8690 ICR Date 10/14/2016 ICR Type Core ICR Lending Instrument DPL Borrower KYRGYZ REPUBLIC Original Total XDR 16\.80M Disbursed Amount XDR 16\.80M Commitment Implementing Agency: Ministry of Finance Co-financiers and Other External Partners: Not applicable Program 2 Programmatic Country Kyrgyz Republic Program Name Development Policy Operation 2 IDA-54780, IDA- Program ID P126274 L/C/TF Number(s) H9630 ICR Date 10/14/2016 ICR Type Core ICR Lending Instrument DPL Borrower KYRGYZ REPUBLIC Original Total XDR 16\.18M Disbursed Amount XDR 16\.18M Commitment Implementing Agency: Ministry of Finance Co-financiers and Other External Partners: Not applicable B\. Key Dates Programmatic Development Policy Operation 1 - P126034 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/25/2012 Effectiveness: 12/06/2013 Appraisal: 01/10/2013 Restructuring(s): Approval: 07/25/2013 Mid-term Review: Closing: 09/30/2014 09/30/2014 Programmatic Development Policy Operation 2 - P126274 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/04/2013 Effectiveness: 07/11/2014 Appraisal: 04/02/2014 Restructuring(s): ii Approval: 06/10/2014 Mid-term Review: Closing: 12/31/2015 12/31/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Overall Program Rating Outcomes Moderately satisfactory Risk to Development Outcome High Bank Performance Moderately satisfactory Borrower Performance Moderately unsatisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Moderately Quality at Entry Government: unsatisfactory Implementing Moderately Quality of Supervision: Satisfactory Agency/Agencies: unsatisfactory Overall Bank Overall Borrower Moderately Moderately satisfactory Performance Performance unsatisfactory C\.3 Quality at Entry and Implementation Performance Indicators Programmatic Development Policy Operation 1 - P126034 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA) DO rating before Satisfactory Closing/Inactive status Programmatic Development Policy Operation 2 - P126274 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA) DO rating before Closing/Inactive status iii D\. Sector and Theme Codes Programmatic Development Policy Operation 1 - P126034 Original Actual Major Sector Public Administration Law and Justice 25 25 Central Government (Central Agencies) 31 31 Financial Sector General finance sector 6 6 Energy and Extractives Other Energy and Extractives 13 13 Industry, Trade and Services Other Industry, Trade and Services 25 25 Major Theme/Theme/Sub Theme Private Sector Development Business Enabling Environment 25 25 Regulation and Competition Policy 25 25 Public Sector Management Public Administration 50 50 Transparency, Accountability and Good 50 50 Governance Public Finance Management 25 25 Public Expenditure Management 25 25 Programmatic Development Policy Operation 2 - P126274 Original Actual Major Sector Public Administration Other Public Administration 34 34 Law and Justice 11 11 Financial Sector Banking Institutions 22 22 Energy and Extractives Other Energy and Extractives 11 11 Industry, Trade and Services Other Industry, Trade and Services 22 22 Major Theme/Theme/Sub Theme Finance Financial Stability 11 11 Financial Sector Integrity 11 11 iv  Financial Sector oversight and policy/banking 11 11 regulation & restructuring Private Sector Development Business Enabling Environment 25 25 Regulation and Competition Policy 25 25 Public Sector Management Public Administration 50 50 Transparency, Accountability and Good 50 50 Governance Public Finance Management 25 25 Public Expenditure Management 25 25 Rule of Law 11 11 Judicial and other Dispute Resolution Mechanisms 11 11 E\. Bank Staff Programmatic Development Policy Operation 1 - P126034 Positions At ICR At Approval Vice President: Cyril Muller Philippe Le Houerou Country Director: Lilia Burunciuc Saroj Kumar Jha Practice Maria Gonzalez Miranda Ivailo Izvorski Manager/Manager: Task Team Leader: Afsaneh Sedghi ICR Team Leader: Bakyt Dubashov ICR Primary Author: Saumya Mitra/Bakyt Dubashov Programmatic Development Policy Operation 2 - P126274 Positions At ICR At Approval Vice President: Cyril Muller Laura Tuck Country Director: Lilia Burunciuc Saroj Kumar Jha Practice Maria Gonzalez Miranda Ivailo Izvorski Manager/Manager: Kamer Karakurum- Task Team Leader: Ozdemir/Evgenij Najdov ICR Team Leader: Bakyt Dubashov ICR Primary Authors: Saumya Mitra / Bakyt Dubashov F\. Results Framework Analysis Program Development Objectives (from Program Document) DPO-I defined the program development objectives as follows: (i) strengthening governance and anti- corruption efforts and putting in place enforcement and evaluation and monitoring mechanisms, implementing key priority areas in the judicial sector to promote the rule of law, and to improve public sector accountability and efficiency in the management and use of public resources, and (ii) sharpening competitiveness and enhancing the attractiveness for private investment through improving v transparency and governance in the energy sector, reforms in the financial sector, and improving the environment for the development of private businesses\. Revised Program Development Objectives (as approved by original approving authority) DPO-II considered the main program development objective to be the promotion of sustainable growth through more accountable use of public resources and an improved environment for doing business\. Under the first pillar – Improving Public Sector Governance, the program was intended to support increased accountability and transparency in the use of public resources, which was expected to improve the quality of public service and generate savings that would strengthen fiscal sustainability and allow re-allocation of some spending to priority areas\. The second pillar – Enhancing the Business Environment – was designed to support actions to address the constraints to a more vibrant development of the private sector, including through improved business inspection systems, a more effective judiciary, improved banking supervision, and a stronger deposit protection framework\. Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1: Worldwide Governance Indicator Control of Corruption – percentile rank\. Value (quantitative or 9\.95 15 11\.54 Qualitative) Date achieved 2011 2014 2014 Comments Not achieved\. The prior action on the verification of asset declarations of civil (incl\. % servants and submission of summary results was carried out\. However, this step achievement) has to be followed by a systemic use of data gathered to investigate accumulation of assets that seem unreasonable\. The methodology for this task is still to be implemented and additional resources will be necessary\. Composition of expenditure out-turns compared to original approved budget\. Indicator 2: (PEFA PI-2) Value (quantitative or C B D+ Qualitative) Date achieved 2009 2014 2014 Comments Not achieved\. While the budget outturn as measured by total expenditures was (incl\. % close to original budget estimates, the composition of spending has diverged achievement) substantially from budget estimates\. Indicator 3: Effectiveness of internal audit increased (PEFA PI-21)\. Value (quantitative or D C C Qualitative) Date achieved 2009 2014 2014 vi  Achieved\. Internal audit reforms have been commendable\. An internal audit Comments council ensures the independence and quality of internal audits, and the coverage (incl\. % of internal audit has been gradually widened\. The internal audit reports are being achievement) streamlined into the regular work program of ministries and lessons are being learned\. Indicator 4: MoF public procurement report shows increasing compliance with the PPL\. No information Information made Information made Value provided on available on available on (quantitative or effectiveness of public effectiveness of effectiveness of Qualitative) procurement public procurement public procurement Date achieved 2011 2014 2014 Achieved\. Procurement reforms have advanced, with all public procurement Comments taking place through a portal, managed by the Ministry of Finance\. The portal (incl\. % provides public information on current and past procurements\. An inter-agency achievement) independent commission adjudicates over complaints\. Annual reports contain efficiency and effectiveness indicators\. Key operational and financial performance indicators and key decisions of the Indicator 5: power sector are regularly disclosed\. Value No indicators are Key operational Performance (quantitative or disclosed and financial indicators and key Qualitative) performance decisions are indicators are disclosed, but not disclosed regularly or without undue lags, and with a sparser coverage than was the expected result\. Date achieved 2011 2014 2014 Partially achieved\. Audits of energy distribution companies are performed, but not fully or regularly published\. The ministry, the regulator and the companies have established websites to disclose the agreed information on performance, but Comments these are often outdated and incomplete\. The transparent and competitive (incl\. % procurement of fuel resources for generation is taking place\. Escrow accounts achievement) with regard to exports are being maintained\. The action of selecting the general directors and executive bodies of the energy companies based on transparent and competitive procedures has not been met\. Indicator 6: Increase in the budget of the judiciary\. Between 2014 and Value 10 percent annual 2016, the budget of (quantitative or increase the judicial sector Qualitative) was nearly doubled\. Date achieved 2014 2015 2016 vii Comments Achieved\. There have been institutional improvements in the working of the (incl\. % court department, in court procedures, in the operations of the supreme and achievement) appellant courts\. Indicator 7: Reduction in the number of days to register a business\. Value A reduction in the 20 days Reduced by 10 days (quantitative or number of days by Qualitative) 14 days in 2016\. Date achieved 2011 2014 2016 Comments Achieved\. The process of business registrations has been streamlined in the (incl\. % Ministry of Justice, and the necessary information to registrants is provided both achievement) online and onsite\. Indicator 8: Strength of investor protection index (sub-indicator of DB) improved\. The result was 6\.3 in Value score 7 score 8 2015 and it remains (quantitative or 6\.3 in 2017\. Qualitative) Date achieved 2011 2015 2015/2017 Not achieved\. Parliament decided not to legislate the reforms in corporate Comments governance directed at strengthening the responsibilities of members of (incl\. % management bodies of companies as they considered other corporate governance achievement) reforms to be more salient\. Indicator 9: Risk-based inspection by MoE and pilot agencies reduce inspection burden\. Value Inspections are not risk- Inspections are Inspections were (quantitative or based risk-based risk-based on a pilot Qualitative) basis in 2014 and are currently risk-based country-wide\. Date achieved 2011 2014 2014/2017 Achieved\. A single automated database is used for the conduct of inspections in a Comments risk-based manner\. The inspection reforms enjoy strong support within the (incl\. % government and businesses, and have led to a substantial improvement in the achievement) business climate and reduced opportunities for corruption\. NBKR regularly collects credit information from banks and microfinance Indicator 10: institutions and enhances supervision\. Value No records on parallel Parallel loans are Loans obtained by a (quantitative or loans tracked single borrower Qualitative) from different sources, were not able to be tracked in 2014 as required by the results matrix, but are now being tracked\. Date achieved 2011 2014 2016 Comments Partly achieved\. Through methodological improvements in the conduct of (incl\. % supervision, the reporting requirement for banks, the formation of the credit viii achievement) registry, and growing capacity in the central bank on understanding and making use of data from the credit registry and on parallel loans, the central bank has been able to reinforce its supervisory capabilities\. Indicator 11: Increased confidence in banks as evidenced by increasing deposits/GDP\. Value (quantitative or 16 percent 20 percent 25 percent Qualitative) Date achieved November 2013 December 2014 December 2014 Achieved\. The amendments to the deposit protection law bolstered confidence on the part of the insured (the depositors) of prompt and full payments up to the ceiling, went into effect in 2016\. Although the results indicator was satisfied, its Comments design is questionable\. The deposit to GDP ratio is influenced by much more (incl\. % powerful factors than the state of the deposit insurance system; and even if a achievement) fundamental reform in the deposit insurance system were to occur, it can hardly be expected to have an impact on the level of deposits within such a short time frame as one year\. G\. Ratings of Program Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 11/23/2013 Satisfactory Satisfactory 0\.00 H\. Restructuring (if any) Not Applicable ix 1\. Program Context, Development Objectives and Design This Implementation Completion and Results Report (ICR) assesses the achievements of the expected results of the programmatic series of Governance and Competitiveness Development Policy Operations to the Kyrgyz Republic\. The Development Policy Operations series was intended to support the Kyrgyz Government’s reform efforts in two critical areas: (i) Improving Public Sector Governance and (ii) Enhancing the Business Environment\. The first theme was designed to support increased accountability and transparency in the use of public resources; the second to support actions to address the constraints to a more vibrant development of the private sector\. The first operation (DPO I) of US$24 million was approved by the World Bank’s Board of Directors on July 25, 2013\. The second operation (DPO II) of US$24 million was approved on June 10, 2014\. Both operations had a 55-45 percent credit-grant element\. 1\.1 Context at Appraisal The Kyrgyz Republic remains a low-income country in the Europe and Central Asia region, with a GNI per capita in 2015 of $1100\. The Kyrgyz economy largely depends on gold production, which accounts for about 10 percent of GDP and about 40 percent of exports, and on migrant workers’ remittances, equivalent to about 25 percent of GDP\. The informal sector of the economy is high, employing 70 percent of those employed\. In 2015, 32 percent of the population lived in poverty\. The DPO series was central to the Bank’s strategic engagement with the Kyrgyz Republic, following the 2010 political turmoil\. The development policy operations were prepared over a two-year period (2012-13) that followed the removal of the president from office, by public protests, and the adoption of a new constitution whereby the erstwhile presidential system was replaced by a parliamentary one, in the belief that wider dispersal of powers would help counter mis-governance\. The government’s reforms program focused on improving governance and the judicial system, strengthening the business climate and promoting financial sector development, as well as the development of energy as a strategic industry\. The DPO series was designed squarely to help the Kyrgyz authorities deliver on these priorities\. At the time of DPO-I, the macroeconomic framework was broadly adequate, although the growth performance was affected by shocks, which the DPOs were meant to help mitigate\. In 2012, the macroeconomic situation was stable; however real GDP declined by 0\.1 percent due to a large drop in gold production\. The non-gold sector grew at 6\.3 percent, driven by private consumption, which was mainly fueled by increased remittances (Table 2)\. An expansionary fiscal policy, driven by higher social spending as well as increased capital outlays for energy infrastructure projects was geared to support growth in the short-term\. The Kyrgyz Government further articulated its strategic reforms in the Medium-Term Development Program for 2012-2014, which was adopted by Parliament in 2012\. The main objectives of the program were to reduce poverty and improve the quality of life of the population through securing economic growth led by the private sector, improving governance, and raising the quality of public services\. The program envisaged a broad range 1 of actions aimed at improving business regulatory policies, establishing an efficient tax system, increasing access to finance, strengthening public finance management, budget discipline and transparency, and enhancing public property and assets management\. By the time DPO-II was appraised, the macroeconomic performance remained adequate\. Real GDP growth rebounded to 10\.9 percent in 2013, as gold production recovered, and remained strong at 5\.6 percent in the first quarter of 2014\. Growth was driven by private consumption, public investment and gold exports\. The fiscal balance improved as steps were taken to restraint spending (e\.g\. wage freeze) and to increase revenues by improving tax policy and administration\. The DPO series was aligned with Bank’s strategy\. DPO-I was central to the Bank’s Interim Strategy Note (FY12-13), which had as its three pillars governance, economic recovery and reconstruction, and social stabilization\. By appraisal of DPO-II, the Bank had developed the Country Partnership Strategy (FY 13-17), which had a focus on public administration, the business climate, and management of natural resources and infrastructure\. Thus, the DPOs were designed to be the critical instruments for advancing the Bank’s assistance goals\. By supporting policy reforms, these operations have also facilitated a set of technical and institution-building support as well as investment project support provided by the Bank and given them a coherent framework\. A further critical rationale for the operations lay in ensuring that the budget was fully funded so that high-priority social expenditures could be safeguarded\. Table 1: Selected Macroeconomic and Social Indicators, 2010-2016 2010 2011 2012 2013 2014 2015 2016 Prel\. (Percent, unless otherwise indicated) National Income and Prices Nominal GDP (bln\. of soms) 220\.4 286\.0 310\.5 350\.0 400\.7 430\.5 458\.0 Nominal GDP per capita (US$) 875 1,120 1,182 1,282 1,266 1,109 1,073 Real GDP growth -0\.5 6\.0 -0\.1 10\.9 4\.0 3\.9 3\.8 Real non-gold GDP growth -1\.0 6\.3 6\.3 6\.1 5\.0 4\.9 3\.7 Private consumption growth 2\.7 9\.3 11\.2 8\.0 3\.0 -6\.0 2\.2 Gross investment (percent of GDP) 23\.9 24\.3 26\.2 26\.1 29\.2 29\.4 30\.1 Consumer price inflation, year-end 19\.2 5\.7 7\.5 4\.0 10\.5 3\.4 -0\.5 Real effective exchange rate (2010=100) 105\.5 107\.1 107\.3 106\.9 120\.3 108\.4 111\.7 (Current US$ millions, unless otherwise indicated) External Accounts Merchandise exports, of which: 1,833 2,365 2,247 2,518 2,483 1,619 1,594 Gold exports 668 1,006 562 737 717 665 771 Merchandise imports 2,993 4,022 4,955 5,614 5,290 3,860 3,680 Current-account balance -307 -403 -991 -1,022 -1,191 -742 -616 as percent of GDP -6\.4 -6\.5 -15 -14\.1 -15\.9 -11\.1 -9\.4 Total official international reserves 1,705 1,835 2,067 2,238 1,958 1,778 1,969 External debt, as percent of GDP 88\.4 76\.7 78\.6 83\.3 80\.5 94\.5 92\.6 (Percent of GDP, unless otherwise indicated) Consolidated Fiscal Accounts Revenues 30\.5 31\.8 33\.8 33\.9 34\.4 34\.4 33\.3 Expenditures 36\.8 36\.4 39\.1 37\.9 38\.5 37\.4 39\.8 Overall fiscal balance -6\.3 -4\.6 -5\.3 -4\.0 -4\.1 -3\.0 -6\.6 Primary fiscal balance -5\.4 -3\.6 -4\.4 -3\.1 -3\.2 -2\.0 -5\.4 Total public debt 60\.3 50\.1 49 47\.7 53\.6 67\.2 61\.4 (Percent, unless otherwise indicated) Social Indicators Poverty rate, international (percent of population) 32\.2 30\.3 31\.3 35\.8 29\.2 32\.9 32\.8 Sources: World Bank staff calculations and estimates based on official data published and provided by the authorities\. 2 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The Program Document (PD) of DPO-I defined the PDOs as follows: (i) strengthening governance and anti-corruption efforts and putting in place enforcement and evaluation and monitoring mechanisms, implementing key priority areas in the judicial sector to promote the rule of law, and to improve public sector accountability and efficiency in the management and use of public resources, and (ii) sharpening competitiveness and enhancing the attractiveness for private investment through improving transparency and governance in the energy sector, reforms in the financial sector, and improving the environment for development of private businesses\. The key outcome indicators, as presented in DPO-I, were the following: Strengthening Governance and Anti-Corruption Reforms 1\. Semi-annual report on implementation of the anti-corruption action plan Base: no report Target: implementation report published semi-annually 2\. Global Competitiveness Index (Institutions Pillar Rank) by World Economic Forum Overall Base: rank 137 out of 144 Target: rank 120 out of 144 (ECA average is 84) 3\. Judicial appointment process finalized\. Base: all judges (35) of the Supreme Court and all judges (11) of the Constitutional Chamber in place Target: appointment of all local court judges (401) completed and all judges working in their courts 4\. PEFA PI-2\. Composition of expenditure out-turns compared to original approved budget Base: C Target: B 5\. PEFA PI-21\. Effectiveness of internal audit Base: D Target: C 6\. Quality of the Public Procurement Law (PPL) and implementation capacity Base: public procurement reports are not published Target: timely publication of annual public procurement reports by the Ministry of Finance Sharpening Competitiveness and Enhancing the Attractiveness for Private Investment 7\. Reduction in number of days to register a business Base: 20 days Target: Reduced by 10 days 3 8\. Extent of director liability (sub-indicator of the protecting investors’ indicator of DB)\. Improvement in the score of director liability will contribute to protecting minority shareholder against directors’ misuse of corporate assets for personal gain\. Base: score 7 Target: score 8 9\. Implementation of a risk-based approach to inspection that will lead to 30% reduction by redirecting of focus on high risk businesses Base: No risk based approach to business inspections Target: Risk based inspection used by MoE and pilots: 1\. Vet\., Sanitary and Phito-Sanitary Safety and 2\. Environmental and Technical Safety to manage risk based inspections, and further expanded to all of controlling agencies, and the info on 60% of businesses which are subject to inspections is in the database 10\. Increased transparency – regular disclosure of the power sector’s financial and operational performance indicators Base: no indicators are disclosed Target: key operational and financial performance indicators of the sector and key decisions are regularly disclosed 11\. Adoption of modern bank supervision methods Base: supervisory framework lacking modern supervision methods Target: the supervisory framework is based on the Basel norms and standards 12\. The Deposit Protection Law is in line with the best international practices without gaps and mismatches with other legislation and provides effective framework for DPS Base: Deposit Protection Law not in line with international best practice Target: Enhanced financial sector stability and effective framework for DPS, increased public confidence in banks as evidenced by increasing deposit/GDP indicator 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification DPO-II considered the main program development objective to be the promotion of sustainable growth through more accountable use of public resources and an improved environment for doing business\. Under the first pillar of the operation, the objective was to support the government efforts in improving public sector governance by increased accountability and transparency in the use of public resources\. The second pillar objective was to support efforts in enhancing business environment by actions to address the constraints to a more vibrant development of the private sector, including through improved business inspection systems, a more effective judiciary, improved banking supervision, and a stronger deposit protection framework\. 4 The final key outcome indicators of the DPO series were as follows: Improving Public Sector Governance 1\. Worldwide Governance Indicator Control of Corruption – percentile rank Baseline: 9\.95 (2011) Target: 15 (2014) 2\. Composition of expenditure out-turns compared to original approved budget (PEFA PI- 2) Baseline: C Target: B 3\. Effectiveness of internal audit increased (PEFA PI-21) Baseline: D (2009) Target: C (2014) 4\. Public procurement report of the Ministry of Finance shows increasing compliance with PPL Baseline: no information provided on effectiveness of public procurement (2011) Target: information available on effectiveness of public procurement (2014) 5\. Key operational and financial performance indicators and key decisions of the power sector are regularly disclosed\. Baseline: no indicators are disclosed (2011) Target: key operational and financial performance indicators are disclosed (2014) Enhancing the Business Environment 6\. Increase in the budget for the judiciary Target: annual rate of increase of 10 percent (2015) 7\. Reduction in the number of days to register a business Baseline: 20 days Target: Reduced by 10 days 8\. Strength of investor protection index (sub-indicator of DB) improved Baseline: score 7 (DB2011) Target: score 8 (DB2015) 9\. Risk-based inspection by the Ministry of Economy and pilot agencies reduces inspection burden Baseline: inspections are not risk-based (2011) Target: inspections are risk based (2014) 10\. NBKR regularly collects credit information from banks and microfinance institutions and enhances supervision\. Baseline: no records on parallel loans (2011) Target: parallel loans are tracked (2014) 11\. Increased confidence in banks as evidenced by increasing deposits to GDP ratio Baseline: 16 percent (November 2013) Target: 20 percent (December 2014) The PDOs of DPO-II were fully consistent with those of DPO-I, representing an elaboration and a further development of the PDOs of the first operation\. 5  Table 2: DPO-I and DPO-II Results Indicators and Reasons for the Adjustment DPO-I Results Indicators DPO-II Results Indicators Notes Pillar 1: Strengthening Governance Pillar 1: Improving Public Sector and Anti-Corruption Reforms Governance Semi-annual report on Worldwide Governance The initial indicator was replaced implementation of Indicator Control of with one believed to be stronger, the anti-corruption action plan\. Corruption – percentile rank and more specific and relevant Base: No report Baseline: 9\.95 (2011) Target: to the revised action in DPO-II\. Target: Implementation report 15 (2014) published semi-annually\. Global Competitiveness Index The initial indicator was (Institutions Pillar Rank) by dropped because DPO-II World Economic Forum included a more specific Overall indicator on corruption\. Base: rank 137 out of 144 Target: rank 120 out of 144 Judicial appointment process The initial indicator was finalized dropped because it was seen as Base: All judges (35) of the redundant with a new indicator Supreme Court and all judges set under Pillar 2: Enhancing the (11) of the Constitutional Business Environment\. Chamber in place Target: Appointment of all local court judges (401) completed\. PEFA PI-2\. Composition of Composition of expenditure No change\. expenditure out-turns out-turns compared to compared to original approved original approved budget budget\. (PEFA PI-2) Base: C Baseline: C Target: B Target: B Effectiveness of internal audit Effectiveness of internal No change\. increased (PEFA PI-21) audit increased (PEFA PI-21) Baseline: D Baseline: D (2009) Target: C Target: C (2014) Quality of the Public Public procurement report of No change\. Procurement Law (PPL) and the Ministry of Finance implementation capacity\. shows increasing compliance Base: Public procurement with PPL\. reports are not published\. Baseline: no information Target: Timely publication of provided on effectiveness of annual public procurement public procurement (2011) reports by MoF that include a Target: information available section on compliance with the on effectiveness of public PPL through conducting procurement (2014) sample compliance tests to document number of bidders 6 DPO-I Results Indicators DPO-II Results Indicators Notes and timeliness of public notification of procurement\. Pillar 2: Sharpening competitiveness Pillar 2: Enhancing the Business and enhancing the attractiveness for Environment private investment Reduction in number of days to Reduction in number of days No change\. register a business\. to register a business\. Base: 20 days Base: 20 days Target: Reduced by10 days Target: Reduced by10 days Extent of director liability (sub- Strength of investor No change\. indicator of the protecting protection index (sub- investors’ indicator of DB) improved\. indicator of DB)\. Improvement Baseline: score 7 (DB2011) in the score of director liability Target: score 8 (DB2015) will contribute to protecting minority shareholder against directors’ misuse of corporate assets for personal gain\. Base: score 7 Target: score 8 Implementation of a risk-based Risk-based inspection by the The indicator target was revised approach to inspection that will Ministry of Economy and to reflect the realization that lead to 30% reduction by re- pilot agencies reduces attribution between reductions in derestricting of focus on high inspection burden\. inspections and the shift to a risk- risk businesses\. Baseline: inspections are not based approach could not be Base: No risk based approach risk-based (2011) Target: quantitatively established to business inspections\. inspections are risk based rigorously\. Target: Risk based inspection (2014) used by MoE and pilots: 1\. Vet\., Sanitary and Phito- Sanitary Safety and 2\. Environmental and Technical Safety to manage risk based inspections, and further expanded to all of controlling agencies, and the info on 60% of businesses which are subject to inspections is in the database\. Increased transparency – Key operational and financial No change\. regular disclosure of the power performance indicators and sector’s financial and key decisions of the power operational performance sector are regularly disclosed\. indicators\. Baseline: no indicators are Base: No indicators are disclosed (2011) disclosed\. Target: key operational and Target: Key operational and financial performance financial performance indicators are disclosed indicators of the sector and key (2014) decisions are regularly disclosed\. 7  DPO-I Results Indicators DPO-II Results Indicators Notes Legislation (a new electricity The indicator was dropped law) approved clearly defining because the trigger for DPO-II sector management and (in the first operation) was regulation framework\. changed in the second operation\. Adoption of modern bank NBKR regularly collects The indicator was changed supervision methods\. credit information from because the trigger for DPO-II Base: Supervisory framework banks and microfinance (in the first operation) was lacking modern supervision institutions and enhances changed in the second operation\. methods\. supervision\. Target: The supervisory Baseline: no records on framework is based on the parallel loans (2011) Target: Basel norms and standards\. parallel loans are tracked (2014) Increase in the budget for the A new indicator was added, judiciary replacing the indicator initially set Target: annual rate of for the action on judicial reform increase of 10 percent (2015) in DPO-I\. The Deposit Protection Law is Increased confidence in No change\. in line with the best banks as evidenced by international practices without increasing deposits to GDP gaps and mismatches with other ratio\. legislation and provides Baseline: 16 percent effective framework for DPS\. (November 2013) Target: 20 Base: Deposit Protection Law percent (December 2014) not in line with international best practice\. Target: Enhanced financial sector stability and effective framework for DPS, increased public confidence in banks as evidenced by increasing deposit/GDP indicator\. 1\.4 Original Policy Areas Supported by the Program (as approved) The original policy areas supported by the DPO series were: Pillar 1: Strengthening Governance and Anti-Corruption Reforms Policy Area 1\.1 - Supporting the Government’s Anti-Corruption Program\. Reducing corruption and improving governance and transparency were key in the government’s reform program\. The country’s ratings in the Transparency International’s Corruption Perception Index and in the World Economic Forum’s Global Competitiveness Index were among the lowest, reflecting a legacy of vested interests, weak institutions and low capacity\. Business surveys showed corruption to be one of the biggest obstacle in doing business\. DPO actions were intended to contribute to government efforts to reduce corruption, strengthen the rule of law and property rights protection\. 8 Policy Area 1\.2 - Improving Budget Discipline and Transparency in Use of Budget Resources\. Low transparency in budget planning and execution, a lack of consistency between annual budgets and mid-term budget frameworks, and a weak system of internal control and internal audit in public institutions were identified as key issues in the PFM\. The DPO measures, thus, aimed at strengthening budget credibility and discipline, improving medium-term budgeting and increasing clarity of the overall budget cycle\. Policy Area 1\.3 - Strengthening Public Procurement\. While the government made progress in building an efficient procurement system, there were still issues related to oversight and transparency\. Moreover, the review process of tender violations was unclear and there was an institutional gap in monitoring adherence to procurement rules\. The DPO actions were designed to enhance transparency and to support legislative changes to improve public procurement performance and efficiency\. Pillar 2: Sharpening Competitiveness and Enhancing the Attractiveness for Private Investment Policy Area 2\.1 - Improving Business Environment to Promote Private Sector Development\. The prevalence of complicated procedures, inadequate competition frameworks, weak accounting and auditing practices, and poor implementation of corporate governance laws and standards were identified as major constraints to private sector growth\. The government made efforts to address these issues by undertaking reforms in the overall regulatory framework\. In particular, amendments to regulations pertaining to business registration, licensing and inspection, and starting a business were made\. The DPO measures were intended to support the implementation of these reforms, reduce administrative barriers and improve transparency\. Policy Area 2\.2 - Energy Sector Reforms\. Poor financial performance, below cost recovery tariffs, weak governance and regulatory environment led the sector to severe under- maintenance and erosion of physical assets\. In addition, financial flows and flows of electricity were not recorded or reported in a comprehensive way, affecting incentives for good performance and improved management\. To address these issues, the government developed an energy sector development strategy for 2012-15\. The DPO actions were designed to help the authorities to implement this strategy to improve transparency and accountability of energy companies\. Policy Area 2\.3 - Financial Sector Reforms to Ensure Stability\. The domestic crisis of 2010 revealed major weaknesses in the supervisory and regulatory frameworks for the banking system\. In particular, the NBKR’s supervision, stress testing, contingency planning and crisis management were not effective to bring appropriate remedies at the earliest stage of bank problems\. The NBKR’s guidelines were not comprehensive to deal with credit risk and liquidity risk management issues\. In addition, the deposit protection system had deficiencies in providing deposit protection and in governance and procedures\. The DPO measures were targeted to help the NBKR enhance its capacity to supervise and regulate the banking sector as well as to strengthen the deposit protection system\. 9 1\.5 Revised Policy Areas (if applicable) Not applicable\. 1\.6 Other significant changes No other changes\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance The programmatic series comprised two single-tranche Development Policy Operations disbursed upon effectiveness, in the total amount of US$48 million\. Table 2 provides key milestones dates\. All policy actions were completed prior to the approval of the operations by the Board of Directors (Table 3)\. Table 3: Program Implementation Operation Approval Effectiveness Disbursed Closing Date Amount DPO-I 07/25/2013 12/06/2013 US$24m 09/30/2014 DPO-II 06/10/2014 07/11/2014 US$24m 12/31/2015 In summary, the authorities broadly maintained macroeconomic stability through exchange rate flexibility and they limited fiscal deficits to the 3½ - 4 percent of GDP range over 2013- 15, but with a deterioration to 6\.6 percent of GDP in 2016 that needs to be urgently corrected\. Public investment spending rose markedly as greater external financing was made available – a factor that should add to the growth potential of the economy\. Nevertheless, the macroeconomic outlook is fragile, with fiscal space having been eroded and external debt distress risks having risen\. A detailed account of program performance in terms of prior actions is given in Table 4 below\. The prior actions were met, but with amendments\. Two prior actions that constituted triggers for DPO-II had to be replaced by more realistic actions\. 10  Table 4: Program Implementation Prior Actions Status DPO-I Pillar 1: Improving Public Sector Governance Governance/anticorruption reform: ï‚ Government, through Resolution No\. 596 dated August 30, 2012, adopted the Completed Anticorruption Program and Action Plan for 2012 – 2014 and has established a framework for monitoring its implementation that includes independent experts and non-governmental organizations\. Improve budget discipline and transparency in use of budget resources: ï‚ A Protocol of cooperation dated October 23, 2012 signed between Ministry of Completed Finance and the National Bank of the Kyrgyz Republic (NBKR), specifying the roles and responsibilities of the treasury, banking and accounting functions, and the oversight of payments/settlements, including the financial and information security controls for operation of the Single Treasury Account at the NBKR\. ï‚ Government, through Resolution No\. 605 dated September 4, 2012, delegated Completed authority to approve a Unified Chart of Accounts to the Ministry of Finance of the Kyrgyz Republic, and through Order No\. 177-П dated September 4, 2012 the Ministry of Finance of the Kyrgyz Republic approved a Unified Chart of Accounts\. Completed ï‚ Government through Resolution No\. 718 dated October 15, 2012, “On Enactment of the Budget Code of the Kyrgyz Republic” submitted to Parliament a revised draft Budget Code that strengthens controls over non-allocated funds in the treasury, eliminates non-transparent reserve funds, advances the introduction of internal audit and medium term budgeting, and provides greater clarity to the overall budget cycle\. Completed ï‚ The Prime Minister through letter No\. 1-4118 to the Speaker of Parliament dated November 30, 2012, has requested an amendment to the proposed Budget Code that would require prior Parliamentary approval of the issuance of sovereign guarantees\. Transparency in public procurement: ï‚ The Ministry of Finance published a Public Procurement Report on the use of Completed the 2011 allocated budget\. ï‚ Government, through Resolution No\. 661 of September 27, 2012, adopted the Completed Public Procurement Development Strategy for 2012- 2014 in line with international best practice\. Increasing energy sector transparency, governance and accountability: ï‚ Government, through Resolution No\. 611 dated September 7, 2012, adopted an Completed action plan to enhance transparency, accountability and governance in the energy sector, including through: (i) carrying out annual audits of financial statements of energy companies following international accounting practices and making the audit reports public; (ii) setting up and maintaining web-sites for the Ministry of Energy, the Energy Regulatory Department, and the energy companies; (iii) ensuring transparent and competitive procurement of fuel resources; (iv) maintaining escrow accounts for power export revenues for the National Electrical Grid of Kyrgyzstan Joint Stock Company and the Power Plants Joint 11  Stock Company; and (v) selecting the general directors and executive bodies of the energy companies based on transparent and competitive procedures\. Pillar 2: Enhance business environment Judicial reform: ï‚ The Presidential Decree No\. 147 dated August 8, 2012, “On the Measures to Completed Improve Justice in the Kyrgyz Republic,” has established the Judicial Reform Council and identified priorities for judicial reform\. The Judicial Reform Council under the President approved a Strategic Action Plan on reforming the judicial system (Resolution No\.2, dated October 12, 2012)\. Business startup and operations: ï‚ Government through the Ministry of Justice issued Order No\. 134 dated October Completed 11, 2012, containing: (i) a checklist for registry offices to clarify on what basis a registration application for the establishment of a business can be rejected; and (ii) instructions that applicants will receive upon the first submission of all requests identifying what additional information is required\. Business inspections: ï‚ Government, through Resolution No\. 108 dated February 18, 2012, introduced Completed transparent, risk-based criteria for planning and conducting business inspections and has developed a risk-based inspections coordination module (Kontr Pro 3) within the MoE, including a database of businesses subject to inspection\. DPO-II Pillar 1: Improving Public Sector Governance Governance/anticorruption reform: ï‚ State Personnel Service, has completed the first round of verification of asset Completed declarations of civil servants in political functions and shared the summary results with the Government\. Improve budget discipline and transparency in use of budget resources: ï‚ The Government has established the Internal Audit Council through issuing the Completed Resolution No\. 498, on the System of Public Financial Management and Control, dated September 19, 2013; the Government has adopted guidelines on the System of Public Financial Management and Control through issuing a Resolution No\. 722 dated December 31, 2013, and the Government has established ethics standards for internal auditors through issuing Decree No\. 721, dated December 31, 2013\. Transparency in public procurement: ï‚ The Government through its Resolution No\. 69, dated February 3, 2013, “On Completed Enactment of the Public Procurement Law of the Kyrgyz Republic,” has submitted to Parliament a draft of said law that meets good international practices, and the Government, through the Resolution No\. 68, dated February 3, 2014 “On Public Procurement Department of the Kyrgyz Republic”, has strengthened the role of the public procurement regulatory body within the Recipient’s Ministry of Finance\. Increasing energy sector transparency, governance and accountability: ï‚ The Ministry of Energy and Industry has issued the Order No\. 174, dated October 10, 2013, which aims to increase the transparency of the energy sector Completed by requiring Energy Companies to regularly publish on their respective websites the following information: (i) monthly balances of the special accounts and transit accounts of Energy Companies; (ii) quarterly operational and technical 12  performance data of the Energy Companies, as well as power sector; and (iii) annual financial statements together with audit reports\. Pillar 2: Enhance business environment Judicial reform: ï‚ The Government, through the Resolution No\. 174 “On Government Target Completed Program on Development of the Judicial System of the Kyrgyz Republic for 2014-2017”, dated March 19\. 2014, has submitted to Parliament the draft of said program which aims to increase the financial independence of the judicial sector\. Access to finance: ï‚ The Government, through its Resolution No\.610 “On Enactment of the Law on Completed Joint Stock Companies of the Kyrgyz Republic,” has submitted to Parliament a draft of said law that aims to strengthen the responsibilities of executive directors\. Business inspections: ï‚ The Government, through operationalizing the single automated database for inspections Completed of businesses (KontrPro3) in the Ministry of Economy and six inspectorates in the City of Bishkek has reduced the burden of inspections on businesses\. Reinforcement of the NBKR supervisory function and enhancing financial sector stability: ï‚ The Government, through the Resolution No\. 20/7 of the National Bank of the Kyrgyz Republic (NBKR) “On Amending the Regulation on Periodic Bank Reporting”, dated Completed June 26, 2013, and the Resolution No\. 27/1 of the Supervision Committee of NBKR “On Amending the Methodological Guidelines for Periodic Bank Reporting”, dated August 7, 2013 has strengthened bank reporting and NBKR’s new credit registry has become functional\. Strengthening of the Deposit Protection System (DPS) legal framework: ï‚ The Government through its Resolution No\. 528 “On Enactment of the Deposit Completed Protection Law of the Kyrgyz Republic”, dated September 27, 2013, has submitted to Parliament a draft of said law that aims to strengthen governance, coordination and operations of the deposit protection scheme\. Actions envisaged in DPO-I as triggers for DPO-II, but not met\. Energy sector\. Adopt a comprehensive electricity law delineating functions of policy setting and independent regulation, and clarifying governance structure and accountability arrangements\.1 The timetable for the adoption of a comprehensive energy law proved to be over-ambitious as the considerable technical work and capacity building that was required was under-estimated\. Furthermore, there was a lack of agreement across the ministry, the regulator and the companies on the content of the law\. However, most of the elements of the intended were incorporated into the action that replaced this trigger\. In addition, Bank’s continued policy engagement helped the government introduce amendments to the existing electricity law, which provided for independent regulation and improved governance arrangements\. These amendments were passed in 2014 and came into effect in 2015\. 1 Replaced by Action 14\. 13 Financial Sector\. Revise regulations on PRAF2 to improve its effectiveness in terms of timely, adequate and consistent response to developments in banks, including supervisory actions to promptly address material deficiencies in corporate governance policies and practices, to establish clear thresholds for considering: issue recommendations to banks for making improvements in their operations; take corrective actions requiring banks to make improvements; taking enforcement actions\.3 This trigger proved to be impossible to achieve in the year envisaged owing to the complexity of the revisions to the regulations supporting the supervisory framework that needed to be designed and the training that had to be absorbed by supervisory staff\. Strengthening of PRAF was rightly seen as a part of the overall effort to introduce risk-based supervision – a process that was initiated over 2015-16 and is being pursued under the current Bank-supported financial sector development project\. It is expected that a strengthened PRAF will be in place over the medium term\. The replacement of this trigger by the action on the credit registry achieved the similar broad aim of strengthening the tools for bank supervision by enriching the information to be placed within the credit registry and adapting supervisory systems and practices to make full use of this information in the conduct of supervision\. 2\.2 Major Factors Affecting Implementation: The political economy\. The development policy operations were implemented following the overthrow of the president and the government in 2010, the ethnic riots of that year, and the adoption of a new parliamentary-based constitution\. The fragility of the political environment was evidenced in frequent changes of government and prime minister that resulted in shifting commitments to reform\. Such frequent changes led to a fracturing of a common vision on strategic priorities\. A steady, coherent leadership on reforms was at times absent\. Thus, the need to institutionalize reforms under a powerful, committed champion was not met\. Moreover, under the new parliamentary system, long delays in ratification of IDA credits was experienced to the detriment of the timeliness of the reform program\. However, political stability was assisted by two factors\. First, the new constitution saw a vigorous parliament that held the executive to account, particularly on governance policies\. Second, a rapid post-conflict reconstruction program led to the beginnings of ethnic reconciliation\. Economic headwinds\. The reform program was implemented against a sharp slowdown in the economies of two principal trading partners, Kazakhstan and Russia, triggered by the decline in oil and other commodity prices\. This shock was exacerbated by a steep decline in remittances\. A sharp depreciation of the local currency in real effective terms followed4, but the nominal exchange rate was maintained against the ruble and appreciated against the Kazakh tenge\. Such sharp relative price changes created uncertainty in the real sector of the 2 Prompt and Remedial Action Framework to address actual or imminent financial distress in banks\. 3 Replaced by Action 18\. 4 Amounting to 12\.5 percent between 2012 and 2015 14 economy, particularly dampening private consumption and investment, especially into construction\. Capacity and institutional factors\. The implementation of deep-seated reforms was affected by capacity constraints in certain areas and persisting institutional weaknesses\. The anti- corruption program needs capacity skilled in economic analysis and in designing incentives to strengthen governance, as opposed to current approaches that rely overly on enforcement\. Capacity in the central bank is being built up, albeit gradually, to handle complex reforms in banking supervision\. The agenda of public financial management reform has advanced slowly over the years, as it has long been plagued by capacity weaknesses and by insufficient institutional priorities being accorded to such reforms, though encouraging results can be seen for example in internal audits and procurement, once resources and priority are given to such reforms\. The operation of a genuine single treasury account has been long delayed\. The Ministry of Finance has played the role of the overall coordinator of reforms supported by DPOs\. But it lacks the full capacity to take the strategic approach to reform design, identifying and prioritizing the critical sub-set of reforms contained in the national development plan that could be supported by DPOs\. It seems to have insufficient weight to hold line ministries and public institutions, some of which enjoy considerable autonomy, to their reform undertakings\. Consideration should be given to whether these set of strategic and practical functions may be better performed by the Prime Minister’s Office\. Analytical foundations\. The reforms contained in the DPOs arose out of sound analytical work carried out over the period of project preparation\. The reforms on governance were designed relying upon PEFA exercises, procurement reviews and other PFM studies, as well as on the outputs of a Capacity Building for Economic Management project\. These provided the constituent elements of a public sector reform roadmap that was developed in 2013\. A power sector review provided guidance on improving transparency in the electricity industry\. The design of competitiveness reforms was aided by the outputs of IFC advisory services on the business enabling environment, a judicial reform diagnostic, financial sector monitoring and two formal reports, a FSAP and a ROSC\. Design aspects\. Despite the solid analytical foundations of the DPO-supported reforms, the design of the operation affected its implementation in certain respects\. The operations comprised 10 sub-policy areas and had 20 prior actions (after the replacement of two DPO- II triggers identified in the first operation), and, apart from the Ministry of Finance (the key counterpart), actions involved the cabinet of ministers as well as the ministries of economy, energy, justice, the central bank, the National Security Council, the office of the Prosecutor- General, the Supreme Court and the Deposit Protection Agency\. Thus, in both the set of prior actions and the principal ministries and institutions responsible for actions, the operation was designed over a broad canvas\. This factor added to the complexity of project implementation\. The number of policy actions to be undertaken over a two-year period seems to be large, and policy actions in energy and the financial sector proved to be too complex, thereby requiring revisions\. Moreover, the Ministry of Finance lacked the full capacity, or authority to oversee or coordinate reforms across such a wide terrain that involved some autonomous judicial and law-enforcement institutions\. The robustness of the design suffered from a significant 15 weakness: implementation of parts of the program were beyond the remit of the authorities as they involved these independent institutions\. Treatment of risks\. The operation contained a candid discussion of political, governance, macroeconomic and fiduciary risks, and presented a well-thought out set of actions to help contain or mitigate some of these risks\. The solid, inter-active sector work, partly focused on capacity building, was a clear asset\. However, macroeconomic risks could have been addressed with greater firmness by requiring fiscal adjustment; a point addressed more fully in section 4 of this report\. Two further types of risks and associated mitigation measures deserved a deeper consideration in the operation: first, the risks of commitment failure and of the management and technical capacity to direct and implement reforms was left insufficiently discussed, for example, in energy and financial sector reforms as well as in governance; second, the implications of the limited authority in the key coordinating body, the Ministry of Finance, to ensure reform implementation in certain critical areas was left unaddressed\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: M&E design\. The design of the M&E arrangements built upon those developed under the earlier series of budget support operations\. The results framework of the DPOs was jointly designed with the authorities and developed in consultation with other stakeholders\. As has been the practice, the results framework was developed not only to monitor progress under the DPOs, but also as a tool for internal review and reporting by the principal ministries and agencies responsible for reform implementation\. The results indicators used were directly related to project objectives and the data was collected by the statistics agency and finance and line ministries and other agencies\. M&E Implementation\. The monitoring arrangements do not appear to have been sufficiently institutionalized in the Ministry of Finance\. A robust, unified framework for M&E in the Ministry of Finance would have assisted program implementation\. Rather, monitoring was carried out at the implementing ministry or agency level and periodic reports or web-site updates were prepared, for example, in governance or in the energy sector\. Annual reports on progress with governance reforms were prepared\. The Ministry of Energy updates is websites with monitoring data every six months\. In the Ministry of Finance, periodic procurement reports monitor progress with implementation of the law and implementation of new procurement practices\. The central bank prepared periodic report on progress with the implementation of risk-based banking supervision and on developments with the credit registry\. M&E Utilization\. The utilization of M&E data takes place at individual ministries, and the data is used periodically for re-design of policies\. However, the process is not fully formalized or well integrated across ministries, and the Ministry of Finance is not able to ensure completeness or upholding of standards in M&E utilization\. The central bank intends to use the buildup of data in its supervision system to inform policies and practices\. 16 2\.4 Expected Next Phase/Follow-up Operation (if any): At the request of the government, the Bank is preparing a new development policy operation to support its strategic development agenda, currently under discussion within the government\. The new DPO is expected to deepen the reforms in the themes of governance and competitiveness\. It will additionally be grounded in firm fiscal adjustment so as to recover the fiscal space lost in recent years and to bolster external debt sustainability\. It will closely monitor performance under past DPO series, even if particular sectors (such as the financial sector or corporate governance) are no longer subsumed under the new operation\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Overall Rating: Substantial (a) Relevance of objectives: High The objectives of the DPO series remain highly relevant today; just as much at the time of preparation of this ICR as at DPO preparation\. These objectives rested on thorough diagnostic work on development priorities\. More efficient use of public resources contributes to strengthening the sustainability of the fiscal accounts, allowing re-allocation of spending to priority areas and improving public services\. Enhancing the business environment through efficient business regulation, stronger property rights, and a resilient financial system lead to a more vibrant development of the private sector\. These reforms lay the foundation for stronger growth, reduced poverty and shared prosperity\. The National Sustainable Development Strategy, 2013-17, has as its main reform areas combatting corruption, reforming the judiciary, improvements in the business environment and financial sector development, as well as a focus on power as a strategic sector\. The PDOs of the planned next operations on governance and competitiveness, therefore, continue to be highly relevant to the national development strategy\. (b) Relevance of design: Modest The design of the operations was targeted at achieving the PDOs\. The policy actions and results indicators were broadly well-aligned with program objectives\. The thrust on governance actions, judicial sector budgets, business climate measures, and energy governance actions remain highly relevant to the final objectives and have significant developmental impacts\. These policy areas were supported by Bank and IFC analytical and advisory services\. The program reforms were accompanied by technical assistance, e\.g\. Public Sector Reform Road map, Private Sector Development Action Plan and Capacity Building for Economic Management\. The results framework remains consistent with the country’s current development priorities and with the Bank’s current assistance strategy\. The programmatic design of the operations was to ensure the completeness of reforms to reach the desired outcomes\. 17 However, in some cases the design lacked a complementarity between the first and second operations weakening focus on the expected outcomes\. For example, DPO-II did not have any follow up actions related to the implementation of the new Budget Code\. In judiciary reforms, policy actions in both operations were confined to the adoption of development plans missing the focus on implementation\. A further design shortcoming was a weak link between some policy actions and their expected results indicators\. The results indicators, such as the indicator on control of corruption, PEFA and doing business indicators, and deposits/GDP ratio indicator were too general to measure the impact of policy actions of the program\. (c) Relevance of implementation: Substantial Implementation arrangements were tailored to local conditions and were relevant\. The implementation effort was focused on making sure that the prior actions were taken and that they led to the expected results\. The Bank’s implementation assistance was responsive to changing needs as shown by the supervision record; thus, dialogue and technical assistance was intense and near-continuous\. In summary, current development priorities are fully consistent with the DPO objectives, design and implementation as evidenced by the new, the successor DPOs being based on identical pillars of governance and competitiveness\. Finally, the operation remained important to achieving the development objectives of the country, as well as to the Country Partnership Strategy of the Bank\. 3\.2 Achievement of Program Development Objectives Overall Rating: Moderately satisfactory The specific objectives laid out in the results framework were derived from the PDOs\. The actions supported by the operations were chosen to lead to the outcomes that would advance the PDOs\. Overall, commendable progress has been made towards the achievement of the program development objectives, even if progress has fallen somewhat short of DPO expectations\. In both these pillars of critical importance to the economy, sustained efforts will be required; and it is encouraging that the follow-on DPO engagements have been directed at deepening reforms in governance and competitiveness\. Pillar 1: Improving Public Sector Governance In the area of Public Sector Governance, the implementation of the anti-corruption program, the establishment of the Judicial Reform Council, steps to strengthen public financial management, the introduction of declarations of assets for civil servants and measures to increase transparency in the energy sector were expected to lead to improvements in governance and PEFA indicators, information on procurement and energy sector developments\. These objectives were partially achieved\. 18  1\.1 Governance and anti-corruption reform Expected Result: not achieved\. The result related to the worldwide governance indicator for control of corruption, expressed as a percentile rank\. The baseline was 9\.95 in 2011 and the target was 15 in 2014\. The result for 2014 was 11\.54\. Comment: The prior action on the verification of asset declarations of civil servants and submission of summary results was implemented\. However, this step has to be followed by a systemic use of data gathered to investigate conflicts of interest and accumulation of assets that seem unreasonable\. The methodology for this task is still to be implemented and additional resources will be necessary\. The summary results of the verification exercise should be used as a learning tool to influence future policy and regulatory design\. The result appears to have been poorly designed\. The action taken – verifying declarations – can be expected to have only a tenuous impact on the control of corruption indication, as several strong follow up steps beyond the mere act of verification are required before control of corruption can be strengthened\. Moreover, it can hardly be expected that actions taken in 2013 and 2014 would have a near-immediate impact on this variable in 2014\. 1\.2 Improve budget discipline and transparency in the use of budget resources Expected Result: not achieved\. The result relating to the composition of expenditure out- turns compared to the original approved budget (PEFA PI-2) had a baseline of C and a target of B\. This was not achieved; the indicator has slipped to D+\. Comment: While the budget outturn as measured by total expenditures has been close to original budget estimates, the composition of spending has diverged substantially from budget estimates\. There appears to have been a slippage in this PEFA variable as measured by best comparable indicators between 2009 and 2014\. The failure to make adequate progress on the single treasury account is in part responsible for this development\. This result was again poorly designed\. The DPO-II document was faulty in not specifying the years for the baseline, nor for the target\. Nevertheless, it is clear that this result was not achieved\. The lag between the PFM actions taken and the timing of the expected results appears to have been over-optimistic\. Expected Result: achieved\. The effectiveness of internal audit (PEFA PI-21) was targeted to improve from D in 2009 to C in 2014\. The result in 2014 was C\. Comment: Internal audit reforms have been commendable\. An internal audit council ensures the independence and quality of internal audits, and the coverage of internal audit has been gradually widened\. The internal audit reports are being streamlined into the regular work program of ministers and lessons are being learned\. 1\.3 Transparency in procurement Expected Result achieved\. Information is being made available on the effectiveness of public procurement through annual reports prepared by the Ministry of Finance\. 19 Comment: After years of effort, procurement reforms have advanced, with all public procurement taking place through a portal, managed by the Ministry of Finance\. Attempts are being made to adhere to high international standards, including observing WTO procurement guidelines\. The portal provides public information on current and past procurements\. An inter-agency independent commission adjudicates over complaints\. Annual reports contain efficiency and effectiveness indicators\. One risk to backsliding exists: there is an attempt to exempt certain procurements from the competitive, portal-based requirement and permit direct or single-source contracting; this should be resisted if the reforms are to be sustainable\. 1\.4 Increasing energy sector transparency, governance and accountability Expected Results partly achieved\. Key operational and financial performance indicators and key decisions of the power companies are disclosed, but not regularly or without undue lags, and with a sparser coverage of the key indicators and decisions than was the expected result\. Comment: The prior actions through a government resolution (2012) and subsequently a ministerial order (2013) sought to improve transparency and governance by the adoption of a series of measures\. First, audits of energy distribution companies were to be conducted to international standards and the audits published; this has been partially achieved as audits are performed, but not fully or regularly published\. Second, the ministry, the regulator and the companies have established websites to disclose the agreed information on performance, but these are often outdated and incomplete\. Third, the transparent and competitive procurement of fuel resources for generation is taking place\. Fourth, escrow accounts with regard to exports are being maintained\. Finally, the action of selecting the general directors and executive bodies of the energy companies based on transparent and competitive procedures has not been met\. As discussed in section 2 of this report, the trigger for DPO-II that was set in the first operation for the energy sector was abandoned\. The replacement prior action required energy companies to publish a variety of information on their websites\. The monthly balances of the special accounts of the power companies and of the generator are published but with unjustified lags\. The transit accounts of the four distribution companies are not published monthly in all cases and information is fragmentary and sparse\. The quarterly operational and technical performance data are not published regularly nor with quarterly periodicity, and the coverage of the data is sparse\. Annual financial statements are published, but audit reports are not\. Pillar 2: Enhancing the Business Environment On the Enhancing the Business Environment pillar, the acceleration of business registrations and governance reforms in business inspections, together with a strengthening of corporate governance and measures to improve banking supervision and fortify the deposit insurance system were expected to lead to an improved business climate, easier access to credit, a richer database for bank supervisors and greater confidence in banks\. These objectives were broadly achieved\. 20  2\.1 Judicial reforms Expected Result achieved\. Between 2014 and 2016, the budget of the judicial sector was nearly doubled; the target of a rise of 10 percent between 2014 and 2015 was comfortably attained\. Comment: The authorities have established the Judicial Reform Council that drafts reform action plans, and steps have been taken to enhance the financial independence of the judiciary\. The increased budget improved material and technical support to courts of all levels, including maintenance of court houses across the country\. Institutional improvements, in the working of the court department, in court procedures, in the operations of the supreme and appellant courts, and improvements in trial efficiency through partly the use of technology, can be seen\. The Council is now drafting the third reform strategy and action plan to cover 2017-2022\. 2\.2 Business start-up and operations Expected Result achieved\. The number of days to register a business fell from 20 in 2011 to six days in 2016\. The target was 10 days for an unspecified year\. Although the DPO-II document did not specify the reference years for the baseline and the target, the result can be surmised to have been comfortably attained\.5 Comment: The process of business registrations has been streamlined in the Ministry of Justice, and the necessary information to registrants is provided both online and onsite\. These reforms have clarified the documentation required to register businesses and have reduced the scope for corruption\. 2\.3 Access to finance Expected Result not achieved\. The investor protection index from Doing Business was targeted to improve from 7 in 2011 to 8 in 2015\. The result was 6\.3 in 2015 and it remains 6\.3 in 2017\. Comment: Parliament decided not to legislate the reforms in corporate governance directed at strengthening the responsibilities of members of management bodies of companies as they considered other corporate governance reforms to be more salient\. Moreover, the result appears to have been poorly designed due to a weak link between the action and the expected outcome\. 2\.4 Business Inspections Expected Result achieved\. Inspections were risk-based on a pilot basis in 2014 and are currently risk-based country-wide\. 5 For the purpose of this ICR, the target date is December 31, 2015, the closing date of DPO-II, if it is not specified otherwise\. 21 Comment: A single automated database is used for the conduct of inspections in a risk-based manner\. The inspection reforms enjoy strong support within the government and businesses and have led to a substantial improvement in the business climate and reduced opportunities for corruption by making inspection plans available to business entities, specifying the mandate of inspectors and introducing a feedback mechanism to inspection results and inspectors’ performance\. 2\.5 Reinforcement of the Central Bank Supervisory Function and Enhancing Financial Sector Stability Expected Result partly achieved\. Parallel loans, i\.e\., loans obtained by a single borrower from different sources, could not be tracked in 2014 as required by the results matrix, but are now being tracked; all banks comply with the requirement to provide information about borrowers to the central bank’s Periodic Bank Reporting system\. Comment: Through methodological improvements in the conduct of supervision, the reporting requirement for banks, the formation of the credit registry, and growing capacity in the central bank on understanding and making use of data from the credit registry and on parallel loans, the central bank has been able to reinforce its supervisory capabilities to the benefit of financial sector stability\. Under the program of strengthening of central bank supervision being supported by the Bank financial sector project, it is expected that the ability to implement risk-based supervision will grow and that PRAF will become a part of the supervisory arsenal\. 2\.6 Strengthening the Legal Framework For the Deposit Protection System Expected Result achieved\. The deposit to GDP ratio rose from 16 percent in November 2013 to 25 percent in December 2014, exceeding the target of 20 percent\. Comment: The amendments to the deposit protection law that clarified the powers and competencies of the deposit protection institution, added to its financial fire-power, and bolstered confidence on the part of the insured (the depositors) of prompt and full payments up to the ceiling, went into effect in 2016\. The sustainability of the system is more assured\. The FSAP recommendation of the establishment of a financial stability council chaired by the prime minister was adopted; this permits cross-institutional coordination and information- sharing across key financial sector institutions\. Although the results indicator was satisfied, its design is questionable\. The deposit to GDP ratio is influenced by much more powerful factors than the state of the deposit insurance system; and even if a fundamental reform in the deposit insurance system were to occur, it can hardly be expected to have an impact on the level of deposits within such a short time frame as one year\. 22 3\.3 Justification of Overall Outcome Rating Rating: Moderately satisfactory As noted in earlier sections, the operation is judged to be highly relevant in its objectives\. The DPO series targeted the key objectives of the national development reform priorities as expressed in the official documents\. It is clear that this relevance remains high\. It is expected that the objectives will be reinforced in the national strategy document for 2017- 22 currently being drafted; and the next development series operations will be based on similar objectives\. The operations were also well aligned with the central goals of the Bank Country Partnership Strategy\. Judgements as to relevance in design are more complex\. Clearly the design of the operations addressed policies that were central to achieving the objectives of the projects and the objectives of the national development plan\. However, policy actions were not parsimonious and involved such a wide range of ministries and agencies that coherence in the operations was undermined, and coordination in certain areas (such as governance reforms) became onerous\. Moreover, prior actions in certain areas were pro forma in nature, requiring the adoption of a resolution or a decision, rather than focusing on the follow-on actions necessary for the reforms to yield results\. Thus, the satisfaction of prior actions in and of itself did not lead to intended results in areas discussed in earlier sections of this report\. In several cases, the link between the prior actions and the results sought were tenuous or time inconsistent; thus, the results framework was, in places, ill-thought out and even cursorily drafted with missing data and baselines\. The operations broadly achieved development objectives\. In the first pillar – governance –improvements have taken place in public procurement after years of effort\. The requirement of asset declarations of civil servants is being implemented\. The passage of the Budget Code in 2016 was a major step towards PFM reforms strengthening budget planning, implementation and monitoring, and enhancing fiscal discipline and transparency; and the lessons from internal audit findings are being internalized\. These are achievements that contributed to increased accountability over the use of public resources\. Further action has to be taken in making the single treasury account truly effective\. The objective of transparency in the energy sector has advanced only fitfully; the information gaps and timeliness of information disclosed need to be now addressed\. The expected results in this pillar were only partly achieved, largely because of weaknesses in design\. In the second pillar – business environment and competitiveness – progress in the areas of business registration and inspections has been broadly good\. These were major deterrents to private investment and major sources of corruption in the past\. The judicial reform process has met its initial objectives, but reforms have now to be reinforced\. The reform on corporate governance was ill-designed, appears not to have been high priority out of the set of ROSC recommendations, and was not achieved\. In the financial sector, reform objectives with deposit insurance were fully satisfied, and with central bank supervisory functions the objectives are on the path of being satisfied\. 23 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The operations have significant implications for poverty and social development, principally by supporting fiscal stability\. Fiscal stability, combined with a well targeted expenditure framework and a sound management of state owned enterprises, will lead to improved quality of public services with greater predictability and assurance of social spending\. The development objectives of the operations, through specific policy actions, also indirectly address both poverty and welfare through the strengthening of public revenues and safeguarding their use via stronger PFM and reduced opportunities for corruption; as well as by improved job prospects via sharper competitiveness and a more conducive business climate\. These reforms are important prerequisites for sustainable economic growth, the most important tool for poverty alleviation and broader social development\. The successor DPO series should aim for a firmer effort at fiscal consolidation; if achieved, fiscal stability – still precarious – will be bolstered\. None of the actions supported in the development policy operations were expected to have adverse impacts on poverty or gender\. (b) Institutional Change/Strengthening Institutional strengthening has been at the core of this operation\. The operation has provided over-arching support for sector institution building, for example in energy and the financial sector, as well as core economic policy themes such as governance and PFM\. The operation has supported a multi-year effort in strengthening fiscal institutions and judicial institutions\. Reforms have benefitted from a range of ASA and TA in all these areas\. No significant unintended outcomes or impacts were experienced\. 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable\. 4\. Assessment of Risks to Development Outcomes Rating: High The operation was implemented in an environment of high overall risk – political, social, macroeconomic, governance, and institutional\. The operations took place in still- fragile political and social conditions following the overthrow of a president and inter-ethnic tensions, and the new parliamentary constitution still had to lay roots\. A further risk arises from the functioning of an empowered parliament, which is holding the executive to account vigorously – a highly commendable development – but one which has the unintended effect of delaying ratification of Bank operations unduly and of introducing a degree of policy uncertainty and uncertainty on the timing of measures to be taken\. 24 Further risks arise from poor governance that have fiscal costs, but also lead to losses in the energy for implementation\. The lack of a shared vision or forceful commitment in certain areas – energy reforms, corporate governance, and some aspects of PFM reforms – have added to risks\. Two areas are notable: the absence of firm strategic leadership on governance reforms; and coordination weaknesses over the DPO program within the government\. The major economic risk arises from volatility in fiscal policies that have led to fiscal space being eaten up over the program period\. The extent of fiscal consolidation targeted was clearly inadequate given the fiscal outlook and risks; and deficits turned out to be higher than programmed\. This risk can be countered only by a firm adjustment effort over the medium run, which should be a core condition of the next DPO series\. The DPO operations recognized the key risks, and mitigation mechanisms to the extent possible were put in place\. The partnership with the Fund was aimed at addressing fiscal risks\. The reforms were designed to address directly governance risks\. Though the risk to development outcomes continue to be high, a well-designed successor DPO series can go a long way to help counter such risks\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately unsatisfactory The development policy operations were designed to address a key sub-set of the reform priorities of the National Sustainable Development Strategy, were strategically aligned with the Country Partnership Strategy, and had solid foundations in the economic and analytical work done in all reform areas\. The macroeconomic framework reflected close dialogue with the Fund\. The strategic relevance of the operation was high and the approach was appropriate\. The Bank carried out a through risk assessment and made best efforts to mitigate risks within the operation\. On structural reform aspects, in many cases the prior actions required decisions to be taken, instructions to be issued or resolutions to be adopted by the executive branch: such prior actions had the merit of simplicity and made compliance easy\. But in several cases – governance and budget reforms, and to a partial degree in energy and financial sector reforms -- the prior actions did not provide sufficient incentives for the successor steps necessary to achieve the intended result of the reforms to be taken\. While this was partly intentional, recognizing that initial legislative and regulatory steps had to precede implementation measures to be followed-on upon in the context of a programmatic multi- year engagement, the design of the operation would have benefitted had these prior actions been framed in terms of the critical steps necessary to achieve the intended result of the reform\. An effort could have been made to make the monitoring and evaluation system more robust, partly by reducing its fragmentation across ministries and agencies, and by 25 designing a unified framework to be used by the Ministry of Finance\. Such a step would not only have led to improved coordination within the government, but could have added to the authority of the Ministry of Finance as the key implementer of DPO-supported reforms\. The results framework also suffered from design shortcomings\. There was a tenuous relationship between some of the prior actions and the results expected or in the unrealistic timeframe prescribed for the attainment of the results, e\.g\., asset declarations and control of corruption, PFM actions and convergence in the composition of budget expenditures, corporate governance actions and investor protection index, deposit protection and financial deepening\. However, this is a legitimate constraint facing most development policy operations at the Bank, which the team recognized by utilizing programmatic approach, itself conceived within a longer term expected DPO engagement\. In one specific case under the reform area of “Increasing energy sector transparency and governance and accountability”, there may have been insufficient distinction between actions and outcomes\. This, however, could be justified by the need to adopt monitoring indicators that are clearly attributable in cases where changes in behavior are difficult to observe and measure\. The DPO-II documentation fell somewhat short of standards in several respects\. First, little explanation was provided of the background to the non-fulfillment of the triggers for DPO-II set out in DPO-I in the areas of energy and financial sector reforms\. The rationale for their replacement by the new DPO-II prior actions was insufficiently explained\. Furthermore, the PD for DPO-II contained insufficient discussion of the new prior actions in energy and the financial sector, and did not contain adequate definitions of new concepts introduced such as “special accounts” or “transit accounts” in the energy sector and why these accounts were relevant in the context of reforms sought\. Finally, in some cases, base or target years were missing (PFM reforms, business registration) or the result ambiguously drafted (judicial) in the results matrix\. Finally, the prior actions did not take into account sufficiently the capacity constraints to implementation, e\.g\., in energy and financial sector or lack of commitment on the part of the government to certain reforms, e\.g\., in corporate governance, and possibly a combination of insufficient commitment and lack of technical skills in making the single treasury account truly functional\. (b) Quality of Supervision Rating: Satisfactory Supervision was facilitated by a strong and near-continuous dialogue led by the Bank core economic team, with the active participation of sector specialists; the dialogue was focused on development impact\. The Bank conducted several supervision missions of both operations to monitor progress and identify issues in implementation; an implementation status report (ISR) on the first operation was submitted between the operations\. Emerging problems in implementation were identified pro-actively and in cooperation with the authorities in a candid manner\. This team was also charged with the preparation of the follow- up DPO series, thereby giving continuity to the Bank’s assistance effort\. 26 The supervision of trust fund operations in PFM, IFC-led strong dialogue with depth of presence in the field on business climate reforms, the preparation of a financial sector project, and the energy team’s engagement on further sector reforms added great thrust to the supervision of the DPOs\. The intense engagement on ASA provided new insights into the design and implementation of reforms, notably through a wide-ranging Public Expenditure Review exercise that was initiated during the course of DPO supervision\. The effectiveness of supervision was greatly enhanced by its continuous nature, using the strong presence of economic and sector staff in the regional office and the resident mission that covered all the areas of the operation\. Highly qualified staff supported by quality ASA engaged in a continuous dialogue with a range of partners to provide support to the government\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately satisfactory Quality at entry suffered from design shortcomings resulting in a moderately unsatisfactory rating\. This was, however, mitigated with the Bank devoting much effort and attention to both preparation and implementation of the program\. Quality of supervision thus is rated as satisfactory reflecting continuous engagement of the DPO team with both sector teams and government officials\. An overall rating for Bank performance is therefore ranked as moderately satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately unsatisfactory The performance of the government as the borrower and the implementer of the DPO operations is rated as moderately unsatisfactory\. The government developed a coherent overall strategy for reforms that addressed key priorities and needs\. But, at the level of reform implementation, the commitment effort was not uniformly strong\. In two areas, the authorities demonstrated stamina in commitment and achieved commendable results: judicial and procurement reforms\. Success was owed to persistent efforts, in the case of procurement over nearly a decade\. Impressive results were also seen in business climate reforms, where in both business registrations and inspections, the authorities mustered firm commitment, built coalitions of support with the private sector, adopted modern technologies (such as Kontra Pro) to achieve decisive change\. Reforms with the deposit insurance system took time but were adopted with the result of a credible system now being in place\. Commitment has been mixed in areas of PFM reforms, corporate governance, and in the energy sector\. In the financial sector, the reform attempt was too ambitious, and commitment is now being demonstrated with implementing risk-based supervision of banks with the assistance of a Bank investment project\. 27 Though the government has established elaborate structures for pursuing anti- corruption reforms, the results are still to be seen\. There is a need to reinforce commitment and coherence to the complex agenda of reforms in this area, to have clear implementation responsibilities and to tilt the focus from enforcement, to working on incentives and institutions\. The authorities have been slow at times to resolve implementation difficulties\. In energy, the shortcomings in the reporting by distribution companies have been left addressed as has the issue of non-publication of audit reports\. Similarly, prompt and effective action was not taken to ensure the convergence of the composition of expenditure outturns to approved estimates, nor to ensure the full functioning of the single treasury account\. A robust monitoring and evaluation system would have assisted with dealing with emerging implementation problems\. Taking the factors discussed above into account, a rating of Moderately unsatisfactory for the Borrower is justified\. (b) Implementing Agency or Agencies Performance Rating: Not Applicable (c) Justification of Rating for Overall Borrower Performance Rating: Moderately unsatisfactory 6\. Lessons Learned First, the number of prior actions and areas covered by operations of this type should be parsimonious, with a more concentrated set of implementation actors\. To the extent possible, the prior actions should not take a process orientation, but should drill into the critical actions that need to be taken in order to secure the intended results, and/or ensure that process actions are effectively complemented by implementation measures in follow-on engagement\. Second, the programmatic nature of the operations should be reinforced as reforms take several years to be implemented\. It is important to build continuity\. The focus on governance and competitiveness reforms, given their critical importance for economic and social stability, needs to be maintained\. Government commitment and ownership in both these areas has been built up over years; it is now necessary to translate objectives into changes in incentives and institutions so as to achieve sustainable results\. Third, the critical foundation of success is a viable fiscal position\. The DPO series have countenanced insufficient fiscal adjustment as evidenced by volatility in fiscal deficit outcomes and build-up of external debt\. A firm medium-term fiscal adjustment would allow fiscal space to be regained and the prospects of external debt distress reduced\. Actions on the efficiency of public spending as analyzed in the public expenditure review notes would raise the quality of fiscal adjustment\. 28 Fourth, implementation of reforms can be strengthened through a set of actions\. The development of a unified and robust monitoring and evaluation framework that is actively used to manage reform implementation is a high priority\. The overall management and coordination of reforms requires a sufficiently empowered government institution that can hold other ministries and agencies to account\. The fragmentation of responsibilities in governance reforms should be addressed\. The question of whether the overall strategic and implementation responsibility for the operations should rest with the office of the prime minister in view of some political and capacity shortcomings with the Ministry of Finance needs examination\. Fifth, prior actions should be focused on reform themes that have the demonstrated commitment of the authorities\. If commitment is insufficient in an area deemed to be critical to macroeconomic stability, governance, or private sector growth, the DPO series should be re-programmed to the point where such commitment has been built up\. Sixth, the design of prior actions needs to address the critical actions that have to be taken to ensure the purpose of the reforms and secure the intended results\. Prior actions crafted so that only the first policy action is taken have failed on occasions to yield the expected results, especially when the authorities lacked the commitment or the incentives to take the critical follow-up steps\. Seventh, a candid assessment of commitment and capacity risks should be undertaken together with proposals for mitigation\. Supervision efforts should focus to a greater degree on such risks and mitigation proposals should be a part of the dialogue\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies The comments of the Ministry of Finance are attached in Annex 4\. The Ministry of Finance states that the draft ICR is “fragmented and incomplete”\. This seems to be related to the fact that the draft ICR concludes that the results expected under the Governance and anti-corruption reforms policy area have not been achieved\. The ICR authors cannot agree with such a statement\. Explaining the result for control of corruption, the draft ICR does indicate that the results framework in this policy area was poorly designed arguing that the policy action - verification of declaration – can have only a tenuous impact on the control of corruption index (Section 3\.2 Achievement of Program Development Objectives)\. Further, the draft ICR points out that the design suffered from a tenuous relationship between the prior actions and the results specifically referring to this policy area (Section 5\.1(a) Bank Performance in Ensuring Quality at Entry)\. On the other policy areas, the Ministry of Finance agrees that the DPO series made good progress in achieving program development objectives\. 29 (b) Co-financiers Not applicable (c) Other partners and stakeholders Not applicable 30 Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P126034 – First Development Policy Operation Names Title Unit Responsibility/Specialty Adam Shayne Chief Counsel LEGAM Legal Afsaneh Sedghi Senior Economist GMF11 Senior Economist Aibek Baibagysh Uulu Consultant GPV03 Consultant Anastassia Alexandrova Senior Country Officer SACPA Country Officer Ani Balabanyan Lead Energy Specialist GEE01 Lead Energy Specialist Bakyt Dubashov Economist GMF11 Economist Lead Financial Sector Damodaran Krishnamurti GFM1A Finance Sector Specialist Specialist Dener Cem Lead Governance Specialist, GGO19 Governance Erkin Mamadaliev Senior Operations Officer GSPGL Operations Gary McMahon Consultant GEEX1 Consultant Helen Edmundson Consultant GMF11 Consultant Irina Goncharova Procurement Specialist GGO03 Procurement Jana Kunicova Sr\. Public Sector Specialist GGO14 Public Sector Specialist John Ogallo Sr Financial Management OPSPF Finance Jyldyz Abdyrakhmanova Consultant GTCEE Consultant Klaus Decker Sr\. Public Sector Specialist GGO17 Public Sector Lilia Saetova Consultant GG015 Consultant Majed El-Bayya Lead Procurement Specialist, GGO03 Procurement Marat Iskakov Consultant GEE03 Consultant Maya V Gusarova Senior Public Sector Specialist GGO15 Public Sector Migara De Silva Senior Economist GGO15 Economist Nagaraju Duthaluri Lead Procurement Specialist GGO01 Procurement Orhan Niksic Economist GMF11 Economist Senior Private Sector Raha Shahidsaless GTC04 Private Sector Specialist Specialist Samuel Munzele Maimbo Practice Manager GFM3A Practice Manager Sarah Nankya Babirye Program Assistant GMF11 Program Assistant Sarosh Sattar Senior Economist GPV03 Senior Economist Saumya Mitra Consultant GMF11 Consultant Sunil Kumar Khosla Lead Energy Specialist GEE02 Energy Specialist Zhanybek Ybraiym Uulu Public Sector Specialist GG015 Public Sector Specialist P126274 – Second Development Policy Operation Names Title Unit Responsibility/Specialty Aibek Baybagysh Uulu Consultant GPV03 Consultant Aliya Kim Financial Management GGO21 Finance Specialist Ani Balabanyan Lead Energy Specialist GEE01 Lead Energy Specialist Bakyt Dubashov Economist GMF11 Economist 31 Names Title Unit Responsibility/Specialty David Nummy Sr\. Public Sector Specialist GGO15 Public Sector Evgenij Najdov Senior Economist GMF05 Economist Fredesvinda Fatima Sr\. Financial Sector GFM2A Finance Montes Specialist Irina Goncharova Procurement Specialist GGO03 Procurement Jana Kunicová Sr\. Public Sector Specialist GGO14 Public Sector Specialist Jasna Mestnik Finance Officer WFALN Finance Jieun Choi Economist GTC03 Economist John Daniel Pollner Lead Financial Sector GFM04 Finance Specialist Joseph Formoso Sr\. Financial Management GGO21 Finance Specialist Kamer Karakurum Senior Economist GMF05 Economist Ozdemir Klaus Decker Sr\. Public Sector Specialist GGO17 Public Sector Laura Pop Sr\. Financial Sector GFM1B Financial Sector Specialist Nagaraju Duthaluri Lead Procurement GGO01 Procurement Specialist Nargiza Tynybekova Consultant GTI11 Consultant Mairam Usupova Sr\. Financial Sector GFM2A Finance Specialist Samuel Munzele Practice Manager GFM3A Practice Manager Maimbo Sarah Nankya Babirye Program Assistant GMF11 Program Assistant Sarosh Sattar Senior Economist GPV03 Senior Economist Zhanybek Ybraiym Public Sector Specialist GG015 Public Sector Specialist Uulu (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending P126034 77 385,833 P126274 73 259,295 32 Annex 2\. Beneficiary Survey Results Not applicable 33 Annex 3\. Stakeholder Workshop Report and Results Not applicable 34 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR Below is the English translation of the letter from the Ministry of Finance, the comments on the draft ICR and the summary of the Ministry of Finance’s self-assessment report\. The original copies of these documents in Russian are attached in the Portal as supporting documentation\. Letterhead of Ministry of Finance August 3, 2017 No\. 16-3-2/8761 World Bank Country Office in the Kyrgyz Republic The Ministry of Finance of the Kyrgyz Republic expresses its deep gratitude to the World Bank for the support rendered to our country in the priority areas of the social and economic development of the Kyrgyz Republic\. In response to your letter No\.2017-3-26 of June 7, 2017, regarding the draft Development Policy Operations (DPO-1 and DPO-2) Implementation Completion and Results Report, we hereby attach the relevant information\. Once again, I would like to take this opportunity to express my deepest respect and gratitude for your direct support, as well as my hope for the continued fruitful cooperation\. Attachment(s): - Comments on the draft DPO-1 and DPO-2 Program Implementation Completion and Results Report; - DPO-1 and DPO-2 Program Implementation Completion and Results Report\. Deputy Minister M\. Baigonchokov Department of International Cooperation B\. Askarov 664812 35  Comments on the World Bank’s draft Development Policy Operations (DPO-1 and DPO-2) Program Implementation Completion and Results Report Overall, we would like to note that the World Bank’s DPO-1 and DPO-2 implementation completion and results report (ICRR) is fragmented and incomplete, and on the content of information about implementation of paragraph 1\.1 (Governance and anti-corruption reform) under Pillar 1 (Improving Public Sector Governance), we would like to note that, according to the information provided in the ICRR, the target value for 2014 was 15 percentiles\. However, as the World Bank notes, the actual value achieved in 2014 was only 11\.54 percentile\. The study of such a discrepancy between the targeted and the achieved values showed that, in the estimation of this indicator, the emphasis was solely on the declaration of income and assets\. That is, the authors of the report overlooked any other corruption reduction instruments when determining the anti-corruption progress\. Such a lopsided approach may have affected the low score of progress in this area\. At the same time, reforms in the Kyrgyz Republic have been focused specifically on the prevention and eradication of corruption starting from 2010\. We assume that the calculation of the percentile values has not taken into account certain achievements resulting from the implementation of the state’s anti-corruption strategy, departmental corruption dismantling plans, other government programs, and plans\. Today, there is a framework of laws and regulations adopted to combat corruption in the governance area\. The State Strategy of the Anti-Corruption Policy of the Kyrgyz Republic was approved by the Decree of the President of the Kyrgyz Republic No\.26 of February 2, 2012\. The Anti-Corruption Law of the Kyrgyz Republic (Law on combating corruption) No\.153 of August 8, 2012, was adopted\. State agencies and local authorities have developed their short- and long-term anti-corruption action plans\. The Plan of Measures of State Bodies of the Kyrgyz Republic for Implementation of the State Strategy of Anti-Corruption Policy of the Kyrgyz Republic for 2015-2017 was approved by the Resolution of the Government of the Kyrgyz Republic No\.170 of March 30, 2015\. There are consistent efforts focused on the implementation of these policy documents\. To this must be added the corruption prevention mechanisms in the public procurement area, the establishment of the position of designated corruption prevention official (commissioner) in each state body, as well as many other measures\. Interview panels study relationships of applicants with their potential state and municipal service employers\. As regards the issues of declaration viewed in the report as anti-corruption measures, significant positive results have been achieved in this area since 2013, as well\. The issues of income declaration by employees in the governance sector are complemented by the declaration of their expenses, liabilities, and property\. 36 There is an Interdepartmental Commission for the verification of declarations, based on the findings of which information on discrepancies is forwarded to the relevant law enforcement agencies\. A unique methodology for the verification of declarations has been developed, approved and polished in practice based on a cross-sectional analysis of a large body of data on property and other assets\. The practice of verification has started in 2013, which means it must certainly be reflected in the report as progress achieved by 2014\. We also note that the following productive results have been achieved under DPO-1 and DPO-2: ï‚ Budgetary discipline and transparency in the use of budget resources have been increased, within the framework of which the Budget Code of the Kyrgyz Republic has been adopted, which strengthens control over unallocated funds in the Treasury, eliminates non-transparent contingency funds, promotes the introduction of internal audit and medium-term budget planning, and provides greater clarity to the budgeting cycle as a whole\. ï‚ Public procurement transparency, where a unified system of electronic public procurement has been introduced\. The portal has improved access to information about tenders and reduced paperwork\. Thereby, it ensures fair competition among suppliers, that is, entrepreneurs, domestic and foreign companies\. ï‚ Judicial reform, within the framework of which the Government Target Program for Development of the Judicial System of the Kyrgyz Republic for 2014-2017 has been developed\. Implementation of the Target Program resulted in the creation of favorable conditions for the improved budget funding and logistical support for the courts, increased openness, transparency and accessibility of justice, improved efficiency of the judiciary, improved quality of judicial acts, as well as improved execution thereof\. ï‚ Establishment of new enterprises and business operations, within the framework of which the Ministry of Justice issued an order containing: (a) a checklist for registration offices with specification of the grounds for rejecting business registration applications; and (b) instructions that applicants will receive after the first submission of all requests, with specification of the required additional information\. Also, the number of days required for the registration of a business has been reduced by 10 days\. ï‚ Business inspections: a single automated database for inspections of businesses (KontrPro3) in the Ministry of Economy and eleven inspectorates in the city of Bishkek has been introduced to reduce the burden of inspections on businesses\. ï‚ Reinforcement of the NBKR supervisory function and enhancing financial sector stability: the program envisaged the development and enforcement of accounting for concurrent loans to borrowers in order to improve supervision; these objectives have been accomplished successfully\. Also, commercial banks provide necessary information within their regulatory reporting, which is collected, processed, uploaded to the database, and used by the National Bank within the framework of external supervision and inspection\. ï‚ Strengthening of the Deposit Protection System (DPS) legal framework , within the framework of which the Concept of the deposit protection system in the Kyrgyz Republic has been developed, which aims to strengthen the management, coordination, and operation of the deposit protection system\. 37 Results: Increased confidence in banks, as evidenced by an increase in deposits as a percentage of GDP\. ï‚ Energy sector transparency: increasing transparency of the energy sector by requiring energy companies to regularly publish on their websites: (i) monthly balances on special accounts of the ES (Power Plants OJSC) and NESK (National Power Grid of Kyrgyzstan OJSC), and transit accounts of Severelectro OJSC, Vostokelectro OJSC, Oshelectro OJSC, and Jalalabatelectro OJSC; (ii) quarterly operational and technical data of the above-mentioned entities; and (iii) annual financial statements, together with audit reports\. Summary of the Ministry of Finance’s Self-evaluation Report for DPO1 and DPO2 The Ministry of Finance’s report states that the programmatic series of two development policy operations (DPO1 and DPO2) aimed to support reforms of the Kyrgyz Republic’s Government in such areas as: public financial management, anti-corruption, the court system, and the energy sector\. The implementation of DPO1 and DPO2 policy actions involved several government agencies\. The report emphasizes that the DPO series was an important program to enhance public sector management, and strengthen the financial, energy, social and private sectors, which are priority areas for the Kyrgyz Republic\. The reforms supported by the DPO series contributed to achieving economic growth and social stability\. It also notes that the financial support provided by the DPOs was timely for the budget\. The report states that the program objectives have been achieved, thanks to reforms aimed at strengthening public management, improving the quality of the public services, supporting the law on public procurement, and enhancing transparency and accountability in the energy sector\. In addition, the DPO series has contributed to improving the business environment, streamlining trade procedures, and enhancing the connectivity\. These reforms were central to the Government’s Public Sector Reforms Roadmap and Private Sector Development Strategy\. The report mentions that the policy actions included in the DPO matrices were consistent with the action plans of individual ministries and agencies which regularly reported on implementation progress to the Kyrgyz Republic Government\. The report states that the Kyrgyz Government’s action plan for 2013-17 was focused on the priorities defined in the National Strategy on Sustainable Development covering 2013-17, and on maintaining macroeconomic and social stability as highlighted in Government’s annual plans\. The main objectives of these action plans were to improve the living standards of the Kyrgyz citizens and achieve sustainable economic growth\. The report states that the main achievement was the maintenance of the positive growth dynamics\. Real GDP growth in 2016 was 3\.8 percent with positive contributions from all the main sectors of the economy\. The revenue of the state budget rose by 1\.8 percent to 130\.6 billion of soms in 2016 mainly due to tax revenue, which increased by 10\.8 percent to 93\.8 billion of soms\. However, the deficit of the republican budget increased to 4\.6 percent of GDP in 2016 from 1\.5 percent in 2015 due to increased spending\. Public debt amounted to 61\.4 percent of GDP as of end-December 2016, down from 67\.1 percent in 2015\. External public debt, as a share of GDP, fell by 6\.9 percent to 56\.6 percent of GDP as a result of the nominal appreciation of the som during 2016\. 38 The report further refers to the latest scores of the Kyrgyz Republic in international rating such as Doing Business, Economic Freedom, Corruption Perception and Global Competitiveness\. These ratings are being used as monitoring indicators for the National Sustainable Development Strategy\. The report also mentions actions undertaken by the Government to improve the budget formulation and implementation processes\. In particular, it indicates that a new budget code was adopted in May 2016 and a new public financial management strategy for 2017-2025 was approved in December 2016; to enhance transparency in budget formulation process the Ministry of Finance has started to publish the so-called civil budget, which intends to explain the annual budget for laymen\. The report also lists actions that the Government undertook to tighten spending in 2016\. For instance, one of the decisions was a moratorium on increasing the number of staff in the government offices\. The report concludes with highlighting successful outcomes achieved in the policy areas of the DPO series: 1\. Governance and anti-corruption: to improve further the asset declaration process of public servants, the government has introduced mechanisms for cross-checking and verification of asset declaration reports; a new law on civil and municipal service defines a procedure for entering the public service, a career planning framework, performance assessment and professional and ethic requirements for public servants\. 2\. Budget discipline and transparency in the use of budget resources: a new budget code strengthens control over unallocated resources in the treasury, removes non-transparent reserve funds, promotes internal audit in public agencies, and provides increased transparency in budgeting\. 3\. Transparency in public procurement: the e-procurement portal contains all information about public procurement ensuring fair competition among potential private suppliers including foreign companies\. 4\. Court system reforms: the implementation of the state program on the court system development increased funding to the court system, improved transparency and accountability of the court system, and enhanced the efficiency of courts\. This state program also helped improve enforcement of court decisions\. 5\. Business startups and operations: the Justice Ministry issued a decree introducing a checklist of required documents for registration of new businesses and mandating the registration office to provide justification and instructions in cases where registration is declined\. In addition, the number of days required for registration was reduced by 10 days\. 6\. Business inspections: a single automated database on business inspections (KontrPro3) was introduced in the Ministry of Economy, and in 11 Inspectorates in Bishkek\. This reduced the burden on private companies\. 7\. Strengthening NBKR’s supervision function and increasing financial sector stability: reporting on parallel loans was developed and introduced; these data are now collected, processed and analyzed by the NBKR for on-site inspections\. 8\. Strengthening the deposit protection system legislation: a concept aimed at improving management, coordination and functioning of the deposit protection system was developed and introduced; as a result, the ratio of deposits to GDP has increased\. 9\. Transparency of the energy sector: the energy companies are obliged to regularly publish on their web-sites the following information: (i) end-month balances on their special accounts, (ii) quarterly performance reports, and (iii) annual financial statements with audit reports\. 39 Annex 5\. Comments of Co-financiers and Other Partners/Stakeholders Not applicable 40 Annex 6\. List of Supporting Documents 1\. World Bank, Program Document for the First Development Policy Operation, Report No\. 68057-KG, June 24, 2013 2\. World Bank, Program Document for the Second Development Policy Operation, Report No\. 86516-KG, May 12, 2014 3\. World Bank, Interim Strategy Note for the period of FY 2012-13, Report No\. 62777-KG, June 16, 2011 4\. World Bank, Kyrgyz Republic Country Partnership Strategy for the period FY 2014-17, Report No\. 78500-KG, June 24, 2013 5\. World Bank, Worldwide Governance Indicators, 2011 6\. World Bank, Worldwide Governance Indicators, 2014 7\. World Bank, Doing Business, 2011 8\. World Bank Doing Business, 2015 9\. The Government of the Kyrgyz Republic, Medium-Term Development Program for 2012-14 10\. The Government of the Kyrgyz Republic, National Sustainable Development Strategy for 2013-17 11\. The Kyrgyz Republic, PEFA Assessment Report, December 2009 12\. The Kyrgyz Republic, PEFA Assessment Report, March 2015 13\. The Ministry of Finance of the Kyrgyz Republic, Cover Letter with Comments on the Draft ICR and Self-Assessment Report 41

REVIEW

P000438

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23041 IMPLEMENTATION COMPLETION REPORT (IDA-28640; PPFI-P7320; PPFI-P7321) ONA CREDIT IN THE AMOUNT OF USS 11\.4 MILLION TO THE REPUBLIC OF CAPE VERDE FOR A CAPACITY BUILDING PROJECT FOR PRIVATE SECTOR PROMOTION DECEMBER 19\.2001 Private Sector Unit Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 18, 2001) Currency Unit = Escudo (CVE) CVE 1 = USS 0\.008347 US$ 1 = CVE 119\.80 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ATM Automated Teller Machine BCA Banco Comnercial do Atlantico BCV Central Bank of Cape Verde (Banco de Cabo Verde) CAS Countrv Assistance Strategy CCR Caixa de Credito Riural CECV Caixa Economica de Cabo Verde CIMA Conference Interafricaine di Marche des Assuirances EPZ Export Processing Zone ERR Economic Rate of Retum FDI Foreign Direct Investment GDP Gross Domestic Product GOCV Government of Cape Verde IADE Entrepreneurial Development Institute (Institutto de Apoqo ao Desenvolvimento Empresarialh ICR Implementation Completion Report IDA International Development Agency ILO International Labor Organization IMF Intemational Monetary Fund INPS National Institute for Social Security Services (Instituto iVacional de Previdencia Social) MEC Mviinistry of Economic Coordination MIS Management Information System NPL Non Performing Loans NPV Net Present V'alue POS Point-of-Sale PPF Project Preparation Facility PROMEX Export and Investment Promotion Center (Centro de Pronmoqdo Sturistica, do Investinmento e das Exportaoes) PSCU Private Sector Coordinating Unit QAG Quality Assurance Group SAR Staff Appraisal Report SISP National Commission for Payment Systems SOE Statement of Expenditures USAID US Agency for International Development Vice President: Callisto E\. Madavo Country Manager/Director: John McIntire Sector Manager/Director: Demba Ba Task Team Leader/Task Manager: Korotoumou Ouattara  FOR OFFICIAL USE ONLY CAPE VERDE PRIVATE/FINANCIAL SE CONTENTS Page No\. I Project Data 1 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs - 4 5\. Major Factors Affecting Implementation and Outcome 16 6\. Sustainabilitv 17 7\. Bank and Borrower Performance 18 S\. Lessons Leamed 21 9\. Partner Comments 22 10\. Additional Information 22 Annex I\. Key Performance Indicators/Log Frame Matrix 23 Annex 2\. Project Costs ano Financing 27 Annex 3\. Economic Costs and Benefits 29 Annex 4\. Bank Inputs 32 Annex 5\. Ratinas for Achievement of Objectives/Outputs of Components 33 Annex 6\. Ratings of Bank and Borrower Performance 34 Annex 7\. List of Supporting Documents 35 Annex 8\. Summary of Borrowver's Contribution to the ICR 36 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P000438 Project Name: PRIVATE/FINANCIAL SE Team Leader: Korotoumou Ouattara TL Unit: AFTFS ICR Type: Core ICR Report Date: December 19, 2001 1\. Project Data Name: PRIVATE/FINANCIAL SE L/C/TFNuwnber: IDA-28640; PPFI-P7320; PPFI-P7321 Count?y/Department: CAPE VERDE Region: Africa Regional Office Sector/subsector: FS - Financial Sector Development KEY DATES Original Revised/Actual PCD: 08/31/92 Effective: 09/13/96 09/13/96 Appraisal: 06/28/95 MTR: 03/31/98 02/15/99 Approval: 05/21/96 Closing: 12/31/2000 06/30/2001 Borrower/lImplementing Agency: Republic of Cape Verde/Ministry of Finance and Planning Other Partners: STAFF Current At Appraisal Vice President\. Callisto E\. Madavo Jean Louis Sarbib Countrv Manager: John McIntire Mahmood A\. Ayub Sector Manager: Demba Ba Silvia B\. Sagari Team Leader at ICR: Korotoumou Ouattara Noel Kabamba Tshiani ICR Primary Author: Korotoumou Ouattara; Shenhua Wang 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainabilitv: L Institutitonal Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Qualitv at Entrv\. S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Capacity Building Project for Private Sector Promotion (Cr\. 28640-CV) in Cape Verde was approved by the Board on May 21, 1996, for a credit amount of SDR 7\.9 million or US$11\.4 million equivalent\. The credit became effective four months later on September 13, 1996\. The main objectives of the project, as described by the Staff Appraisal Report (SAR), were employment creation in the formal sector, and a well-functioning financial sector\. The specific objectives were: (a) for the private sector, to enhance the country's foreign-exchange earnings, attract foreign investments, and improve the performance of private enterprises; and (b) for the financial sector, to enhance the functioning of the Central Bank as a monetary authority and improve financial intermediation through the strengthening of banks and non-banking institutions\. The project, which was a key element of the government program, was complementary to programs being supported by other key donors, namely the African Development Bank (AfDB), the United States Agency for International Development (USAID), the Government of Portugal and the European Union as well as ongoing Bank projects in public sector reform and transport and infrastructure sectors\. The project objectives were broad and ambitious but in line with the Country Assistance Strategy (CAS) of promoting private sector investment as the main vehicle for the country's development\. Identification of specific development objectives proved helpful in monitoring project implementation and assessing its achievements\. The project objectives covered all key elements of the government's program which were to: (a) develop a strong and dynamic private sector; (b) attract foreign investments for export activities; (c) develop the potential of the tourism sector; and (d) strengthen the financial sector\. Two main components were thus defined, private and financial sectors, to fit the government's program and accommodate all activities to be undertaken by the project\. 3\.2 Revised Objective: N\.A\. 3\. 3 Original Components: The project had two main original components: private sector development and financial sector development (See table 1)\. Each component had several subcomponents\. In the private sector, the project was to (a) provide support to the Export and Investment Promotion Center (PROMEX) to (i) develop export and tourism activities; (ii) establish a video-conferencing facility; (iii) launch an international marine registry; (iv) develop an export processing zone (EPZ) in the province of Mindelo; and (v) establish private sector coordination services, and (b) provide support to domestic enterprises, through the Chambers of Commerce, to improve their performance\. In the financial sector, the project was to finance (a) technical support to modernize the macro infrastructure for financial operations, including the design and development of an effective payment system, the review and updating of the legal framework for the financial sector, and assistance to the Central Bank (BCV) to strengthen its supervisory function over financial institutions, and the redesign and implementation of an integrated economic and financial database; and (b) assistance to public commercial banks (BCA, and CECV) and social security agencies (INPS, and ISCV) in staff training, audits, and a management information system\. The - 2 -  assistance to the commercial banks was to specifically prepare them for privatization before the end of this four-year project, i\.e\., before December 2000\. The project components and activities were designed to relate directly to project objectives in support of the government's program to strengthen the private and financial sectors\. Although the Ministry of Economic Coordination (MEC) was accountable for project execution, implementation of project sub-components was to be carried out by key institutions which were also project beneficiaries: BCV, BCA, CECV, ISCV, INPS, the two chambers of commerce and PROMEX\. The primary role of the Private Sector Coordinating Unit (PSCU) was to coordinate and monitor the implementation of the various project sub-components by the key sector institutions, and provide the link between the Government of Cape Verde (GOCV) and the World Bank\. Although technical assistance projects are usually not the best instruments for policy reformn activities, several such activities were included in the project and undertaken successfully\. All reforns pertained to the financial sector and the Central Bank on the premise that a well functioning financial system is key in supporting the growth in the private sector\. The reforms included a wide array of changes in the legal and regulatory framework, and included an update of the Banking law, a revision of the Central Bank statutes and a draft of a new law on off-shore banking\. Given their importance, new banking and insurance regulations were a condition of credit effectiveness, which helped ensure their approval\. Table 1: Project Original Components and Costs Component Cost(in US$ million) Rating Private Sector Development 5\.90 s Financial Sector Development 4\.35 S PPF Refinancing 0\.85 Unallocated 1\.10 Total 11\.40 3\.4 Revised Comnponents: The project's two main components remained the same throughout project implementation\. However, the subcomponent dealing with the establishment of a video conferencing facility was not carried out\. After credit approval, Cape Verde telecom established two video conference rooms in Praia and Mindelo, and the video conference facilities envisaged under the project were, thus, no longer required\. 3\.5 Quality at Entry: Quality at entry was not evaluated by the Quality Assurance Group (QAG)\. It is rated satisfactory in the Implementation Completion Report (ICR) for several reasons\. The project objectives and cormponents were in line with the government's economic program, as stated earlier\. Although the project predates the introduction of the logical framework approach, the preparation team provided, in the annex of the SAR, a detailed listing of project performance indicators\. Those performance indicators were, in the end, used to draw up the logical framework matrix included in Annex 1 of this report\. However, as was common with most Bank projects at the time, several -3 -  indicators were input rather than output/outcome related\. In accordance with the Bank's safeguard policies, an environmental assessment was performed due to potential negative impact of industrial and tourism development on the fragile ecosystem of the island nation that is Cape Verde\. The assessment concluded that the project would not have a significant adverse impact on the environment, and was given a B rating\. There was, therefore, no ex-post evaluation of the environment impact of the project\. Several project risks were identified by the team and in particular related to government's commitment to reforms as well as its capacity to implement the project\. The project included a significant amount of expert advisory services to help mitigate these risks\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The project outcome in the private sector is rated satisfactory with respect to the achievement of its objective of employment creation by attracting foreign investment and enhancing foreign exchange earnings\. The Capacity Building Project for Private Sector Promotion was being implemented at a time when Government adopted in 1970s, an outward-oriented strategy aimed at privatizing public enterprises and liberalizing trade after the failed inward-looking policies of the late 1970s and early 1980s\. In 1993, economic growth began to recover with a growth rate of about 4\.5 percent, thanks to higher public investment in economic and social infrastructure and some private sector investment, particularly foreign, in light manufacturing and fisheries\. The formal private sector played a dominant role in import and domestic trade but its contribution was low in manufacturing, tourism and services\. At the beginning of the project, the manufacturing sector accounted for 8 percent of gross domestic product (GDP)\. Despite Cape Verde's natural endowments as an Island, its comparative advantage and its potential, tourism did not play a significant role in the economy and accounted for about 2 percent of GDP, whereas fisheries accounted for less than 3 percent of GDP\. Cape Verde enjoyed a long period of political stability and a relatively well educated labor force but unemployment remained an important problem with 23 percent of the working-age population officially classified as unemployed\. The project made it its central mandate to contribute to employment creation by directly focusing on attracting foreign investment in manufacturing, fisheries, and the services sectors with the establishment of an Export Processing Zone (EPZ) and investment in the tourism sector and the development of tourism activities\. Support was, therefore, given to PROMEX, in charge of the implementation of Government export-led development strategy to undertake these key activities\. - 4 -  With a continuing stable political environment and fueled by actions in the project, in particular the establishment of the EPZ with the construction of factory shells for foreign companies, and promotional campaign abroad by PROMEX to attract tourism demand for Cape Verde, the project effectively contributed to employment creation in the private sector\. According to PROMEX data, during project implementation years, there was an increase in the volume of investments in the manufacturing sector which produced a total of 3,655 jobs corresponding to projects in operation by the end of 2000 (see Annex 1)\. That achievement has surpassed project's predictions that 2,700 jobs would be created in manufacturing\. The new foreign investment projects approved from 1997 to the end of October 2000 in the manufacturing sector are expected to generate, when they attain full operation, a total of 4,071 new direct jobs\. From 1996 to 2000, a total of about US$425 million in investment projects was approved by Cape Verdean authorities and investment projects of about US$188 million are currently in operation\. At the end of the project in June 2001, in the tourism sector, there were about US$63 million investment projects in operation and US$218 million in the pre-investment phase\. A total of 843 jobs had been created and it was expected that projects in the pre-investment phase would create an additional 2,020 jobs\. Tourism sector contribution to the gross domestic product (GDP) has also increased from 2 percent in 1996 to 3\.9 percent in 2000\. The fishing and fish processing industry was able to create 14 jobs for US$600,000 of investment with project funds\. The project was, thus, able to attract foreign investment as planned and increase the country's foreign exchange earnings\. Exports increased from US$10\.3 million in 1996 to US$12\.7 million in 2000, with an average annual growth rate of 5 percent\. More importantly, the structure of exports has changed substantially, and in 1999, garment, shoes, and electronic products accounted for 82 percent of the total value of goods exported, which were traditionally dominated by primary sector products\. That achievement is directly related to the increase of foreign investment in the manufacturing sector, and thus, linked to project activities\. An obstacle in the way of the project's objective of enhancing the country's foreign exchange earnings was the setting up of an international ship registry which was not fully realized\. The results of that activity did not materialize as a draft legislation is still awaiting parliamentary approval and might be subject to a long and intense scrutiny to make it compliant with international best practice standards\. Also, the construction of the tourist alley, a one-mile road amenity enhancement in the area of Santa Maria, on the Island of Sal was not completed due to delays in counterpart funding\. The road was built in 1999 and the improvements along the alley are underway but could not be completed before project closing date of June 2001\. That activity was deemed essential for attracting private investors to develop beach front hotels and government has committed to complete the alley soon\. A considerable number of people have been trained with project's funds although the full impact in improving the performance of private enterprise is not known\. It is expected that the training activities and other project support would have improved the capacity of managers and technical staff, as well as the efficiency or competitiveness of domestic enterprises\. As was often the case - 5 -  with most Bank projects at the time, this project only had input indicators on the number of people trained but no outcome-related indicator\. In the financial sector, the project's main objective of delivering a well functioning sector was rather ambitious and optimistic for a four-year project in a country that was transforming a highly centralized economy into a market-oriented one\. The outcome in the financial sector component is rated satisfactory with respect to achievement of specific objectives of enhancing the monetary authority of the Central Bank (BCV) and improving financial intermediation as substantial progress was made in these areas\. BCV has successfully established its function as a Central Bank, after its split from BCA, a state-owned commercial bank, which was subsequently privatized\. With the support of the project, the Central Bank has implemented an array of activities intended to strengthen its authority and facilitate its supervisory role\. These included the development of a new domestic and international payment systems; the creation of an economic information database system; the establishment of a credit risk assessment center which monitors the credit portfolio of the commercial banks and serves as a credit information center of the banks; a revision of the legal framework for banking and insurance supervision including regulation for supervision of operations, legislation on off-shore banking systems and a new law on car insurance, and employers accident insurance\. The supervisory role of the Central Bank over the banking and insurance sector has been enhanced with the strengthening of its newly created supervisory department for both banks and insurance companies\. BCV is now able to perform regular inspections including one on-site and two off-site inspections per year of each financial institution\. However, BCV remains a young Central Bank and it is expected that its supervision skills will improve in the coming years as it becomes more adept at detecting serious problems quickly and recommend remedial actions at institutions under its supervision\. The improvement in financial intermediation started with the privatization and strengthening of the state-owned banks and has led to a more competitive banking industry\. Cape Verde, which had no private banks at the start of the project, now has four commercial banks that cater to about 36 percent of the population which is higher than the average for Sub-Saharan Africa\. Some banks have also started lending for nontraditional activities such as microfinance, as they are faced with increased competition and try to diversify their portfolio\. Commercial banks in Cape Verde can also rely on a connection to the SWIFT network, realized under the project, which allows fast, secure, and reliable intemational payments\. Domestic financial transactions are also cleared within 24 hours instead of the originally 48 hours planned under the project\. However, the domestic interbank clearing services have yet to be perfomned electronically rather than manually as is currently the case\. Despite the important results achieved by the project in the financial sector, there are still several challenges facing the sector\. For instance, the level of financial intermediation, measured as loan to deposit ratio was 41\.2 percent in the year 2000 and remains much too low by international standards\. Although BCA has been privatized, it remains the largest bank in the country with 20 percent Government's ownership and "Golden" share rights that give the State the power to influence decisions at BCA\. Also, the deteriorating macroeconomic environment in Cape Verde in - 6 -  the year 2000, due to the increase in oil prices, has had a negative effect on the financial sector with an increase in non-performing loans (NPLs) at commercial banks to 11 percent and 18 percent for BCA and CECV respectively\. These elements point to a financial sector that remains vulnerable and will require careful monitoring in the future\. 4\.2 Outputs by components: Private Sector Component (US$5\.90 million SAR, US$5\.19 million actual): The private sector component was allocated the largest share of the credit with 52 percent of the funds at appraisal\. It is rated satisfactory as most critical activities were carried out successfully though with a few shortcomings\. The main two subcomponents were (a) institutional support to PROMEX for (i) development of export manufacturing activities; (ii) development of tourism activities; (iii) development of an export processing Zone (EPZ) in Mindelo Province; (iv) establishment of an international marine registry; and (v) establishment of a video conferencing facility; and (b) support to domestic enterprises\. These activities were to be performed by PROMEX and the two chambers of commerce, and were carried out successfully for the most part as described below and in Annex 1: (a) Institutional support to PROMEX: Created in 1990 by the Government with assistance from USAID, the primary role of PROMEX was to assist in export promotion and foreign investment development\. In 1992, PROMEX extended its activities to include promotion of tourism as well as positioning itself as a one-stop-shop for foreign investors\. Thus, support from the project was intended to help PROMEX fulfill its role as the export and investment promotion agency responsible for the implementation of the Government export-led development strategy under its new statutes as an autonomous agency\. Under the project, training was provided to PROMEX staff to help fulfill its role\. (i) Development of Export Manufacturing Activities by Domestic Enterprises: PROMEX's efforts to help domestic enterprises expand their exports included several studies in 1996 and 1997 on Cape Verde's competitiveness in light manufacturing, raw materials for footwear and garments; and identification of new export markets\. The project also financed several training programs under which a total of 29 staff were trained locally and 18 abroad\. PROMEX also carried out a media campaign to inform the business community about its services and started publication of two trade publications: the investment bulletin CONTACTO, published quarterly, and the magazine PERSPECTIVA, published annually to provide information to domestic enterprises in search of new markets for their products\. Additional market information provided in both publications to local producers could have contributed to export expansion by domestic enterprises\. However, PROMEX has not kept separate data on domestic versus foreign enterprise exports, which has made it difficult to fully assess the impact of the project on domestic enterprise exports\. (ii) Development of Tourism Activities: The tourism sector has experienced a tremendous growth during the project years spurred to a large extent by efforts by promotional activities by PROMEX supported with project funds, and by macroeconomic and political stability in the country\. From 1997 to 1999, - 7 -  PROMEX participated in a total of 41 tourism promotional activities abroad to stimulate tourism demand for Cape Verde\. Several help desk booths were set up throughout the country, and tourism offices on the islands of Santiago and Sal were created\. All existing hotels were evaluated and categorized before June 30, 1997\. The classification of all hotels is reviewed annually before the start of the tourist season\. A survey of departing tourists is conducted each year at the end of the major tourist season and the results are analyzed within two months by the statistical unit established in 1996\. Before January 31 of each year, the statistical unit publishes information on tourism sector activities during the preceding 12 months\. By the end of 1999, according to PROMEX data on tourism, there were 2,200 rooms and 4,135 beds in Cape Verde, surpassing project target numbers\. An estimated 2,391 hotels rooms and 4,475 beds were available for the year 2000\. The number of tourists visiting Cape Verde increased 211 percent, from 37,000 in 1996 to 115,015 in 2000\. The average length of stay of tourists reached seven days in 2000, one day short of the initial target of eight days\. A recent survey by PROMEX revealed that the degree of tourist satisfaction with services provided by hotel staff has improved significantly since the beginning of the project\. One important shortcoming in the development of tourism activities was the non-completion of the tourist alley along the Santa Maria beach due to delays in counterpart funding\. Only a one-mile road in the Sal Island Tourism Zone was built as planned to enhance hotel development and may not be enough to attract more tourist-related investments\. However, the government is committed to complete the beautification of the tourist alley and continuing the work started under the project\. (iii) Development of an Export Processing Zone (EPZ) in Mindelo Province, S\.Vicente Island: The project was to finance the construction of physical facilities (factory shell) for the establishment of foreign enterprises\. Three factory buildings provided by the Government of Luxembourg were completed under the Project and successfully leased to three export enterprises\. From the initial target of four factory buildings of 1000 m2 each (totaling 4000 m2), two larger factory buildings were completed instead under the project, one of 1000 m2 (in Praia) and another of 5000 m2 (in S\.Vicente), for a total of 6000 m2\. One of these factories has in fact the equivalent surface area of five initially envisaged factories to accommodate the request from the company\. In addition to the construction of the buildings, the project financed in-factory training of 1,180 workers (98 percent of the target) from nine EPZ companies\. The management of the EPZ zone was to be carried out by PROMEX until the number of companies was sufficient to justify the transfer of management responsibilities to a private company on a concession basis by March 1997\. However, opposition from the Mayor of S\. Vicente has prevented PROMEX from assuming that responsibility and the EPZ is currently without a clearly defined management, which is an important shortcoming of this project that may threaten the sustainability of the EPZ zone if a solution is not found soon\. -8 -  It should be noted that a government's decree in 1997 transferring management of lands for industrial uses to PROMEX has failed to resolve the dispute\. Given all these difficulties, it may be time to entrust the management to a private contractor as was originally envisioned by the project\. (iv)Establishment of an International Marine Registry: Following the recommendations of a 1994 study financed by USAID that found that Cape Verde had a comparative advantage in the operation of an open international registry, the project included this subcomponent with the objective of attracting additional foreign exchange\. The activity was delayed and responsibility for its implementation was moved from PROMEX to the Ministry of Sea\. By the end of the project, a strategic partner was selected and a joint venture agreement between the government and the private partner was signed on December 16, 2000\. The international ship registry was to start operation in the first quarter of 2001\. However, the operation cannot start so long as the drafted national legislation to conform to internationally accepted laws and regulations in this sector has not been passed by Parliament\. There is, however, a concern that Parliament may not find the draft legislation acceptable and, thus delay its passage indefinitely\. The international marine registry has come under new scrutiny with the increased concern of the international community with money laundering\. The World Bank will follow up the issue of the draft ship registry legislation to ensure that it conforms to emerging best practices\. (v) Establishment of a Video Conferencing Facility: This activity was not carried out under the project as the World Bank team agreed that the establishment by Cape Verde Telecommunications Company of two video conferencing facilities in the country, would make the construction of an additional facility unnecessary\. (vi) Private sector coordination services: The project intended to create a Private Sector Coordinating Unit (PSCU) to monitor and coordinate all activities of the project and was to be housed at PROMEX\. A different arrangement was arrived at later and PSCU was set up as an independent unit, directly under the Ministry of Finance\. This arrangement meant that the coordinating unit had to hire additional personnel needed to carry its activities as a separate entity from PROMEX, and did so successfully\. (b) Support to domestic enterprises: Assistance provided under the project to domestic enterprises was implemented through the two existing Chambers of Commerce and included training and consulting services for a fee to help firms with their operational problems with the objective of improving their performance\. These services were provided on a matching grant basis to follow industry good practice\. A total of 810 staff of enterprises have benefited from training and 85 enterprises have received technical assistance\. No data was collected on the evolution of enterprise profitability following project support\. The National Institute for Statistics only reported that the number of enterprises increased from 4,437 in 1992 to 6,633 in 1997, showing a positive growth that is expected to continue in the future given greater market liberalization and opportunities\. -9-  The Chambers of Commerce have experienced an increase in their membership, since the beginning of the project as was expected\. For example, membership in the Chamber of Commerce of Barlavento has risen from 187 at its inception in 1997, to 335 in 2000\. The transfer of commercial licensing activity from the Government to the Chambers of Commerce has not only solidified ties between the Chambers of Commerce and the private sector, but has also generated an important source of funds to support activities for the private sector\. Two business forums financed with project funds were organized by the Chambers of Commerce that helped improve the dialogue between private and public sectors, and the creation of a National Council for private sector promotion is in the works under the new Government\. The Council will include representatives of the private and public sectors and will function as an important tool to maintain the dialogue\. Financial Sector Component (US$4\.35 million SAR, US$4\.44 million actual): The financial sector component was originally allocated and effectively used about 38 percent of the credit and is rated satisfactory\. Most activities that were listed in the SAR in order to attain the objective of enhancing the functioning of the BCV as a monetary authority and improve financial intermediation were carried out successfully\. They include: (i) the design and development of an effective payments system; (ii) the review and updating of the legal framework for the financial sector; and (iii) assistance to the BCV to strengthen its supervisory function and to redesign and implement an integrated economic and financial database; (iv) the privatization of the two state-owned banks; and (v) the institutional strengthening and development of the social secunty system\. (i) Design and development of an effective payments system: The development of an effective payments system is one of the major accomplishments of the project\. The connection of all commercial banks to the SWIFT network, which was realized under the project, allows international payments to be made in a safe, flexible and reliable way\. Domestic financial transactions are also now cleared in 24 hours, faster than the initial project target of 48 hours\. Still all interbank clearing services are performed manually instead of electronically\. Installation and operation of a network of automatic teller machines (ATMs) allowing 24-hour banking, allied to a network of Points-of-Sale (POS) was achieved to facilitate payments of purchases in stores\. The National Commission for Payments System (SISP), which oversees the ATM system, is planning to connect to VISA\. This would be done via a Portuguese bank\. As of June 2001, 29 ATMs were installed on 5 Islands, 158 POS were set up, and 27,000 bank customers held ATM/Debit cards for their transactions\. It should be noted that the establishment of automated POS connecting small stores and supermarkets to commercial banks, and ATMs were additional project activities not originally included in the SAR\. - 10 -  (ii) Revision and updating of the legalframeworkfor thefinancial sector: Under this subcomponent and during the project implementation period, a substantial revision of the banking legal framework was undertaken and several laws and regulations were adopted including, an update of the Banking Law and the Bank of Cape Verde Statutes\. The adoption of the law was an important step towards clarifying the role of the Central Bank and giving the institution additional tools to better perform its mission\. A number of Avisos (Bank of Cape Verde Directives) were issued including the banking supervision mission of the Bank of Cape Verde (viso No\. 6/98); the general principles of this mission (Aviso No\. 7/98); the characteristics of banks'capital (Aviso No 8/98); the minimum level of provisions (Aviso No\. 9/98); the minimum level of public titles (Aviso No 10/98); the net value of banks' assets (Aviso No\. 11/98); the liquidity criteria (Aviso No\.12/98); the solvability ratio for banks (Aviso No\. 1/99); the information obligations (Aviso No\. 2/99); the participation of banks in other companies and in other banks (Avisos No\. 3/99 and No\. 4/99); internal control for banking institutions (Aviso No\. 5/99); limit on risk concentration (Aviso No\. 9/99); accountancy rules for banks (Aviso No\. 10/99); liquidity and coverage responsibility for banks (Aviso No\. 12/99); minimum cash requirement (Aviso No\. 13/99); and limits on the acquisition of foreign currency (Aviso No\. 15/99)\. A proposed Decree-Law on off-shore banking was presented to the Government of Cape Verde in 2000 but its adoption is still pending\. Follow-up actions by the World Bank will help ensure that the new legislation conforms to emerging best practice amid renewed concerns by the international community about money laundering prevention\. In the insurance industry, a number of laws and regulations were adopted, including Law No\. 88/97 dated December 31, 1997 which creates a compulsory regime for automobile liability; Law No\. 52/96 dated December 26, 1996 which merges the former Cape Verdean Insurance Institute with the Bank of Cape Verde; Avisos (Directives) No\. 1/98, 5/98, 6/99 and 14/99 of the Bank of Cape Verde dealing, respectively, with accounting rules for insurance companies, insurance for automobile liability, obligation for insurance companies to report statistical data in relation with the compulsory regimes for automobile liability and work accidents to the Bank of Cape Verde, and a life insurance regime\. These changes represented an important step in the modernization of the system\. (iii) Assistance to the BCV to strengthen its supervisory function and to redesign and implement an integrated economic andfinancial database: The main objective of this subcomponent was to enhance the functioning of the Central Bank as a monetary and supervisory authority\. In addition to making the payments system faster and more reliable, the project sought to make current and reliable financial and economic information available to BCV in support of monetary policy, and the government's fiscal policy\. A database was, thus, installed allowing the Central Bank to generate financial and economic informnation to support the formulation of monetary and fiscal policies\. Today, BCV produces relevant statistical information available on-line on its web site and has also set up a modem economic and financial library open to the public in the Central Bank building\. A credit risk centralization system was also put in place to provide current data to banks on - 11 -  borrower profiles and credit history\. One of the most important achievements for BCV has been its enhanced ability to perform its supervisory role of banks and insurance companies\. The Banking Supervision Department that was established with technical support from the International Monetary Fund (IMF) and the Bank of Portugal, soon also assumed the supervision of the insurance sector and has benefited from training of its bank and insurance supervisors\. BCV is currently able to undertake one on-site and two off-site supervisions yearly of each financial institution in the country\. It is expected that these supervisions will improve with time and experience and allow BCV to detect potential problems and take remedial actions on time\. In pursuing monetary policy reforms, BCV has also abandoned its system of credit ceilings for commercial banks and replaced it in 1999 by indirect methods of credit control\. The revision of the legal framework for the financial system has helped define more clearly the role of the Central Bank with in particular an update of the Banking Act, conunercial banking regulations, and BCV Statutes\. As noted earlier, the issuance of banking and insurance regulations was a condition of credit effectiveness\. One shortcoming of this subcomponent came from the nondevelopment of new financial instruments for financing private sector development\. Also, GOCV did not eliminate government's subsidies of emigrants deposits in comrnercial banks as agreed during project preparation\. Despite the burden to public finances for continuing such an activity, successive governments have been afraid of losing the support of the powerful emigrant community by ending the subsidies\. Cape Verde's economy is heavily dependent on remittances from abroad (20 percent of GDP in 2000) as twice the population of 425,000 Cape Verdeans live abroad\. Both the development of new financial instruments and the elimination of subsidies on emigrant deposits will be pursed further under the next proposed Growth and Competitiveness project in preparation\. (iv Privatization of the two State-owned Banks: The project supported the government to prepare and implement a plan to privatize the two conmmercial banks (BCA and CECV)\. Cape Verde's banking industry, which consisted until 1993 of a single tier banking system with BCV providing all commercial banking services was privatized under the project\. The Central Bank of Cape Verde (BCV) was the county's only commercial bank until 1993 when, under a structural reform agreed upon with the World Bank and the IMF, it transferred its commercial activities to a new institution, BCA\. In 1993, a second commercial bank, CECV was created from the former post office savings and was wholly owned by the government\. Under the project, both BCA and CECV were privatized by end of 1999 as planned\. Privatization of the two banks still left BCA as the largest bank in Cape Verde, by total asset size, with about 70 percent market share\. CECV is the second largest bank with close to 30 percent market share\. Due to its importance in the financial sector of Cape Verde, the performance of BCA merits particular attention\. BCA serves over 100,000 clients at 16 branches, including an important number of Cape - 12-  Verdeans living abroad who hold 33 percent of all BCA deposits\. During the period when BCA was the only bank and government owned and controlled, loans were frequently made to persons and institutions which were poor credit risks, and this led to a considerable amount of bad loans\. As a result, BCA had to concentrate its post-privatization efforts on establishing a credit risk management system and recovering bad loans\. During project implementation, BCA benefited from staff training and a new management information system to help improve the quality of its portfolio\. Although the situation of non-performing loans (NPL) has improved from 35 percent of BCA's outstanding loan portfolio in 1997 to 11 percent of outstanding loan portfolio in 2000, that situation is still worrisome as the NPL level remains too high by international standards\. BCA is a profitable institution but the analysis of its audited financial statements for the year 2000 points to a fragile institution\. The bank faces several challenges including a very low 41 percent loan to deposit ratio, and a mismatch of the term structure of its assets and liabilities with 75 percent medium and long-term loans, 25 percent short-term loans versus 56 percent term deposits\. The current situation of BCA needs to be further improved as the vulnerability of the entire financial sector in Cape Verde hinges upon BCA's performance\. Another concern arising from the privatization of BCA comes from the fact that government still has 20 percent equity stake at the commercial bank and has "Golden" Shares rights, i\.e\., privileged voting rights\. Other shareholders include the Caixa Geral de Portugal (52\.5 percent), the insurance company Garantia (12\.5 percent), and small shareholders (25 percent)\. "Golden Shares" were created in order for the government to maintain control over strategic industries for a certain period\. Given its importance, the issue of revoking these government Golden Shares will be taken up in the proposed Growth and Competitiveness project under preparation\. (v) Institutional strengthening and development of the social security system: Under this subcomponent, support was provided to the social security fund for employees of the private sector ( INPS), to improve its efficiency\. INPS was the second largest financial institution in Cape Verde at the time of project preparation\. Activities successfully completed include an internal reorganization, an upgrade of the management information system (MIS) and staff training for strengthening of the investment department, as well as improvement of the actuarial capabilities of the institution\. In addition, a review of the legal framework of the industry led to the adoption of a general law on the Cape Verdean social security system (Law No 131/V/2001) on January 22, 2001\. Three Decree-Laws in application of this general law were submitted to the Government of Cape Verde in early 2001\. These proposed Decree-Laws adopted a legal framework for social security in connection with self-employed workers and other workers as well as new by-laws for a proposed "Caixa Nacional de Previdencia Social" - Social Security National Fund\. Despite these accomplishments, the Social Security Bill that aimed at expanding the role of INPS to cover all employees (private and public) and propose alternatives to invest INPS resources is yet to be drafted\. The project was, thus, unable to make INPS a significant player in an expanded financial sector as was envisaged, and a pursuit of the reforms of the social security system will be undertaken under the new project under preparation\. - 13-  4\.3 Net Present Value/Economic rate of retiurn: The economic analysis carried out in the SAR was performed for (a) the development of export-oriented manufacturing in the EPZ zone; and (b) the development of the tourism sector\. Economic benefits were calculated on the basis of the number of jobs generated by the project\. Under the assumptions of opportunity cost of capital of 12 percent, and 2,700 jobs created in the EPZ zone in four years, the component dealing with export oriented manufacturing had a positive net present value (NPV) of US$7\.56 million, and economic rate of return (ERR) of 31 percent over a project life of 15 years\. Sensitivity analyses showed that NPV would become zero at 1,430 jobs (see Annex 3)\. For the subcomponent dealing with tourism development, the cost-benefit analysis at appraisal was based on an estimate of 750 new rooms and 30,000 extra tourists by 1999 with average stay rising from 6 to 8 days per tourist\. That corresponded to an average increase of 250 rooms per year and 10, 000 new tourists per year\. The tourism component had a positive NPV of US$8\.31 million at 12 percent discount rate, and had an ERR of 72 percent\. NPV became zero at 175 new rooms and 7,000 additional tourists (see Annex 3)\. In the absence of updated cost data at the end of the project, and investment revenues, the same assumptions made in the SAR were adopted and the analysis was performed on the basis of the expected results versus those achieved\. In the manufacturing sector, from 1996 to 2000, a total of 3,655 jobs directly associated to foreign investment were created during project implementation\. That implies a positive NPV and an indication of a positive impact of manufacturing growth on the economy\. For the tourism development component, estimates at the end of the project found that the total number of hotel rooms reached 2,332 in the year 2000, i\.e\., an average of 301 rooms per year, which is higher that the average of 250 rooms per year, making NPV positive\. Also, the number of tourists increased from 37,000 in 1996 to 67,042 in 1999 and 115,015 in the year 2000, corresponding to an increase of more than 10, 000 tourists per year, i\.e\., higher than the established goal in the SAR and an indication of a positive NPV\. The main benefits accruing from foreign investment under this project are the wages received by the newly created labor and the fiscal revenues accruing to the Government of Cape Verde\. However, it is too early to determine those fiscal revenues as it was projected that direct taxes would become payable to the government only after the end of a 10-year tax holiday\. Therefore, benefits to government could be evaluated more thoroughly after the tax holiday period\. - 14 -  4\.4 Financial rate of return: No financial rate of return (FRR) for the project was estimated in the SAR\. 4\.5 Institutional development impact: In the private sector, the project had a mixed and rather modest impact on PROMEX which was a key beneficiary of the project as well as responsible for implementing a wide range of activities\. In the course of the project, PROMEX benefited from staff training and hands-on participation in operations that strengthened the organization's ability to undertake better its traditional core business of promoting Cape Verde exports and tourism\. However, the project was less successful in its attempt to strengthen PROMEX's ability to provide technical assistance to export-oriented domestic enterprises and facilitate companies' business operations\. A study completed in March 2000 on the sustainability of PROMEX recommended that the organization limit its activity to investment, export and tourism promotion\. The study also recommended that PROMEX start providing some paid-in services to investors and enterprises and give up its investment approval function which should be carried out by a Government Committee, according to the study\. PROMEX has merged in 2000 with the Entrepreneurial Development Institute (IADE) and is being restructured\. This has delayed the implementation of the study's recommendations, the success of which will determine the sustainability of the organization\. The project had a positive impact on the Chambers of Commerce's abilities to serve private sector enterprises\. Staff at the chambers of commerce benefited from training offered by the project and should be better prepared to handle the transfer of commercial licensing activity from the Government to the Chambers of Commerce\. That new activity has not only solidified ties between the Chambers of Commerce and the private sector, but has also generated an important source of funds to support activities for the private sector, and make the chambers of commerce sustainable in the long run\. In the financial sector, the institutional development impact on the Central Bank was substantial\. BCV's ability as a monetary and supervisory authority has been enhanced, in particular, with the enactment of several laws and directives that clarified the role and statutes of the Central Bank\. The training of Central Bank staff under the project will remain an important asset for BCV development and sustainability as the young Central Bank of Cape Verde strives to build up on the four-year project achievements and become better with experience\. Overall, the Capacity Building Project for Private Sector Promotion made important achievements in the private and financial sectors possible, although much still remains to be done\. Cape Verde's record over the past three years has been one of strong economic growth, in an environment of low 2 percent inflation\. Efforts to attract Foreign Direct Investment (FDI) have begun to bear fruit, especially in light manufacturing, such as leather goods, and tourism-oriented infrastructure\. Economic growth has been strong over the past five years and during project implementation period, at an annual average of 6\.4 percent\. That was spurred by the steady pace of structural reforms aimed at making the economy more responsive to market incentives and included several privatizations since 1988 (including all the commercial banks under the project), tariff reform, and liberalization of staple commodity markets\. The challenge for the government is to sustain - 15 -  economic and political stability for continued growth and permanent improvements in Cape Verde's international competitiveness\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The Asian financial crisis of 1998 dampened somewhat the effects of Cape Verde's promotional efforts to attract Asian foreign investment, especially in the manufacturing sector\. Also, government had no control over Parliament's failure to approve on time some legislation such as off-shore banking and marine ship registry laws\. However, key legislation, such as that relating to the Banking Act and the Central Bank statutes was enacted in a timely manner as it was made a condition of credit effectiveness\. 5\.2 Factors generally subject to government control: Several factors under the control of Government have affected project implementation\. They include: (i) High levels of intemal government debt that restricted public expenditures and had negative impact on project implementation, both in terms of delays in the disbursement of counterpart funds and the allocation of government resources for important complementary activities such as EPZ infrastructure, and enterprise development programs\. (ii) For fear of political backlash, the government has not stopped subsidizing emigrant deposits at commercial banks\. (iii) Several government reorganizations and changes of project coordinator and managers of some institutions involved in project implementation such as the Chamber of Commerce occurred and caused some instability and delays but did not have a lasting negative impact on project implementation\. Government did not immediately appoint a new head at PROMEX after its merger with IADE and that has left the new institution in a state of uncertainty for a while\. The nomination of a new managing director became effective only in September 2001\. 5\.3 Factors generally subject to implementing agency control: Despite the changes of project coordinators, the PSCU, the main implementing agency handled project coordination activities in the field and relationship with the World Bank satisfactorily\. Implementation of the project was also undertaken by the main beneficiaries such as PROMEX and the Chambers of Commerce whose actions and/or predispositions were responsible for delays in several projects activities\. They include: (i) Institutional weakness of PROMEX hampered the implementation of certain activities under its leadership\. Thus, the establishment of an international marine registry, originally placed under PROMEX's responsibility, was later transferred to the Ministry of Sea but the activity could not be completed before the end of the project\. PROMEX was also not - 16-  able to assume the management of the EPZs due in part to its institutional weakness\. (iii) Institutional fragility, low representation, and weak maturity of the Chambers of Commerce at the beginning of the project delayed the start up of training and technical assistance activities to enterprises but did not prevent the implementation of these activities in the end\. The Chambers of Commerce were, in fact, able to gain the trust of enterprises they worked with and able to significantly increase their membership during the project years\. 5\.4 Coxts andfinancing\. The original cost of the project was estimated at preparation at US$12\.71 million including an IDA credit of US$11\.4 million (see tables in Annex 2)\. The project closing date was extended once from December 31, 2000 to June 30, 2001\. At project closing, disbursed funds represented 95 percent of total IDA credit\. Total project cost at completion was US$10\.91, representing 86 percent of original project cost (see tables in Annex 2)\. The final project cost was less than SAR estimates because a few activities were not completed on time to permit their financing with IDA resources\. The delays in implementing those activities were due primarily to government's inability to provide counterpart funding on time to contractors\. Throughout project implementation, the government's contribution fell behind schedule\. The Cape Verde Government contribution to total project cost was estimated at US$1\.3 million, corresponding to about 10 percent of the total project cost\. As of March 31, 2001, three months before project closing date, the World Bank had already disbursed about 89\.7 percent of the total IDA credit while Government had only disbursed 62\.3 percent of its share of total funding\. By the end of the project in June 2001, GOCV came through and lived up to its commitment of disbursing 10 percent of project cost (see Annex 2)\. 6\. Sustainability 6\.1 Rationalefor sustainability rating: Sustainability of the project is likely\. There are good reasons to believe that results achieved by the project under the private sector component will be sustained in the long run\. They include: (i) EPZ companies showing signs of good profitability prospects and their export activities going well (some of them have already added additional capacity or are in the process of doing so); (ii) tourist flows to Cape Verde continue to show an increasing trend; (iii) there are new investment projects in the pipeline and; (iv) domestic companies have acquired new skills and technical tools that should allow them to improve efficiency and competitiveness\. There are, however, concerns that sustainability of the achievements of the project under the private sector component may be threatened if the following conditions arise: (i) the manufacturing sector remains vulnerable as foreign investment is highly concentrated in the garment and shoe industries that are subject to strong international competition, are characterized by extreme mobility, and are particularly sensitive and vulnerable to external shocks; (ii) the lack of a clearly defined management in the EPZ, if allowed to continue much longer, may threaten the growth of the zone and even cause the departure of already established firms who expect management to improve the infrastructure of the zone to facilitate exports further; (iii) PROMEX is unlikely to become a much more effective organization if it does not implement the - 17 -  recommendations of the study about its sustainability\. It is reassuring, however, though a new administration is in place, following the January 2001 parliamentary elections, the new government remains commnitted to the promotion of foreign investment, export, and tourism, as shown in the program submitted and approved by Parliament\. That commitment should translate, among other things, in continued support of PROMEX with funding necessary for the continuation of its core promotional activities until it is self-sustaining\. In the financial sector, the project activities contributed to modernization and privatization of the sector that are almost irreversible gains\. The Central Bank is a more efficient and stronger institution with a much better ability to perform its supervisory mission due in part to the legal, institutional and monetary policy reforms made under the project\. There are reasons to believe that results achieved at the Central Bank will be sustained thanks in part to staff training and capacity building implemented during the project\. It is also reasonable to expect that the new Central Bank will be able to achieve greater efficiency with experience and continuing education and training of staff\. The privatization of the banking industry achieved under the project marks an important step in the modernization of the financial sector\. Nevertheless, the post-privatization situation of banks needs careful monitoring to take advantage of improved management infornation system at the commercial banks, and make BCA, in particular, a stronger bank than it currently is\. 6\.2 Transition arrangement to regular operations: Project activities were undertaken by such agencies as PROMEX, the Chambers of Commerce, and the Central Bank that performed activities associated with their regular mandates and operations\. That, therefore, eliminates the need for special transition arrangements\. Capacity building efforts in these organizations should have improved technical staff skills needed to efficiently pursue their future tasks\. It is however, doubtful that PROMEX has built enough capacity to assume the management of the EPZs and questionable whether that type of activities should become part of its future mandate\. It may be time to assign the EPZ management task to a private contractor now instead of later as was envisaged under the project\. It should be noted that several activities initiated under this project will be continued under the proposed Growth and Competitiveness Project to take advantage of the existing momentum and push achieved progress further\. They include continued capacity building at the Central Bank for development of new financial instruments, pension reforn, and review of the insurance sector where partnership with the Inter-African Conference on Insurance Markets (CIMA) would be examined\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: World Bank performance in the identification, preparation, and appraisal of the project was satisfactory\. The project was identified in such a way that its objectives were in line with the CAS and government priorities to set a conducive environment for investment and private sector growth, and removing obstacles in domestic business growth, in particular in the financial sector\. - 18-  Project preparation and appraisal were carried out according to a participatory approach, which involved all the key stakeholders\. Contacts made with GOCV and the relevant public administration departments, several surveys and interviews with private companies and businessmen, business associations, financial institutions, and private sector support agencies were made, in order to ensure an adequate assessment of the constraints and obstacles facing private sector development, a realistic design of action needed, and a full appropriation of the project objectives and activities by the beneficiaries\. Performance indicators were identified, although focusing sometimes more on inputs rather than outputs and outcomes\. During project preparation, involvement of other donors and multilateral agencies such as USAID and AfDB were taken into consideration and project activities came as a complement of the support already being provided by these agencies\. Participation of the IMF in the area of monetary policy was also factored in at project preparation\. Several project risks were identified in the SAR\. These related to the government's capacity to implement the project, its willingness to pursue macroeconomic reforms, including trade liberalization and the risk that foreign investment would be too small to have a positive impact on economic growth\. Risk mitigation measures were proposed by the World Bank team which consisted essentially of maintaining a constant, open, and frank dialogue with GOCV to help the country fulfill its promises under the project\. 7\.2 Supervision: Project supervision by the Bank was satisfactory but there are several indications that it could have been significantly improved\. Supervision missions were undertaken on average just once a year instead of twice per annum as initially planned (see Annex 4) but that fact did not have a lasting negative impact on project implementation as Cape Verde enjoys a relatively well educated and capable workforce\. Thus, the World Bank team at headquarters could rely on dependable partners at the PSCU and in other key organizations such as the Central Bank, and took advantage of quick email communication\. There were also several visits from the project coordinator to the World Bank headquarters for working sessions on the project\. For quite a while, there seemed to be a disconnect between project's highly satisfactory rating and implementation progress recorded in each aide-memoire which raised some issues such as government's postponing the emigrant deposits issue\. It appears that the World Bank team was overly optimistic and was letting its judgement be influenced by the fact that additional, unplanned activities were being undertaken instead of focusing on current shortcomings\. In retrospect, some issues were more complex than they first appeared and greater interaction would have been desirable on issues related to the marine registry, the management of the EPZ, and building of a tourist alley\. The mid-term review was undertaken 29 months after project effectiveness and in line with the schedule in the SAR\. However, up to 80 percent of project funds had already been disbursed by then\. The mid-term review took stock of the realizations of the project and proposed an action plan for the future\. It was agreed, among other things, to reallocate credit funds within existing categories but that was never followed up by Bank team, allowing several budget overruns to - 19-  occur\. The only formal reallocation took place after the December 2000 mission when an extension of the credit was granted in order to complete a few remaining activities and another reallocation of project funds was ultimately needed\. The project was never found at risk\. The closing date was extended once to allow completion of a few remaining activities\. The Bank team remained responsive to changing conditions and made needed adjustments during project implementation such as the relocation of the project coordinating unit, adding and dropping some activities, allowing other activities to be undertaken by a different entity than the original one, as well as allowing funds reallocation\. 7\.3 Overall Bank performance: Overall Bank performance was satisfactory\. The Project team adopted a participatory approach involving all key stakeholders during project preparation\. During supervision missions, the Bank maintained staff and consultants that weTe familiar with the project, most of whom had been there since the project inception\. Continuous monitoring of project activities, even if from headquarters, allowed Bank staff and its partners in Cape Verde to take appropriate steps and make the relevant decisions and adjustments needed for the project to go forward\. Borrower 7\.4 Preparation: The Borrower performance in project preparation was satisfactory\. High level Government officials were involved very early on in the preparation of the project\. That resulted in the project's objectives closely reflecting government's development priorities that were later confirned in the Letter of Private Sector Development Policy delivered to the Bank\. 7\.5 Government implementation performance: The government's overall performance in project implementation was satisfactory\. However, GOCV received an unsatisfactory rating at the end of the project due to delays in counterpart funding that were responsible for non completion of certain activities such as the tourist alley\. 7\.6 Imiplementing Agency: The performance of the PSCU was satisfactory\. A general procurement and financial review that took place during the last ICR mission noted that PSCU made an effort to follow Bank's procurement procedures and guidelines\. The statement of expenditures (SOE) review did not reveal any material irregularities\. Despite changes of project coordinators (three in total), PSCU produced regular annual work programs and budgets, progress reports (quarterly, semi-annual, and annual) as well as SOEs, and regular audits of the project accounts\. It should, however, be noted that PSCU had some problems monitoring status of commitments as the coordinator used to make commitments and budget allocation by project beneficiary instead of by credit category\. - 20 -  7\.7 Overall Borrower performance: The overall borrower performance was satisfactory\. Government remained responsive throughout project implementation and made appropriate decisions when needed such as having to replace the project coordinator when the first one left for another job and a competent replacement had to be found rather quickly\. However, as already noted, availability of govermment funds was less than satisfactory as counterpart finds faced significant disbursement delays during project implementation\. In the end, these delays affected the status of some activities that could not be completed by the project closing date\. 8\. Lessons Learned Several lessons were learned from implementation of the project: * Open and constructive dialogue with Government ensures prompt corrective actions when needed\. The World Bank team maintained a good working relationship with project coordinating unit as well as government officials\. That climate allowed both IDA and the GOCV to reach consensus on new developments during project implementation such as the need to (i) relocate the project coordinating unit; (ii) move implementation of some activities from one agency to another that has proven more capable; (iii) drop some activities to be undertaken by others; (iv) include new activities which proved essential and natural to the success of the project\. D Careful assessment of weaknesses of partner institutions and or beneficiaries is essential for successful implementation of project activities\. It appears that PROMEX's capacity to handle several activities for which it was responsible for was overestimated\. It became evident in the early stages of project implementation that PROMEX did not have the institutional capacity to house the project coordinating unit\. Also, the plans for PROMEX to assume the management of the export processing zone and the establishment of an international marine registry have proven to be beyond the institution's capacities\. * Government commitment and collaboration with other donors and key stakeholders is essential for project success\. Most accomplishments under this project would not have been possible without strong government commitment and competent civil servants in key areas such as the Central Bank\. The government viewed the project activities as key elements of its program and stayed highly committed to the project from preparation to the end\. Despite changes in government during implementation, support for the project has not wavered\. Efforts made by the World Bank team to coordinate with other donors already present in the country has proven useful and effective\. It created positive synergy and a climate of useful collaboration that allowed the project to undertake only complementary activities as well as drop planned activities that were executed by others\. * Complex issues require considerable involvement and proactivity\. It was made clear by the implementation of the project that dealing with complex issues requires pro-activity on the part of both Bank staff and the government\. Greater interaction would have been desirable on issues related to the marine registry, the management of the EPZ, and building of a tourist alley, all activities that turned out to be more complex than anticipated in their execution\. - 21 -  9\. Partner Comments (a) Borrower/implementing agency: In its completion report (see summary in Annex 8), the borrower noted that World Bank's performance, both during project preparation and implementation is considered very satisfactory\. According to the report, World Bank employees and consultants who were part of project identification, preparation, and appraisal missions have always adopted a participatory approach in their relationships with the govemrnent, public administration, beneficiaries, and other entities involved\. That allowed them to better assess the problems to be solved, define priorities, design alternative solutions, and identify the risks and key factors for project success\. In the end, project objectives complied with the government strategy and were agreed upon by all interested parties\. PSCU's relationship with World Bank staff remain good throughout project implementation and Bank staff was always available to provide clarifications and solutions to problems raised during project implementation\. Bank staff have always shown the required flexibility to introduce the adjustments deemed necessary, due to the changing project environment and/or the experience acquired during implementation\. The procurement documents for non-objection requests were analyzed and processed quickly, as well as the disbursement requests and replenishment to the project's Special Account\. Borrower credits the rapidity of the email communication system used, as well as the fact that the project task manager was the same from preparation to until only six months before the end of the project for a smooth working relationship with the World Bank\. The borrower notes, however, that Bank staff did not closely follow the scheduled supervision missions agreed upon in the SAR\. Thus, out of eight originally planned supervisory missions, only five were carried out\. Also, the mid-term evaluation which was supposed to take place approximately two years after project effectiveness, was finally carried out 29 months after project effectiveness, in February-March 1999, when about 80 percent of the project funds had already been disbursed\. (b) Cofinanciers: N\.A\. (c) Other partners (NGOs/private sector): N\.A\. 10\. Additional Information N\.A\. - 22 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: Indicator/Matrix Projected in last PSR Actual/Latest Estimate PRIVATE SECTOR Develop exports by Cape Verde based From 1997 to 2000 foreign investment foreign enterprises and by domestic projects totaling about US$ 609 million were enterprises\. approved and of these US$ 188 million are in operation and US$ 240 million are in the pre-investment phase\. A total of more than 3,000 jobs have been created\. Export of goods have increased from US$ 10\.3 million in 1996 to US$ 13 million in 1997, to US$ 10\.1 million in 1998, US$ 11\.5 million in 1999 and US$ 12\.7 million in 2000\. Facilitate the establishment and operations of Three factory buildings provided by foreign export-oriented enterprises\. Luxembourg were completed under the Project and are being used by the following enterprises: SIMPLICIDADE (textiles ), BEAR PNEUS (tires) in Mindelo, S\.Vicente, ECPI ( mattresses) in Praia, Santiago\. Promote the development of the tourism Investment in tourism infrastructure and sector\. services represents about 52% of total investments approved for the penod 1997 to 2000\. Of those approved, about US$63 million investment projects are in operation and US$218 million, are in the pre-investment phase, representing 91% of all investment projects in this phase\. The number of tourists visiting Cape Verde has progressively increased over the years and reached 115,015 in 2000\. Development of hotel infrastructure and increase in the number of visitors\. Improve management, reduce operating Training and technical assistance was costs and raise the profitability of domestc provided under the project to enterprises in pnvate enterprises, through training and the areas of accounting, management, technical support services\. human resources, computer training and business expansion, restructuring and financing\. A total of 810 staff of enterprises have benefited from training and 85 enterprises have received technical assistance\. No data on impact was collected\. Increase foreign exchange through the The institutional arrangements for the operations of an Intemational Marine operation of the registry was not completed\. Registry\. Promote the development of Policies and strategy are designed to develop micro-enterprises that operate in the informal the informal sector was left to another donor\. sector\. FINANCIAL SECTOR (i) Financial transactions are processed and Improve BCV capacities to more effectively settled in a secure and reliable manner, implement monetary and fiscal policy\. thanks to a new payment system; (ii) BCV now has reliable and current financial and economic information to support monetary and fiscal policy, thanks to the creation of a new database; (iii) several laws governing financial transactions were enacted including revision of BCV statutes to ensure the - 23 -  independence and stability of the Central Bank; (iv) financial institutions are able to obtain current and dependable information to support the credit evaluation process thanks to the creation of an effective risk centralization system; and (v) supervision of financial institutions (banking and insurance) is conducted on a regular basis, at least twice every year\. The scope of financial intermediation of CECV was privatized in 1999\. New MIS is Caixa Economica (CECV) will improve by able to track better bank operations and strengthening the banking operations through especially lending\. However, non performing installation of modem management loans (NPLs) are still too high at 18 percent information system (MIS) and capacity of total loan portfolio\. building of staff\. The scope of financial intermediation of BCA BCA was privatized in 1999\. Staff benefited will improve by strengthening the banking from several training programs\. MIS was operations through installation of modem enhanced and the bank has experienced an management information system and improvement in the quality and efficiency of capacity building of staff\. management information in all areas of bank operations and especially lending\. However, quality of loan portfolio needs to be improved with NPLs still too high at 11 percent\. Improve the supervisory capabilities of ISCV Insurance sector is now supervised by the (or the merged ISCV/Banking Supervision Central Bank on a regular basis\. Department within the BCV)\. Improve the capacity of INPS to serve the Improvement in the long-term financial population as a viable social security fund\. structure of the Social Security Fund, including investment of resources in acceptable grade and profitable opportunities was not completed\. - 24 -  Output Indicators: Indicator/Matrix Projected in last PSR Actual/Latest Estimate PRIVATE SECTOR (a) Increased investments by foreign From 1996 to 2000 a total of about US$425 From 1996 to 2000 a total of about US$425 enterprises / Create employment in EPZ: million in investment projects was approved\. million in investment projects was approved\. (i) At least 3 foreign enterprises invest in Investment projects totaling about US$188 Investment projects totaling about US$188 1998, and at least 5 in each subsequent year million are currently in operation, employing million are currently in operation, employing for a total of 13 firms by the end of the 3,666 people\. 3,655 people\. Thirty (30) investment projects project\. in manufacturing alone were in operation in 2000\. (D) Complete construction of the two factory Three (3) factory building provided by Three (3) factory buildings provided by shells financed by Luxembourg in 1996 and Luxembourg were completed under the Luxembourg were completed under the lease by end of 1997\. Construct four new project\. Two (2) new factory buildings were project\. Two (2) new factory buildings were factory shells with signed lease agreements financed under the project\. One of these financed under the project\. One of these no later than December 1999\. factories (CVCC) has the equivalent surface factories (CVCC) has the equivalent surface area of 5 initially envisaged factories\. 1000 area of 5 initially envisaged factories\. 1000 people employed\. people employed\. (b) Increased volume of private investments Number of tourists increase every year: 63 million investment projects currently in in tourism and increased number of tourists: 1997 - 45,000 operation\. Number of tourists visiting Cape Verde 1998 - 54,829 Number of tourists reach 115, 000 in the year (19,000 in 1992) increases by 5,000 every 1999 - 67,042 2000\. The average length of stay is 7 days\. year for a total of at least 59,000 by Dec The average length of stay is 7 days\. 2000\. (c) Improved management and profitability of 38 training programs have been implemented 38 training programs have been implemented domestic enterprises: benefiting a total of 548 people from national benefiting a total of 548 people from national At least 40 managers and 100 staff of private 'enterprises\. enterprises\. enterprises attend training courses each year\. (d) Improved service exports through Partner for registry was chosen and Partner for registry was chosen and registration of foreign ships: agreement was signed with GOCV on Dec\. agreement was signed with GOCV on Dec\. At least five ships are registered before end 16, 2000 but activity has not started yet 16, 2000 but activity has not started yet 1999, 10 ships in each subsequent year\. pending adoption by parliament of drafted pending adoption by parliament of drafted new legislation\. new legislation\. FINANCIAL SECTOR Payment system equipment installed, and Payment system equipment installed, and Financial transactions are processed and staff trained by September 1998\. Domestic staff trained by September 1998\. Domestic settled in a secure and reliable manner: financial transactions are cleared within 24 financial transactions are cleared within 24 Payment system equipment installed, and hours\. Total of 195 people were trained hours\. Total of 195 people were trained staff trained by September 1998\. locally and 12 abroad\. All commercial banks locally and 12 abroad\. All commercial banks are currently connected to SWIFT\. are currently connected to SWIFT\. Additionally, a network of ATM and POS has Additionally, a network of ATM and POS has been installed and is currently operational\. been installed and is currently operational\. Laws governing financial transactions are Banking and insurance legislation revised Banking and insurance legislation revised revised to support the growth and soundness and prudential directives established by June and prudential directives established by June of financial institutions and the independence 1997\.Insurance guidelines and reinsurance 1997\.lnsurance guidelines and reinsurance and stability of BCV\. regulations put into place by June 1997\. regulations put into place by June 1997\. Supervisory staff (4) are trained in insurance 195 supervisory and other staff trained locally 195 supervisory and other staff trained locally supervision by December 1998\. and 12 abroad\. and 12 abroad\. Supervision Department will carry out at least BCV supervision department carres at least One on-site and two off-site supervision two off-site and one on-site inspections per 2 off-site and one on-site supervisions per inspections ( 3 in total) are carried out by year by December 1998\. Supervision of year by Dec\. 1998\. Supervision of banks and BCV each year for all financial institutions\. financial institutions (banks and insurance) is insurance companies is conducted on a conducted on a regular basis\. regular basis\. Banking and insurance regulations, Banking and insurance legislation revised Banking and insurance legislation revised - 25 -  acceptable to IDA, are in force by Dec 1998\. and prudential directves established as and prudential directives established as required by June 1997\. Insurance guidelines required by June 1997\. Insurance guidelines and reinsurance regulations put into place by and reinsurance regulations put into place by June 1997\. June 1997\. CECV and BCA are financially and 100% of CECV shares are offered for sale to CECV was 100% privatized in 1999\. institutionally strengthened, so as to be able the private sector in 1998 and CECV to be offered for sale to pnvate investors and privatized in 1999\. 100% of CECV shares are offered for sale by 1998\. At least the majority of BCA shares is offered The majority of BCA shares (80%) are BCA was prvatized in 1999 with 20% shares for sale by 1999\. offered for sale to the private sector in 1999\. held by Govemment as planned\. However, Government's "Golden" Shares have privileged voting rights\. Improve the efficiency of social security MIS equipment and software installed MIS equipment and software installed operations through installation of modem 59 staff have been trained locally and 3 59 staff have been trained locally and 3 equipment and training of staff\. abroad\. 8 staff trained in basic financial skills abroad\. 8 staff trained in basic financial skills by December 98\. by December 98\. Management and staff currently use MIS on Management and staff currently use MIS on a regular basis to produce reports and make a regular basis to produce reports and make regulatory decisions\. regulatory decisions\. End of project - 26 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million Private Sector 5\.90 5\.19 0\.87 Financial Sector 4\.35 4\.44 1\.02 Project Preparation (PPF) 0\.85 0\.45 0\.52 Total Baseline Cost 11\.10 10\.08 Physical Contingencies 0\.74 0\.83 1\.12 Price Contingencies 0\.87 0\.00 Total Project Costs 12\.71 10\.91 Total Financing Required 12\.71 10\.91 The original cost of the project was estimated at preparation at US$12\.71 million including an IDA credit of US$11\.4 million\. At project closing, disbursed funds represented 95 percent of total [DA credit\. Total project cost at completion was US$10\.91, representing 86 percent of original project cost\. The final project cost was less than SAR estimates because a few activities were not completed on time to permit their financing with IDA resources\. Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other2 N\.B\.F\. Total Cost 1\. Works 3\.10 0\.30 0\.00 0\.00 3\.40 (2\.10) (0\.20) (0\.00) (0\.00) (2\.30) 2\. Goods 2\.60 0\.40 0\.02 0\.00 3\.02 (2\.60) (0\.40) (0\.02) (0\.00) (3\.02) 3\. Services 0\.00 0\.00 2\.50 0\.00 2\.50 (0\.00) (0\.00) (2\.50) (0\.00) (2\.50) 4\. Training 0\.00 0\.00 1\.30 0\.00 1\.30 (0\.00) (0\.00) (1\.30) (0\.00) (1\.30) 5\. Promotional Activities 0\.00 0\.00 1\.10 0\.00 1\.10 (0\.00) (0\.00) (1\.00) (0\.00) (1\.00) 6\. Operating Costs + PPF 0\.00 0\.10 1\.27 0\.00 1\.37 (0\.00) (0\.10) (1\.17) (0\.00) (1\.27) Total 5\.70 0\.80 6\.19 0\.00 12\.69 (4\.70) (0\.70) (5\.99) (0\.00) (11\.39) - 27 -  Project Costs by Procurement Arrangements (ActuallLatest Estimate) (US$ million equivalent) \. ~~~~~~~Procurement Method Expenditure Category ICB NCB Other2 N\.B\.F\. Total Cost 1\. Works 1\.69 0\.00 0\.00 0\.00 1\.69 (1\. 19) (0\.00) (0\.00) (0\.00) (1\.19) 2\. Goods 2\.60 0\.40 0\.81 0\.00 3\.81 (2\.60) (0\.40) (0\.81) (0\.0() (3\.81) 3\. Services 0\.00 0\.00 2\.15 0\.00 2\.15 (0\.00) (0\.00) (2\.15) (0\.00) (2\.15) 4\. Training 0\.00 0\.00 1\.28 0\.00 1\.28 (0\.00) (0\.00) (1\.28) (0\.00) (1\.28) 5\. Promotional Activities 0\.00 0\.00 0\.58 i 0\.00 0\.58 (0\.00) (0\.00) (0\.52) (0\.00) i (0\.52) 6\. Operating Costs + PPF 0\.00 0\.00 1\.40 0\.00 1\.40 (0\.00) (0\.00) (0\.98) (0\.00) (0\.98) Total 4\.29 0\.40 6\.22 (\.00 10\.91 (3\.79) (0\.40) (5\.74) (0\.00) i (9\.93) Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. 2/ Includes civil works and goods to be procured tlhrouglh national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs relatcd to (i) maniaging the project, and (ii) re-lending project funds to local govermment units\. Project Financing by Component (in US$ million equivalent) l r | Percentage of Appraisal Component [ Appraisal Estimate Actual/Latest Estimate = IDA Govt\. CoF\. IDA Govt\. CoF\. IDA i Gov\., CoF\. PrivateSector 5\.90 1\.12 0\.00 6\.02 1\.14 0\.0() 102\.0 101\.8 0\.0 Financial Sector 4\.35 0\.00 0\.00 4\.44 0\.00 0\.00 102\.1 0\.0 0\.0 PPF 0\.85 0\.00 0\.00 0\.45 0\.00 0\.00 52\.9 0\.0 (0 ( Contingencies 1\.61 0\.00 0\.00 0\.00 0\.00 0\.00 0\.0 0\.0 (\.0 Total 12\.71 1\.12 0\.00 10\.91 1\.14 0\.00 85\.8 101\.8 0\.0 - 28 -  Annex 3\. Economic Costs and Benefits COST BENEFIT ANALYSIS FOR THE MANUFACTURING SECTOR (1995 US$ million) BENEFITS Fin\. Project Tax\. Direct Indirect Total net Incr\. Project Rest\. mgt\. EPZ Rent to After 10 Increm\. Increm\. cost/ben (D+1) Year costs Share Share mgmt\. EPZ years Wages Wages for year wages 1 -2\.515 -0\.735 -0\.061 -0\.060 0\.125 2 -1\.095 -0\.735 -0\.061 -0\.060 0\.447 0\.548 0\.258 -3\.371 0\.000 3 -1\.095 -0\.735 -0\.061 -0\.100 0\.300 1\.096 0\.511 -1\.001 0\.100 4 -1\.095 -0\.735 -0\.061 -0\.150 0\.447 1\.644 0\.767 -0\.084 0\.201 5 -0\.150 0\.447 1\.644 0\.767 0\.817 0\.3014 6 -0\.150 0\.447 1\.644 0\.767 2\.708 0\.3014 7 -0\.150 0\.447 1\.644 0\.767 2\.708 0\.3014 8 -0\.150 0\.447 1\.644 0\.767 2\.708 0\.3014 9 -0\.150 0\.447 1\.644 0\.767 2\.708 0\.3014 10 -0\.150 0\.447 1\.644 0\.767 2\.708 0\.3014 11 -0\.150 0\.447 0\.187 1\.644 0\.767 2\.708 0\.3014 12 -0\.150 0\.447 0\.374 1\.644 0\.767 2\.895 0\.3014 13 -0\.150 0\.447 0\.561 1\.644 0\.767 3\.082 0\.3014 14 -0\.150 0\.447 0\.561 1\.644 0\.767 3\.269 0\.3014 15 -0\.150 1\.526 0\.561 1\.644 0\.767 3\.269 0\.3014 -5\.800 -2\.940 -0\.244 -2\.020 7\.190 2\.244 21\.372 9\.973 NPV(12%) 4\.348 0\.3014 IRR 7\.663 _ _ _ _ _ _ ______ _ _ _ _ _ __ _ _ _ _ _ _ __ __ _ __ _ _ _ __ _ _ 0 \.3 0 9 1 _ _ _ _ Economic analysis was evaluated in the SAR for two main subcomponents, i\.e\., a) the development of export-oriented manufacturing; and b) the development of the tourism sector\. The financial sector was viewed as a means to an end of achieving success in the other two main components\. (a) For the sub-component dealing with the development of export-oriented manufacturing and information technology-based service industries, in addition to direct project costs, 67 percent of the financial sector component costs, and 50 percent of the project management costs, the evaluation also took into account US$1\.82 million of EPZ start-up cots and factory-shall construction undertaken on grant terms by the European Union and Luxembourg\. The benefits have been calculated on the basis of 2,700 new jobs created in the EPZ as a result of the project (a more conservative estimate than the "base scenario"of 3,700 jobs predicted by Plant Location International), each of which produces one low-paid indirect job outside the zone\. Rents of the factory shells (US$20 per square meter per year for pre-constructed factory-shells) become payable on occupation, and direct taxes become payable only after the end of a ten-year tax holiday (income taxes paid by local workers are transfers within Cape-Verde Inc\. and are not taken into account)\. The opportunity cost of capital has been taken at 12 percent\. On the basis of these assumptions, the component dealing with export oriented manufacturing has a positive NPV of US$7\.56 million, and an economic rate of return (ERR) of 31 percent over a project life - 29 -  of 15 years\. This positive impact derives predominantly from the benefits accruing from the directly-generated employment\. Sensitivity analyses have been carried out to identify the effects of variances from the base-case on the economic return of the private sector component\. The biggest risk is a shortfall in job-creation, and the switching value for this variable at which the NPV becomes zero is 1,430 jobs\. Under the same assumptions used at appraisal, it is estimated that at the end the project, NPV is positive given that a total of 3,655 jobs directly associated to foreign investment in the manufacturing sector were created under the project\. COST BENEFIT ANALYSIS FOR THE TOURISM SECTOR (1995 US$ million) =___ \.___ =__=_ BENEFITS Taxes on GCV/ Fin\. Project Increm\. Direct Total net incr\. Project dono Rest\. mgt\. Land Rental Tourist consump\. Profits Wages on Incr\. cost/ ben (D+1) Year costs costs Share Share sale tax tax & imp\. tax tax constr\. Constr\. for year wages 1 -0\.55667 0\.085 0\.275 -0\.061 0\.113 -0\.865 12\.50% 2 -0\.55667 0\.085 0\.275 -0\.061 0\.113 -0\.044 0\.000 3 0\.27833 0\.085 0\.275 -0\.061 0\.113 0\.820 0\.113 0\.399 0\.103 4 0\.27833 0\.275 -0\.061 0\.113 0\.216 0\.300 0\.820 0\.338 1\.330 0\.123 5 0\.432 0\.600 0\.820 0\.450 1\.692 0\.164 6 0\.047 0\.432 0\.600 0\.450 1\.739 0\.083 7 0\.063 0\.432 0\.600 0\.141 0\.450 1\.895 0\.083 8 0\.094 0\.432 0\.600 0\.281 0\.450 2\.067 0\.083 9 0\.188 0\.432 0\.600 0\.422 0\.450 2\.301 0\.083 10 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 11 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 12 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 13 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 14 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 15 0\.188 0\.432 0\.600 0\.563 0\.450 2\.442 0\.083 -0\.557 0\.255 1\.100 -0\.244 0\.452 1\.520 4\.968 6\.900 4\.222 2\.460 5\.401 NPV (12%) 25\.166 IRR 7\.230 (b) For the sub-component dealing with tourism development, the cost-benefit analysis in the SAR is based on an estimate of 750 new rooms (average increase of 250 rooms per year) and 30,000 extra tourists by 1999 (average increase of 10,000 tourists per year)\. Government estimates predicted 4,300 new rooms and 43,000 additional tourists\. The average stay per tourist was to rise from 6 to 8 days\. Expenditures per tourist-day are estimated at US$80 per person, and cost of construction is US$50,000 per room, of which 30% is for local labor\. Direct job creation is of one per room (conventional staffmg rates often reach twice this level) with indirect job creation being 50% of direct\. Wages and opportunity costs are the same as in the manufacturing sector\. On the basis of these assumptions, the tourism development component of - 30 -  the project has a positive NPV of US$8\.31 million at 12 percent discount rate, and has an ERR of 72 percent\. Sensitivity analyses were also carried out for the tourism sub-component\. The main risks are shortfall in hotel construction and number of tourists\. Assuming that these two variables remain in the same ratio, the switching point at which NPV becomes zero is 23 percent of the base level, i\.e\., 175 new rooms, and 7,000 additional tourists\. At the end of the project, under the same assumptions used in the SAR, NPV remains positive given that the number of hotel rooms reached 2,332 in the year 2000, corresponding to an average increase of 301 rooms per year compared to the predicted 250 rooms per year in the SAR\. The number of tourists visiting Cape Verde also reached 67,042 people in 1999, greater than the original estimate of 30,000 tourists\. - 31 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 09/94 6 3 Financial Sector Specialists, 3 Private Sector Development Specialists Appraisal/Negotiation 02/95 4 2 Financial Sector Specialists, 2 Private Sector Specialists 07/95 8 1 Financial Specialist, 2 Private Sector Development Specialists, 5 Consultants Supervision 10/96 2 1 Financial Specialist, HS HS I Private Sector Development Specialist 03/97 1 1 Financial Specialist HS HS 03/98 2 1 Financial Specialist, I Private HS HS Sector Specialist 03/99 8 1 Sr\. Financial Specialist, I HS HS Banking Specialist, 3 Private Sector Development Specialist, 3 Private Sector Insurance Specialist, 1 Lawyer 12/00 2 1 Sr\. Financial Specialist, I S HS Consultant ICR 06/01 3 1 Sr\. Financial Sector S S Specialist, I Private Sector Development Specialist, I Lawyer (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 49\.5 52\.2 Appraisal/Negotiation 80\.6 140\.7 Supervision 100\.43 348\.3 ICR 20\.5 74\.9 Total 233\.03 611\.1 - 32 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Z Macro policies O H *SUOM O N O NA Z Sector Policies O H *SUOM O N O NA Z Physical OH *SUOM ON ONA Z Financial O H * SU O M O N O NA 2 Institutional Development O H O SU 0 M 0 N 0 NA ZEnvironmental O H O SU O M * N O NA Social ZPoverty Reduction OH OSUOM N * NA Z Gender O H OSUOM O N * NA 1 Other (Please specify) O H OSUOM O N * NA Z Private sector development 0 H 0 SU O M 0 N 0 NA E Public sector management 0 H * SU O M 0 N 0 NA Z Other (Please specify) 0 H 0 SU 0 M 0 N 0 NA Financial Sector Development - 33 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating M Lending OHS OS OU OHU : Supervision O HS * S O U O HU N Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating * Preparation OHS *@S O U O HU * Government implementation performance O HS O S 0 U 0 HU * Implementation agency performance O HS O S 0 U 0 HU ? Overall OHS OS 0 U O HU - 34 -  Annex 7\. List of Supporting Documents * Staff Appraisal Report (SAR) * Development Credit Agreement (DCA) * Missions Aide-memoire * Back-to-Office Reports * Beneficiary Institutions Reports * Government Contribution to the ICR Report - 35 -  Additional Annex 8\. Summary of the Borrower's Contribution to the ICR Summary of the Borrower's Contribution to the Implementation Completion Report Capacity Building Project for Private Sector Promotion (Credit 28640-CV) 1\. The Capacity Building Project for Private Sector Promotion (CBPPSP) started with a letter addressed to IDA by the Government of Cape Verde in 1992, requesting to fund a private sector development program\. This program should have included, namely, capacity building activities for those institutions supporting private sector development and exports, as well as activities supporting financial sector liberalization, modemization, and expansion\. A\. Evaluation of Project Objectives and Design 2\. The development objectives of the CBPPSP as established in the Staff Appraisal Report (SAR) and the Project Implementation Manual were (i) the creation of jobs in the formal sector of the economy; and (ii) the establishment of a modem and functional financial sector\. According to the Development Credit Agreement, these objectives were to be achieved through support to the Government in (i) the creation of a framework conducive to private sector development; (ii) the implementation of an export-led development strategy; and (iii) the liberalization and expansion of the financial system\. Given these objectives, the Project was structured in two main components, one relating to the Private Sector and the other to the Financial Sector\. 3\. The activities supporting the Private Sector centered around two main objectives: (i) the creation of new economic export-led activities generating foreign exchange eamings (industries oriented towards exports, tourism and other services); and (ii) the improvement of the efficiency and competitiveness of national enterprises\. Implementation of activities under the first objective remained with PROMEX - Center for the Promotion of Investment, Exports and Tourism, while implementation of activities under the second objective was delegated to the newly created Chambers of Commerce, associations representing the interests of the national private sector\. 4\. In the Financial Sector the Project contemplated support activities directed towards (i) the strengthening of the Central Bank capacity to supervise and regulate the monetary market and the banking and insurance sector; (ii) the rehabilitation and modemization of the commercial public banks in preparation for privatization; and (iii) the reform of the social security system\. Implementation of the activities contemplated under the first objective was logically attributed to the Central Bank (BCV), the second to the two commercial public banks existing at the time (BCA and CECV) and the third to the INPS, entity managing the social security system for the private sector\. 5\. The approach outlined above is coherent with the strategy undertaken by the Government when the Project was designed that viewed the private sector as the principle vehicle for national development\. This was based upon a series of government programs and measures with the goal of i) increasing national currency revenues generated by the creation of a strong industrial export sector and the development of tourism and ii) removing barriers to national enterprise growth with emphasis upon a functional financial system\. - 36 -  6\. The approach chosen is also coherent with the Country Assistance Strategy (CAS) of the World Bank for Cape Verde at the time of Project preparation which prioritized three main objectives: i) the reduction of State presence in the economy, ii) the improvement of infrastructure and iii) the promotion of an enviromnent favorable to investmnent and growth of the private sector\. The PCIPSP intervened in all three areas with emphasis in the latter\. 7\. Project preparation followed a participatory approach and involved all relevant entities (Government, public administration, agencies supporting the private sector, commercial and industrial associations and financial institutions)\. Thus, project preparation sought to secure an adequate identification of the factors leading to private sector development, design a realistic framework for Project interventions and ensure complete appropriation of project objectives by beneficiaries in order to guaranty the relevance of activities chosen and maximize efficiency and efficacy in their implementation and in the achievement of results desired\. 8\. Project design was guided by the importance of avoiding duplications and exploring synergies with other projects financed by IDA, namely the Privatization Technical Assistance Project (Cr\. 2377 CV), the Transport and Infrastructure Project (Cr\. 2466 CV) and the Public Sector Capacity Building and Reforn Project (Cr\. 2566 CV), as well as by other donors such as AfDB (at the time supporting IADE), USAID (then supporting PROMEX until mid 1996) and other bilateral agencies active in support for to private sector\. 9\. Despite care taken during its preparation, the Project presented a relatively high level of complexity requiring capacity and willingness of the Govemment and beneficiary as well as determination to undertake certain risks that could adversely impact the efficiency and efficacy of its implementation\. The SAR indicated two main risks that could affect the implementation of the Project:: The possible slow down in the implementation of macroeconomic and structural policies alongside an eventual resistance of the Government and/or beneficiary institutions to adopt certain measures for the liberalization of trade, pricing and finance\. In fact, certain macroeconomic policy changes have been experienced, contributing to a rapid growth in the internal public debt, difficulties in foreign payments, subsequent cutbacks in public expenditures and maintenance of import and credit ceilings beyond those previously planned\. The project also suffered some delays from the lack of clear definitions in adopting legislation and other measures initially proposed under the project\. A weak response from foreign investors, tourism operators and tourists to the promotional efforts and incentive packages offered by the Government of Cape Verde\. In this case the response was positive, although the results achieved for the tourism sector have not yet reached the expected levels\. In general, as will be further developed, the difficulties encountered in these various spheres did not significantly impair the implementation of the project\. This was in large part due to the precautionary measures built into the SAR and an adequate mechanisms for dialogue and collaboration between the Government and the Bank/IDA, allowing for continuous adjustments of Project implementation to external conditions\. 10\. In conclusion, it may be stated that the original objectives of the Project were clearly and realistically defined, coherent with the development priorities established by the Govemnment and the World Bank and did not undergo significant alterations, remaining relevant throughout Project implementation\. - 37 -  Project design may have been complex and ambitious with respect to the institutional capacity of the Government and some beneficiaries, but the potential risks were adequately identified in the SAR\. Some of these risks did in fact materialized but their impact was minimized by the precautionary measures adopted and the participatory model utilized for Project preparation and implementation\. This model allowed full engagement of the Government and all beneficiaries in the implementation of the activities and facilitated the establishment of mechanisms for dialogue and collaboration and continuous adjustment to changing conditions\. B\. Objectives/Results Achieved 11\. As previously mentioned, the Project is structured in two main components, Private Sector Development and Financial Sector Development, in tum subdivided inlto sub-components\. The achievement of objectives for each of these sub-components is analyzed and presented in detail in the Implementation Completion Report and respective annexes\. In this section only a summary is presented\. Component A\. Development of the Private Sector This component is subdivided in two main sub-components: A\. 1 - Capacity Building of PROMEX, implemented with funds provided to support the center's activities in the areas of foreign investment, export and tourism promotion as well as to improve its capacity to intervene in these areas; A\.2 - Assistance to National Enterprises with funds channeled through the two Chambers of Commerce for the implementation of training programs and technical assistance to these enterprises as well as for the organization of entrepreneurial forums\. Sub-component A: Capacity Building of PROMEX 12\. Funds made available under the Project for this sub-component were directed to PROMEX to support (a) the implementation of promotional campaigns for foreign investment and tourism; (b) improved conditions for the establishment and operation of free-zone enterprises and hotel units; (c) improved export capacity of established enterprises; and (d) strengthelning the institutional capacity of PROMEX in developing activities in these areas\. Funds for the establishment of an International Ship Registry in Cape Verde were included under this sub-component, but responsibility was later transferred from PROMEX to the Ministry of Sea and the Project Coordinating Unit (PSCU)\. 13\. An evaluation of this sub-component demonstrates that the results expected were practically all achieved with respect to activities (a) and (d) above, and only partially attained with respect to (b) and (c), given that several of these activities suffered significant delays in their execution or were only partially implemented\. Several factors contributed to this situation but the following should be emphasized (i) a great dispersion and variety of activities delegated to PROMEX; (ii) the fact that PROMEX's activities are more oriented towards investment promotion than towards exports and post-investment services to enterprises ( "after-care"); (iii) the delegation of activities and responsibilities to PROMEX for which it is not specialized; and iv) the lack of rigorous estimation of the costs and/or legal and institutional conditions - 38 -  necessary for the development of certain activities\. 14\. Despite the difficulties encountered, the principal objectives established in the SAR and in the Development Credit Agreement with respect to new industry and tourism investment, growth in exports and the number of tourist visiting Cape Verde was attained or were very close to expected levels\. Hence, it may be affirmed that the execution of this sub-component was overall satisfactory\. Sub-component A\.2: Assistance to National Enterprises 15\. Funds available under this sub-component were channeled through the Chambers of Commerce and directed towards support for (i) the implementation of training programs and technical assistance to national enterprises; and (ii) the implementation of entrepreneurial forums\. Evaluation of this sub-component concludes that results expected from the activities inplemented were fully attained, although more consistently with respect to training than with technical assistance, given that activities in the latter concentrated more on feasibility and new enterprise studies than on improved management and profitability of existing enterprises as established under the SAR\. With respect to the forums, two of the four planned were implemented, as a result of the nascent and fragile institutional capacity of the Chambers of Commerce that also caused delays in training and technical assistance, although later recouped\. In substitution of one of the planned forums, an Atelier to discuss the development of the Private Sector is scheduled for end of May 2001\. Although it is not possible to present quantitative indicators of the impact of these training and technical assistance activities on management efficiency, competitiveness and profitability of beneficiary enterprises, general opinion is that the impact has been visible and very positive\. Results achieved were also relevant in strengthening the institutional capacity of the Chambers of Commerce who were able to benefit from training, create a team of consultants/trainers available for future activities, reach out to enterprises and increase membership\. 16\. Thus, the established objectives were achieved and the execution of this sub-component is considered as very satisfactory with respect to the training programs implemented\. Co,nponent A\. Financial Sector Development 17\. This component initially contemplated 5 sub-components: B\. I - Assistance to the Bank of Cape Verde (BCV) in order to improve its operation, regulation and supervision of the banking system, modemize the national and intemational payments system, secure the appropriate coordination and control of monetary policy and develop new financial services and products; B\.2 - Support to the commercial bank - Banco Commercial do Atlantico (BCA) with emphasis upon improving management and efficiency of its operations in preparation for privatization; 13\.3 Support to the commercial bank - Caixa Econ6mica de Cabo Verde (CECV) along the lines of the support given to the BCA; B\.4 - Support to the social security agency - Instituto Nacional de Previdencia Social (INPS) in order to improve its efficiency and facilitate the implementation of recoimmendations made in a study prepared by the Intemational Labor Organization; and B\.5 - Support to the national insurance entity the Instituto de Seguros de Cabo Verde (ISCV) in order to strengthen capacity in regulation and supervision of the insurance sector\. These sub-components were later reduced to four with the integration of the ISCV into the Supervision Department of the BCV\. - 39 -  Sub-component B\.1: Assistance to the BCV 18\. Assistance to the BCV contemplated providing technical assistance, equipment and training to (i) implement and develop a secure and efficient international and national payments system; (ii) develop an integrated database of economic and financial information; (iii) revise some banking and insurance sector legislation and regulation; (iv) install an efficient and centralized credit risk system; (v) strengthen the banking and insurance sector's capacity for supervision; and (vi) improve coordination and control of monetary policy and develop new financial products and services\. 19\. Evaluation of the execution of this sub-component is summarized as follows: (i) with respect to the payments system, the Project supported BCV, BCA, and CECV connection to the international SWIFT system, the creation of an inter-bank corporation, SISP, and the installation of a network of ATMs and POS (activities not initially contemplated in the project) with only automatic compensation of inter-bank transactions remaining and to be operational during the year 2001; (ii) the database of economic and financial information was installed and a technical assistance is currently being provided to modernize the computer programming\. This will introduce new functions including the possibility of on-line research through BCV's web page, also financed under the Project, although not initially planned; (iii) legal consultants elaborated a series of legal diplomas and regulations submitted for Government consideration, but some of these diplomas have not been published given certain reservations and/or required previous revision of higher legislation; (iv) the Credit Risk Center was installed in the BCV, although with some delays, and is regularly updated with information provided by commercial banks and consulted for analysis of bank loans; (v) the Supervision Department of the BCV was strengthened and regularly undertakes supervision of the banking and insurance sectors; (vi) the teclml-ical assistance contemplated under the Project in the areas of monetary policy and new financial products and services was not used, as BCV opted for support provided by the IMF and the Bank of Portugal and the work groups created for implementation and coordination encountered difficulty in reaching consensus\. 20\. Given these results it may be stated that, with the exception of the last activity mentioned above, the objectives with regards to the development and modernization of a payments system, the improvement of the credit portfolios of banks, the regulation and supervision of the banking and insurance sectors and the timely production of statistical information for financial, monetary and fiscal policy have been achieved and expected results attained, in some cases surpassed\. The objectives regarding the regulation and control of monetary policy were also achieved, although without the direct support of the Project\. Only the activities regarding the creation of new financial products and services remain uncompleted\. Thus, the overall execution of this sub-component is satisfactory and very satisfactory in the case of the payments system\. Sub-component B\.2: Support to the BCA 21\. Project activities in support of the BCA basically included (i) technical assistance in management under a management contract with an international bank to support bank administration in the design and implementation of a general plan for restructuring and privatization; (ii) the financing of training programs in-country and abroad for staff; and (iii) the acquisition of computer equipment and services to modernize the information management system\. 22\. The management contract was later considered umnecessary given the government strategy for privatization later on chosen, reason why this activity was not implemented and corresponding funds - 40 -  were reallocated to other areas\. These activities were thus significantly strengthened allowing for the attaimnent of results beyond those initially expected, in particular for the information management system that was practically recreated under the Project\. 23\. Although the first activity above was not implemented, the central objective of preparing the bank for privatization as well as support during the process was fully achieved, although with some delay in schedule and with a methodology differing from that planned\. Thus the general execution of this sub-component is satisfactory and very satisfactory with regards to the modernization of the information system\. Sub-component B\.3: Support to the CECV 24\. The support activities to the CECV contemplated under the Project were similar to those directed at the BCA, differing only in that a consulting firm would be contracted in order to elaborate a strategic plan for privatization in the place of a management contract with an international bank\. 25\. An evaluation of this sub-component confirms that all activities were implemented as planned with all results expected attained, although with some delay with respect to the initial schedule for privatization\. It is important to note that the technical assistance contracted elaborated a Strategic Plan for Privatization for the period 1998-2002 which not only created the framework for privatization but one which is also currently used to orient the management and development of the bank\. 26\. Thus, it may be stated that all the objectives of this sub-component were achieved and that its execution is on the whole satisfactory and very satisfactory with respect to the technical assistance and the strengthening of the information management system\. Sub-component B\.4: Support to INPS 27\. The support contemplated for the INPS under the Project consisted in (i) contracting technical assistance in order to implement the recommendations of the study prepared by the ILO; (ii) strengthening the information system through acquisition of computer equipment and software; and (iii) financing training programs for staff\. 28\. From an evaluation of this sub-component it can be concluded that all the activities in the areas contemplated were implemented, although not always in the manner as planned and with certain delays\. The results expected were attained, particularly in the areas of strengthening the information system and staff training\. Difficulties were experienced in the implementation of the technical assistance due in large part to the lack of strategic orientation on the part of the Government in regards to restructuring of the social security system, a plan for investment in the system or the institutional structure of the INPS\. 29\. The execution of this sub-component is on the whole satisfactory; with certain exceptions, the majority of objectives planned were completely achieved\. However, as compared to other Project beneficiary institutions, the INPS could have benefited in a more substantial manner from the support made available under the Project\. Cost-Benefit Analysis 30\. The SAR provides an evaluation of the costs and benefits of the project based on expected results of the Private Sector, these being jobs created and possible revenues resulting from the growth in export - 41 -  industries, information technology services and tourism\. Financial Sector development is considered as a means to ensuring success in both components and is not analyzed separately\. 31\. A comparison of the actual results achieved in these areas with SAR estimations concludes that the projected values for industrial investment and services were reached, but fall slightly below for those expected for tourism, particularly with respect to growth in the number of rooms in hotels\. Notwithstanding these differences, the results achieved are above values estimated for the Economic Rate of Return (ERR) and the Net Present Value (NPV)\. Thus, the actual ERR and NPV calculated for both components were on the whole positive, indirectly confirming that the main objectives of the Project were achieved\. Thematic Obiectives 32\. The World Bank places great importance on the social impact of projects financed, particularly with regards to poverty alleviation, gender issues, the environment and the development of the private sector\. 33\. Given its nature, the Project impact was particularly important for the last of the areas above, but was also very important in poverty alleviation through the creation of a significant number of direct and indirect jobs and in improving the social condition of women, given that the majority of jobs created were filled by women\. With respect to the environment, the negative impacts of the Project may be considered as minor given the nature of activities implemented\. However, it must be noted that industrial and tourism development imply risks such as the degradation of the natural, cultural and human environment that should be adequately appraised in future interventions\. Global Evaluation 34\. In conclusion, the execution of the Project is overall very satisfactory, considering that the majority of the objectives and results expected were attained\. The areas demonstrating the most positive results include the promotion of foreign investment and tourism, the payments system and, in general, the strengthening of the information systems of the various entities involved and training programs, those directed towards national enterprises as well as the beneficiary institutions\. Among areas in which results were somewhat below expected levels are the creation of conditions favorable to the installation and operation of industrial and tourism activities, the promotion of exports and, in general, some technical assistance and legal consulting activities\. C\. Principal Factors Affecting Project Implementation Factors not Subiect to Government Control 35\. Project implementation was not greatly affected by factors of this nature\. However, the following factors may have affected, although not in a significant manner, the execution of some activities (i) the financial crisis in Asia which may have negatively impacted efforts at investment promotion in these markets; (ii) the continuing trend towards the reduction of bilateral aid to Cape Verde which may have - 42 -  hampered efforts at securing co-financing; (iii) failure of some legislative bills due to conflicting bills of the National Assembly; (iv) municipal elections in 1999 causing instabilities in municipalities key to the implementation of some Project activities; (v) delays in disbursement and non-objections on the part of the World Bank and IDA during the initial phase of implementation; and (vi) partial observance of contract deadlines, specifications and conditions on the part of contractors and suppliers of goods and services\. Factors Subiect to Government Control 36\. Among the factors subject to Government control affecting the implementation of activities and the achievement of Project objectives, the following should be emphasized: (i) the lack of timely adoption of sufficient legal and institutional measures to significantly improve the environment for investment and economic activity; (ii) certain delays in and/or lack of response to recommendations of the World Bank/IDA on the part of consultants and the entrepreneurial forums; and (iii) certain changes in ministries and the Project Coordinator\. Additional factors under this category may include certain aspects of Project design such as the disparity between funds allocated to the sub-component "Capacity Building of PROMEX" and those to "Assistance to National Enterprises," the nunber and volume of interventions attributed to PROMEX and its actual institutional capacity, as well as insufficient preparation of conditions underlying the effective development of some activities\. However, in this case the responsibility for these factors should be shared with the World Bank and on a smaller scale with some of the beneficiary institutions\. Factors Subject to Control by Implementing Agencies 37\. Among the factors in this category that most affected the implementation of the Project the following should be mentioned (i) weak institutional structure of PROMEX in relation to activities under its responsibility and the continuing uncertainties as to its mission and key functions; (ii) fledgling and weak institutional capacity of the Chambers of Commerce at Project start-up resulting in initial delays in the training and technical assistance activities directed at national enterprises; (iii) the existence of certain unclear definitions of the competency's and autonomy of the Central Bank; (iv) institutional fragility, weak dynamism and large volume of bad credit of the BCA at Project start-up and v) institutional weakness of the INPS not permitting this institution to take full advantage of the Project\. Impact of these Factors on the Implementation ofActivities 38\. The impact of these factors are reflected in the financial execution of each of the sub-components which reveals certain deviations from that originally planned, showing the differing capacities and dynamism among their respective implementing agencies\. Noteworthy positive examples are the BCV, which has seen its share of Project funds increased by 41,4% of that initially allocated, and the Chambers of Commerce, which have likewise increased their share to 18,8% of that initially allocated\. By contrast, the INPS saw a reduction by 24,2% of fund initially allocated\. Other beneficiary institutions also experienced reductions in funds allocated, although on a smaller scale: - 13,2% for PROMEX, - 12,7% for BCA and -6,4% for CECV\. In the case of the BCA and CECV, available funds were reallocated to support further BCV activities once privatization was complete\. These factors also affected specific activities such as the development of management of the industrial zone of Lazareto, not developed due to lack of adequate preparation of underlying conditions and PROMEX's inexperience in this area, delays in the construction of the Santa Maria Tourist Alley due to - 43 -  inaccurate estimations of the costs entailed, the installation of an international ship registry due to an inadequate evaluation of the legal and institutional conditions required, and the fact that certain bills prepared with Project support remain unpublished also due to an inadequate evaluation of the legal conditions necessary and/or insufficient strategic orientation on the part of the government\. However, the above-mentioned factors did not significantly impact the implementation of the Project, as is evidenced by the previous conclusion that no main objectives were left unrealized\. D\. Project Sustainability 39\. Sustainability of the results achieved in the development of the private and financial sectors such as growth in external investment, increase in exports and in the number of tourists visiting the country, improved competitiveness and export capacity of enterprises, the new payments system, strengthened capacity of the BCV and INPS, the privatization and improved efficiency of the commercial banks, and the creation of direct and indirect jobs appear to be reasonably sustainable as long as no serious extemal or internal shocks occur, which at current date appears unlikely\. However, some of these results, with particular note to extemal investment and tourism, are somewhat vulnerable as the industrial activities are concentrated in sectors sensitive to extemal shocks and investors and tourists originating from a small number of countries, factors that ought to be minimized\. An analysis of sustainability is extremely mixed in the case of the capacity building of PROMEX and the Chambers of Commerce and their capability in continuing promotional activities and assistance to enterprises\. In reality, the Project has been the principal support for these activities during recent years and their sustainability will be seriously threatened if significant external financing is not encountered in the future given the following (i) the promotional nature of these activities does not generate revenues to secure self-sustainability; (ii) given Cape Verde's situation, resources generated by other activities of these institutions are insufficient for continued promotional efforts; and (iii) given the current crisis in public finances, it will be extremely difficult for the Government to contribute to these efforts with public funds\. E\. World Bank Performance 40\. In light of the evaluation presented above, the performance of the World Bank during Project preparation and implementation is considered satisfactory given the following (i) Bank staff participating in the identification, preparation and appraisal missions of the project adopted a participatory approach which led to a consensual and applicable framework for the project (although, as stated above, the solutions encountered have not always proven to be the most optimal); (ii) the relationship between the PSCU and Bank staff responsible for Project coordination and monitoring has been smooth throughout and Bank staff have always been available to provide explanations and information requested and to offer support in the search for the most applicable solutions; (iii) dossiers submitted by the Government were analyzed and considered in a speedy manner and disbursement and non-objections were decided in short time spans (with the exception of some delays experienced during the initial phase of project implementation); and (iv) supervision and monitoring of Project activities were satisfactorily implemented, although with significant deviations from that planned in the SAR\. F\. Government and PSCU Performance 41\. The performance of the Government and the PSCU are also considered satisfactory in the preparation and implementation of the Project given the following (i) Government commitments made - 44 -  under the Project were honored; (ii) the SAR conditions for establishing creditworthiness and initializing disbursement were honored, although with some modifications accepted by the World Bank; (iii) the Project Coordinator was designated, the PSCU installed and equipped with staff and the necessary means, namely in the areas of the accounting and financial management of the Project, for its operations in a timely manner; (iv) the Project Account was opened on schedule and the external auditor was selected and contracted through a competitive bid; and (v) the PSCU continuously fulfilled its functions in the monitoring, evaluation and technical and financial reporting of Project implementation as determined in the SAR, although with some adjustments in the annual revisions as agreed upon with the World Bank/IDA\. However, the Project experienced systematic delays on the part of the Govenmment to disburse counterpart funds, in part due to existing restrictions in public expenditures\. The Government also demonstrated certain difficulties mentioned above with respect to strategic orientation, approval of bills and response to Bank inquiries and/or recommendations\. G\. Overall Evaluation of the Outcome 42\. In the light of the present summary, the overall evaluation of the Project outcome is very satisfactory given the following (i) principle objectives were achieved; (ii) results expected were attained (in some cases surpassed); (iii) the results achieved positively impacted the development of the private and financial sectors of Cape Verde; and (iv) the economic rate of return and net present value are largely positive although not reaching the projected levels based on the hypothetical values of the SAR\. H\. Future Operations Given the observations made in previous sections, a new IDA-financed intervention is highly desirable in order to ensure the consolidation; sustainability and continuity of the results achieved and should include activities in the following areas: * Private Sector: (i) definition of a strategy and plan of action to reorganize and restructure the network of public institutions supporting the development of the private sector; (ii) capacity building of these institutions, Chambers of Commerce and other entrepreneurial associations; (iii) promotional campaigns for foreign investment and tourism with the aim of diversifying the sectors of investment and the country of origin of investors, operators and tourists; (iv) improving the overall environment for investment and business and facilitating the installation and operation of new enterprises and economic activities; and (v) strengthening competitiveness and export capacity of national enterprises through training and technical assistance available to all eligible economic operators\. * Financial Sector: (i) reform of the legal and institutional framework of the sector; (ii) diversification of the financial market and creation of new financial instruments; (iii) consolidation and strengthening of the institutional capacity of the BCV and its autonomy; and (v) reform of the social security system and capacity building of INPS\. I\. Key Lessons Learned 43\. The key lessons leamed from the Project's implementation for future interventions are summarized into the following principles (i) maintain mechanisms for permanent dialogue and collaboration among the Government, World Bank/IDA and the beneficiaries/executing agencies; (ii) ensure adequate coordination with other donors and relevant entities not directly involved in the Project; (iii) ensure prior and sufficiently detailed analysis of all the legal and institutional implications of proposed activities; (iv) - 45 -  provide a realistic and solid base for estimated costs; (v) direct activities towards the resolution of specific problems of beneficiary entities; (vi) adopt more holistic and integrated approaches towards private sector development; (vii) integrate capacity building of public institutions supporting the Cape Verdean private sector into a more ample process of restructuring and reorganizing the network of these institutions; (viii) create specialized and professional institutions for the development of activities which existing institutions may not have the capacity or vocation to implement; ix) place greater priority upon "after-care" services with regards to foreign investment and tourism activities as compared to promotional services; x) ensure that support activities to national enterprises with public funding are integrated into national programs that will secure respect for principles such as universality and equal access and treatment to all eligible economic agents; and xi) always include in projects well-developed incentives for the use of modem information and communication technologies and systems\. - 46 -

REVIEW

P106038

Document of The World Bank Report No: ICR00003473 IMPLEMENTATION COMPLETION AND RESULTS REPORT (COFN-C1150 IBRD-75060 IBRD-78200) ON A LOAN IN THE AMOUNT OF US$ 662\.91 MILLION TO THE STATE OF SÃO PAULO, BRAZIL FOR A SÃO PAULO TRAINS AND SIGNALING PROJECT October 29, 2015 Global Practices Transport & ICT Brazil Country Management Unit Latin America and Caribbean Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective October 19, 2015) Currency Unit = Brazilian Real (R$) R$3\.92 = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS ATC Automatic Train Control ANTP National Association of Public Transport (Associação Nacional de Transportes Públicos) BNDES National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social) BUI Single Integrated Fare Ticket (Bilhete Único Integrado) CBTC Communications Based Train Control CBTU Brazilian Urban Train Company (Companhia Brasileira de Trens Urbanos) CETESB Environmental Technology Company (Companhia de Tecnologia de Saneamento Ambiental) CDTI Integrated Transport Coordination Commission (Comité Diretor de Transporte Integrado) CMSP São Paulo Metro Company (Companhia do Metrô de São Paulo) also known as Metro (see below) CPTM São Paulo Metropolitan Train Company (Companhia Paulista de Trens Metropolitanos) EMTU Metropolitan Bus Company (Empresa Metropolitana de Transporte Urbano) EMU Electric Multiple Unit IBGE Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística) ICB International Competitive Bidding ICMS ICMS Circulation Tax on Goods and Services (Imposto de Circulacão sobre Mercadorias e Serviços) IERR Internal Economic Rate of Return IFR IFR Intermediate Financial Report LRF Fiscal Responsibility Law (Lei de Responsabilidade Fiscal) Metro São Paulo Metro Company (Companhia do Metropolitano de São Paulo)\. Same as CMSP\. MR Metropolitan Region PCU Project Coordination Unit PER Preliminary Environmental Report (Relatório Ambiental Preliminar) PITU Integrated Urban Transport Project (Plano Integrado de Transporte Urbano) PMU Project Management Unit RTCC Regional Transport Coordination Commission SEAIN Federal Secretariat for Foreign Affairs (Secretaria de Assuntos Internacionais) SIAFEM São Paulo State Government & Integrated Financial Administration System for States & Municipalities (Sistema Integrado de Administração Financeira para Estados e Municípios) SMA Secretariat for the Environment (Secretaria do Meio Ambiente) SPM São Paulo Municipality SPMR São Paulo Metropolitan Region SSP State of São Paulo STM São Paulo Municipal Secretariat for Transport (Secretaria de Transportes da Prefeitura do Município de São Paulo) STMSP São Paulo Secretariat for Metropolitan Transport (Secretaria de Transportes Metropolitanos Região Metropolitana de São Paulo) TOR Terms of Reference Vice President: Jorge Familiar Senior Global Practice Director: Pierre Guislain Country Director: Martin Raiser Practice Manager: Aurelio Menendez Project Team Leader: Georges Darido ICR Team Leader: Bianca Bianchi Alves  BRAZIL SÃO PAULO TRAINS AND SIGNALING PROJECT CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Profile 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes\. 12 4\. Assessment of Risk to Development Outcome \. 18 5\. Assessment of Bank and Borrower Performance \. 20 6\. Lessons Learned \. 23 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 25 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Outputs by Component (cont\.) \. 29 Annex 2\. Outputs by Component (cont\.) \. 30 Annex 3\. Economic and Financial Analysis \. 31 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 34 Annex 5\. Beneficiary Survey Results\. 35 Annex 6\. Stakeholder Workshop Report and Results \. 40 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 41 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders \. 44 Annex 9\. Impact assessment of Sao Paulo Trains and Signaling Project on traffic volumes, travel times and emissions \. 45 Annex 10\. List of Supporting Documents \. 49 DATA SHEET A\. Basic Information BR São Paulo Trains Country: Brazil Project Name: and Signaling COFN-C1150,IBRD- Project ID: P106038 L/C/TF Number(s): 75060,IBRD-78200 ICR Date: 09/29/2015 ICR Type: Core ICR STATE OF SÃO Lending Instrument: SIL Borrower: PAULO, BRAZIL Original Total USD 550\.00M Disbursed Amount: USD 662\.91M Commitment: Revised Amount: USD 662\.91M Environmental Category: B Implementing Agencies: Companhia Paulista de Trens Metropolitanos (CPTM) Metro Company of Sao Paulo Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/24/2007 Effectiveness: 07/28/2008 07/28/2008 01/01/2010 Appraisal: 12/03/2007 Restructuring(s): 12/28/2012 Approval: 05/01/2008 Mid-term Review: 04/26/2011 04/26/2011 Closing: 06/30/2013 04/30/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: i Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sub-national government administration 1 1 Urban Transport 99 99 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 100 100 E\. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: Martin Raiser John Briscoe Practice Manager/Manager: Aurelio Menendez Jose Luis Irigoyen Project Team Leader: Georges Bianco Darido Jorge M\. Rebelo ICR Team Leader: Bianca Bianchi Alves ICR Primary Author: Bianca Bianchi Alves F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective was to: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak-hour and off-peak carrying capacity of Lines A and F (now known as Lines 7 and 12) of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR\. ii Revised Project Development Objectives (as approved by original approving authority) The project development objective was revised only to include Line 11 of CPTM (beside Lines 7 and 12) as the object of intervention\. The final development objective became: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak-hour and off-peak carrying capacity of Lines 7, 11, and 12 of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2, and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR\. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Number of trains in peak/off peak-hour - CPTM Line 7 (A) Value quantitative or 7\.5/4 15/8 15/8 19/15 Qualitative) Date achieved 12/30/2007 4/30/2012 4/30/2015 12/30/2014 Comments (incl\. % 127%/187% achievement) Indicator 2 : Number of trains in peak/off peak-hour - CPTM Line 12 (F) Value quantitative or 7\.5/4 15/8 15/8 20/16 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 12/30/2014 Comments (incl\. % 133%/200% achievement) Indicator 3 : Number of trains in peak/off peak-hour - CPTM Line 11 (E) - baseline 2008 Value quantitative or 8\.5/5 - 15/8 15/7\.5 Qualitative) Date achieved 12/30/2008 - 4/30/2015 12/30/2014 Comments (incl\. % 100%/94% achievement) Indicator 4 : Number of trains in peak/off peak-hour - METRÔ Line 1 Value quantitative or 33/24 41/26 41/26 31/26 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 76%/100% achievement) Indicator 5 : Number of trains in peak/off peak-hour - METRÔ Line 2 Value quantitative or 24/16 28/18 28/18 25/18 Qualitative) Date achieved 12/30/2008 4/30/2015 4/30/2015 12/30/2013 Comments (incl\. % 89%/100% iii (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years achievement) Indicator 6 : Number of trains in peak/off peak-hour - METRÔ Line 3 Value quantitative or 35/25 44/28 44/28 35/31 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 80%/110% achievement) Travel Time + Waiting Time reduction in CPTM (CPTM Line A - Luz a Francisco Indicator 7 : Morato - length 39 km) Value quantitative or 80 57 57 60 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 87% achievement) Travel Time + Waiting Time reduction in CPTM Line 11 (E) - baseline 2008 Indicator 8 : (minutes) Value quantitative or 83 - 51 51 Qualitative) Date achieved 12/30/2008 - 12/30/2014 12/30/2014 Comments (incl\. % 100% achievement) Travel Time +Waiting Time reduction in Metro (Metro Line 1-Se a Penha - length Indicator 9 : 9\.5 km Value quantitative or 29 14 14 22 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 12/30/2014 Comments (incl\. % 47% (Although travel times are lower, waiting times have increased) achievement) Indicator 10 : Passengers/Square meter - CPTM Lines 7 (A) and 12 (F) Value quantitative or 8 6 6 7\.8/6\.3 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 10%/85% - Although targets for trains/hour were met, they have not reflected in a achievement) decrease of pax/m2, because demand was higher Indicator 11 : Passengers/Square meter - CPTM Line 11 (baseline 2008) Value quantitative or 8\.3 6 6 7\.2 Qualitative) Date achieved 12/30/2008 12/30/2012 12/30/2014 12/30/2014 Comments (incl\. % 78% achievement) Passengers/Square meter - METRÔ Lines 1,2 and 3 (Respective indicators for Lines Indicator 12 : 1, 2, and 3) iv (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Value quantitative or 8 6 6 5\.1, 4\.6, 7\.5 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 12/30/2014 145%, 170%, 25% (Although targets for trains/hour were only partially met, pax/m2 Comments (incl\. % for Lines 1 and 2 were fully met because of redistributions of passengers in the achievement) system, especially after the inclusion of Line 4) Indicator 13 : Incremental Demand in CPTM - Lines 7 and 12 (A+ F) (baseline 2006) Value quantitative or 0 219,341 219,341 258,000 Qualitative) Date achieved 12/30/2006 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 118% achievement) Indicator 14 : Incremental Demand in CPTM - Lines 11 (baseline 2008) Value quantitative or 242,634 273,828 273,828 299,754 Qualitative) Date achieved 12/30/2006 12/30/2012 12/30/2014 12/30/2014 Comments (incl\. % 109% achievement) Indicator 15 : Incremental Demand in Metro - Lines 1+2+3 (baseline 2006) Value quantitative or 0 921,320 921,320 689,135 Qualitative) Date achieved 12/30/2006 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 74% achievement) Number of users/day of households with less than 4 MS - CPTM Lines 7 (A) & Indicator 16 : 12(F) - thousand (baseline 2006) Value quantitative or 237 357 357 379 Qualitative) Date achieved 12/30/2006 12/30/2012 12/30/2012 4/30/2015 Comments (incl\. % 106% achievement) Number of users/day of households with less than 4 MS - CPTM Line 11 - thousand Indicator 17 : (baseline 2008) Value quantitative or 313 559 559 632 Qualitative) Date achieved 12/30/2008 12/30/2012 12/30/2014 12/30/2014 Comments (incl\. % 103% achievement) Number of users/day of households with less than 4 MS - METRÔ Lines 1, 2 & 3 - Indicator 18 : thousand (baseline 2006) Value quantitative or 908\.53 1,231 1,231 1,154 Qualitative) v (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Date achieved 12/30/2006 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 94% achievement) Indicator 19 : Working Ratio - CPTM (with gratuity and with no subsidies) Value quantitative or <<1< <1\.0 <1\.0 2\.0 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Not met\. CPTM’s working ratio had been estimated as 1 at the time of project Comments (incl\. % appraisal, but subsequent analysis showed that this was incorrect, and in fact was 2 achievement) at the start of the project\. It neither improved nor deteriorated during the project period\. Indicator 20 : Working Ratio - Metro (with gratuity and with no subsidies) Value quantitative or <<1< <1\.0 <1\.0 <1\.0 Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 100% achievement) Indicator 21 : Maintaining/strengthening PITU Value quantitative or 0% 100% 100% 100% Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 100%\. This indicator relates to the development of the PITU study\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : % Completion of CPTM Trains Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 12/30/2007 12/30/2012 12/30/2014 12/30/2011 Comments (incl\. % 100% achievement) Indicator 2 : % Completion of CPTM Trains (Additional Financing) Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 12/30/2007 12/30/2012 12/30/2014 12/30/2014 vi (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Comments (incl\. % 100% achievement) Indicator 3 : % Completion of METRÔ Trains Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 12/30/2007 12/30/2012 12/30/2014 12/30/2011 Comments (incl\. % 100% achievement) Indicator 4 : % Completion of CPTM Systems Value (quantitative 0% 100% 100% 76% or Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % Data provided per contract – final number is a weighted average using contract values achievement) Indicator 5 : % Completion of METRÔ Systems Value (quantitative 0% 100% 100% 75% or Qualitative) Date achieved 12/30/2007 12/30/2012 12/30/2014 4/30/2015 Comments (incl\. % Data provided per contract – final number is a weighted average using contract values achievement) Indicator 6 : % STM Studies Completed Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 12/30/2007 12/30/2012 4/30/2015 4/30/2015 Comments (incl\. % 100% achievement) G\. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No\. DO IP Archived (USD millions) 1 06/02/2008 Satisfactory Satisfactory 0\.00 2 11/25/2008 Satisfactory Satisfactory 93\.99 vii  3 04/08/2009 Satisfactory Satisfactory 160\.76 4 11/10/2009 Satisfactory Satisfactory 185\.53 5 04/22/2010 Satisfactory Moderately Satisfactory 241\.58 6 12/11/2010 Satisfactory Moderately Satisfactory 323\.35 7 06/29/2011 Satisfactory Moderately Satisfactory 503\.50 8 01/11/2012 Moderately Satisfactory Moderately Satisfactory 503\.50 9 08/14/2012 Moderately Satisfactory Moderately Satisfactory 507\.43 10 05/15/2013 Moderately Satisfactory Moderately Satisfactory 576\.90 11 12/16/2013 Moderately Satisfactory Moderately Satisfactory 584\.76 12 06/28/2014 Moderately Satisfactory Moderately Unsatisfactory 593\.49 13 12/18/2014 Moderately Satisfactory Moderately Unsatisfactory 600\.35 14 05/18/2015 Moderately Satisfactory Moderately Unsatisfactory 661\.25 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions The additional financing (AF) of USD $112\.91 million was signed in October 18, 2010 and the PDO of the original Project was scaled-up to include Line 11-Coral of the CPTM system\. The AF included i) the acquisition of 9 trains of eight cars each and related accessories 01/01/2010 N S S 215\.21 for CPTM to increase the level of service on Line 11-Coral and ii) technical assistance to carry out studies for the design of a climate change strategy and manage and supervise the manufacturing and implementation of the new trains\. The AF did not change the loan closing date\. A restructuring was approved on December 28, 2012\. Although considerable progress had been achieved to date from adding 17 new Metro trains and 40 CPTM 12/28/2012 MS MS 549\.54 suburban trains in service and institutional components, further progress related to level-of-service improvements depended on the successful implementation of new signaling systems on Metro and viii  ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions CPTM and upgraded track infrastructure on CPTM\. These contracts, signed in 2008 or 2009, had been significantly delayed due in large part to unforeseen technical issues with implementing complex systems and infrastructure while trains continue to operate on the lines, and while ridership on all lines continues to increase\. While Metro and CPTM had taken measures to accelerate implementation, these critical contracts remained behind the original schedule\. The new closing date for the original loan was set up to April 30, 2015 and, for the AF, October 31, 2014\. I\. Disbursement Profile ix 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Brazil’s economy\. By 2007, when the Project Appraisal Document (PAD) was finalized, the economy was growing at high rate, 5\.4% in the second quarter of 2007\. Poverty reduction had been accelerated by conditional cash transfer program and inequality had decreased (GINI coefficient dropped from 0\.59 in 2002 to 0\.56 in 2006)\. Inflation seemed to be under control and the country was showing resilience to external shocks of the initiating financial crisis, but interest rates remained high if compared to international standards\. However, Brazil still ranked 122 out of 178 on the Doing Business Report, below China (83), Russia (106), and India (120)\. Sector context\. Brazil had been experiencing steady economic growth and thus had seen a considerable increase in motorized vehicle ownership from 2001 to 2012 (138%) 1\. The country presented high levels of urbanization (85%) 2, and in cities with over 60,000 inhabitants, the public transport mode share had declined, with private car use surpassing public transport participation in 2005, according to the National Association of Public Transport\. Congestion in large cities was estimated to cost from 1% to 3% of the total gross domestic product\. Economy and Urban Transport in the São Paulo Metropolitan Region (SPMR): in 2007, the São Paulo Metropolitan Region (SPMR) had 19\.5 million inhabitants spread irregularly over 8,000 square kilometers\. Although dominated by the São Paulo Municipality with 11\.5 million inhabitants, SPMR comprises 39 municipalities\. The region generates roughly 20% of Brazil’s GNP and is considered the most important economic region of the country\. Poverty and inequality were high and there were numerous slums in São Paulo city, where poverty and public safety were predominant issues\. Of the 26 metropolitan regions in Brazil, SPMR had the highest population density and the fourth highest share living in slums (9% 3)\. Rapid urbanization had resulted in uncontrolled urban sprawl with associated traffic congestion, long travel distances, and social problems including crime and rising unemployment\. Each day, 39 million person-trips took place, of which 13 million (33%) were by foot, 14 million (37%) by car and the rest by public transport (23% by bus, 4\.5% by metro rail and 2\.5% by suburban rail)\. Despite the 315 km rail-based network, the lack of full physical and tariff integration between the bus, metro and the suburban trains had over the years discouraged low-income users from using rail\. This had led to an over- reliance on other less sustainable modes including automobiles and motorcycles, and contributed to the heavy traffic congestion experienced in the SPMR\. Low-income urban households tended to live in areas with limited access to jobs, and generally had to rely on public transport\. As a consequence, they were subject to extreme travel conditions such as: i) overcrowding of trains (>8 pass/m2) due to shortage of capacity at peak hours; ii) long commute times (2\.5 hours/day from the metropolitan periphery to the urban centers); and iii) high costs of transport, resulting in the 1 Rodrigues (2013)\. Evolução da frota de automóveis e motos no Brasil (2001 – 2012)\. Observatório das Metrópoles \. Instituto Nacional de Ciência e Tecnologia\. Rio de Janeiro\. 2 IBGE, Censo demográfico 1940-2010\. Até 1970 dados extraídos de: Estatísticas do século XX\. Rio de Janeiro: IBGE, 2007 no Anuário Estatístico do Brasil, 1981, vol\. 42, 1979\. 3 Brazil São Paulo: Inputs for a Sustainable Competitive City Strategy, World Bank, 2007 1 need to pay between 15% and 20% of income towards fares, a situation which was exacerbated for those not formally employed\. Environmental aspects: the over-reliance on cars, motorcycles (and buses) had also a negative impact on air quality and contributed to increases in accidents\. In 2006, there were 4\.3 million vehicles registered in the SPMR\. Air quality was degraded by the presence of excessive levels of carbon monoxide, ozone and particulate matter\. During 2006, health warnings due to air pollution from CO were issued for a total of 250 days, ozone--108 days, and particulate--54 days\. Motorized vehicles accounted for 73-94% of most air pollutants in the SPMR, and contributed to 31% of particulate matter\. Vehicular air pollution had been somewhat mitigated by the use of alcohol in lieu of gasoline\. However, vehicular accidents continued to increase and pose environmental risks\. In 2006, there were about 150,000 road accidents in the SPMR, which accounted for 35,000 injuries and about 1,500 deaths, with a cost conservatively estimated at US$1\.5 million/day\. According to the SP's Traffic Engineering Department, congestion had been increasing at a rate of 20 percent per year; the economic cost of time and fuel lost due to traffic congestion had been estimated at US$6 million per day\. Rationale for Bank assistance: The project was a logical sequence to a long-term engagement with the State to consolidate and expand its rail-based transport systems addressing the important issues of inter-modal integration and sensible tariff policy to recover costs and meet social objectives\. The State of Sao Paulo, after the decentralization of the CBTU in the late 1990’s, had started a series of investments to better integrate the subway system, the commuter rail, and the interurban bus system, including an integrated fare scheme\. The improved integration had resulted in a new challenge: a dramatic increase in user demand for rail-based systems, with more than 12% increase from 2006 to 2007\. This significant growth in demand had led to the urgent need for a rapid increase in the carrying capacity and frequency of trains, especially at peak hours, in order to maintain an acceptable level-of-service quality that ensured passenger safety while minimizing waiting time at stations\. In addition, the continuation in the improvement of the carrying capacity of the system was expected to further attract users from road to rail thereby containing or reducing congestion, while also contributing to positive environment impacts, which are important to the climate change agenda\. The project was in line with the Bank’s overall Transport Strategy, as well as the customized sectoral strategy for Brazil, in terms of: (i) improving public transport in urban areas as a means to improve access to jobs, education and health facilities; (ii) contributing to poverty alleviation; and (iii) improving financial performance of service providers through better cost recovery and reducing dependence on public subsidies\. This was linked to higher level objectives of affordable and accessible urban transport services to promote higher equity and poverty reduction by allowing all segments of society, and particularly those with low-income, to be able to reach employment areas, health, education and leisure facilities, thereby contributing to an improvement in quality of life\. This project would also make important contributions to the improvement in air quality and reduction in vehicle emissions as a positive impact on climate change\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The original development objective was to: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak-hour and off-peak carrying capacity of Lines A and F [now known as Lines 7 2 and 12] of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR\. The improvement in the level of service was achieved through the increase of peak-hour and off- peak carrying capacity, measured by the increase in the number of trains per peak hour and off- peak hour per direction, the reduction of waiting time and through the reduction in the number of passenger/m2 in the peak\. The impact on the transport users was assessed through the evaluation of the additional demand serviced\. The focus in the low-income population, which was not included in the PDO but was a strong focus of the project as described in the PAD, was assessed through the increase in the number of users with income levels smaller than 4 and 2 minimum salaries\. The achievement of the PDO in a cost-efficient manner was assessed through the working ratio, which is calculated including revenues from the compensation of gratuities and excluding subsidies\. The project’s results framework did not include indicators for safety, but this ICR provides some data on this outcome (see Section 3\.2)\. The strengthening of the transport management and policy framework in the SPMR was assessed through the completion of the Integrated Urban Transport Strategy (PITU)\. The PITU is the main planning instrument that the State has developed and updated continuously\. It serves both as a strategic plan for the SPMR, and as guidance for prioritizing investments; the plan has a focus on integrating transport planning among the different institutional levels\. Finally, intermediate outcome indicators measured the progress in the manufacturing, installation and/or delivery of trains and systems included in the project\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO of the original financing was scaled-up to include the scope of the Additional Financing, namely the Line 11-Coral of the CPTM system: The revised project development objective became: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak-hour and off-peak carrying capacity of Lines 7, 11, and 12 of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2, and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR After the inclusion of the scope for Line 11 with the additional financing, the project was restructured in December 2012 and the closing dates for both the original and additional financing were extended\. The key indicators remained the same after the additional financing but included the scope of Line 11 of CPTM; in the restructuring, a revision of the target dates was processed\. 3 1\.4 Main Beneficiaries The beneficiaries included the public transport users of the São Paulo Metropolitan Region, particularly low-income households (earning up to four minimum salaries) who w e r e a n d r e m a i n the major users of public transport\. By appraisal, the share of low-income users of the rail system (CPTM and Metro) was equivalent to 40% of the total demand\. The share of low-income users was also growing rapidly\. In CPTM, the proportion of users with family income below 4 MS had grown from 37\.7% to 63\.7% from 2001 to 2005 and in the Metro, from 20\.3% to 28\.0% 4\. In the two systems, the higher growth occurred among the users with lowest family income—below 2 MS\. The project would provide a higher level of comfort and shorter intervals between trains to passengers\. 1\.5 Original Components The project is comprised two components: Part A: Infrastructure and Equipment 1\. Provision of financing for CPTM’s trains and systems, including: (a) the acquisition of forty trains (EMUs) of 8 cars each and accessories for a total of 320 cars to be operated in Lines A and F of the CPTM network; (b) the supply and installation and/or rehabilitation of traction electrical power systems for selected substations of Line A and Line F of the CPTM network; (c) supply and installation and/or rehabilitation of the electrical cabinets in selected stations of Line A and Line F of the CPTM network; (d) supply and installation of auxiliary power lines for Lines A and F of the CPTM network; (e) supply and installation of a signaling system operated from the operations control center (OCC) of the CPTM network; (f) the supply and installation of an electronic telecommunication system for the CPTM Lines A and F; and (g) associated civil works for (b) to (f) above if necessary; 2\. Provision of financing for SP Metro trains and systems, including: (a) the acquisition of seventeen trains (EMUs) of 6 cars each and accessories for a total of 102 cars to be operated in Line 1 and Line 3 of SP Metro network; (b) the supply and installation of a new signaling system known as Communication Based Train Control (CBTC) in Lines 1, 2 and 3 of the SP Metro network; (c) supply and installation of a telecommunication system, access control system (ACS) and platform screen doors (PSD) for the SP Metro Lines 1, 2 and 3; and (d) the modernization of the existing OCC for the SP Metro Lines 1, 2 and 3\. Part B: Institutional and Policy Development 1\. Provision of technical assistance to the STMSP for the carrying out of studies on policy development, including: (a) consolidating the CDTI for the SPMR; (b) updating the current 4 Estimates from “Pesquisa AD CPTM” and Pesquisa da GOP / Metro\. 4  integrated transport policy, land use and air quality management strategy (PITU) for the SPMR to meet both transport and air quality targets and to introduce sound cost recovery, tariff, regulatory and subsidy policies; and (c) providing an action plan to review the funding of the urban transport system in the SPMR in view of the adoption of the BUI; 2\. Provision of technical assistance to CPTM for (a) the carrying out of studies on evaluating the outsourcing to the private sector of selected services including, inter alia, maintenance of track and systems, rolling stock and other operational services; and assessing the impact on affordability, accessibility, availability and acceptability of the Project for the low income urban rail transport users; and (b) management and supervision of the carrying out of Part A\.1 of the Project; 3\. Provision of technical assistance to SP Metro for: (a) carrying out of studies to assess the impact on affordability, accessibility, availability and acceptability of the Project for the low income urban rail transport users; and (b) management and supervision of the carrying out of Part A\.2 of the Project; and provision of financing for the operating costs of SP Metro PMU\. Components related to the Part A, of acquisition of trains and signaling systems, allowed for an improved the level-of-service to the urban rail transport, by increasing the frequency of trains in the peak and off-peak hours, therefore attracting more users, particularly low-income users living in the peripheral areas of the SPMR\. The new system, with approximately 1\.3 million new users, required a stronger institutional environment, and this was supported by the institutional component, Part B\. This component, besides providing resources to manage and supervise implementation, provided guidance to establish fare policies and legal frameworks compatible with the system’s financial sustainability and strengthened planning capabilities in developing an integrated land use-transport model to allow for mitigation of the transport costs on the mobility of poor populations\. 1\.6 Revised Components The following changes consistent with the objectives of the project and scope of Part A and B of the loan were made with the approval of the additional financing: a) Acquisition of at least (9) nine trains (Electrical Multiple Units, EMUs) of eight cars each and related accessories for CPTM to increase the level of service on Line 11-Coral; b) Inclusion of technical assistance for the design of a climate change strategy in accordance with terms of reference acceptable to the Bank; c) Inclusion of technical assistance to manage and supervise the carrying out of Part A of the Project, including with respect to the manufacturing and implementation of the new trains\. The AF loan also financed about 75% of the total estimated purchase cost of new trains and equipment for CPTM\. The breakdown of all IBRD financing for the original and additional financing by component is presented below\. 5  IBRD Project Financing Plan Original Project Additional (Millions of US Dollars) Financing Total Part A: Trains and Equipment 536\.35 110\.43 646\.78 Part B: Institutional and Policy Development 13\.65 2\.48 16\.13 Total 550\.00 112\.91 662\.91 1\.7 Other significant changes The project was restructured in December 2012\. The closing dates for both the original loan (P106038, IBRD Loan No\. 7506-BR) and additional financing (P117122, IBRD 7820-BR) were extended respectively to April 30, 2015 and October 31, 2014\. By December 2012, considerable progress had been achieved from adding 17 new Metro trains and 40 CPTM suburban trains in service and institutional components including the consolidation of the regional transport coordination commission and updating of elements of the integrated metropolitan transport plan\. However, further progress related to level-of-service improvements depended partially on the successful implementation of new signaling systems on Metro and CPTM and upgraded track infrastructure on CPTM\. These contracts, signed in 2008 or 2009, had been significantly delayed due in large part to unforeseen technical issues with implementing complex systems and infrastructure in “brownfield” systems, i\.e\., while trains remain operating\. While Metro and CPTM had taken measures to accelerate implementation, these critical contracts were significantly behind the original schedule and an extension of the closing date was requested\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The project quality at entry was satisfactory because of the reasons detailed below\. The Project and PDO were solidly conceived and structured, given what was known at appraisal\. A cost benefit analysis was performed to compare the outcomes with or without the project, and a sensitivity analysis provided the reassurance of a sound project\. A technical evaluation was undertaken to compare the acquisition of new trains with other alternatives such as do-nothing, rehabilitation and/or modernization of trains, acquisition of second hand trains, and leasing of trains\. The acquisition of new trains in this case was found to be the most cost-effective alternative because the others were either not feasible or there were no available immobilized trains to be rehabilitated\. The proposed “systems” were also compared with a do-nothing alternative and other types of systems\. Specialized consultants examined the options rejected and agreed that the proposed alternatives were the most suitable for both CPTM and Metro\. Financial projections were prepared both for Metro and CPTM for the 2007-2026 period and showed that the working ratio of both operating agencies would be equal or less than one, and operating costs would therefore be below operating revenues\. The project incorporated in its design the lessons identified in previous urban transport and urban projects around the world to include institutional strengthening in all levels of government involved with urban transport, to ensure adequate and timely counterpart funds, and to mitigate risks of slow project implementation through measures to deal with factors such as lack of familiarity with Bank procedures, overoptimistic scheduling at appraisal, lack of final 6 engineering designs at appraisal, and changes in political commitment\. Of those, overoptimistic scheduling remained an issue\. The cause for this is that rail projects with palpable benefits tend to take longer to implement than typical terms of elected officials, and technicians tend to feel the pressure to aim for non-achievable schedules\. Another important risk identified related to political context relates to the way fares are established\. Counterparts agreed to proceed with adjustment in fares taking into account the recovery of operational costs; however, political pressures have often been determinant of fare levels, and CPTM did not manage to reach the target of operating/working ratio smaller than 1\. This was reinforced by the establishment of the integrated fare\. Although resulting in great impact in terms of allowing for a larger participation of low-income users to the system and a general growth of demand, the integrated fare has resulted in an overall decrease of revenue generation for the system\. Risks of not achieving the projected demand levels were clearly identified and closely monitored during implementation by Metro/CPTM\. Metro had established demand projections based on state-of-the-art transport models\. Physical integration was identified as critical for the achievement of demand targets because it affects the ability of passengers to access the stations in an efficient way, and thus affects the attractiveness of the system\. Additionally, because the integrated system (physical and fare integration) works as a system in dynamic equilibrium, fluctuations may arise when any change occurs in the carrying capacity of one of the lines\. Historically, demand was growing at a fast pace and projections for the next years were promising, because of optimistic projections of economic growth and increasing limitations of the alternative modes due to higher congestion levels\. As evidenced by the demand indicators, the targets were adequately met for almost all lines\. The influence of the dynamic equilibrium system is exemplified by the inauguration of Line 4, which produced two small changes to the targeted results, one positive and one negative\. The positive consequence was that peak-hour indicators for pax/m2 were achieved for Metro lines 1 and 2 even though the numbers of trains offered were below the end targets\. The negative consequence was that, since line 4 stations that would reach poorer areas in the Sao Paulo periphery second phase were not completed, the growth in the number of low-income users in the Metro system was just below the end target\. Risks related to procurement were taken into consideration, such as the possibility of long litigation periods to award the contracts for the trains and higher than appraised costs in the acquisition\. The successful and efficient procurement process confirmed that government was fully committed to mitigate these risks\. The cost estimates for the trains and each of the systems proposed were in line with those acquired by other equivalent metro and suburban rail systems, and the specialized consultants had reviewed the proposed specifications for the acquisition of the trains and the signaling, telecom, and energy systems, ensuring that they were sound and not favoring any particular manufacturer\. Some risks related to the signaling contracts were not clearly identified, although in previous operations these had not emerged as critical\. These issues will be further detailed in the sections below\. Finally, recommendations emerging from the IEG review of the transport sector 5 were taken into account in terms of building up the sector’s monitoring and evaluation efforts and aligning 5 Independent Evaluation Group (2007)\. A Decade of Action in Transport\. An Evaluation of World Bank Assistance to the Transport Sector, 1995–2005\. The World Bank Group\. Washington, DC\. 7 them with the new strategy which emphasizes urban transport and multimodal transport\. This was achieved through the use of relevant indicators that were readily measured and are applicable to a broad range of projects\. 2\.2 Implementation Delivering large infrastructure projects, especially in urban environments, present intrinsic complexities that often lead to long periods of implementation\. The main critical risks identified during project preparation were based on accumulated experience from the counterpart and lessons learned from similar operations in the Bank\. The lessons learned included several institutional risks, but because of the appropriate mitigation measures, none of these risks emerged as especially critical during project implementation\. The main problems experienced during implementation were more of a technical nature, related to the underestimated difficulties of implementing upgrades in brownfields and to the readiness of the technology when compared to the Metro system level-of-service requirements\. During implementation, these issues started to become increasingly critical, and construction companies gradually started to slow down implementation\. When project implementation progress became minimal and the resolution of contract issues seemed to have reached a point of no return, the rating was adjusted to moderately unsatisfactory\. After the closing date, the implementing agencies continued to negotiate and some of the issues were resolved while others remain under negotiation\. Delivery of trains was fully satisfactory\. On one hand, contracts for the delivery of 49 trains to CPTM and 17 trains to Metro were fully achieved with minimal delays and trains are now operational\. Contract fines for delays were appropriately applied\. There were considerable savings in the procurement process, with the final contract values being 40 and 49% lower than initial estimates\. Delivery of systems suffered delays and was not completely met\. On the other hand, the signaling contracts presented successive delays and by mid-term review were significantly behind schedule, resulting in a project restructuring request by STM to extend the loan closing date\. Disputes between the implementing agencies and the trains and systems’ companies ranged from issues of import taxes, the lack of access to the tracks because of the unfeasibility of stopping ongoing operations, and the lack of transparency in the way the CBTC system was being developed, generating concerns to the Bank team if the targets would be met\. Contractual disputes arose and arbitration was put in place to resolve these issues\. During this process, the team actively engaged with CPTM/Metro, before problems had escalated, and Metro/CPTM showed commitment by strengthening the supervision of the contractors and by requesting better management in terms of planning the access and actually using the available windows\. The arbitration process is still ongoing for two major contracts\. Metro informed that the negotiations with the CBTC contractor have evolved substantially in the last months and an agreement is foreseen in the next months\. The CPTM signaling contract is still undergoing arbitration\. Furthermore, the delivery of the CBTC technology (main component of the systems contracts) was particularly complex and was not yet fully achieved by the closing date of the project\. A few months after the contract was signed, the contractor started showing signs of challenges in meeting the admittedly high performance standards stipulated in the contract\. The Bank team actively assisted the clients and the contractor in addressing these issues\. Eventually it 8 was agreed, as part of the project restructuring in 2010, that the system would be deployed incrementally, starting with Line 2, and later moving into Lines 1 and 3 (which carry more passengers) only when issues with Line 2 were resolved\. At the close of the project, the CBTC system was not yet fully operational, but the parties were collaborating to achieve this objective in a reasonable time frame\. Upgrading metro lines under operation proved to be more difficult than initially envisioned\. The project included upgrading the existing signaling systems and civil works for railway lines under operation\. These lines carried more than 1 million passengers daily, so an interruption in operations was not a feasible option\. In some cases, especially for CPTM where the demand was lower, an alternative bus service was provided to allow for the complete shutdown of the line, allowing for a longer window for implementation\. However, this solution could not be used indiscriminately because it was costly\. Works had to be conducted during a small time window, generally from 1 a\.m\. to 4 a\.m\., which included time for mobilization and de-mobilization, meaning that the actual productive time was even shorter\. The services had also to compete for space with the more urgent needs of maintenance of current operations, since safety of the current system was a priority\. Therefore, the time windows often could not be provided by CPTM/Metro\. Another constraint was related to the right-of-way and the interference with the concessionaire for freight transport, which shares the same railroad space with passenger trains\. The project’s works included the construction of porticos that interfered with the concessionaire’s space\. The solution came eventually with adaptations to designs and through an agreement with the concessionaire, but this also created delays\. The Bank team worked with the companies to increase and monitor the number of time windows offered, but the pace of implementation remained slow and the initial delays could not be overcome\. Nevertheless, 75% of these services were completed, which resulted in increased safety, as evidenced by the indicators presented in 3\.2\. Macroeconomic conditions were favorable to the country during project implementation\. This meant that government was collecting increasingly more tax revenues, securing adequate flow the funds to the project\. On the other hand, the heated economy created a boom in the construction sector\. During project implementation, according to IBGE (Brazilian Institute of Geography and Statistics), unemployment reached extremely low levels in Brazil, with only 0\.4 percent of unoccupied workers in the construction sector\. This influenced the costs of labor and the capacity of construction companies to deliver services that were labor intensive\. The Additional Financing increased substantially the benefits for the project as a whole\. When the AF was appraised, progress of the original loan was satisfactory, with disbursements of around 48% and physical progress of 39% and 51% for CPTM/Metro trains and 54% and 26% for CPTM/Metro signaling systems\. The components financed by the AF, related to new trains and signaling systems for Line 11, were adequately implemented and the targets were fully met\. Despite the issues raised above, final outcomes were achieved for the majority of the PDO indicators, and for 75% of the intermediate indicators, as will be presented in section 3\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2\.3\.1 M&E Design: The project was monitored through an appropriate set of indicators adopted by the Borrower to reflect the achievements of the PDOs (see Section F of Datasheet)\. The 9 indicators of number of trains in peak, reductions in travel times, and passengers per square meter address the first goal of the PDO, which is the improvement of the level of service\. The indicators related to increase in demand, particularly the increase in low-income users, address the targeted beneficiaries, and the operating costs address the cost-efficient manner through which results have to be achieved\. The indicator of the completion of the PITU addressed the achievement of second PDO, of strengthening of the institutional capacity\. Although it is generally difficult to measure institutional capacity building outcomes, the project could have included one or two additional indicators of the utilization or adoption of the project’s technical assistance products\. No indicators were included in the results framework to measure safety during the implementation of the project\. However, available data show increased safety in CPTM operations (again, see section 3\.2 below)\. The intermediate indicators were used to assess outputs, including the physical progress of the train manufacturing, the systems, the permanent way, the overhead lines, and the PITU study\. 2\.3\.2 M&E Implementation and Utilization: The Borrower appropriately used the outcome and output indicators to supervise the progress of the objectives and implementation\. Updated values of indicators were reported in a timely way in the ISRs\. However, progress reports during implementation demonstrated some inefficiency in the calculation of physical progress indicators for some specific contracts\. For instance, the calculation of physical progress in some components used metrics of time spent divided by total contract time\. Since the contracts were behind schedule, these indicators were erroneously optimistic and had to be adjusted towards the end\. Additionally, safety and reliability-related indicators could have been used to reflect the improvement in operations, especially for CPTM\. Although some of the indicators in terms of headways have not been achieved, improvements in reliability and safety of the systems are strong positive impacts that were not acknowledged through the indicators\. Although some indicators targets could have been restructured towards the end of the project, by the mid-term review both the Bank team and the Borrower considered that the full objectives would be met\. 2\.4 Safeguard and Fiduciary Compliance 2\.4\.1 Procurement: The implementing agency had good procurement capacity, as assessed during preparation, and was knowledgeable of Bank procurement procedures\. The procurement ratings were satisfactory during most of the Project, but were downgraded to moderately satisfactory by the end of the Project due to temporary lapses or delays to implement supervision and project management contracts\. The procurement of the CBTC technology proved to be complex and somewhat problematic\. The Bank team felt that Metro should not have procured the new technology without sufficient certainty about the contractor’s capacity to deliver\. An alternative option might have been for the contractor to have implemented the system progressively in one line and then in other lines\. Additionally, the schedule of payments of the contracts with the systems’ suppliers was found to be skewed towards the initial deliveries of components and equipment\. While these are costly items, the actual installation on the ground is the most complex part of the contract\. Coupled with the high costs of labor, companies may have lost ability/motivation to conclude the installation\. In subsequent projects, Metro has incorporated this experience and applied a schedule of payments in which the initial delivery of equipment had a lower weight\. 10 2\.4\.2 Financial Management: Financial management was in compliance with Bank procedures\. Both the State and Metro had previous experience with Bank loans and were able to handle all aspects related to the financial management of the project including accounting, disbursement and auditing functions\. Auditing was carried out annually by independent consultants selected on a competitive basis according to Bank procurement guidelines\. Financial management reporting and auditing were satisfactory throughout the life of the project\. 2\.4\.3 Environmental: The Project was rated Category B and triggered the Environmental Assessment Safeguard Policy (4\.01)\. It was expected to create a net beneficial impact on society and the environment\. The improved rail capacities helped relieve congestion by providing a better quality clean transport alternative, resulting in lower emission of pollutants per vehicle-kilometer\. In addition to this beneficial impact, the Project was also the catalyst for a series of internal institutional transformations, especially in the case of CPTM\. A specific environmental management unit was created and is being empowered\. Of great importance in this scenario is an ongoing initiative related to consulting services for survey and diagnosis, mapping, systematic and georeferenced consolidation of environmental and territorial information, and preparation of environmental management plan and master plan of use, occupation and treatment of the CPTM territory\. In the Mid-term review in April 2011, the project was found to be implemented in accordance with the environmental management plan\. CPTM/Metro have adopted comprehensive environmental management systems and all project interventions were found to be properly licensed in the São Paulo city and State environmental agencies, which follow strict environmental standards\. In the course of field visits, because of some interventions related to the CPTM modernization program, the Bank’s environmental specialists raised a possibility that additional safeguards would have to be triggered (Natural Habitats, Physical Cultural Resources and Pest Management)\. A specific due diligence was carried out confirming the scope of the Bank-financed project and the CPTM’s Modernization Program (not financed by the Bank) on Lines 7, 11 and 12\. The results were the following: (i) the Bank-financed project had not created any significant impacts with regards to Natural Habitats, Physical Cultural Resources and Pest Management; (ii) the due diligence carried out on the Bank-financed project and the Modernization Program confirmed the consistency of the interventions and activities by CPTM with regards to Bank Policies on Natural Habitats, Physical Cultural Resources and Pest Management; (iii) although not covered in the due- diligence report, the Bank Team confirmed with CPTM that neither the Bank-financed project nor CPTM’s Modernization Program had involved any resettlement activities\. The Project Team also reaffirmed that CPTM's Modernization Program was not a requirement for the achievement of the Bank-financed project PDOs\. 2\.4\.4 Social: The project did not include involuntary resettlement, so the Bank’s Involuntary Resettlement Policy was not triggered\. Reconstruction of stations along CPTM lines 7 and 12 was carried-out with non-Bank funding and took place within the railroad right-of-way\. Aside from minor traffic disruptions and short-term delays on the trains, no adverse social impact occurred, as evidenced by the users’ surveys\. 11 The results from the user’s survey, further detailed in Annex 5, demonstrate that the project- supported improvements increased the beneficiaries’ approval rates, with the exception of 2012, when a few localized problems and disruption in operations due to construction affected the survey results\. 2\.5 Post-completion Operation/Next Phase The Bank team continues to follow-up on the activities related to this project through engagement with Metro and CPTM’s team and the support to implementation activities related to other ongoing loans\. Metro/CPTM continue to implement the project after the Bank loan has closed, with their own funds\. The current fiscal crisis in Brazil might generate a slow pace of implementation of next steps, but both Metro and CPTM are committed to conclude the project scope\. The contract with EFACEC is being terminated by CPTM and a new procurement is being prepared for the installation of remaining permanent way and electric systems\. Metro is negotiating an agreement with the contractor to complete the existing scope on the signaling contracts\. The focus is to get Line 2 fully operational, and then agree on a plan to complete Lines 1 and 3, which are more complex\. The Bank continues to engage with Sao Paulo on a US$130 million loan for Line 4 Phase 2, which includes the civil works and systems to complete the 12\.8 km subway with 11 stations\. This loan was matched by financing from JBIC for an amount of US$130 million\. The Bank is also financing Metro Line 5 through a US$650 million loan to extend the current Line 5 to the Chacara Klabin station and benefit the low-income population of the Capao Redondo and neighboring areas\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The PDOs remained relevant throughout the life of the two loans and did not require any revisions in response to changing government priorities or external conditions\. The only adjustments were related to the scope of the PDO to include CPTM Line 11 and the schedule of the proposed targets\. The objectives also stayed relevant in light of Bank’s priorities regarding Brazil\. The current Sector Country Diagnosis notes that although a wider range of transport alternatives can be explored for improving quality of life and sustainability of urban centers, there is still a strong need for heavy infrastructure projects, especially in the large and heavily populated cities of the country\. The objectives remained aligned with the country strategy because they prioritized public over private transport and allowed for a shift towards a cleaner transport matrix\. Moreover, because of the socioeconomic profile of the main beneficiaries, the objectives emphasize the impacts on the poorest bottom 40%, achieving considerable benefits in terms of commute time reduction and improved accessibility\. The project was also coherent with the social demands for better transport, which arose as the main concern in the 2012 demonstrations that joined millions of Brazilians complaining about quality of life in urban centers\. The project’s design, in terms of components and subcomponents, remained fully aligned with its objectives\. There were no deviations from the original objectives or design that would diminish the project’s relevance in implementation\. Overall the relevance of the project is rated High\. 12 Project amendments, including the additional financing and extensions of the closing date, reflected an appropriate level of flexibility by the Bank that allowed for the achievement of the PDO\. The planned implementation period of 5 years was appropriate given the risks identified during preparation but turned out to be too short given the complexity of the project and unforeseen delays regarding technical difficulties regarding the signaling systems\. 3\.2 Achievement of Project Development Objectives Achievement of the first PDO, “improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak-hour and off-peak carrying capacity of Lines 7, 11, and 12 of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2, and 3 of the São Paulo Metro Company (Metro)”, is rated Moderately Satisfactory based on the following: a) The trains for both Metro and CPTM were delivered and are under operation, increasing the transport capacity in the CPTM lines\. Although the trains in operation for the Metro Lines 1, 2, and 3 have not increased for the peak period, the actual comfort levels in the peak, measured through the indicator passengers/m2, were fully achieved\. This was a result of a new trip distribution through the metro network after the introduction of Line 4, and changes in transport patterns that produced a less pronounced peak in demand and allowed for a better level of service to be offered even without adding trains\. b) For CPTM Line 11, the target for trains under operation was fully achieved and so for the passengers/m2, indicating a full achievement of the improvement in the level of service\. For CPTM lines 7 and 12, the indicators for trains in operation were surpassed, but the levels are comfort are still far from ideal, reaching up to 7\.2 passengers/m2 during the most crowded 15- minute-period\. c) The results in terms of demand achieved are dramatic; 1\.35 million new users were added to the system during these years (96% of the 1\.4 million target), of which more than 51% are from the lowest income groups (monthly income of 4 or less minimum salaries)\. There was substantial reduction in travel times (80% of the indicators met on average for the six lines)\. Comparing this with a scenario that all these new passengers would have shifted to private road based modes, there has been up to an estimated 14% savings in CO2 emissions (2,929 ton/day), 9% savings in passenger travel times (1,423,232 pax-hours/day) and a 16% reduction in traffic volumes\. Results can be even more pronounced when signaling systems for Metro Lines 1, 2 and 3 are fully operational\. Refer to Annex 9 for detailed information and other counterfactuals\. d) Metro’s working ratio (defined as operating costs divided by operating revenues) has always remained below one as planned and has actually improved\. This is a very important achievement for the financial sustainability of the metro transport network, but it is important to analyze also the working ratio of the CPTM system, from an integrated perspective\. e) CPTM’s working ratio (defined as operating costs divided by operating revenues) had been estimated as 1 at the time of project appraisal, but subsequent analysis showed that this was incorrect, and in fact was 2 at the start of the project\. CPTM’s working ratio decreased during the course of the project to 1\.5, but at the end of 2013 it returned to 2\. Although operational revenues have increased 70% in the 2008-2013 period, because of the increase in demand, operational costs have increased 105%\. Operational and maintenance costs have increased considerably (around 15% only in 2012-2013) and so did administrative costs (more than 100% 13  for the same period), a consequence of the more intensive use of the system\. Revenues, on the other hand, did not increase at the same rates, because of political pressures to avoid raising tariffs, together with tariff integration that does not generate higher revenues\. Although the end-of-project working ratio of 2 might seem high, it had neither improved nor deteriorated during the project period\. f) The share of Metro trips among motorized trips in the Region increased from 16% estimated for 2001 to 19\.3% estimated for 2011\. This is a significant achievement considering the rapid growth in motorization during this period that is highly correlated to rising incomes\. The other rail ridership and mode share of CPTM also increased significantly in this period\. This positive trend is attributable to a portfolio of investments made by the SSP, including the implementation of Line 4, improved reliability and service frequencies on CPTM lines, and improvements and/or extensions to Lines 1, 2 and 3\. Although the majority of results in terms of demand, comfort levels and travel time savings were achieved, the working ratio for CPTM is considered high, and the sustainability of the system as a whole (Metro + CPTM), might be endangered if strong measures to contain costs and to find additional sources of revenue are not explored\. Fortunately, studies from the institutional component have provided the companies with a tool to test different fare schemes to encourage evidence-based discussion of financial sustainability issues, even while the political environment may be unwelcoming of fare increases or changes\. Finally, no indicators were included in the results framework to measure safety during the implementation of the project\. However, available data show increased safety in CPTM operations, with the rate of accidents in the whole system declining from 9 to 5 accidents/year and from 67 to 12 injured passengers/year when comparing the years before project to the period of project implementation\. CPTM has also an indicator that measures events of operational safety to the public which has seen a dramatic decrease in the last years, as presented below\. No accidents/safety related data for the Metro was available\. Operational Safety Events (units per million passengers transported) Source: Relatório de Encerramento do Contrato de Empréstimo BIRD - JBIC Empréstimo 7506– BR / COFN C1150 Projeto São Paulo Trens e Sinalização\. 14 Achievement of the second PDO, “to continue the strengthening of the transport management and policy framework in the SPMR”, was also rated Moderately Satisfactory because of the delays in the development of the PITU and the fact that the actual content of the report did not cover a full long term plan, only the updating of the transport network in the transport model\. Although this was an important first step towards the implementation of the full PITU, STM did not manage to develop this study in the period of the project implementation\. STM has informed the Bank that it intends to proceed with a full version of the study and will suggest that the Line 5 loan finances the new contract\. 3\.3 Efficiency A conventional cost-benefit analysis was carried out for this ICR using the same approach used during appraisal\. The situation with the project was compared against the situation without the project\. The revised Net Present Value (NPV) of benefits calculated for this report is US$720 m\. and Economic Internal Rate of Return (EIRR) is 15\.3%\. This ex-post assessment confirms a positive economic efficiency of the project and the EIRR is higher than international experience with metro projects of this kind, which average around 8%\. The result is also generally consistent with, though lower than, the NPV and EIRR calculated at appraisal in 2007 (US$1\.34 bn\.; 21\.4%) primarily due to an increase in costs and delays that postponed accruing benefits\. The following conservative assumptions were made in this analysis with respect to the situation at appraisal: a) Updated investment cost stream to reflect the changes to the components and timing; b) Updated benefits stream to reflect the approximately 4-year delay in the benefits; c) Maintained the reduction in wages and the incremental increase in operating and maintenance cost which were consistent with appraisal\. Overall the efficiency of the project is rated as High, given the very positive ex post NPR and EIRR\. 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome rating of Moderately Satisfactory is based on: (i) the High continued relevance of the project objectives and design; (ii) the Moderately Satisfactory achievement of the two development objectives; and (iii) the High estimated economic efficiency of the investments despite significant delays to complete the Project\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts As described above, the project improved the access of low-income populations to the system\. A geographical analysis of census data provides additional indications of the impacts on poorer segments of the population\. The following table presents the growth in populations in buffer areas of 1, 3 and 5 km distance to the Metro and CPTM stations, classified by low income/not low income\. Low-income is defined as the bottom 40% in terms of family income\. High income, in this case, is defined as the 60% richest percentiles\. The overall data includes families that have not 15 declared their income\. The source data is the 2000 and 2010 census 6\. Although 2010 does not represent the final date of the project, some of the project objectives had been completed by then\. Percentage Growth Share of low- Inside/ (2000-2010) income Radius System Outside (km) Low High Overall Buffer 2000 2010 income income Growth* Inside -1\.4% -5\.3% -3\.6% 43\.7% 44\.7% 1 CPTM - Outside 14\.5% 1\.4% 7\.4% 45\.7% 48\.7% SPMR Inside 5\.8% -1\.6% 1\.6% 43\.3% 45\.1% 3 census Outside 17\.0% 2\.4% 9\.3% 47\.3% 50\.6% tracts Inside 7\.9% -2\.3% 2\.1% 43\.3% 45\.8% 5 Outside 20\.7% 8\.3% 14\.5% 50\.3% 53\.0% Inside 13\.7% -1\.9% 1\.7% 23\.0% 25\.7% 1 Metro – Outside 10\.6% 0\.2% 5\.1% 47\.9% 50\.3% SP Inside 8\.9% -5\.9% -1\.6% 29\.5% 32\.6% 3 census Outside 18\.1% -10\.8% 3\.3% 48\.7% 55\.7% tracts Inside 8\.6% -7\.8% -2\.4% 33\.3% 37\.0% 5 Outside 22\.2% -9\.7% 6\.9% 52\.1% 59\.6% While the overall growth in population cannot be attributed (entirely or exclusively) to the project, the analysis of growth in population evokes an interesting discussion in terms of synergy of policies of land use planning and transport\. From the table above, on one hand, it is clear that relative growth in population outside the areas of influence of both Metro and CPTM is higher than in areas closer to the rail, which decreases the attractiveness of the public transport system\. One can analyze for instance the 3 km buffer for CPTM\. While relative growth in population was 9\.3% outside the 3 km buffer, the growth inside the 3 km buffer was only 1\.6%\. Additionally, there is a population decline on the 1 km buffer around CPTM stations (-1\.44% for low-income, -5\.3% for not low income, and a -3\.63% for overall growth)\. These unfortunate symptoms of unsustainable development were addressed in the new Master Plan for the city of São Paulo in 2014, which incorporates incentives to accelerate the densification around transport terminals/stations\. On the other hand, on a positive note, it can be seen that growth for low-income populations is much higher than for the remaining populations inside the buffer areas\. For instance, while in the 3 km buffer for CPTM, there was a decrease of 1\.6% in population of high-income, there was an increase of 5\.8% of low-income populations, which can be seen as a consistent gain\. The data for Metro shows even more encouraging results\. Low-income populations have increased inside areas 6 IBGE – Instituto Brasileiro de Geografia e Estatística\. Census 2000 and 2010\. 16 of influence of 1, 3 and 5 km, between 8 and 13\.7% while high-income populations have decreased from 1\.8 to 7\.8%\. This movement of low-income populations closer to the stations is a positive signal of poorer populations migrating closer to rail stations\. The generally higher speeds provided by the rail system generate a decrease in travel times possibly resulting in higher quality of life, and/or of higher accessibility to a larger set of opportunities (jobs, leisure, etc\.) for a given travel time budget\. (b) Impact assessment An impact assessment of São Paulo Trains and Signaling Project on traffic volumes, travel times and emissions was conducted by the Bank team\. Data came from the 2012 Mobility Survey from Metro, CAF – Observatorio de Movilidad Urbana and the project indicators provided by Metro and CPTM\. The detailed results can be found in Annex 9\. The current scenario was compared to counterfactual scenarios that considered that part of the new users of the rail system would have migrated to other less efficient modes of transport in case the project was not implemented\. Considering the fact that in 2007 the systems were vastly saturated, this is a reasonable assumption\. The most critical counterfactuals considered that all new users would have migrated to either bus, cars, or motorcycles\. Two other scenarios simulated that the same modal shift from 2007 (before implementation) would be preserved, taking into account mobility patterns of different socioeconomic levels\. The results indicate up to 14 percent in CO2 savings, up to 21 percent savings in traffic volumes, and up to 9 percent in travel time savings\. (c) Institutional Change/Strengthening One aspect of particular importance relates to the series of reforms that the state government has introduced to improve the system integration, with particular attention to the integrated modal tariff implemented in 2004 for the municipal system, and expanded to the Metro system in 2005\. Up to the mid 2000s, public transit was inconvenient and unaffordable for a majority of citizens in São Paulo\. Reform started when State and City governments provided physical and tariff integration between Metro and suburban rail services\. Ridership increased, particularly by low- income users\. The fully-integrated transit system through the BUI has made transit more affordable, and low-income family expenditures on transport decreased, with considerable impacts in demand\. While before the reforms, less than 5 percent of rail users were low-income, thanks to the reforms 35 percent of Metro users and 63\.7% of suburban rail users are low income 7\. Government has continued to expand its integration policies with the BOM fare card that integrates the Metro to the inter-municipal bus transport system\. One impact of these integration policies is that demand increases have not been backed up with sufficient investment, and system crowdedness may lead to rapid deterioration of the system through excessively intensive usage\. The revised PITU, the land-use transport model and the improved environmental management have been important steps towards integrating metropolitan region planning\. The companies are now more aware of the impacts of the Metro on land use and are more actively involved in terms of identifying integrated policies\. The Bank is currently working with Metro on an Impact 7 Rebelo et al (2007)\. Impact of an integrated modal tariff on the mobility of low-income population in the são paulo metropolitan region\. 17 evaluation study for Line 5 that intends to address opportunities for enhancing metro use by low- income people and by providing poor populations with tools to remain in the areas most benefited by the rail system and thus be able to assess the benefits more efficiently\. Finally, the continuous Bank financing and RAS provided on public private partnerships have included a wider range of financing mechanisms to allow for a more rapid growth of the network\. Nevertheless, because of the complexity of agents involved in urban projects and the high costs of implementing these infrastructures, strong government financing is still crucial for the success of the system expansion\. 3\.6 Summary of Findings of Beneficiary Survey The analysis of users’ perceptions was based on information from three different data sources: the ANTP (“Associação Nacional de Transportes Públicos) and CPTM and Metro’s users’perception surveys\. The complete analysis can be found in Annex 5\. From 2010 until 2012, the Metro and CPTM systems were perceived by users as the transport modes with most improvements, when compared to the bus system\. Approval rates ranged from 50 to 70% for CPTM and from 50 to 80% for the Metro\. Reduction in waiting times, decrease in trip times, the provision of new and modern cars, enhancement of train stations, increased speed, and the operation of new metro lines were cited as the main reasons\. In all surveys, the most quoted complaint was related to overcrowding of the systems followed by the need for building new metro and rail lines\. A double difference analysis was conducted for the CPTM and Metro lines and the results indicate positive results that can be attributable to the Trains and Signaling project\. Although the approval rates for Metro lines have been decreasing, mostly because of overcrowding, this analysis indicated that the lines improved under the project had much lower declines in perception than the control line\. Moreover, for the CPTM lines, besides an overall increase in approval rates for the targeted lines, the improvement was considered higher for these lines than for the control line\. It is important to highlight, however, that data from the ANTP 2015 survey (not yet publicly released), indicate an increased dissatisfaction with public transport services in Sao Paulo\. The worst evaluation was obtained for the bus systems, where some important interventions of bus corridors have been implemented\. Specialists point out that the systems are still crowded, and average speeds have not yet consistently changed\. Moreover, the higher awareness about the subject of public transport, which was the main complaint in the 2013 demonstrations in the city, meant more demanding customers who will assess more critically the level of service being offered\. Finally, the overall image of CPTM and Metro, although declining, is still rated highly positive, indicating a general satisfaction with the systems and a strong beneficiary support\. 4\. Assessment of Risk to Development Outcome Rating: Moderate The risk to development outcome of this operation is moderate for the following reasons: a) Technical: as presented above, the signaling systems contract was not concluded and there is uncertainty in terms of when the CBTC technology (or any similar technology) will be able to fulfill the level of service requirements\. Moreover, improvements in the permanent 18  ways and overhead cables, although not particularly complex, will likely still take time to be completed (1-2 years)\. While the development objectives are mostly but not fully met and the benefits already incurred are likely to be permanent, the non-completion of the smaller headways between trains will limit the capacity of the network to offer users with adequate levels of service, especially if the demand continues to grow\. However, as noted above, shifts in the distribution of trips have attenuated these effects and currently Metro Lines 1 and 2 are offering adequate levels of comfort, despite the growth in demand\. Metro’s plans for the next years in terms of providing a solid expansion of the network will likely contribute to a redistribution of flows, reducing the need for lower headways in the current lines\. For Lines 3 and most CPTM Lines, comfort levels have already reached the limit (in some cases 8 passengers/m2 in the peak period), so improvements in the level of service are still strongly needed to improve the lives of the transport users, in particular low-income users\. High risks of not sustaining the development outcomes will arise if these improvements are not met, and, given the current economic situation, the likelihood of these improvements not happening is moderate\. b) Social: the project has contributed to improving the lives of low-income passengers, but a lot remains to be done, especially in terms of improving the levels-of-service\. CPTM has been able to gain increasing community support by providing gradually higher levels of service but this support is at risk because of the crowdedness of the system and the uncleanliness of tracks\. Despite the services being considered good by 44% of the users (according to the CPTM customer satisfaction survey), this number has been recently declining\. The company’s management system has been working with the community and has trained more than 3,000 collaborators since 2010 to improve the cleanliness of the station and tracks, and employees are oriented on how to improve passengers’ awareness in terms of their behavior and care for the railway\. c) Financial: there is moderate risk that the continued expansion of the Metro and CPTM network under the current fare structure (flat fares with BUI) could upset further the equilibrium of operating revenues in the metropolitan network, negatively impacting Metro and CPTM operations in the future\. Despite the public transport system being crucial to improve accessibility to opportunities for a high share of the low-income population, the decision to subsidize the system must be accompanied by a compensation mechanism to guarantee its financial sustainability, and by a strong effort to increase efficiency in operations and possibly explore other sources of revenues\. One of the possible mitigations is to make the fare structure less rigid, for example by gradually introducing zonal fares or more targeted subsidies designed to minimize any negative impact on low-income passengers in the periphery that currently benefit from flat fares\. There is a modest risk of government not being able to continue or develop the necessary adjustments to the fare to provide fiscal sustainability, since decisions on fares are commonly influenced by political factors\. There is also a modest risk of not achieving optimal efficiency in operations, to the extent that this may require some cuts in personnel, which tend to face strong resistance by unions and some other stakeholders\. d) Economic: the current risk of macroeconomic or fiscal conditions adversely affecting the conclusion of this project and future operations is moderate\. Significant additional investments in rolling stock, stations, and system upgrades are needed to increase operating capacity in the SPMR and alleviate the continued growth in congestion\. These investments in transport infrastructure are among the highest priorities for municipal and state 19  governments in SPMR\. However, because of the macroeconomic scenario, there is a modest risk of government not being able to commit to the necessary investments to the network\. e) Institutional support: Metro/CPTM have committed to implement an extensive expansion to the system\. However, the pace of implementation of these investments has been slow, and there is a strong societal demand to deliver these projects more efficiently\. Therefore, the implementing companies are likely to suffer from negative public opinion claiming lack of capacity to deliver these projects\. Options of other forms of financing from public- private partnerships are currently being explored, such as the MIP (Manifestação de Interesse da Iniciativa Privada) programs used for Lines 6 and 18\. The MIP legislation allows private initiative to kick-start the process for a new project and was designed as a means to accelerate project preparation and investment, as well as to address the lack of available “shovel-ready” engineering designs for priority infrastructure projects for the State\. The Bank supported this effort through a RAS, and while the process potentially generates efficiency in streamlining rigid procurement processes in Brazil, there are several risks associated with the complexity of implementing rail projects that should be mitigated by the public sector (e\.g\., related to resettlements, interferences with utilities, environmental permits, traffic permits) or there will be low interest from the private sector\. Alternatively, the risks should have to be counter balanced by higher premium rates\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory At entry, the project was designed as an urban transport operation completely aligned with the long-term transport plan for the SPMR but also with the urgent needs for better quality of transport for users, especially low-income users\. The strategy to upgrade the quality of the suburban rail entailed taking advantage of a 315 km of existing network so that growth could be directed to where infrastructure, although degraded, already existed\. The fare integration (metro-rail integration occurred in 2006) had allowed for reducing the costs of travel, but the low-income population was still bearing the brunt of extreme overcrowding and long work journeys, both of which increase the generalized cost of traveling, leaving the poor with few alternatives and inducing a growth in motorcycle and car ownership, with high impacts on congestion and on the environment\. In this context, the Bank and the Borrower prepared the project by: (i) carrying out a solid background analysis; (ii) evaluating lessons learned from previous operations and appropriate alternatives; (iii) holding detailed missions with specialized teams of consultants; (iv) designing a technically well-conceived project based on data and information available at the moment; (v) evaluating a range of foreseeable risks and proposing appropriate mitigation measures; (vi) paying attention to institutional aspects, such as ensuring that the project had support from the Metro Employee Union as well as from all São Paulo political parties; and (vii) ensuring the availability of the necessary funding for the project\. While some implementation problems, such as delays and the lack of readiness of the technology, in retrospect could have been evaluated further by the Bank 20 during preparation, these risks ultimately had to be borne by the implementing agency\. In fact, the Bank team successively suggested that the implementing agency adopted a sequential approach, which in the end, during implementation, was the approach adopted\. Additionally, although some of the upgrades could not be completed by the closing date of the Loan, these activities are still relevant and will continue to be pursued by the companies\. Finally, the project development objectives were comprehensive and flexible enough to remain valid\. (b) Quality of Supervision Rating: Satisfactory Bank supervision is rated “Satisfactory” on the following basis: (i) frequent supervision missions (15 ISRs filed between June 2008 and March 2015, or more than 2 per year, not including FM, safeguards, and procurement supervision missions which took place twice a year); (ii) prompt identification of implementation problems such as delays in contracts with appropriate responses, including additional reporting and supervision requirements from the Borrower with the support of the PMOC; (iii) high-quality advice and support to the Borrower during the entire process, especially with specialists to assist in disputes between the implementing unit and its providers; and (iv) Bank follow-up actions to deal with unexpected implementation problems in a timely and appropriate manner, for example by approving the Additional Financing that enhanced the impact of the project\. Overall, the Task Team demonstrated sensitivity and responsiveness to the client’s needs, excellent engagement, and appropriate adaptation of the project to ensure maximum relevance and achievement of PDOs, in light of changing conditions and delays mostly outside the Bank’s control\. By the mid-term review (in April 2011), the main concerns were issues largely out of the control of the Bank: the non-delivery of the CBTC system and the financial difficulties that some contractors were facing because of high labor costs, among others\. The Bank team, however, kept assisting Metro in all of those aspects, providing the international experience required for Metro to design locally acceptable options, serving as an intermediary in the discussions among stakeholders\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank helped the Borrower in the adequate preparation of the project and provided instrumental assistance in implementing project\. The Bank also actively addressed implementation problems thanks to a careful, versatile and proactive supervision\. This helped adapt the project to changing circumstances and resulted in the achievement of most of the PDO targets\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory SSP was effective in providing counterpart funds, which have proven to be a major problem in recent Bank-funded operations\. However, delays in the engagement with the Regional Transport Coordination Commission (CDTI) and in the preparation of procurement documents, delayed the implementation of the Long Term Transport Plan (PITU)\. Additionally, the scope covered in the 21 PITU, despite being an important step towards updating the overall plan, could have been more comprehensive\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory Metro is an experienced organization with a department dedicated to supervising this project\. Metro has always run project management in-house, while CPTM relied more on outside consultants because of a leaner management structure\. Both formed Project Management Units (PMUs) focused on institutional, financial, fiduciary, reporting and safeguards requirements of the Bank loan\. CPTM has a greater challenge because of a much larger and complex network to supervise\. The PMUs were supported by a Project Management Oversight Consultant (PMOC) financed by the loan, which issued monthly and ad hoc reports to the State Secretary of Metropolitan Transport (STM-SP) and to the Bank\. Finally, there was a additional Project Coordination Unit (PCU) reporting to the STM-SP Secretary and to the Governor on strategic aspects of the project\. The project underperformed in terms of the schedule and technical difficulties that will end up having longer-term impacts on cost\. During the Project implementation, CPTM was unable to secure sufficient time windows for companies to perform at an adequate speed and was slow to resolve physical interferences with the Concessionaire for freight transport that uses the same right of way\. Both CPTM and Metro did not succeed in enforcing companies to provide more detailed schedules that would allow quicker implementation\. The contracts did not have sufficient mechanisms to enforce the companies so as to generate effective recovery of delays\. Delays also occurred because of contractual disputes in the two major signaling contracts\. Although the companies tried to follow sound procedures, neither the conflict resolution nor the international arbitration allowed for resolution within the Loan period\. The process of resolving these disputes required multiple approvals in different departments which resulted in lengthy processes\. Having all documents in English was a burden and time-consuming exercise for Metro\. However, national litigation processes may suffer from the potential influence of contractors in the domestic market\. These problems, while never entirely preventable, could have been better anticipated by the implementing agencies by designing better contracts and by producing more detailed implementation schedules\. Moreover, both CPTM and Metro were slow in terms of identifying possible alternate solutions when contracts started to underperform\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The overall Borrower performance is Moderately Satisfactory based on the performance of the SSP, Metro and CPTM\. Despite a significant delay in project completion and other implementation problems, main project outputs were delivered and outcomes were substantially achieved\. 22 6\. Lessons Learned The project was strategic in terms of improving transport quality and taking advantage of a vast rail network to transport passengers of the SPMR in an efficient, environmentally friendly way\. The main lessons learned are described below: Implementing rail projects in brownfield is substantially more complex than in greenfield, and require longer implementation schedules\. The project included upgrading the existing signaling systems and civil works for railway lines under operation\. These lines carried more than 1 million passengers daily, so an interruption in operations was not a feasible option\. It is important for all parties in future projects of this type to carefully analyze all the detailed ramifications of implementing upgrades while systems remain under operation and to translate these assessments into realistic time frames, with contingencies\. New (signaling) technologies should be deployed gradually to mitigate risks\. The current level of service provided by the metro system in Sao Paulo, measured in terms of headways (interval between trains) seems to have reached the ceiling\. Few, if any, systems in the world have been able to deliver such small headways for such a large demand\. This has been achieved along the years by a strong operations team in Metro that has worked to optimize operations by introducing changes to the off-the-shelf products that signaling systems providers offered\. Metro specified this time even more stringent requirements, to a technology that until this point has not shown sufficient results\. However, technicians all over the world were (and are) confident that this technology will eventually be made robust enough to set the standard for the future\. Even so, it would have been sensible to implement the technology in stages, focusing the resources of both contractors and Metro’s supervision team on a smaller scope\. Schedule of payments in contracts should minimize the risks of incomplete deliveries\. One of the problems that arose during implementation was that the systems contracts specified large payments for the delivery of equipment and components\. This decision was based on the fact that these expensive components have a large weight in the financial proposal, so the logical decision was to set the schedule of payments accordingly\. However, in terms of complexity of the activities involved, installation can be the critical part\. Since providers were paid a large percentage of the contract value towards components’ deliveries, the installation phase might have become less attractive, especially when considering the low availability of labor force during times of heated economic\. The solution is to design payment schedules that incentivize successful installation, not just equipment provision\. Indicators of reliability and safety should be incorporated into the results framework\. The project incorporated upgrading permanent ways, signaling, energy, and auxiliary systems\. Although not fully achieved, improvements in those systems have conferred a higher level of service to the rail system that was not evidenced by the chosen indicators\. Indicators of reliability, directly related to these improvements, can be proposed as a measure of quality of service being delivered\. Indicators related to service stoppages (in units/month or hours/month) and punctuality/regularity (in percentage of on-time trips or coefficient of variation of the headways offered) are good examples of possible indicators\. These improvements have an effect on the attractiveness of the system and influence the outcomes related to demand\. Indicators related to 23 safety could also be included since, besides being a desirable outcome per se, have an impact in the long-term image of the system\. Having strong institutional support is a crucial point for sustainability of the transport system\. The long term plan (PITU) and the land use and transport model that supports the PITU policies and guidelines are important instruments for consideration when planning for new infrastructure, since they allow for a comprehensive view of the Metropolitan area’s challenges and opportunities\. The dynamics of population across the territory, especially considering low- income population access to employment and services, are aspects that have been incorporated into the metropolitan region planning and new important policies, such as densification around metro stations, were proposed as a result of these models\. Moreover, issues related to affordability and the financial sustainability of fare schemes are a crucial theme that have been in the center of the discussion in several fora, especially in Brazil where physical integration has been pursued and successfully achieved in some situations\. São Paulo, through this loan, has developed a tool that allows for simulation of different fare schemes, and although proper action towards changes in fare structure is constrained by political pressure to keep fares low, this tool allows planning agencies to foresee impacts of possible fare schemes and propose actions to mitigate problems\. 24 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The borrower raised some inconsistencies in the indicators and dates that were appropriately revised\. The borrower also observed that the ratings of project implementation were downgraded to moderately unsatisfactory during the last 3 months\. The Bank team clarified that the rating reflects the difficulties in resolving the contractual disputes with the systems suppliers’ thus jeopardizing full achievement of target indicators, but noted that the overall project rating is Moderately Satisfactory\. (b) Cofinanciers No comments were provided\. (c) Other partners and stakeholders No comments were provided\. 25 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Component Appraisal Appraisal Actual Actual Appraisal Total Percentage Estimate Estimate Original Additional total Variation Additional Loan Financing of Financing Appraisal Infrastructure and Equipment – Part A CPTM Trains 600 150\.57 358\.1 151\.04 750\.57 509\.14 -32% METRÔ Trains 208\.36 141\.02 208\.36 141\.02 -32% - - CPTM Systems and Assoc\. Civil Works 332\.22 - 369\.37 - 332\.22 369\.37 11% METRÔ Systems and Assoc\. Civil Works 297\.64 - 439\.57 - 297\.64 439\.57 48% Institutional and Policy Develop\. - Part B Administration/Supervision CPTM 18 2\.45 19\.64 4\.23 20\.45 23\.87 17% Administration/Supervision METRÔ 4\.59 - 23\.01 - 4\.59 23\.01 401% Technical Assistance CPTM 4 0\.36 0\.17 - 4\.36 0\.17 -96% Technical Assistance METRÔ 4 - 0\.06 - 4 0\.06 -99% PMU Operating Cost - METRÔ 3 - 3\.13 - 3 3\.13 4% SPMR Policy Development 0\.5 - 0\.34 - 0\.5 0\.34 -31% Total Baseline Cost 1,472\.31 153\.38 1,354\.41 - 1,625\.69 1,354\.41 -17% Physical Contingencies 8\.34 3\.84 - - 12\.18 - -100% Price Contingencies 67\.98 3\.97 - - 71\.95 - -100% Total Project Costs 1,548\.63 161\.19 1,354\.41 155\.27 1,709\.82 1,354\.41 -21% Front-end Fee 1\.37 Total Project Costs 1,550\.00 161\.19 1,354\.41 155\.27 1,709\.82 1,354\.41 -21% Obs: Data obtained in the PAD and provided by STM/Metro/CPTM\. 26  (b) Financing Total Actual/Latest Appraisal Type of Co- Estimate Percentage Source of Funds Estimate financing (USD of Appraisal (USD millions) millions) Borrower 513\.50 513\.50 100\.00 International Bank for Reconstruction Co-financing 662\.90 662\.90 100\.00 and Development JAPAN: Japan Bank for International Co-financing 535\.00 510\.00 \.00 Cooperation (JBIC) 27 Annex 2\. Outputs by Component % Sub- Loan Output Indicators Target Comments (including reasons for changes) Component achieved Part A: Infrastructure and Equipment Investment (+ Additional Financing) Acquisition of forty Electrical Multiple Units Original (EMUs) of 8 cars each and accessories for a total 100% Completed\. Loan of 320 cars to be used in Lines A (20) and F (20); Acquisition of seventeen Electrical Multiple Original Units (EMUs) of 6 cars each and accessories for 100% Completed\. Loan Trains a total of 102 cars to be used in Lines 1 (7) and 3 (10) Acquisition of at least (9) nine trains (Electrical Multiple Units, EMUs) of eight cars each and Additional related accessories for CPTM to increase the 100% Completed\. Financing level of service on Line 11-Coral\. This component accounts for about 98% of the loan\. Supply and installation and rehabilitation of traction electrical power systems for the substations of Line A and Line F; installation Reasons for delays were detailed above and include and/or rehabilitation of the electrical cabinets of Original technical and legal aspects\. Metro is resuming these Systems Line A and Line F; auxiliary power lines for 76% Loan activities but finalization is pending\. The cost for this Lines A and F; installation of a signaling system component was severely underestimated by appraisal\. operated from the Operations Control Centre (OCC) and supply and installation of an electronic telecommunication systems\. 28 Annex 2\. Outputs by Component (cont\.) % Sub- Loan Output Indicators Target Comments (including reasons for changes) Component achieved Part A: Infrastructure and Equipment Investment (+ Additional Financing) Supply and installation of a new signaling system Reasons for delays were detailed above and include known as Communication Based Train Control technical and legal aspects\. Metro continues to (CBTC) in Lines 1, 2 and 3 of the network; Original implement CBTC for Line 2 but finalization is pending\. acquisition of a Telecommunication Systems, 75% Loan Only when fully operational for Line 2 Metro will Access Control System (ACS); Platform Screen expand to Lines 1 and 3\. The cost for this component Doors (PSD) and modernization of the existing was severely underestimated by appraisal\. Operational Control Centre (OCC)\. PART B: Institutional and Policy Development Component Original Consolidating the CDTI for the SPMR 100% After initial delays, meetings with CDTI were resumed\. Loan Updating the current integrated transport policy, land use and air quality management strategy After initial delays, the project was conducted and the Original (PITU) for the SPMR to meet both transport and 100% final results were properly disclosed among the main Loan air quality targets and to introduce sound cost- stakeholders, including the CDTI\. recovery, tariff, regulatory and subsidy policies Technical Providing an action plan to review the funding of The studies were completed and provided a platform for Original Assistance the urban transport system in the SPMR in view 100% testing different policy and integration strategies that are Loan of the adoption of the BUI available for policy recommendations\. Carrying out of studies on evaluating the outsourcing to the private sector of selected Original services including but not limited to maintenance 0% These studies were not developed\. Loan of track and systems, rolling stock and other operational services 29 Annex 2\. Outputs by Component (cont\.) % Sub- Loan Output Indicators Target Comments (including reasons for changes) Component achieved PART B: Institutional and Policy Development Component Both CPTM and Metro have regular user satisfaction and Assessing the impact on affordability, passenger profile surveys in which the share of low Original accessibility, availability and acceptability of the 0% income population is assessed\. Metro is conducting Loan project on the low income urban rail transport specific impact evaluation studies under the scope of 2 users other loans - Lines 4 and 5\. After several delays, in the first semester of 2015 CPTM has contracted a comprehensive environmental management plan that includes diagnosis, development of norms and procedures for environmental Carry out studies, in accordance with terms of Additional management, a plan to occupy the territories affected by reference acceptable to the Bank, for the design of 0% Financing the network, GIS support system and technical capacity a climate change strategy building\. The studies have just started and there are no actual results\. Metro did not develop this study and is procuring, under a different loan (Line 5), a climate change mitigation plan\. Original Management and supervision of the 100% Loan implementation Original Management Provision of financing for the operating costs of 100% Loan and SP Metro PMU\. Supervision Manage and supervise the additional financing Additional including with respect to the manufacturing and 100% Financing implementation of the new trains 30 Annex 3\. Economic and Financial Analysis An incremental cost-benefit analysis of the existing and proposed investments was undertaken to evaluate the economic feasibility of the project, taking in account modifications incurred of the initial scope of projects\. 1\. The demand and transport economics study review involved the following activities: a) a review estimating passenger stations in the 2010-2014 during project implementation and demand projection of the period 2014-2038; b) Investment flows as reported by the PMU; c) Calculation of the internal rate of return considering updated unit costs and operational parameters of the transport system\. 2\. The methodology used consisted in comparing the situation with and without project and quantifying the benefits due to time savings for users of all public modes, operating cost savings for all modes, road maintenance cost savings, accident savings, air pollution savings and the investment and operating costs\. The demand for each mode was determined using a demand model which estimated the passenger-hours and passenger-km saved by mode with the project for without and with scenarios\. 3\. The main benefits considered were: • Operating cost savings resulting from the lower costs of operating all modes with and without the project through estimates of passenger-km with and without the project which are multiplied by the respective estimated operating costs; • Travel time savings estimated by determining the passenger-hours saved, by type of trip (home-to-work, business or other) and multiplied by the value of time for each mode according to each scenario with and without project; • Reduction in road maintenance costs due to the reduction of bus-km with the project (minor); • Reduction in the bus system managing costs due to avoided costs of expanding the existing public management structure; • Reduction of air pollution costs due to reduction in bus-km with project (minor)\. To be conservative the costs of avoided investments in the do-nothing situation were not considered; • Reduction of accidents costs estimated by multiplying the average cost per accident per 1000 passenger-km with and without project and are a function of the number of bus-km saved (minor)\. 4\. The main costs considered were: • Investment costs for the acquisition of trains, partial costs for systems upgrading and consulting and management services and • Operating costs including personnel, consumption and maintenance of Railway infrastructure, fleet and systems\. 5\. The project decreased the number of bus-km and bus passenger-hour traveled on the urban network through the construction of a new subway line\. The bus-km saved per year are estimated by the demand model\. The main beneficial impacts of the project under evaluation 31  are reduced congestion (mainly due to less buses on the street), reduction in traffic-related accidents, reduced vehicular air pollution, reduced noise due to less buses on the street and economic savings from reduction of travel time\. 6\. The above are all quantifiable and were used in the economic analysis\. There are, however, a great number of non-quantifiable benefits which cannot be captured in a standard cost- benefit analysis but are worth noting: • Improvement of travel level of service: (i) Train occupation rates decreased due to the expansion of the network and services within the metropolitan area; (ii) Comfort level improvements on railway services are difficult to measure benefits and will lead to higher utility levels of travel consumption and associated benefits\. • Avoidable costs in building up urban road infrastructure capacity – several investments on roadway infrastructure were avoided or postponed by the enhancement of the proposed railway services\. • Employment Generation: the project promoted the creation of jobs with multiplier effects in several sectors of the economy\. 32  COSTS AND BENEFITS US$ Mil DIRECT BENEFITS EXTERNALITIES TOTAL INVESTIMENTS AND COSTS TOTAL BENEFITS Project Calendar TRAVEL OPERATING TRACK BUS COSTS AIR BENEFITS SALARIES OTHERS COSTS - COSTS Year Year TIME COSTS MAINTEN\. OPERAT\. ACCIDENTS POLLUTION (A) INVEST\. & TAXES COSTS (B) (A - B) 1 2008 0 0 0 0 0 0 0 239,832 0 0 239,832 -239,832 2 2009 0 0 0 0 0 0 0 190,134 2,375 1,099 193,608 -193,608 3 2010 0 0 0 0 0 0 0 486,373 6,911 12,848 506,132 -506,132 4 2011 146,093 -59,127 2,474 4,157 980 1,940 96,517 391,498 17,960 51,834 461,292 -364,775 5 2012 292,186 -118,255 4,947 8,315 1,960 3,881 193,034 123,004 22,226 53,416 198,646 -5,612 6 2013 438,279 -177,382 7,421 12,472 2,940 5,821 289,552 122,593 22,885 55,088 200,566 88,985 7 2014 584,372 -236,509 9,895 16,629 3,921 7,762 386,069 60,852 26,096 56,847 143,795 242,274 8 2015 590,216 -238,875 9,994 16,795 3,960 7,839 389,929 29,260 26,096 56,847 112,203 277,727 9 2016 596,118 -241,263 10,094 16,963 3,999 7,918 393,829 26,096 56,847 82,943 310,886 10 2017 602,079 -243,676 10,195 17,133 4,039 7,997 397,767 26,096 56,847 82,943 314,824 11 2018 608,100 -246,113 10,296 17,304 4,080 8,077 401,745 26,096 56,847 82,943 318,802 12 2019 614,181 -248,574 10,399 17,477 4,121 8,158 405,762 26,096 56,847 82,943 322,819 13 2020 620,323 -251,060 10,503 17,652 4,162 8,239 409,820 26,096 56,847 82,943 326,877 14 2021 626,526 -253,570 10,608 17,829 4,203 8,321 413,918 26,096 56,847 82,943 330,975 15 2022 632,791 -256,106 10,715 18,007 4,245 8,405 418,057 26,096 56,847 82,943 335,114 16 2023 639,119 -258,667 10,822 18,187 4,288 8,489 422,238 26,096 56,847 82,943 339,295 17 2024 645,510 -261,254 10,930 18,369 4,331 8,574 426,460 26,096 56,847 82,943 343,517 18 2025 651,966 -263,866 11,039 18,553 4,374 8,659 430,725 26,096 56,847 82,943 347,782 19 2026 658,485 -266,505 11,150 18,738 4,418 8,746 435,032 26,096 56,847 82,943 352,089 20 2027 665,070 -269,170 11,261 18,925 4,462 8,833 439,382 26,096 56,847 82,943 356,439 21 2028 671,721 -271,862 11,374 19,115 4,507 8,922 443,776 26,096 56,847 82,943 360,833 22 2029 678,438 -274,580 11,487 19,306 4,552 9,011 448,214 26,096 56,847 82,943 365,271 23 2030 685,222 -277,326 11,602 19,499 4,597 9,101 452,696 26,096 56,847 82,943 369,753 24 2031 692,075 -280,099 11,718 19,694 4,643 9,192 457,223 26,096 56,847 82,943 374,280 25 2032 698,995 -282,900 11,836 19,891 4,690 9,284 461,795 26,096 56,847 82,943 378,852 26 2033 705,985 -285,729 11,954 20,090 4,737 9,377 466,413 26,096 56,847 82,943 383,470 27 2034 713,045 -288,586 12,073 20,291 4,784 9,471 471,077 26,096 56,847 82,943 388,134 28 2035 720,176 -291,472 12,194 20,494 4,832 9,565 475,788 26,096 56,847 82,943 392,845 29 2036 727,377 -294,387 12,316 20,699 4,880 9,661 480,546 26,096 56,847 82,943 397,603 30 2037 734,651 -297,331 12,439 20,906 4,929 9,758 485,351 26,096 56,847 82,943 402,408 - - 31 2038 741,998 -300,304 12,564 21,115 4,978 9,855 490,205 321,650 26,096 56,847 238,707 728,912 IRR 15\.30% NPV 10% 720,993 33 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Armando Ribeiro Araujo Consultant GGODR Daniel R\. Gross Consultant AFCE3 CESOP - Daniel A\. Gross Summer Assistant HIS Paul Procee Program Leader EACCF Jorge M\. Rebelo Consultant MIGES Supervision/ICR Georges Bianco Darido Lead Urban Transport Specialist GTIDR Team Leader Etel Patricia Bereslawski Senior Procurement Specialist GGODR Procurement Aberboj Bianca Bianchi Alves Urban Transport Specialist GTIDR Urban Transport Bernardo Guatimosim Alvim Consultant GTIDR Urban Transport Catarina Isabel Portelo Senior Counsel LEGLE Legal Daniel R\. Gross Consultant AFCE3 Safeguards Hanayo Taguchi Program Assistant GTIDR Team Member Karina de Souza Marcelino Program Assistant LCC5C Team Member Paul Procee Program Leader EACCF Safeguards Ralf-Michael Kaltheier Senior Transport Economist GTIDR Team Member Susana Amaral Senior Financial Specialist GGODR Team Member (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY07 0 7\.37 FY08 14\.58 144\.86 Total: 152\.23 Supervision/ICR FY07 0\.00 FY08 0\.45 FY09 9 69\.74 FY10 17\.90 112\.01 FY11 17\.77 5\.45 FY12 24\.70 89\.12 FY13 31\.7 144\.29 FY14 14\.05 62\.99 FY15 31 131\.98 Total: 616\.03 34  Annex 5\. Beneficiary Survey Results The current analysis of users’ perception is based on information from three different data sources; i) for general conclusions, the main data source is the survey conducted by ANTP (“Associação Nacional de Transportes Públicos) from 1985 to 2012, ii) for the analysis of the metro system, the information was provided by Sao Paulo Metro for the 2008-2014 period, and iii) for the train system, information was provided by CPTM for the 2010 to 2014 period\. Since 2008, ANTP surveys included household-based surveys (around 1,300 in Sao Paulo) and onsite intercept surveys’ (around 100 for EMTU)\. Confidence index for these surveys was 95% and sampling error 2\.0%\. CPTM’s database included a perception’s survey of more than 3,500 users from 2010 to 2014\. The confidence index is 95% and sampling error vary between 4\.5% in 2010 to 3\.6% in 2014\. 1\. General user’s perceptions From 2010 until 2012, according to ANTP data, Metro and CPTM systems were perceived by users as the transport modes with most improvements\. In 2010, among the reasons reported by users, the most significant is the reduction in train waiting times\. Other reasons were the decrease in in-vehicle trip times and the provision of new and modern cars, both for Metro and CPTM systems\. In 2012, the reasons were mainly related to the enhancement of train stations, the acquisition of new and modern trains, the increased speed, and the operation of new metro lines\. In all surveys, the most quoted complaint is related to overcrowding of the systems followed by the need of building new metro and rail lines\. 2\. Perceptions about the Metro System The graph below show the evolution metro users’ perception by line\. It considers the percentage of Good and Very Good answers\. The graph depicts the answers for Metro lines affected by the project and for the system as whole\. It is important to highlight that the answers for the whole system are not an average of the answers of each line, but the actual percentage of “Good/Very Good” answers to the question addressed specifically to evaluate the metro system as a whole\. Users perception of the Metro Percentage of "Excelent/Good" answers 75 70 65 60 % 55 50 45 40 2008 2009 2010 2011 2012 2013 2014 Whole Metro system Line 1 -Blue Year Line 2 - Green Line 3- Red 35 Lines 1 and 2 are constantly rated better than the whole metro system; however, line 3 is repeatedly rated worse\. Surveys do not provide specific information about the reasons behind the answers specifically addressed for each of these lines\. However, this difference might be related to the fact that when a specific line is being addressed, the user makes stricter judgement of the quality of service, while when analyzing the whole system the user tends to judge the overall adequacy of the metro systems, including a policy bias\. The highest perception ratings of the Metro system and its different lines occurs in 2009, when the project had not yet produced any effects\. Between 2008 and 2011, over 60% of line 1 respondents and over 65% percent of line 2 respondents rated the service as very good or good\. However, in 2012 and 2013 there was a sharp decline of very good and good answers which have not been recovered yet\. Finally, line 3 is constantly rated worse than the system as whole\. Between 2008 and 2011 the percentage of very good and good answers were over 55% and again after 2012, there has been a sharp decrease in the quality of service perception, which can be attributed to overcrowding\. The figure below includes the perception of users from 2010 to 2014 for all Lines and the system as a whole\. As seen, Line 5 presents in general the highest approval rates and was not part of the Trains and Signaling project, while Line 3 has the lowest approval rates\. USERS` PERCEPTION-2010-2014 PERCENTAGE OF GOOD AND VERY GOOD (%) 2010 2011 2012 2013 2014 70\.00 70\.00 68\.00 68\.00 63\.00 62\.00 61\.00 61\.00 60\.00 60\.00 60\.00 58\.00 58\.00 57\.00 56\.00 55\.00 55\.00 55\.00 55\.00 55\.00 53\.00 52\.00 52\.00 49\.00 45\.00 METRO LINE 1 LINE 2 LINE3 LINE 5 To assess if the project has produced positive results according to the metro users, we conduct a double difference between the intervened lines and line 5, which has no intervention and is considered the “control” line\. Table below presents the results\. Since we do not have specific data on approval rates, we have considered the percentage of Good and Very Good answers as the values of users’ approval\. 36  Double Diff Analysis Treatment/Control Lines 2010 2014 (2014) – (2010) Line1/Line5 (7,00) 1,00 8,00 Line2/Line5 (2,00) 5,00 7,00 Line3/Line5 (15,00) (5,00) 10,00 The first column presents the difference in ratings from the intervened lines and Line 5\. As can be seen, the difference in approval rates in 2010 between Lines 3 and 5 is high; of 15 points (Line 5 had higher approval rates)\. The same happens in 2014; nevertheless, this difference is now smaller, indicating that Line 3 has improved more than Line 5\. The same is true for lines 1 and 2\. In these cases, in 2014 their approval rate is higher than the one for Line 5, improving 8 and 7 percent points respectively during the period\. 3\. Perceptions about the CPTM System Users’ approvals rate of the CPTM rail system as a whole is higher than the average of all the lines between 2010 and 2014\. In 2012, there was a pronounced fall in the approval rate of the system, which was more accentuated for lines 7 and 12\. This could be due to the fact that the interviews were conducted at the same time the modernization interventions were intensified which affected the operation of lines especially at the end of the weed and during weekends\. Besides, other non- frequent incidents have been also reported by CPTM during interviewing days (falling tree over line 7 which caused performance difficulties and delays and a train failure in line 12 which also caused delays)\. Approval rates were rapidly recovered in 2013 and Line 12 surpassed the CPTM whole system levels\. Excluding 2012, the approval rate for the lines improved by the project is over 55%\. Users' Satisfaction Poll - CPTM Approval Rate 75 70 65 60 % 55 50 45 40 35 2010 2011 2012 2013 2014 Year CPTM Whole Line 7- Ruby Line 11 - Coral Line 12 - Sapphire The survey also provides information about quality of service evolution between 2010 and 2014\. As can be seen in the figure below, the vast majority of users think that the quality of the service for the train system as a whole and the lines upgraded by the project is better or stable\. 37  Evolution of The Quality of Services 2010-2014 4\.1% 3\.6% 2\.9% 5\.7% 4\.4% 4\.8% 3\.1% 5\.4% 12\.1% 13\.0% 12\.2% 11\.7% 16\.6% 13\.5% 26\.4% 31\.4% 34\.9% 36\.3% 37\.6% 34\.6% 43\.4% 65\.3% 53\.8% 48\.9% 46\.2% 46\.4% 45\.4% 36\.4% CPTM LINE 7 LINE 8 LINE 9 LINE 10 LINE 11 LINE 12 Better Stable Worse Do not know Line 12 is the one with the best ratings, 53\.8% of “better” answer and 31\.4% of “stable” answers, followed by Line 11 (45\.4% of “better” and 37\.6% of “stable” and finally Line 7 (43\.4% of “better” and 36\.4% of “stable”)\. Line 12 is better rated than the train system as a whole while Line 7 is worse\. Only 12% surveyees think than the lines are today worse than they were before the implementation of the project\. Line 7 is the worst rated line with 16\.6% of “worse” answers, which can be attributed to overcrowding and low rates of comfort, at 7\.2 passengers/m2 in the peak-hour\. USERS` APPROVAL RATE -2010-2014 PERCENTAGE (%) 2010 2011 2012 2013 2014 83\.9 78\.9 74\.8 73\.1 72\.9 72\.6 72\.5 71\.4 71\.3 69\.6 69\.5 68\.9 68\.7 68\.4 67\.8 70 66\.7 66\.4 66\.1 65\.2 62\.9 62\.7 62\.4 65 64 59\.5 58\.2 58\.1 56\.4 56\.1 55\.7 55\.1 54\.4 40\.7 40\.6 CPTM LINE 7 LINE 8 LINE 9 LINE 10 LINE 11 LINE 12 38 The figure above presents the approval rates from 2010 to 2014 for all Lines and the system as a whole\. As seen, Line 10 presents in general the highest approval rates and was not part of the Trains and Signaling project, while the Line 7 has the lowest approval rates\. A double difference analysis was conducted also for CPTM intervened lines\. The objective was to assess if, according to the users’ perception, the project has produced positive results\. Line 10, which has no intervention, is considered the “control” line\. Table below presents the results\. Double Diff Analysis Treatment/Control Lines 2010 2014 (2014) – (2010) Line 7/Line 10 (16\.30) (14\.90) 1\.40 Line 11/Line 10 (11\.90) (7\.90) 4\.00 Line 12/Line 10 (15\.70) (3\.10) 12\.60 The first column presents the difference in ratings from the intervened lines and Line 10\. As can be seen, the difference in approval rates in 2010 between Lines 7 and 10 is high, of 16\.3 percent points (Line 10 has higher approval rates)\. The same happens in 2014; however, this difference is now smaller, indicating that Line 7 has improved more than Line 10\. The same is true for Line 12, which shows the higher improvement comparing to Line 10, and Line11\. According to users’ perception, although approval rates have been declining over the last 4 years, mainly due to overcrowding of systems, the intervened lines, both for Metro and CPTM, have shown an improvement in approval rates when compared to the control lines, where no intervention was made\. Finally, the decline in users’ perception of the quality of service along the last years can also be attributed to a higher standard brought by the inauguration of Line 4 and the overall public dissatisfaction with the limited investment in public transport, as evidenced by the 2013 demonstrations\. 39 Annex 6\. Stakeholder Workshop Report and Results (none) 40 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. Introduction The basis of the partnership between the State of São Paulo and the Bank in the transport sector was established more than 15 years ago, with the decentralization of state suburban rail system, run by the federal agency CBTU (Companhia Brasileira de Trens Urbanos)\. The long term strategy was based on 4 pillars: (i) creating a commission of regional coordination with the municipalities, operators and users, (ii) implementing an integrated land use, urban transport and air quality system, (iii) create financial mechanisms to guarantee long term sustainability of the system, and (iv) progressive participation of the private sectors in the operations\. After the successful decentralization of the federal system, the State has asked the Bank to support the integration of the CBTU-SP with FEPASA (suburban train system at the time), promoting physical integration and improving main transfer stations\. After that, the Bank supported the implementation of Line 4 phase I and the Trains and Signaling Project, and has been supporting Line 4 phase II with an additional loan and Line 5 with a new loan\. The state has also advanced in the institutional aspects through the creation of the Comission of Coordination of Regional Transport (CDTI), which has been responsible for implementing an integrated fare cheaper than the sum of individual fares\. An important consequence of the improvement in the metropolitan system and enhanced physical integration is the dramatic growth in demand, creating an urgent need of improving transport capacity and train frequency, especially during peak-periods, in order to maintain acceptable levels of service and safety\. Besides that, the improvement in the system would create positive benefits to the environment by avoiding a larger shift to less efficient transport modes\. The project would also increase accessibility of poorer populations to opportunities and contribute to the reduction of poverty\. 2\. Factors that affected implementation The state has implemented in the last years several improvements in the system that allowed for a greater coverage of the system, a greater usage of the system by low-income population\. However, the success of the system has also generated crowdedness, which affects the level of services offered\. The list bellow summarizes the status of the main project contracts: • The 40 new trains for CPTM were delivered and are fully operational; • The 09 new trains from the additional financing for Line 11 were delivered and are fully operational; • The contract for CPTM signaling, telecommunications and supplies has a physical progress of 57% and is currently paralyzed; • Contracts for permanent way and overhead cables have physical progress ranging from 57% to 72%, and contract for Lot 1 is currently paralyzed; • Diagnosis and Mapping of the Environmental Information and an Environmental Management has just started and is ongoing; • Supervision of trains manufacture and assembly was concluded; • The 17 new trains for Metro were delivered and are fully operational; 41  • The contract for Metro systems has a current financial progress of 61% is ongoing; • The analysis and supervision of detailed design was concluded and the safety analysis of the modernization of systems has physical progress of 94 %; • The analysis of detailed design of the 17 trains was concluded\. The sustainability of the project will depend on the (i) the continuity of the priority of the transport sector by the State, (ii) the implementation and financing of additional improvements to renovate and maintain the infrastructure, (iii) the maintenance of integrated fares\. The State has demonstrated to maintain ownership of the project in the last years, even if at some points the implementation and financing has been challenged by fiscal restrictions\. 3\. Achievement of PDO Objectives and Ratings The achievement of objectives was considered satisfactory\. The delays in the delivery of trains were related to the manufacturer delays in resolving pending quality issues and lack of planning from the manufacturer side, but these issues were largely overcome\. The financial management of the Project can also be considered satisfactory, and the funds were provided by government during the implementation\. The main benefits from the project raised by the beneficiaries are: • Easier access to/integration of commercial centers and medical facilities; • The constitution of a metro-rail system; • Improved access of low-income population to commercial centers, health centers, education and leisure; • Reductions in travel time between origin and destination pairs, integration with Metro and other modes of transportation\. An important institutional component related to the PITU was fully achieved\. The work developed is a step towards the development of a new strategic plan, which is a continuous planning process that in the next steps should include new planned bus corridors, the Arco do Futuro project, amongst others\. One important achievement is that now the PITU includes both the aggregate demand transport planning but spatially disaggregated with an EMME model and a more spatially aggregated but demand disaggregated with a TRANUS model\. The TRANUS model evidenced the need to include in the set of actions measures to contain demand for car use, since that even with massive investments in mass transit there is a strong tendency of shift to private modes\. The urban operations and transit-oriented developments alike should then be strongly pursued\. 4\. Lessons Learned The main lessons learned are: • Long term financial mechanisms and institutional body are necessary to allow for the sustainability of projects, including the financial sustainability of the urban transport system of São Paulo; • The Project monitoring using performance indicators allow for project supervision of the improvement of public transport systems and accessibility of low-income population related with the measurement of the generalized cost of travel\. 42  • The implementation on brownfield has proven to be extremely complex, since works have to occur without interrupting operations, so the schedules have become longer than expected\. • The Metro Signaling System has reached its limit, but very few systems in the world are capable of delivering these headways given the level of transported demand\. This situation is possible due to the performance of the operations team of Metro, who has been working to improve products purchased from signaling companies\. • The technology provided by the vendor has not proven sufficient results yet\. Technical analyses from around the world confirmed that the future technology is CBTC and the vendor has signed a contract confirming the intention to deliver the stringent requirements\. However, it is possible that a phased approach of this new technology would have been a better option\. • The payment flows in contracts had to respond to the difficulties, since signed contracts had a large payment towards delivery of equipment and components, minding the financial equilibrium of contracts\. However, it became clear that installation is the critical part, and vendors were less interested in developing this phase\. • PITU and transport models that support policies are important instruments in planning new infrastructure, since they allow for an overall view of the challenges and opportunities of a Metropolitan Region\. The dynamics of population along the territory, especially considering the low-income populations to opportunities were incorporated to the metropolitan plans and new and important policies, like densification around metro stations, were proposed based on those models\. Accessibility and sustainability are crucial aspects, and physical integration has been pursued and achieved in some situations\. 5\. Performance of Bank, Borrower and Implementing Agencies The Bank has provided financial resources according to projected cash-flow and the task team had active participation with regular missions\. The State of Sao Paulo, as the Borrower, represented by its Secretaries, has performed with agility in the provision of loan funds and counterpart funds\. CPTM and Metrô, as the implementing agencies, had a decisive role in the implementation of the Project, providing high performance teams for monitoring the contracts, reacting promptly for the solution of pending issues\. 43 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders No comments were provided\. 44 Annex 9\. Impact assessment of Sao Paulo Trains and Signaling Project on traffic volumes, travel times and emissions After the implementation of the project, 1\.35 million new users were added to the rail system (96% of the 1\.4 million target), of which more than 51% come from the lowest income groups (monthly income of 4 or less minimum salaries)\. Average speeds of the urban rail system increased from 19\.7km/h and 29\.3 km/h to 25\.9km/h and 37\.7 km/h for metro and rail respectively 8\. Although it is not possible to determine exact prior mobility patterns of these new users, this analysis provide different counterfactuals in order to assess the range of project impacts\. 1\. Methodology In order to calculate the impacts of the project, differences between the current scenario and the counterfactual regarding traffic volumes (V), travel times (T) and CO2 emissions (E) were calculated\. The number of trips, the average trip length, and the average speed define scenarios for each of the transport modes\. Project impacts|V,T,E = Current Scenario|V,T,E – Counterfactual|V,T,E Traffic volumes [veh-km/day] are calculated multiplying daily trips and the average trip distance, and dividing by the occupancy rate or IPK (Index Passenger-Km), depending on the case\. Values and sources for occupancy rates and IPKs are presented in the table below\. Travel times [pax- hour/day] are calculated multiplying number of trips and the average trip time per mode\. Finally, CO2 emissions [ton/day] are calculated multiplying the traffic volume and the Emission Factors by transport mode provided by the Urban Mobility Observatory of the Development Bank for Latin America, - CAF 9- database for Sao Paulo 2007 (for car, moto and bus)\. For trains and subway, emissions are calculated based on energy efficiency indicators and Brazil’s electricity generation efficiency\. Mode Occupancy IPK (b) (b) Energy (c) Brazil Electricity Rate (pax/veh- Emission efficiency generation Emissions (pax/veh) km) (b) Factor [kWh/km] Efficiency (a) [g/vkm] [kgCO2/kWh] Walk 1 - - n/a n/a Bike 1 - - n/a n/a Moto 1 - 82 n/a n/a Car 1\.4* - 188\.8** n/a n/a Bus - 1\.7* 972*** n/a n/a Metro - 6\.5 n/a 3\.51 0\.093 Train - 2 n/a 3\.51 0\.093 8 Adapted from PDO indicators, dividing average trip length for metro and train by Travel Time + Waiting Time\. Table (a) of Framework analysis page 7 9 Observatorio de Movilidad Urbana (CAF, 2007)\. URL: http://www\.caf\.com/es/temas/o/observatorio-de-movilidad- urbana/ciudades/sao-paulo/ 45  (a)Mobility Survey 2012\. (b) CAF, 2007 , (c) http://ecometrica\.com/assets/Electricity-specific-emission-factors- for-grid-electricity\.pdf (*) Own calculation based on data from CAF 2007\. It is an average value for all the different types of buses in SP weighted by their traffic volumes\. (**) Own calculation based on data from CAF, 2007\. Average value taking into account that 80% of the car fleet composition are gasoline cars with an EF of 196gCO2/veh-km and the remaining 20% are alcohol cars with an EF of 160 gCO2/veh-km\. (***) Own calculation based on data from CAF 2007\. It is an average value for all the different types of buses in SP weighted by their traffic volumes\. 2\. Current scenario assumptions To define the current scenario, information from the Mobility Survey of 2012, data from the CAF database for Sao Paulo, and specific information from the project implementation were used\. The current scenario is defined as follows: Mode Trips/day(a) Average trip length [km](a) Average speed [km/h](b) Walk 13,708,187 1\.15 4\.6 Bike 267,788 3\.69 12\.0 Moto 1,039,000 5\.06 35\.4 Car 12,486,000 6\.02 16\.9 Bus 11,784,000 7\.73 21\.7 Metro 3,219,000 16\.3 25\.9* Train 1,141,000 17\.48 37\.7* (a)Mobility Survey 2012, only main trips were considered\. (b) CAF, 2007, (*) Data from project implementation 3\. Counterfactual general assumptions To define the counterfactual some general assumptions were taken into account: • 1\.35 million users (passengers) per day have been added to the system of which more than 51% are from the lowest income groups; • 52\.5% of the new users are metro users and 47\.5% of new users are train users 10; • The average trip length of the current urban rail systems is 16\.9 km 11\. • The average speeds considered for the counterfactual scenario would be the same as for the current scenario, except for the metro and train modes, that would be the ones existing before the implementation of the project (19\.7 km/h for metro and 29\.3 km/h for train)\. Since speeds would be expected to decrease when adding trips and not modifying capacity, we can consider this a conservative assumption\. The objective of this analysis is to know what would have happened if the 1\.35M new passengers, instead of travelling by metro or train, were travelling by other transport modes\. Taking into account that the average trip distance for rail modes is overlong for biking or walking modes, it is unlikely that the average users of the urban rail system would have been non-motorized travelers if the project had not existed\. Therefore, we consider that new users would have been users of 10 PDO indicators\. Actual value of Incremental Demand in CPTM and Metro\. Results and Framework analysis page 7\. 11 Source: Mobility Survey 2012\. Average trip length in metro 16\.3km and average trip length in train 17\.5 km\. 46 other motorized transport modes (car, moto and bus)\. Besides, we consider that the average trip length of the 1\.35M users would have been the same regardless of the transport mode used before the implementation of the project\. Mode Trips/day(a) Average trip Average speed length [km](a) [km/h](b) Walk 13,708,187 1\.15 4\.6 Bike 267,788 3\.69 12\.0 Moto 1,039,000 * (1\.35 M * α) 16\.9 35\.4 Car 12,486,000 * (1\.35M * β) 16\.9 16\.9 Bus 11,784,000 * (1\.35M * γ) 16\.9 21\.7 Metro 3,219,000-(1,35M * 0\.525*µ) 16\.3 19\.7 Train 1,141,000-(1,35M * 0\.475*Î) 17\.48 29\.3 (a)Mobility Survey 2012\. (b) CAF, 2007, (Italics) Counterfactual assumptions\. Note: α,β, γ, µ, Î are the distribution rates among the other motorized modes\. They will be used to define different counterfactuals for comparison\. 4\. Sensitivity analysis In order to assess the impact of the project on emissions it is necessary to consider the whole transportation system (including autos and motos), not only bus and railway system\. Therefore, in this section, we analyze different hypothesis for the counterfactuals considering the whole transportation system\. The first three counterfactuals stablish the most and the less conservative scenarios\. The last three counterfactuals consider the modal split previous to the project implementation in different ways and the fact that 51% of the new users come for the lowest income groups\. • C1: all the new users of the train system would had been BUS users, if the project had never been implemented\. • C2: all the new users of the train system would had been CAR users, if the project had never been implemented\. • C3: all the new users of the train system would had been MOTORCYCLE users, if the project had never been implemented\. • C4: new users would have been users of other motorized transport modes (car, moto and bus) preserving the modal split provided by the 2007 Mobility Survey and taking into account income\. In this case low income is considered below R$2,488 12\. • C5: new users would have been users of other motorized transport modes (car, moto and bus) preserving the modal split provided by the 2007 Mobility Survey and taking into account income\. In this case low income is considered below R$1,244\. • C6: new users would have been users of all the motorized transport modes (car, moto, bus, train and metro) preserving the modal split provided by the 2007 Mobility Survey and taking into account income\. In this case low income is considered below R$1,244\. 12 2012 Mobility Survey of Sao Paulo provides information about the number of trips disaggregated by family rent in five categories: till R$1,244; between R$1,244 and R$2,488; between R$2,488 and R$4,976; between R$4,976 and R$9,330 and more than R$9,330\. C4 ,C5 and C6 calculate modal split for low income and other income trips considering low income below R$2,488 and R$1,244 respectively\. 47 5\. Results The table below shows the results of the impacts on traffic volume, emissions and travel times of the São Paulo Trains and Signaling Project for the different counterfactual options\. Highest reductions in traffic volume occur if, without project implementation, the new users of the urban rail system would have been motorcycle drivers and the lowest if they would have been bus users\. In terms of CO2 emissions and travel times savings, the highest savings occur if all the new urban rail system passengers would have been car drivers\. GLOBAL VALUES ABSOLUTE SAVINGS RELATIVE SAVINGS [%] Times [pax- [pax-hour] Passenger Passenger Passenger Emissions emissions emissions [ton/day] [ton/day] [veh-km] [veh-km] Volume Volume Volume Traffic Traffic Traffic Travel Travel Travel Times hour] CO2 CO2 CO2 Act‘12 83,693,863 17,653 29,584,440 C1 84,058,317 18,285 15,969,831 364,454 632 1,122,350 0% 3% 7% C2 99,522,057 20,582 16,270,713 15,828,194 2,929 1,423,232 16% 14% 9% C3 106,025,200 19,379 15,563,378 22,331,337 1,726 715,897 21% 9% 5% C4 91,538,421 19,320 16,086,188 7,844,558 1,667 1,238,707 9% 9% 8% C5 90,451,914 19,165 16,067,549 6,758,051 1,512 1,220,068 7% 8% 8% C6 91,310,380 19,226 16,058,277 7,616,517 1,573 1,210,796 8% 8% 8% For intermediate scenarios, which are the more realistic since they modify the counterfactual modal split but taking into account the before project modal shares (C4, C5 and C6), savings are lower and similar for the three counterfactuals, but still significant\. Considering C6 the most probable one, where the 1\.35M users are distributed among bus (43%), car (42%) and moto (3%), metro (9%) and train (3%), we can estimate that the project have reduced 8% of traffic volume\. Specifically for road transport, the reduction in traffic volume (veh-km) accounts for 12% for moto, 12% for car and 5% for buses\. It has also provided an 8% reduction in CO2 emissions and another 8% reduction in passenger travel times\. All the counterfactuals considered bring about savings in CO2 emissions: between 3% reduction for the scenario without project with all new passengers in BUS and 14% for the scenario with all passengers in CAR\. Regarding traffic volumes, savings vary from a virtual 0% for the BUS option to a 21% for the MOTO option\. Finally, travel time savings is the indicator with less variability among counterfactuals, it ranges from a 5% for the MOTO option to a 9% reduction for the CAR\. 48 Annex 10\. List of Supporting Documents Project Appraisal Document on a Proposed Loan In the amount of US$550 million to the State of São Paulo, Brazil with the guarantee of the federative Republic of Brazil for a São Paulo Trains and Signaling Project (March 3, 2008)\. Loan Agreement (Sao Paulo Trains and Signaling Project)\. Between State of Sao Paulo and International Bank for Reconstruction and Development (June 12, 2008)\. Project Paper on a Proposed Additional Loan in the Amount of US$112\.91 Million to The State Of São Paulo, Brazil with the Guarantee of the Federative Republic of Brazil for a São Paulo Trains and Signaling Project (August 11, 2010)\. Loan Agreement (Additional Financing for the Sao Paulo Trains and Signaling Project Modernização da linha 11- coral da CPTM)\. Between State of Sao Paulo and International bank for Reconstruction and Development (October 18, 2010)\. 2007 Origin-Destination Survey\. Companhia do Metropolitano de São Paulo – METRÔ\. Brazil São Paulo: Inputs for a Sustainable Competitive City Strategy, World Bank (2007)\. IBGE – Instituto Brasileiro de Geografia e Estatística\. Census 2000 and 2010\. Mobility Survey 2012\. Companhia do Metropolitano de São Paulo – METRÔ\. Monitoramento da demanda – Evolução dos passageiros transportados nas Regiões Metropolitanas de São Paulo, Campinas, Baixada Santista e Vale do Paraíba e Litoral Norte, por modo de transporte (2010 – 2013)\. Observatorio de Movilidad Urbana (CAF, 2007)\. Pesquisa de Imagem da Companhia de Trens Metropolitanos – CPTM\. Pesquisa de satisfação do usuário da Companhia do Metropolitano de São Paulo – GOP/METRÔ\. Presentation: “Gestão do Sistema Tarifário da Rede Metro-ferroviária na RMSP\. Documento Preliminar para Discussão\.” Relatório de Fechamento Contrato Empréstimo - Versão Preliminar (2015)\. 49

REVIEW

P009885

 ICRR 10228 Report Number : ICRR10228 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3258 Project ID : P009885 Project Name : Second Petrochemical Development Project Country : India Sector : Fertilizer & Other Chemicals L/C Number : L3258/L3259 Partners involved : None Prepared by : Farrokh Najmabadi, OEDCR Reviewed by : Alice Galenson, OEDCR Group Manager : Ruben Lamdany Date Posted : 11/06/1998 2\. Project Objectives, Financing, Costs and Components : The major objectives of the project were to : a) expand capacity at the Indian Petrochemical Corporation Ltd (IPCL)'s two petrochemical complexes, through investments in new plants, revamping and modernization; b ) import polymers for market seeding in anticipation of domestic production; and, c ) improve efficiency and quality of downstream plastic products through strengthening the institutional capacity of the Central Institute of Plastic Engineering and Technology (CIPET) to respond effectively to the needs of small and medium size private plastic processors in India \. In addition, the project aimed at improving the incentive framework of the petrochemical sector through agreements on adequate pricing of C2/C3 (Ethane and Propane- the gas feedstocks), periodic reviews of sector investment programs and minimum economic scale criteria for granting capacity licenses, and a study of the synthetic fiber industry\. Two loans totaling US$ 245 million were approved for this project in FY 91\. At closing, an aggregated amount of US$87\.7 million had been canceled in four tranches \. The actual project cost was US$ 235\.7 million or only around 40% of the US$587 million estimated at appraisal\. This large difference is attributable to the exclusion of two smaller plants, revamping of an existing plant to increase capacity instead of installing a new unit, lower duties on imported capital goods, lower polymer import and lower working capital requirements \. 3\. Achievement of Relevant Objectives : The implementation of the project coincided with the introduction of far reaching economic reforms starting in June 1991\. The petrochemical sector, therefore, benefited from the new economic framework which aimed at significantly opening up the economy to foreign trade and investment, rationalizing the tax regime, and increasing competition by removing administrative bottlenecks to entry and capacity increases \. The major investments planned by IPCL were implemented, although important changes occurred in design and the cost of the project \. The project's completion was delayed on account of late government approvals and the belated start of expansion work at Nagothane where the construction of the first gas - cracker was still in progress \. The market seeding program introduced new polymers to the Indian market\. CIPET was successful in upgrading its capabilities and responding to the rapidly growing needs of the small and medium size private plastic processors for manpower training, design, testing, quality control and advisory services\. The project was less successful in achieving its sector policy objectives, though the economic reforms, such as the removal of administrative bottlenecks, made some of them moot \. The Synthetic Fiber Industry study exposed the inefficiency of the domestic fiber industry and its inability to compete internationally \. This helped the GOI in its efforts to rationalize the sub -sector\. The environmental objectives of the project have also been substantially met, though more attention needs to be given to bringing the wastewater quality at the acrylonitrile plant at Vadodara to the standard level \. 4\. Significant Achievements : The project achieved its physical objectives by expanding capacity for the production of basic and intermediate petrochemical products, at both IPCL complexes, at a substantially lower cost than anticipated at appraisal \. The institutional performance at CIPET shows very positive developments which exceed the expectations at appraisal \. CIPET is currently 60-65% self-sufficient in its budgeting, hoping to become completely self -supporting in four to five years 5\. Significant Shortcomings : Despite the general improvement in India's economic framework in recent years and its salutary effects on the petrochemical sector, the only serious policy objective of maintaining the price of C 2/C3 feedstock in relation to its opportunity cost was not realized \. By keeping the nominal price of C2/C3 at around that agreed at appraisal, the GOI failed to correct it in the face of inflation and substantial devaluation of the Rupee \. As a result, the real price of C2/C3 fell steadily to an estimated 50-60% by 1998\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : The major lessons are: a) subsector reforms are more likely to succeed when distortions of the economy are corrected; b) pricing covenants should always state the principles on which they are based and should provide for formal periodic reviews; c) all government approvals should become a condition for Board presentation; d ) expansion investments should not be approved until the production in the existing plant has started; and, e ) for expansion projects, direct contracting or possibly limited international bidding (LIB) procurement could be considered to accommodate the process licensors' recommendations and specific needs for standardization \. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR provides a candid and detailed account of the achievements of this project, all supported by relevant data and tables\. Though the ICR is devoid of an Aide -Memoire, the borrower's contribution is comprehensive and informative\. The ICR documents well its assumptions for the ex -post cost benefit analysis \. It also contains two very useful annexes: one dealing with the environmental achievements and the remaining issues, and the other, with the unresolved policy issues in the subsector that need attention

REVIEW

P093165

Document of The World Bank Report No: ICR00003028 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-41980 TF-91638) ON A CREDIT IN THE AMOUNT OF SDR 14\.0 MILLION (US$ 20\.0 MILLION EQUIVALENT) AND A GLOBAL ENVIRONMENTAL FACILITY GRANT IN THE AMOUNT OF US$ 6\.20 MILLION TO THE REPUBLIC OF MOZAMBIQUE FOR A MARKET LED SMALLHOLDER DEVELOPMENT IN THE ZAMBEZI VALLEY March 30, 2014 Agriculture and Rural Development Department Country Department 2, Mozambique Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective March 15, 2014) Currency Unit = new Mozambican Metical (MZN) MZN 1\.00 = US$ 0\.03 US$ 1\.00 = MZN 30\.40 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS ADB African Development Bank BDS Business Development Services CAEIF Community Agricultural and Environmental Investment Fund CAS Country Assistance Strategy CBD Convention on Biological Diversity CBNRM Community Based Natural Resource Management CBO Community Based Organization CDD Community Demand Driven CFAA Country Financial Accountability Assessment CLUSA Cooperative League of the USA DA District Administrator DANIDA Danish International Development Agency DBS Direct Budget Support DDA District Agricultural Directorate DF District Facilitator DPFP Decentralized Planning and Finance Project DNA Department of Water Affairs DNPDR National Directorate for the Promotion of Rural Development DTT District Technical Team ERR Economic Rate of Return ESMF Environmental and Social Management Framework FMA Field Management Advisor FMR Financial Monitoring Report GDP Gross Domestic Product GEF Global Environment Facility GIS Geographical Information System GOM Government of Mozambique GPZ Zambezi Valley Development Authority GTZ German Foundation for Technical Cooperation IC Individual Consultants ICB International Competitive Bidding IDA International Development Association FAD International Fund for Agricultural Development IGF Inspectorate General of Finance IPCC Intergovernmental Panel on Climate Change LCS Least-Cost Selection LIG Local Investment Grant M&E Monitoring and Evaluation MICOA Ministry for the Coordination of Environmental Affairs MINAG Ministry of Agriculture MPD Ministry of Planning and Development MPWH Ministry of Public Works and Housing NAP Nation Action Program NAPA National Adaptation Plan of Action NBSAP National Biodiversity Strategy and Action Plan NCB National Competitive Bidding NEPAD New Partnership for African Development NEMP National Environmental Management Program NGO Non-Government Organization OP Operational Policy PAMA Agricultural Markets Support Project PARPA Action Plan for the Reduction of Absolute Poverty PEFA Public Expenditure and Financial Accountability PIU Project Implementation Unit PFM Public Financial Management PPC Provincial Project Coordinator PWH Ministry of Public Works and Housing PRSP Poverty Reduction Strategy Paper QCBS Quality and Cost Based Selection RPF Resettlement Policy Framework SBD Standard Bidding Document SIDA Swedish International Development Cooperation Agency SLG Savings and Loans Group SLM Sustainable Land Management SPA Strategic Priority of Adaptation sss Single Source Selection SWAP Sector Wide Approach UMC Community Management Unit within the National Directorate of Forest & Wildlife UNAC National Union of Farmers Association UNDP United Nations Development Program UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change UNCCD United Nations Convention on Climate and Desertification VSL Village Savings and Loans WVI World Vision International Vice President: Makhtar Diop Country Director: Mark Lundell Sector Manager: Severin Kodderitzsch Project Team Leader: Pedro Arlindo ICR Main Author: Hardwick Tchale  MOZAMBIQUE Market Led Smallholder Development in the Zambezi Valley CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development and Global Environment Objectives Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes \. 11 4\. Assessment of Risk to Development Outcome and Global Environmet Outcome \. 22 5\. Assessment of Bank and Borrower Performance \. 23 6\. Lessons Learned \. 25 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 26 Annex 1\. Project Costs and Financing \. 28 Annex 2\. Outputs by Component \. 30 Annex 3\. Economic and Financial Analysis \. 34 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 39 Annex 5\. Beneficiary Survey Results \. 41 Annex 6\. Stakeholder Workshop Report and Results\. 43 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 44 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 50 Annex 9\. List of Supporting Documents \. 52 MAP A\. Basic Information Market led Smallholder Country: Mozambique Project Name: Development in the Zambezi Valley Project ID: P093165,P098040 L/C/TF Number(s): IDA-41980,TF-91638 ICR Date: 12/06/2013 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL,SIL Borrower: MOZAMBIQUE Original Total XDR 14\.00M,USD XDR 13\.72M,USD Disbursed Amount: Commitment: 6\.20M 6\.08M Environmental Category: B Focal Area: L Implementing Agencies: National Directorate for the Promotion of Rural Development Cofinanciers and Other External Partners: None B\. Key Dates Market led Smallholder Development in the Zambezi Valley - P093165 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/26/2005 Effectiveness: 12/28/2006 12/28/2006 Appraisal: 04/07/2006 Restructuring(s): 05/24/2012 Approval: 06/20/2006 Mid-term Review: 12/31/2009 03/31/2010 Closing: 03/31/2013 09/30/2013 Market-Led Smallholder Development in the Zambezi Valley - P098040 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/06/2005 Effectiveness: 12/05/2007 09/27/2007 Appraisal: 04/07/2006 Restructuring(s): 05/24/2012 Approval: 08/28/2007 Mid-term Review: 02/01/2010 03/15/2010 Closing: 09/30/2013 09/30/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory i GEO Outcomes Moderately Satisfactory Risk to Development Outcome Substantial Risk to GEO Outcome Substantial Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators Market led Smallholder Development in the Zambezi Valley - P093165 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA) Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA) DO rating before Moderately Closing/Inactive status Satisfactory Market-Led Smallholder Development in the Zambezi Valley - P098040 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA) Problem Project at any Quality of No None time (Yes/No): Supervision (QSA) GEO rating before Satisfactory Closing/Inactive Status D\. Sector and Theme Codes Market led Smallholder Development in the Zambezi Valley - P093165 Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 11 11 ii Agro-industry, marketing, and trade 21 21 Central government administration 7 7 General agriculture, fishing and forestry sector 61 61 Theme Code (as % of total Bank financing) Other rural development 14 14 Rural markets 29 29 Rural non-farm income generation 29 29 Rural policies and institutions 14 14 Rural services and infrastructure 14 14 Market-Led Smallholder Development in the Zambezi Valley - P098040 Original Actual Sector Code (as % of total Bank financing) Crops 23 23 General agriculture, fishing and forestry sector 31 31 Sub-national government administration 46 46 Theme Code (as % of total Bank financing) Biodiversity 29 29 Climate change 14 14 Land administration and management 29 29 Other rural development 14 14 Participation and civic engagement 14 14 E\. Bank Staff Market led Smallholder Development in the Zambezi Valley - P093165 Positions At ICR At Approval Vice President: Makhtar Diop Gobind Nankani Country Director: Mark Lundell Michael Baxter Richard Scobey/ Frank Sector Manager: Severin Kodderitzsch Byamugisha Jeeva A\. Perumalpillai-Essex/ Project Team Leader: Pedro Arlindo Daniel Liborio da Cruz E Sousa ICR Team Leader: Hardwick Tchale ICR Primary Author: Hardwick Tchale iii Market-Led Smallholder Development in the Zambezi Valley - P098040 Positions At ICR At Approval Vice President: Makhtar Diop Gobind Nankani Country Director: Mark Lundell Michael Baxter Sector Manager: Severin Kodderitzsch Michel Wormser Jeeva A\. Perumalpillai-Essex/ Project Team Leader: Pedro Arlindo Daniel Liborio da Cruz E Sousa ICR Team Leader: Hardwick Tchale ICR Primary Author: Hardwick Tchale F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the project is to increase the income of smallholder farmers in selected districts of the Zambezi Valley region of central Mozambique\. Increased incomes will be achieved not only by direct support to smallholder groups and other supply chain participants, but also through the strengthening of local level capacity to undertake and manage service delivery within the context of the Government of Mozambique’s decentralization policy\. Revised Project Development Objectives (as approved by original approving authority) Project Development Objective was not revised\. Global Environment Objectives (from Project Appraisal Document) The Global Environment Objective is to limit land degradation, provide predictive capacity for assessing vulnerabilities to climate change, and to improve the ecosystem's resilience towards climate change in the Central Zambezi Valley\. Revised Global Environment Objectives (as approved by original approving authority) The Global Environmental Objective was not revised\. (a) PDO Indicator(s) iv  Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years 30% average increase in agricultural income of participating project beneficiaries smallholder 6,089 30% NA 65% households (compared with non-participating households (HHs) (b) GEO Indicator(s) Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Increase in area under improved sustainable land management (SLM) or natural resource management 0 20,000 NA 21,313 practices in Project area by at least 20,000 hectare by Project end Cumulative number of project beneficiaries smallholder farmers’ groups active in at least one natural resources management sub-project 0 250 NA 414 supported by CAEIF under Part C© of the Project described in Schedule 1 of the Grant Agreement Predictive and Basin Specific scenarios for land use land cover impacts on hydrology 0 4 NA 4 (flooding and drought) under changing rainfall and evapotranspiration regimes Variable Infiltration Capacity (VIC) Distributed Hydrological Model installed No Yes NA Yes and operating (introduced after MTR) (c) Intermediate Outcome Indicator(s) v  Original Target Actual Value Formally Baseline Values (from Achieved at Indicator Revised Value approval Completion or Target Values documents) Target Years Number of CBOs engaging in Project supported 0 660 NA 733 organizational development activities Cumulative number of project beneficiaries smallholder farmers’ groups active in at 0 600 NA 473 least one Subproject supported by CAEIF Number of members of savings and loans (SLGs) 0 12,000 6,000 7,291 groups vi G\. Ratings of Project Performance in ISRs - Actual Date ISR Disbursements No\. DO GEO IP (USD millions) Archived Project 1 Project 2 1 08/18/2006 S S 0\.00 0\.00 2 10/04/2006 S S 0\.00 0\.00 3 05/15/2007 MS S MU 2\.02 0\.00 4 12/07/2007 MS MS MU 2\.02 0\.00 5 05/31/2008 MS MS MU 2\.58 0\.00 6 06/30/2008 MS MS MS 3\.30 0\.00 7 12/23/2008 MS MS MS 4\.51 0\.50 8 06/26/2009 MS MS MS 5\.71 0\.83 9 11/17/2009 MS MS MS 5\.81 0\.89 10 06/11/2010 MS S MS 7\.33 1\.26 11 03/30/2011 MU S MU 10\.75 1\.57 12 09/20/2011 MU S MS 11\.05 2\.12 13 06/11/2012 MS S MS 14\.74 2\.55 14 02/21/2013 MS S MS 16\.94 4\.84 15 09/15/2013 MS S S 20\.53 5\.71 16 10/19/2013 S S S 20\.99 6\.08 H\. Restructuring (if any) Level 2 restructuring approved on May 24, 2012\. vii I\. Disbursement Profile P093165 P098040 viii 1\. Project Context, Development and Global Environment Objectives Design 1\. Agriculture is the largest sector in the Mozambique’s economy, contributing 25 percent of gross domestic product (GDP) and employing about 80 percent of the workforce albeit with low productivity\. While Mozambique has recently started witnessing major investments in the gas and mining sectors, agriculture remains the sector with the real potential to increase incomes among the vast majority of rural inhabitants and to reduce income inequalities between rural and urban areas\. Mozambique’s agriculture is dominated by smallholder farmers, most of whom do not have access to inputs\. The 2009–10 agricultural census indicates that the cultivated area increased by 24 percent from 1999 to 2009 and the share of women-headed agricultural households increased from 23 percent to more than 27 percent\. Roughly one-third of farms are smaller than 1 hectare, and only 5 percent of producers use irrigation and less than 3 percent use fertilizers (INE, 2011)\. 2\. The long-term sustainable use of natural resources and, more specifically land, water, forestry, and wildlife continues to be an important component of the Government’s vision\. Agriculture is the first pillar under the country’s 2010-2014 Poverty Reduction Strategy Paper\. In 2011, the Government of Mozambique approved the country’s 2011 – 2020 Agricultural Development Strategy, and signed its Comprehensive Africa Agriculture Development Program (CAADP) Compact\. Agricultural GDP growth has averaged about 7 percent per year since 2003 and has been an important contributor to overall economic growth\. Growth in the agricultural sector has been driven mainly by the increased use of labor and expansion in the cultivated area, and a key policy challenge for Mozambique is to increase productivity and turn agriculture into an engine of poverty reduction\. 1\.1 Context at Appraisal 3\. The Market-led Smallholder Development in the Zambezi Valley was designed in a context where agricultural growth rates were primarily driven by increases in the cultivated area and population growth rates rather than by increased productivity\. Investing on sustainable agricultural intensification has thus been an important concern, and the Project was conceived to promote a more sustainable growth of the sector in the long-term\. 4\. The Project aimed to use the Bank’s global experience in community-driven and market-led approaches to assist Mozambique’s efforts to implement this approach\. The Project was aimed to build on and support Mozambique’s decentralization policy and program, where districts become the focus of development and budget entities\. The Project was designed to address aspects that were not likely to be resolved by other actors in the short to medium term including the promotion of local markets and integration of rural households in the Project area in domestic markets\. While the Project area offered high potential for agriculture and trade, it was among the most devastated areas during the 16-year civil war that ended in 1992\. 1 5\. The blending of the Project with a Global Environment Facility (GEF) grant offered an opportunity to harness the potential synergies of national and global benefits such as reduced deforestation and the resulting above- and below ground biodiversity loss\. At Project design, the loss of ecosystem services (local hydrology, habitats for native biodiversity) from deforestation and land degradation was a major concern\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 6\. The development objective of the project is to increase the income of smallholder farmers in selected districts of the Zambezi Valley region of central Mozambique\. Increased incomes will be achieved not only by direct support to smallholder groups and other supply chain participants, but also through the strengthening of local level capacity to undertake and manage service delivery within the context of the Government of Mozambique’s decentralization policy\. The PDO indicator is to achieve 30% average increase in agricultural income of participating project beneficiaries smallholder farmer households - including self-consumption - compared with non-participating households, by the end of the Project\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) 7\. The Global Environment Objective is to limit land degradation, provide predictive capacity for assessing vulnerabilities to climate change, and to improve the ecosystem's resilience towards climate change in the Zambezi Valley\. 8\. The key performance indicators for the GEO are: (i) increase in area under improved sustainable land management (SLM) or natural resource management practices in Project area by at least 20,000 hectare by Project end; (ii) cumulative number of project beneficiaries smallholder farmers’ groups active in at least one natural reso urces management sub-project supported by CAEIF under Part C(c) of the Project described in Schedule 1 of the Grant Agreement; measurable increase in biodiversity or carbon sequestration in targeted Project sites vs\. control sites through one or more of the following: reappearance of native species, increased carbon stocks, reduced soil erosion, reduced incidences of wild fires; (iii) at least 3 predictive and basin specific hydrology- land cover-climate change scenarios for land use-land cover change impacts on hydrology under changing rainfall and evapotranspiration regimes (this was changed at MTR as highlighted in section 1\.5 to Variable Infiltration Capacity Distributed Hydrological model installed and operating); (iv) increased use by local land users of drought tolerant crops, fodder species and varieties, crop rotations to increase soil organic matter, reduce weeds, and conserve soil moisture\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9\. The PDO and key indicators were not revised\. After the Mid-Term Review, a Level 2 restructuring (no change in PDO, in GEO, or in environment category) was undertaken (approved on May 24, 2012), which introduced a change on the target for the 2 intermediate outcome indicator - Number of members of savings and loans groups (SLG)\. The target was reduced from the planned 12,000 members to a new target of 6, 000 members at project completion\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification 10\. The GEO and key indicators were not revised\. After the Mid-Term Review, a Level 2 restructuring (no change in PDO, in GEO, or in environment category) was undertaken (approved on May 24, 2012), which introduced a change in GEF Performance Indicator - Number of Predictive Scenarios\. This was replaced with the need to have the Variable Infiltration Capacity (VIC) Distributed Hydrological Model installed and functioning at ARA-Zambezi because the ability to run scenarios would be conditional on having a functioning VIC model\. 1\.6 Main Beneficiaries, 11\. Primary beneficiaries: The primary beneficiaries (although not explicitly spelt out in the PAD) were farmers and community-based organizations (CBOs) from the five districts of Chemba, Maringue, Mopeia, Morrumbala and Mutarara of the Zambezi Valley region of central Mozambique\. These farmers and CBOs directly benefited from agricultural production support and funding for various related sub-projects under the Community Agricultural and Environmental Investment Fund (CAEIF)\. 12\. Other beneficiaries included the savings and loans groups; various agricultural value-chain players, including input traders and commodity buyers; government officials from the National Directorate for the Promotion of Rural Development (DNPDR) of the Ministry of State Administration (MAE) and other related ministries such as Agriculture and other government departments, including the district administrators\. 1\.7 Original Components (as approved) 13\. The approved project comprised the following components: Component 1: Community Group Organization and Local Institutional Strengthening (Total: US$8\.6 million; IDA: US$7\.6 million; GEF: US$0\. 9 million; Government: US$0\.1 million) comprising: (a) community based organization capacity development; (b) rural financial services, and; (c) district capacity development\. Expenditures under this component included consultancy services, training, goods and equipment and a modest amount of civil works\. Activities under this component were meant to lay the basic foundation for the sustainability of Project interventions\. The primary objective was to empower and build the social capital of farmer groups, women’s groups and other supply chain participants in areas such as marketing, agribusiness development and district agricultural staff\. The empowerment of groups would ensure that district planning process has the participation of key stakeholders in the rural community\. The vision for the farmer and savings and loans groups was that from small 3 groups of 15-25 individuals, they would grow into apex organizations of community based organizations such as rural producer organizations and village savings groups\. Component 2: Agricultural Production and Marketing Development (Total: US$6\.4 million; IDA: US$3\.9 million; GEF: US$2\.5 million) comprising: (a) agribusiness and market development; (b) strengthening of extension services; (c) applied research, training and demonstrations; and (d) improved agricultural and agroforestry systems\. Expenditures under this component included limited civil works, equipment, consultancy services and incremental operating costs\. This component was meant to provide technical support for market driven, broad-based sustainable agricultural development\. Through a strengthened extension service, technical assistance would be provided to stakeholders involved in production, marketing and processing of agricultural products\. Contracted studies, applied research, specialized training and awareness campaigns were to be undertaken in such areas as market opportunities identification and development, crop diversification, sustainable land and water management, market information etc\. Component 3: Community Agricultural and Environmental Investment Fund (Total: US$8\.5 million; IDA: US$5\.9 million; GEF: US$1\.7 million; Beneficiaries: US$0\.9 million) comprising the following windows: (a) agriculturally related infrastructure; (b) small-scale agricultural investment; and (c) sustainable land management\. Expenditures under this component included civil works, consultancy services, equipment, and materials for infrastructure, agriculture and agribusiness investments\. The Fund was designed to operate under a demand driven approach linked with the participatory district planning process\. It was meant to provide resources for identified priorities in agriculturally related infrastructure, small scale investment and improved land management\. Component 4: Project Management, Coordination and Monitoring and Evaluation (Total: US$2\.6 million; IDA: US2\.0 million; GEF: US$0\.4 million; Government: US$0\.2 million)\. This was meant to coordinate project implementation within the decentralized set-up at the district level\. Expenditures included consultancy and training and goods and equipment\. This component was meant to provide technical supervision and coordination, work plan and financial reporting functions at district, provincial and national levels\. The component was designed to be congruent with the government’s decentralization initiatives and would utilize existing public sector arrangements as far as possible\. Additionally, the existing inter-ministerial national and provincial steering committees and district consultative councils established under GOM’s Decentralization Law were to be utilized for the Project\. In addition, two key technical staff were recruited; a District Facilitator for each district and a Field Management Advisor who would work across all five districts\. The component also provided funds for intensive monitoring of the Project implementation\. 4 1\.8 Revised Components 14\. The components were not revised\. 1\.9 Other significant changes 15\. A few changes were introduced during the level 2 restructuring which was undertaken after the MTR (approved on May 24, 2012)\. These included: (i) Project implementation arrangements: Setting up a Project Coordination Team (PCT) in the field\. To achieve results on the ground and closer proximity with District Administrations who are key for local project implementation, the consultants hired with the Smallholders project team in Maputo would relocate to the field (to be based at SDAE Morrumbala)\. The Project Manager (hired after MTR) and the Financial Management specialist would continue to be based with DNPDR in Maputo; coordination on the ground would continue to be ensured by the Project Field Coordinator under overall management by the Project Manager and strategic guidance by the DNPDR Project Director\. (ii) Strengthening of the Project Coordination Team: DNPDR hired additional consultants located in the field to meet identified needs: (i) an M&E Service Provider for project monitoring and impact evaluation (Comp\. IV); (ii) a Market/Agribusiness specialist (Comp\. II), and (iii) an Extension/Technology dissemination specialist (Comp\. II); (iii) Modification in Project Scope or Design: Streamlining of activities within components to achieve better integration/synergies of IDA and GEF activities/financing, to enable better monitoring of project implementation, and to address the duplication of subcomponents introduced with the slightly delayed launch of GEF grant (6 months after IDA credit was launched); (iv) Changes to one intermediate outcome target and replacement of one GEO performance indicator, as highlighted in sections 1\.4 and 1\.5 of this ICR; (v) Reallocation of proceeds: to make the necessary adjustments across budget categories; (vi) Extension of the closing date for the IDA Financing Agreement to September 30, 2013 in order to reflect the full integration of the IDA and GEF activity implementation on the ground\. (vii) Revision of the Financing Agreement and the GEF Grant Agreement to reflect the remapping of the DNPDR from MPD to MAE and to take into account all the changes introduced\. 5 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 16\. The project design and preparation were sound and relied upon earlier background analyses which demonstrated that continued economic growth for Mozambique, as the country emerged from the post-conflict period, would have to be based on supporting on a broader-scale environmentally sustainable agricultural intensification among the smallholder farmers, who comprise the majority of the population\. The project was meant to directly complement the implementation of the country’s agricultural strategy, PROAGRI II, by directly mobilizing demand for agricultural and environmental services from the community-level\. The selection of the project area was based on its potential for agriculture and trade through its proximity to the regional markets for agricultural products\. Given the neglect the area suffered as a result of the war, relative to other areas, this was seen as a viable option to integrate the central provinces in the country’s overall development\. 17\. The project implementation was built on the support to the Government of Mozambique’s (GOM) Decentralization Policy and Program where districts were to be the focus of development\. At the time of design, the Bank was supporting the Decentralized Planning and Financing Project (DPFP) (Grant No\.80670), which was operational within the selected project area\. DPFP had a strong emphasis on capacity building and participatory planning at the district level\. It was therefore assumed that the project would benefit from and consolidate the capacity built at the district level\. Furthermore, it was assumed that the synergies created through the two projects would result in valuable experience that could help GOM in its efforts to move to a more horizontal (i\.e\. multi-sectoral), territory-based (i\.e\. district) approach to agriculture and rural development\. 18\. The project heavily relied on the use of the decentralized framework, as this would help consolidate the capacity at the local level, thereby promoting broad-based sustainable development\. The project design also benefited from the complementarity with several World Bank financed infrastructure projects such as the second Roads and Bridges Project, which constructed the Caia Bridge over the Zambezi River and the Beira Railway Project\. These projects contributed to opening the Zambezi Valley to the rest of the country and thus improved the market access conditions for agribusiness entities into the project areas\. 19\. While the design of the project was well informed by the prevailing background analysis, Government’s development programs, and the lessons learnt from the existing projects, it is very clear that the project design overstated the existing capacity at the district level\. At the time of project design, the implementation of the decentralization program was still in its early years\. The capacity development at the district level was still in its formative years\. Many of the capacities relevant for project implementation, such as procurement, financial management, monitoring and evaluation were not adequately available at the district level\. This significantly affected both the quality at entry and therefore the subsequent implementation progress particularly during the initial 6 few years of the project\. Although at project design, low institutional capacity at all levels of GOM and among service providers was identified (and rated substantial in the risk assessment, as per the PAD), the mechanisms put in place to address this critical challenge were neither adequate nor effective, given the low levels of the critical mass of capacity required to kick-start project implementation\. Secondly, the design should have considered a longer-term approach to institutional capacity building, particularly in the situation of Mozambique (as a post-conflict state)\. 2\.2 Implementation 20\. The project experienced a very slow start and low disbursement during the first two years\. This was mainly due to factors related to the inadequate existing capacity and the challenges inherent in the nascent district decentralization framework\. At the beginning, the arrangement was that the project implementation would be undertaken using the existing staffing in the National Directorate for the Promotion of Rural Development (DNPDR) which was under the Ministry of Planning and Development (MPD) but was later placed under the Ministry of State Administration (MAE)\. However, without a dedicated team of staff to be responsible for the day to day coordination of project implementation at the local level, coupled with lack of clear understanding of the project at the district level, implementation stalled\. Moreover, given the alignment of the project implementation within the district decentralization framework, activities at the district level were to be coordinated by the District Administrators\. Given the many coordination responsibilities of the Administrator within the decentralization set-up, the implementation of project activities suffered\. 21\. These initial challenges were well noted by the project team\. These included: (i) the lack of a dedicated team at the national level to coordinate project implementation; (ii) low technical and fiduciary capacity at the district level including financial management, procurement and monitoring and evaluation; (iii) lack of legislative provision for the transmission of public funds to the communities through the CAEIF; and (iv) inadequate understanding of the project at the implementation level\. To address these challenges, a number of important changes were introduced at MTR, such as: (i) establishment of a dedicated project coordination team, including the hiring of the Project Manager who would report to the DNPDR National Director; (ii) hiring of additional staff (on contract) to complement the existing staff; (iii) transferring of some of the key members of the dedicated staff to operate from Morrumbala district within the project area\. Some of these changes started to be implemented immediately after the MTR\. However, the changes which required to be formalized through the amendment of the legal agreements were introduced through a level 2 project restructuring which was approved by Bank Management on May 24, 2012\. The Project Restructuring was requested by the Government in April 2011, and prepared jointly by the Bank and the Project Implementation team in the months that followed\. The time lag between the MTR (March 2010) and the approval of the restructuring (May 2012) was mainly due to the late official submission of the request by the Government and the lengthy discussions which took place to agree on the many changes\. 7 22\. These changes turned around the pace of project implementation significantly\. The new set-up and the placement of dedicated staff closer to the project areas, as well as the availability of a dedicated project manager re-energized the entire team and significant progress started to be achieved\. The other aspect which helped to improve project implementation effectiveness was the integrated planning involving all the project districts, which hitherto, was undertaken by each district almost independent of others\. It is quite clear that had these changes and the associated project restructuring been undertaken much earlier, the project implementation challenges would have been addressed much earlier\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 23\. The initial design entailed that project monitoring and evaluation capacity would be provided by the DNPDR, working with district staff to provide the monitoring framework and create the database required to accurately measure the outcome indicators\. However, due to the capacity challenges already described, particularly at the district level, a decision was made to use the services of consultants, working hand in hand with Government staff as technical counterparts\. A consultant was hired to facilitate the establishment of the initial database which was later discontinued because it lacked data from the districts\. In 2010, the project hired a computer consultant who designed and installed an interactive M&E program linked with the districts, as well as trained district and national level M&E staff\. However, M&E challenges still continued and the DNPDR and the World Bank decided to hire a firm through international tender to operationalize a system of monitoring, reporting and evaluation of the project, and to facilitate the implementation of impact evaluation surveys\. The contract with this firm was discontinued due to poor performance\. Finally the DNPDR proposed to the Bank to directly hire the National Statistics Institute (INE), a public institution with the experience and capacity to undertake impact evaluation surveys\. The INE implemented the impact evaluation at MTR and was also directly hired to implement the final impact evaluation\. 24\. The M&E capacity challenges affected the establishment of an effective M&E system for the project\. The capacity for integrated planning was also highly constrained and this led to inconsistencies across districts in the implementation of project activities\. However, through pro-active efforts on the part of both the World Bank and the DNPDR, the project baseline for the PDO indicator was re-constituted using data from the National Agricultural Surveys (TIA), and this was re-confirmed through the involvement of the World Bank’s DIME team in collaboration with the International Food Policy Research Institute (IFPRI)\. As such, in spite of the initial challenges the project still managed to measure and reconfirm the achievement of the key performance indicators\. 2\.4 Safeguard and Fiduciary Compliance 25\. Environmental safeguards: The EA Category for this project at appraisal was B\. As most of the actual project investments were to be demand-driven and could only be determined during project implementation, the project prepared an Environmental and Social Management Framework (ESMF)\. Four Safeguard Policies were triggered i\.e\. 8 Environmental Assessment (OP/BP 4\.01), Pest Management (OP/BP 4\.09), Involuntary Resettlement (OP/BP 4\.12) and Projects on International Waterways (OP/BP 7\.50)\. The ESMF therefore contained screening procedures for determining if resettlement plan would be required for any particular investment according to the Resettlement Policy Framework (RPF) which was prepared according to the requirements of the OP4\.12\. Both ESMF and the RFP were disclosed in the project districts and provinces and in the Bank’s Infoshop\. The OP/BP 7\.50 was triggered because of the possible water withdrawals for the small irrigation projects implemented in the Zambezi river basin, including the Shire river, a major tributary of the Zambezi River\. Notifications were sent to all riparian countries and none of them objected to the project by the deadline of May 15, 2006\. 26\. In terms of the actual implementation, none of the project activities implemented under the project have had any significant adverse social and/or environmental impacts or risks\. All activities have brought much more positive impacts in terms of improving the livelihood and living conditions of the beneficiaries\. 1 Some of the environmental safeguards coordinated during Project implementation included: the introduction and implementation of the Districts’ land use plans (LUPs) which were preceded by series of technical training on territorial planning aimed at local traditional leaders and government officials; numerous training activities on SLM/NRM for various target groups were also carried out; partnerships with community radios was essential to raise community awareness on the need to comply with environmental safeguards standards\. Particular attention was also given by project implementers and beneficiaries on the need to incorporate issues such as gender and vulnerable groups’ empowerment in line with environmental and social safeguard principles\. An assessment done in April 2013 2 concluded that seed supplies had been improved to minimize production losses, an increasing number of lower income and vulnerable groups were involved in the use of improved honey production techniques, which led to significant reduction of uncontrolled bush fires\. Nearly 77% of groups of beneficiaries eligible under CAIEF-3 funding were already engaged in activities under SLM3\. 27\. Social Safeguards: There were no major negative social impacts and conflicts as a result of the project implementation\. 28\. Procurement: Throughout the Project implementation period, the overall responsibility of carrying out Procurement activities rested at the National Directorate for the Promotion of Rural Development\. As per the Project design, the Project did not have a Project Implementation Unit\. To adequately perform the procurement function, DNPDR recruited an experienced Procurement Officer\. For most of the Project implementation period, procurement activities were coordinated and managed by the 1 DNPDR (2010)\. Report on the joint DNPDR/World Bank project mid-term review 2 Aide-Memoire for the joint DNPDR/World Bank Implementation Support Mission\. May, 2013\. 3 DNPDR (2013)\. Projecto de Pequenos produtores orientado para o mercado\. Relatório Final\. Novembro de 2013 9 recruited procurement officer but had a strong integration of a civil servant who benefitted from on-the-job training\. 29\. At the district level, each district had a civil servant who managed local procurement\. At project design, it was expected that each district would have procurement capacity in place as a result of previous support including that from the Bank-supported Decentralized Planning and Finance Project\. The reality, however, was that the expected capacity did not exist in most of the districts, hence the recruited Procurement Officer was tasked with undertaking intense training and supervision activities to the district civil servant procurement officers\. Another challenge was the continuous relocation of civil servants at the district level, which affected the Project as some of the trained staff moved to other districts for other functions and new procurement officers needed to be hired and trained\. 30\. The implementation of community-based procurement started with important challenges, which required intensive assistance, training and supervision of the Project Procurement Officer to improve performance\. Overall, there was a limited availability of service providers and good suppliers in the Project districts, which often resulted in delays with supply of goods and services by suppliers located in distant cities, mostly in the provincial capital cities of Beira, Quelimane and Tete\. This led to a general thinking, among local authorities, on the need for flexibility of procurement arrangements for community procurements\. However, without adequate capacity in procurement, introducing flexibility would have presented a major risk to the proper utilization (value- for-money) of the project resources\. 31\. Financial Management: The Market led Smallholder Project was the first Bank- financed project in Mozambique to pioneer the use of the country’s FM systems, particularly the government’s single treasury account and the government’s Integrated Financial Management Information System (IFMIS), and with the additional challenge of being implemented at the decentralized level\. The implementation arrangement brought significant challenges with the need to open four Designated Accounts, two of which for funds to flow through the government’s single treasury account and two in commercial banks to cater for payments in foreign currency, as at the commencement of the project the government’s single treasury account could only account for payments in local currency\. Despite such challenges, the Project remained adequately staffed throughout its life, where, the contracted Financial Management Specialist (FMS) was able to train and eventually pass the FM responsibilities to a civil servant who continued to work adequately for the last three years of the project\. The project was also able to meet its FM obligations and there were no overdue Interim Financial Reports (IFRs) and audit reports\. 2\.5 Post-completion Operation/Next Phase 32\. One key advantage of the project design was that activities implemented by communities would be integrated in the district decentralized development framework in order to ensure continuity of support services, such as for example, agricultural extension – through the District Services of Economic Activities (SDAE), which include agriculture\. The DNPDR has also put in place arrangements for some of its officials to be following 10 up and monitoring the project activities, and seeking ways of linking community groups to service providers\. The project design principles have also been adopted by other projects, working on similar development such as for example, the Local Economic Development Project, funded by the European Union to improve value-chain infrastructure, as well as a number of other projects aimed at fostering partnerships between community groups/farmer based organizations and agribusiness investors\. These continued arrangements for supporting community groups will continue to improve the economic prospects for the project areas and therefore create the demand for agricultural commodities\. 33\. The World Bank is also planning to prepare a new project aimed at strengthening agribusiness activities, and will use the lessons from this project in its design and implementation arrangements\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 34\. The overall relevance of the objectives, design and implementation is rated Moderately Satisfactory\. The PDO still remains highly relevant to the country’s overall development objectives\. The country’s inclusive growth prospects largely depend on agriculture which supports 80% of the population\. The Government of Mozambique’s (GOM) recent Agriculture Sector Strategy is characterized by a multi-sectoral approach\. Its strategic objective is to contribute to food security and producer income in a competitive and sustainable manner which guarantees social and gender equity\. The Strategy is built around the four pillars of agricultural productivity enhancement, market access promotion, natural resources management and institutional capacity development\. The sector strategy seeks to achieve annual growth of at least 7% through a combined effect of farm productivity increase and expansion of cultivated area\. The strategy promotes public investments in areas of strong economic potential while supporting local initiatives and private sector participation in various agricultural value chains\. The Strategy is to be implemented along six development corridors, one of which is the Zambezi Valley – where this project was implemented\. 35\. The sound design and relevance of the objectives was affected by the weak capacity at the district and local levels during the initial start-up of the project until the MTR\. At MTR, a number of changes were agreed upon to improve project implementation, but as mentioned earlier in paragraph 21 the project restructuring was undertaken quite late\. As such the overall relevance of the design, objectives and implementation is rated Moderately Satisfactory to reflect implementation challenges encountered particularly during the first few years\. 11 3\.2 Achievement of Project Development Objectives and Global Environment Objectives 3\.2\.1 Achievement of the Project Development Objective 36\. The achievement of the project development objective is rated Moderately Satisfactory\. Although the project development objective was fully achieved, at least one performance indicator was not achieved\. The project development objective was fully achieved because the increase in income from 2007 to 2012 is higher among project beneficiaries compared to the control group\. Table 1 shows the estimated average household income weighted by population size increased in both the project and non- project districts\. Table 1: Population weighted average household incomes in the project area compared to non-project districts (control group) - MZN/household HH Income at HH Income at Increase in District Population1 Population2 Baseline2 End of Project4 HH Income Project Districts Chemba 65,107 1,490 75,061 8,483 -3,007 Maringue 75,089 8,760 88,794 3,512 4,752 Mopeia 115,614 4,930 146,287 10,719 5,789 Morrumbala 361,896 4,690 434,695 3,257 8,567 Mutarara 209,360 6,510 259,031 8,250 1,740 Project Area 827,066 6,089 1,003,868 11,261 5,172 Average income increase within Project Area 85% Non-Project Districts (control) Caia 115,455 9,505 139,510 4,618 -4,887 Nicoadala 232,929 2,039 253,348 9,317 7,278 Control Area 348,384 4,513 392,858 7,648 3,135 Average income increase within non-Project Districts 69% Average Income increase in Project Area compared to average increase in non-Project 65% Districts Source of Information: 12007 Population Census; 22007 TIA data; 3INE Population Projections for 2013 based on the 2007 Population Census; 42012 TIA Data 37\. Within the project area, the average incomes at the end of the project increased by 85% compared to the baseline\. Average incomes increased in all the project districts except Chemba\. 4 In the non-project districts, average household income increased 4 The decline in income in Chemba and Caia could be explained by the fact that these districts are more exposed to natural disasters, particularly floods\. In 2012, the Zambezi River basin was affected with floods, and the two districts were among the most affected, in terms of the proportion of crop areas which were destroyed\. 12 significantly in Nicoadala district but declined in Caia district, compared to the baseline\. Overall average income at the end of the project was estimated at MZN 11,261 per household in the project area compared to MZN 7,648 per household in the control area\. The nominal income increase in the project area (end of project income minus the baseline income) was estimated at MZN 5,172 per household (85% increase compared to the baseline) 5 \. Similarly, the nominal income increase in the non-project area was estimated at MZN 3,135 per household (69% increase compared to the base)\. The increase in income in the project area compared to the non-project area is estimated at 65%)\. Even if we discount the percentage difference in income between the project and non-project areas at the baseline (35%), the increase in income in the project area compared to the non-project area is 30% which is consistent with the PDO target\. As such, we conclude that based on the income figures from the Agricultural Survey Data (TIA Survey), the PDO indicator was fully achieved\. 38\. While issues of attribution between the increase in income and the project interventions have not been fully explored, it is likely that the project contributed significantly to the increase in the income levels achieved in the project area mainly due to the effect of the project interventions on increasing crop yields (see Figure 1 for yields for key crops) as well as the adoption of various income generating activities among communities in the project area\. In the choice of the control districts, it was assumed that Caia and Nicoadala districts have similar characteristics as the five Project districts in terms of the following: same agro-ecological zones since all the seven districts are in the Zambezi Valley in central Mozambique and are adjacent to each other; main crops in all the seven districts include maize and rice; road infrastructure/access to market is better in some districts e\.g\. Morrumbala, Mopeia, Mutarara and Nicoadala than in Maringue and Chemba; all the districts except Maringue, Morrumbala and Nicoadala lie along the Zambezi River\. 39\. Increase in yields was achieved through the following project interventions implemented since 2007: provision of production kits, support for small-scale irrigation, post-harvest facilities and adoption of sustainable farming practices including use of organic fertilizer in combination with reduced quantities of inorganic fertilizer, mulching, crop rotation and use of improved seed varieties\. As shown in Annex 2, about 23,814 smallholder farmers adopted the various productive technologies which were introduced through the project interventions\. The project also facilitated the provision of extension services to farmers in the project area through the construction of 33 houses for extension workers, including provision of transport facilitates and operational support\. This enabled farmers to appropriately use the technologies provided through the project interventions\. Overall average crop yields in the country rarely go beyond 1 mt/ha in most areas 5 It is estimated that prices increased by 45% in both the project and non-project areas\. If we deflated the incomes with the assumed increase in the Consumer Price Index (CPI) of 45%, the resulting income increase remains the same\. We do not show this in Table 1 because the PDO refers to nominal and not real income\. 13 (including the non-project districts) without productivity enhancing interventions (based on yield data from Agricultural Survey 2007 and 2012)\. Figure 1: crop yields (mt/ha) in the project area: 2008 - 2013 3 rice maize sesame Yields in mt/ha 2 1 0 2008 2009 2010 2011 2012 2013 Source: Project Monitoring and Evaluation Records (2008 – 2013) 40\. Income gains were also achieved in the project area because the project introduced and facilitated increased adoption of income generating activities which were supported under the community agricultural and environmental investment fund (CAEIF) established to facilitate community up-take of sub-projects to complement agricultural and natural resource-based livelihood options\. These activities included small-scale irrigation (for vegetable production), bee-keeping for improved honey production, livestock production (chicken and goats), small-scale fishing and other community demand-driven activities\. By the end of the project, a total of 733 community groups had been formed and more than 60 percent of these were involved in these income generating activities (see Annex 2 under component 3)\. Market Linkages 41\. One of the core design features of the project was the creation of market linkages between community producers and buyers\. The project facilitated market linkages with various agribusiness value-chains through promotion of market fairs where community producers were able to show-case their products to buyers\. This was complemented by a number of interventions including: (i) investments in market access infrastructure including bridges, drifts and rural access roads which were constructed using project support in order to open up the project areas to various market opportunities, (ii) promotion of group sales for commodities that traders had indicated willingness to buy in large quantities, (iii) preparation of consultation meetings on crop sales, attended by farmer groups’ representatives and interested traders, and (iv) identification of agribusiness actors that could establish formal contracts with farmers for selected products (e\.g\. honey)\. All these interventions significantly complemented the agricultural incomes, and thereby raising the average household incomes in the project area (as shown 14 in Table 1)\. Both DNPDR and district authorities have shown strong willingness to continue with their implementation\. However, the actual success of these interventions requires long term trust and good faith from both parties (farmers and traders)\. The success depends also on farmers’ and traders’ ability to timely identify the crops they want to trade under these mechanisms, and agree on (and fulfill) the quantities, quality, price, and trading locations and timing\. All this requires time and continued investment\. This aspect may have to be explored further in future projects, including the proposed agribusiness project which is currently under preparation\. Achievement of the intermediate outcomes 42\. Number of community-based organizations: The target was fully achieved as the actual total number of community-based organizations engaged in project supported organizational development activities was 733, which is over 11% more than the target of 660 groups set at appraisal\. The project provided community empowerment through the training on group organization, institutional capacity and on savings mobilizations and loans\. 43\. Number of community groups active in at least one sub-project on CAEIF: Of the total number of community groups formed, about 65% (473 groups – as shown in Table 2) were involved in Community Agricultural and Environmental Investment Funds (CAEIF) activities\. This means that the appraisal target of 600 groups was not fully met\. The main reason why some of the groups could not enlist in some of the CAEIF sub- projects was because some of the sub-projects were introduced much later\. This is due to the fact that the Government took some time to operationalize the CAEIF component due to initial inconsistencies between the cost-sharing grant arrangement and the applicable policy/law that could allow for such an arrangement in Mozambique\. Table 2: Achievement of the intermediate outcomes Original Target Actual Value Formally Baseline Values (from Achieved at Indicator Revised Value approval Completion or Target Values documents) Target Years Number of CBOs engaging in Project supported 0 660 NA 733 organizational development activities Cumulative number of project beneficiaries smallholder farmers’ groups active in at 0 600 NA 473 least one Subproject supported by CAEIF Number of members of savings and loans (SLGs) 0 12,000 6,000 7,291 groups Source: Borrower’s ICR and Project Restructuring Paper 15 44\. Number of members of savings and loans groups (SLGs): This indicator was fully met as the SLGs managed to enlist 7,291 members (over 21% above the revised target of 6000 members)\. The revision of the target indicator at MTR was realistic given the status of implementation at mid-term\. This also achieved significant level of women empowerment as 51% of the members were women\. The general information on the performance of these SLGs is that they were quite successful in mobilizing savings, and as such they also managed to distribute significant amounts on loans to members as shown in Table 3\. The continued functioning of these community savings and loans groups will help sustain the other activities such as small-scale businesses and agricultural production, given that small business owners will be able to access capital and farmers will be able to afford agricultural inputs\. In the absence of formal financial institutions, these SLGs play a critical role in providing financial services in areas where such services would otherwise not be available\. Table 3: Information on savings and loans groups (SLGs) District No\. of No\. of Amounts Credit Loans Amount SLGs members, saved by obtained distributed aside for (of which groups (MZN) to members social fund female) (MZN) (MZN) (MZN) Morrumbala 271 4,392 1,663,360 3,027,869 2,055,242 180,589 (2,162) Mutarara 81 1,066 396,910 797,220 476,632 34,151 (544) Mopeia 40 699 287,671 348,907 348,880 38,789 (409) Maringue 31 510 135,684 184,726 166,541 19,695 (259) Chemba 35 624 251,043 126,425 304,420 32,859 (332) Total 458 7,291 2,734,668 4,485,147 3,351,715 306,083 (3,706) Source: Project Monitoring and Evaluation Records, 2012 3\.2\.2 Achievement of the Global Environmental Objective 45\. The GEO is rated Moderately Satisfactory\. The project, as per the final figures provided by the project M&E, achieved to put 21,313 hectares under sustainable land management practices (see Annex 2) compared to the appraisal target of 20,000 hectares\. The project also managed to achieve all the other GEO performance indictors: as 414 community groups (compared to a target of 250) supported under CAEIF were involved in natural resources management sub-projects; the installation of the VIC model was also achieved, and the model has been tested and calibrated for use in making predictions on the effect of land use and land cover scenarios on the hydrology of the Zambezi river\. The model will continue to be used by the Water Authority in the Zambezi Valley (ARA- Zambezi)\. 16 46\. There is adequate evidence (see Annex 2) that communities and local authorities have been actively engaged in reducing land degradation by increasing the number of sustainable land management practices with particular emphasis on the following: 6 - Increasing interest in CBOs to participate in environmentally friendly income generating sub-projects (supported under CAEIF) such as honey production (including for market sales), community-based forest management practices, and conservation farming activities\. - Capacity building of local farmers along with improvement in the provision of extension (the project districts employed 8 additional extension workers) services seem to be the fundamental factors that have led to the results above\. In addition, the fact that the Project implementation team was relocated to the Project area, has allowed a continued supervision and improvement of activity implementation on the ground\. - Elaboration of Participatory Land and Natural Resources Planning - Land Use Plans (LUP) of Mopeia, Chemba, Mutarara, Morrumbala and Maringue have already been completed and approved by District Governments respectively; series of technical training on planning and territorial ordering and implementation of the LUPs were conducted for 50 district officials\. - Calibration of a VIC Model for the Zambezi River basin: Under the project, the VIC model was tested and applied to simulate and predict changes in land use and land cover scenarios on the hydrology of Zambezi river basin7\. An MoU between the DNPDR and ARA - Zambezi was signed in order for the institution to continue using the VIC model to predict the impact of changes in land use and land cover on basin hydrology in the Zambezi valley\. The institution has managed to calibrate, test and validate the model in order to provide the information dynamic framework (DIF) for use in the prediction\. Technical staff from both ARA- Zambezi and MICOA were trained to undertake regular updating of data that feeds into the model\. The Zambezi - DIF, which includes geo-referenced information (soil, elevation, temperature, rainfall, access roads, watersheds), and is used to generate reports and tables, is expected to be available for public use once it is uploaded on the official ARA – Zambezi’s website\. 6 DNPDR (2013)\. Projecto de Pequenos produtores orientado para o mercado\. Relatório Final\. Novembro de 2013 7 DNPDR (2013) Calibração do Modelo Hidrológico e Elaboração do DIF\. Vol\. 1\. 17 Table 4: GEO indicators Original Target Actual Value Formally Baseline Values (from Achieved at Indicator Revised Value approval Completion or Target Values documents) Target Years Increase in area under improved sustainable land management (SLM) or natural resource 0 20,000 NA 21,313 management practices in Project area by at least 20,000 hectare by Project end Cumulative number of project beneficiaries smallholder farmers’ groups active in at least one natural resources management sub-project 0 250 NA 414 supported by CAEIF under Part C of the Project described in Schedule 1 of the Grant Agreement Predictive and Basin Specific scenarios for land use land cover impacts on hydrology 0 4 NA 4 (flooding and drought) under changing rainfall and evapo- transipiration regimes Variable Infiltration Capacity (VIC) Distributed Hydrological No Yes NA Yes Model installed and operating (introduced after MTR) Source: Borrower’s ICR and Project Restructuring Paper 47\. However, the extent to which these interventions will result in limiting land degradation, providing predictive capacity for assessing vulnerabilities to climate change, and improving the ecosystem's resilience towards climate change in the Zambezi Valley, as per the GEO, largely depends on the community groups capacity not only to maintain these environmentally friendly activities, but also whether these activities will continue to support their livelihoods\. The assessment of the ICR team based on the discussion with project implementation officials shows that most of these activities are likely to be continued because they were demanded by the community groups due to the fact that they offer viable and sustainable livelihoods\. However, continued support and monitoring from government authorities and other stakeholders operating in the project area will be fundamental for the long-term sustainability and replication of these environmental outcomes across and beyond the project area\. It is highly likely that continued support beyond the project is going to be a major challenge given the capacity and resource limitations at the local level\. 18 3\.3 Efficiency 48\. The project efficiency is rated Satisfactory because of the favorable estimated net benefits and rate of returns compared to the appraisal estimates\. The results indicate that the Project was financially and economically viable given the positive discounted net present values and the rate of return\. 49\. Detailed analysis of economic and financial returns was undertaken at appraisal\. These analyses were based on the assumption that the primary economic benefits as a result of the Project would accrue from increased agricultural productivity due to the agricultural interventions such as crop production support through the introduction of improved varieties, the provision of extension services (and production kits provided through community facilitators), coupled with sustainable land management practices and investment sub-projects supported through the CAEIF\. The methodology for the estimation of the economic and financial returns at appraisal was based on representative farm models for traditional food crops and newly introduced cash crops, with production valued at 2005 farm-gate prices\. Key assumptions were made regarding the production costs and yields, as detailed in Annex 3\. The results indicated that the economic and financial net benefits (in terms of net present values) were US$ 1\.8 million and US$ 0\.5 million, respectively\. The economic and financial rate of return was estimated at 15% and 13%, respectively (see Table 5)\. Table 5: Appraisal estimates NPV IRR (%) (US$ million) Economic 1\.8 15% Financial 0\.5 13% Source: Project Appraisal Document, 2006\. 50\. The ICR mission re-estimated the economic and financial returns of the project based on the data collected through the final project impact evaluation, in order to validate the appraisal estimates\. While the estimation approach is the same as at appraisal, there are two fundamental differences between the estimation at appraisal and at ICR: (i) most of the assumptions have been revalidated using actual data obtained after project implementation; and (ii) the appraisal estimates did not include the expected net benefits from the sub-projects supported through the CAEIF because at the time of appraisal, the CAEIF sub-projects were not known with certainty, as this component was to be demand- driven by the community groups once they were put in place and properly trained\. 51\. The results indicate that the project economic and financial returns remained positive, with discounted net benefits estimated at US$ 3\.74 million and US$ 1\.6 million, for the economic and financial net benefits, respectively\. The economic and financial internal rates of return have been estimated at 18% and 14%, respectively\. These higher returns are attributed to increased crop production (both food and cash) and the increased adoption of income generating sub-projects supported under the CAEIF\. It should be noted that the net benefits related to community and institutional capacity building as well as the long-term benefits of the environmentally sustainable land management 19 practices have not been fully incorporated in the analysis, due to methodological challenges\. It is therefore highly likely that the overall net benefit and rate of return for the project should be much higher than estimated\. Table 6: End of project estimates of economic and financial returns8 End of project End of End of project End of project ENPV project FNPV FRR (%) (US$ million) ERR (%) (US$ million) Food crops/1 1\.39 17 0\.4 14 Cash crops/2 1\.32 19 0\.7 17 CAEIF 1\.03 15 0\.5 12 subprojects/3 Overall 3\.74 18 1\.6 14 Source: End of project estimates based on Impact Evaluation data, 2013; Appraisal estimates based on the Project Appraisal Document (Annex 9)\. 1/ includes: maize, rice, beans, pigeon peas and cassava 2/includes: seed cotton, paprika, sesame, vegetables (horticulture) 3/includes: poultry, small ruminants (goats) and honey production 52\. The analysis shows that project returns are highly sensitive to changes in yields and output prices, particularly for the food and cash crops\. A more than 10% reduction in the estimated yield levels lowers the rate of return below the discount rate which was assumed at 12%\. Similarly, output prices mainly for cash crops such as sesame, paprika and vegetables are critical to ensure continued viability of the project activities\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating 53\. Overall project outcome is rated as Moderately Satisfactory\. This rating is based on the high relevance of the Project objectives, the Moderately Satisfactory rating for both the project development and global environmental objectives, as well as the favorable estimated economic rate of return\. The achievement of the outcome as well as the impact of the project were significantly facilitated by the positive changes made during the MTR\. Two key shortcomings have been highlighted that justify the proposed ICR outcome rating: (i) the achievement of some key outcome indicators being slightly below the target levels e\.g\. the number of smallholder farmer groups active in at least one CAEIF supported sub-project and (ii) the inadequate institutional capacity, particularly for M&E which affected the establishment of an effective framework for monitoring project implementation and measuring the outcome indicators which remained an issue for most of the project implementation\. 8 The differences in the economic and financial returns are explained by the difference between financial and economic price assumptions used in the analysis\. 20 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 54\. Targeting and beneficiary selection: Even though the PAD indicate that the project would directly benefit 20,000 smallholder households in the project area, the project implementation manual did not elaborate on the targeting and beneficiary selection criteria\. During Project implementation, a decision was made to implement the project through community groups (as indicated in the Project Implementation Manual)\. However, due to lack of clear targeting and beneficiary selection criteria, the number of project beneficiaries, both in terms of individual households and community groups far exceeded the appraisal targets\. While this is important in that it increased social inclusion, and that many people benefited in terms of production gains, and overall income increase in the project area, it is also likely that the resources were spread too thinly\. During the discussion with the implementation officials, it was indicated that the use of the targeting and beneficiary selection criteria could not be uniformly applied across all districts because of different levels of understanding among staff at the district level\. This was also partly attributed to lack of uniformity in understanding the project documents (particularly at the district and local levels)\. 55\. Interface between agriculture and natural resources management: The interface between agricultural and natural resources interventions created the basis for long-term approaches to reduce vulnerability and strengthened the communities focus beyond the immediate subsistence needs\. As a result, to the extent that community empowerment process on sustainable land use was consistent and effective, it likely that the project has left behind communities that are well equipped to better cope with the effects climate change by avoiding destructive tendencies such as unsustainable intensification, including setting up of bush fires\. The challenge remains how to replicate and scale-up such community empowerment across the other provinces of Mozambique\. The PAD indicated that the Replication Strategy and Action Plan would be prepared before the end of the project\. However, it is unclear whether this strategy has been prepared and whether arrangements have been made within the framework of the decentralization process to provide the resources to support its implementation\. 56\. Gender: Overall, the project did very well to encourage the participation of women as direct beneficiaries in various project activities\. For example, there was very strong participation of women in agricultural production activities and in the CAEIF sub- project community group activities including the savings and loans groups where 51% of the members were women\. Given the important role women play in livelihood activities at the household level in many parts of sub-Saharan Africa, including Mozambique, it was very important that this project emphasized on women empowerment as a basis for building the capacity for sustainable livelihoods\. 57\. Spillover effects: The project resulted in numerous secondary beneficiaries including agribusiness value-chain players and commodity processors (such as honey producers) who were able to source the supply for intermediate raw materials for their commodities\. Similarly agricultural input traders also benefited because the increase in 21 agricultural production activities entailed an increase in effective demand for agro-inputs\. The project facilitated the market fairs which brought together agribusiness industry players from other provinces, including those operational in neighboring South Africa to interface with farmers thereby creating the demand for their products\. (b) Institutional Change/Strengthening 58\. This is the first project which tested the implementation of the fiscal decentralization framework – whereby resources were transferred from the Treasury straight into the district accounts\. Although this proved challenging in the beginning, by testing the decentralization framework, the project provided an opportunity to address some of the systemic capacity challenges, and also helped create the essential management, technical and fiduciary capacities required for an effective decentralization system\. The project therefore helped to consolidate the implementation of the district decentralized framework, thereby contributing towards building longer term capacity and institutional development in Mozambique\. 59\. At the community-level, the project helped to establish the framework for generating local development through the empowerment of community groups and the creation of social capital required to effectively mobilize community development\. The project also improved the plight of women and vulnerable groups (as indicated in Annex 5 on beneficiary perceptions), re-dynamized local farmers and the political economy and helped foster more social cohesion, accountability and stability\. The project has left a strong legacy among rural communities in the targeted 5 districts\. (c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 60\. The project did not undertake a beneficiary survey and/or stakeholder workshop because towards the end of the project implementation, elements of the emergence of conflicts between the Government and the opposition (RENAMO) started surfacing and affected some parts of the project area\. However, from various project documentaries, the Project prepared a compilation of beneficiary success stories and perceptions, extracts of which are included as part of the GoM’s ICR, as summarized in Annex 4 of this ICR\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome 61\. The risk to the development outcome is rated Substantial\. While the project interventions were demand-driven, i\.e\., chosen by communities on the basis of their importance in sustaining their livelihoods, they were more appropriate to the local context and well tested by the communities and are therefore likely to be continued\. There is substantial risk that without adequate support and availability of competitive markets for the agricultural and other commodities, the development outcomes may not 22 be sustained\. Furthermore, although there is demonstrated high level of national and local ownership for the project activities, capacity and resource constraints at the district and local levels will make it difficult to sustain the provision of public sector services required by the communities such as agricultural extension beyond the project period\. 9,10 62\. Similarly the risk to the global environmental outcome is rated Substantial\. The inclusion of the GEF component in an agricultural project implies that communities have been provided with the necessary capacity on production practices which are sustainable, allowing communities to be able to adapt to the changing contexts, brought about by the effects of climate change\. However, without the continued support to the community groups, mostly due to lack of relevant capacity at the district level, the continuity of the sustainable land management practices is likely to be affected\. 63\. The other major factor which may raise the risk to the development and global environmental outcomes is the possible escalation of the conflict which is now emerging and may affect large parts of the project area, with obvious challenges on both the local, provincial and national institutional capacity\. Although this risk was not anticipated at design and is outside the control of the project, it is considered critical in the assessment of the risk to the development outcomes\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry 64\. Rating: Moderately Satisfactory\. The quality at entry is rated Moderately Satisfactory because the project design overstated the existing capacity when it should have been very clear that capacity at all levels was a major and binding constraint to effective project implementation\. This was particularly critical given that the Project was designed to be implemented by GoM institutions, without a PIU\. The project envisaged quite correctly the need to build the capacity at the district and community levels in order to ensure effective uptake of the project interventions, on a demand-driven basis\. However, the approach for building the capacity was neither adequate nor effective particularly in critical areas such as financial management, procurement, and monitoring and evaluation\. The design should have examined these issues, given that it was one of the first projects which would be implemented through the district decentralization framework, largely using the country’s own systems\. This design limitation had far- reaching implications which persisted throughout the project period\. 9 PAD - Market-led smallholder development in the Zambezi valley project 10 GoM – PARPA II - Plano de Acção de redução da pobreza absoluta 23 (b) Quality of Supervision 65\. Rating: Moderately Satisfactory\. The Project benefitted from close monitoring and implementation support by the Bank team\. Implementation support missions were undertaken consistently, both the mission aide memoires and implementation status reports flagged key issues related to capacity challenges, especially on M&E and the fiduciary responsibilities at the district level\. The team also proactively undertook a detailed Mid-Term Review which brought changes which turned around project implementation in a very significant way\. The strong participation of the country office (three of the Task Team Leaders were country-based) strengthened the close monitoring of progress\. However, the delay in undertaking the restructuring of the project (more than one year after the MTR) affected project implementation\. Furthermore, the challenges on M&E were not adequately and consistently addressed during the early years of the project\. (c) Justification of Rating for Overall Bank Performance 66\. Rating: Moderately Satisfactory\. Based on the performance ratings at entry and during supervision, the overall Bank performance is rated Moderately Satisfactory\. It reflects a well-designed and relevant operation with respect to country development priorities, as well as close and professional implementation support provided to the Project\. However, the design should have adequately examined the capacity challenges in view of the relatively new decentralization framework, the project should have been restructured much earlier and the team should have been more proactive to address the challenges with M&E\. 5\.2 Borrower Performance (a) Government Performance 67\. Rating: Satisfactory\. The GOM supported the implementation of this project, as designed and provided clear policy guidance with regard to the decentralization policy and its operational framework at the district level\. The GOM also respected the requirement for funds to be directly transferred to the district level\. There were no issues which affected the implementation of the project due to lack of clarity of government policy and/or strategic guidance\. Government also continued to support DNPDR, the department which was responsible for providing overall oversight and coordination in the implementation of the project\. Even though the GOM relocated the department from the MPD to the MAE, this change did not affect the department’s responsibilities with regard to project implementation\. Finally, GOM lived up to its obligations in terms of honoring its counterpart contribution to the project\. 24 (b) Implementing Agency or Agencies Performance 68\. Rating: Moderately Satisfactory\. Although the DNPDR initially struggled to create the dedicated team of staff to be responsible for project implementation, when this team was put in place, it comprised staff that were highly proactive and responsive to project implementation issues\. After the changes introduced at MTR, the team was so well organized, ensured integrated planning and made sure that the project adhered to implementation procedures and guidelines, maintained good working relationship with the Bank team and ensured adequate fiduciary oversight by preparing and submitting audited financial statements, maintained financial integrity, filed financial monitoring reports with the Bank, timely production and submission of annual progress reports\. The main challenge is that the DNPDR was unable to establish an effective project M&E system to measure project progress\. This role was performed by hired consultants, including the INE, albeit not in an effective and consistent manner as would have been envisaged in a project of this nature\. A number of challenges were also experienced with financial management at both the center as well as the district level\. (c) Justification of Rating for Overall Borrower Performance 69\. Rating: Moderately Satisfactory\. Based on the combination of the two ratings above, overall Borrower performance is rated as Moderately Satisfactory\. It reflects a real Government’s willingness to facilitate project implementation and to achieve desired project development objectives, in spite of the capacity challenges faced\. 6\. Lessons Learned The following are the key lessons from the implementation of the project: 6\.1 General Lessons 70\. The design of projects for implementation under decentralized arrangements, using country systems, should critically examine the existing capacity at all levels: The design should assess the capacity of the entity to handle project activities (fiduciary requirements) and propose how sufficient capacity will be developed, if needed\. While the Bank is focusing on building institutional capacity in our client countries the use of dedicated project implementation teams should be considered as an option in countries where the use of Government agencies would entail over-riding fiduciary concerns\. 71\. Institutional capacity development requires long-term engagement: In order to build the strong decentralization capacity at local, district and national levels, this project should have considered a long-term approach; using flexible lending instruments e\.g\. Adjustable Program Loan (APL) in order to ensure consistent and continued support for a longer period of time than the planned five year period\. This would have provided the flexibility, learning and accumulation of capacity required for long-term institutional development\. Apart from the limited sensitization of implementers at the district and 25 local levels, the project should have put in place a longer-term training and capacity development plan for key implementers in order to ensure full understanding of the project design and implementation arrangements required to adhere to applicable Bank procedures\. 6\.2 Project Specific Lessons 72\. The sustainability of community empowerment requires continued government follow-up, facilitating appropriate linkages with service providers and agribusiness value-chain players: The smallholder’s project was a truly community empowerment project as it enlightened women and vulnerable groups, re-dynamized local farmers and the political economy and helped foster more social cohesion, accountability and stability\. The project has left a strong legacy among rural communities in the targeted 5 districts\. The creation of market linkages between communities and agribusiness value-chain players is critical in order to sustain the development outcomes\. The project provided an opportunity for workable model of market fairs which brought together producers and buyers\. Given the success that this has represented, it should be continued and perhaps scaled-up in other areas with Government’s own funds and future support from the development partners including the World Bank\. Continued follow-up is required by Government and non-governmental institutions to ensure that the district authorities have the capacity to link up the communities with service providers, more especially agricultural extension, including livestock management\. With continued support, the communities are likely to continue to produce quality commodities which will attract agribusiness value-chain players\. 73\. Targeting and beneficiary selection: There is need for clear targeting and beneficiary selection criteria in order to maximize project impact\. Otherwise, it appears that during the implementation of the project, there was no strict adherence to the beneficiary selection resulting in spreading the resources too thinly and this often compromises the project impact\. It is always good practice to ensure that the targeting and beneficiary selection criteria is well spelt out in the Project Implementation Manual, and that its application is as participatory as possible to ensure that it is fully understood by all stakeholders\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 74\. While the Borrower agrees with the overall storyline and the ratings in the Bank ICR, the Borrower’s perception is that the project was a success because of the institutional capacity it has helped to establish, and the livelihood opportunities that have been created at the local level\. The key lasting achievement is the institutional capacity, which started at a very low base, and needs to be built upon\. On Government performance, it is important to balance between long term development goals and short term Project indicators and targets\. It would not be conceivable to achieve long-term development goals within a short period of time\. There is need to build upon the successes of the project\. 26 75\. The Borrower’s impression is that the Bank team seemed to have some tendency to interfere in Project implementation particularly when things were slow on the Government side, but at the end of the day the Bank promoted dialogue and helped the Government to understand the Bank rules and procedures, and to keep focus on results\. The key lesson is that the Project was designed under the assumption that the Government would have the necessary implementation capacity, but this was a challenge particularly at the district level, mainly for financial management, procurement and monitoring and evaluation\. For financial management, this further complicated with the need to use clientconnection, with electronic signatures starting at some point of Project implementation, which was far beyond the capacity at the district level\. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 27 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Market led Smallholder Development in the Zambezi Valley - P093165 Appraisal Actual/Latest Estimate Percentage of Components Estimate (USD (USD Appraisal millions) millions) 1\. Community group org\. and local 7\.3 5\.9 80% institutions strengthening 2\. Agricultural production and 4\.2 3\.8 90% marketing development 3\. Community agricultural and 4\.3 4\.4 102% environmental investment fund 4\. Project management, coordination, and Monitoring and 5\.4 4\.1 76% Evaluation Disbursed amount but still in - 2\.6 designated accounts Total Project Cost 20\.0 Project Preparation Facility 0\.4 0\.4 100% Total Financing Required 21\.5 21\.02 98% Market-Led Smallholder Development in the Zambezi Valley - P098040 Appraisal Actual/Latest Estimate Percentage of Components Estimate (USD (USD Appraisal millions) millions) 1\. Community group org\. and local 0\.9 0\.8 89% institutions strengthening 2\. Agricultural production and 2\.5 2\.5 100% marketing development 3\. Community agricultural and 1\.9 1\.5 80% environmental investment fund 4\. Project management, coordination, and Monitoring and 0\.9 0\.5 56% Evaluation Disbursed amount but still in - 0\.8 designated accounts Total Project Cost Project Preparation Facility 0\.0 0\.0 Total Financing Required 6\.2 6\.1 98% 28 (b) Financing P093165 - Market led Smallholder Development in the Zambezi Valley Appraisal Actual/Late Percentag Type of Estimate st Estimate Source of Funds e of Financing (USD (USD Appraisal millions) millions) Borrower Parallel 0\.3 0\.24 80\.00 Beneficiaries Parallel 0\.9 0\.9 100\.00 International Development Parallel/Blending 20\.00 0\.00 \.00 Association (IDA) Global Environment Facility Parallel/Blending 6\.20 0\.00 \.00 (GEF) 29 Annex 2\. Outputs by Component Component 1: Community Group Organization and Local Institutional Strengthening Output Indicator: Number of CBOs engaged in Project activities Baseline District Value Target Results Achievements Morrumbala 0 317 335 106% Mutarara 0 145 135 93% Mopeia 0 75 104 139% Chemba 0 65 79 122% Maringue 0 58 80 138% Project Area 0 660 733 111% Output Indicator: Number of Groups with at least one CAEIF sub-project Baseline District Value Target Results Achievements Morrumbala 0 288 141 49% Mutarara 0 132 107 81% Mopeia 0 68 85 125% Chemba 0 59 74 125% Maringue 0 53 66 125% Project Area 0 600 473 79% Output Indicator: Number of Members of Savings and Loans Groups Baseline District Value Target Results Achievements Morrumbala 0 2900 4392 151% Mutarara 0 1300 1066 82% Mopeia 0 700 699 100% Chemba 0 600 624 104% Maringue 0 500 510 102% Project Area 0 6000 7291 122% Output Indicator: Number of District Land use Plans Baseline District Value Target Results Achievements Morrumbala 0 1 1 100% Mutarara 0 1 1 100% 30 Mopeia 0 1 1 100% Chemba 0 1 1 100% Maringue 0 1 1 100% Project Area 0 5 5 100% Output Indicator: Number of trainings on participatory preparation of district land use plans Baseline District Value Target Results Achievements Morrumbala 0 3 1 33% Mutarara 0 3 1 33% Mopeia 0 3 2 67% Chemba 0 3 2 67% Maringue 0 3 3 100% Project Area 0 15 9 60% Component 2: Agricultural Production and Marketing Development Output Indicator: Number of smallholders adopting demonstrated technologies Baseline District Value Target Results Achievements Morrumbala 0 7600 9790 129% Mutarara 0 3500 4241 121% Mopeia 0 1800 5637 313% Chemba 0 1300 1640 126% Maringue 0 1400 2506 179% Project Area 0 15600 23814 153% Output Indicator: Productivity of Key Crops (metric tons/ha) Baseline Crop Value Target Results Achievements Rice 1\.5 2\.01 134% Maize 1\.34 1\.52 113% Sesame 1\.08 0\.77 71% Output Indicator: Area with sustainable land management practices Baseline District Value Target Results Achievements Morrumbala 0 9500 8543 90% Mutarara 0 4400 3859 88% Mopeia 0 2600 4904 189% Chemba 0 1600 1620 101% 31 Maringue 0 1900 2387 126% Project Area 0 20000 21313 107% Component 3: Community Agricultural and Environmental Investment Fund Output Indicator: of CAEIF sub-project on public infrastructure Baseline District Value Target Results Achievements Morrumbala 0 49 47 96% Mutarara 0 32 42 131% Mopeia 0 14 9 64% Chemba 0 12 16 133% Maringue 0 11 6 55% Project Area 0 118 120 102% Output Indicator: Number of productive CAEIF sub-projects Baseline District Value Target Results Achievements Morrumbala 0 144 497 345% Mutarara 0 66 182 276% Mopeia 0 43 169 393% Chemba 0 30 184 613% Maringue 0 26 164 631% Project Area 0 309 1196 387% Output Indicator: Number of SLM / GEF CAEIF sub-projects Baseline District Value Target Results Achievements Morrumbala 0 67 121 181% Mutarara 0 65 91 140% Mopeia 0 40 67 168% Chemba 0 40 70 175% Maringue 0 38 65 171% Project Area 0 250 414 166% Typology of CAEIF Sub-projects by Component District Total Sub-Project Morrumbala Mutarara Mopeia Maringue Chemba Public infrastructure Drifts 7 1 2 2 4 16 Bridges 9 4 3 0 1 17 Marketplaces 6 4 4 0 3 17 32 Vaccination facilities 0 18 0 1 0 19 Rural roads 24 15 0 1 8 48 Dip tanks 1 0 0 0 0 1 Sub-total window 1 47 42 9 4 16 118 Productivity sub-projects Hummer mills 9 9 6 6 12 42 Threshing machines 40 18 15 10 10 93 Small-scale Irrigation 2 6 1 2 7 18 Animal traction 26 23 13 8 26 96 Chicken rearing 3 0 0 1 0 4 Goats multiplication 7 8 0 0 0 15 Productivity kits to FCs 16 18 14 17 16 81 Improved silos 394 100 120 120 113 847 Sub-total window 2 497 182 169 164 184 1,196 SLM / GEF sub-projects Community forestry 18 8 5 5 12 48 Improved honey prod 55 61 26 57 43 242 Forestry nurseries 0 0 0 3 3 6 Small-scale fishing 48 22 22 0 12 104 Sub-total window 3 121 91 53 65 70 400 Grand Total 665 315 231 233 270 1,714 33 Annex 3\. Economic and Financial Analysis Detailed analysis of economic and financial returns was undertaken at appraisal\. These analyses were based on the assumption that the primary economic benefits as a result of the Project would accrue from increased agricultural productivity due to the agricultural interventions such as crop production support through the introduction of improved varieties, the provision of extension services (and production kits provided through community facilitators), coupled with sustainable land management practices and investment sub-projects supported through the CAEIF\. The methodology for the estimation of the economic and financial returns at appraisal was based on representative farm models for traditional food crops and newly introduced cash crops, with production valued at 2005 farm-gate prices\. Key assumptions were made regarding the production costs and yields, as detailed in Table A3\.4\. The results indicated that the economic and financial net benefits (in terms of net present values) were US$ 1\.8 million and US$ 0\.5 million, respectively\. The economic and financial rate of return was estimated at 15% and 13%, respectively (see Table A3\.1)\. Table A3\.1: Appraisal estimates NPV IRR (%) (US$ million) Economic 1\.8 15% Financial 0\.5 13% Source: Project Appraisal Document, 2006\. The ICR mission re-estimated the economic and financial returns of the project based on the data collected through the final project impact evaluation, in order to validate the appraisal estimates\. While the estimation approach is the same as at appraisal, there are two fundamental differences between the estimation at appraisal and at ICR: (i) most of the assumptions have been revalidated using actual data obtained after project implementation; and (ii) the appraisal estimates did not include the expected net benefits from the sub-projects supported through the CAEIF because at the time of appraisal, the CAEIF sub-projects were not known with certainty, as this component was to be demand- driven by the community groups once they were put in place and properly trained\. The results indicate that the project economic and financial returns remained positive, with discounted net benefits estimated at US$ 3\.74 million and US$ 1\.60 million, for the economic and financial net benefits, respectively\. The economic and financial internal rates of return have been estimated at 18% and 14%, respectively\. These higher returns are attributed to increased crop production (both food and cash) and the increased adoption of income generating sub-projects supported under the CAEIF\. It should be noted the net benefits related to community and institutional capacity building as well as the long-term benefits of the environmentally sustainable land management practices have not been fully incorporated in the analysis, due to methodological challenges\. It is therefore highly likely that the overall net benefit and rate of return for the project should be much higher than estimated\. Furthemore, the effects on the fiscus as a result of the broader tax base created through the vibrant rural production and businesses created from 34 the CAEIF sub-projects have not been factored into the analysis due to lack of credible data\. Table A3\.2: End of project estimates of economic and financial returns End of project End of End of project End of project ENPV project FNPV FRR (%) (US$ million) ERR (%) (US$ million) Food crops/1 1\.39 17 0\.4 14 Cash crops/2 1\.32 19 0\.7 17 CAEIF 1\.03 15 0\.5 12 subprojects/3 Overall 3\.74 18 1\.6 14 Source: End of project estimates based on Impact Evaluation data, 2013; Appraisal estimates based on the Project Appraisal Document (Annex 9)\. 1/ includes: maize, rice, beans, pigeon peas and cassava 2/includes: seed cotton, paprika, sesame, vegetables (horticulture) 3/includes: poultry, small ruminants (goats) and honey production The key assumptions used for the analysis of economic and financial returns at appraisal (and updated at ICR) are provided in Table A3\.3\. The table shows the baseline income flows, costs and net benefits (margins) for both project and non-project scenarios\. These are projected for the project period and using appropriate discounting assumptions (as highlighted in paragraph 47), the net discounted benefits (NPV) and rates of return are computed\. Note that the with project scenario includes additional commodities such as vegetables, poultry, small ruminants and honey production, reflecting the community- level income generating activities which were introduced under the CAEIF component\. Table A3\.3: Crop models with and without project scenarios11 Production Labour Yield Price Income Margin Margin/day costs (days) (ton/ha) (MZN/kg) (‘000 (‘000 MZN) MZN) Without project scenario Maize 70 72 1\.2 3\.0 3,600 3,530 49 Seed 550 110 0\.55 5\.0 2,700 2,200 20 cotton Rice 450 165 1\.0 5\.0 5,000 4,550 28 Beans 60 60 0\.4 4\.5 1,800 1,740 29 Pigeon 60 60 0\.5 4\.0 2,000 1,940 32 peas Cassava 60 60 4\.0 0\.8 3,200 3,140 52 With project scenario 11 35 Maize 1,650 76 2\.0 3\.0 6,000 4,350 57 Seed 550 130 0\.8 5\.0 4,000 3,450 27 cotton Paprika 1,450 250 0\.7 14\.6 10,200 8,770 35 Rice 3,000 157 3\.0 5\.0 15,000 12,000 76 Beans 500 64 0\.6 4\.5 2,700 2,200 20 Pigeon 100 65 0\.7 4\.0 2,800 2,700 34 peas Sesame 30 60 0\.5 11\.0 5,500 5,470 42 Cassava 100 65 7\.0 0\.8 5,600 5,500 85 Vegetables 1,800 350 8\.0 5\.0 40,000 22,000 63 Poultry 100 140 10\.0** -- 45,000 44,900 321 Small 80 130 2\.0** -- 75,000 74,920 ruminants 576 Honey 120 160 7\.0** 150* 79,565 79,445 production 497 ** For poultry, the yield is the average number of birds per group; for small ruminants it is the average number of animals per group; and for honey, it is the average liters of honey produced per beehive\. * For honey, the price is MZN/liter; the other prices are per head\. Table A3\.4: Area covered with project interventions (ha) Baseline Year2 3 4 5 6 Maize 4,000 4,000 8,000 12,000 16,000 20,000 Seed 1,000 1,000 2,000 3,000 4,000 5,000 cotton Paprika 20 20 40 60 80 100 Rice 40 40 80 120 160 200 Beans 400 400 800 1,200 1,600 2,000 Pigeon 600 600 1,200 1,800 2,400 3,000 peas Sesame 100 100 200 300 400 500 Cassava 1,600 1,600 3,200 4,800 6,400 8,000 Vegetables 50 50 100 150 200 250 Poultry 0 3 0 0 1 0 Small ruminants 0 7 8 0 0 0 Honey production 0 55 61 26 57 43 Note: for poultry, small ruminants and honey production, the numbers represent groups 47\. Other assumptions based on similar analysis on projects within the region were used\. The key assumptions include the following: 1\. Where data is significantly inconsistent and/or unreliable, fairly conservative assumptions have been made\. An improvement in this analysis is that actual activity output estimates from the beneficiaries (based on the impact 36  evaluation) as well as input and output prices have been used instead of informed assumptions as was the case at appraisal\. 2\. A 15 year time horizon is considered for the full project build-up of costs and benefits based on individual activity or activity groups assuming a 10 year horizon\. 3\. The value of beneficiaries’ output for all activities were assumed to increase by 0\.5% per year (in the project area) and 0\.2% per year in the non-project area, reflecting the differences in technology adoption and related productivity gains\. 4\. Input costs include fertilizer, seeds, establishment costs, farm implements, labour and cost of feed (for small ruminants and poultry) and other capital requirements\. Output prices assume low quality, rural level prices\. 5\. Family labor is valued at the rural labor rate (informal labor) equivalent to 60% of the average rural wage, as the opportunity cost in the remote rural areas where alternative gainful employment is scarce\. 6\. A discount rate of 12% is used, in line with the rate used in most economic analyses\. The current discount rate for Mozambique is likely to be higher than 12%\. 7\. Significant distortions in the economy in input costs (e\.g\. fertilizer) and output prices are assumed to be minimal\. Therefore, the difference between financial and economic costs and prices are due to the tax and other levies on inputs\. 8\. The non-farm multiplier from the linkage effect of a change in farm production and cash on the local economy is assumed to be 1\.5, given that the local economy is driven by the agricultural sector\. 9\. Overall project costs include the component costs as estimated at project appraisal as given in Annex 4 of the PAD\. 10\. Some benefits have not been included in the analysis because they are either difficult to value, or due to lack of reliable data e\.g\. value of assets such as village grain silos, irrigation equipment, rural access infrastructure etc\. Benefits from interventions under component 1 (capacity building and group formation) have not been included in the analysis of economic returns\. 48\. Sensitivity analysis: The sensitivity analysis shows that project returns are highly sensitive to changes in yields and output prices, particularly for the food and cash crops\. A more than 10% reduction in the estimated yield levels lowers the economic rate of return to 11%, below the discount rate which was assumed at 12%\. Similarly, a more than 10% reduction in output prices mainly for cash crops such as sesame, paprika and vegetables reduces the economic rate of return to less than 10%\. Similar results are obtained when input costs are also increased\. As such, sustaining productivity gains and ensuring that farmers continue to access better markets for their output, as well as competitive prices for key inputs, are critical factors for the continued viability of the project activities\. 50\. On the basis of the economic rate of return analysis based on data provided from the end of project evaluation, the results indicate that the project achieved positive returns\. It is important to note that the analysis is limited to components for 37 which objective data is available\. As such, it is likely that the social return for the project is much higher than can be empirically demonstrable\. 38 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Alberto Ninio Chief Counsel LEGEN Anil S\. Bhandari Consultant AFTG1 Caroline L\. Guazzo Language Program Assistant AFTCS Daniel Liborio Da Cruz Sousa Consultant AFTA1 Team Member Eduardo Luis Leao de Sousa Senior Economist AFTA1 Team Member Gilberto de Barros Senior Private Sector Development AFTFW Team Member Joao Tinga Financial Management Specialist AFTME FM Josef Ludger Loening Consultant MNACE Katherine Kuper Sr\. Urban Spec\. AFTU1 Leonard John Abrams Consultant AFTU1 Luisa Moises Matsinhe Senior Executive Assistant AFCS2 Team Assistant Slaheddine Ben-Halima Consultant MNAPC Supervision/ICR Amos Martinho Malate Procurement Analyst AFTPE PS Senior Rural Development Aniceto Timoteo Bila AFTA2 Team Member Specialist Anne Louise Grinsted Consultant AFTP1 Anne Ritchie Consultant HDNSP Antonio L\. Chamuco Senior Procurement Specialist AFTPE PS Boris Enrique Utria Country Operations Adviser LCC5C Sector Leader Sr\. Financial Management Brighton Musungwa AFTME Specialist Caroline L\. Guazzo Language Program Assistant AFTCS Celia Faias Team Assistant AFCS2 Team Assistant Cheikh A\. T\. Sagna Senior Social Development Spec AFTCS Social Safeguards Daniel Liborio Da Cruz Consultant AFTA1 TTL Sousa LEGAF- Eduardo Brito Senior Counsel Lawyer HIS Elvis Teodoro Bernado Financial Management Specialist AFTME FM Langa Erick C\.M\. Fernandes Adviser LCSAR Advisor Florence Kondylis Senior Economist DECIE Economist Joao Tinga Financial Management Specialist AFTME FM AFTWR- John A\. Boyle Consultant HIS Jonathan Nyamukapa Sr Financial Management Specialist AFTME FM 39 Leonard John Abrams Consultant AFTU1 Luisa Moises Matsinhe Senior Executive Assistant AFCS2 Team Assistant Lungiswa Thandiwe Gxaba Consultant AFTTR Env\. Safeguards Luz Meza-Bartrina Senior Counsel LEGAM Layer Mohamed Arbi Ben-Achour Consultant AFTN2 Patrick Verissimo Lead Rural Development Specialist SASDA TTL Pedro Arlindo Agric\. Economist AFTA2 TTL Rui Manuel Benfica Consultant DECPI Slaheddine Ben-Halima Consultant MNAPC Susan Hume Senior Operations Officer AFTFE CPC CTRFC- Suzanne F\. Morris Senior Finance Officer FM His Teresa De Jesus S\. McCue Operations Analyst CAFPP Operations Tijan M\. Sallah Sector Manager AFTA3 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending IDA 96 480,456\.73 GEF -- 352,102\.21 Total: 832,558\.94 Supervision/ICR IDA 322 900,762\.87 GEF -- 385,295\.20 Total 418 1,286,058\.07 40 Annex 5\. Beneficiary Survey Results Success Stories Ms\. Belita Jaime Lopes, Head of Nlape Novilela Association: The Project has been very important to us; it has helped us to make investments with positive outcomes\. We have our own association\. We now sell fish as a group\. There are group members who are now running their own business, some of which travel to cities like to Quelimane where they go and buy different products that are then sold here in our community\. We are now planning to have a chicken rearing facility to further increase our incomes\. Once we have our new planned investment, we will be able to sell chicken to local inhabitants here in Morrumbala district, hence reducing distance for consumers who now have to travel to buy chicken\. We will also increase chicken availability in local markets\. Prices to consumers will drop\. That is our dream\. Mr\. Sebastiao Olesse, Community Trainer on CBOs and SLGs: I am happy to be working with Savings and Loans Groups under the Smallholders Project\. As part of the SLGs program that we have introduced under the project, there are smallholder farmers who are now planning to buy goats\. Others are planning to improve their houses, and others are considering to kick-start their own business\. Each one has his/her own ideas, but all those ideas result from the fact that they are now able to save money thanks to the project activities\. I can foresee that the livelihoods in the community will improve\. Mr\. Albano Miquitais, member of the Nlape Novilela Association: We have decided to get together and form our own association\. As an association, we have decided to organize a Savings and Loans Groups to which we all belong\. It is our own bank, our own way to save money and make our own investment\. We do not have much money, so we start saving the little we have\. By saving it, we make it available to those who want to invest, and hence we get some revenues because of the interest they pay\. The Project has brought a Service provider who is helping us get organized and we like the idea\. We can now make our own savings and be able to buy agricultural tools and school materials for our children\. Our group is now our own bank\. Mr\. Assane Cuacia Camala: I work for a Service Provider that supports the establishment and strengthening of Savings and Loans Groups in Morrumbala District\. I work with several SLGs here in Morrumbala, and I have been witnessing that some group members throughout the district are improving their livelihood\. As a result of saving their money and adding value to it through rolling credits, some people have been able to buy bicycles, radios, and some are planning to use part of the money to increase their cultivated areas and employ seasonal workers who they will pay using the money they have been able to save through this mechanism\. Ms\. Damalesse Augusto: I am a member of a Savings and Loans Group, and I have started to save the little money that I have\. As a result of saving, I have been able to receive some additional money, which I used to buy school materials for my children\. I 41 am now starting my own business with the money that I have been able to save and receive back after six months\. Mr\. Martins Bire: I am simple farmer and I have been farming on my own farming fields for many years here in Morrumbala district, Zambezia Province\. When the Smallholders Project started to be implemented in my community, I was selected to be a contact farmer, or Community Facilitator as we call it now\. The Project thought that I could play the role of improving farming practices among other smallholder farmers in my community\. For that, I have participated in a training course in Sofala Province, where together with others I was taught, among other things, how to use animal traction\. Then, the Project has given me the opportunity to buy my own productivity kit\. I spent MZN 3,500 for the kit\. In addition to working in my own fields, I am also assisting other farmers in my community\. Mr\. Bengala Trocsida: Thanks to the Smallholders Project, I now have two silos for storing maize\. Each silo has the capacity to store up to a ton of maize\. They are operational and I now store my maize safely\. I have reduced post-harvest losses\. Building these silos is not difficult at all\. I did not need to have any particular training outside the community\. Artisans from the community have been trained and they can build these silos for farmers who want them\. Mr\. Antonio F\. Lino, District Administrator in Morrumbala: The Smallholders Project has made significant contributions to the livelihoods of local inhabitants in Morrumbala district\. The project has supported the outreach of extension services in our district, including in the Administrative Posts\. Working conditions for our extension officers have improved including those in the Administrative Posts\. 42 Annex 6\. Stakeholder Workshop Report and Results (if any) 43 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Introduction The Market led Smallholder Development project was designed to be implemented without a Project Implementation Unit (PIU), on the basis that the priorities for investment under the Project would be defined at the district level through the District development Plans (PEDD)\. Financial management was implemented using the country systems\. The Project used the e-SISTAFE on pilot basis among other Projects in the country, with the particularity of being a Project to be implemented at the decentralized level\. Contracts and payments to services provided by local entities were paid at the district level\. The Project was implemented in the Zambezi Valley which, in 2006, was the home of 25% of Mozambique’s inhabitants\. The Zambezi Valley has a great potential for agriculture development, both rain fed as well as irrigated agriculture, and had the potential to integrate investments made under the Smallholder Project with those made under other initiatives in the geographic area\. At the time of Project design, the Zambezi Valley had mostly comprised rural, agriculture-based households, and had a considerable rate of poverty\. But it also had potential for improved farming and for market linkages\. At the time, agricultural products from the Zambezi Valley could be traded to all the sub-regions within Mozambique and to Malawi, but the scope for improved market linkages existed and needed to be further explored\. The following were the key activities developed under each Project component: Under Component 1\.a – Development of local capacity: Key activities, implementation and achievements: For the implementation of this component, the Project contracted Service Providers\. The Project indicator for this sub- component was to assist 660 CBOs in the Project area\. Despite delays in starting with this activity, the Project was able to assist 733 CBOs including 426 that were assisted to become legal groups\. Constraints, challenges, and the way forward: the observed delays with the implementation of the activities under this sub-component were caused by the long time spent in preparing the Terms of Reference for the Service Providers, and for the long time that the approval process took by the Government approving entity, the Commission for Foreign Affairs (CRE)\. The key consequence of these problems was that the work with the CBOs was discontinued in some instances and geographical areas, particularly in the Phase 1 districts\. As a result, the Project could not ensure a continued evolution of the CBOs throughout the Project implementation period, which is critical for the sustainability of the work\. As a way forward, the district authorities will need to continue assisting the CBOs\. Under sub-component 1\.b – Rural finance services: 44 Key activities, implementation and achievements: At the Project design stage, an assumption was that the establishment and strengthening of Savings and Loans Groups (SLGs) would be a consequence and follow-up activity to the establishment and consolidation of CBOs\. This reviewed at the Project MTR, and a new strategy was adopted, which consisted in increasing the tasks of the CBOs Service Providers so that the creation and strengthening of SLGs would be an inclusive part of the work with the CBOs\. The new strategy yielded visible results on the ground\. The level of acceptance of SLGs among CBO members was very high, indicating the importance of, and the need for rural services\. The high adherence level to the Savings and Loans Groups also provided an indication that the CBOs can be more sustainable in the long term if their members understand them as economic units in addition to the social dimension\. The regular meetings for savings and loans were also used as an opportunity to introduce new activities including on health and agriculture\. As a result of the new strategy, the number of members of SLGs was 22% higher than the target value of 6,000 members expected for this activity\. Under sub-component 1\.c – Strengthening of district capacity for agriculture and sustainable development Key activities, implementation and achievements: This sub-component aimed to create, among district authorities, the capacity to identify and respond to local demand on agriculture development and sustainable management of natural resources\. Activities in this sub-component were mostly focused on the support to the allocation of technical and administrative staff to the districts to increase districts’ capacity to better respond to local development needs\. As part of this, the Project supported the allocation of a project-paid position of Project District Facilitator in each district, and incentivized the districts to increase their technical capacity for procurement and financial management by hiring staff for these functions\. The Project also assisted the districts with instruments for the preparation of District Land Use Plans (LUP)\. As a result of these investments, local capacity for Procurement and Financial Management increased in the five Project districts, and each district has completed the participatory process of preparing a LUP, which followed consultations with communities, which were trained on the participatory planning on land use\. As a result of these investments, Constraints, challenges, and the way forward: At the time of the preparation of the District LUPs, Mozambique did not have a consolidated experience in pursuing with this process\. As a result, there were problems with the preparation of the LUPs as initially planned, and after the first experience, the process was successfully completed\. As a way forward, this experience should be continued to the extent possible in other districts\. Under sub-component 2\.a – Market development and value chain Key activities, implementation and achievements: The focus of this sub-component was on strengthening linkages of smallholder farmers to markets by supporting value chain investments among others\. The active activity implementation under this sub-component started in 2010 when the project started to organize Market Forums, which comprised 45 mobilizing CBOs for the identification geographic areas within their communities where farmers would gather together their products and be able to negotiate to promote group sales and have group negotiations with traders for better prices\. Then implementation of this activity was heavily supported by the extension officers and community facilitators who helped identify buyers and the products that the buyers were more interested on\. With support from the project, district authorities in the Project area organized two agricultural trade fairs to which traders and input suppliers from various parts of Mozambique including the cities of Maputo, Beira, Quelimane and Chimoio were invited and participated\. The main outcome of the fairs was that local farmers were exposed to improved inputs and tools, and traders were happy to sell all the equipment and inputs they had\. This gave a clear indication that (i) the Project districts have good potential for market linkages which can be explored further, and (ii) agricultural fairs are an important opportunity to reduce transaction costs for traders who want to reach out rural areas, and local farmers can buy and use improved tools and inputs if those are available in local markets\. As lead farmers, those FCs who had access to productivity kit through CAEIF, had an opportunity to expose their improved products, which were sold, and were able to establish contacts for future linkages with urban markets\. To increase knowledge of the importance of these fairs among local authorities and lead farmers, all district Administrators, selected Community Facilitators visited a similar fair in South Africa\. Constraints, challenges, and the way forward: The Project made several attempts to promote formal contractual arrangements between traders and farmer groups, but this has never worked due to: (i) the pertaining spirit of individual sales among smallholder farmers, (ii) difficulties in estimating the actual quantities that individual farmers had to sale, which would allow for better planning on the side of traders and (iii) price uncertainty particularly for export products, which depended on international price levels\. As a way forward, local authorities in the Project are encouraged to continue promoting agricultural fairs and group sales\. Under sub-component 2\.b – strengthening district extension services: This sub-component results from the fusion, at the Project MTR, of three sub- components identified at Project design\. To actually implement the activities under this sub-component, the Project supported the allocation of extension officer in each of the five districts\. For each extension officer, improved working conditions were allocated including a motorbike and a kit of extension tools\. The ensure a better outreach of the extension services, each district hired two extension officers for each Administrative Post, and the Project supported to improve their working conditions by supporting the construction of a house for extension officer allocated in Administrative posts\. A total of 33 houses were completed and occupied by the extension officers\. Each house was equipped with a solar panel and basic furniture\. To further increase the outreach of the extension services, the Project supported the identification of lead farmers (with at least 2 Ha) in each community who became Community Facilitators (CFs)\. These were local farmers, not public officials, and hence did not have salaries\. They benefitted from training on extension including on conservation agriculture, and the best CFs had access 46 to a productivity kit each, under the CAEIF mechanism\. Overall, 352 CFs were integrated in extension services\. The Project also introduced new farming practices and technologies in the Project area\. Among the different technologies, inter-cropping was the most widely used technology, which can be attributed to the fact that smallholder farmers in the Project area already did inter-cropping, but with no knowledge of inter-cropping techniques for higher yields and lower crop diseases\. Other introduced farming practices including were also widely adopted by smallholder farmers, and those include crop rotation, minimum fertilizing\. In addition to improved farming practices, the Project introduced post-harvesting technologies, in particular the household “Gorongosa” silos, which are expected to reduce post-harvest losses in the Project area\. The demand for “Gorongosa” silos among households in the Project area was high, and it is believed that this will continue\. Other activities implemented by the Project in this sub-component included chicken vaccination against Newcastle, training on control and reduction of bush fire, and community reforestation\. This was one of the first sub-components to be implemented by the Project\. The main constraint in this sub-component was the delay in introducing activities in some Project areas\. On the way forward, the Government should continue with the investment made in establishing the CFs in the communities, and should continue supervising the good use of the working conditions that were allocated t the extension officers, and continue providing them with working conditions including fuel\. Under Component 3 – Community Agricultural and Environmental Investment Fund (CAEIF) The objective of the component was to provide beneficiaries with access to investment funds\. Activities included capacity building and technical support on how to prepare documentation to access the CAEIF investment funds\. Under the component, beneficiaries had access to investment funds through the following three windows: (1) improving public infrastructure that enhances agricultural production and market linkages, (2) productive agriculture investments, both under farming activities as well as on post- harvest management, and (3) activities aimed at better management of natural resources\. For a consistent preparation of CAEIF proposals for sup-projects, DNPDR and the Bank agreed on the need to prepare and approve CAEIF sub-project models, which were then developed and followed\. While the whole process of preparing, agreeing and approving the CAEIF sub-project models took some time, this showed to be very important as it helped to have models for each CAEIF sub-project type, allowing for cost comparison, assessing and comparing the quality of proposal and as well as that of the investment, and for easy supervision by local authorities\. This also allowed a faster implementation of the CAEIF sub-projects once DNPDR and the bank agreed on the models\. To further ensure sustainability of the CAEIF sub-projects, there was a requirement that all CAEIF sub- proposals include an environmental assessment\. This implied the preparation of training courses to beneficiaries and their support entities on the basics of environmental 47 safeguards\. Local suppliers of goods and services were identified in the Project area, and participated in providing goods and services\. Constraints, challenges, and the way forward: The CAEIF component used country systems to transfer funds from the project to CAEIF beneficiaries\. While using country systems was a good aim, it proved to be challenging as some of the anticipated transactions were not easy\. For instance, to use CAEIF funds to finance activities under window 2, the Ministry of Finance had to classify differently the CAEIF funds in order to be able to allocate funds to the investments made by individual or groups of farmers\. Other constraints faced by the Project in implementing this component included administrative processes (inclusion of the CAEIF funds in the General State Budget) and lack of experience with community-based procurement\. As a result, the CAEIF component only started to be actively implemented in 2010\. Key Lessons: The Project brought about many lessons, some of which are summarized below: 1\. The difficulties that DNPDR faced in the first years of implementing the Project as a public sector agency and without a dedicated PIU suggest that for the benefit of achieving the intended Project objectives, it is advisable to have a PIU\. 2\. By using country systems to allocate funds to the districts and allow for decentralized management of funds, was important for transparency, for the creation of institutional capacity at the district level, and for improving ownership among district authorities\. However, the complexity of the system and the lengthy period needed for some of the transactions comprised the pace of activity implementation on the ground\. 3\. The Project was precise in terms of the intended objectives and outcomes, but was open with regards to the actual activities that needed to be implemented to achieve the intended objectives and outcomes\. While this type of project design is good for allowing pro-activity in selecting the activities are thought to better contribute to the objectives, it would be important to define up-front the activities that should be implemented to avoid the inclusion of activities that do not contribute to the objectives of the project\. 4\. The Project made a good decision in allocating District Facilitators (DFs) to each of the Project districts as they played an important role in ensuring the actual activity implementation on the ground\. The DFs were critical in maintaining District Administrators informed about the Project priorities and activities, and ensured that the Bank procedures were followed at the district levels where a substantial part of the Project funds and resources was managed\. 5\. At Mid-term, DNPDR and the Bank agreed to have a dedicated team of Project staff based in the Project area\. This decision was instrumental in accelerating the pace of project implementation on the ground\. In addition, the spirit of team work and the level of contact with district authorities and beneficiaries increased substantially\. 6\. At Mid-Term, the Project decided to blend the training on, and the establishment of 48  Savings and Loans Groups (SLGs) with the strengthening of CBOs\. This was an important decision as SLGs became an important engine that increased the level of activity in CBOS and increased cohesion among CBO members\. 7\. The CAEIF experience suggests that sub-project can result in better advantages to beneficiaries if the CAEIF sub-projects can allow for integrated investments in the value chain\. 8\. The construction of houses for extension officers in the district Administrative Posts was instrumental for allowing extension officers to be based in those remote localities and thus have better access to the farmers they assisted\. 9\. Sometimes, extension officers were transferred to other districts, which inhibited the Project from achieving the intended results by investing in those officers\. 10\. The Project organized visits to agricultural fairs in South Africa, which was an important catalytic element for the replication of similar fairs in the Project area\. The fairs organized in the Project area were also important for linking input/tools suppliers with smallholder farmers\. This has created opportunities for increased access to inputs by smallholder farmers, and shown that smallholder farmers can buy and use improved inputs and agricultural tools if they are available in their residential areas\. 49 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders This Annex summarizes comments from the Borrower/Implementing Agency\. The project met the planned outcomes\. Beyond the outcomes, there is need to remember the capacity that existed within DNPDR and at the district level when the Project was designed, and all the institutional strengthening that was needed in order for DNPDR and the districts to be able to fully accomplish the planned outcomes\. The project has helped to strengthen institutional capacity at the district level\. On Financial Management, the Project was designed to use the country FM system (eSISTAFE), which was challenging\. When a given amount was disbursed by the Bank, it was deposited in Designated Accounts\. From the designated accounts, it needed to be transferred to FOREX accounts, and from there to Multi-currency Account, and finally to the Project accounts\. All this resulted in lengthy financial transactions and was not easy\. Also, a strong training of the local level FM officers would have been necessary for them to understand the principles and challenges, and be able to operate in such a way that no delays could be caused by the FM system including submission of withdrawal applications to the Bank\. Similar challenges were faced on Procurement where districts were expected to play an important role but they did not have the necessary capacity\. But the Project helped to create that capacity\. It is there now\. At MTR, there was a profound change in Project management, which turned around the project performance thereafter, to the better\. The Project was very open in terms of the activities that needed to be implemented to reach the Project outcomes\. While this is good as it allows for proactivity, this is not similar to what other donors do (they basically indicate the activities that need to be implemented) and allowed for some confusion on the priorities\. This was particularly the case because the project was designed to be implemented in a centralized context where different districts had different priorities, and they thought that the Project would be necessarily aligned to each district’s priorities\. Among local authorities, the level of understanding the Project objectives and the need to follow Bank procedures increased over time\. The relocation of some of the key functions of Project Management to the Project area following MTR was important to bring closer communication between the Project implementation team and beneficiaries and local authorities\. The districts did not have the aimed implementation capacity\. As a result, the District Facilitators spent more time on administrative aspects than needed\. They should have spent more time on assisting actual project implementation on the ground\. Also, Project ownership among local authorities was not as strong until the MTR mission\. Because District Administrators report to the Ministry of State Administration, the fact that the DNPDR was relocated from MPD to MAE at some point during the Project implementation period helped to better work with local authorities\. 50 In terms of sustainability, the public infrastructure that was financed through the CAEIF mechanisms (small bridges, segments of rural roads, rural marketplaces) will stay on the ground for years\. The Project also trained beneficiaries on concrete activities to improve production and productivity that will stay\. Overall, we are not expecting that every single investment will stay on the ground for many years, but the Project has made important investments and has left lessons\. For instance, farmers will reduce post-harvest losses with the introduction of the Gorongosa Silos\. The introduction of improved bee keeping technologies coupled with conservation of forestry has the potential to reduce uncontrolled bush fire\. It is also good that Project introduced productivity kits for selected community facilitators (78 out of 308 have benefited)\. The Project has also made investment on public extension including the construction of houses that has the potential to stay, but local authorities will need to include in their district budget some items including maintenance costs for the houses and motorbikes, and recurrent costs for extension officers\. On Government performance, it is important to balance between long term development goals and short term Project indicators and targets\. This is not easy and needs to continue being thought about\. For the Project to achieve the target values of its indicators, the Government needs dedicated staff to implement the Project\. On the Bank performance, it was overall good\. However, the Bank seemed to have some tendency to interfere in Project implementation particularly when things were slow on the Government side\. At the end of the day, the Bank promoted dialogue and helped the Government to understand the Bank rules and procedures, and to keep focus on results\. The key lesson is that the Project was designed under the assumption that the Government already had the necessary implementation capacity, but this was a challenge particularly at the district level\. The FM function was also challenging as the Project needed to use clientconnection, with electronic signatures starting at some point of Project implementation, and all this was challenging\. 51 Annex 9\. List of Supporting Documents IFPRI/DIME, 2013 - 3ie Final Report Draft: Seeing is Believing? Evidence from a Demonstration Plot Experiment - Washington DC\. Instituto Nacional de Estatística, 2013 – Relatório da Implementação dos Inquéritos 2013 para o Projecto de Desenvolvimento de Pequenos Produtores Orientado para o Mercado no Vale do Zambeze – Maputo, Mozambique\. Instituto Nacional de Estatística, 2013 – Relatório da Implementação dos Inquéritos 2013 para o Projecto de Desenvolvimento de Pequenos Produtores Orientado para o Mercado no Vale do Zambeze – Maputo, Mozambique Republic of Mozambique/World Bank, 2006 – Financing Agreement for the Market led Smallholder Development in the Zambezi Valley\. Republic of Mozambique, 2006 – Environmental and Social Management Framework for the Market led Smallholder Development in the Zambezi Valley – Maputo, Mozambique\. Republic of Mozambique/World Bank, 2007 – Global Environment Facility Grant Agreement for the Market led Smallholder Development in the Zambezi Valley\. Republic of Mozambique - Operations Manual for Community Agricultural and Environmental Investment Fund for the Market led Smallholder Development in the Zambezi Valley – Maputo, Mozambique\. República de Moçambique, 2013 – Relatório Final do Projecto de Desenvolvimento de Pequenos Produtores Orientado para o Mercado no Vale do Zambeze – Maputo, Mozambique\. World Bank, 2006 – Project Appraisal on a Proposed Credit for the Market led Smallholder Development in the Zambezi Valley – Report no 35466-MZ – Washington DC\. World Bank, 2006 - Project Appraisal Document on a Proposed Grant from the Global Environment Facility for the Market led Smallholder Development in the Zambezi Valley - Report No 39806-MZ - Washington DC\. World Bank, 2010 – Report on the joint DNPDR/World Bank project mid-term review for the Market-led Smallholder Development in the Zambezi Valley project – Maputo, Mozambique\. World Bank, 2012 – Restructuring Paper on a Proposed Project Restructuring of Market led Smallholder Development in the Zambezi Valley – Maputo, Mozambique\. 52 World Bank, 2009-2013 – Various aide-memoires of supervision missions for the Community-Based Rural Land Development Project\. World Bank, 2010-2013 – Various Implementation Status and Results Reports for the Community-Based Rural Land Development Project\. 53  IBRD 34637 30° E 35° E 40° E 10° S 10° S Lake TA N Z A N I A To Mtwara Malawi Mocimboa MOZAMBIQUE Mueda da Praia a end Lug Metangula CABO ssa lo DELGADO NIASSA Me Pemba Lichinga Montepuez M ALAWI Marrupa Itepela To To Chipata io Lilongwe Lúr ZAMBIA To Nacala Mangoche To Petauke Furancungo Cuamba NAMPULA To Ribáué 15° S To Chifunde Zomba 15° S Lusaka Fíngoè Nampula Mocambique Lago de TETE Zam Manje Guruè Cahora Bassa be Zumbu Songo ze Alto Molócuè To Blantyre Namarrói Ligo Mphende Moatize Ile Milange Gilé nha Tete Lugela Angoche un Lic Luenha Changara MU UTAR TA R AR ARA go ZAMBEZIA OR MO U M B AL R R UM ALA Mocuba To Chemba Morrumbala Mutoko C HEMBA CHE Namacurra Maganja Pebane Nhamayábué MANICA Marínguè Caia MOPEIA Nicoadala Mopeia Quelimane Catandica MA ARR Í N GUÈ GUÈ Inhassunge Marromeu ZIMBABWE To Gorongosa Inhaminga Harare SOFALA Chimoio Muanza INDIA N O CEA N Nhamatanda To Dondo Masvingo Beira 20° S Búzi 20° S To uzi Bú Masvingo Chibabava Espungabera Machanga Nova Mambone 0 50 100 150 200 Kilometers Save Inhassôro To Rutenga 0 50 100 150 Miles Vilanculos Chicualacuala Machaíla To INHAMBANE MOZAMBIQUE Messina Mapai Chigubo MARKET LED SMALLHOLDER GAZA DEVELOPMENT Cha Lim ngan IN THE ZAMBEZI VALLEY po SOUTH po e Massingir Inhambane PROJECT PROVINCES AFRICA Panda FIRST PHASE PROJECT DISTRICTS SECOND PHASE PROJECT DISTRICTS Guija Inharrime Chibuto SELECTED CITIES AND TOWNS 25° S 25° S DISTRICT CAPITALS To Xai-Xai PROVINCIAL CAPITALS Nelspruit This map was produced by Manhica the Map Design Unit of The World Bank\. The boundaries, NATIONAL CAPITAL Moamba MAPUTO colors, denominations and any other information shown RIVERS To MAPUTO on this map do not imply, on MAIN ROADS the part of The World Bank Mbabane Group, any judgment on the legal status of any territory, DISTRICT BOUNDARIES SWAZILAND Zitundo or any endorsement or acceptance of such PROVINCIAL BOUNDARIES boundaries\. 30° E 35° E INTERNATIONAL BOUNDARIES MAY 2006

REVIEW

P039015

 ICRR 12426 Report Number : ICRR12426 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/28/2006 PROJ ID :P039015 Appraisal Actual Project Name :National Water 1 Project Costs 56\.9 51\.0 US$M ) (US$M) Country :Mozambique Loan/ US$M ) Loan /Credit (US$M) 36\.0 37\.2 Sector (s):Board: ): WS - Water supply US$M ) Cofinancing (US$M) 18\.4 11\.0 (60%), Central government administration (23%), Sanitation (14%), Sub-national government administration (3%) L/C Number :C3039 FY ) Board Approval (FY) 98 Partners involved : NDF, CIDA, SDC, SIDA Closing Date 10/31/2003 10/30/2005 Evaluator : Panel Reviewer : Division Manager : Division : Keith Robert A\. Kris Hallberg Alain A\. Barbu IEGSG Oblitas 2\. Project Objectives and Components a\. Objectives 1\. Reorient the institutions of the sector in line with the strategic vision set out in the National Water Policy and increase their capacities\. 2\. Prepare for the private sector management of the urban water supply systems of the cities Maputo, Beira, Quelimane, Nampula and Pemba ("the five cities")\. 3\. Reorient and reform the management and implementation of rural water supply and sanitation, so that sector organizations can provide sustainable water supply and sanitation services to an increasing proportion of the community\. 4\. Improve the management of Mozambique's water resources \. b\. Components (or Key Conditions in the case of Adjustment Loans ): (a) Institution building and policy development (Expected cost at appraisal US$ 6\.2 million ; actual cost at completion US$8\.5 million): Comprising capacity building in planning and management, particularly in finance; developing a regulatory and monitoring framework; and studies for development of water sector policy \. (b) Preparation for private sector management of urban water supply (Expected cost US$8\.5 million; actual cost US$2\.8 million): Comprising technical support for the bidding process; design and construction of emergency headworks to ensure secure operations of city water supply; and preparation of a strategy and plans for provision of sanitation services in the project cities \. (c) Rural Water Supply and Sanitation (RWSS)RWSS ) (Expected cost US$18\.2million; actual cost US$13\.7 million): Comprising reorientation and reform of the management and implementation of rural water supply and sanitation (RWSS) services, and capacity building at central and provincial levels; a pilot RWSS system and preparation for future RWSS investment\. (d) Water Resources Management (WRM) WRM ) (Expected cost US$14\.6 million; actual cost US$16\.4 million): Comprising capacity strengthening of the national water department, the office of international rivers and one regional water resources administration; development of a national water resources management strategy; studies of options for development and management of key international rivers; and safety related works and designs for one dam\. (e) Human resources development (Expected cost US$5\.2 million; actual cost US$2\.2 million): Comprising training with initial emphasis on management skills \. (f) Project management (Expected cost US$4\.2 million; actual cost US$5\.3 million) (g) Emergency water rehabilitation (This component was added after project commencement \. Its cost at completion was US$2\.1 million): Comprising technical advisory services to build capacity in flood management, and rehabilitation works for water supply and sanitation services damaged by the floods \. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The project closure date was extended by two years, resulting in a total project period of 7\.6 years\. This was primarily due to the project's weak quality at entry (the Project Implementation Plan and Project Implementation Manual were only finalized in March 2001, three years after project Approval )\. Additionally, major floods in 2000 and 2001 caused temporary interruption in project implementation \. Project Development Objectives were not changed, but in April 2003 (two and a half years before the extended project closure date ), an additional Flood Emergency Response component was added and part of component (b) (design and construction of emergency headworks for two cities ) was dropped and financed instead under a second project - the Second National Water Development Project NWDP-II - which covered the urban water sector \. The IDA Credit was fully disbursed \. The Credit's value in US$ terms increased by US$1\.2 million due to depreciation of the dollar against the SDR \. Four cofinancers provided significant resources for the project : the Nordic Development Fund (US$6\.9 million disbursed); the Canadian International Development Agency (US$2\.0 million disbursed); the Swiss Development Corporation (US$1\.5 million disbursed); and the Swedish International Development Authority (US$0\.6 million disbursed)\. Part of the disbursement took place after the project period \. 3\. Relevance of Objectives & Design : The project's overall Relevance was Substantial \. The project objectives were Highly relevant\. The need for improved water resources management (WRM) was highlighted in the CAS\. More specifically, the targeting of a package of policy and institutional changes to build Mozambique's capacity in WRM (objectives 1 and 4) was strategically important\. Mozambique is a water scarce country heavily dependent on upstream riparian countries, and capability to plan and manage its water resources, as well as to effectively dialogue and monitor water use by other riparians is essential \. Objectives 2 and 3 were also relevant as they were to pave the way for private sector management of urban water supply and sanitation (UWSS), and for a new demand-led approach for rural water supply and sanitation (RWSS)\. Project design was Substantially relevant overall, but with some reservation : the project components were well conceptualized to implement the project objectives, but a more questionable matter is the complexity of the project and the number of sub-components and activities within the sub -components\. Already, the project was difficult in its WRM features which were new to Mozambique, and the reforms in the rural and urban water sectors were also treading new ground\. It would have been even more complex had the originally intended project, also including a large UWSS program, been implemented, but shortly before Board presentation the project was spit in two and the investments in UWSS put under a second project : the Second National Water Development Project (NWDP 2)\. Nevertheless, other activities such as constructing rehabilitation works for water schemes supplying some of the NWDP-2 cities, and some dam safety works, remained in NWDP -1 and could have been excluded \. (Both the Bank and Government ICRs comment on the complexity of the project, and some of the initial "extras" were later transferred to the NWDP-2\.) 4\. Achievement of Objectives (Efficacy) : The Efficacy of the project was Substantial \. While, as discussed above, the project design was more complex than it might have been, the project objectives were largely achieved \. This is a remarkable achievement - for both the Government and the Bank teams - given that the project's detailed features were incompletely prepared during project preperation, and, hence, the project got off to a poor start \. 1\. Objective I - to reorient and strengthen the country's water sector institutions - was Substantially achieved\. The National Directorate of Water was significantly strengthened, providing the improved capacity needed to implement the project\. 2\. Objective 2 - to prepare for private sector management of water supply in five cities - had High efficacy\. An asset holding company and a regulatory agency were established and water supply management was privatized for all five cities: a lease contract for one city and management contracts for the other four cities \. Also, strategic sanitation plans were prepared for 7 cities, followed by feasibility studies and detailed design \. 3\. Objective 3 - to reorient and reform the rural water supply and sanitation sector (through piloting a new demand-led approach to RWSS) had High efficacy\. The demand-driven approach - which had been sceptically viewed by the Government - was successfully piloted and has now become the model for RWSS investment and management in a scaled-up program being financed by CIDA and the African Development Bank \. 4\. Objective 4 - to improve the management of Mozambique's water resources - had Substantial efficacy\. The institutional base for water resources planning and management was established through strengthening of the Water Resources Management Department and creating an International Rivers Office \. The latter provided Mozambique with greatly improved technical capacity to assess water resources and basin plans, enabling it to have stronger technical ability for dialogue with other countries on riparian rights and basin management \. 5\. Efficiency : Efficiency was Substantial : Notwithstanding the project's slow start, subsequent implementation of the project's multiple array of components and sub-components was expeditious; actual costs were under the appraisal estimates (90 percent of appraisal estimates) and the Credit was fully disbursed (there was a slight reduction in the cofinancing )\. (NB: The project was primarily an institution building and policy related program, and on these grounds the appraisal report and the ICR did not calculate ERRs (other than for one of the city water supply systems)\. More could have been done; the rural water supply system would have been amenable to an ERR calculation based on an expected typical scheme, and cost effectiveness analysis could have been used for the water resources components\.) 6\. M&E Design, Implementation, & Utilization: (Information on M&E is sparse in both the PAD and ICR; the commentary below also uses information obtained from interviewing the task team\.) A MIS system was planned for the project and is reported in the ICR's performance indicators to have become fully operational with regular reporting\. FIPEG and the regulator for the private operators running the urban water and sanitation schemes (under NWDP-2) is reported to be obtaining the information needed to monitor operations and results and regulate the sector \. For most of the project, monitoring was limited to MIS, and appears to have been adequate for project management purposes \. The rural water supply component had an in -built M&E system and this served the important purpose of underpinning evaluation of the pilot program's success, a basis for the major roll -out of the new demand-led RWSS program subsequent to the pilot \. For the National Directorate of Water, however, the ICR comments that a comprehensive M&E system was not established \. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): The ICR does not report any safeguard, fiduciary or other issues \. The water resources management component has potential environmental impact (positive or negative) resulting from the management of the international rivers, but this is not discussed\. 8\. Ratings : ICR ICR Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Strong achievement in establishing the new institutions and capacity building generally; although this was helped by a large consultant contingent \. Sustainability : Likely Likely The new institutions are still learning their roles and qualified staff are limited in number making the institutions potentially vulnerable to staff departures for more remunerative activities\. However, Government commitment is strong, donor support is continuing, and further IDA involvement through AAA activities will help guide the sector\. Bank Performance : Satisfactory Satisfactory A weak quality at entry and very slow start was subsequently turned around by a strong task team\. Excellent performance helped enable the project to substantially achieve its objectives\. Borrower Perf \.: Satisfactory Satisfactory The Government's commitment was tentative at first, but progressively picked up because otf the project's positive experience\. Government commitment  became strong and a highly competent project manager was appointed\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: 1\. Divest all non -essential features from a complex project : For a complex project in particular, the design should support the core thrust(s) of the project, and not add any components, sub -components or activities that are not central to achieving the objectives \. This was a highly complex project involving major institution building and innovation in three demanding areas : water resources management, rural water supply and sanitation, and privatization of urban water supply \. The project contained a number of sub -elements under various components, usually for infrastructure, which were not needed \. (Recognizing this, the Bank team and Government took several such sub-elements out of the project during implementation \.) 2\. Successfully piloting a new approach, even on a small scale, can have major impact : The Rural Water Supply and Sanitation component constructed only 130 point source and 3 piped scheme water supply facilities to pilot a demand-driven approach which was entirely new to Mozambique \. The Government and a number of development agencies were sceptical initially, but became strong supporters as they witnessed success \. The new approach is now fully espoused by the Government and has attracted large donor support for a major scale -up - US$35 million from various donor agencies and a commitment of US$ 100 million from the African Development Bank\. Designing and supervising the pilot required substantial Bank staff expertise and time, but the pay -off has been large\. 3\. Mozambique's largely successful project experience in : (i ( i) developing capacity for planning and monitoring ii) privatizing urban water supply, and (iii) water resources management for international rivers; (ii) iii ) introducing a demand -driven rural water supply program, could be of interest to other countries, especially in Africa \. 10\. Assessment Recommended? Yes No Why? Together with the partly overlapping Second National Water Development Project scheduled to be completed in October 2007, a broad spectrum of activities in Mozambique's water sector would be covered (NWDP-2 adds coverage of the urban water supply and sanitation sector )\. 11\. Comments on Quality of ICR: \. The report presents a candid assessment, including of areas where The quality of the ICR is Satisfactory overall\. performance was less strong, and the project issues are thoughtfully discussed \. The report is well structured and systematically covers the project development objectives and components \. Areas where further evaluation might have been helpful are : (i) the project's monitoring and evaluation systems and economic analysis could have been further elaborated; (ii) more specific examples of project impact could have been provided: for instance, information on the financial viability of the private companies managing the urban water supply schemes, and any already apparent water availability gains or potential gains from the strengthened WRM and river basin analysis capabilities \.

REVIEW

P057182

Document of The World Bank Report No: 35351-AL IMPLEMENTATION COMPLETION REPORT (IDA-33270) ON A CREDIT IN THE AMOUNT OF SDR 6\.6 MILLION (US$ 9\.0 MILLION EQUIVALENT) TO ALBANIA FOR A LEGAL AND JUDICIAL REFORM PROJECT June 12, 2006  CURRENCY EQUIVALENTS (Exchange Rate Effective February 24, 2006) Currency Unit = Albanian Lek (LEK) US$1\.00 = US$ LEK 103\.9 FISCAL YEAR January 1st December 31st ABBREVIATIONS AND ACRONYMS ABA-CEELI American Bar Association Central European and Eurasian Law Initiative ADR Alternative Dispute Resolution Bank World Bank CAS Country Assistance Strategy CCMIS Civil Case Management Information System CODIS Code Information System for Albanian legislation CoE Council of Europe DANIDA Danish International Development Assistance EU European Union EURALIUS European Assistance to Albanian Justice FoL Faculty of Law of the University of Tirana GoA Government of Albania GTZ Gesellschaft für Zusammenarbeit (German Organization for Cooperation) HCJ High Council of Justice ICR Implementation Completion Report IDA International Development Agency IT Information Technology JUDIS Judgments Information System for Albanian Supreme Court decisions KPI Key Performance Indicator LJR Legal and Judicial Reform Project MEDART Commercial Mediation and Arbitration Center MoJ Ministry of Justice NGO Non-governmental Organization OSCE Organization for Security and Cooperation in Europe PAD Project Appraisal Document PIU Project Implementation Unit SAC Strategic Adjustment Credit SPC State Publications Center TOR Terms of Reference UNDP United Nations Development Programme USAID United States Agency for International Development Vice President: Shigeo Katsu  Country Director Orsalia Kalantzopoulos Sector Director Cheryl Gray Task Team Leader/Task Manager: David S\. Bernstein  ALBANIA Legal & Judicial Reform Project CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 13 6\. Sustainability 15 7\. Bank and Borrower Performance 17 8\. Lessons Learned 19 9\. Partner Comments 21 10\. Additional Information 21 Annex 1\. Key Performance Indicators/Log Frame Matrix 22 Annex 2\. Project Costs and Financing 25 Annex 3\. Economic Costs and Benefits 27 Annex 4\. Bank Inputs 28 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6\. Ratings of Bank and Borrower Performance 31 Annex 7\. List of Supporting Documents 32  Project ID: P057182 Project Name: Legal & Judicial Reform Project Team Leader: David S\. Bernstein TL Unit: ECSPE ICR Type: Core ICR Report Date: June 30, 2006 1\. Project Data Name: Legal & Judicial Reform Project L/C/TF Number: IDA-33270 Country/Department: ALBANIA Region: Europe and Central Asia Region Sector/subsector: Law and justice (82%); Tertiary education (18%) Theme: Law reform (P); Judicial and other dispute resolution mechanisms (P); Legal services (P) KEY DATES Original Revised/Actual PCD: 06/07/1999 Effective: 07/17/2000 07/17/2000 Appraisal: 12/02/1999 MTR: 07/07/2003 Approval: 03/21/2000 Closing: 12/31/2004 09/30/2005 Borrower/Implementing Agency: ALBANIA/MINISTRY OF JUSTICE Other Partners: High Council of Jusice, Magistrates School, University of Tirana Faculty of Law, Commercial Mediation and Arbitration Center STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Orsalia Kalantzopoulos Arntraud Hartmann Sector Director: Cheryl W\. Gray Pradeep K\. Mitra Team Leader at ICR: David S\. Bernstein Sandra Bloemenkamp ICR Primary Author: Gina Schaar (Consultant) 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Context: After violent civil unrest and severe destruction of Albanian state property in 1997 exposed the fragility of the country's institutions and their lack of effectiveness, the Government of Albania (GoA) adopted a comprehensive policy reform program to strengthen Albania's weak institutional and governance capacity, including its ability to enforce its laws and regulations\. This reform program was supported under the World Bank Group Country Assistance Strategy (CAS) in both 1998 and 2002, and complemented by a Structural Adjustment Credit which was ongoing at the time the Legal and Judicial Reform (LJR) was initiated\. At Project inception in 2000, Albania was still recovering from the effects of both the 1997 violence and the strains on public resources resulting from the influx of refugees from Kosovo in 1999\. A greater degree of attention was being focused on the legal and judicial sector by the GoA, the World Bank and a number of other national and international donors\. A long process of constitutional and legislative drafting had been ongoing for some time; this had put in place or modified governing legislation for a number of existing and newly created legal and judiciary institutions\. Corruption, poor organization and administration, low salaries and lack of coordination were problems common to all public sector institutions\. Objectives: The overall goal of the Project was to build on earlier policy reforms, supported by IDA and other donors, by supporting the continued implementation of the Government of Albania's agenda for legal and justice system reform\. The objective of the Project was to strengthen the implementation of the rule of law in Albania by improving the functioning and strengthening the capacity of key legal and judicial institutions\. In particular, the Project aimed at the following medium and long term outcomes: 1\. a strengthened system of legal and judicial education, resulting in better trained legal professionals; 2\. a more accessible, transparent (less-corrupt), and effective judicial system, including improved enforcement of judicial decisions; 3\. the use of mediation and arbitration as alternative means to resolve commercial disputes outside the formal justice system; and 4\. improved access by government officials, judges, parliamentarians, legal professionals, the business community, and the public at large to more reliable, comprehensive, and up-to-date legal information\. The overall objective followed naturally from the priorities of the GoA and of the World Bank (as stated in the July 1998 Country Assistance Strategy (CAS) and the February 2000 CAS Progress Report) to improve governance and to strengthen public institutions\. The focus on strengthening the capacity and performance of key legal and judicial institutions was: (i) appropriate given Albania's stage of development at that point, (ii) aligned with the GoA's strategy to strengthen the application and enforcement of Albanian law which was, and continues to be, under a comprehensive process of reform and modernization; and (iii) complemented the activities of the GoA and other donors involved then in legal and judicial reform in Albania\. 3\.2 Revised Objective: The objectives of the Project were not revised\. 3\.3 Original Components: - 2 -  The Project comprised five components which include some of the most important elements for the efficient and transparent functioning of legal and judicial sector institutions\. These were: 1\. Improving legal education at the Faculty of Law of the University of Tirana (FoL), through: (i) a faculty development and training program; (ii) institutional strengthening for the FoL; (iii) provision of books, materials, and equipment; and (iv) rehabilitation and expansion of the FoL premises; 2\. Strengthening of the judiciary through: (i) improvements in court and case management systems; (ii) building the capacity of the Magistrates' School for improved judicial training; (iii) improving enforcement of civil judgments; and (iv) strengthening judicial inspection; 3\. Institutional strengthening to support the use of alternative dispute resolution (ADR) mechanisms for commercial disputes; 4\. Strengthening the dissemination of legal information, through the establishment of a centralized electronic legal information system; and 5\. Project management\. 3\.4 Revised Components: The components were not formally revised during Project implementation\. However, Project savings from the cancellation of works at the FoL were redirected toward: additional activities under Component 4 for Disseminating Legal Information for the computerization of the issuance of criminal records certificates and the establishment of a Public Information Office in the Ministry of Justice; expanding Subcomponent 2(iv) for Strengthening Judicial Inspection to include broader institutional capacity building for the newly constituted High Council of Justice; and additional support for the commercial ADR Center in Component 3\. 3\.5 Quality at Entry: The Quality at Entry is rated Satisfactory\. As noted above, the Project design reflected Government priorities and was aligned with the World Bank's strategy in Albania\. The Project design had benefited from extensive analysis of the legal and judicial framework in Albania, both by the World Bank and other donors\. It also benefited from concerted efforts to coordinate the World Bank's assistance with other donor activities in Albania and within the EU context\. The project was originally proposed as a joint Judicial and Public Administration project, but later at the Decision Meeting, it was recommended to split the operation into two projects\. (The Albania Public Administration Reform Project (P069939) was approved by the Board at the same time as this project\.) Even so, the complexity and risk of implementing so many components in the legal and judicial arena alone was acknowledged at the outset, but the strategy considered the interdependency of legal and judicial institutions and recognized that the reform process should be systematic and have a long term outlook\. The individual components were specific and focused, although ambitious\. In particular, the goal of rolling out a modern case and court management system to all courts was overly ambitious, given capacity levels and the time frame\. In general, however, the balance of technical assistance and more basic goods and services appears to have been appropriate to Albania's stage of development and the needs of the judicial sector\. - 3 -  In assessing Borrower ownership, appropriate weight was placed on the GoA's actions prior to Project inception in support of the rule of law, such as the major effort underway at the time of project inception to harmonize the legislative framework for key legal institutions, national re-testing of judges, establishment of a State Publication Center in the Ministry of Justice, and reforms at the Faculty of Law\. However, it appears that less attention was paid to the commitment at the level of the individual beneficiary institutions, notwithstanding the well-recognized weaknesses in capacity\. With hindsight, this corresponded directly to the relative performance of various components\. The project documentation accurately identified specific risks--such as Albania's weak institutional capacity, lack of experience with democracy and capitalism, existence of widespread corruption, frequent changes in government, and inadequate counterpart financing--which indeed affected Project outcomes\. The measures taken to counter these risks were appropriate ones: (a) simple, focused components; (b) training for staff of beneficiary institutions; (c) involvement of stakeholders in Project design; (d) policy guidance by an inter-institutional Coordination Council; and (e) providing training and consultant services to the PIU\. Although implementation arrangements appear to have been adequate, there was a significant learning curve for the project implementation unit and the beneficiary agencies at the outset, which may have been mitigated by the advance preparation of some TORs and earlier technical assistance to the PIU\. Given the significant learning curve, the external PIU may have ended up being analogous to having had the Ministry of Justice manage project implementation\. This, in turn, would have built lasting capacity inside the government\. However, it is important to note that the external PIU was instrumental in maintaining progress during project implementation throughout the frequent changes in the Minister of Justice\. The project did suffer from the broader issue of tension between the judiciary and executive in an evolving constitutional, political and legal framework\. However, it is not clear how the design of the project could have more adequately addressed these issues\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The overall outcome of the LJR project is rated Unsatisfactory(using the new six point scale the rating would be Moderately Unsatisfactory)\. In general, the LJR project achieved its objective of strengthening the implementation of the rule of law in Albania by improving the functioning of key legal and judicial institutions\. The Project contributed to improving judicial education, increasing transparency through public access to legal and judicial information, strengthening the management of the judiciary, provision of commercial ADR services in Albania and improving the issuance of criminal records certificates (widely required for job applications and employment in Albania)\. In other areas ­ legal education, judicial inspection, enforcement of civil decisions, and court and case management ­ much less was achieved than was intended\. In the recent Business Environment and Enterprise Performance Survey (BEEPS), the percentage of firms reporting `the functioning of judiciary' as a problem for doing business fell - 4 -  from 62 percent (63 percent among firms that had used the courts) in 2002 to 56 (60) percent in 2005, although this remains significantly higher than the average among countries in Southeastern Europe\. Seventy-four (74) percent of firms reported in 2005 that information about laws is easy to obtain compared with 60 percent in 2002\. Also, those reporting confidence in the legal system rose from 50 percent in 2002 to 56 percent in 2005\. It is important to note, however, that in the more specific assessments of the judiciary itself, improvements reported by the general population were not echoed among firms that had actually used the courts in the preceding 3 years\. Fewer court users (firms) reported that the courts were able to enforce their decisions, affordable, quick, honest, fair and impartial, in 2005 than in 2002\. Court usage in Albania did not improve over the period and remains significantly lower than in neighboring countries\. Nevertheless, given the achievements noted above, the LJR Project appears to have made a modest, initial contribution to the ongoing, long-term process of Albanian legal and judicial reform\. The Project's contribution to reducing corruption in Albania, which remains a key challenge for the country, is also a key issue\. The BEEPS found that firms citing corruption as a specific problem for business showed a small reduction from 69 to 65 percent during 2002-05\. Corruption remains a critical problem in Albania and continues to be reported as significantly higher than in neighboring countries where the average number of firms citing it as a problem is 38 percent\. The Project set out to strengthen the capacity of key institutions as only one element to improving the rule of law\. Measures introduced under the Project which should lead to decreased opportunities for corrupt practices in the judiciary over time include: random assignment of cases to judges by the case management system, standardization and monitoring of enforcement practices, the publication of judicial decisions and other improvements to the management of the judiciary\. Other elements necessary to achieve the larger objective of reducing systemic corruption, such as adequacy of budgets and government salaries were, notably, outside of its scope of the Project\. Nevertheless, the Project's limited impact on the judicial inspection regime during implementation (see section 4\.2 below) constituted an important shortfall below its potential impact on stemming judicial corruption\. 4\.2 Outputs by components: 1\. Improving Legal Education at the Faculty of Law of the University of Tirana (US$0\.45 million) The outcome of this component is rated Unsatisfactory\. Technical assistance was provided to assist with the implementation of the FoL's Action Plan (developed with World Bank assistance during project preparation) but with marginal results\. The leadership of the FoL changed just as the Project began, and the new leadership largely failed to carry out the Action Plan, with the exception of the adoption of competitive blind-graded entrance examination for the FoL and of a program to upgrade staff teaching skills\. There has been no institutional reorganization\. Project funding to expand the FoL premises was cancelled shortly after the mid-term review due to unresolved land ownership issues, and inadequate commitment and participation by the FoL management\. This followed extensive discussions and communications between the task team and the FoL and government officials\. The competitive entrance exam, combined with a cap on enrollments, was meant to stem the long standing practice of sale and purchase of admission to the FoL\. It was implemented for several years under the project until a cheating scandal broke in mid-2005\. Since then - 5 -  faculty-student ratios have returned to substandard levels due to increasing student numbers\. A twinning program successfully completed a long-term faculty exchange among three English and Albanian law professors, short-term training for approximately 80 percent of the other faculty members, international guest lectures in Tirana, and computer research training\. These activities have created links to international faculty counterparts, and increased willingness from teachers and students to use modern teaching methods\. Opportunities for scholarly publication have improved through publication of the Journal of the FoL\. However, there are few resources for professors to develop new teaching materials or methods, and the FoL dropped its Internet connections\. In addition, new faculty hires are generally less experienced and not highly qualified, in part due to low salaries (despite a strike in 2004 which resulted in a general pay raise)\. The expansion of the FoL's physical premises did not take place due to an unresolved dispute over ownership of the land to be used for this purpose\. The land dispute arose soon after the Project's inception\. Legal analyses were made on behalf of the Ministry of Justice (MoJ) and State Advocate's Office as well as the Project, resulting in differing conclusions about its validity of certain claims\. Despite a plan to expropriate the land in order to clear title, court proceedings were never initiated by either the state or the private claimants\. The failure to resolve this matter prevented disbursement of any funds for the extension of the FoL premises\. In two surveys of employers of law graduates conducted in 2003 and 2005, the overall level of satisfaction with the quality of law graduates among employers remained essentially unchanged at about 70 percent satisfied and 28 percent somewhat satisfied\. These figures contrast sharply with the generally negative anecdotal comments from the legal community and students about the quality of teaching at the FoL\. Employers reported more strongly in 2005 than in 2003 that graduates were capable of doing independent work, but the percentage of those reporting that they had fired lawyers because of incompetence also increased from 2003 to 2005--and 60 percent of those stated it was due to the poor quality of the FoL, including in respect of its teaching staff and the curriculum\. 2\. Strengthening the Justice System (US$ 4\.62 million) The results of this component were mixed, and the component as a whole is rated Moderately Satisfactory\. a) Improving Court and Case Management The objective of this subcomponent was to provide full access to modernized court and case management techniques and processes in the courts of Albania\. The outcome was Unsatisfactory\. The ambitious objective of countrywide implementation of court and case management reforms and new systems was not achieved\. However, a solid base has been laid for the eventual achievement of this goal, through the development of software for a computerized Civil Case - 6 -  Management and Information System (CCMIS) and preparatory work for its planned future expansion to criminal cases\. The original project plan was to implement changes in management processes and introduce a new computerized system in three pilot courts: the Supreme Court, Durrës Court of Appeal and Tirana District Court\. Shortly after the Project launch, consensus was reached between the World Bank and the Government that the Tirana District Court was too large and potentially problematic, to serve as a meaningful pilot\. The Durres District Court was substituted as a pilot\. Following implementation, evaluation and adjustment of the pilot systems, the CCMIS was intended to be rolled out to all remaining courts in Albania\. Project funds were used to purchase and install hardware for workstations and local area networks in three pilot courts, and to train pilot court personnel in the use of CCMIS\. However, CCMIS is now operational only in the Supreme Court, while the two other pilot courts (Durrës Court of Appeal and Durrës District Court) both continue to use the long-standing manual system\. Only the Supreme Court has hired IT specialists and allocated operating funds for continuing support, maintenance and expansion of CCMIS\. Given the lack of implementation in the pilot courts and the failure of the MoJ and Supreme Court to appoint IT specialists for the courts, the rollout was abandoned and the remaining credit allocated for this component was eventually cancelled after the close of the Project in mid 2005\. Currently, the EC is preparing to renew and finance the rollout of the CCMIS\. Following the change of government in mid 2005, a new MoJ administration has worked with the Supreme Court to begin the process of hiring the necessary IT administrators for other courts\. Six new positions have already been approved by the MoJ and budget for salaries has been reallocated from other areas\. Recruitment is expected to begin after the positions and salary levels have been approved by the Department of Public Administration\. During the Project, the Tirana District Court began implementation of a different computerized case-tracking system developed with funding from other donors\. Neither the Bank nor the Government, despite extensive consultations were able to convince the donor, the contractor or the Court management to coordinate these simultaneous development efforts\. This other system, which is now viewed as a precursor to the CCMIS, is currently operating in the Tirana District Court and several others, but requires annual funding for software license fees (because the source code is not owned by the Government of Albania)\. System maintenance continues to be provided by the donors\. Moreover, the existence of different systems has complicated the unification of civil case management under CCMIS throughout the Albanian courts\. b) Improving the Capacity of the Magistrates' School for Judicial Service Training The outcome of this subcomponent is rated Satisfactory\. The key intended outputs were to expand the course offerings and continuing judicial education to judges with less than five years of experience at the Magistrates' School and to improve the School's legal research facilities\. The intended outputs and outcomes were achieved and surpassed\. The external - 7 -  consultants financed by the project collaborated successfully with the School's faculty and staff: (a) to develop and publish four course textbooks in new subjects; (b) to conduct courses using the new books; and (c) to train the Director and six permanent faculty members as well as approximately fifteen part-time teachers in modern adult instruction methodologies\. Working with Project consultants as well as consultants and teachers provided by other donors, the Magistrates' School redesigned its teaching curriculum for basic judicial training and provided many continuing education seminars for sitting judges--now offered to all judges, not only those with less than five years experience\. In cooperation with a Project-funded consultant, the School also organized and conducted court administration training and published a manual on court administration for all courts in Albania\. Credit proceeds financed the refurbishment of the premises and appropriate furnishings and equipment, including a computer lab and computers with Internet access, for the Magistrates' School's operations\. The computer lab has improved the School's legal research facilities; all students are required to carry out online research\. During Project implementation, the governing legislation for the Magistrates' School was amended to provide more financial stability, and actions on the part of the Director have successfully preserved the School's independence\. The Director has developed many international contacts and has recently been invited to act as an international advisor to a similar school being formed in Macedonia\. c) Improving the Enforcement of Judicial Decisions in Civil Cases The objective of this subcomponent was to improve the capacity of the Execution Office within MoJ so as to increase the percentage of judicial decisions enforced in civil cases\. The outcome has been Moderately Unsatisfactory\. Early in 2003, the project-financed consultant developed a detailed and comprehensive action plan for the reorganization of the structure and functioning of the entire enforcement service\. Basic training in computing skills was provided to the Head Office staff\. Shortly after, however, a new Justice Minister and General Director were appointed and chose to prioritize widespread staff replacements rather than implementation of the long-term, comprehensive organizational reform\. The new enforcement officers are reportedly better qualified, but the high turnover resulted in loss of training provided to the earlier staff\. Project recommendations were only implemented in two pilot offices\. The Project consultants also designed database systems for case registry, financial management and equipment inventory and carried out related computer training\. After some prompting by World Bank staff, the systems were piloted in the Tirana and Durrës regional offices\. Data entry was continuing at the close of the Project to allow operations in the Tirana local office\. Again after some persuasion by the World Bank, the software was delivered to all other regional offices in response, but it is not yet operational\. However, for the short time, the database systems have been operational in the Tirana and Durrës offices, they have shown clear signs of improving productivity and management\. After the approval of a plan for the distribution and use in line with workload needs, the - 8 -  component also financed purchase of equipment a fleet of cars for the enforcement service, many of whose officers were traveling on bicycles or public transportation to execute judgments\. With one exception, the vehicles were distributed as planned\. (Following the close of the Project, the one vehicle that remained in use by the former Justice Minister when he returned to Parliament has been returned to the MoJ for use by the Execution Department\.) The total number of civil cases resolved per year has increased steadily, albeit in part due to the provision of public funds to pay judgments against state agencies\. However, caseloads also continue to increase and the large backlog of judgments to be enforced continues to grow\. EURALIUS will provide a long term advisor to the Enforcement Office to continue some of the Project-financed activities and recommendation\. More recently, there has been renewed political attention on judgment enforcement, and the present Minister of Justice has set a very ambitious goal of clearing the backlog within the next few years\. d) Strengthening Judicial Inspection The original objective of this subcomponent was to ensure that the inspection of justice system activities would be carried out more effectively and transparently\. However, this was later broadened to support institutional capacity building for the newly-empowered High Council of Justice (HCJ) following key legislative changes\. The outcome of this subcomponent is rated Moderately Satisfactory\. Delays in enacting the new governing law for the HCJ and associated uncertainties delayed the start of activities for this subcomponent by more than a year\. Then in 2002, Parliament enacted the law that clarified the HCJ's responsibilities beyond only judicial inspection and provided for a full-time Vice Chairman and administrative staff\. Because of this development, Project assistance was broadened in late 2002 to include technical assistance concerning the High Council's overall organization and administration, in addition to original support for improving judicial inspection\. Thereafter, Project-funded technical assistance, study tours for HCJ members, and the completion and furnishing of separate office premises have ensured increased operational capacity, credibility and visibility for the HCJ and the execution of its judicial inspection function\. Despite continuing ambiguity regarding the legal scope and authority of Albania's dual inspection bodies, by the end of the Project implementation, the current Vice-Chairman of the HCJ had reached working agreements with the MoJ Judicial Inspectorate and several joint inspections had been carried out\. The HCJ has also continued to utilize its website (www\.kld\.al) and the Albanian media to increase public awareness of its own inspection role\. The number of complaints about the judiciary has increased from 391 in 2003 to 710 in 2005, although the rate of increase is slowing from 37 percent in 2003-04 to 31 percent in 2004-05\. However, the increase may be as much a sign of this awareness as it is of increased dissatisfaction with the judiciary\. Inspectors were able to dismiss or close a greater percentage of these complaints in 2004, while the numbers of disciplinary measures taken by the HCJ remained relatively constant\. Out of the 710 complaints in 2005, the HCJ has taken 536 into consideration for further inspection\. - 9 -  Comparative statistics on disciplinary actions over the Project's lifetime are not possible because there were only a handful of actions each year; thus fluctuations are not statistically significant\. Such low numbers are not out of line with judicial discipline bodies in other countries\. Regarding general reforms, the HCJ adopted written internal operating regulations in 2003, although they have some room for improvement\. Towards the end of the Project, consultants provided detailed recommendations to the HCJ on a number of key issues including: a court rationalization plan covering staffing and budgets; draft legislative and regulatory amendments to further reform the role of inspectors in evaluating judges; and advice on the management of transfers and promotions for judges\. These have provided a basis for the HCJ to further improve its operations\. More recently, consultants conducting a functional review of the Ministry of Justice under the World Bank's Public Admnistrative Reform Project in Albania have reported that the HCJ has already implemented many of the recommendations required to put in place a comprehensive professional assessment system for judges and to refocus its judicial inspection services\. Assistance to continue these reforms can be provided under a planned EC twinning program with the HCJ\. 3\. Providing ADR Mechanisms for Commercial Disputes (US$1\.13 million) The objective of this component was to have the commercial community make use of independent mediation and arbitration for commercial disputes\. The outcome is rated as Moderately Satisfactory \. This component aimed not only at creating a new private, non-profit institution in the Albanian justice system, but also at achieving a certain level of business performance for this institution\. The creation of the MEDART Arbitration and Mediation Center has been achieved in a very professional manner and the efforts of its Board and Director have been creative and thorough; at the close of the project the business community was beginning to make use of the Center\. The MEDART Center was established in June 2003, with technical assistance financed from credit proceeds\. It has a governing Board and Director, and 13 mediators and arbitrators have been trained\. The Center adopted a business plan and operating procedures, but the planning process was hampered by the lack of reliable court statistics about commercial cases\. Current legislation, including a new Mediation Law proposed by MEDART, provides the legal basis for conducting private arbitration and mediation\. The Center has recently drafted and presented to Parliament some amendments to the Arbitration Law\. The Center, with technical assistance financed from credit proceeds, carried out a public awareness campaign through media events and conferences; and the individual Board members, Director and staff maintain continued contact with courts, businesses, bar association, state and local governments and NGOs to promote the Center's services\. Significant efforts to encourage the use of arbitration/mediation clauses in commercial contracts, especially in public contracts, have resulted in clauses added to a large number of contracts\. These are expected to provide cases for the Center in the future\. The Center also undertook a pilot referral process with the - 10 -  Tirana District Court\. This had only mixed results due to continued uncertainty and ignorance about arbitration and mediation among both judges, lawyers and the business community\. To help combat these realities, the Magistrates' School conducted arbitration and mediation training courses for judges\. Activity has been slow, but there are signs that efforts are producing results\. Three fee-paid arbitration cases were completed by the Center as of January 2006\. Of these, one was decided by an arbitrator, confirmed by judgment of the court, and the arbitral award was not appealed by the losing party, thus indicating an acceptance of the arbitration process\. This case has been well publicized and sets an important precedent for enforcement of the arbitration law and for the Center's future success\. Ten new case inquiries were received in September 2005, apparently the result of the Center's own publicity, but these have not yet resulted in fee cases\. 4\. Disseminating Legal Information (US$ 0\.62 million) The objective of this component was to improve access by government officials, judges, parliamentarians, legal professionals, the business community, the Magistrates' School, the University of Tirana's Faculty of Law, and the public at large to more reliable, comprehensive and up-to-date legal information\. The outcome is rated as Satisfactory\. Within this component, two activities were initially undertaken: (i) the development of a computerized, internet-accessible database for decisions of the Supreme Court (called JUDIS); and (ii) the development of a similar database for Albanian legislation (called CODIS)\. Both aims were achieved in large measure, though some data entry remains before the Supreme Court database comes online\. Two additional activities: (iii) establishment of a public information office within the Ministry of Justice; and (iv) computerization of the issuance of criminal record certificates were undertaken in 2004-2005 by redirecting Project savings\. Credit proceeds funded new database software, hardware, staff training and data entry for both CODIS and JUDIS\. The CODIS system is fully operational\. Judicial decisions from 1999 to 2005 are currently available as text documents on the JUDIS website, but without any search capability\. Nevertheless, these systems represent a significant improvement in the access to legal information in Albania, as they are potentially more widespread and comprehensive, cheaper and more practical for users and more quickly updated than any paper publications\. However, budgeting for maintenance and operations do present current problems\. For example, some paper publications may be cut to pay for the CODIS system, and the judicial budget does not yet include funding for internet access for all courts\. No data are available yet for CODIS usage, as the necessary software for tracking "hits" on the website remains to be purchased\. ICR preparation revealed gaps in the level of awareness in the legal system about the website, which the SPC has begun to address by holding a public meeting showcasing the system\. Bank staff in the Tirana office already make extensive use of CODIS in order to track and research Albanian legislation\. The third activity within this component was the creation of a public information center for the MoJ\. A newly refurbished public area with automated queue equipment was created, and local technical assistance was provided to develop and implement a comprehensive information - 11 -  strategy for the Ministry\. Unfortunately, the MoJ failed to hire the new staff needed in time, so the planned training and implementation could not be completed before Project closing\. The Project also funded the creation of a computerized database and software for issuance of criminal records certificates, as well as the necessary computer equipment and training of existing staff\. This system is fully operational and has drastically reduced opportunities for corruption and the time required to issue such certificates\. Most of the approximately 1000 daily requests for certificates are now processed by the next day\. 4\.3 Net Present Value/Economic rate of return: Not applicable 4\.4 Financial rate of return: Not applicable 4\.5 Institutional development impact: The institutional development impact of the Project is rated as Modest\. As noted above, the Project has had a positive, albeit in some cases very limited, impact on most of the institutions it set out to strengthen -- the Magistrates School, State Publication Center, the Enforcement Office, the High Council of Justice and a few courts\., In addition, a new institution, MEDART, was created under the project\. The immediate impact has also been modest in most cases, and negligible in some\. However, the impact on the overall judicial system should deepen over time, in particular, through the continued education of judges and magistrates, the publication of decisions and laws, improved management of the judiciary, courts and case loads, more extensive use of mediation and arbitration, and stronger enforcement of decisions\. As such, the overall institutional development impact of the project is rated as Modest\. Monitoring and evaluation\. Although the Project design provided for instruments to monitor outcomes, the pressure and delays in completing activities meant that many of these were unrealized\. For example, the first court users' survey at the beginning of the project gathered data more relevant to court administration and case management than to judicial inspection, which it was originally intended to measure\. A second survey was not done\. Enforcement statistics are still compiled manually and inconsistently from office to office, with little or no oversight of their accuracy, making progress difficult to judge\. Other planned measurements were either anecdotal or depended on data from the implementing agencies themselves, but these data were not complete or reliable due to the deficiencies in these institutions\. This was somewhat a chicken-and-egg problem, because some of the assistance provided was geared towards improving the agencies' abilities to gather such statistics (such as CCMIS for the courts, computerized case registries for enforcement offices, and computer equipment and procedural/administrative recommendations for improved data handling by the HCJ)\. The attempt to provide for measurement tools was a natural and appropriate response to the existing weaknesses observed in the counterpart agencies\. In theory, such tools could have motivated the beneficiaries to reach the Project's targeted objectives\. However, as actual events unfolded, providing these tools proved to be beyond the capacities of the implementing agencies and was seen mainly as a distraction from the challenging component implementation with which they were charged\. - 12 -  5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Very few factors outside the control of government or implementing agencies influenced Project outcomes\. By the time implementation began, public order had been generally restored after the civil unrest and refugee crisis of 1997-1999, but these undoubtedly had lasting, though indirect and diffuse, effects\. The third-party claim to ownership of the FoL building site arose apparently independently of both the government and the FoL; however, the subsequent failure to resolve the dispute or to find any alternative solutions rested within the Government's control\. With respect to the MEDART Center, its difficulty in translating theory into practice is largely attributable to a prevailing culture of uncertainty within the legal, judicial and business communities about the efficacy of mediation and arbitration (although the reluctance of the Tirana District Court to refer commercial cases for mediation at least may be considered to be within implementing agency control)\. Finally, widespread computer illiteracy and the general lack of internet access in many parts of Albania affected all project components that involved computerization\. 5\.2 Factors generally subject to government control: Shifting policy commitment and leadership\. Government support and cooperation based on expressed priorities and goals during the design and preparation phase of the project turned out to be weaker than anticipated as implementation progressed\. Frequent changes in the post of Minister of Justice (six different Ministers during five years of implementation) significantly affected commitment to the development objectives, ability of the PIU to keep implementation moving forward, and continuity of priority and vision for the progress of reforms\. Some Ministers and institutional leaders employed a more traditional, highly-centralized management style that delayed implementation\. Others lacked experience with foreign-financed projects and either did not provide the necessary support nor attention to project implementation or diverted attention away from implementation by requesting frequent changes in project priorities without providing sufficient justification\. Political, legislative and budgetary actions\. Continuing changes in governing legislation for the implementing institutions, while introducing needed improvements, also affected reform progress because of the uncertainty they caused\. This was a factor for the HCJ, the judicial inspection service and the Magistrates School, as described above\. Furthermore, differing views between the judicial and executive branches about the appropriate extent of judicial accountability and independence had a negative impact on the ability of the justice sector institutions (particularly the HCJ, MoJ and courts) to implement reforms\. The policies of the Ministry of Education were a factor in the outcomes for the FoL\. The Ministry regulations encouraged high numbers of admissions by making this a criteria for budgetary independence; it also adopted policies late in the Project period tending towards providing an education for everyone who desired it, rather than only those who met high admissions testing standards or numbers based on societal need, and allowed the creation of private, competing law schools (which had both positive and negative effects)\. Furthermore, greater Ministry control of the admissions process for the FoL might have avoided the cheating scandal in 2005 (see below, section 5\.3)\. On the positive side, the Bologna Charter of standards - 13 -  for educational institutions was adopted, providing benchmarks against which to measure the performance of the FoL\. Unfortunately, the performance of the FoL remained substandard\. State budget constraints affected all project components except the private MEDART Center, particularly with respect to providing adequate funds and authority for ongoing maintenance and support staff, as well as sufficient numbers of law faculty and judicial inspectors\. Despite modest increases in university faculty and judicial salaries, overall salaries for civil servants and other government employees remained quite low, thereby affecting the ability to recruit and retain qualified personnel\. While Parliamentary approval of budgets is certainly a factor in this situation, it appears that lack of budget capacity, exemplified by poor and late budgetary planning by implementing agencies, contributed as well\. With respect to MEDART, the government's willingness to borrow to finance the creation of a private actor in the judicial system is notable\. 5\.3 Factors generally subject to implementing agency control: PIU\. Project implementation suffered initially due to staff turnover and a steep learning curve with respect to both project management and Bank procedures\. The first PIU Director left after the first year to become Chancellor of the Supreme Court\. Two procurement specialists left during the first and third years of the Project, and the legal coordinator position changed once as well\. The second PIU Director, a former judge, served throughout the remainder of the Project\. Generally, Project activities in which the PIU hired outside technical support (such as IT issues) were less affected by the learning curve problem\. Inherent obstacles to reform\. The organizational and human capacity of some implementing agencies turned out to be more limited, more politicized and more resistant to improvement than was originally anticipated\. Thus, some implementing agencies did not always take full advantage of the technical assistance built into the Project design to address these weaknesses\. This was particularly true for the MoJ Enforcement and Information Offices and for the FoL, and to a lesser extent for the courts and HCJ\. Each is discussed in turn below\. The legal education component was delayed significantly and nearly cancelled altogether due to repeated breaches by the FoL of its commitments regarding steps to reduce admissions numbers and make them fair and transparent\. Most of the reforms implemented by the FoL have been reversed or modified since the completion of project activities in this component in 2004\. An admissions exam cheating scandal in October 2005, as well as the resumption of fee-paid study programs and seriously worsened student-teacher ratios, indicates continued institutional weakness and lack of genuine commitment to reform\. Similar failures to comply with agreed procedures for selection of participants in the twinning activities caused delays, added expense and limited results of the Project interventions\. A number of internal weaknesses plagued the MoJ's Enforcement Service, over and above the legislative, political and budgetary problems mentioned above\. These included (a) changes of Director General and local office directors, which created fluctuating commitment to reform and a lack of continuity; (b) extremely high staff turnover which, although perhaps warranted due to the dire need to improve staff quality, caused loss of trained personnel and low motivation to learn or perform; (c) essentially non-existent computer literacy skills at all levels; and (d) a centralized - 14 -  structure, which required almost all decisions to be channeled through the Minister\. To make matters worse, in 2005 shortly before the close of the project, the MoJ relocated several enforcement offices, including Durrës, away from their previous locations in the courthouse buildings\. The new Durrës premises (visited during the Project Completion Mission) were completely inadequate to accommodate enforcement service personnel, much less the new computer equipment\. Factors that prevented implementation of CCMIS in the Durrës pilot courts also stemmed from inherent institutional weaknesses: (a) the lack of permanent Chief Judges in those courts for more than two years; (b) limited computer experience of the staff; (c) lack of IT System Administrators to provide user support or hardware maintenance; and (d) limited budget for purchasing and operating back-up power generators\. Implementation delays also affected progress for the HCJ\. Initial suggestions for improvements met with resistance and weak implementation\. However, at the time of project closing, the HCJ was beginning to undertake the recommended institutional reforms such as implementing a comprehensive judicial evaluation system and restructuring its own inspection service (see section 4\.2\.2(d) above)\. The HCJ actions also affected the pilot implementation of the CCMIS component through the delays in appointing permanent Chief Judges in the Durrës courts\. Where leadership existed that was receptive to institutional reform and modernization, internal weaknesses of organizational structure and human capacity were tackled through Project assistance\. This was the case with the Magistrates' School and MEDART Center as well as the Supreme Court and the criminal records office\. Although the consultants met initial resistance, technical difficulties and personnel gaps in the SPC, these problems were gradually remedied, as reflected in the ultimate outcomes with the implementation of CODIS\. 5\.4 Costs and financing: Project disbursements were lower than anticipated, primarily because of the failure to implement the full roll-out of CCMIS\. Funds not used for civil works at the FoL were redirected to other appropriate activities, as mentioned above\. Total disbursements were SDR 5\.87 million (US$ 8\.39 million) compared to an expected total financing of SDR 6\.6 million (US$9\.06 million)\. The cancellation of the SDR 0\.73 million (US$\.99 million at SDR/USD exchange rate at the time approval or US$1\.1 million at the time of cancellation) intended for the CCMIS rollout was reasonable, however, in light of the absence of certain prerequisites, including IT systems administrators, and difficulties with implementation\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The overall sustainability of the Project outcomes is rated as Moderately Likely based on the assessment below of the sustainability of individual components and subcomponents\. Of immediate concern, however, is a thirty percent reduction in the judiciary budget for 2006, although increasing donor assistance from donors is expected to brigde much of the short term gaps and sustain reform implementation\. - 15 -  Although some outputs of the Legal Education component were achieved, their effect on the operations of the FoL is doubtful and it is Unlikely that any long-lasting changes have occurred as a result\. No significant donor activity is planned for the FoL in the near future\. The CCMIS (and planned expansion to criminal case management) has a good chance for success in the future, mainly due to the EC agreement to continue the work of the Project\. The Commission intends to carry out refurbishment of a number of courthouses, and has allocated 500,000 to install CCMIS and train staff in at least eleven courts across Albania\. Hardware specifications and rollout TORs prepared under the Project are being used by the EC effort\. Hiring a minimum of six IT specialists for the courts is a precondition for this assistance\. As noted above in Section 4\.2, the positions and budget have been approved by MoJ and the Judicial Budget Office and are awaiting approval of the Department of Public Administration before recruitment begins\. The Chief Justice has been a strong advocate for the system and the MoJ has recorded clear demand among the chairmen of courts\. The overall sustainability is, therefore, rated Likely\. The Magistrates' School is Highly Likely to sustain its operations and increase the quality of its activities in the future\. The School has reduced its dependence on both donor funding and expertise by developing a cadre of trained full- and part-time Albanian instructors, and by transferring some expenses to the Judicial Budget while covering most of the rest from the state budget\. The School continues to receive support and assistance from other donors, most significantly the Council of Europe's program funded by the EC\. The continuing institutional and operational difficulties experienced by the Enforcement Office make the prospects of sustained improvement somewhat uncertain\. However, the progress to date in implementing the recommended procedural and automation changes in the pilot offices has demonstrated what is possible and a EURALIUS advisor will work with the Enforcement Office to continue some of the project-financed activities and recommendations\. Demand for further reform is evident from the high level political attention that the new government has placed on improving the enforcement of civil judgments\. The overall sustainability rating for this component is Moderately Likely\. The sustainability of the HCJ outcomes are rated Moderately Likely\. The Vice Chairman of the HCJ, who heads its administrative staff, reacted positively to the Project consultants' recommendations for organizational and operational improvements and has taken steps to implement them\. A EC-funded twinning program will also be available to assist with this effort\. In the near term, however, recent legislative changes requiring HCJ members to resign their judicial or other positions will likely preoccupy attention\. The eventual success of the MEDART Center now depends on continued donor support for its promotional efforts and growth in the demand for its services\. The small increase in requests for both fee-based arbitration and mediation at the end of the Project provide a base upon which the Center can build\. Donor support has been promised by several sources arranged by the Center with the Project consultant's assistance, so this component is Moderately Likely to - 16 -  experience continued development\. The new JUDIS, CODIS and criminal records certificate systems are Likely to be continued and improve, although the judicial budget cuts for 2006 are already presenting important challenges\. Both the Supreme Court and SPC have the appropriate staff and at least the minimum budgets needed to maintain the systems\. Other donor efforts are addressing the low level of internet penetration in the country\. There are plans to fully decentralize the criminal records certificate service and move the Tirana service back to the MoJ building, but this will occur only if and when donor funding is found for the decentralization costs\. Prospects for the Public Information Office in the MoJ seem weaker\. There is, as yet, has no clear plan for this facility\. 6\.2 Transition arrangement to regular operations: In order to ensure the transition to normal operations, the GoA must address the factors described above, especially adequate budget and personnel allocations for continued operation, maintenance and support, as well as institutional governance and political prioritization of the legal and judicial sector\. Continuing donor involvement will be essential to complete the legal and judicial reform agenda\. In particular, ongoing support is needed for MEDART\. Technical assistance is being provided by the EURALIUS project of the EU Commission in court and case management, publication of judicial decisions, judgment enforcement, the judicial budget and administration\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank's lending performance is rated as Moderately Satisfactory\. The project was prepared over a relatively long period (1997-2000) during which Albania was slowly emerging from civil strife\. This allowed for extensive analytical work and assessment studies that made an important contribution to the World Bank's state of knowledge about Albania's legal and justice sector and were instrumental in determining the areas for assistance and alignment with Government priorities\. The decision to divide the original project into separate Legal and Judicial Project and Public Administrative Reform Project was appropriate\. Extensive consultations were held with, and among donors involved in the area at the time, including the Council of Europe regarding the Faculty of Law, the EU regarding the Magistrates' School, DANIDA regarding judicial inspection, and the OESC, ABA-CEELI and the Soros Foundation on more general matters\. In the end, however, the goals and objectives of the Project, although owned by senior Government officials, may have been too ambitious for Albania at that time\. Given the implementing institutions' "lack [of] even the most rudimentary skills to design and implement reform initiatives" as noted in the PAD, World Bank staff were heavily involved in the actual preparation, over and above identification and appraisal, of the Project\. This may have appeared necessary to accelerate project preparation, but the limited capacity of the implementing agencies themselves to take responsibility for preparation might have signaled that certain aspects of the Project were too ambitious\. This limited involvement at the agency level did eventually contribute to the subsequent problems and delays in carrying forward some of the Project activities and - 17 -  should have been better assessed and addressed during preparation\. It should be noted that the World Bank team did not develop or identify adequate performance indicators at the outset of the project ­ although this may have been consistent with the standards at that time ­ and the filing of documentation during the lending stage should have been more systematic\. 7\.2 Supervision: Project supervision is rated as Moderately Satisfactory\. Project supervision missions, which provided guidance to the PIU and implementing agencies, facilitated communication and resolution of inter-agency obstacles, were carried out approximately twice per year\. A Mid Term Review was held in May-June 2003\. At the outset of the project, the long lead times before disbursement and consulting activities could begin caused some initial frustration and disappointment among Albanian beneficiaries\. Some problems of "donor shopping" arose, when beneficiary institutions continued to seek similar assistance from donors who could act faster, more flexibly and without repayment requirements, but perhaps in a more piecemeal and less effective manner\. Continued World Bank involvement in donor coordination groups focusing on areas of several Project components whose regular meetings helped resolve most of these issues, strengthen GoA institutional capacities and improved outcomes for all donors\. Unfortunately, despite these efforts some conflicting activity continued with respect to the CCMIS\. The Project team was able to identify problems encountered by the PIU as they arose, and to assist in resolving them, in part by providing additional technical assistance to the PIU\. Some ad hoc consultation with other World Bank-financed projects having an impact on LJR created important positive synergies, such as increased judicial and court administrative salaries, infrastructure improvements to government buildings, and education system reforms\. The World Bank task team should have paid greater attention in reviewing the appropriateness of some of the decorative items (such as pictures and large planters) procured from credit proceeds which were included by the Borrower under the package of items required for refurbishment of Public Information Office in the Ministry of Justice\. Even though the items procured followed proper International Competitive Bidding procedures, if these items were excluded the Borrower could have used the same funds for some more useful items\. 7\.3 Overall Bank performance: The overall Bank performance rated as Moderately Satisfactory\. Borrower 7\.4 Preparation: Borrower preparation performance was Moderately Satisfactory\. The GoA's focus on the legal and judicial sector was commendable; its reform efforts prior to Project approval had been significant and sustained, and the Project design built upon these\. However, the GoA may have expressed more commitment and enthusiasm for reform at the senior level than it could actually deliver at the level of the implementing and beneficiary agencies\. 7\.5 Government implementation performance: Implementation performance on the Government's part was Moderately Unsatisfactory\. - 18 -  The Government's shifting policy commitment and leadership of the judicial reform agenda, as well as political, budgetary and legislative actions affected Project outcomes significantly, as described in section 5\.2\. It is notable that the Project Coordinating Council (PCC) did not meet for most of the Project implementation period, possibly, a symptom of the tensions between the executive and judicial branches of government mentioned elsewhere in this report\. The shortage of Coordinating Council meetings had less of an impact on Project implementationm, per se, than the numerous changes in leadership of the Ministry of Justice\. Performance was mixed from component to component and across the various responsible institutions as described in section 5\.3, but genuine incremental progress was achieved in what was always acknowledged to be a long-term reform process\. This progress must also be assessed in light of the Project's ambitious goals and the recognition in the PAD not only that "progress in building civic institutions is fraught with difficulties", but also that "uncertainty will likely be\.[experienced] in implementing other aspects of the Government's institutional reform strategy\." 7\.6 Implementing Agency: The performance of the implementing agency (PIU) is rated Moderately Satisfactory, based on the factors mentioned in section 5\.3\. Despite some initial problems and continuing staff turnover (mentioned above), the PIU was a positive influence in coordinating and shepherding Project activities among the several implementing agencies\. The performance of the second Director as well as that of the Financial Management Specialist was always evaluated as excellent, and all of the Bank's audits revealed only minor issues\. An independent procurement review, directed by the ECA Regional Procurement Adviser of the Bank, found the financial management and procurement processes to be generally satisfactory\. 7\.7 Overall Borrower performance: The overall performance of the Borrower is rated as Moderately Satisfactory\. 8\. Lessons Learned The Bank's role in promoting judicial independence is a delicate one given its political ramifications\. Throughout the World Bank's Europe and Central Asia region, the EU's mandate in addressing overarching political and constitutional issues, provides an opening for the World Bank to engage at the implementation level\. This project has shown that there are a variety of basic institution building interventions that can support legal and judicial development\. However, close attention needs to be paid to how these interventions impact and depend on the balance of power between the executive and the judiciary\. As a result, frequent and close coordination is required between the Bank's implementation level activities and the EU's broader governance and political discussions\. Close coordination among donors remains crucial, given the many institutions involved in legal and judicial reform in Eastern Europea\. Judicial development in many transition countries requires a comprehensive, multi-pronged, multi-level approached to cover legislative changes, institutional development, systems and process modernization, capacity building and training, public awareness, among other things\. This provides for a plethora of - 19 -  development partners and reinforces the need for close donor coordination, ideally led by the government\. Active involvement of other donors during preparation and launch stages can help to fill gaps while the often slower implementation process of a World Bank-supported project gets underway\. Not only would this facilitate the need to show faster results for some donors, it would integrate them into the Bank's more paced model that strives to generate lasting institutional change through the borrower implementation experience\. The project successfully used this strategy with one bilateral which provided baseline studies and training that supported later Bank-funded activities\. Duplication surrounding the CCMIS might have been avoided if there had been greater integration of donor efforts\. Naturally, the willingness of other donors to follow this approach is outside the World Bank's control\. On the other hand, full coordination in turn raises risk that delays on the part of partners could in turn slow down project implementation\. Ensuring commitment and ownership (and adequately assessing capacity levels) of the beneficiary institutions is one way to mitigate the effect of changes in the political leadership during project implementation\. Although the World Bank adequately assessed commitment among high level officials at the outset, more effort should have been taken to assess ownership and managerial capacity at the agency levels and to address any weaknesses\. Strong commitment, with appropriate support, at the agency level may have ameliorated the impact of the numerous changes in the Minister of Justice and other senior officials\. Fortunately, the project gained momentum and continuity under a stable PIU staff with a very highly respected PIU Director and stable staff (after the first year)\. Other measures such as direct employment of PIU staff by the implementing agency, project-length contracts for PIU and/or key implementing agency actors, or contingencies or incentives for implementing agencies to reduce turnover in key positions, might be useful in this regard\. In addition, where components will require commitments of resources, say for operations and maintenance, or specialized staffing such as IT personnel, consideration should be given to including these as covenants or conditions of disbursement for related components\. Because of the weak capacity, it may have been appropriate to start off with a much simpler (modular) court and case management systems\. Both the introduction of a sophisticated CCMIS and its full rollout to all the courts was an overly ambitious objective for this project in this country\. A much less ambitious goal of providing basic information on the functioning of the judicial system, to which more sophisticated functionality could be added later, would have been an important achievement in itself\. Indeed, one peer reviewer commented during preparation that experience has shown this hurdle (of providing basic information) to be a critical one in judicial system development\. Introduction of new information technology in weak institutions is more likely to expose underlying organizational problems rather than solve them\. Leadership should be made aware that reform is the real goal, not computerization, and that information technology is not the only tool that can be used to achieve it\. At the same time, implementation of modernization programs requires special consideration of, and measures to address, the underlying conditions - 20 -  such as weak computer literacy, low internet penetration and inadequate financial resources\. Available IT staff and budget for support, maintenance, and training and retraining in the event of high turnover, should be a precondition for equipment purchases\. Long-standing institutions may need more time and additional support for undergoing change than newly established ones\. In general, the institutions involved in the project that were being built by new leadership and personnel (like the Magistrates' School, the MEDART Center and the SPC) were able to absorb the process of change somewhat faster than long-standing institutions (like the courts, HCJ, MoJ or FoL) which suffered from ingrained political, managerial and institutional weaknesses\. Monitoring and evaluation is an element of institutional development in its own right, rather than as an activity that is merely supplementary to project implementation\. It is now recognized that an important early step in judicial system development is understanding (and then making transparent) the flow of work, including bottlenecks and breakdowns, and the nature of the interface with, and needs of, court users\. As such, a more sustained and earlier focus on developing indicators and systematic and routine measurement systems is crucial for sustaining long term judicial reform efforts\. It may be useful in the future to specifically identify which implementing agency will be responsible for supporting, measuring and monitoring efforts throughout all beneficiary agencies\. 9\. Partner Comments (a) Borrower/implementing agency: Republic of Albania Ministry of Justice General Department of Judicial Affairs Judicial Organization Department Prot\. No\. 4895/1 Tirana, 06/30/2006 Re: Appraisal, comments and remarks on the Draft Legal and Judicial Reform WB Project Progress Report To: Mr\. Nadir Mohammed Country Manager The World Bank Office Tirana Dear Mr\. Mohammed, - 21 -  I would like to use this opportunity to express my regards and most sincere appreciation for the several years of cooperation of the World Bank with the Ministry of Justice, which has translated into tangible and commendable achievement in the Albanian justice system\. In response to your request, attached we are forwarding our opinion, comments and appraisal for the Draft Legal and Judicial Reform WB Project Progress Report\. Dear Mr\. Mohammed, Kindly allow me to once again convey to you our thanks and warmest regards, and also trust in the future cooperation of our institution with the World Bank\. Thank you for your cooperation, The Minister Aldo Bumçi Review of World Bank Project on Legal and Judicial Reform The general objective of the project for the legal and judicial reform, funded by WB and implemented by the Ministry of Justice in the Republic of Albania, in collaboration with the best and the most important actors in the field of justice in Albania, like HJC, Supreme Court, Magistrate School, Law Faculty Tirana University etc, was the support and implementation of priorities of the Albanian government for the reforms in judicial and justice systems\. Specifically, the project aimed at the achievement of the mid-term and long-term results as follows: 1\. Strengthening the judicial and legal education; 2\. A more effective judicial system, more transparent, less corrupted, and with an easier access to it; 3\. Usage of alternative tools/instruments for the commercial conflict resolution out of the judicial system, like intercession and arbitrage; 4\. Improvement of the access for the officialdoms, parliamentarians, lawyers, magistrates, business community and for the public regarding accurate, - 22 -  credible/reliable and updated information in the legal framework\. In order to accomplish all these goals/results, the project was divided into specific components and sub-components with a relative success, which were evaluated as follows: 1\. Enhancement of the legal education at the Law Faculty in Tirana University There are composite/mixed results of the Tirana Faculty Project: although it had positive results it couldn't achieve all its objectives\. The Project had a positive impact on the improvement of the requirements for the admission of new students at the Faculty of Law, twining program, which made possible the exchange visits between English and Albanian Professors, qualification and training of the academic staff, improvement of the teaching methodology, enrichment of the scientific records of the Faculty Library with novel/fresh literature and also the publication of the scientific magazine "Legal/ Juridical Studies" an output/production of the Law Faculty\. However, the results of the Project have been unsatisfactory in the element/component of expansion and improvement of the infrastructure of this Faculty\. All this happened for the reason that the government failed in the conflict resolution regarding the proprietorship of the building/construction plot (The Faculty couldn't resolve this case by itself because it was under the responsibility Educational Ministry to resolve the property concern)\. 2\. Strengthening Justice System a\. Enhancement of Courts and Court Cases Management In order to achieve this goal, the project provisioned the establishment of a computerized hardware system (IT System) as well as making functional the Court Case Management Information System (CCMIS), which was accomplished only at the Supreme Court, but not in the other two courts in Durres, as foreseen in the project\. With regard the hardware component, this objective was completely accomplished, while regarding CCMIS it resulted in a satisfactory achievement of the objectives, because every data/information (files) submitted/presented at the Supreme Court is recorded and managed electronically\. - 23 -  b\. Improvement of the Magistrates School capacities in providing/delivering Judicial Training Courses The component of the Magistrates School aimed at building its capacities and improvement of the judicial training\. At the end of the implementation of this project, the beneficiary institution appreciates the fulfillment of the implemented activities defined as very good and accurate\. The successful accomplishment of the project finds the school in a much consolidated vantage-point institutionally and financially, with better opportunities and capabilities to provide more prepared prosecutors and judges and at the same time to ensure their continuous qualification\. More in details, the Magistrates School implemented successfully four training courses regarding strategic planning in function of an adequate and regular administration of the courts' activities\. Moreover, an IT (informatics) Laboratory was established\. It offers access to internet and new conditions for collecting all the relevant information\. Six teaching texts on different subjects/topics were also prepared\. c\. Enhancement of the execution of court decisions on civil cases The application of this sub-component served the improvement of the infrastructure of "Judicial Bailiff Service" and at the same time increased the capacity of the office in charge of executing the judicial court rulings/decisions\. The implementation of the project gave a new impact not only to the Bailiff's Service, but also to the whole bailiff activity in general\. Although the project forecasted the establishment of an Intranet Network between the two designated pilot offices and the General Bailiff Directorate, in order that the Directorate could have access to the requested information from these offices, this was not achieved and the programme is being used only to record/input the data and not to request any information\. Further more, the training of the judicial bailiffs on using the database software did not take place at all, and the software was distributed to all bailiff offices through CDs\. As a result, although the software is installed, it is inefficient due to the lack of proper qualification\. Moreover, in the context of the actual situation of services in all aspects, the - 24 -  action plan of the sub-contracted company and the real financial potentials, we consider that it would be more fruitful and more efficient for the service if the funds available taking into consideration the nature of enforcement activities, needs for satisfying the needs in 29 Bailiffs' offices, and the way of financing considering that this was a credit and not a grand\. With the fund of 14 "Volkswagen Touhareg" cars purchased, which for the conditions of the Enforcement Services could be considered luxury cars, would have been purchased simpler vehicles, as such fulfilling the needs of some others bailiff offices\. d\. Strengthening Judicial Inspection The objective of this subcomponent was the improvement of the effectiveness and transparency of the judicial activities inspection and later on it was extended with technical support provided to the High Council of Justice\. This contribution was very important for the building and enforcement of the institutional capacity and the improvement of the inspective functions of the High Council of Justice\. Even though the achievements of this sub-component were evaluated/qualified as Moderately Satisfactory, through out the implementation phase of the project the High Justice Council has benefited from the technical assistance in general, study tours for Council members and inspectors as well as the completion with equipment for the offices/work facilities\. 3\. Dissemination of Legal Information This component is included in four activities\. (i) the establishment of a database for the on-line publication of all the decisions of the Supreme Court, the so called JUDIS; (ii) the establishment of a database for the Albanian legislation, the so called CODIS; (iii) the establishment of a public information office at the Ministry of Justice; as well as (iv) computerization of the judicial state office\. i)\. JUDIS Programme This activity consists in the publication of the decisions of the Supreme Court in different electronic formats\. This programme is functional\. Until June 2006, all court decisions issued in 2003 and 2004have been recorded and the registration of 2005 court decisions is still in process, very close to its completion\. These recorded decisions are also available in a CD-Rom format, offering different search - 25 -  possibilities\. ii)\. CODIS Programme The Project has achieved its objectives because the Centre for Official Publications attained through this Project the delivery of the juridical norms and the publication of the Official Journal (bulletin) in internet\. As a result, every interested subject can be consulted with the Albanian legislation for free at the address: www\.legjislacionishqiptar\.gov\.al or www\.qpz\.gov\.al The Centre with the assistance of World Bank has achieved the popularisation/multiplication of the program with all the legislation published in the official journals since 1968\. All the acts that should be published in the official journals are recorded in the system and the output is their publication in internet after the publication in the official journal\. iii) Public Information Office at the Ministry of Justice The goal of this activity was the establishment of a modern public information office\. Even though, the project endowed the purchasing of the modern office equipment, the functioning of this office failed because the respective and proper staff members were not hired\. iv) Computerization and provision of software for the judicial state office The establishment of a database and software in function of issuing certificates of the judicial state was financed under this project\. Moreover, the procurement of necessary IT equipment and staff training was financed under this project\. Most of approximately 1000 requests submitted each day for issuing certificates are completed\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information - 26 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Graduates of the University of the Tirana Surveys of students, professors and "users" Surveys of employers (of law graduates) in Faculty of Law are better educated to help in of the Faculty of Law graduates reveal 2003 and 2005 show overall satisfaction ensuring the improved functioning of the legal improved quality of legal education and unchanged at 70% satisfied and 28% and judicial systems improved quality of FoL graduates\. somewhat satisfied, but contrast with increasing share of those firing lawyers for incompetence and a large share stating that it was due to poor quality of FoL\. Courts make good use of more modern court The software is now operational in 3 pilot Modern case management system in use at and case management technigues and courts and a plan has been developed for Supreme Court and software in place in two processes expanding the software to cover criminal other pilot courts\. Plans and preparation for cases\. Due to delays in hiring IT systems rollout are complete, and required IT administrator and procurement issues, it is administrators for court system are in the likely that the Project will not be able to rollout process of being hired\. the case management software to 11 additional courts\. Magristrates' School graduates render The Magistrates' School continues to perform The Magistrates' School offers improved judicial decisions of a higher standard well basic and continuing training for all judges, court administrators\. Governing legislation for School has been amended to provide more independence and financial stability\. The Director has been asked to advise on development of a school in Macedonia\. Percentage of judicial decisions in civil cases 4300 civil cases enforced in 2003 (vs 3100 Total number of civil cases enforced has which are effectively enforced increases cases enforced in 2000) increased, in part due to allocation of public substantially budget to pay judgments against state agencies\. Caseloads have increased (a sign of efficiency), but the backlog of judgments for enforcement continues to grow\. Inspection of justice system operations is Albania's dual system of judicial inspection Dual inspection system affirmed by carried out more transparently and effectively remains but the MoJ and HCJ continue to Constitutional Court\. Strengthened HCJ cooperate and coordinate well\. (legal framework, staffing, internal regulations and facilities) is currently implementing Project recommendations to improve judicial inspection & oversight\. Commercial community makes good use of ADR Center has heard 4 arbitration cases Ten new inquiries received in 2005 but have independent center for mediation and and 1 has been completed\. 20 prospective not yet resulted in fee cases\. ADR has arbitration of commercial disputes mediation cases have been identified from secured new donor support to continue Tirana District Court but not yet started\. The outreach program, prepared amendments to first serieds of arbitrations are underway, Arbitration Law, & is working with public business contracts are beginning to include procurement to introduce A&M clauses in standard arbitration clauses and the Center standard public contracts & bidding docs\. continues to work with Tirana District Court to identify commercial cases that can be referred for mediation\. Improved access by government officials, CODIS, legal database system created and Supreme Court judicial decisions from judges, parliamentarians, legal professionals, placed on Internet for public access\. 1999-2005 and all Albanian legislation are the business community, the Magistrate's Database covers laws and legal acts from now available online\. Criminal records School, the University of Tirana Faculty of 1998-2004\. certificates issuance process is also now Law, and the public at large to more reliable, computerized and most of the 1000 comprehensive and up-to-date legal certificates requested daily can now be information\. issued by the next day\. Evidence of higher satisfaction among the Percentage of firms surveyed in BEEPS: population generally and the business noting (i) functioning of the judiciary as a community operating in Albania in particular problem for doing business -- fell from 62% (when compared to baseline) regarding the in 2002 to 56% in 2005; (ii) info on laws is efficiency, transparency, effectiveness and easy to obtain -- rose from 60% in 2002 to reliability of the legal and justice systems 74% in 2005\. However, among court users, the share of firms reporting that the courts are quick, honest, fair and able to enforce decisions -- fell over the same period\. - 27 -  Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate 1\. Action program implemented, including Competitive examinations are now used for Competitive examinations suspended in 2005 new courses taught, teachers training, entry into the Faculty of Law, correspondence following cheating scandal\. Student teacher including through twinning with a European courses will end by 2007 and teaching ratios are on the rise again\. New faculty hires law faculty, new teaching material availalbe, methodologies have been modernized\. are generally less experienced and qualified new teaching methods applied, Law Faculty due in part to low salaries\. Resources for reorganized future devt of new teaching materials and methods are increasingly limited\. No new donor support foreseen in the near future\. Existing premises of FoL rehabilitated and This output was cancelled and reallocated at This output was cancelled and reallocated at expanded\. mid term review\. mid term review\. 2\. [Court and case management] Implementation in one of the pilot courts and New case management system operational recommendations and needed investments of the rollout, generally is hindered by the in Supreme Court only which has adequate implemented in the Supreme Court, the lack of IT systems administrators in the IT staff\. Rollout itself abandoned in this Durres Court of Appeal and the Tirana judical system Project, but will be implemented by EC under District Court; evaluated and revised new new support using this Projects preparatory procedures then implemented in all remaining work\. New IT staff being hired\. courts 3\. Magistrates' School provides more Remaining project assistance will be used to Four new course textbooks published, and courses as well as continuing judicial expand the Magistrates' School's courses for new courses offered\. 22 staff trained in education to judges with less than 5 yrs of judges and develop new training curricula for modern instruction methods\. Court eperience and imporves its legal research court chancellors/clerks\. administrators trained and new manual on facilities court administration published\. Premises refurbished and new computer lab with internet access operational\. Students required to carry out online research\. 4\. Qualifications of execution officers After delay in distribution of software to field Basic training in computing delivered to HQ improved by training programs\. offices, agreement was reached to cancel staff, but many staff replaced in later Recommendations for [restructuring judicial planned study tour and reprogram remaining personnel overhaul\. Database for case inspection] and investments implemented funds for this activity to allow consultant to registry, FM, equipment inventory designed provide management tools and training for 2 and software delivered to all regional offices, additional pilot offices\. but only operational in Tirana and Durres\. Vehicle fleet procured in line with work load needs\. 5\. Qualifications of inspection officers The Project will provide the HCJ with advice Technical assistance, capacity buildling and improved by training programs\. on improving its inspection techniques as upgraded facilities provided to Recommendations for [restructuring judicial well as providing assistance with developing newly-empowered HCJ\. Detailed inspection] and investments implemented an effective evaluation and promotion system recommendations provided on court for judges\. rationalization plan including staffing and budgets, draft amendments for law and regulations to reform judicial inspection, recommendations on management of judge evaluations, transfers and promotions\. 6\. Alternative Dispute Resolution center for Commercial mediation and arbitration center, MEDART established, 13 mediators and commercial disputes fully operational and MEDART, created with board, executive arbitrators training\. New legislation and professionally staffed Director and trained mediators and amendments to Arbitration Law proposed\. arbitrators\. Center has begun to conduct Public awareness campaign and pilot referral initial arbitrations\. MEDART, has trained a process with Tirana District Court conducted\. number of arbitrators and mediators and has undertaken a broad public awareness campaign\. 7\. Ready access provided to up-to-date The remaining component on the CODIS and JUDIS operational\. Public laws, regulations and important jurisprudence Dissemination of Legal Information continues Information Office in Ministry of Justice in electronic and printed forms and capacity to expand access to both Supreme Court established, but staff not hired in time to built to ensure the regular consolidation of decisions (soon to be placed on the Internet) implement planned training before closing\. \. laws and regulations\. and all Albanian legal acts from 1990 to the Criminal records issuance process present\. The Ministry of Justice has also computerized\. made significant progress in automating its penal records system and has created a Public Information Office\. However, the Office is insufficiently staffed with people from the Ministry's PR office\. - 28 -  1End of project - 29 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Legal Education 1\.80 0\.45 25 Strengthening of Judiciary 4\.25 5\.39 127 Mediation and Arbitration of Commercial Disputes 0\.80 1\.19 149 Dissemination of Legal Information 1\.60 1\.13 71 Project Management 0\.55 0\.51 102 Total Baseline Cost 9\.00 8\.67 Physical Contingencies 0\.50 Price Contingencies 0\.00 Total Project Costs 9\.50 8\.67 Total Financing Required 9\.50 8\.67 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 1\.26 0\.00 0\.00 0\.00 1\.26 (1\.06) (0\.00) (0\.00) (0\.00) (1\.06) 2\. Goods 3\.48 0\.00 0\.34 0\.00 3\.82 (3\.28) (0\.00) (0\.34) (0\.00) (3\.62) 3\. Services 0\.00 0\.00 4\.18 0\.00 4\.18 (0\.00) (0\.00) (4\.13) (0\.00) (4\.13) 4\. Miscellaneous 0\.00 0\.00 0\.24 0\.00 0\.24 (0\.00) (0\.00) (0\.19) (0\.00) (0\.19) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 4\.74 0\.00 4\.76 0\.00 9\.50 (4\.34) (0\.00) (4\.66) (0\.00) (9\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 3\.24 0\.00 0\.00 0\.00 3\.24 (3\.04) (0\.00) (0\.00) (0\.00) (3\.04) 3\. Services 0\.00 0\.00 4\.81 0\.00 4\.81 (0\.00) (0\.00) (4\.15) (0\.00) (4\.15) - 30 -  4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 3\.24 0\.00 4\.81 0\.00 8\.05 (3\.04) (0\.00) (4\.15) (0\.00) (7\.19) 1/Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. Legal Education 1\.60 0\.20 0\.45 0\.00 28\.1 0\.0 Strengthening of Judiciary 4\.20 0\.05 4\.62 0\.27 110\.0 540\.0 Mediation and Arbitration 0\.75 0\.05 1\.13 0\.00 150\.7 0\.0 of Commercial Disputes Dissemination of Legal 1\.45 0\.15 0\.62 0\.00 42\.8 0\.0 Information Project Management 0\.50 0\.05 1\.51 0\.04 302\.0 80\.0 Unallocated 0\.50 0\.00 0\.0 0\.0 Total Project 9\.00 0\.50 8\.34 0\.31 92\.7 62\.0 - 31 -  Annex 3\. Economic Costs and Benefits NOT APPLICABLE - 32 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 11/18/1997 2 TASK TEAM LEADER (1), SR\. COUNSEL (1) 04/27/1998 5 TASK TEAM LEADER (1), COUNSEL (2) CONSULTANT (3) 01/20/1999 4 TASK TEAM LEADER (1) COUNSEL (1), TEAM MEMBER (1), CONSULTANT (1) 02/07/1999 3 COUNSEL (1) TEAM MEMBERS (2) 06/21/1999 2 TTL (1), PUBLIC ESP\. MNGT\. SPECIALIST (1) Appraisal/Negotiation 09/20/1999 S S 3 TASK TEAM LEADER (1), COUNSEL (1) CONSULTANT (1) 12/06/1999 6 TASK TEAM LEADER (1), S S COUNSEL (1), PUBLIC ADMIN\. (1), PUBLIC EXPENDITURE MNGT\. (1) PROCUMENT (1) COORDINATOR (1) 09/26/2000 2 TASK TEAM LEADER (1) S S COUNSEL (1) Supervision 04/23/2001 2 TTL (1), PROJECT OFICER S S (1) 03/27/2002 4 TASK TEAM LEADER (1), S S COUNSEL (1), PROJECT OFFICER (1), SR\. PROCUREMENT SPLT (1) 04/05/2002 5 TASK TEAM LEADER (1); S S PROCUREMENT SPECIALIST (1) PROJECT OFFICER (1); SENIOR COUNSEL; (1) SR\. INFORMATICS OFFICER 1) 11/06/2002 4 TASK TEAM LEADER (1); S S PROCUREMENT SPECIALIST (1) PROJECT OFFICER (1); LEGAL SPECIALIST (1) 06/06/2003 5 TASK TEAM LEADER (1); S S - 33 -  Mid Term Review PROCUREMENT SPECIALIST (1) PROJECT OFFICER (1);SENIOR FINANCIAL MNGT\. SPECIALIST (1); LEGAL SPECIALIST (1) 09/10/2003 1 SENIOR FINANCIAL MNGT\. S S SPECIALIST (1) 01/26/2004 2 TASK MANAGER (1); LEGAL S S SPECIALIST (1) 10/04/2004 4 TASK TEAM LEADER (1); S S PROJECT OFFICER (1); LEGAL SPECIALIST (1); PROCUREMENT SPECIALIST (1) 05/06/2005 2 TASK TEAM LEADER (1); S S PROJECT OFFFICER (1) ICR 10/17/2005 4 TASK TEAM LEADER (1); S S PROJECT OFFICER (1); LEGAL SPECIALIST; CONSULTANT (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 27 344 Appraisal/Negotiation 38 159 Supervision 170 593 ICR 13 80 Total 247 1177 - 34 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 35 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 36 -  Annex 7\. List of Supporting Documents Project Appraisal Document, March 1 2000 Development Credit Agreement, April 18, 2000 Agreed Minutes of Negotiations Back-to-Office Reports: November 20 to 28, 1997 April 27 to May 11, 1998 September 20 to 7, 1999 Aide Memoires: April 23-27, 2001 March 27-April 5, 2002 November 12-22, 2002 May 21-June 6, 2003 (mid-term review) January 25-31, 2004 May 6-12, 2004 October 5-12, 2004 May 6-12, 2005 October 17-28, 2005 - 37 -  - 38 -

REVIEW

P050892

 ICRR 11071 Report Number : ICRR11071 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 07/26/2001 PROJ ID : P050892 Appraisal Actual Project Name : Emergency Pilot Credit For Project Costs 20 11\.06 Republika Srpska US$M ) (US$M) Country : Bosnia-Herzegovina Loan/ Loan US$M ) 5 /Credit (US$M) 5 Sector (s): Board: FSP - Micro- and Cofinancing 15 6\.06 SME finance (90%), US$M ) (US$M) Central government administration (10%) L/C Number : C3070 Board Approval 98 FY) (FY) Partners involved : GTZ, Governments of Closing Date 06/30/2000 06/30/2000 Austria, Netherlands, United Kingdom, SIDA, USAID Prepared by : Reviewed by : Group Manager : Group : Michael R\. Lav Alice C\. Galenson Ruben Lamdany OEDCR 2\. Project Objectives and Components a\. Objectives (1) Restart and expand private enterprise activities in Republika Srpska (RS) by making medium-term financing available from commercial banks; and (2) improve the credit management capacity and loan administration skills of RS banks\. This emergency credit pilot operation was constructed with modest objectives within the country's framework of state-owned banks, since circumstances and time did not permit awaiting a restructuring of the financial sector before proceeding\. However, the objectives of the project were modified during implementation to include technical assistance objectives : (1) improve the safety and soundness of the banking system by providing assistance to build the capacity of the banking supervision agency in RS, the BARS; and (2) to improve the competitiveness and profitability of private enterprises \. b\. Components The original components of the project included (1) line of credit (US$16 million) , (2) banker training, (US$1 million), (3) enterprise support (US$1 million), (4) banking supervision (US$1 million), and (5) implementation support (US$ 1 million)\. The Bank's financing was originally allocated to the line of credit in the amount of US$ 4\.5 million and implementation support in the amount of US$ 0\.5 million\. However, for the credit line, donors provided only US$ 2\.96 million instead of the planned US$11\.5 million, so IDA credit was reallocated with US$ 4\.9 million for the credit line and US$0\.1 for implementation support\. Therefore, the credit line financing came to US $ 7\.9 million\. c\. Comments on Project Cost, Financing and Dates The project cost US$11\.1 million, financed by the IDA credit for US$ 5 million, the Government of Austria, US$0\.5 million; the United Kingdom, US$1\.6 million; the Netherlands, US$1\.0 million; USAID, US$1 million; SIDA, US$1 million; and GTZ, US$ 1 million\. The project was appraised in October, 1997, approved by the Board on May 19, 1998, made effective on July 13, 1998, and closed on schedule on June 30, 2000\. 3\. Achievement of Relevant Objectives: (1) Credit Line: 111 sub-loans to 107 enterprises were provided through the four participating banks, for a total of US$7\.9 million, with an average size US$71,000\. Of 111 sub-loans, only four were classified as sub -standard, doubtful, or loss\. The low delinquency rate probably reflected both the high quality of investment proposals and sound bank lending practices \. With a cofinancing ratio of 1\.25:1, the project mobilized an additional US $ 10 million in loans for enterprise financing \. (2)\. Technical assistance: (i) Participating banks were assisted by strengthening their credit and risk management capacity (which GTZ managed)\. Each bank stated that as a result of this assistance, it had strengthened loss identification capacity and provisioning, tightened up loan collection procedures, and introduced external IAS audit\. (ii) Banking system supervision was enhanced (USAID managed); supervision was strengthened through passage of a comprehensive banking law; and BARS issued and implemented new, stricter prudential regulations aligned with the Basle Committee's Core Principles for Effective Bank Supervision \. Basic and advanced bank supervision training courses have been conducted for examiners \. Full-scope on-site examinations have been completed for all banks, and a bank rating system and operational manual have been instituted \. (iii) Enterprises were assisted in business planning (SIDA managed this component), and 12 seminars were held for 120 entrepreneurs, which received some mixed but on the whole favorable comments from participants \. (iv) Assistance to the PCU enabled it to operate an effective, computerized, integrated credit management system that incorporated tracking systems for sub-loan and subsidiary loan disbursements and repayments \. 4\. Significant Outcomes/Impacts: 1\. The project helped restart private sector production and substantially strengthened both the participating banks and banking sector as a whole \. 2\. Exports in about half of enterprises financed under the credit were expected to increase\. 3\. A survey of 11 sample projects showed that these projects were expected to generate 1,500 jobs at a cost of about US$10,800 invested per job\. If this survey reflects the project as a whole, the project may have provided employment for about 15,000\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Modest Although the banking sector was substantially strengthened, among other substantial improvements, the situation remains fragile with many problems remaining before privatization of the banks can be implemented\. Therefore, on balance, a rating of "modest" rather than "substantial" is appropriate\. Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Highly Satisfactory Highly Satisfactory Quality of ICR : Exemplary NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. This project had several features which worked well and are a good basis for other projects : (a) Even in emergency situations, it is important for credit -line operations to allow banks to take credit risks, rather than have the banks act as an implementing agency, (b) Institutional autonomy is important for Project Coordination Units \. 2\. One aspect of the project which could have worked better was the technical assistance for enterprise support \. This support might have been made even more relevant than it was if it had been institutionalized and delivered with some cost-recovery features to promote incentives to make the material as relevant as possible for entrepreneurs \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR contains a great deal of carefully prepared material \. It is based not only on interviews but also field surveys of enterprises and banks \. The ICR presents prudent judgements and evaluations based on this unusually rich background material\. The lessons learned are thoughtful and present clear messages for future projects \. The Partner's comments are unusually thoughtful and detailed, (evidently reflecting the Borrower's interest in the project )\.

REVIEW

P117310

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) Report Number : ICR00004175 1\. Project Data Project ID Project Name P117310 PE Results Nutrition for Juntos SWAp Country Practice Area(Lead) Additional Financing Peru Social Protection & Labor P159256,P159256 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-79610 31-Mar-2016 54,000,000\.00 Bank Approval Date Closing Date (Actual) 08-Mar-2011 30-Jun-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 25,000,000\.00 0\.00 Revised Commitment 25,000,000\.00 0\.00 Actual 25,000,000\.00 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Anthony Martin Tyrrell Judyth L\. Twigg Joy Behrens IEGHC (Unit 2) 2\. Project Objectives and Components a\. Objectives The project objectives were consistently stated in all relevant documents\. As per the Loan Agreement (7961- PE) dated July 5th 2011, the project objectives were: • to increase demand for nutrition services by strengthening the operational effectiveness of Juntos (a conditional cash transfer (CCT) program); and, • to improve coverage and quality of supply of basic preventive health and nutrition services in the communities covered under the Program (Articulated Nutrition Program / PAN), including Juntos\. For the purposes of this review, the project will be assessed based on the following three objectives: Page 1 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) • to increase demand for nutrition services by strengthening the operational effectiveness of Juntos (a conditional cash transfer program); • to improve coverage of basic preventive health and nutrition services in the communities covered under the Program (Articulated Nutrition Program / PAN), including Juntos; and • to improve quality of supply of basic preventive health and nutrition services in the communities covered under the Program (Articulated Nutrition Program / PAN), including Juntos\. The project focused on three regions: Amazonas, Cajamarca, and Huánuco\. These were chosen to complement ongoing efforts under EUROPAN, a 60 million Euro grant from the European Union that provided direct budget support to selected regional governments based on progress in the provision of health checkups (Control de Crecimiento y Desarrollo, or CRED) and child immunizations\. That project worked in the three poorest regions of Peru (Huancavelica, Apurimac, and Ayacucho), and the three regions selected for this operation were the next three poorest regionals at appraisal\. b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components Component 1: Strengthening and consolidating of the Juntos CCT program for families with children under 36 months (US$ 5\.50 million at appraisal, US$ 5\.50 million actual)\. This component sought to support an incentive mechanism to stimulate demand for health and nutrition services by Juntos beneficiaries measured through: (a) the affiliation of children younger than 12 months to Juntos; and (b) the verification of the health co-responsibility of children younger than 36 months already affiliated in Juntos\. Funds were to be disbursed based on outputs, and the borrower reimbursed subject to achieving pre-established results\. Component 2: Improving coverage and quality of the provision of basic preventive health and nutrition services in the Juntos areas (US$ 5\.50 million at appraisal, US$ 5\.50 million actual)\. This component sought to support a stronger governance system for the PAN and create incentives for health providers, through capitation payments, to increase coverage and improve the quality of basic health and nutrition services in the Juntos areas covered by the operation\. Component 3: Strengthen the Government of Peru's capacity to influence nutritional outcomes by improving budgetary planning and monitoring of results for selected activities of the PAN (US$ 14\.00 million at appraisal, US$ 14\.00 million actual)\. This component sought to support an incentive mechanism to strengthen the government's budgetary planning and monitoring capacity in relation to the PAN through output payments related to: (a) the implementation of a planning and monitoring system for Page 2 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) health facilities; (b) the establishment of social monitoring of nutrition results at the municipal level; (c) the technical verification of capacity of health facilities; (d) the early affiliation of newborns to the Integral Health Insurance Program – Seguro Integral de Salud (SIS); and (e) the verification of CRED information\. The results-based part of this component was to be disbursed against increases in the number of health micro-networks with accurate and timely information in the Integrated Administrative Management System (Sistema Integrado de Gestión Administrativa - SIGA - that now covers over 7,000 health centers across the country), municipalities with an installed social monitoring system, and affiliation of children younger than 12 months to SIS\. The remaining funds allocated to this component were to be disbursed based on a procurement plan agreed between the government and the Bank\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: Project cost was originally planned to be US$ 54 million, comprised of US$ 25 million in Bank financing and a borrower contribution of US$ 29 million\. At approval, the borrower’s contribution was defined by estimating the budgetary contribution of the borrower to the PAN\. Because it was difficult to track the disbursement of relevant resources at the regional level, the borrower’s contribution was revised to US$0, reducing actual project cost to US$ 25 million; however, the ICR noted that the Peruvian government ultimately invested more than US$ 230 million nationally in the PAN between 2012 and 2017, and more than US$ 29 million in the three focus regions\. \. Financing: The International Bank for Reconstruction and Development financed this project as a Specific Investment Loan under a Sector-Wide Approach (SWAp) arrangement with the borrower that allowed a clear focus on results by disbursing against the achievement of predefined and tangible objectives\. The loan, US$ 25 million, was disbursed in full\. Borrower Contribution: As noted above, there was no dedicated contribution from the borrower, although overall investment in the PAN at the national level suggests significant unspecified investment in the project areas\. Dates: The project was approved on March 8, 2011 and became effective on January 12, 2012\. The Mid- term Review was completed on April 7, 2015\. The project was expected to close by March 31, 2016, and the actual closing date was June 30, 2017 (15 months later than planned)\. The operation was restructured five times, but none of the restructurings had any fundamental effect on project design or intent\. The first three were low level restructurings that were processed, respectively, on July 10, 2013; February 26, 2014; and November 26, 2014\. These sought to improve implementation and the speed of disbursement through amendment of some of the operation’s legal covenants and results indicators (e\.g\., setting targets for certain indicators that were not available at the time of approval) \. At approval, the operation had 18 intermediate outcomes\. As a result of early restructurings, some original intermediate outcomes were dropped, while others were reworded\. New intermediate outcomes were added so that, ultimately, there were nine intermediate outcomes at project close\. Changes were made to original intermediate outcomes for a range of reasons including lack of baseline information\. The fourth and fifth restructurings - January 14, 2016 and September 17, 2016 - involved project Page 3 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) extensions to ensure the completion of key activities, partly making up for a ten-month lag between project approval and effectiveness and partly related to a delay in implementing the Encuesta de Productos Priorizados (ENCRED) survey (vital to monitoring results) due to extreme weather conditions\. 3\. Relevance of Objectives Rationale The project's objectives were highly relevant at appraisal and closing\. It is important to note that the operation was approved in an already evolving context in which considerable progress had been made\. The rate of stunting in Peru began to decline in the early 2000s, falling nationally from 30 percent in 2000 to 23\.8 percent in 2009, despite an increase in stunting in urban areas (2005-09) from 13\.5 to 16\.2 percent as well as significant regional disparities in the rate of chronic malnutrition\. In response, and prior to this project, the government had placed nutrition at the forefront of its social policy with the 5-by-5-by-5 initiative, a pledge to reduce chronic malnutrition in children under 5 years of age by 5 points in 5 years (by 2011)\. In 2007, the government launched an inter-institutional platform under the leadership of the Inter-Ministerial Commission for Social Affairs to coordinate malnutrition interventions, and the Ministry of Economy and Finance (MEF) included the PAN among the programs to be monitored within Performance-Based Budgeting (PBB) pilots\. By 2009, budgetary programming for nutrition had already improved, and the allocation of resources for regions where malnutrition rates were highest had increased significantly\. By 2010, and from then on, budgetary allocations and malnutrition rates were directly related\. This occurred in part thanks to EUROPAN, a 60 million Euro grant from the European Union to support efforts in the three poorest regions of Peru (Huancavelica, Apurimac, and Ayacucho) through direct budget support to selected regional governments based on progress in the provision of CRED and child immunizations\. The three regions that provided the focus for this project (Amazonas, Cajamarca, and Huánuco) were selected to complement the interventions of the EUROPAN project\. The three regions selected were the next three poorest at appraisal\. The Project Appraisal Document (PAD) noted that the project built on commitments made under the Social Development Program for Peru - a key Pillar in the World Bank Group’s Country Partnership Strategy (CPS) 2007-2011 – to support a cluster of activities that aimed at promoting and developing a new social contract in education, health, and nutrition\. The operation was also intended to promote good governance, another commitment under the CPS\. The Bank was well positioned to provide support given its broad experience and expertise in policy areas such as nutrition and CCT programs (e\.g\. in Brazil, Colombia, and Bolivia)\. The Bank also had relevant experience in Peru, e\.g\., the then ongoing Adaptable Program Loan II for the Health Reform Program which aimed at strengthening the supply of health services in the poorest regions of the country, and non-lending technical assistance provided for the Juntos designed to strengthen political commitment around nutrition and to define clear standards to strengthen accountability and parents’ understanding\. Despite significant progress in tackling childhood malnutrition, Peru continues to face serious challenges in that regard -- evident, for example, in stunting among about 13 percent of the country’s children (with significant regional disparities); chronic malnutrition in rural areas that is especially high among children Page 4 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) speaking indigenous languages; and high rates of anemia (59 percent of children between 6 and 11 months, and 44 percent of children between 6 and 36 months)\. Objective 6 (Modernize delivery of health and nutrition services for the poor) of Pillar II (Services for citizens across the territory) of the World Bank Group’s 2017- 2021 Country Partnership Framework (CPF) for the Republic of Peru builds on existing efforts\. Objective 6 seeks, among others, to support ongoing efforts to improve basic health care, including addressing undernourishment, stunting, and anemia\. In that regard, the CPF references ongoing operations, including Juntos\. The project's objectives were clearly stated albeit relatively limited in ambition, particularly given existing success and ongoing momentum at the national level to address malnutrition and stunting\. The project team decided to limit the objectives (and, ultimately, associated indicators) to what was measurable and capable of being attributed to the project\. The emphasis was on facilitating the introduction of a results-based approach with the necessary system-level discipline entailed in that endeavor\. As such, the objectives do not reference stunting or child malnutrition\. Instead, they are limited to demand for services and improved service response (coverage and quality)\. The fact that the desired outcomes are limited or intermediate outcomes (vis-à-vis the ultimately desired outcomes) places a particularly heavy emphasis on achieving targets, as what is in question is largely within the control of the project itself with less emphasis on exogenous factors\. Rating High 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective Increase demand for nutrition services by strengthening the operational effectiveness of Juntos (a conditional cash transfer program) Rationale This objective, which takes into account both the demand and supply sides, was developed on the premise that enhanced operational quality would result in increased demand\. The target for one of the outcome indicators was exceeded (Juntos children under 12 months that have received the complete CRED scheme according to their age in the areas of intervention)\. The target for another outcome indicator (children under 36 months that have received the complete CRED scheme according to their age in the areas of intervention) was not met although improvements over baseline were achieved\. The outcome indicators as defined in the results framework focused on participation in the program (where there was valuable input) and not on outcomes pertaining to stunting or malnutrition that may have been specifically caused by the program\. Anticipated outputs were effectively delivered\. Outputs The percentage of Juntos beneficiary children under 24 months registered in the Juntos information system Page 5 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) (SITC) with birth certificate, identity document (CUI), and SIS affiliation increased from 18% in December 2011 to 74\.1% in June 2017, exceeding the formally revised target of 67% (no target was set in the PAD)\. The percentage of children born each year in Juntos households and registered in the SITC before 30 days increased from 9\.55% in December 2011 to 39\.9% in June 2017, essentially reaching the formally revised target of 40% (no target was set in the PAD)\. Outcomes The percentage of Juntos children under 12 months that received the complete CRED scheme according to their age in the areas of intervention of the Juntos CCT Program targeted by this operation increased from 63\.9% in December 2011 to 86\.4% in June 2017, exceeding the original/revised target of 80%\. The ICR suggested that this was considered to be the primary indicator for the intervention, although it was not treated or referred to as such in the PAD\. The PAD (p\. 47) noted, "the indicator refers to children that are registered in the Juntos program before they are 1, that is, during the most critical period for their development\. The objective of this indicator is to capture changes in the Juntos affiliation process, which is currently showing difficulties in updating information for the youngest children\." The first year is clearly a critical period, and the indicator is important in that regard, but it was not presented as a primary indicator for the intervention, which seeks to address demand, supply, coverage, and quality\. The percentage of children under 36 months who received the complete CRED scheme according to their age in the areas of intervention increased from 67\.2% in March 2012 to 70% in December 2016, reaching less than halfway to the original/revised target of 73%\. The ICR suggested that this key indicator was considered to be a "control" indicator designed to track maintenance interventions, which account for four CRED visits during the second year of the child's life, and one CRED visit during the third year\. The ICR also stated that the indicator's value peaked at 72\.7% in 2015 but did not ultimately reach the targeted 73% value at project close\. However, the indicator was not presented as secondary in the PAD and was clearly a critical measure of broader supply of nutrition services, aimed at capturing improvement in the supply of nutrition services in Juntos areas, for children younger than 36 months (PAD, p\. 47)\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 2 Objective Improve coverage of basic preventive health and nutrition services in the communities covered under the Program (Articulated Nutrition Program / PAN), including Juntos Rationale As above, one of the outcome indicators for this objective, focused on coverage, was met and exceeded (Juntos children under 12 months that received the complete CRED scheme according to their age in the Page 6 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) areas of intervention), and the other (children under 36 months that received the complete CRED scheme according to their age in the areas of intervention) was not realized, although improvements on baseline were achieved\. The outcome indicators focused on participation in the program (where there was valuable input) and not on outcomes pertaining to stunting or malnutrition that may have been specifically caused by the program\. Key output targets, related to affiliation of children under 36 months and number of newborns registered in SIS before 30 days in Juntos districts, were met and sometimes exceeded\. The target relating to mothers in Juntos families with children under 24 months who attended at least one demonstration session was not met\. Outputs The percentage of children younger than 36 months affiliated to SIS and with complete and timely CRED scheme in the areas of intervention of Juntos in Amazonas, Cajamarca, and Huánuco increased from 43% in December 2011 to 88\.5% in June 2017, exceeding the formally revised target of 65% (no target was set in the PAD)\. 28\.8% of mothers in Juntos families with children under 24 months attended at least one demonstration session in Amazonas, Cajamarca, and Huánuco, not achieving the formally revised target of 50% (no target was set in the PAD)\. The ICR noted that deficiencies in the registration system for the demonstration session may have resulted in underreporting of the percentage of attending families\. The number of newborns registered in SIS before 30 days in Juntos districts in the areas of intervention of the operation increased from 11,759 in December 2011 to 19,878 in June 2017, exceeding the formally revised target of 15,000 (no target was set in the PAD)\. Outcomes The percentage of Juntos children under 12 months that received the complete CRED scheme according to their age in the areas of intervention of the Juntos CCT Program targeted by this operation increased from 63\.9% in December 2011 to 86\.4% in June 2017, exceeding the original/revised target of 80%\. This was considered to be the primary indicator for the intervention, and it measures achievement of both the demand and coverage objectives\. The percentage of children under 36 months who received the complete CRED scheme according to their age in the areas of intervention increased from 67\.2% in March 2012 to 70% in December 2016, reaching less than halfway to the original/revised target of 73%\. This indicator also measures achievement of both demand and coverage\. Rating Substantial PHREVDELTBL Page 7 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) PHEFFICACYTBL Objective 3 Objective Improve quality of supply of basic preventive health and nutrition services in the communities covered under the Program (Articulated Nutrition Program / PAN), including Juntos\. Rationale This objective sought to improve the quality of supply\. Neither of the outcome-level indicators is relevant for measuring quality\. Of the three relevant output-level indicators, targets were achieved for two\. Key targets related to health facilities with updated and complete asset information, and discussions held and registered about CRED coverage and vaccines in districts in the first quintile, were met and sometimes exceeded\. The target for the number of health micro-networks annually verified as having met the certification criteria was not met\. The attempt to measure quality is relatively weak and could have been enhanced, for example, through a survey of beneficiaries\. Outputs The percentage of health facilities with updated and complete asset information in SIGA increased from 98\.4% in December 2011 to 100% in June 2017, meeting the formally revised target of 100% (no target was provided in the PAD)\. 156 districts in the first quintile had discussion forums about CRED coverage and vaccines (social monitoring) and are registered on MEF’s web page, more than doubling the formally revised target of 75 (no target was provided in the PAD)\. 44\.1% of health micro-networks were annually verified because they met certification criteria in Amazonas, Cajamarca, and Huánuco, not achieving the formally revised target of 60% (no target was provided in the PAD)\. The target was only partially attained because Regional Health Directorate and networks faced ongoing difficulties in reaching distant health centers to deliver required supplies in a timely fashion\. Rating Modest PHREVDELTBL PHOVRLEFFRATTBL Rationale The project’s logic / theory of change was robust i\.e\., it was reasonable to expect that cash transfers to poor households would increase demand for better health and social services, as well as demand for food richer in nutrients and for caring practices around children’s health and nutrition\. This would, in turn, lead to an improved diet, and ultimately to lower malnutrition rates\. The design supported a multi-sectoral approach that provided for demand-side behavioral change (e\.g\., care and feeding practices) led by a CCT as well as supply-side interventions (support to enhance coverage and quality) to achieve results that aimed to contribute to realizing Page 8 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) the ultimate long-term outcome of lowering child malnutrition in focus areas\. The project also aimed to improve budgetary planning and monitoring of results through support for the recently-established practice of PBB, and it also sought to improve data collection on key nutritional and health outcomes, as well as maintenance and use to improve the quality of health services, thereby contributing to reduced malnutrition\. With two of three objectives substantially achieved, and one modestly achieved, overall Efficacy is rated Substantial\. Overall Efficacy Rating Substantial PHREVISEDTBL 5\. Efficiency It is understood that this project was structured to provide funding to support the already existing Juntos program, and that the Juntos program had undergone several rigorous evaluations that demonstrated impressive program effects -- in particular, nutritional improvements among children and increased coverage and quality of basic preventive health services -- which, evaluations found, had likely contributed to reducing malnutrition in Peru\. The ICR further stated that reduced malnutrition, in turn, typically leads to increased GDP\. The ICR’s Annex 4 (The economic rationale for the role of Juntos in reducing malnutrition) summarized findings from several evaluations that indicated important achievements by the larger Juntos program (in terms of increased utilization of health services, increased school attendance by beneficiary children, and contribution to reduction in chronic malnutrition among children below 5 years of age)\. Neither this Annex nor the main text of the ICR, however, brought together this impressive information about the outcomes achieved (or benefits experienced by program participants) with information about the actual costs -- of either the broader Juntos program or the narrower financial support provided to Juntos under this project\. With no comparison of benefits arising from the project to costs incurred, and no estimate of these based on benefits and costs observed across the wider program, it is difficult to make a strong case for project efficiency\. While it is understood that reducing malnutrition is generally found to be cost-effective and valuable, this ICR missed an opportunity to give an estimate of the extent of benefits achieved with the funding provided, and this information gap represents a significant shortcoming in the demonstration of efficiency\. Regarding implementation efficiency, the ICR commented on largely smooth project implementation and sound financial management and procurement throughout the project life\. However, there were some shortcomings: The operation’s effectiveness was delayed by ten months following approval\. The project team informed IEG that the early delay was associated with the client getting to grips with the system requirements of operating a results-based approach\. This delay contributed, in part, to the final two of five restructurings, which sought project extensions to ensure completion of key activities, although the request for extension was also partly related to extreme weather conditions that delayed a field survey that was vital to monitoring results\. The project came in on budget, fully disbursed but delayed by 15 months (some of which was attributable to adverse weather conditions that impacted the undertaking of a critical survey)\. The ICR suggested that delays and initial challenges faced by the project “were to be expected given the innovative nature of the operation” (p\. 11), which was the first SWAp operation in social sectors in Peru and, as such, both the Bank and the Page 9 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) government faced steep learning curves\. The ICR stated that “delays and hiccups” (e\.g\., in relation to procurement, hiring information technology personnel) were weighed in the ratings and should be understood, mostly, as the price of innovation\. Based mainly on the gap in information (or even estimates) on benefits vs\. costs, efficiency is rated Modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The relevance of the objectives is rated high, as they directly engaged with a critical aspect of public policy (child malnutrition / stunting) and were aligned directly with Bank strategy at closing\. Efficacy is rated substantial, reflecting substantial achievement of two objectives and modest achievement of a third\. While the project's main outcome indicators were adequate measures of demand for and coverage of nutrition services, little information is provided on the quality of those services\. Efficiency is rated modest, largely due to lack of information on the project's absolute or relative efficiency\. Taken together, these ratings indicate moderate shortcomings in the project's preparation and implementation, and therefore Outcome is rated Moderately Satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Risk to Development Outcome Sustainability is uncertain for some of the achievements of the operation\. First, although malnutrition (and anemia) remain government priorities, political support behind multi-sectoral MEF-led interventions has waned as line ministries begin to take the lead for interventions in their respective sectors\. The multi-sectoral approach was considered to be a major factor behind Peru’s success in reducing malnutrition\. Page 10 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) Shortage of ongoing resources to support project-led initiatives may also undermine sustainability and some of the achievements of the project\. It remains unclear how the Nominal Census (Padron Nominal) - a live platform administered by Registro Nacional de Identificación y Estado Civil and accessible by local health centers and the Ministry of Health – will be updated and maintained on an ongoing basis, as funding outside of this Bank- supported operation has not been allocated beyond 2018\. It also remains unclear who will support the future implementation of the Monitoreo Social (social monitoring strategy) in the three areas covered by the operation, and how this will be done\. The overall sustainability of the Padron Nominal (at the national level) and of the Monitoreo Social (in the three focus areas of the operation) relies on ownership and capacity at the regional and district levels\. The absence of support and incentives (currently provided through the project) could diminish commitment and quality\. It is also unclear where funding for the ENCRED surveys will come from\. The ENCRED surveys were described in the ICR as arguably the most important accomplishments supported by the operation\. At project close, the survey was unfunded\. The amount of the cash transfer provided under Juntos is independent of the number of children in the household\. As such, all conditionalities are met when co-responsibilities are fulfilled vis-à-vis any given newborn child, and there is no additional incentive to register any child or children subsequently born into that household\. This could result in lower ongoing demand for health and nutrition services at the local level (vaccines and immunizations, CRED packages, etc\.) with possible knock-on effects for the reduction in malnutrition\. On the other hand, the project helped deliver some potentially durable benefits\. The project lobbied for the strengthening of the Municipal Civil Registry Offices and the establishment of well-equipped Auxiliary Registry Offices in hospitals and other birth facilities to support the online issuance of the Certificate of Live Birth\. That achievement subsequently led to timely processing of Birth Certificates and National ID numbers that, in turn, facilitated inter-agency exchange of information to improve early access to health and nutrition services\. As discussed elsewhere, the effect of this was to allow access to services for almost all infants\. The project contributed to other aspects of institutional coordination and strengthening as well\. It helped strengthen stewardship of local governments in coordinating different institutions and sectors to increase the quality and quantity of health and nutrition services and programs for children younger than 12 months\. It also strengthened the implementation of RBB by reimbursing activities based on targets met, thereby aligning the SWAp operation with national-level efforts to implement performance-based budgeting\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The operation was timely in catching the momentum of improvement that had been instigated by the government with assistance from others, particularly the European Union, and sought to build upon that success (Section 3)\. A number of risks were identified at appraisal, including lack of clarity in institutional arrangements for reforms and expansion stages in the Juntos program that might delay the execution of technical assistance activities; the risk that indirect (reimbursed) flow of project support to sectors and programs participating in the operation would reduce their incentive to comply with the scheduled activities and goals; challenges in relation to implementation capacity and sustainability (including some government Page 11 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) reservation regarding the overall approach); limited capacity and experience in performance-based budgeting; complicated procurement arrangements; and potential exclusion of indigenous peoples from program benefits due to transfer difficulties and/or access barriers\. In mitigation, the Bank team envisaged continued provision of technical assistance to the Juntos technical team as well as supportive technical dialogue with the Inter-American Development Bank (facilitated through a Japanese Social Development Fund grant and Japanese Trust Fund support); leveraging of budgetary resources to meet target goals; government willingness to commit to a pilot results-based financing approach with a view to adopting that approach in the future; and hiring of expertise in information technology\. The PAD (pp\. 11-12) outlined lessons learned that were reflected in project design\. The team worked with the government to strengthen the design of the CCT program, one of the key interventions of the government’s poverty reduction strategy\. In that regard, the basic design followed lessons from regional and international experience, especially in the areas of targeting, linking with nutritional outcomes, definition of co-responsibilities, transparency, and local-level participation\. The PAD noted, for example, that the program adopted a two-step mechanism to select beneficiaries – as in Colombia, México, El Salvador, Panamá, and Guatemala – based on geographical targeting and proxy-means testing\. The Bank also brought to bear its experience in the importance of linking financing to results in supporting health sector interventions\. In that regard, the introduction of capitation payment mechanisms and performance agreements along with effective monitoring and information systems was considered important in incentivizing providers\. The Bank had used similar mechanisms linking disbursements to achievement of milestones, most prominently in state-level SWAps in Brazil, but also in other countries such as Argentina, Honduras, and Panama\. It was a moderate shortcoming that, although the project objectives sought to address demand and supply side issues, including quality of supply, the team did not include indicators adequate to assess the quality of the services delivered\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision As noted above, the Bank team identified risks at entry, some of which materialized\. Regular supervision and implementation support missions helped in early identification of challenges leading to restructurings that served to keep the project on track, notwithstanding some delays\. During implementation, the task team also secured a US$ 2 million Japanese Social Development Trust Fund to complement the operation’s resources and support the development of protocols/materials for indigenous populations\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Page 12 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design Monitoring and evaluation (M&E) functions provided strategic underpinning to the project\. The PAD noted that the M&E activities supported by the operation were designed to strengthen the capacity of MEF, Juntos, and the Ministry of Health and underpin the capitation payment system that the government planned to appropriately fund activities under Components 2 and 3\. Project M&E was to support the management information system of the Juntos program and of SIS, and the project was to reimburse activities related to a technical verification aimed at making transparent transfer of resources to the health facilities and at evaluating the capacity of the health facilities to provide the guaranteed package of services\. The project also supported the introduction of an innovative social monitoring mechanism to oversee nutrition results and quality of health and nutrition services at the local level\. The results framework included an intention to disaggregate data by indigenous / non-indigenous beneficiaries, particularly for the outcome-level indicators and those indicators that were considered critical for indigenous populations\. We note, as above, the absence of indicators adequate to assess the quality of the services delivered (which is one of the core project objectives)\. b\. M&E Implementation M&E implementation faced early challenges\. The inability to compile baselines for some intermediate indicators, and the lack of data to monitor others, required restructuring, although baseline data to underpin some indicators became available by 2012\. On the other hand, the functioning of the M&E system provided data that was critical to many project achievements, such as: an innovative social monitoring mechanism used to oversee nutrition results and quality of health and nutrition services in 160 districts; improving social accountability within poor communities through the production of key district-level indicators (e\.g\., children affiliated to Juntos, gaps in CRED coverage and in immunization/vaccines) that, in turn, allowed mayors and local governments to monitor individualized outcomes of children, and to focus resources accordingly\. The social monitoring operated off the Padron Nominal that was also supported by the operation, a one-stop data platform that consolidates various inputs allowing for real-time information on progress that was used, for example, by the Performance Incentives Fund and other stakeholders to monitor the fulfillment of targets agreed at the local level\. The project also supported the creation of ENCRED, a survey of primary health care centers focused on assessing their input needs to provide services\. The survey enabled regional and local governments to carry out a robust assessment of their capacity to deliver nutrition-related health services\. As earlier noted, disbursement was delayed following extreme weather disruption of ENCRED in 2015 (the survey was required to monitor certain intermediate results), and this delay contributed to the final two restructurings of the project in 2016\. Finally, the data-driven approach supported by the project helped further underpin the performance-based budgeting approach that the MEF was already working with under the PAN\. Page 13 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) c\. M&E Utilization The monitoring results were fundamental to project implementation, feeding results indicators and triggering disbursements and the performance-based approach\. The ICR stated that the data generated by the project supported mechanisms such as ENCRED and the Padron Nominal, Juntos, and SIS platforms, providing levels of detail heretofore unavailable that allow for a much lower level of disaggregation (district level, individual level, etc\.) and, in turn, allow for a more granular understanding of local constraints noting, however, the lack of data on service quality\. M&E Quality Rating Substantial 10\. Other Issues a\. Safeguards The project was rated Environmental Assessment category C\. It triggered only one safeguard, the Indigenous Peoples Policy OP 4\.10\. The PAD noted that there were no anticipated negative impacts on indigenous households, and that the project's success would "to a great extent, depend on how well the project manages to meaningfully involve indigenous communities" (p\. vii)\. The government conducted a social assessment, prepared an Indigenous Peoples Strategic Framework (IPSF, published 2009), and consulted with indigenous communities and organizations\. The IPSF included measures to overcome any barriers to access on both the supply and demand side, including targeting, enrollment, monitoring, and funding mechanisms\. The PAD stated that recommendations from the social assessment and consultation were embedded in project design in that all the project's outcome indicators were to be disaggregated by indigenous and non-indigenous, and that the Communication Strategy would ensure culturally appropriate participation\. The IPSF was intended to guide the overall implementation of the operation to ensure inclusion of indigenous peoples\. At approval, indigenous households represented approximately 41 percent of poor households in Peru, and 45 percent of the total number of households participating in Juntos\. The ICR noted that throughout the operation, the government consulted with indigenous communities and organizations to ensure better and culturally appropriate service delivery\. The government also held information sessions to attempt to change behaviors and supported a systematic effort to disaggregate data to track nutrition results in different cultural and geographic settings\. The rating of the ISPF’s implementation started off as Satisfactory before being downgraded to Moderately Satisfactory in 2012 due to overall operational delays\. By mid-2015, and until closing, progress towards the implementation of the IPSF was deemed Satisfactory\. The ICR reported on a range of actions supported by the project that relate to indigenous people, including a diagnostic of main access barriers (e\.g\., timely registration of children, compliance with nutrition co- responsibilities) faced by indigenous households nationally that was carried out by Juntos staff and from Page 14 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) which a strategy was developed and a team devoted to improving nutritional outcomes within indigenous communities\. The project supported consultation between government and regional indigenous people organizations, aligned the indigenous people strategies of the Ministry of Health and of the Civil Registry, and began hiring Native field agents to better connect with indigenous populations\. The Ministry of Health adopted a differentiated strategy for indigenous people, e\.g\. offering nutrition services adapted to territorial and demographic conditions of Amazon communities\. The project also allowed for higher per capita reimbursements to regional health services to reflect the higher incremental costs of operating in the Amazon\. The ICR claimed that the project contributed to a large reduction in the rate of stunting among indigenous children (almost 10 percentage points of reduction relative to the 47 percent registered in 2005), noting that chronic malnutrition among indigenous children remains significant at 38 percent\. However, no causal evidence was provided in the ICR, and no disaggregated data were provided in the ICR (e\.g\., indigenous / non-indigenous, male / female, etc)\. b\. Fiduciary Compliance Procurement\. Notwithstanding delays in procurement processes on the part of the MEF’s Sectoral Loans Coordinating Unit and on the part of the Bank in approving the procurement of two large contracts, procurement was largely satisfactory, noting successful efforts by the Bank's procurement team to verify that relevant procedures were being followed and that the Bank team and the MEF were working well together\. Financial management\. Initial financial management planning was robust, with reference, for example, to internal controls\. The project's financial management ratings started out rated Satisfactory, as ex ante planning, budgeting, accounting, internal controls, financial reporting, and auditing arrangements were adequate\. However, there were delays in preparing terms of reference for the operation’s technical audit as well as ongoing delays in the submission of technical audits and coordination challenges\. That said, considering the project represented the first results-based operation in the social sectors in Peru and the legal framework had to be adapted to ensure smooth disbursement, the overall effort was relatively positive\. c\. Unintended impacts (Positive or Negative) The ICR (pp\. 11-12) stated that the operation’s focus on early affiliation to Juntos and SIS had important spillovers on the health sector as a whole, and on the identification of children throughout the country\. Before the project, possession of a National Identity Card was a precondition for access to health services\. Many children from poor households, particularly in remote rural areas, did not have a Card and therefore had no access to services, e\.g\. to nutrition services and immunizations\. To facilitate early affiliation to SIS and Juntos, and therefore access to health services, the operation actively partnered with and provided technical assistance to the National Registry of Identification and Civil Status (RENIEC) to improve the National Civil Registry database\. This resulted in RENIEC’s platform being able to receive in real time newborn birth certificate and CUI information so that, from the moment of birth (using the CUI Page 15 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) number) and while they were waiting for a formal national identity document (DNI), there was access to services\. In parallel, the task team also actively supported the establishment of Auxiliary RENIEC offices in hospitals capable of issuing the birth certificate and automatically initiating the Child DNI issuance process at the time of birth\. According to RENIEC, 98\.5 percent of Peruvian children currently have a DNI, and this has dramatically improved the government’s ability to monitor the country’s demographics, children’s health, health services utilization, etc\. The ICR noted that this is a sustainable outcome that will persist even in the absence of the program\. d\. Other --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment IEG rates efficiency Modest primarily due to lack of Outcome Satisfactory Moderately Satisfactory information to compare benefits achieved with costs incurred\. Bank Performance Satisfactory Satisfactory --- Quality of M&E Substantial Substantial --- Quality of ICR Modest --- 12\. Lessons The ICRR presented a number of well-noted lessons learned\. First, a range of factors need to come together and mutually reinforce to support change: factors such as strong understanding of the client’s political economy dynamics, presence in a country, availability of resources, and cutting-edge solutions\. In that regard, the timing for this project was right with reference, for example, to a confluence of factors including economic growth, political awareness, and civil activism, as well as the Bank’s own experience in relation to nutrition leading to a “multi-sectoral approach to a multi-faceted problem, and the use of evidence-based interventions” to ensure a technically rigorous design (ICR, p\. 19)\. Second, effectiveness potential is enhanced where responsibility for implementation is assigned to an administratively capable and politically influential agency endowed with the necessary technical competencies\. The ICR commended relevant government parties (MEF, Department of Public Expenditure, and others) in that regard\. Third, it is vital that required incentives are both understood and correctly implemented\. The project built on existing success in its three focus areas that allowed for the transfer of additional resources to local governments based on results (with an emphasis on better planning), thereby aligning the incentives of different actors (from regional governors to local mayors, executing agencies, and local health clinics and doctors)\. Page 16 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) Finally, robust and timely monitoring is important in achieving results, as it draws attention and focus to need when and where it arises\. The ICR also made three recommendations: (i) even more flexibility than is allowed under existing instruments, including Program-for-Results, will be required to foster innovative interventions; (ii) World Bank teams, as well as borrowers, should make a conscious effort to be as coordinated as possible, and to align incentives accordingly, from the design phase onwards; and (iii) Bank teams need to be more business-focused to ensure longer-term traction and influence\. IEG adds the following: When promoting innovative solutions that require significant investment, ensuring political buy-in can avoid the possibility of efforts being reduced, with reference to sustainability, to a technical exercise\. In this case, the waning support behind the multi-sectoral approach and the lack of budget to support technical platforms threatens the sustainability of what look like promising innovations and positive outcomes\. A similar point can be made with reference to service delivery more broadly\. Successful and sustainable service delivery requires a full scan of the territory to ensure, upstream, that all the necessary enabling conditions are satisfied (e\.g\., regulatory, legal, technical, etc\.), supported as the effort moves downstream by adequate inputs (e\.g\., human resources, technology, service standards, etc\.), and effected through appropriate delivery mechanisms/models and supports (e\.g\., through a centralized or community-driven development approach, through a multi-sectoral effort or sector-specific effort)\. In this case, despite positive work, sustainability is threatened due to a shift in a number of factors based on a threat that, to some extent, was known to the Bank team\. On a related point, the ICR (pp\. 1-2) commented on the positive role played by the MEF in achieving synergies to formalize commitment to achieving better results and greater accountability on nutrition outcomes by including the PAN among the programs to be monitored under the performance-based budgeting pilots\. The ICR stated that the success of PAN rested on three pillars: use of result-based budgeting; a unified approach with no one entity having “ownership” of nutrition (a shared priority under shared responsibility); and specialized training for public servants\. However, the ICR noted risks to development outcome given a return, subsequent to project closing, to a more fractured approach\. In that regard, not having a single entity responsible for such a critical challenge as malnutrition may, in fact, be interpreted as a weakness rather than a strength that may threaten sustainability and focus\. Finally, to design effective behavioral change, it is necessary to put people at the center of the development process and to invest in understanding their circumstances, motivations, and the trade-offs they make, etc\. The incentive designed in this instance required a mother to present with one infant after which she would continue to receive the benefit, whether or not she registered children subsequently born into the family\. This may result in lower ongoing demand for health and nutrition services at the local level with possible knock-on effects for the reduction in malnutrition\. IEG's CRIISP model provides useful guidance on the effective design of behavior change\. 13\. Assessment Recommended? Page 17 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review PE Results Nutrition for Juntos SWAp (P117310) Yes Please explain Differences in ratings between the ICR and the IEG ICR Review\. 14\. Comments on Quality of ICR The ICR was concise and easy to read\. However, assessment of the key factors and events that affected performance and outcomes was overly concise, and the ICR narrative for the project and lacked detail, for example, on disaggregated data with reference to indigenous / non-indigenous people and male / female beneficiaries\. In the discussion of efficiency, the ICR presented material that related to efficacy\. In that instance, more candor would have been welcomed regarding the lack of efficiency-related data or supportive material\. The ICR also did not provide specifics regarding the various restructurings that might impact, for example, the assessment of efficiency\. The Borrower’s Project Closing Report was referenced several times but was not included as an Annex to the ICR\. The team explained that the document was in draft and available in Spanish only; however, it is nonetheless considered good practice to attach available supporting documentation\. a\. Quality of ICR Rating Modest Page 18 of 18

REVIEW

P109126

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) Report Number : ICRR0020843 1\. Project Data Project ID Project Name RURAL ENTERPRISE SUPPORT P109126 PROJECT II Country Practice Area(Lead) Additional Financing Uzbekistan Agriculture P126962 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-44330,IDA-51520 31-Mar-2015 75,027,000\.00 Bank Approval Date Closing Date (Actual) 12-Jun-2008 31-Dec-2016 IBRD/IDA (USD) Grants (USD) Original Commitment 67,960,000\.00 0\.00 Revised Commitment 104,751,790\.51 0\.00 Actual 96,848,008\.58 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Houqi Hong J\. W\. van Holst Christopher David Nelson IEGSD (Unit 4) Pellekaan 2\. Project Objectives and Components a\. Objectives The project development objective (PDO) of the Second Rural Enterprise Support Project in the Republic of Uzbekistan (RESP II), as stated in the Financing Agreement dated October 8, 2008, was "to increase the productivity and financial and environmental sustainability of agriculture and the profitability of agribusiness in the Project Area\." It is the same as the PDO stated in the Project Appraisal Document dated May 8, 2008 (PAD)\. The project's achievements will be assessed against the PDO stated in the Financing Agreement, which was not changed during implementation\. Page 1 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components The project has the following four components (PAD, Chapter B, Section 3): Component 1: Rural Enterprise Finance (Appraisal Cost: US$ 36\.7 million; Actual cost: US$72\.13 million)\. Scale up the positive results of the first Rural Enterprise Support Project in the Republic of Uzbekistan (RESP I) by engaging additional commercial banks and the microfinance sector to provide agricultural finance to newly independent farmers originated from the recent Shirkat reform, as a result of which land was passed from cooperative usage (shirkat) to private one, and to provide finance to small and medium size agribusinesses in seven regions, covering around 88 rural districts\. Train the participating financial institutions to improve their skills in providing agriculture investment loans and provide assistance to loan recipients on business planning, aiming to reduce the lending risks and improve the banking sector’s capacity to provide financing in agriculture\. The significant increase in actual cost of this component was mainly due to additional activities funded by the additional financing\. Component 2: Irrigation and Drainage (Appraisal Cost: US$ 33\.2 million; Actual cost: US$26\.38 million)\. In seven specific districts, invest in (i) rehabilitation of critical sections and bottlenecks of on-farm and inter- farm irrigation and drainage infrastructure systems, to be selected by the main stakeholders in the districts, including the Basin Administration of Irrigation Systems (BAIS) and its branch organizations (the Administration of Irrigation Systems (AIS)), the district authorities, and Water User Associations, with technical assistance from a consulting firm; (ii) Strengthening 84 Water User Associations and the capacity of relevant institutions to train and support WUAs to effectively rehabilitate, operate, and maintain on-farm irrigation and drainage systems; (iii) Piloting and demonstrating applied modern irrigation techniques in the districts\. Component 3: Rural Training and Advisory Services (Appraisal Cost: US$ 2\.6 million; Actual cost: US$1\.60 million)\. Provide training and advisory services in various skills required by farmers in their capacity as independent business concerns, such as legal, business, accounting, agronomy, water management, and pest management aspects; Increase the publicity of technical information and advisory services via mass media campaigns, to not only generate demand for training but also publicize the project services and information, targeting primarily the large number of household farmers who will not likely participate in the training\. Component 4\. Project Implementation (Appraisal Cost: US$ 2\.5 million; Actual cost: US$4\.45 million), including overall project implementation management, studies on relevant sector or sub-sector specific issues to inform policy debate, and monitoring and evaluation activities\. The significant increase in actual cost of this component was mainly due to the additional financing\. Implications of Additional Financing for Components\. The additional financing, approved in September 2012, expanded scope of Component 1 by providing an additional credit of US$40\.0 million for financing horticulture-related investments in both the original seven regions and a newly added Jizzakh region (ICR, Page 2 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) para 14)\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates 1\. Project cost\. The project’s total cost was estimated at US$75\.03 million (PAD, Annex 5) at appraisal\. Actual total project cost increased to US$104\.56 (ICR, Annex 1) at completion, mainly due to the additional financing which expanded the scope of the project\. 2\. Financing\. The project was financed by an original IDA credit of SDR 41\.30 million (US$67\.96 million equivalent), an additional financing IDA credit of SDR 26\.40 million (US$40\.00 million equivalent), and a grant of $7\.7 million from the Swiss Agency for Development and Cooperation (SDC)\. The two IDA credits were 96\.57% disbursed (ICR, Data Sheet)\. 3\. Borrower contribution\. The original and actual counterpart financing from the government and beneficiaries were US$7\.07 million and US$5\.09 million, respectively (ICR, Annex 1, Table (b))\. 4\. Key dates\. The project was approved on June 12, 2008\. Mid-term review was on December 02, 2011, on schedule set at appraisal (December 5, 2011)\. The project was originally planned to close on March 31, 2015\. Actual closing date was extended once for twenty one months to December 31, 2016\. The reasons for this extension were mainly related to the Government's lengthy internal review and approval processes and the time needed to implement the additional financing (ICR, paras 14 and 22)\. 5\. Restructurings\. There were one level I restructuring and three level II restructurings\. (1) Level I restructuring: 09/11/2012: An additional financing of SDR 26\.40 million (US$40\.00 million equivalent) in IDA credit was approved, to provide financing for horticulture-related investments in both the original seven regions and a newly added Jizzakh region (ICR, para 14)\. The Additional Financing also amended the Results Framework accordingly and established a new closing date of the project as December 31, 2016\. (2) Level II restructurings: 01/19/2011: Reallocation of US$227,549 from Unallocated category to Consultants’ services, training and audit to reflect higher than estimated contract value for detailed engineering design for rehabilitation of irrigation and drainage\. 03/19/2012: Reallocation of US$5\.0 million from micro sub-loans to investment and working capital sub- loans and leasing financing, and dropping indicators in the Results Framework measuring micro sub-loan related achievements\. 07/25/2014: Reallocation of the original credit across expenditure categories\. Revision of component costs based on exchange rate fluctuations and additional costs on project management\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives The PDO "to increase the productivity and financial and environmental sustainability of agriculture and the profitability of agribusiness in the Project Area" was consistent with the Government's first Poverty Reduction Page 3 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) Strategy Paper (PRSP)--the Welfare Improvement Strategy (WIS) for 2008-10, approved in September 2007, which had a strong emphasis on agricultural growth, importance of cost recovery, and environmental sustainability such as sustainable irrigation and water management systems, soil improvement and drainage, and more efficient use of water resources\. The PDO was also consistent with Pillar II of the Bank Group's CAS FY08-11: Increasing economic opportunities in rural areas, which centered on achieving three country development goals, namely, (1) Increase productivity of agriculture; (2) Increase farmers’ incomes; and (3) Increase efficiency, effectiveness and environmental sustainability of irrigation and soil improvement\. However, the PDO was weak because for neither productivity increase nor the increases in financial and environmental sustainability was there any definition of the scope of the increases expected as a result of the project’s investments\. The PDO was also consistent with Bank and government strategies at completion\. The Bank's CPF for FY16- 20 for Uzbekistan emphasized that the agriculture sector in the country had a large potential for improvement in productivity, profitability, and environmental sustainability\. Focus Area 1 of the CPF had a strong emphasis on increasing private investment and promoting job creation in agribusiness, while Focus Area 2 was agriculture competitiveness and productivity improvement\. The Welfare Improvement Strategy of the Republic of Uzbekistan for 2013-15 had a strong focus on implementing measures for enhancing productivity, profitability, and financial and environmental sustainability in agriculture and rural development\. Again, though these objectives were in the right direction, they were unspecific in terms of the scope of the expected achievements\. Rating Modest b\. Relevance of Design The project design combined three major components: (1) provision of finance to rural enterprises (including farmer households), (2) rehabilitation and strengthening of irrigation and drainage, and (3) provision of training and advisory services to farmers\. These components were well aligned with the project’s objectives\. Component (1) on Rural Enterprise Finance was very consistent with the sub-objective of improved agribusiness profitability\. It would enable rural businesses to make investments to increase sales and decrease costs by providing financing to farmers and agribusinesses in seven regions, covering about 88 rural districts and 65 percent (about 18 million) of the population, while at the same time enhancing the capacity of intermediate financial institutions to assess lending risks and the capacity of potential credit recipients to prepare business plans\. The additional financing further expanded the scope of this component to cover horticulture-related investments and a newly added Jizzakh region The combination of component (2) with component (3) would contribute to the achievement of improved environmental sustainability of agriculture\. Component (2) focused on providing support for rehabilitation and strengthening of the outdated inter-farm and on-farm irrigation and drainage infrastructure and strengthening of the institutional capacity of Water Users Association to manage the operation and maintenance of on-farm irrigation and drainage systems\. It would contribute to improved water supply and drainage and increased yields, and was thus directly relevant to the achievement of improved productivity of agriculture\. Component (2) would also contribute to lowering of groundwater levels and decrease of salinity from water logging\. This, combined with Component (3)’s assistance to improve farmer's knowledge of water saving technologies and Page 4 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) other environmentally friendly good practices and to enhance participating financial institutions’ capacity to conduct environmental impact assessment, would enhance environmental sustainability of agriculture\. Improvement of I&D infrastructure under Component (2) and training and advisory services for farmers under component (3) can be expected to increase yields, lower cost, and improve agricultural production, and therefore contribute to the achievement of improved productivity and financial sustainability of agriculture\. To achieve sound financial sustainability, however, attention could have been given to tackling some relevant policy areas, such as input subsidies and alternatives to state procurement, as mentioned in IEG's review of the completion report for RESP I\. Indeed, the project's financial net present value was highly sensitive to input prices, according to the PAD\. As the ICR noted, the project's results framework had several weaknesses\. A number of intermediate and final outcomes were either not stated in measurable terms, or were stated in output terms\. Despite the valid conceptual logic of the project’s design, there was a lack of a clear and convincing causal chain between project activities and project outcomes\. Rating Substantial 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective The project objectives were to "to increase the productivity and financial and environmental sustainability of agriculture and the profitability of agribusiness in the Project Area\." They contained 4 elements or sub- objectives: (1) To increase the productivity of agriculture in the Project Area; (2) To increase financial sustainability of agriculture in the Project Area; (3) To increase the environmental sustainability of agriculture in the Project Area; and (4) To increase the profitability of agribusiness in the Project Area\. (1) To increase the productivity of agriculture in the Project Area Rationale Output: The following is a summary of the project’s most important outputs for the first sub-objective: • All works on rehabilitation of irrigation and drainage infrastructure, selected through a participatory and transparent process for inter-farm systems and through a farmer/WUA driven process for on-farm systems, were completed successfully, and were handed over to responsible institutions for their operation and maintenance (ICR, para 46)\. • All WUAs in seven project districts were reorganized into Water Consumers Associations based on hydrographic boundaries and re-registered as non-governmental and non-commercial entities, in accordance with international best practice (ICR, para 49)\. Page 5 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) • Provision of training on WUA operations, including institutional, legal, financial and technical dimensions (ICR, para 49)\. • Provision of small equipment and tools to WUAs for maintenance of I&D infrastructure (ICR, para 50)\. • All WUAs operating based on approved plans, manuals, procedures, and schedules with improved institutional capacity (ICR, para 49)\. • Provision of training to 61,426 farmers and agro-processors on a variety of topics related to farm productivity improvement, including, inter alia, soil fertility improvement, pest management, organic farming, and water management (ICR, para 47)\. Intermediate outcome: • Total command area benefiting from improved I&D infrastructure is estimated at about 139,500 ha (Target was 91,000 ha) (ICR, para 46)\. • Irrigated areas with adequate water supply and drainage in project districts increased by 214 percent, exceeding target by 229 percent (Target was 65 percent) (ICR, para 46)\. • Total command area benefiting from strengthened WUAs is estimated at approximate 245,000 ha (No target) (ICR, para 49)\. • WUAs were able to undertake 87 percent of the maintenance work for their I&D infrastructure, compared to a baseline of 34 percent (ICR, para 50)\. • Eighty-two percent of water users expressed satisfaction with WUA performance, according to the end- of-project impact assessment (ICR, para 50)\. • Share of water lost during transportation decreased by about 36 percent, from 23\.7 percent in 2010 to 15 percent in 2016, based on the end-of-project impact assessment (No target) (ICR, para 46)\. Outcome: • M&E data shows about 33 percent increase in yields per hectare, based on average across the seven project districts with I&D interventions and across nine major crops (ICR, para 48)\. The project team later clarified to IEG that the 33 percent increase reflected the increase in yields on irrigated lands of primary and secondary crops in all project regions\. • The end-of-project impact assessment shows about 12 percent increase in yields per hectare, based on a weighted average across the seven project districts (no target) (ICR, para 48)\. The Bank's project team later advised IEG that the 12 percent increase reflected the increase in yields only on irrigated primary crops in the seven districts\. • There were no data on the change of yields in the specific intervention areas as opposed to the entire project districts or regions, and no data on change of yields per hectare in comparable non-intervention areas (ICR, Annex 3, para 9)\. The lack of data on results of the specific intervention areas and the absence of a counterfactual constitute major shortcomings and undermine any conclusion on the project’s contribution to the per hectare yield increases\. Page 6 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) Rating Modest PHREVDELTBL PHEFFICACYTBL Objective 2 Objective (2) To increase financial sustainability of agriculture in the Project Area Rationale Output: The project’s outputs for the second sub-objective are the same as for the first sub-objective above\. Intermediate outcome: • Increased reclamation of land as well as area under cultivation due to improved I&D and the resulting decreased level of saline lands (ICR, para 54)\. • Water productivity at the 62 Farmer Field Schools (FFS) plots, measured by the yields per cubic meter of water used, went up from 0\.68 kg to 1\.15 kg for wheat and from 0\.51 kg to 0\.86 kg for cotton between 2010 and 2014 (no target) (ICR, para 55)\. • Loss reduction, especially for fruits, vegetables, milk, and dairy products, as a result of credit support for investment in postharvest infrastructure and innovative technologies (ICR, para 61)\. • Increased ability of farmers to extend their growing season and reach markets earlier in the season due to credit support for investments in greenhouses (ICR, para 62)\. • About 33 percent increase in yields per hectare on irrigated lands of primary and secondary crops in all project regions, based on additional information provided by the Bank's project team\. Outcome: • Financial net present value of incremental net benefits of US$9\.9 million for the irrigated land rehabilitated under the project, taking into account the cost of rehabilitation and the cost of training and advisory services, over a 25-years period (ICR, Annex 3, para 11)\. • Project WUAs continue to face some financial difficulties due to relatively low Irrigation Service Fee collection rates and high operating costs\. However, about 50 out of the 65 WUAs are implementing about 75 percent of their O&M plan, a much higher percentage than among WUAs not supported by the project (ICR, para 52 and para 53)\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Page 7 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) Objective 3 Objective (3) To increase the environmental sustainability of agriculture in the Project Area Rationale Output: The following is a summary of the project’s most important outputs for the third sub-objective: • The rehabilitation of the drainage system was completed successfully, and was handed over to responsible institutions for their operation and maintenance (ICR, para 46)\. Over 62 Farmer Field Schools (FFS) were established by the Swiss Agency for Development Cooperation (SDC), including related equipment procurement and training, for demonstration of simple and affordable water saving technologies (ICR, para 55 and para 57)\. • Demonstration of water saving irrigation methods, such as drip irrigation, furrow irrigation based on use of black perforated film, and flexible hoses, in a total area of over 751 ha (ICR, para 55)\. • Installation and training on the use of water measurement and control structures to improve irrigation water use efficiency (ICR, para 55)\. • About 20,593 farmers were trained on using the demonstrated water-saving technologies (ICR, para 56)\. • Participating financial institutions were trained in environmental impact assessment and mitigation for their lending activities\. Intermediate outcome: • Almost 96 percent of farmers noted the training was of high quality\. Seventy-seven percent noted that the training content could be applied successfully in practice, according to SDC final progress report (ICR, para 56)\. • High farmer adoption of four of the water saving technologies demonstrated by FFS, with adoption rates ranging from over 60 percent to 97 percent (ICR, para 56)\. • Thirty percent of neighboring farmers were implementing the water saving technologies after learning of the benefits and subsequently receiving training from WUAs, according to SDC final progress report (ICR, para 56)\. Outcome: • The level of saline lands decreased from 18 percent in 2010 to 13 percent in 2016 due to reduced water logging, according to the end-of-project impact assessment (no target) (ICR, para 54)\. • Water productivity at the 62 FFS plots, measured by the yields per cubic meter of water used, went up from 0\.68 kg to 1\.15 kg for wheat and from 0\.51 kg to 0\.86 kg for cotton between 2010 and 2014 (no target) (ICR, para 55)\. Rating Page 8 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) Substantial PHREVDELTBL PHEFFICACYTBL Objective 4 Objective (4) To increase the profitability of agribusiness in the Project Area Rationale Output: The following is a summary of the project’s most important outputs for the fourth sub-objective: • Provision of training to potential loan applicants on preparation of high quality business plans to increase profitability and financial sustainability of investments\. • Training of 573 staff in participating financial institutions on project appraisal, risk assessment, and monitoring (Target was 200) (ICR, Data Sheet, Page vi)\. • 570 sub-loans in total amount of US$72\.9 million were made for a variety of investments, ranging from agricultural machinery, storage, and greenhouse construction, to poultry and fish farming, lower than both the original target 800 sub-loans and the revised target 600 sub-loans due to increased loan sizes (ICR, Data Sheet; ICR Annex 2, para 2)\. Intermediate outcome: • By project end 57 percent of the PFIs had increased their agricultural portfolio by at least 10 percent per year during the project period, exceeding the target by 42\.5 percent, thanks to improved loan and project appraisal capacity and timely repayment of sub-loans by recipients (ICR, Data Sheet, and para 58)\. • Increased ability of farmers to extend their growing season and reach markets in earlier season due to credit support for investments in greenhouses (ICR, para 62)\. Outcome: • A 151 percent increase in the average household income among 70 sub-loans recipients, according to the impact assessment conducted during the preparation of the additional financing in 2011 (ICR, Data Sheet)\. These 70 sub-loans were selected using a stratified random sampling approach, according to information provided to IEG by the Bank's project team\. • Financial net present value of incremental net benefits of US$389 million for a sample 14 enterprises that received credits from the project, over a 25-years period (ICR, para 14 and para 15 of Annex 3)\. The 14 sub-projects represented only about 2 percent of the 650 sub-projects that the PFIs supported with the credit funds under the project, and it was unknown whether these 14 sub-projects were selected randomly, according to the Bank's project team\. • A reduction of losses, especially for fruits, vegetables, milk, and dairy products, was observed, as a result of credit support for investment in postharvest infrastructure and innovative technologies (ICR, para Page 9 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) 61)\. However, the ICR provided no data\. Rating Substantial PHREVDELTBL PHREVISEDTBL 5\. Efficiency Economic analysis at project completion indicated that the project investment is economically and financially viable\. The economic NPV (ENPV) and economic IRR (EIRR) were US$343 million and 47 percent respectively for the original Component 1 on rural enterprise finance and were US$18 million and 19 percent respectively for the additional financing part of Component 1 (ICR, Annex 3, para 17)\. The ENPV and EIRR for rehabilitation of I&D infrastructure, including relevant training and advisory services under Component 3, were US$11 million and 32 percent respectively, based on irrigated land rehabilitated\. Sensitivity analyses showed that these results were robust in the face of various assumptions about lower than expected adoption rates (percentages of irrigated project area or sub-loan recipients achieving incremental benefits) and net profits, further confirming the project investments were economically justified\. The project's implementation process was in general smooth and without much delay, despite the Government's somewhat lengthy internal review and approval processes (ICR, para 22)\. According to the ICR, the project implementing agency was experienced and managed the procurement, financial management, and social and environmental safeguards issues in a diligent and efficient manner\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. Page 10 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) 6\. Outcome The project's objectives were modestly relevant and design was substantially relevant\. Three of the four project sub-objectives were substantially achieved\. And the project efficiency is rated substantial\. Overall there were moderate shortcomings in the project’s achievement of its objectives and in the relevance of the objectives\. The project development outcome is therefore rated Moderately Satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating In line with the objectives and design of the RESP II, the country's Development Strategy for 2017- 2021 identifies modernization and diversification of agriculture as a priority and has a strong focus on increasing agricultural productivity and financial sustainability\. The RESP II improved the overall credit culture in the rural areas\. The participating financial institutions are now willing to and have the capacity to lend to farmers and agribusinesses, while potential loan recipients have been trained for preparing better quality business plans (ICR, para 73)\. There are two on-going Bank projects which include interventions similar to the RESP II and thus can further consolidate the outcomes achieved under RESP II and reduce relevant risks\. WUAs currently face some financial difficulties and hence cannot meet all the budgetary needs for maintaining I&D infrastructure (ICR, para 52 and para 53)\. However, it is reasonable to expect that the rate of collection of irrigation fees by WUAs could improve because the rehabilitation of the I&D systems increased agricultural financial sustainability, and farmers were highly satisfied with WUAs’ performance\. In addition, the government was very supportive of WUAs and the O&M of I&D infrastructure, and had provided institutional and budgetary support to sustain them, as described in Section 4 of the ICR\. a\. Risk to Development Outcome Rating Modest 8\. Assessment of Bank Performance a\. Quality-at-Entry The project design was built on the experience and lessons learned from a previous Rural Enterprise Support Project supported by the Bank in Uzbekistan\. The project components focused on the key activities necessary for addressing the challenges in the agricultural sector and for achieving the project objectives, which were clear, focused, and relevant to Bank and country priorities\. A consultative process and a WUA/beneficiary driven process were followed in the identification of the inter-farm and on-farm I&D subcomponents\. Page 11 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) The results framework had some weaknesses as described in the Relevance of Design section above\. In addition, the M&E indicators were weak\. Especially, there were a lack of appropriate indicators for several important PDO-level outcomes, such as increased profitability of agribusinesses and improved financial and environmental sustainability of agriculture\. Lastly, the original project design underestimated the existence of child and forced labor issues and initially did not include sufficient safeguard measures and provisions to prevent such issues from arising under this project\. However, these shortcomings were addressed proactively and effectively and did not affect the overall smooth implementation of the project (ICR, para 26)\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision According to the ICR, the Bank's project team conducted regular and close supervisions, responded to key implementation issues proactively, and provided solutions on a timely basis\. This support was instrumental in ensuring that the implementation process was on a good track\. Although there were some delays at the beginning of the original project and the additional financing, the overall implementation process was smooth\. For example, the team responded promptly and effectively to the Inspection Panel case on alleged child and forced labor issues by incorporating additional mitigation measures and provisions into the project and conducted intensive supervisions to prevent such issues from happening again under the project\. The Bank team should have taken actions to improve the design of the results framework and the M&E system\. Despite the weakness of this design such as lack of sound indicators measuring the PDO-level outcomes and absence of counterfactuals for some results, however, the team was able to proactively collect relevant evidences necessary to show that the project development outcome was moderately satisfactory\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. Assessment of Borrower Performance a\. Government Performance According to Section 5\.2 of the ICR, the Government of Uzbekistan was highly committed to the project, both during the preparation and the implementation processes\. It provided timely counterpart financing, and allocated state funds to support the operation and maintenance of the I&D systems in the project area\. The GoU's performance on safeguards and fiduciary arrangements and compliance was satisfactory in general (ICR, Section 2\.4)\. However, the GoU could have done more to prevent and address the delays of the approvals of the project’s legal documents that affected the timely effectiveness of the project and the Page 12 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) additional financing, and to ensure necessary institutional setup was in place for providing training and guidance to WUAs on a regular basis (ICR, para 82)\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance The Rural Restructuring Agency under the Ministry of Agriculture and Water Resources (RRA) was the implementing agency of the project\. It brought to RESP II its experience with implementing the previously Bank-financed RESP, and managed the implementation of RESP II with a high degree of professionalism\. RRA made many efforts to ensure the project’s compliance with all safeguard and fiduciary policies required of the project, and was effective in working together with the Bank team to prepare and process the additional financing\. Both the RRA in Tashkent, the capital city, and its regional offices made frequent visits to project fields to supervise implementation\. For example, they visited all 570 sub-loan recipients under the rural enterprise finance component of the project\. Implementation progress reports prepared by RRA were detailed and provided to the Bank in a timely manner\. Implementing Agency Performance Rating Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design Appropriate arrangements were designed in the PAD for baseline surveys, data collection instruments, and responsible agencies for data collection (PAD, Annex 3)\. For example, the implementing agency (RRA) was designated as the main agency responsible for M&E\. However, several outcome indicators were not specific or stated in measurable terms\. Some did not measure final outcomes\. There was a lack of appropriate indicators for several key PDO-level outcomes, such as increased profitability of agribusinesses and improved financial and environmental sustainability of agriculture\. b\. M&E Implementation The key data planned for collection according to the project results framework were collected systematically\. Especially, RRA established strong institutional arraignments for monitoring project outputs and intermediate outcomes\. These data were collected and analyzed thoroughly\. The RRA also went beyond the collection of data specified in the project performance indicators, to mitigate the weakness in indicator specification in the design\. However, the impact assessment at the completion, which should have provided substantial evidence Page 13 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) on the project development outcome, was based on the profitability data of 14 enterprises provided by PFIs\. This sample represented only 2 percent of the total number of enterprises benefiting from the project’s credit funds\. In addition, they might not have been sampled on a random basis, as noted in Section 4 above\. Lastly, no information on counterfactuals was collected\. c\. M&E Utilization The M&E process, especially the impact assessment conducted by the implementing agency RRA at the preparation of the additional financing, helped inform the preparation of the additional financing\. M&E Quality Rating Modest 11\. Other Issues a\. Safeguards Environment: The project was classified as an environmental category B, and triggered the safeguard policies on Environmental Assessment (OP 4\.01) and on Projects on International Waterways (OP 7\.50)\. An Environmental Management Framework was prepared for the project\. The ICR reports that the project’s compliance with environmental safeguards was ensured through strong institutional arrangements and thorough implementation by RRA, the implementing agency\. At the sub-project level for the rural enterprise component, for example, environmental due diligence was conducted by participating financial institutions and closely supervised by RRA\. On OP 7\.50, the project received an exception to the requirement of “Notification to Riparians”, as per approval by the Regional Vice President on the basis that the project activities were limited to rehabilitation of existing I&D systems and would not adversely affect the quality or quantity of the water flows to other riparians\. The project was implemented in compliance with OP 4\.01 and OP 7\.50 (ICR, para 33 and para 35)\. Social: Legal provisions were stipulated in the project documents, and relevant training and information awareness campaigns were carried out, to prevent the use of child and forced labor by beneficiaries during the cotton harvest (ICR, para 34)\. During the implementation process the Inspection Panel at the Bank received a complaint from three local residents and an international NGO alleging the project contributed to the use of child and forced labor by project beneficiaries\. The Bank Management made a swift and satisfactory response, clarifying that the project did not cause or aggravate any possible related harm and outlining relevant additional mitigation measures that the project team effectively adopted and closely followed during the subsequent implementation (ICR, para 26)\. The Inspection Panel decided not to conduct a full inspection based on the Bank Management’s satisfactory response\. And no clear incidences of child and forced labor linked to the project were ever identified by the Bank after the response (ICR, Annex 10, page 60)\. Page 14 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) b\. Fiduciary Compliance The ICR assessed that the financial management arrangements of the project, in such areas as planning and budgeting, accounting and reporting, and flow of counterpart funds, were satisfactory (ICR, para 36)\. The risk to procurement implementation was rated high as the country did not have an institutional environment conducive to transparent and efficient procurement\. However, the project implementing agency (RRA) had implemented the previous RESP I and was knowledgeable about Bank procurement procedures\. The procurement under the project was carried out in line of applicable Bank guidelines in an effective and timely manner (ICR, para 37)\. c\. Unintended impacts (Positive or Negative) N/A d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Outcome Moderately Satisfactory --- Satisfactory Risk to Development Modest Modest --- Outcome Moderately Bank Performance Moderately Satisfactory --- Satisfactory Moderately Borrower Performance Moderately Satisfactory --- Satisfactory Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The ICR provided three lessons, based on which, and with some adaptation, this Review identified the following Page 15 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review RURAL ENTERPRISE SUPPORT PROJECT II (P109126) main lesson: 1\. A combination of training of financial institutions on lending appraisal and risk management with training of farmers and rural enterprises on business planning and use of technology is key to increasing lending to the agricultural sector\. The project provided training to staff in participating financial institutions on project appraisal, risk assessment, and monitoring to reduce risk aversion of the commercial banks\. At the same time, the project trained farmers and agro-processors on preparation of high quality business plans and on adoption of good/ sustainable agricultural practices to increase profitability of investments\. These were key to increasing the lending portfolio of the participating financial institutions (PFIs) in the agricultural sector (ICR, paras 73, 85 and 87)\. By project completion, 57 percent of the PFIs had increased their agricultural portfolio by at least 10 percent per year during the project implementation period, exceeding the target stipulated in the project appraisal document by 42\.5 percent (ICR, Data Sheet)\. In addition, this Review suggests that the following lesson was also learned: 2\. Rural enterprise finance projects should ensure that data on profitability of sub-projects are collected adequately at project completion\. Under the project, credit funds were provided to the PFIs for a period of 20 years\. All data on sub-projects were kept at these PFIs\. The project implementing agency (RRA) for the ICR received data on the profitability of only 14 sub-projects, representing only 2 percent of the total number of enterprises the project’s credit funds supported\. PFIs refused to give profitability data for more sub- projects on the ground that it was too soon to see the profitability results at the project completion\. In addition, it was unknown whether the 14 sub-projects were selected on a random basis\. This resulted in a significant gap in evidence on the project efficacy\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR was concise and presented a substantial body of evidence on the project's achievements\. It is generally well written\. The discussions on evidence could have been improved by providing more detailed descriptions of relevant definitions and methodologies to allow for an assessment of the credibility of the evidence\. Finally the sections on the relevance of the PDOs and relevance of design should have followed the OPCS Guidelines for the preparation of ICRs more closely\. a\. Quality of ICR Rating Substantial Page 16 of 16

REVIEW

P148083

 Document of The World Bank Report No: ICR00003985 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-83790) ON A LOAN IN THE AMOUNT OF US$280 MILLION TO THE STATE OF RIO GRANDE DO SUL FOR THE STRENGTHENING FISCAL AND WATER RESOURCE MANAGEMENT DEVELOPMENT POLICY LOAN January 26, 2017 Macroeconomics & Fiscal Management Global Practice Brazil Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 30, 2016) Currency Unit = Real (R$) 1\.00 = US$ 0\.31 US$ 1\.00 = 3\.26 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS ANA National Water Agency Agência Nacional de Ã?guas CAGE Office of the Accountant and Auditor Contadoria e Auditoria Geral do Estado General CPS Country Partnership Strategy Estratégia de Parceria com o País CRH-RS Water Resources State Council of Rio Conselho Estadual de Recursos Hídricos do Grande do Sul Rio Grande do Sul DMO Debt Management Office Divisão de Gestão da Dívida DPL Development Policy Loan Empréstimo de Políticas de Desenvolvimento DRH Department of Water Resources Departamento de Recursos Hídricos DRM Disaster Risk Management Gestão de Risco de Desastre EMATER/RS Technical Assistance and Rural Extension Empresa de Assistência Técnica e Extensão Company of Rio Grande do Sul Rural do Rio Grande do Sul FARSUL Agriculture Federation of the State of Rio Federação da Agricultura do Estado do Rio Grande do Sul Grande do Sul FEPAGRO State Agricultural and Livestock Research Fundação Estadual de Pesquisa Foundation Agropecuária FEPAM State Foundation for Environmental Fundação Estadual de Proteção Ambiental Protection Henrique Luiz Roessler Henrique Luiz Roessler FRL Fiscal Responsibility Law Lei de Responsabilidade Fiscal FUNDOPEM State Industrial Promotion Agency Fundo Operação Empresa do Estado do Rio Grande do Sul GDP Gross Domestic Product Produto Interno Bruto GoRS Government of Rio Grande do Sul Governo do Rio Grande do Sul GRS Government of the State of Rio Grande Governo do Estado do Rio Grande do Sul Sul IBGE Brazilian Institute of Geography and Instituto Brasileiro de Geografia e Statistics Estatísticas ICMS Value Added Tax Imposto sobre Circulação de Mercadoria e Serviços ICR Implementation and Completion Results Relatório de Conclusão e Resultados Report IPSAS International Public Sector Accounting Padrões Contábeis Internacionais aplicados Standards ao Setor Público IRGA Rio Grande do Sul Rice Institute Instituto Riograndense de Arroz IRRF Income Tax Withheld at Source Imposto de Renda Retido na Fonte 1 IWRM Integrated Water Resources Management Gestão Integrada dos Recursos Hídricos NCD Net Consolidated Debt Dívida Consolidada Líquida NCR Net Current Revenues Receita Corrente Líquida PROGESTÃO National Pact for Water Management Pacto Nacional pela Gestão das Ã?guas National Program for Strengthening PRONAF Family Agriculture Programa Nacional de Fortalecimento da Agricultura Familiar NCR Net Current Revenues Receita Corrente Líquida RGS State of Rio Grande Sul Estado do Rio Grande do Sul SEAPI Secretariat of Agriculture, Livestock and Secretaria de Agricultura, Pecuária e Irrigation Irrigação SEFAZ Secretariat of Finance Secretaria da Fazenda SEMA Secretariat of Environment Secretaria de Meio Ambiente SEPLAG Secretariat of Planning, Management and Secretaria de Planejamento, Gestão e Social Participation Participação Social SERASA Credit Verification Company Serviços de Assessoria S/A SWAP Sector Wide Approach Abordagem Setorial Ampla STN National Treasury Secretariat Secretaria do Tesouro Nacional TCE State Court of Accounts Tribunal de Contas do Estado de Rio Grande do Sul WR Water Resources Recursos Hídricos WRM Water Resources Management Gestão de Recursos Hídricos Vice President: Jorge Familiar Country Director: Martin Raiser Senior Practice Director: Carlos Felipe Jaramillo Practice Manager: Pablo Saavedra Project Team Leader: Antonio Nucifora / Paula P\. F\. de Oliveira ICR Team Leader: Fabiano Silvio Colbano ICR Primary Author: Fabiano Silvio Colbano 2  BRAZIL STRENGTHENING FISCAL AND WATER RESOURCE MANAGEMENT DEVELOPMENT POLICY LOAN CONTENTS A\. Basic Information \. 5 B\. Key Dates \. 5 C\. Ratings Summary \. 5 C\.1 Performance Rating by ICR \. 5 C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) \. 6 C\.3 Quality at Entry and Implementation Performance Indicators \. 6 D\. Sector and Theme Codes\. 6 E\. Bank Staff \. 7 F\. Results Framework Analysis \. 8 G\. Ratings of Project Performance in ISRs \. 10 H\. Restructuring \. 10 1\. Program Context, Development Objectives and Design \. 11 1\.1 Context at Appraisal \. 11 1\.2 Original Project Development Objectives and Key Indicators \. 16 1\.3 Revised Program Development Objectives (PDO) and Key Indicators, and Reasons 17 1\.4 Original Policy Areas Supported by the Program (as approved) \. 17 1\.5 Revised Policy Areas \. 17 1\.6 Other significant changes \. 17 2\. Key Factors Affecting Implementation and Outcomes \. 17 2\.1 Program performance\. 17 2\.2 Major Factors Affecting Implementation \. 18 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization \. 19 2\.4 Expected Next Phase/Follow \. 19 3\. Assessment of Outcomes \. 19 3\.1 Relevance of Objectives, Design and Implementation \. 20 3\.2 Achievement of Project Development Objectives \. 20 3\.3 Justification of Overall Outcome Rating \. 28 3\.4 Overarching Themes, Other Outcomes and Impacts \. 28 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops \. 29 4\. Assessment of Risk to Development Outcome \. 29 5\. Assessment of Bank and Borrower Performance \. 30 6\. Lessons Learned\. 32 Annex 1\. Bank Lending and Implementation Support/Supervision Processes\. 34 Annex 2\. Detailed Description of Implementation of each Prior Action \. 35 Annex 3\. Beneficiary Survey Results \. 47 Annex 4\. Stakeholder Workshop Report and Results \. 48 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 49 3 Annex 6\. Comments of Cofinanciers and Other Partners/Stakeholders \. 52 Annex 7\. List of Supporting Documents \. 53 Annex 8\. State Fiscal Situation \. 54 Annex 9\. Background on World Bank Operations with Rio Grande do Sul \. 67 MAP OF RIO GRANDE DO SUL / BRAZIL \. 69 4 Data Sheet RS: Strengthening Fiscal and Water Country: Brazil Project Name: Resources Management DPL L/C/TF Project ID: P148083 IBRD-83790 Number(s): ICR Date: 01/26/2017 ICR Type: Core ICR Lending Instrument: DPL Borrower: STATE OF RIO GRANDE DO SUL Original Total Disbursed USD 280\.00M USD 280\.00M Commitment: Amount: Revised Amount: USD 280\.00M Environmental Category: B Implementing Agencies: State Secretariat of Finance (SEFAZ) Cofinanciers and Other External Partners: Not Applicable Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/05/2013 Effectiveness: 09/30/2014 09/30/2014 Appraisal: 02/20/2014 Restructuring(s): Approval: 06/27/2014 Mid-term Review: Closing: 12/31/2015 12/31/2015 Outcomes: Moderately unsatisfactory Risk to Development Outcome: High Bank Performance: Moderately unsatisfactory Borrower Performance: Moderately unsatisfactory 5  Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: unsatisfactory unsatisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Moderately Overall Borrower Moderately Performance: unsatisfactory Performance: unsatisfactory Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any time No Quality at Entry (QEA): None (Yes/No): Quality of Supervision Problem Project at any time (Yes/No): No None (QSA): Moderately DO rating before Closing/Inactive status: satisfactory Original Actual Major Sector/Sector Agriculture, Fishing and Forestry Irrigation and Drainage 10 10 Public Administration Sub-National Government 60 60 Water, Sanitation and Waste Management Other Water Supply, Sanitation and Waste Management 30 30 6 Major Theme/Theme/Sub Theme Economic Policy Fiscal Policy 19 19 Fiscal sustainability 6 6 Tax policy 13 13 Environment and Natural Resource Management Water Resource Management 38 38 Water Institutions, Policies and Reform 38 38 Public Sector Management Public Administration 13 13 Transparency, Accountability and Good Governance 13 13 Public Finance Management 32 32 Debt Management 6 6 Domestic Revenue Administration 13 13 Public Expenditure Management 13 13 Positions At ICR At Approval Vice President: Jorge Familiar Jorge Familiar Country Director: Martin Raiser Deborah L\. Wetzel Practice Manager Pablo Saavedra Auguste Kouame Project Team Antonio Nucifora / Paula P\. F\. de Rafael Barroso / Paula P\. F\. de Leader: Oliveira Oliveira ICR Team Leader: Fabiano Silvio Colbano ICR Primary Fabiano Silvio Colbano Author: 7 Project Development Objectives The original Project Development Objective was to improve Government capacity to mitigate economic volatility in the State of Rio Grande do Sul by supporting measures to increase resources available to the government and to reinforce the Integrated Water Resource Management framework\. Revised Project Development Objectives (as approved by original approving authority) Not applicable, since there were no formal revisions to the operation\. PDO Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Fiscal Management: Percentage of tax expenditure measures under Indicator 1: Government control evaluated, according to the new procedures\. Value (quantitative or 0 25 N/A 43 qualitative) Date achieved 2012 2015 November, 2015 Comments (incl\. % Achieved\. Actual value exceeded target\. achievement) Fiscal Management: Increase the share of tax arrears recovered within Indicator 2: 60 days of their generation\. Value (quantitative 20\.8 27 28\.6 or qualitative) Date achieved 2012 2015 November, 2015 Comments Achieved\. The target had been achieved by the third supervision mission: 28\.6 (incl\. % percent of the arrears generated two months prior had been collected\. achievement) Fiscal Management: Increase the share of goods procured, expressed as a Indicator 3: percentage of the total value of goods, using price information from the electronic fiscal invoice database\. 8 Value (quantitative or 0 25 51 qualitative) Date achieved 2012 2015 November, 2015 Comments Achieved\. Actual value exceeded target\. This Prior Action was highly successful (incl\. % in reducing procurement costs in the health sector\. achievement) Fiscal Management: Increase in the number of managerial cost Indicator 4: reports prepared by Government agencies\. Value (quantitative or 0 14 13 qualitative) Date achieved 2012 2015 September, 2016 Comments (incl\. % Mostly achieved\. Target was 93% achieved\. achievement) Fiscal Management: New policy instrument to manage contingent liabilities Indicator 5: made effective\. Value (quantitative or No Yes Yes qualitative) Date achieved 2012 2015 May 2015 Comments (incl\. % Achieved\. System for monitoring contingent liabilities in place\. achievement) Water Resource Management: Increase in the number of medium and small Indicator 6: farmers that have adhered to the “More Water, More Incomeâ€? Program\. Value 413 landholders 3,000 3,096 landholders (quantitative or landholders qualitative) Date achieved 2012 2015 December 2016 Comments Achieved\. According to SEAPI, the number of participants was achieved in (incl\. % 2016\. achievement) 9  Water Resource Management: River Basins Plans completed, discussed and Indicator 7: approved by the river basin committees, with the supervision and facilitation of the DRH team\. Value (quantitative or 1 12 7 (58%) qualitative) Date achieved 2012 2015 August 2016 Comments Partially achieved\. Overall achievement: 58%\. The target was substantially (incl\. % met, and will certainly be entirely met in the near future, as the remainder 5 achievement) plans are well advanced, according to DRH\. Water Resource Management: New hydro-meteorological stations installed in Indicator 8: key river basins with information analyzed by the State is operating satisfactorily\. Value (quantitative or 0 80 27 (34%) qualitative) Date achieved 2012 2015 August 2016 Comments Partially achieved\. Instead of installing all 80 stations, DRH coordinated with (incl\. % agencies that have hydro-meteorological data thus avoiding overlaps and achievement) improving coverage\. As a result, a situation room to monitor hydro- meteorological data and river levels on a real time basis was installed and is operating satisfactorily\. Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 11/23/2014 Moderately Satisfactory Satisfactory 279\.30 2 05/29/2015 Moderately Satisfactory Moderately Satisfactory 279\.30 Not applicable, since there was no formal restructuring to the operation\. 10 1\. The Rio Grande do Sul Strengthening Fiscal and Water Resource Management Development Policy Loan aimed to support the State of Rio Grande do Sul (GoRS) in Brazil to improve its capacity to mitigate economic volatility by supporting measures (i) to increase resources available to the government and (ii) to reinforce the Integrated Water Resource Management framework\. This Development Policy Loan (DPL) of US$280 million was approved by the World Bank's Board of Directors on June 27, 2014, became effective on September 30, 2014, and closed on December 31, 2015\. Economy of Rio Grande do Sul 2\. Rio Grande do Sul is the southernmost State in Brazil\. It has a population of 11\.3 million people (in 2015), distributed across an area of 280 thousand Km2\. The State has 5\.6 percent of the country’s population and 3\.3 percent of its land area\. State GDP amounted to US$ 121\.8 billion in 2015 (at market prices) or 6\.7 percent of Brazil’s GDP\. Per capita GDP was US$ 10,790\. Poverty and extreme poverty incidence are below the national average, but above the southern region average\. In 2012, the incidence of poverty was 4\.2 percent, while the figures for the region and the country stood at 3\.7 and 9\.4 percent respectively\. 3\. The State of Rio Grande do Sul has significant regional diversity\. The majority of the population and GDP is concentrated in the axis formed by the capital—Porto Alegre—and the Mountain region\. The Southern part is characterized by large landholdings dedicated to irrigated rice farming\. The Northwestern and Center-West regions are characterized by the existence of small landholders and family-owned farms dedicated to rain-fed crops\. These last two regions have been losing population and participation in State GDP, while all three regions have a higher incidence of poverty\. 4\. The services sector and the agri-business complex are central to state’s economy\. Services accounted for 65 percent of value added in 2013\. Industry was the second largest sector with 24 percent, while agriculture was responsible for 10 percent\. Despite the small share of agricultural production in the State GDP, it is estimated that the agribusiness complex accounts for 30 percent of the state’s GDP1 and 17 percent of its employment\. The main crops in terms of production value are soybeans, rice and tobacco\. Soybeans are by far the largest export item, with a value of US$ 806 million in 2016\. Tobacco and beef were a distant second, with a value of US$ 158 million and US$ 154 million, respectively\. 5\. RGS’ GDP has grown, but with volatility\. Over the last ten years, annual growth rates have ranged from -3\.4 percent to +8\.2 percent\. Over much of this period, these fluctuations were closely associated with fluctuations in agricultural output (Figure 2)\. More recently, they have been associated with the downturn in the Brazilian economy as a whole\. In 2015, the Brazilian economy contracted by 3\.8 percent (Figure 1)\. Despite an uptick in agricultural output, the state’s economy contracted by 3\.4 percent\. 1 Foundation of Economics and Statistics (Fundação de Economia e Estatística - FEE), 2016\. http://www\.fee\.rs\.gov\.br/indicadores/agronegocio/exportacoes/destaques-do-mes 11  Figure 1: Trends in GDP Figure 2: Agriculture GDP 10% 60% 8% Real Annual Growth Real Annual Growth 40% 6% 4% 20% 2% 0% 0% -20% -2% -4% -40% 2005 2007 2009 2011 2013 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 BR RGS state GDP agriculture Source: IBGE and FEE 6\. One of the key reasons for the volatility in agricultural output is the lack of regular water supply\. Dry summers and periodic droughts seriously affect medium and small- size production and income in the Northwestern region where corn, soy and beans are the main crops\. Favorable soil conditions and average yearly rainfall above 1,500 mm provide a promising perspective for irrigated agriculture\. Nonetheless, most of the farms depend solely on rainfall and less than seven percent have irrigation facilities\. State Finances 7\. The state derives the majority of its revenues from the ICMS (Imposto sobre Circulação de Mercadorias e Serviços), a state administered Value Added Tax (VAT)\. Revenues from ICMS are constrained by the high proportion of taxable activity that is exempt or taxed at very low rates\. In part, this reflects federal mandates, since under federal law foreign exports (including the state’s agricultural products) are exempt from VAT\. It also reflects agreements within the national council of state finance secretariats (CONFAZ—Conselho Nacional de Política Fazendária)\. Finally, it reflects a deliberate state policy of taxing domestic (intra-state) transactions at relatively low rates and granting beneficial tax treatment to individual firms through its economic development fund, FUNDOPEM (Fundo Operação Empresa)\. At the time of appraisal, ICMS revenues (along with state revenues from other sources) had nevertheless been increasing steadily, in real terms, for the previous five years\. With the recent downturn in the state’s economy, ICMS revenues have declined\. 8\. State expenditures are dominated by personnel costs\. In 2015, personnel spending consumed 72 percent of net current revenues (NCR)\.2 These expenditures are quite rigid\. Under most circumstances, the Federal Constitution prohibits states from reducing the salaries of their employees in nominal terms\. Federal law also dictates the pension benefits for most retirees\. By law, RGS is required to pay not only the salaries of its active personnel but also the pensions of its retirees\. Under the terms of the 1988 Constitution, these pension benefits are quite generous\. 2 In this text, net current revenues are defined as total current revenues minus transfers to municipalities\. It is different from the official concept defined in the Fiscal Responsibility Law, which also excludes from the current revenues the contributions to the pension system of the public servants\. 12 The majority of current retirees are entitled to a pension equal to 100 percent of their individual exit salaries, adjusted (upward) for any subsequent increase in the salary of the position formerly occupied\. While the federal government and the state have attempted to rein in pension benefits, most of the reductions apply only to staff who were hired after each of the various reforms was introduced\. As a result, they have very little impact on the state’s current spending obligations\. Table 1: Rio Grande do Sul’s Fiscal Accounts (Constant R$ millions of 2015) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Current revenues (I) 30,752 34,350 34,510 38,857 38,671 39,655 42,057 43,383 41,599 of which: VAT 19,303 22,161 21,416 23,917 24,710 25,524 27,241 27,502 26,168 Current expenditure (II) 28,756 30,266 31,114 33,972 35,278 38,818 41,506 43,772 43,732 of which: personnel 16,344 16,772 17,598 18,856 19,663 20,458 21,934 23,562 23,985 interest 434 406 295 227 162 1,829 1,773 1,701 1,665 other current 11,483 12,666 12,781 14,202 14,721 15,646 16,811 17,527 17,025 Current balance (III) = (I) – (II) 1,996 4,084 3,397 4,885 3,393 837 551 -389 -2,133 Investment (IV) 645 1,007 962 2,680 1,433 1,506 1,657 1,935 809 Operating balance (V) = (III) – (IV) 1,351 3,076 2,435 2,204 1,959 -669 -1,106 -2,324 -2,942 Amortization (VI) 2,511 4,446 2,775 3,863 3,088 1,477 1,583 1,863 2,075 Capital revenues (VII) 2,184 1,996 347 1,445 487 1,353 1,047 2,886 439 Cash flow (VIII) = (V) – (VI) + (VII) 1,024 626 6 -214 -642 -793 -1,643 -1,301 -4,578 Net current revenues 24,896 27,705 27,781 31,439 31,057 31,770 33,797 35,022 33,463 Operating balance/NCR 5% 11% 9% 7% 6% -2% -3% -7% -9% Cash flow/NCR 4% 2% 0% -1% -2% -2% -5% -4% -14% 9\. The state also has high debt levels\. The stock of contractual debt was equal to twice the level of net current revenues in 2015 (NCR, defined as total revenues less constitutionally mandated transfers to municipalities)\. In addition, the state had a vast stock of contingent liabilities (mostly arising from lawsuits filed on behalf of civil servants)\. As discussed in Annex 8, the PD for this operation included a detailed analysis of the state’s fiscal position and prospects, including a ‘baseline’ and a ‘worst case’ scenario\. Based on the most recent fiscal data available at the time (2012), the baseline scenario projected the state’s GDP to grow by about eleven percent over the period 2012-2015\. Buoyed by growth in the state value added tax (ICMS), total current revenues were expected to increase by 15 percent over that period\. Under the baseline scenario, total operating expenditures3 were projected to grow by 18 percent\. Personnel costs were projected to increase 16 percent in real terms\. The result, according to the baseline projection, was to be a slight worsening of the state’s fiscal situation in the short term\. 3 Operating expenditures are defined as recurrent expenditures plus capital expenditures other than amortization\. 13 The operational deficit was projected to increase to 2\.7 percent of NCR by 2015\. The situation was expected to improve from 2016 onwards, as growth in revenues gradually outstripped growth in expenditures, resulting in an operational deficit of 0\.8 percent in 2020\. The ‘worst case’ scenario, on the other hand, tested the impact of zero growth in nominal tax revenues in 2013, 2014 and 2015\. Under this scenario, the operational deficit was projected to increase to 18 percent of NCR in 2015 and 22 percent of NCR in the following year\. By 2020, Rio Grande do Sul was projected to be running an operational deficit equal to 25 percent of NCR and borrowing R$ 8 billion (in prices of 2012) to cover its cash flow\. Table 2: Brazil's Selected Economic Indicators 2007 2008 2009 2010 2011 2012 2013 2014 2015 National accounts, prices and interest rate (annual percentage change, unless otherwise specified) Real GDP growth 6\.1 5\.1 -0\.1 7\.5 3\.9 1\.9 3\.0 0\.1 -3\.8 GDP, current prices (R$ billion) 2,720 3,110 3,333 3,886 4,374 4,806 5,316 5,687 5,904 GDP, constant prices (R$ billion) 999 1,049 1,048 1,127 1,171 1,194 1,230 1,231 1,183 Total investment (Percent of GDP) 19\.8 21\.6 18\.8 21\.8 21\.8 21\.4 22\.0 21\.0 19\.2 Gross national savings (Percent of GDP) 19\.8 19\.8 17\.2 18\.4 18\.9 18\.4 18\.9 16\.7 15\.9 CPI inflation, average prices 3\.6 5\.7 4\.9 5\.0 6\.6 5\.4 6\.2 6\.3 9\.0 CPI inflation, end of period prices 4\.5 5\.9 4\.3 5\.9 6\.5 5\.8 5\.9 6\.4 10\.7 Money, credit and interest rate (percent of GDP, unless otherwise specified) High powered money /1 5\.4 4\.7 5\.0 5\.3 4\.9 4\.9 4\.7 4\.6 4\.3 Broad money (M2) /2 28\.7 34\.5 35\.0 35\.1 37\.0 36\.7 36\.8 37\.8 38\.7 Total credit 34\.7 39\.7 42\.6 44\.1 46\.5 49\.3 51\.0 53\.1 54\.5 Credit to the private sector - - - - - 46\.8 48\.2 49\.4 50\.1 Selic rate, accumulated (Annual percentage) 11\.85 12\.48 9\.92 9\.78 11\.62 8\.48 8\.21 10\.91 13\.29 Selic rate, end of period (Annual percentage) 11\.25 13\.75 8\.75 10\.75 11\.00 7\.25 10\.00 11\.25 14\.25 External sector (US$ billion, unless otherwise specified) Current account (Percent of GDP) 0\.0 -1\.8 -1\.6 -3\.4 -2\.9 -3\.0 -3\.0 -4\.3 -3\.3 Current account 0\.4 -30\.6 -26\.3 -75\.8 -77\.0 -74\.2 -74\.8 -104\.2 -58\.9 Foreign direct investments 44\.6 50\.7 31\.5 88\.5 101\.2 86\.6 69\.2 96\.9 75\.1 Gross official reserves 180\.3 206\.8 239\.1 288\.6 352\.0 378\.6 375\.8 374\.1 368\.7 Gross external debt 261\.7 289\.6 333\.6 452\.8 516\.0 570\.8 621\.4 712\.7 665\.1 Exchange rate, end of period (R$/US$) 1\.8 2\.3 1\.7 1\.7 1\.9 2\.0 2\.3 2\.7 3\.9 Exchange rate, average (R$/US$) 1\.9 1\.8 2\.0 1\.8 1\.7 2\.0 2\.2 2\.4 3\.3 General government finances (percent of GDP) Revenue 34\.9 35\.9 33\.9 36\.1 35\.1 34\.8 34\.6 33\.1 31\.7 Expenditure 37\.6 37\.4 37\.1 38\.8 37\.6 37\.3 37\.5 39\.1 42\.0 Overall balance -2\.7 -1\.5 -3\.2 -2\.7 -2\.5 -2\.5 -3\.0 -6\.0 -10\.3 Primary balance 3\.2 3\.8 1\.9 2\.3 2\.9 1\.9 1\.7 -0\.6 -1\.9 Net debt 44\.1 37\.1 40\.4 38\.0 34\.5 32\.3 30\.6 33\.1 36\.2 Gross debt 63\.7 61\.9 64\.9 63\.0 61\.2 62\.3 60\.4 63\.3 73\.7 Sources: International Monetary Fund (World Economic Outlook Database, October 2016) and Brazilian Central Bank\. 14 Notes: /1 Base money is comprised of paper money held by the public and banks reserves\. /2 M2 is comprised of paper money held by the public and demand, investment, time and saving deposits\. 10\. The economic situation turned out much worse than projected under the baseline scenario\. The past few years have seen a pronounced slowdown in the Brazilian economy, culminating in an unprecedented decline of 3\.8 percent in 2015\. This has been reflected in the state’s economy as well\. While the state’s GDP grew by 8\.2 percent in 2013, it declined by 0\.4 percent in 2014, and 3\.4 percent in 2015\. This had a dramatic effect on state revenues, which increased by only five percent over the entire 2012-2015 period\. State expenditures, on the other hand, continued to increase at close to the projected rate\. Personnel costs increased by 17 percent in real terms; other current expenditures increased by nine percent\. As a result, the operating deficit in 2015 was considerably larger than projected under the baseline scenario (8\.8 percent as opposed to 2\.7 percent)\. Amortization expenditures were also considerably higher than anticipated, resulting in a cash flow deficit equal to 14 percent of NCR\. The fiscal and liquidity situation has now deteriorated to the extent that the state has difficulty in paying its bills, including wage payments\. Rationale for Bank Involvement 11\. This operation (the Strengthening Fiscal and Water Resources Management DPL) had its origins, in part, in the fiscal distress of the state government\. Given the state’s fiscal position, the Federal Government (specifically, the National Treasury Secretariat - STN) saw the Bank as a source of short/medium term financial assistance to enable the state to weather its difficulties as well as a source of technical advice to enable the state to undertake some initial fiscal reforms and reforms for the long term\. As described in Annex 9, the Bank already had considerable experience in trying to help the state to reform its finances\. Based on this experience, the Bank was seen as a logical partner in addressing the crisis\. 12\. The World Bank management nevertheless recognized that there were considerable risks to the operation\. Management was aware of the state’s fiscal difficulties\. This is evidenced by the thorough fiscal analysis that was undertaken during the course of project preparation\. It also knew that the state government’s ability to improve its own fiscal situation was limited by federal legislation—particularly legislation governing tax rates and personnel expenditures (including pensions)\. 13\. Management was also aware that the particular timing of the operation presented risks\. The identification mission began its work in October 2013, exactly twelve months before the upcoming gubernatorial elections\. The Federal Fiscal Responsibility Law prohibits states from borrowing in the final four months preceding an election\. As a result, the authorities requested a swift process\. 14\. Bank management decided to take this informed risk\. This decision was based in part on a (justifiable) expectation that the state’s economy would continue to grow, at least modestly\. It was also affected by management’s desire to preserve the Bank’s relationship with the state and the federal government\. The Bank had been supporting reforms in Rio Grande do Sul over a number of years\. Bank management did not expect that the actions supported by the operation would significantly improve the state’s fiscal situation, but that they would be a ‘down payment’ on a longer and deeper process of reforms\. 15 15\. The water resources component was added, in part, to reflect the importance of agriculture to the state’s economy and the potential benefits of irrigatio n\. It also provided an opportunity to build on ongoing work by the state in this area\. At the time the state (via the Federal Government) approached the Bank for a loan, it was already preparing a similar loan with the Inter-American Development Bank (IADB)\. That loan included a water resources and irrigation component\. Bank management decided to build upon that effort by identifying rigorous prior actions in those areas\. 16\. The DPL was fully aligned with the Country Partnership Strategy 2012-2015\. The CPS argues “restraining growth in current expenditures and enhancing public sector efficiency will be key for increasing domestic public savingsâ€? (which is in turn were needed to finance key infrastructure investments)\. It continues that “Sub-national governments have made important contributions to the improvement of Brazil’s fiscal position\. Going forward, further support will be provided to help the Government of Brazil consolidate, disseminate and deepen this first generation of fiscal and public sector management reforms\. The Bank will use investment and development policy loans to support institutional changes and policy reforms\.â€? Rio Grande do Sul is cited as a likely candidate for such loans\. 17\. The program’s stated an overall program development objective (PDO) plus those implied by the two pillars\. The overall PDO was to “improve the state government’s capacity to mitigate economic volatility by supporting measures to increase resources available to the government and to reinforce the Integrated Water Resource Management frameworkâ€?\. It basically implied two parts: the strengthening fiscal management and the strengthening of irrigation and water resources management\. 18\. The main results indicators are described below: ï‚ Percentage of tax expenditure measures under Government control evaluated\. Baseline (2012): zero, Target (2015) = 25 percent\. ï‚ Increase in the share of tax arrears recovered within 60 days of their generation\. Baseline (2012): 20\.8 percent, Target (2015) = 27 percent\. ï‚ Increase in the share of goods procured, expressed as a percentage of the total value of goods, using price information from the electronic fiscal invoice database\. Baseline (2012): zero, Target (2015) = 25 percent\. ï‚ Increase in the number of managerial cost reports prepared by Government agencies\. Baseline (2012): zero, Target (2015) = 14 ï‚ New policy instrument to manage contingent liabilities made effective\. Baseline (2012): No, Target (2015) = Yes ï‚ Increase in the number of medium and small farmers that have adhered to the “More Water, More Incomeâ€? Program\. Baseline (2012): 413, Target (2015) = 3,000 ï‚ Increase in the number of river basin plans prepared, approved by the respective river basin committees, including updated information on water availability and users per basin\. Baseline (2012): 1, Target (2015) = 12\. 16  ï‚ New hydro-meteorological stations installed in key river basins with information analyzed by the State\. Baseline (2012): zero, Target (2015) = 80\. 19\. Not applicable, since there were no formal revisions to the operation\. 20\. Fiscal Strengthening and Water Resources Management\. The Strengthening Fiscal and Water Resource Management Development Policy Loan was a single tranche DPL, in the amount of US$280 million\. It consisted of two pillars: one focused on measures to improve the state’s fiscal position (the fiscal pillar) and the other to improve water resource management (the water management pillar)\. As described on Section 2\.1, the fiscal pillar consisted of five prior actions (PAs), while the water management pillar consisted of three\. 21\. The fiscal pillar was intended to help the state reduce expenditures, increase revenues and manage debt, in order to address its looming fiscal difficulties\. Two of the prior actions focused on revenues: the first aimed at reducing tax expenditures, while the second at improving tax collection rates\. Two other PAs focused on reducing expenditures, by lowering procurement costs and identifying opportunities for efficiency gains in individual units of administration\. The fifth prior action aimed at improving the management of contingent liabilities\. 22\. The irrigation and water resources management pillar was intended to strengthen the state’s key agricultural sector\. Agriculture in Rio Grande do Sul is vulnerable to periodic droughts\. Although hydrological and geographical conditions in the state are suited to irrigation, its potential has remained largely untapped due to a lack of investment, weak water resource management, and ineffective systems for granting water use rights\. The three prior actions under this pillar were intended to address these problems\. The first expands a state program of financial assistance to small farmers for the installation of dams and irrigation works\. The second strengthens the capacity of the Department of Water Resources to manage water resources on the basis of individual water basins and adjudicate and issue water rights\. The third was intended to improve the data on which water resources are managed by supporting the installation of hydro-meteorological stations\. 23\. Not applicable, since there were no formal revisions to the operation\. 24\. Not applicable since there was changes to the operation\. 25\. While the program was mostly implemented, in hindsight it seems clear that the overall PDO was too ambitious and the connection with the result indicators was less tight 17 than desired\. The state achieved four out of five result targets under the program’s fiscal pillar, and one was mostly achieved\. Nonetheless, the state of Rio Grande do Sul hardly improved its ability to handle economic volatility, as the impact of the deep recession on the state’s public finances during 2015-16 amply demonstrates\. The link between the indicators for the fiscal component and the PDO was thus modest\. Only one out of three result targets under the water pillar was achieved, while the other two were partially achieved, but the measures also had a weak link to the overall PDO\. Prior Actions Status PA1: The Government of Rio Grande do Sul has improved its assessment procedures Completed for new tax expenditures\. PA2: The Government of Rio Grande do Sul has established procedures to guide the recovery of tax arrears, reducing processing time and prioritizing cases with high values Completed and high probability of recovery; and criteria to measure results of tax arrears recovery actions\. PA3: The GoRS has mandated the use of price information from the electronic fiscal Completed invoice database as a reference price to inform its procurement processes of goods\. PA4: The GoRS has mandated all of its agencies that have implemented the Cost Policy and System for more than one year to prepare, as part of their annual report, a Completed managerial cost report\. PA5: The GoRS has created a policy to identify and estimate the fiscal risks created by Completed contingent liabilities, and prevent and mitigate their fiscal impact\. PA6: The GoRS has reinforced its commitment to sustainable irrigated agriculture practices by aligning its ‘More Water, More Income’ Program with its Irrigation Policy Completed and its Water Resources Policy\. PA7: The GoRS has strengthened the institutional capacity of its Department of Water Resources (DRH) through the approval of an enhanced staff organogram Completed and the launch of the corresponding recruitment process\. PA8: The GoRS adhered to the National Pact for Water Management, which establishes, inter alia, targets for improving the Borrower’s legal and institutional framework for water resources; planning, information and decision support tools; and operational instruments, including water availability, water Completed use rights, water pricing and drought preparedness plans; and signed an agreement with the Guarantor’s Water Agency committing to comply with specific water resource management targets in exchange of financial support\. Pillar I\. Strengthening Fiscal Management 26\. As noted above, the fiscal component of the project was prepared and implemented under difficult circumstances\. The time available to prepare the loan and to implement the prior actions was limited due to the deadline imposed by the upcoming gubernatorial elections\. The state’s ability to improve its own fiscal situation was also limited 18 by federal legislation\. This constrained the scope of the program\. Pillar II\. Irrigation and Water Resources Management 27\. The implementation of the irrigation and water management component was affected by institutional factors\. As discussed in Section 3\.2, the implementation of two of the reform areas was hampered by institutional and design factors\. 28\. The progress in strengthening the institutional capacity of the Department of Water Resources (DRH) was severely hampered, however, when the contracts of temporary technical employees expired in April 2015\. This was largely a case of force majeure: Brazilian law did not permit the contracts to be renewed and the state was forced to find a work-around\. Nevertheless, the larger aim of this reform area was also ultimately achieved\. The process for issuance water rights has speeded up and seven river basin plans have been completed and approved\. 29\. The failure of the state to achieve the target for the installation of hydro- meteorological stations was partly impacted by a poor indicator of the results of this reform\. According to the DRH, the state has achieved almost all of the other targets agreed with ANA and has received the corresponding funding from PROGESTÃO\. The Bank’s selection of a poor indicator to measure the impact of the prior action is attributable to the speed with which the operation was prepared\. Perhaps more time to prepare the operation would have resulted in a more appropriate indicator\. 30\. The result indicators were identified at appraisal and, for the most part, had clear links to the prior actions\. However, indicators had a less clear link to the overall PDO, which was too broad to be justified by the prior actions of the operation\. The fiscal pillar of the program was monitored by the SEFAZ, while SEMA and SEAPI monitored the implementation of the reforms under the water pillar\. The M&E implementation was satisfactory, focusing on the result indicators and with clear data and information sources to facilitate data collection and monitoring\. 31\. Supervision missions monitored the results closely while also looking at the state’s overall fiscal condition\. While the first supervision mission (October 2014) focused strictly on monitoring progress on the implementation of the prior actions and results, the two subsequent missions also monitored the state’s fiscal situation\. The ISRs from the second and third missions (in March and November of 2015, respectively) rated the macroeconomic risks to the project as ‘substantial’\. 32\. No further operations in Rio Grande do Sul are currently planned\. Nevertheless, reforms in Federal legislation governing subnational taxation and personnel policies may create opportunities for state-level fiscal reform loans either to Rio Grande do Sul or to other states in the future\. 3\. Assessment of Outcomes 19 33\. The PDO was relevant to the state’s economic challenges and closely aligned with the Multi-Year Plans (PPA) of the state’s government\. Mitigating the economic volatility is even more relevant today, given the unsustainable path of public finances of the state and the volatility that comes from the agriculture sector due to water issues\. 34\. The design of the operation with the two pillars focusing on fiscal management and water management was sound, but the PDO was too broad and ambitious\. In hindsight it is clear that the PDO was too broad and ambitious, and that it was not closely linked to the prior actions and the results indicators\. In fact, although the state achieved almost all of the result targets set out in the program’s fiscal pillar, this had little bearing on the achievement of the overall PDO\. The result targets on the water pillars were only partially met and also had a weak link to the overall PDO\. 35\. Implementation arrangements by the government were satisfactory\. This is reflected by the near full achievement of the targets under the fiscal pillar\. While the implementation under the water pillar did not proceed as expected, as explained below, for the most part this underperformance was not due to problems with implementation arrangements\. The involvement of the Bank during the implementation period was satisfactory, as reflected in the ISRs of the regular supervision missions\. 36\. Overall, the Relevance of Objectives, Design and Implementation is rated as modest, since while the objectives were relevant, the design of the PDO was too broad and the prior actions were too modest side to make a meaningful contribution to achieving the PDO\. Rating: Modest 37\. Overall modest progress was made towards the PDO\. Although progress against the results indicators was satisfactory—with 4 out of 5 PAs of the fiscal pillar fully achieved and the remaining PA mostly achieved, and with 1 out 3 PAs of the water pillar fully achieved and the remaining two PAs partially achieved—as explained above, the overall impact in terms of the PDO was limited because the prior actions and associated targets could not have been expected to contribute meaningfully to the overall PDO\. Pillar I\. Strengthening Fiscal Management Rating: Modest 38\. Pillar I had a modest impact in terms of improving fiscal condition of the state\. The GoRS fully achieved four of the five targets set out in the program’s fiscal pillar, and mostly achieved the remaining one\. While progress in the specific areas supported by the operation to some extent strengthened fiscal management tools, these measures were too modest to have had a significant impact on the state’s fiscal condition in the short run\. If the assumptions underlying the project’s baseline projections had panned out, that is without the deep economic downturn suffered by the country, the state’s fiscal condition would have eventually recovered\. However, the PDO precisely aimed to reduce the state’s vulnerability to economic volatility and the operation clearly fell short of that\. 20 Prior Action #1: The Government of Rio Grande do Sul has improved its assessment procedures for new tax expenditures\. 39\. This reform was successful on its own terms\. Tax incentives have been widely used to attract investment in Rio Grande do Sul\. Most take the form of reductions in ICMS obligations\. These, in turn, take various forms\. Roughly one-third consist of outright exemptions\. Another 30 percent take the form of presumed credits (créditos presumidos)4\. The remainder consist of reductions in the calculation base (reduções na base de calculo) and tax reductions aimed specifically at small enterprises5\. Most exemption and reduction in the calculation base apply to all firms in a given sector (a sector can be broadly defined, such as ‘manufacture of automobiles’ or narrowly defined, such as ‘goods for the marble, travertine and granite industries’ - mercadorias destinadas a indústria de mármores, travertinos e granitos)\. In general, the terms of these benefits are dictated by federal law or covenants with CONFAZ\. Thus the state has little ability to reduce or eliminate them\. 40\. But the state also provides various benefits and exemptions to individual firms through its FUNDOPEM\. These generally take the form of presumed credits and have been used to attract investment in RGS\. In principle, the state is not permitted to grant such incentives to individual firms\. However, in fact RGS (and all other states) do so\. Moreover, before the operation, the authorities and legislators did not even know what was the fiscal impact of these tax expenditures or their performance over time\. The identification mission believed that most tax incentives were not cost effective, but that it would be politically impossible to persuade the state to stop giving them out at once\. The operation took a first step, and good international practice in the process of reforming this area, by prompting the state to recognize how much each incentive costed and mandating impact evaluation\. 41\. Issuance of a service order requiring the Subsecretariat of state revenue to analyze proposed tax incentives (Service Order 005/14) constituted compliance with the prior action\. Progress in implementation was tracked by counting the number of presumed credits that had been evaluated\. In quantitative terms, the indicator for this prior action was far surpassed\. In 2015, 63 of the 146 presumed credits currently in effect were evaluated\. In 2016 (to date) 67 of the 113 presumed credits have been evaluated\. The 2015 figure amounts to 43 percent of the number of presumed credits conceded, thus vastly exceeding the target for this Prior Action: 25 percent\. 42\. The result set for the prior action in this area was achieved and further progress continues\. However, despite recent progress (the value of ICMS concessions fell by nine percent between 2014 and 2015 in real terms and the number of new sectoral concessions reduced), the current value of fiscal incentives is nine percent higher than it was in 2012 (in real terms)\. More recently, on June 3, 2015, the state governor sent the Assembly a bill (Draft Law no\. 214/2015) to reduce presumed credits in all sectors by 30 percent but it has not been approved yet\. 4 In the administration of the ICMS, a firm’s tax obligation is calculated as the tax rate multiplied by the gross value of the firm’s sales, less a credit for the amount of ICMS paid on inputs to the firm by its suppliers\. A crédito presumido allows the firm to increase the value of the credit over the amount that was actually paid, thus reducing the firm’s tax obligation\. 5 A reduction in the tax basis drops the assessed value of the firm’s sales\. 21 Prior Action #2: The Government of Rio Grande do Sul has established procedures to guide the recovery of tax arrears, reducing processing time and prioritizing cases with high values and high probability of recovery; and criteria to measure results of tax arrears recovery actions\. 43\. Overdue taxes amounted to R$ 30 billion in 2012, equivalent to 121 percent of annual tax revenues\. Some of the causes of the high level of tax arrears were beyond the control of the state government, such as the protracted decisions of the judicial system\. However, other reasons behind the poor performance of collection of tax arrears, such as inefficiencies in the procedure to enforce payments were susceptible to state intervention\. 44\. The indicator for this prior action focuses on results\. It tracks the share of tax arrears recovered within 60 days of their generation\. This was targeted to increase from 21 percent to 27 percent6\. As of the first supervision mission, the state had increased the number of firms under the Special Regime of Inspection (Regime Especial de Fiscalização - REF) and was planning to list all firms owing more than R$ 500 in SERASA7\. In addition, the state had set up an electronic communication system with notaries (tabelionatos) to facilitate issuance of ‘protestos de bens de devedores’ (a form of lien on title)\. The expanded role of notaries has been subsequently enshrined in Normative Instruction 026/ 2016, amending the regulations governing state tax collection (Normative Instruction 045/1998)\. The aide memoire of the second supervision mission also reported that a ‘pilot for stratification of debtors’ had been completed\. The third supervision mission reported that a second pilot project, aimed at identifying targets using indicators, had been implemented successfully\. 45\. As a result of these efforts the target collection rate had been achieved by the third supervision mission: 28\.6 percent of the arrears generated two months prior had been collected\. More recent figures covering the period January-August 2016, show further improvement: the proportion of new arrears that have been recovered stands at 41 percent\. The state is now working on recovering part of the stock of older tax arrears8\. Prior action #3: The GoRS has mandated the use of price information from the electronic fiscal invoice database as a reference price to inform its procurement processes of goods\. 46\. At the time DPL was under preparation, Rio Grande do Sul had already made advances in procurement practices with Bank support\. In the 2008 DPL, the Bank supported the strengthening of the central procurement unit, which promoted the adoption of more modern procurement methods such as reverse price auctions and a price registry\. According to the PD for 2014 DPL, the next step forward was to improve the way the state government obtained price information\. At the time of loan preparation, the state had no structured price survey to inform its procurement process\. Instead, the employee responsible for 6 Note that this indicator was designed to measure the state’s success in controlling the growth of new arrears — rather than recovering past arrears\. Thus, it measures the proportion of arrears generated in the last 60 days that have been collected, rather than the proportion of total arrears that have been collected\. 7 SERASA is a privately-operated website that allows merchants, banks, etc\. to check whether an individual has outstanding arrears to the state tax authorities\. 8 Although R$ 40 billion in arrears is registered as Dívida Ativa, the state only considers R$ 12 billion of this to be collectible\. To date, R$ 1\.35 billion of the old stock has been collected\. Dívida Ativa is indexed, so that the $40 billion figure represents its value in current R$, rather than its original values\. 22 the procurement process had to conduct a phone survey with three suppliers, identifying himself and thus biasing the survey\. As a result, it is expected that the procurement processes in general started with prices set at above-market prices\. To resolve this problem, the state decided to draw on the electronic fiscal invoice database that registers the price of all transactions subjected to ICMS taxation\. This information would be passed to procurement staff, who would use it to set initial prices and to negotiate further discounts in case these prices diverged significantly from the ones in the database\. 47\. At the time, the Government was already using this information on a pilot basis\. In order to expand its usage, it was gradually including bar code information in its procurement catalog\. This would enable it to match the bar codes it had in its procurement catalog with the bar code provided by the suppliers and make sure the correct price information was being used\. 48\. The Bank sought to reinforce these measures through a prior action\. As in Prior Action 2, the indicator for this component focuses on results\. The indicator was ‘increase in the share of goods procured using price information from the electronic fiscal invoice database, expressed as a percentage of the total value of goods procured\.’ This was targeted to increase from zero percent to 25 percent\. 49\. As of the first supervision mission, this process was well underway in the health sector\. Prices for 120 items had been obtained, resulting in a savings of R$ 31 million\. 9 There was little progress on other types of goods in the state procurement catalogue, however\. This finding was repeated in the aide memoires of the second and third supervision missions\. Nevertheless, by the third supervision mission, the state had far exceeded the target indicator for this prior action: 51 percent of goods were being procured using NF(e) compared to a target of 25 percent\. As shown in Table A2-4 in Annex 2, this was entirely due to the pricing of pharmaceuticals\. While the proportion fell slightly in 2015 and 2016, this was due to growth of the denominator; i\.e\., non-pharmaceutical purchases\. Overall, this Prior Action was highly successful in reducing procurement costs in the health sector, but had limited impact in other sectors10\. Prior Action #4: The GoRS has mandated all of its agencies that have implemented the Cost Policy and System for more than one year to prepare, as part of their annual report, a managerial cost report\. 50\. At the time DPL was prepared, the state government did not have accurate and detailed information on the costs of each of its 20,000 lowest-level administrative units\. As a result, it was difficult to measure the cost effectiveness of each unit\. In conjunction with project preparation, the state government, through its internal control agency (CAGE) requested all 14 line secretariats to implement ‘a costing policy and system’ and to produce managerial 9 These savings on pharmaceuticals represent 5\.3 percent of total state spending on pharmaceuticals in 2015 but only 0\.1 percent of net current revenues in that year\. Data on savings in subsequent years is not available\. 10 It should be noted some issues in pharmaceutical pricing still remain\. These involve IPERGS (the pension and health fund for employees)\. At present, the private hospitals serving IPE patients purchase drugs at market prices but charge IPERGS a much higher price\. However, the problems will not be easily solved\. State officials claim that IPERGS cannot simply lower the price it pays private hospitals for drugs, since the mark-ups on drugs compensate for the extremely low rates that IPERGS pays for diárias (daily charges for hospital stays)\. 23 reports using costing data\. This was reflected in the fourth Prior Action by counting the number of managerial cost reports prepared by the secretariats\. 51\. As of the first supervision mission, CAGE had issued a circular requiring each secretariat to present a cost report\. Only two (SEFAZ and SEPLAG) had sought the assistance of CAGE\. CAGE had not actively pursued any of the others and believed that none of the others had taken any action on their own\. Since then, there has been some progress\. CAGE has prepared a list of 64 governmental organs11 that are now expected to produce reports\. It has completed training exercises in 36 of them and is in the process of training another ten\. Of those that have completed training, ten are awaiting the production of the detailed data for 2015, leaving 26 that have both completed training and have the 2015 data available\. Of these, half (13) have submitted reports (See Table A2-4 in Annex 2)\. The mission was informed that 13 secretariats did not report any analysis using the data, such as the Secretariat of Education and the Secretariat of Public Works, although they are listed among the organs that have undergone the training\. 52\. Each of these reports is intended to show a breakdown of costs by spending unit, showing spending on personnel, goods, utilities, and rent\. To varying degrees, the reports also describe actions that each organ has taken to improve expenditure efficiency\. Some organs have been more ambitious than others\. For example, the Secretariat of Labor and Social Development (STDS) reports that, in 2015, its principal accomplishment was to ask the director general to create a working group to prepare an official set of directives setting out the internal procedures (regimentos internos) to be used to enable the secretariat to force certain departments to provide the detailed breakdown of their costs\. Other reports are more specific\. The report for the department of prisons notes that during 2015, it revised the rental contracts for various facilities of the department with an eye to reducing rents and using buildings belonging to the public sector, whether they belong to the prison department itself or not\. 53\. Overall, the results expected were achieved: a system for reporting cost data by administrative units has been put in place and 13 management reports have been issued\. This has the potential of improving expenditure efficiency if policy makers take on the recommendations of those reports\. Some of the preliminary reports suggest substantial reductions (in percentage terms) in the spending of some individual spending units\. The report of the state agency for the regulation of delegated public services (AGERGS), for example, cites a 36 percent drop in spending on printer cartridges, due to the introduction of an electronic filing system that renders printed documents unnecessary\. Prior action #5: The GoRS has created a policy to identify and estimate the fiscal risks created by contingent liabilities, and prevent and mitigate their fiscal impact\. 54\. The state government had R$ 68 billion in contingent liabilities in September of 2016, more than twice the level of net current revenues\. The vast majority of these liabilities consist of judicial claims by public employees arising from disputes over wage increases\. 55\. At the time of project preparation, the Bank mission believed that the state lacked control over the managerial decisions that could give rise to future contingent liabilities\. 11 The term organ (órgão) includes not only secretariats but also various decentralized units of administration\. 24 To address this problem, the state instituted a working group to propose a policy that would focus on control and prevention, identifying and monitoring contingent liabilities as well as estimating their impact\. The state also planned to introduce accounting rules that would require such liabilities to be recorded in the balance sheet and might be part of the net consolidated debt capped by the Fiscal Responsibility Law (FRL)\. It was expected that the development and implementation of such a policy would result in a more comprehensive understanding of the state’s fiscal situation and a reduction in future contingent liabilities\. 56\. As of January 2014, the state assembly had issued a decree requiring all state organs to provide reports on contingent liabilities to the Subsecretariat of the Treasury 12\. SEFAZ had also created a special unit in the Subsecretariat of the Treasury that would work with the report and manage contingent liabilities more aggressively\. By the second supervision mission, Treasury had completed its first report on contingent liabilities\. It has now completed its second\. 57\. In the policy matrix, the result indicator tracked whether the policy instrument had been made effective\. The system is now in place enabling a better control over contingent liabilities which are consolidated in a single report and with changes in flow reported by the new system on a regular basis\. Pillar II\. Irrigation and Water Resources Management: Rating: Modest 58\. The performance of the Pillar II was modest\. The pillar specified three prior actions, for which the results indicators were fully achieved for one and only partially achieved for the remaining two\. Even though there was progress in some of the areas, as discussed below, it is not straightforward to identify how much impact this progress might have in terms of the fulfillment of the PDO\. Prior action #6: The GoRS has reinforced its commitment to sustainable irrigated agriculture practices by aligning its ‘More Water, More Income’ Program with its Irrigation Policy and its Water Resources Policy\. 59\. As noted earlier, irrigation holds considerable promise in Rio Grande do Sul\. Nonetheless, less than seven percent of rural properties have irrigation facilities\. At the time the DPL was prepared, the State Government had already taken some steps to promote irrigation\. An Irrigation Policy Law had been adopted, setting out the principles, objectives and instruments of state intervention in the sector\. The Law called for a statewide ‘Master Plan for Irrigation in the Context of Multiple Water Uses in Rio Grande do Sul’ (PIUMA) which was to include a diagnosis of the current condition of irrigated agriculture and its potential for sustainable growth, based on a set of parameters including projections of water availability and demands of other water users\. PIUMA was also expected to yield guidelines and priorities for the granting of water use rights and environmental licensing for the irrigated agriculture sector\. In May 2013, the state assembly approved legislation (Law 14\.244/2013) aimed at encouraging small and medium scale farmers to construct small reservoirs (less than 10 12 Decree no\. 51,153, of January 24th, 2014\. ‘Institui o Sistema de Gestão de Passivos Contingentes do Estado do Rio Grande do Sul’\. 25 ha) and small irrigation system (less than 100 ha)\. While the program, termed ‘More Water, More Income’ (Mais Ã?gua, Mais Renda) relies on federal lines of credit (e\.g\. the National Program for Strengthening Family Agriculture (PRONAF) to provide financing, More Water, More Income assists candidates in obtaining the environmental licenses and water rights required to apply for federal loans and then reimburses farmers for part of the costs of amortizing them\. In the case of small scale farmers, the program pays 100 percent of the first and last payments\. Enactment of the legislation creating the More Water, More Income program was considered to constitute compliance with the prior action\. Progress was to be measured in Box 1: Computerizing the Water Rights Application Process The digital water-user registry and water-use rights issuance system (cadastro de usuário de recursos hídricos e emissão de outorgas) was launched in December 2015, replacing the old manual process which was responsible for the long delays in the process\. With the new system, applicants may be issued a right of use certificate immediately\. (Complex applications still take up to six months\.) The new system will also expedite the analysis of projects by SEAPI\. The system is accessible through internet at www\.siout\.rs\.gov\.br\. terms of the number of medium and small farmers joining the program\. From a base of 413 landholders, it was expected that 3,000 small/medium landholders would join by the end of 2015\. As of December 2016, 3,096 landholders had joined the program (of which 56 percent were small landholders and 22 percent were medium landholders; while a further 618 applicants were awaiting approval)13\. There is evidence that the administration of the program has improved substantially\. The program is now conducted by a group of dedicated professionals, who follow clear procedures\. Processing time has been drastically reduced, from years to some weeks, largely due to the introduction of a computer-based system for processing applications (Box 1)\. It is also noteworthy that the total land area under irrigation has increased by 72,000 ha (69 percent)14\. Prior action #7: The GoRS has strengthened the institutional capacity of its Department of Water Resources (DRH) through the approval of an enhanced staff organogram and the launch of the corresponding recruitment process\. 62\. The DRH plays a key role in the implementation of state water policy\. It is responsible for issuing water use rights and providing technical assistance to the State Water Resources Council in the coordination, implementation, supervision and preparation of the State Water Resources Plan\. It also prepares river basin plans or supervises and approves the 13 The authorities are revising the process of issuing environmental licenses (expected in April 2017) which should contribute to clear the backlog in landholders waiting for approval)\. 14 Over time some of the criterias under the program have been revised\. The initial goals were overestimated since there was no benchmark for comparisons\. Farm irrigation was not common in Rio Grande do Sul, but in the last few years irrigation is becoming increasing common\. In parallel the program adopted new monitoring parameters, in line with the limits imposed by the environmental agency\. While farmer’s decision to invest in irrigation is largely outside the control of SEAPI, the irrigated area in the state doubled over the past four years with the program being directly responsible for 69 percent increase and possibly acting as a catalyzer for the rest of the expansion\. 26 work of consultants hired for that purpose\. During DPL preparation, it became evident that the DRH lacked the managerial and technical capacity to perform these roles\. This was largely due to staffing limitations imposed by the Fiscal Responsibility Law and the state’s own inability to offer competitive salaries\. 63\. Delays in obtaining water rights were discouraging farmers from undertaking irrigation projects under the More Water, More Income program, as water rights (along with environmental licenses), were required for each new project\. The environmental license granted by SEMA is restrictive and hampers the expansion in irrigated areas\. The SEAPI is currently discussing with the SEMA possible ways to make the license more flexible (SEMA Resolution no\. 323/2016), and this process is expected to bring results after April 2017\. The state eventually developed a work-around: DHR, the Secretariat of Environment, (SEMA) and the Secretariat of Agriculture, Livestock and Irrigation (SEAPI) agree to allow SEAPI to approve projects under simplified conditions fixed by SEMA and DRH\. Nevertheless, staffing constraints remained, although 12 employees were given to DRH (6 from FEPAM and 6 from SEAPI)\. 64\. Progress in preparing river basin plans was also slow\. Along with agriculture, state waters are used to supply the demand for human and industrial consumption, power generation and navigation\. River basin plans were needed in order to improve water allocation and minimize potential conflicts among these uses and to establish targets for water quality recovery to allow multiple water use as established by the Water Policy15\. 65\. The DPL addressed these problems in two ways\. First, it prompted the state to revise its staffing plan for technical and scientific positions (Quadro dos Funcionários Técnico- Científicos do Estado) to include specialists in the relevant sectors\. Enactment of the revision (Law 14\.477/2015) was considered to constitute with the prior action\. Second, it set a target for the completion of river basin plans and tracked it during project supervision\. 66\. While the state did enact the legislation, the situation did not immediately improve\. Progress on the river basin plans nearly ground to complete halt in April 2015 when the contracts of the temporary personnel who formed the majority of DRH’s workforce expired and could not be renewed\. By the third and final supervision mission (November 2015), however, the situation had improved significantly\. After some months, the new SEMA and DRH administrations finally found a means to recruit and train personnel, as well as to implement a new digital system to process water applications (See Box 1, above\.) Seven of the twelve proposed river basin plans had been finished and approved by river basin committees\. Although the target had not fully been met at the completion of this ICR, the remaining plans were well under way\. Prior action #8: The GoRS adhered to the National Pact for Water Management, which establishes, inter alia, targets for improving the Borrower’s legal and institutional framework for water resources; planning, information and decision support tools; and operational instruments, including water availability, water use rights, water pricing and drought preparedness plans; and signed an agreement with the Guarantor’s Water Agency committing to comply with specific water resource management targets in exchange of financial support\. 15 According to the Resolution CRH no\. 211/2016, it is expected the procurement of 15 additional plans in 2017\. 27 67\. The State has committed to enhancing its Water Resource System in a more comprehensive way by adhering to the National Pact for Water Management (PROGESTÃO)\. This is a results-based program designed and implemented by the National Agency of Water (ANA) that helps the States to define the current level of development of their Water Resources System, as measured against the objectives and instruments established by the Federal Water Resources Law, and define annual targets for a five-year period, which are discussed and approved by the State Water Resources Council\. This agreement between the State and the Federal level requires the State to benchmark itself against other states and was expected to lead to substantial measurable improvements in the State’s legal and institutional framework for water resources; planning; information and decision support tools; and operational instruments (e\.g\. water use rights, water pricing, drought preparedness plans etc\.)\. It came with some financial support from the Federal level to help achieve the targets, but it required primarily that the State coordinate the different interventions of the public sector related to water resources management\. 68\. The enactment of legislation formally entering the state into the federal program (Decree 50\.741/2013) was considered to constitute compliance with the prior action\. The prior action was to be monitored using one of the measurable annual targets set by the agreement with ANA: the installation of 80 hydro-meteorological stations in key river basins\. 69\. At the time, the DPL closed only 27 of the targeted 80 stations had been installed\. The state claimed that it was still studying where the remaining stations should be located\. DRH therefore decided to rely instead on existing data collected by public and private institutions The state intends to revise its agreement with ANA accordingly\. Rating: Moderately unsatisfactory 70\. The results in the first pillar were all fully achieved and those in the second pillar were only partially achieved\. But given the rather weak link between prior actions, results and the overall PDO, the overall rating is set at moderately unsatisfactory\. 71\. Poverty Impacts, Gender Aspects, and Social Development\. The project was expected to have a positive impact on the poor, both directly through actions supported by the water sector pillar and indirectly, through actions supported by the fiscal reform pillar\. 72\. While poverty rates are considerably lower in Rio Grande do Sul than in Brazil as a whole, relatively high poverty rates are found at the Northwest and West Central areas of the state, where small landholdings and family farmers predominate \. These farmers are highly vulnerable to cyclical droughts as their earnings rely mostly on rain-fed or dry-land farming\. Historically, they have lacked sufficient capital to invest in the water storage and irrigation works needed provide a more reliable water supply\. The More Water, More Income program supported by the DPL was intended to address this problem by assisting small farmers in applying for federal credit under the PRONAF program, and then subsidizing their debt service\. While the number of successful applicants was smaller than originally expected, there is evidence that the program is reaching its target population\. 28 73\. The poverty impact of the operation’s fiscal pillar is more difficult to measure\. Improving the state’s fiscal situation would clearly have benefitted the poor as it is they who rely most on state public services\. According to the Poverty and Social Impact Analysis undertaken for the operation, education is a major determinant of poverty in the state\. The state government is responsible for slightly over half of primary and secondary education in Rio Grande do Sul, measured in terms of public school enrollment\. Through its net contributions to FUNDEB, the state also supports the municipal schools that serve the other half\. If the fiscal pillar had been more successful in improving the state’s fiscal situation, levels of funding for education, as well as other services that the poor rely upon, could have been increased\. 74\. Institutional Change/Strengthening\. Both project pillars have strengthened institutional capacity in Rio Grande do Sul\. The fiscal pillar, for example, prompted the state to begin systematically gathering price data in the health sector, resulting in subnational savings in pharmaceutical procurement\. Similarly, the water resources pillar strengthened the legal and institutional framework for water resources planning, information and decision support tools\. 75\. Not applicable\. Rating: Significant 76\. The specific management and administrative reforms supported by the loan fiscal pillar are likely to be sustained\. Given the magnitude and intractability of the state’s fiscal crisis, Rio Grande do Sul is likely to have a continued interest in scrutinizing future tax concessions, cracking down on delinquent taxpayers, reducing procurement costs, improving the management of individual administrative units and tracking contingent liabilities\. 77\. Nevertheless, these actions may have only a modest impact on the state’s fiscal condition over the medium term\. Whether the fiscal pillar’s development objectives will be sustained largely depend on factors that were not part of the scope of the operation and in some case out of the control of the state itself\. These include federally imposed exemptions on the taxation of state exports and federally imposed pension benefits —particularly for workers that were hired before August 2016, period in which it was constituted the Complimentary Pension Fund (RS-Prev Fund) for the state’s servants that would be hired from that moment on, thereby limiting pensions payed by the state Treasury to the maximum benefit of the General Social Security Regime (RGPS – Regime Geral de Previdêncial Social); the continued existence of extensive tax incentives for broad sectors of the state’s economy and continuing low rates on certain major sectors of the ICMS base, as well as increases in staffing levels and in the level of individual salaries\. As a result, the risks to the program’s fiscal objectives is rated as significant\. 78\. Given the importance of agriculture to the state’s economy, support the Water Resources Pillar is likely to be sustained\. There are some risks to the long term prospects of the More Water, More Income, however\. While the state has managed to overcome the administrative problems that faced the program at the outset, there is now some doubt that it will pay first block of subsidies due to farmers who joined the program in 2013 and those due in the coming years\. A default may cause loss of credibility of the Program\. As to the Water 29 Resources Management component, the risk is considered to be low since the Water Resources Department (DRH) has the support of the Administration to continue the implementation of the Water Resources and Dam Safety Policies\. Technical and administrative capacity is now implemented\. The financial resources flow to DRH is guaranteed by law and seems to be sufficient to cover the present and future activities\. By progressively coping with demands from water users and with the commitments required by law, this component of the DPL Program will offer no significant risk to development outcome\. 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory 79\. The Bank’s decision to go ahead with the operation within a timeframe dictated by the political calendar meant that opportunities for substantial reform might have been missed\. The program could have pushed for an increase in ICMS rates or a reduction in fiscal incentives, or other expenditure containment and rationalization measures, which would have an immediate fiscal impact\. With a more generous timetable, the state government might have had time to reach an accommodation among the relevant political actors and implement such reforms\. The timetable was indeed rushed\. The first identification mission visited Porto Alegre in early October, 2013\. This was followed by a preparation mission in November, 2013 and an appraisal mission in February of the following year\. Within this period, the team was required to identify, help prepare, and appraise the various components of the operation\. In doing so, the team benefited from the Bank’s thorough familiarity with the state and its institutions, arising from the long relationship the Bank has had with Rio Grande do Sul\. The team also benefited from analytical and prescriptive materials, as set out in the PD\. Throughout the project preparation stage, the team maintained an intense technical dialogue with the state\. The state’s own ability to act was in part constrained by federal legislation\. 80\. The same applies to the water management pillar\. The team preparing this component had little time to analyze the various policy documents produced by the state\. Although the team was well aware of the principles and mechanisms adopted by the National Water Agency under the PROGESTÃO program, it had little time to analyze the details of the state’s agreement under the program\. It also did not have time to flag the staffing problems that arose early in project implementation and delayed applications to the “More Water, More Incomeâ€? program as well as the production of river basin plans\. 81\. While the Bank’s team should be credited with making the best of a difficult situation, an overly ambitious PDO created the design shortcomings discussed in this ICR\. (b) Quality of Supervision Rating: Satisfactory 82\. The Bank conducted three supervision missions to the state: in October of 2014 and in March and November of 2015\. These missions, quite rightly, focused on the implementation of the reforms supported by the prior actions and tracked through the performance indicators\. The usefulness of the supervision missions is perhaps best illustrated 30 by the steady progress toward those targets after the loan became effective\. In addition, in the face of the economic crisis, the dialogue on fiscal policy issues strengthened considerably with the new government that was elected in late 2014\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Unsatisfactory 83\. The Bank’s overall performance is rated moderately unsatisfactory\. Within the constraints under which it was prepared, the project addressed several problems in the fiscal and water sectors in a manner that is likely to be sustained\. But the program’s impact on the overall PDO and thus the state’s fiscal situation was modest\. The operation did not address key underlying causes of the state’s fiscal problems\. On the water side, while significant progress toward the results was made, the targets were not fully met\. On the other hand, the work done under this ICR shows that progress on the results set for this operation will continue\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory 84\. The borrower was the Government of Rio Grande do Sul\. Within the confines of the DPL’s limited ambitions, the GoRS did its part\. The government complied with the prior actions, issuing all the required decrees between December 2013 and the end of March 2014\. It issued the regulations and directives specified in the program’s prior actions with alacrity\. And it also continued committed through the implementation and monitoring of results, providing all information needed for supervision in a timely and consistent manner\. However, the administration that was in office at the time the loan was prepared can be faulted for its lack of ambition; specifically, its reluctance to undertake fundamental fiscal reforms\. The state administration could have proposed the sort of fiscal reforms cited in the paragraphs above, but political considerations prevented it from pursuing more difficult measures\. In addition, the government did not fully achieve the targets it had committed to under the water pillar\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 85\. The implementing agency was the Secretariat of Finance (SEFAZ)\. Other agencies involved included the Office of the Accountant and Auditor General (CAGE), the Secretariat of Agriculture, Livestock and Irrigation (SIAPI) the Secretariat of Environment and Sustainable Development (SEMA) and the Department of Water Resources (DRH)\. 86\. SEFAZ played a key role in coordinating the fiscal components of the program\. SEFAZ was directly responsible for setting the modest measures agreed under the fiscal pillar\. Nevertheless, with respect to the fiscal pillar, SEFAZ and its subordinate agencies, along with CAGE, did a creditable job, as evidenced by their success in achieving the five targets in this component\. For purposes of this ICR, it would have been useful to analyze their work in greater detail—particularly the analyses of proposed tax concessions (Prior Action 1) and the results of the managerial cost reports (Prior Action 4)\. Unfortunately, the analyses of proposed tax concessions could not be released to the ICR mission due to confidentiality concerns\. The 31 thirteen managerial cost reports that have been completed so far were released to the mission\. Many of these contain specific proposals for cost savings in forthcoming years\. The mission did not have time to discuss the reports with the individual agencies to determine whether these proposals are likely to be implemented\. 87\. In the water resource component, SEAPI and SEMA worked successfully together to establish procedures for implementing the new legislation, including the State Irrigation Policy\. As noted earlier, they were particularly instrumental in solving the cumbersome and time-consuming process for obtaining environmental licenses and water-use rights by farmers who were interested in changing from the traditional rain-fed agricultural practices into more efficient irrigation practices\. While DRH may bear some of the blame for its staffing difficulties—it should have foreseen the problem—culpability also lies with the state’s overall fiscal situation, which together prevented DRH from rapidly filling the positions vacated by the departure of temporary staff\. (c) Justification of Rating for Overall Borrower Performance Borrower/implementing agencies Rating: Moderately Unsatisfactory 88\. The government did its part in issuing the regulations and directives specified in the program’s prior actions\. The implementing agencies can be credited with achieving most of the targets in the fiscal pillar and making substantial progress on the targets in the water pillar\. Nevertheless, the overall performance of the borrower is rated moderately unsatisfactory, due to the state’s lack of commitment to undertake more substantial fiscal reforms and the inability to achieve the targets under the water pillar\. (b) Cofinanciers 89\. Not applicable\. (c) Other partners and stakeholders 90\. Not applicable\. 91\. The Bank should consider the high risks involved in making these operations available close to elections\. In this specific case, if the operation had been delayed until after the election when the governor was enjoying a brief respite from the short term priorities of the campaign, more ambitious reforms might have been possible\. 92\. Budget support operations targeting medium-term fiscal improvements while providing short-term liquidity support should seek to leverage maximum impact from structural measures, particularly when structural spending pressures are evident\. 93\. Where national legislation prevents a state government from undertaking key reforms, every effort should be made to change the national legislation in conjunction with the operation\. The analysis of the fiscal situation of RGS highlighted that there are some core issues that need to be addressed at the federal level, notably related to the wage bill and the pensions\. It is unclear however from the program document whether these issues were raised at the federal level as a prerequisite for the operation to be feasible\. Given that the STN was 32 directly involved in the selection of this operation, this might have been a good opportunity to deepen the dialogue on fiscal policy at the federal level as well\. It should be acknowledged, however, that there were no signs of appetite for such a dialogue at the time\. 33 Annex 1\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Lending (from the Program Document) Rafael Chelles Barroso (TTL) Senior Economist GMF01 Ernesto Sanchez-Triana Lead Environmental Specialist GENDR Alberto Coelho Gomes Costa Senior Social Development Specialist GSU04 Paula Pedreira de Freitas de Senior Water Resources Spec\. GWA04 Oliveira Marcos T\. Abicalil Senior Water & Sanitation Spec\. GWA04 Roland N\. Clarke Program Leader LCC5C Frederico Rabello T\. Costa Senior Procurement Specialist GGO04 Angela Nieves Marques Porto Consultant GGO16 Joseph Kizito Mubiru Lead Financial Management Specialist GGO22 Monica Moura Porcidonio Program Assistant LCC5C Silva Erwin De Nys Program Leader LCC1C Supervision (from the ISRs) Antonio Nucifora (TTL) Lead Economist GMF04 Paula Pedreira de Freitas de Senior Water Resources Spec\. GWA04 Oliveira Marcos T\. Abicalil Senior Water & Sanitation Spec\. GWA04 Eduardo Franca de Souza Financial Management Specialist GGO22 Frederico Rabello T\. Costa Senior Procurement Specialist GGO04 Fabio Sola Bittar Research Analyst LCC5C Erwin De Nys Program Leader LCC1C Gunars H\. Platais Senior Environmental Economist GEN04 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending 41\.28 166\.40 Supervision 21\.08 139\.71 Total: 62\.36 306\.11 34 Annex 2\. Detailed Description of Implementation of each Prior Action Prior Action #1: The Government of Rio Grande do Sul improved its assessment procedures for new Tax Expenditures\. 1\. Tax incentives have been widely used to attract investment in Rio Grande do Sul\. Most take the form of reductions in ICMS obligations\. These, in turn, take various forms\. Roughly one-third consist of outright exemptions\. (See Table below\.) Another 30 percent take the form of presumed credits (créditos presumidos)16\. The remainder consist of reductions in the calculation base (reduções na base de cálculo) and tax reductions aimed specifically at small enterprises\. Most exemption and reductions in the calculation base apply to all firms in a given sector (a sector can be broadly defined, such as ‘manufacture of automobiles’ or narrowly defined, such as ‘goods for the marble, travertine and granite industries’ - mercadorias destinadas a industria de marmores, travertinos e granitos)\. In general, the terms of these benefits are dictated by federal law or covenants with CONFAZ\. Thus, the state has little ability to reduce or eliminate them\. 2\. But the state also provides various benefits and exemptions to individual firms through its FUNDOPEM\. These generally take the form of presumed credit and have been used to attract investment in RGS\. In principle, the state is not permitted to grant such incentives to individual firms\. But in fact RGS (and all other states) do so\. The identification mission believed that most tax incentives were not cost effective, but that it would be politically impossible to persuade the state to stop giving them out\. The Bank mission therefore adopted a more modest objective: to prompt the state to recognize how much each incentive cost and impact it was likely to have\. 3\. As shown in Table II-1, the value of these tax exemptions (desonerações fiscais) from the ICMS alone is immense, totaling R$ 8 billion in 2015\. This was equal to 30 percent of gross ICMS revenues in that year, or 23 percent of the total ‘potential revenue’ from this tax\. As shown in the Table A2-2, exemptions from other taxes bring the total value of tax exemptions up to nearly R$ 9 billion\. Table A2-1: Estimates for ICMS Tax Expenditures in Rio Grande do Sul - 2015 2015 R$ millions, nominal values % of total exemptions Exemptions 2,729\.8 33\.8% Presumed Credits 2,506\.1 31\.1% Microenterprises and EPPs 1,525\.7 18\.9% Calculation Base 1,303\.0 16\.2% Total ICMS Tax Expenditures 8,064\.6 100\.0% Source: Receita Estadual/Secretaria da Fazenda do RS 16 In the administration of the ICMS, a firm’s tax obligation is calculated as the tax rate multiplied by the gross value of the firm’s sales, less a credit for the amount of ICMS paid on inputs to the firm by its suppliers \. A crédito presumido allows the firm to increase the value of the credit over the amount that was actually paid, thus reducing the firm’s tax obligation\. A redução na base de calculo reduces the assessed value of the firm’s sales\. 35  Table A2-2: Estimate of Revenue Losses Due to Tax Exemptions (R$ million) Potential Tax Tax Collection Exemptions (a) % loss Collection (b) 2014 329\.8 92\.3 422\.1 21\.88% ITCD 2015 632\.1 129\.3 761\.4 16\.98% 2014 2,239\.0 732\.5 2,971\.5 24\.65% IPVA 2015 2,426\.6 791\.9 3,218\.5 24\.60% 2014 25,854\.2 8,155\.3 34,009\.5 23\.98% ICMS 2015 27,125\.9 8,064\.6 35,190\.5 22\.92% 2014 28,423\.0 8,980\.2 37,403\.2 24\.01% Total 2015 30,184\.6 8,985\.7 39,170\.3 22\.94% Source: Receita Estadual/Secretaria da Fazenda do RS 4\. Historically, the costs and benefits of tax incentives were not analyzed in any depth\. At the time the loan was under preparation, tax expenditure pledges were received by the state secretariat of finance (SEFAZ) and then submitted, although not formally, to the Secretary and the Governor for a decision\. The state intended to improve this process by issuing a regulation requiring ‘all tax expenditures pledges to be evaluated ex-ante, specifying (1) a clear objective and (ii) at least one effectiveness indicator\. In addition, the GRGS committed to periodically reevaluating these tax expenditures and formally submitting the results of such evaluations to the Secretary\. This policy was to be effective for new tax expenditures, but was expected to eventually encompass most of the tax expenditures since current tax expenditures had expiration dates and would have to go through the new process to be renewed\. 5\. The prior action was defined as: ‘the Government of Rio Grande do Sul has improved its assessment procedures for new tax expenditures’\. The indicator was defined as: ‘percentage of tax expenditure measures under Government control evaluated according to the new procedures’\. That percentage was to be calculated as the as value of tax incentives subjected to evaluation divided by the total value of tax incentives conceded during the period under review\. (Note that the phrase ‘under Government control’ relieved the state of the burden of analyzing the various concessions imposed by federal law and CONFAZ\. As such, the analysis has been largely limited to presumed credit\.) 6\. Prior to the first supervision mission, the state government had issued Service Order (SO) 005/14, of March 24, 2014, which was intended to provide the framework for the evaluation of fiscal incentives\. Although the official summary of the SO states that it establishes ‘procedures for tax exemptions’ (procedimentos relativos às desonerações fiscais) it is, in fact, very general, stating merely that tax exemptions will be analyzed and setting general criteria for these analyses\. No more detailed manual for evaluation has since been prepared\. A working group to analyze tax expenditure policy was constituted informally in April 2015 but has not yet been formally constituted\. 7\. Nevertheless, some analyses of tax concessions have been performed\. In 2015, 63 of the 146 presumed credit currently in effect were evaluated\. In 2016 (to date) 67 of the 113 presumed credit have been evaluated\. (The ICR mission did not have access to these 36 evaluations, because they contain information on individual firms\. As a result, the quality of the evaluations cannot be assessed)\. The 2015 figure amounts to 43 percent of the number of presumed credit conceded, thus vastly exceeding the target for this Prior Action: 25 percent\. 8\. There is some evidence that that the volume of tax concessions has at least stabilized since this DPL went into effect\. As shown in Table II-3 below, the value of ICMS concessions shrank by nine percent between 2014 and 2015 (in real terms)\. At the same time, the number of new sectoral concessions has shrunk\. Only one new sectoral incentive (for wine) has been conceded this year\. And less than half the firms that are eligible for FUNDOPEM benefits are in fact taking advantage of them\. Nevertheless, the current value of fiscal incentives is more than nine percent higher than it was in 2012 (in real terms) and the state assembly shows little inclination to cut fiscal incentives further\. On June 3, 2015, the government sent the Assembly a bill that would reduce presumed credit in all sectors by 30 percent\. Although more than a year has passed, the Assembly has yet to consider the proposal\. Table A2-3: Evolution of ICMS Tax Expenditures – Estimates (R$ million) Year Tax Collection Exemptions ICMS Potential % loss 2003 8,988\.8 1,775\.2 10,764\.0 16\.49% 2004 9,637\.9 2,242\.7 11,880\.7 18\.88% 2005 11,382\.9 2,274\.7 13,657\.6 16\.65% 2006 11,813\.3 2,633\.6 14,446\.9 18\.23% 2007 12,257\.7 3,036\.3 15,294\.0 19\.85% 2008 14,825\.2 3,789\.0 18,614\.2 20\.36% 2009 15,086\.7 3,637\.0 18,723\.7 19\.42% 2010 17,893\.3 4,724\.4 22,617\.7 20\.89% 2011 19,502\.9 5,683\.0 25,185\.9 22\.56% 2012 21,378\.2 5,992\.1 27,370\.3 21\.89% 2013 24,060\.6 6,759\.3 30,819\.9 21\.93% 2014 25,854\.2 8,155\.3 34,009\.5 23\.98% 2015 27,125\.9 8,064\.6 35,190\.5 22\.92% Source: Receita Estadual/Secretaria da Fazenda do RS 9\. As such, the Bank’s ultimate objective in incorporating this prior action into the loan -- to reduce the number of volume of tax concessions — has been partially achieved — in the sense that the volume of concessions under state control has at least stabilized\. It is not clear that this impact is entirely due to the loan, however\. It is likely that the state, in an increasingly desperate fiscal situation, has been compelled to cease granting tax concessions, simply because it needs every cent it can get\. Similarly, the decline in the volume of concessions to individual firms (under FUNDOPEM) also reflects current economic conditions: with the recession, fewer firms are looking for new investment opportunities\. Prior action #2: The Government of Rio Grande do Sul has established procedures to guide the recovery of tax arrears, reducing processing time and prioritizing cases with high values and high probability of recovery; and criteria to measure results of tax arrears recovery actions\. 10\. Overdue taxes amounted to R$ 30 billion in 2012, equivalent to 121 percent of 37 annual tax revenues\. Some of the causes of the high level of tax arrears were beyond the control of the state government, such as the slowness of the judicial system\. However, other reasons behind the poor performance of collection of tax arrears, such as inefficiencies in the procedure to enforce payments were susceptible to state intervention\. 11\. Prior to the second DPL, the state government had already taken several initiatives to expedite the collection of unpaid taxes\. For example, tax agents were asked to accumulate small value claims against the same debtor before filing judicial claims\. In addition, SEFAZ had adopted a policy of pouncing on arrears as soon as they were incurred, expediting internal work flows in order to reduce internal processing time and focusing efforts on the cases with highest recovery likelihood and highest values\. (For example, efforts would no longer be wasted on companies that were no longer in business\.) While these practices were already in common use, they were not formalized\. 12\. The Bank mission believed that they should be; that formally setting out tax enforcement procedures would further improve collection rates\. The prior action for this component therefore reads: ‘the Government of Rio Grande do Sul has established procedures to guide the recovery of tax arrears, reducing processing time and prioritizing cases with high values and high probability of recovery; and criteria to measure results of tax arrears recovery actions\.’ The indicator for this component focused not on process changes but on results\. It tracks the share of tax arrears recovered within 60 days of their generation\. This was targeted to increase from 21 percent to 27 percent\. (Note that this indicator was intentionally designed to measure the state’s success in controlling the growth of new arrears—rather than recovering past arrears)\. Thus it measures the proportion of arrears generated in the last 60 days that have been collected, rather than the proportion of total arrears that have been collected\. 13\. The state issued the collection guide (manual de cobrança) envisioned by the prior action and has taken action to implement it\. As of the first supervision mission, the state had increased the number of firms under Special Regime of Inspection (Regime Especial de Fiscalização - REF) and was planning to list all firms owing more than R$500 in SERASA (a privately-operated website that allows merchants, banks, etc\. to check whether an individual has outstanding arrears to the state tax authorities)\. In addition, the state had set up an electronic communication system with notaries (tabelionatos) to facilitate issuance of ‘protestos de bens de devedores’17 (a form of lien on title)\. The expanded role of notaries has been subsequently enshrined in Normative Instruction 026/2016, amending the regulations governing state tax collection (Normative Instruction 045/1998)\. The aide memoire of the second supervision mission also reported that a ‘pilot for stratification of debtors’ had been completed\. The third supervision mission reported that a second pilot project, aimed at identifying targets using indicators, had been implemented successfully\. 14\. As a result of these efforts the target collection rate had been achieved by the third supervision mission: 28\.6 percent of the arrears generated two months prior had been collected\. More recent figures covering the period January-August 2016, show further improvement: the proportion of new arrears that have been recovered now stands at 41 17 With the issuance of the ‘protesto de bens’, the individual with tax arrears is prohibited from having access to bank loans or participating in public bids (licitações)\. This is intended to disincentive tax arrears 38 percent18\. The state is now working on recovering part of the stock of older tax arrears\. Although R$ 40 billion in arrears is registered as Dívida Ativa19, the state only considers R$ 12 billion of this to be collectible\. (Dívida ativa is indexed, so that the $40 billion figure represents its value in current R$, rather than its original values\.) To date, R$ 1\.35 billion of the old stock has been collected\. 15\. Here again, the state government’s actions turned out to be more aggressive than the Bank conditionality required\. Through the more aggressive pursuit of recent arrears (and some changes in the regulations governing the role of notaries) the rate of collections on arrears exceeded the target envisioned in the Prior Action\. Of course, it is not clear that the increase in collection rates was entirely attributable to the Bank operation or whether if it reflects the state’s response to the ongoing fiscal crisis\. Prior action #3: The GoRS has mandated the use of price information from the electronic fiscal invoice database as a reference price to inform its procurement processes of goods\. 16\. At the time this DPL was under preparation, Rio Grande do Sul had already made advances in procurement practices with Bank support\. In the previous DPL, the Bank supported the strengthening of the central procurement unit, which promoted the adoption of more modern procurement methods such as reverse price auctions and a price registry\. Subsequently, the unit was elevated to the category of an under-secretariat and new permanent staff were recruited\. In addition, this central unit had been carrying out analyses to substantiate decisions about the cost effectiveness of grouping and consolidating procurement processes, as well as policies to increase the participation of small and medium enterprises in government purchases\. 17\. According to the PD, the next step forward was to improve the way the state government obtained price information in procurement\. At the time of loan preparation, the state had no structured price survey to inform its procurement process\. Therefore, the employee responsible for the procurement process had to conduct a phone survey with three suppliers, identifying himself and thus biasing the survey\. As a result, procurement processes in general started with prices set at a level higher than the average market price\. In order to resolve this problem, the state government resolved to draw on the electronic fiscal invoice database that registers the price of all transactions subjected to ICMS taxation in the State\. The state intended to pass this information to public employees in charge of procurement, who would use it to set initial prices and to negotiate further discounts in the final price in case these prices diverged significantly from the ones in the database\. At the time, the Government was already using this information on a pilot basis\. In order to expand its usage, it was gradually including bar code information in its procurement catalog\. This would enable it to match the bar codes it had in its procurement catalog with the bar code provided by the suppliers and make sure the correct price information was being used\. 18 The fiscal impact of this improvement cannot be determined with the data at hand\. Information on the value of recently generated arrears is not available\. At appraisal, the state government estimated that it would increase ICMS revenues by Rs 45 million\. That amount is equal to about 0\.2 percent of ICMS revenues\. 19 The Dívida Ativa is composed of all the credits of a government, be they tax or non-tax, regularly registered by the Procuradoria Geral (General Attorney), after expiry of the deadline for payment, by law or judicial judgment\. 39 18\. The Bank mission sought to reinforce these measures by including a prior action specifying that ‘the GoRS has mandated the use of price information from the electronic fiscal invoice -- NF(e) -- database as a reference price to inform its procurement processes of goods\.’ As in Prior Action 2, the indicator for this component focused not on process improvements but on results\. The indicator was ‘increase in the share of goods procured using price information from the electronic fiscal invoice database, expressed as a percentage of the total value of goods procured\.’ 19\. As of the first supervision mission, this process was well underway in the health sector\. Prices for 120 items had been obtained, resulting in a savings of R$ 31 million\. There was little progress on other types of goods in the state procurement catalogue, however\. The second supervision mission reported that procurement using NF(e) was continuing in the health sector but was still facing obstacles in other sectors\. This finding was repeated in the aide memoire of the third supervision mission (although it did report that savings in the health sector had reached R$ 67 million)\. According to the mission’s aide memoire, the failure to extend pricing beyond pharmaceuticals was due to the resistance of the state procurement agency (CELIC -- Centro de Licitações) to requiring suppliers to provide bar codes electronically\. This was disputed on the ICR mission: at that time, CELIC argued that doing so was not worth the trouble, given the small quantities of individual items involved\. 20\. Nevertheless, by the third supervision mission, the state had far exceeded the target indicator for this prior action: 51 percent of goods were being procured using NF(e) compared to a target of 25 percent\. As shown in table 4A below, this was entirely due to the pricing of pharmaceuticals\. While the proportion fell slightly in 2015 (to 48 percent), this was due to growth of the denominator; i\.e\., non-pharmaceutical purchases\. The proportion fell again in the first half of 2016, for the same reason\. Table A2-4: Goods procured through price information from NF(e) 2014 2015 2016 Procured Procured Procured Baseline Baseline Baseline NF(e) NF(e) NF(e) Pharmaceuticals 495 495 589 589 266 266 Non-Pharmaceuticals 477 0 651 0 381 0 Total 51% 48% 41% Source: Receita Estadual/Secretaria da Fazenda do RS 21\. Overall, this Prior Action was highly successful in reducing procurement costs in the health sector, but had limited impact in other sectors\.20 Prior Action #4: The GoRS has mandated all of its agencies that have implemented the Cost Policy and System for more than one year to prepare, as part of their annual report, a 20 It should be noted some issues in pharmaceutical pricing still remain\. These involve IPERGS; the pension and health fund for employees\. At present, the private hospitals serving IPE patients purchase drugs at market prices but charge IPERGS a much higher list price\. But the problems will not be easily solved\. State officials claim that IPERGS cannot simply lower the price it pays private hospitals for drugs, since the mark-ups on drugs compensate for the extremely low rates that IPERGS pays for diárias (daily charges for hospital stays)\. 40 managerial cost report 22\. At the time this DPL was prepared, the state government did not have accurate, detailed information on the expenditures of each of its 20,000 lowest-level administrative units\. As a result, it was difficult to measure the cost effectiveness of each unit\. In conjunction with project preparation, the state government, through its internal control agency, the Office of the Accountant and Auditor General (CAGE), requested all 14 line secretariats to implement ‘a costing policy and system’ and to produce a managerial report using costing data to be included in the agencies’ annual report\. This was reflected in the fourth Prior Action: ‘the GoRS has mandated all of its agencies to have implemented the Cost Policy and System for more than one year to prepare, as part of their annual report’\. Progress was to be tracked by counting the number of managerial cost reports prepared by the secretariats\. 23\. As of the first supervision mission, CAGE had issued a circular requiring each secretariat to present a cost report\. Only two (SEFAZ and SEPLAG) had sought the assistance of CAGE\. CAGE had not actively pursued any of the others and believed that none of the others had taken any action on their own\. 24\. Since then, there has been some progress\. CAGE has prepared a list of 64 government organs21 that are now expected to produce reports\. It has completed training exercise in 36 of them and is in the process of training another ten\. Of those that have completed training, ten are awaiting the production of the detailed data for 2015, leaving 26 that have both completed training and have the 2015 data available\. Of these half (13) have submitted reports (Table A2-5)\.22 Table A2-5: Status of Cost Center Reporting Total of agencies/organs that have submitted reports 64 total in some stage of implementation 46 of which: in training 10 trained but 2015 data not yet available 10 trained with 2015 data available 26 of which: have submitted report 13 have not submitted report 13 Source: CAGE/Secretaria da Fazenda do RS 25\. Each of these reports is intended to show a breakdown of costs by spending unit, showing spending on personnel, goods, utilities, and rent\. Information on daily travel allowances and contractual services is to be added later\. To varying degrees, the reports also describe actions that each organ has taken to improve expenditure efficiency\. Some organs have been more ambitious than others\. For example, the Secretariat of Labor and Social Development (STDS) reports that, in 2015, its principal accomplishment was to ask the director general to create a working group to prepare an official set of directives setting out the 21 The term organ (órgão) includes not only secretariats but various decentralized units of administration\. 22 The costs report is attached to the annual statement of accounts of each órgão and sent to the State Court of Accounts (Tribunal de Contas do Estado – TCE)\. In case an órgão do not deliver its costs reports, the State Court of Accounts might decide to apply administrative penalties to the órgão’s authorities, such as fines\. 41 procedures (regimentos internos) to be used to enable the secretariat to force certain departments to provide the detailed breakdown of their costs\. Its major activity for 2016 is to make the ‘staff of the secretariat who are responsible for expenditures aware that costs must be controlled, that resources are finite, but also that in spite of the current financial difficulties, they should not lose sight of the secretariat’s objective, which is to provide services to its target populations’\. Other reports are more specific\. The report for the department of prisons (SUSEPE, within the Security Agency - Secretaria de Segurança) notes that during 2015, it revised the rental contracts for various facilities of the department with an eye to reducing rents and using buildings belonging to the public sector, whether they belong to the prison department itself or not\. 26\. Overall, this component seems to have been a success within its own terms, in the sense that a system for reporting expenditure data by administrative units has been put in place and 13 management reports have been issued\. How much impact this will have on expenditure efficiency will of course depend on the quality of the reports and the willingness of the relevant parties to implement their recommendations\. The mission was informed that 13 secretariats did not report any analysis using the data, such as the Secretariat of Education and the Secretariat of Public Works, although they are listed among the organs that have undergone the training\. Prior action #5: The GoRS has created a policy to identify and estimate the fiscal risks created by contingent liabilities, and prevent and mitigate their fiscal impact\. 27\. The state government currently has R$ 68 billion in contingent liabilities, more than twice the level of net current revenues\. The vast majority of these liabilities consist of judicial claims by public employees arising from disputes over wage increases\. Some of these claims date as far back as Governor Britto (governor from 1995-1999) who promised to give state employees raises according to a schedule that extended beyond his term\. The raises were never given\. Similar promises were made by recent Governor Tarso Genro\. In addition, the state may be liable for wage increases (arguably) required by the Federal law on teachers’ salaries\. (See Annex 8 on state finances\.) 28\. At the time of project preparation, the preparation mission believed that the state lacked control over the managerial decisions that could give rise to future contingent liabilities\. To address this problem, the state had instituted a working group to propose a policy that would focus on control and prevention, identifying and monitoring contingent liabilities as well as estimating their impact\. The state also planned to introduce accounting rules that would require such liabilities to be recorded in the balance sheet and might be part of the net consolidated debt capped by the FRL\. It was expected that the development and implementation of such a policy would result in a more comprehensive understanding of the state’s fiscal situation and a reduction in future contingent liabilities\. 29\. In the policy matrix, the prior action specified that the state would ‘create a system to identify and estimate the fiscal risks created by contingent liabilities and to prevent and mitigate their fiscal impact’\. The indicator tracked whether the policy instrument had been made effective on a yes/no basis\. 42 30\. As of January 2014, the state assembly had issued a decree requiring all state organs to provide reports on contingent liabilities to the Subsecretariat of the Treasury\.23 SEFAZ had also created a special unit that would work with the report and manage contingent liabilities more aggressively\. 31\. By the second supervision mission, Treasury had completed its first report on contingent liabilities\. It has now completed its second\. Data is derived from two sources\. The first is a report from the state’s attorney (Procurador Geral do Estado, PGE) which lists the cases the state is currently defending in the courts\. As shown in Table A2-6, this totaled is $65\.6 billion at the end of 2015\. The other consists of reports from other state organs\. They report 389 such cases, totaling R$ 2,310 billion\. The PGE provides an opinion on likelihood of adverse outcomes from current cases\. Based on these opinions, the analysis unit in SEFAZ has calculated a summary estimate of the actual value of the state’s contingent liabilities (assigning a weight of 80 percent to cases with a likelihood of adverse outcomes, 50 percent to cases with a medium likelihood of adverse outcomes, etc\.)\. This yielded an estimate of R$ 31\.36 billion\. Table A2-6: Contingent Liabilities, 2015 (R$ millions) Value of pending lawsuits reported by General Attorney 65,625 Wage increases for active and retired servants 33,929 Teachers minimum wage policy 13,100 Civil class actions regarding health issues 8,583 Dispute over value of shares in privatization of phone company 5,000 others 5,013 Plus, contingent liabilities reported by organs 2,310 Total 67,935 Source: Receita Estadual/Secretaria da Fazenda do RS 32\. Overall, this Prior Action succeeded in the sense that there is now a system in place that allows contingent liabilities to be consolidated in one report and a regular system for reporting on changes in the stock\. Whether this will restrain the growth of contingent liabilities in the future is not so clear\. It is not obvious that such information will prevent governors from promising unaffordable wage increases to public employees in the future\. Nor will it prevent the federal government from imposing unfunded mandates\. Prior action #6: The GoRS has reinforced its commitment to sustainable irrigated agriculture practices by aligning its ‘More Water, More Income’ Program with its Irrigation Policy and its Water Resources Policy\. 33\. As noted earlier, irrigation holds considerable promise in Rio Grande do Sul\. Nonetheless, less than seven percent of rural properties have irrigation facilities\. At the time the DPL was prepared, the State Government had already taken some steps to promote irrigation\. An Irrigation Policy Law had been adopted, setting out the principles, objectives and instruments of state intervention in the sector\. The Law called for a statewide ‘Master Plan for 23 Decree 51/24 Janeiro/2014\. ‘Institui o Sistema de Gestão de Passivos Contingentes do Estado do Rio Grande do Sul’\. 43 Irrigation in the Context of Multiple Water Uses in Rio Grande do Sul’ (PIUMA) which was to include a diagnosis of the current condition of irrigated agriculture and its potential for sustainable growth, based on a set of parameters including projections of water availability and demands of other water users\. PIUMA was also expected to yield guidelines and priorities for the granting of water use rights and environmental licensing for the irrigated agriculture sector\. In May 2013, the state assembly approved legislation (Law 14\.244/2013) aimed at encouraging small and medium scale farmers to construct small reservoirs (less than 10 ha) and small irrigation system (less than 100 ha)\. While the program, termed ‘More Water, More Income’ (Mais Ã?gua, Mais Renda) relies on federal lines of credit (e\.g\. the National Program for Strengthening Family Agriculture (PRONAF) to provide financing, More Water, More Income assists candidates in obtaining the environmental licenses and water rights required to apply for federal loans and then reimburses farmers for part of the costs of amortizing them\. In the case of small scale farmers, the program pays 100 percent of the first and last payments\. Enactment of the legislation creating the More Water, More Income program was considered to constitute compliance with the prior action\. Progress was to be measured in terms of the number of medium and small farmers joining the program\. From a base of 413 landholders, it was expected that 3,000 small/medium landholders would join by the end of 2015\. As of December 2016, 3,096 landholders had joined the program (of which 56 percent were small landholders and 22 percent were medium landholders; while a further 618 applicants were awaiting approval)24\. There is evidence that the administration of the program has improved substantially\. The program is now conducted by a group of dedicated professionals, who follow clear procedures\. Processing time has been drastically reduced, from years to some weeks, largely due to the introduction of a computer-based system for processing applications (Box 1)\. It is also noteworthy that the total land area under irrigation has increased by 72,000 ha (69 percent)25\. Prior action #7: The GoRS has strengthened the institutional capacity of its Department of Water Resources (DRH) through the approval of an enhanced staff organogram and the launch of the corresponding recruitment process\. 36\. The DRH plays a key role in the implementation of state water policy\. It is responsible for issuing water use rights and providing technical assistance to the State Water Resources Council in the coordination, implementation, supervision and preparation of the State Water Resources Plan\. It also prepares river basin plans or supervises and approves the work of consultants hired for that purpose\. During DPL preparation, it became evident that the DRH lacked the managerial and technical capacity to perform these roles\. This was largely due 24 The authorities are revising the process of issuing environmental licenses (expected in April 2017) which should contribute to clear the backlog in landholders waiting for approval)\. 25 Over time some of the criterias under the program have been revised\. The initial goals were overestimated since there was no benchmark for comparisons\. Farm irrigation was not common in Rio Grande do Sul, but in the last few years irrigation is becoming increasing common\. In parallel the program adopted new monitoring parameters, in line with the limits imposed by the environmental agency\. While farmer’s decision to invest in irrigation is largely outside the control of SEAPI, the irrigated area in the state doubled over the past four years with the program being directly responsible for 69 percent increase and possibly acting as a catalyzer for the rest of the expansion\. 44 to staffing limitations imposed by the Fiscal Responsibility Law and the state’s own inability to offer competitive salaries\. 37\. Delays in obtaining water rights were discouraging farmers from undertaking irrigation projects under the More Water, More Income program, as water rights (along with environmental licenses, were required for each new project\. The environmental license granted by SEMA is restrictive and hampers the expansion in irrigated areas\. The SEAPI is currently discussing with the SEMA possible ways to make the license more flexible (SEMA Resolution no\. 323/2016), and this process is expected to bring results after April 2017\. The state eventually developed a work-around: DHR, the Secretariat of Environment, (SEMA) and the Secretariat of Agriculture, Livestock and Irrigation (SEAPI) agree to allow SEAPI to approve projects under simplified conditions fixed by SEMA and DRH\. Nevertheless, staffing constraints remained, although 12 employees were given to DRH (6 from FEPAM and 6 from SEAPI)\. 38\. Progress in preparing river basin plans was also slow\. Along with agriculture, state waters are used to supply the demand for human and industrial consumption, power generation and navigation\. River basin plans were needed in order to improve water allocation and minimize potential conflicts among these uses and to establish targets for water quality recovery to allow multiple water use as established by the Water Policy26\. 39\. The DPL addressed these problems in two ways\. First, it prompted the state to revise its staffing plan for technical and scientific positions (Quadro dos Funcionários Técnico- Científicos do Estado) to include specialists in the relevant sectors\. Enactment of the revision (Law 14\.477/2015) was considered to constitute with the prior action\. Second, it set a target for the completion of river basin plans and tracked it during project supervision\. 40\. While the state did enact the legislation, the situation did not immediately improve\. Progress on the river basin plans nearly ground to complete halt in April 2015 when the contracts of the temporary personnel who formed the majority of DRH’s workforce expired and could not be renewed\. By the third and final supervision mission (November 2015), however, the situation had improved significantly\. After some months, the new SEMA and DRH administrations finally found a means to recruit and train personnel, as well as to implement a new digital system to process water applications (see Box 1, in section 2\.1)\. Seven of the twelve proposed river basin plans had been finished and approved by river basin committees\. Although the target had not been met, the remaining plans were well under way\. Prior action #8: The GoRS adhered to the National Pact for Water Management, which establishes, inter alia, targets for improving the Borrower’s legal and institutional framework for water resources; planning, information and decision support tools; and operational instruments, including water availability, water use rights, water pricing and drought preparedness plans; and signed an agreement with the Guarantor’s Water Agency committing to comply with specific water resource management targets in exchange of financial support\. 41\. The State has committed to enhancing its Water Resource System in a more comprehensive way by adhering to the National Pact for Water Management 26 According to the Resolution CRH no\. 211/2016, it is expected the procurement of 15 additional plans in 2017\. 45 (PROGESTÃO)\. This is a results-based program designed and implemented by the National Agency of Water (ANA) that helps the States to define the current level of development of their Water Resources System, as measured against the objectives and instruments established by the Federal Water Resources Law, and define annual targets for a five-year period, which are discussed and approved by the State Water Resources Council\. This agreement between the State and the Federal level requires the State to benchmark itself against other states and was expected to lead to substantial measurable improvements in the State’s legal and institutional framework for water resources; planning; information and decision support tools; and operational instruments (e\.g\. water use rights, water pricing, drought preparedness plans etc\.)\. It came with some financial support from the Federal level to help achieve the targets, but it required primarily that the State coordinate the different interventions of the public sector related to water resources management\. 42\. The enactment of legislation formally entering the state into the federal program (Decree 50\.741/2013) was considered to constitute compliance with the prior action\. The prior action was to be monitored using one of the measurable annual targets set by the agreement with ANA: the installation of 80 hydro-meteorological stations in key river basins\. 43\. At the time, the DPL closed only 27 of the targeted 80 stations had been installed\. The state claimed that it was still studying where the remaining stations should be located\. DRH therefore decided to rely instead on existing data collected by public and private institutions The state intends to revise its agreement with ANA accordingly\. 46 Annex 3\. Beneficiary Survey Results Not applicable\. 47 Annex 4\. Stakeholder Workshop Report and Results Not applicable\. 48 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR Avaliação do Estado e comentários O Programa permitiu importantes avanços na gestão fiscal e na gestão de recursos hídricos, decorrentes das ações prévias implantadas, o que pode ser verificado na melhoria dos indicadores das referidas ações\. Das oito ações prévias constantes do Programa, cinco estavam ligadas à gestão fiscal - Gastos Tributários, Cobrança de Impostos em atraso, Preços de referência em licitações, Relatório de Custos e Passivos Contingentes - e três ligadas à gestão de recursos hídricos - Mais Ã?gua, Mais Renda, Fortalecimento do Departamento de Recursos Hídricos da Secretaria do Meio Ambiente e Progestão – Pacto Nacional para Gestão das Ã?guas\. Relativamente à área fiscal, a maior parte das metas definidas para os indicadores foi atingida e superada, a exceção foi referente ao Sistema de Custos do Estado cuja meta era ter 14 relatórios gerenciais de custos elaborados pelos órgãos e o resultado obtido foi 13 relatórios, correspondendo, portanto, a cerca de 93% da meta\. No que tange à área de recursos hídricos, o desempenho dos indicadores ficou abaixo do definido no Programa, entretanto, observam-se melhorias significativas em relação a linha de base das três ações prévias (ano 2012)\. As ações prévias ligadas à área fiscal contribuíram para o incremento e melhoria da gestão de receitas, por meio da adoção de novos procedimentos para avaliação dos benefícios fiscais concedidos na modalidade de crédito presumido e aumento da recuperação de impostos em atraso, bem como para a diminuição e aprimoramento da gestão do gasto, por meio da utilização da Nota Fiscal Eletrônica como parâmetro de preço nas compras da área da saúde, implantação do Sistema de Custos e da Sistemática de acompanhamento dos Passivos Contingentes, entretanto, todas essas medidas não foram suficientes para enfrentar o desequilíbrio fiscal do Estado do Rio Grande do Sul, agravado fortemente pela crise econômica que acomete o país, cuja expectativa de queda do Produto Interno Bruto supera 7% no biênio 2015-201627\. Em relação à área das águas, mostrou-se acertada a inclusão de medidas voltadas ao fortalecimento da gestão de recursos hídricos para mitigar os efeitos da estiagem na agricultura, dada a importância do setor na economia e, consequentemente, na arrecadação tributária do Estado do Rio Grande do Sul\. Nesse sentido, pode-se destacar a ampliação da área irrigada de 105 mil hectares para 177 mil hectares representado um aumento de 68,6%, por meio do Programa “Mais Ã?gua, Mais Rendaâ€?\. Ademais, salientam-se diversas ações implantadas visando o aprimoramento da gestão da água, como por exemplo, aumento dos planos de bacia com supervisão do Departamento de Recursos Hídricos da Secretaria do Meio Ambiente (DRH/SEMA), adesão do Estado ao Pacto Nacional pela Gestão das Ã?guas (PROGESTÃO), instalação de novas estações hidrometeorológicas e da sala de situação para monitorar os dados dos rios em tempo real, que só foram possíveis graças ao fortalecimento do DRH/SEMA apoiado pelo Banco e priorizado pela Secretaria do Meio Ambiente, no âmbito do PROCONFIS\. 27 Em 2015 a redução do Produto Interno Bruto brasileiro foi de 3,8%\. Para o ano de 2016, a expectativa do mercado é de diminuição de 3,49%, segundo Relatório Focus do Banco Central, de 30/12/2016, disponível em http://www\.bcb\.gov\.br\. 49  Em que pese o Programa não ter previsto reformas estruturais, o Governo do Estado vem implantando, desde início da atual gestão, em 2015, importantes medidas de ajuste necessárias para o enfrentamento da crise econômica e fiscal, com impacto no curto e médio prazo, como também vem introduzindo reformas profundas referentes a responsabilidade fiscal, política de pessoal e estrutura administrativa, visando a sustentabilidade fiscal a longo prazo\. Como exemplo das medidas de ajuste fiscal adotadas no biênio 2015-201628, pode-se citar: (i) pelo lado das despesas, a forte contenção de gastos com serviços terceirizados, consultoria, diárias, passagens e horas-extras e a limitação das despesas de custeio dos órgãos do Poder Executivo, autarquias e fundações; e (ii) pelo lado das receitas, a elevação das alíquotas do ICMS nos exercícios de 2016 a 2018, equalizando as alíquotas com outros estados, a criação do Fundo de Proteção e Amparo Social do Estado do Rio Grande do Sul (Ampara/RS), com receitas oriundas do adicional de alíquotas de 2% do ICMS, além de modificações na legislação do IPVA, antecipando prazo de pagamento do tributo e diminuindo percentuais de descontos, e alterações na legislação do ITCD, reestabelecendo as alíquotas progressivas\. Relativamente às reformas já implantadas29, destacam-se: (i) a edição da Lei de Responsabilidade Fiscal Estadual; (ii) a instituição do Regime de Previdência Complementar; (iii) a majoração das alíquotas de contribuição dos servidores ativos, aposentados e pensionistas para 14% (quatorze por cento), a partir de abril de 2017; e (iv) a reestruturação e modernização do Estado, cujos Projetos de Lei já aprovados pelo Poder Legislativo consistem na extinção de 9 fundações, reduzindo de 19 para 10 fundações, na extinção de uma Companhia e em modificações em 2 autarquias (reestruturação com redução de custos em uma e extinção de outra), além da fusão de secretarias, diminuindo das atuais 20 secretarias para 17 (na gestão anterior eram 29 secretarias)\. Além dessas medidas já aprovadas, tramitam na Assembleia Legislativa, outras importantes ações30, como a retirada de exigência de plebiscito prevista na Constituição 28 Medidas de redução de despesas implementadas por meio dos Decretos Estaduais nº 52\.230, 52\.294 e 52\.295, de 2015, e prorrogadas pelos Decretos Estaduais nº 52\.862, 53\.169 e 53\.009, de 2016\. Medidas de aumento de receitas implantadas pela edição das seguintes Leis Estaduais: Lei nº 14\.743/2015 (ICMS), Lei 14\.472/2015 (Fundo AMPARA/RS), Lei 14\.740/2015 (IPVA) e Lei 14\.741/2015 (ITCD)\. 29 Lei de Responsabilidade Fiscal Estadual aprovada pela Lei Estadual nº 14\.836/2016, Regime de Previdência Complementar instituído pela Lei Complementar Estadual nº 14\.750/2015 e majoração das alíquotas previdenciárias por meio das Leis Complementares Estaduais nº 14\.967 e 14\.968, ambas de 2016\. Em relação à reforma da estrutura do Estado, destacam-se os seguintes Projetos de Lei já aprovados pela Assembleia Legislativa em dezembro de 2016 e aguardando sanção do Governador: PLs nº 301/15, 240/16 e 246/16 – extinção de 3 fundações de direito público (Fundação Instituto Gaúcho de Tradição e Folclore, Fundação Estadual de Pesquisa Agropecuária e Fundação Estadual de Produção e Pesquisa em Saúde) e autorização para extinção de 6 fundações de direito privado (Fundação Zoobotânica, Fundação de Ciência e Tecnologia, Fundação de Economia e Estatística, Fundação Estadual de Planejamento Metropolitano e Regional, Fundação Piratini e Fundação para o Desenvolvimento de Recursos Humanos); PL 247/16 – redução das secretarias; PL 249/16 e 251/16 – reestruturação da autarquia Agência Gaúcha de Desenvolvimento e Promoção do Investimento para Escritório de Desenvolvimento de Projetos, com redução do quadro funcional e de custos, e extinção da autarquia Superintendência de Porto e Hidrovias de Porto Alegre, cujas atividades passam a integrar a autarquia Superintendência do Porto do Rio Grande; e PL 244/16 – extinção da Companhia Rio-grandense de Artes Gráficas\. 30 Projetos em tramitação na Assembleia Legislativa: PL 214/15 - redução dos créditos presumidos nos exercícios de 2016 a 2018; PEC 242/15 - extinção da licença-prêmio assiduidade do servidor estadual e criação da licença- capacitação; PEC 258/16 - extinção do direito aos adicionais por tempo de serviço aos servidores estaduais; PEC 259/16 – retirada da necessidade de consulta plebiscitária para os casos de alienação, transferência do controle 50 Estadual para futuramente privatizar ou federalizar 3 companhias, a revisão dos benefícios fiscais, o contingenciando os benefícios concedidos na forma de créditos fiscais presumidos de ICMS, até o exercício de 2018, de forma a permitir a apropriação de valor correspondente a 70%, em cada ano, do total dos créditos a apropriar, a extinção da licença-prêmio assiduidade do servidor estadual e criação da licença capacitação, a extinção dos adicionais de tempo de serviço público de 15 e 25 anos\. Ainda em relação às medidas de impacto nas finanças públicas estaduais, há de se destacar a renegociação das dívidas dos estados junto à União e o Plano de Auxílio aos Estados, cujos benefícios para o Estado do Rio Grande do Sul, considerando os efeitos das Leis Complementares nº 148/2014 e 156/2016, consistem em: (i) redução prevista do saldo devedor da dívida em 2028 em torno de R$ 22,1 bilhões, decorrente da alteração dos encargos incidentes sobre o saldo devedor, que passaram de juros de 6% ao ano e correção monetária pelo IGP-DI (Ã?ndice Geral de Preços – Disponibilidade Interna) para 4% ao ano e correção monetária pelo IPCA (Ã?ndice Nacional de Preços ao Consumidor Amplo), limitado à taxa SELIC (Sistema Especial de Liquidação e Custódia); (ii) em ganho financeiro estimado de R$ 4,6 bilhões até 2018; e (iii) prazo adicional para pagamento de 240 meses, isto é, até 2048, permitindo diminuir gradualmente o atual comprometimento de 13% da Receita Líquida Real\. Por fim, como detalhado ao longo do Relatório de Conclusão de Resultados, o Programa proporcionou significativos avanços na gestão fiscal e na gestão de recursos hídricos, entretanto, ainda há muito o que ser feito na consolidação do equilíbrio fiscal\. Nesse sentido, o Governo do Estado reitera seu compromisso com a implantação de políticas públicas voltadas ao aprimoramento da gestão fiscal e de recursos hídricos, agradece todo o apoio técnico e financeiro que tem recebido do Banco Mundial ao longo dos últimos anos, não só no âmbito do PROCONFIS como também no Programa de Reestruturação da Dívida (2008) e no Programa de Apoio à Retomada do Desenvolvimento Econômico e Social - PROREDES (assinado em 2012 e ainda em execução), e conta com a continuidade da parceria com Banco nesta caminhada rumo ao equilíbrio fiscal para o desenvolvimento econômico e social do Estado do Rio Grande do Sul\. acionário, cisão, incorporação, fusão ou extinção da Companhia Estadual de Energia Elétrica, da Companhia Rio- grandense de Mineração e da Companhia de Gás do Estado do Rio Grande do Sul\. 51 Annex 6\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable 52 Annex 7\. List of Supporting Documents ï‚ Program Document 87120-BR (May 5, 2014); ï‚ Aide Memoire of the 1st Supervision Mission (October 27 to 30, 2014); ï‚ ISR16376 (November 23, 2014); ï‚ Aide Memoire of the 2nd Supervision Mission (March 30 to April 1, 2015) ï‚ ISR19014 (May 29, 2015); ï‚ Aide Memoire of the 3 Supervision Mission (November 3 to 5, 2015); ï‚ ISR22308 (December 22, 2015)\. 53 1\. RGS’s fiscal situation has been steadily worsening for several years and has now arrived at a crisis\. Revenues 2\. RGS derives the vast majority of its recurrent revenues from state- administered taxes\. In 2015, nearly eighty percent of current revenues were derived from tax revenues (receitas tributárias)\.31 Of this, slightly over eighty percent was generated by the state- administered VAT (ICMS)\. The state has autonomy over the ICMS rate on transactions within the state but rates on interstate sales are determined by federal law\. Federal law exempts exports to other countries entirely\. 3\. Until recently, RGS had one of the lowest VAT/GDP ratios in the country\. This was partly due to the large proportion of state production (e\.g\., agricultural production) that is exported—to other states and to other countries\. However, even rates on transactions within the state have historically been low by the standards of its neighboring rivals: the states of Santa Catarina, Minas Gerais, Sao Paulo, Rio de Janeiro, and Parana\. In 2015, the state’s basic rate (17%) was lower than in four of those states\. The rates on specific sectors that dominate ICMS revenues (and are more severely taxed) were also relatively low\. As shown in Table A8-1, the rate on gasoline was lower than in three rivals\. The rate on electrical energy was lower than in two\. In addition, even the rate of telecommunications was lower than in one rival\. Of the major sectors, only beer was taxed at a higher rate in RGS than in its neighbors\. As discussed below, the state has subsequently raised these rates in response to the current crisis\. The current rates are shown under ‘2016’ in Table A8-1\. Table A8-1: ICMS rates Rates in RGS No of rival state w/ higher 2015 2016 rates in 2015 Basic rate 17 18 4 Gas 25 30 3 Electricity 25 30 *2 Telecommunications 25 30 **1 *plus RJ, SC for high volume consumers **plus RJ for high volume consumers Source: Receita Estadual/Secretaria da Fazenda do RS 4\. Roughly ten percent of revenues consist of current transfers\. About one–third of current transfers are derived from the principal formula-based unconditional transfer from the federal government, the Fundo de Participação dos Estados (FPE)\. This is funded from a fixed share of federal revenues from the income and industrial products taxes and is distributed 31 Following the practice used in the original fiscal analysis for this operation, ICMS revenues are reported net of contributions to FUNDEB but gross of Constitutional transfers to municipalities\. The revenue items ‘retorno FUNDEB’ and ‘dedução da receita corrente (to FUNDEB)’ are both excluded from the calculation of revenues\. Net transfers to FUNDEB are instead treated as expenditures\. 54 among the states based on a formula\. The remainder consists largely of payments by the federal health care system (SUS) and federal compensation for certain federally imposed tax exemptions (e\.g\., IPI-exportação) and mandated expenditures\. See Table A8-2\. The state government has no control over the yield from these sources\. Table A8-2: Revenues - Intergovernmental Transfers Breakdown, 2015 (R$ millions) Total* 4,084 FPE 1439 SUS 853 IPI-exports 450 Salário educação (from federal government) 360 Lei Kandir 147 other 835 *Excludes R$ 3,866 million from FUNDEB Source: Receita Estadual/Secretaria da Fazenda do RS Box A8-1 Accounting for FUNDEB In Brazil, both state and municipal governments operate primary and secondary schools\. Under the Fundo de Manutenção e Desenvolvimento da Educação Básica e de Valorização dos Profissionais da Educação (FUNDEB) both levels must contribute 20 percent of their revenues from certain taxes (e\.g\., the ICMS) and intergovernmental transfers to a pool, which is then distributed among the state government and individual municipalities on the basis of enrollment\. In RGS’ fiscal reports to the STN, the figure reported for ICMS revenues is net of contributions to FUNDEB\. Revenues reported for ‘transferências intergovernamentais’ include the reverse flow; i\.e\., funds from FUNDEB\. To more accurately convey the state’s fiscal situation, the analysis in this annex reports ICMS revenues net of deductions for FUNDEB but gross transferências constitucionais to municípios\.) The state’s contributions to FUNDEB and its revenues from FUNDEB are netted out, so that only the state’s net transfers to FUNDEB are shown\. These amounted to about R$ 1 billion in 2015\. 5\. Another six percent of current revenues are derived from ‘contributions’ (contribuições)\. These largely consist of mandatory contributions by active and retired staff, based on a fixed percentage of their salaries and pensions (respectively) ostensibly toward the costs of their retirement\. (See further discussion below\.) 6\. Overall, state recurrent revenues grew fairly robustly after 2007\. According to the PD for DPL1, ‘shortly after taking office in January 2007, the newly-elected administration quickly introduced emergency measures to reduce the projected deficit for 2007\. On the revenue side, Government actions were geared toward increasing tax collection through administrative improvements\. To this end, it introduced new managerial tools to reduce tax evasion (a matrix management model) and embarked on a revision of the system of tax credit devolution to exporters, in order to restrict its abuses\. Other measures to raise revenues included the implementation of the Growth Incentive Program, which was designed to stimulate those sectors of the economy with great revenue generating potential\. It also mandated the use of electronic fiscal receipts, in order to discourage evasion in interstate trade\. 7\. The effort to increase revenues appears to have paid off, at least in the short run\. 55 As shown in Figure A8-1, ICMS revenues increased by 13 percent in real terms between 2007 and 2008, considerably faster than growth in GDP (5\.1 percent)\. Although growth in ICMS revenues leveled off subsequently, it averaged 5\.2 percent per year over the period 2007-2014\. Revenues from other smaller taxes also grew rapidly\. Revenues from the IRRF (the federal income tax on state employees, which the state is allowed to retained), grew by 6\.7 percent per year between 2007 and 2014\. Revenues from the motor vehicles tax (IPVA), grew by 6\.3 percent\. While other sources of revenues grew more slowly (current transfer - transferências correntes -, for example, actually declined at an average annual rate of 0\.1 percent over this period), current revenues as a whole grew at an average annual rate of 4\.9 percent\. Figure A8-1 Trends in Composition of Current and Capital Revenues 50,000 40,000 other capital rev\. constant R$ mns of 2015 new loans 30,000 other current transfers current transfers 20,000 contributions other taxes 10,000 ICMS - 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Receita Estadual/Secretaria da Fazenda do RS 8\. In 2015, however, ICMS revenues dropped sharply, falling 4\.8 percent in real terms—considerably faster than the decline in state GDP (-3\.4 percent)\. Current transfers dropped about the same rate, resulting in a drop of five percent in total current revenues\. Expenditures 9\. The state’s expenditures are dominated by personnel costs\. In 2015, expenditures on personnel (including current employees, retirees and pensioners) totaled 47 percent of total expenditures\. In Brazil, levels of personnel spending are typically measured as a proportion of discretionary revenues to give a sense of the bite they are taking out of the revenues that the state has some control over\. In 2015, personnel costs were 72 percent of net current revenue32\. 10\. The salaries of active staff account for only about 45 percent of personnel expenditures\. Payments to retirees and pensioners comprise the remainder\. 11\. The state has managed to control growth in the number of active personnel\. As shown in Figure A8-2, the number of current employees remained relatively stable over the 32 For purposes of this calculation, net current revenues are defined as gross current revenues (before transfers to Fundeb) minus constitutional transfer to municipalities\. 56 period 2007-2014 and in fact declined with the onset of the recession in 2015\. This was accomplished partly through a slowdown in hiring, accompanied by the retirement of existing staff\. (The current administration plans to hire another 2000 police, however, in order to combat public perceptions of a crime wave\.) Figure A8-2 Trends in Number of Active Figure A8-3 Trends in Average Cost per and Retired Staff Staff 210 70\.0 Thousands Constant R$ ths of 2015 200 60\.0 190 180 50\.0 170 40\.0 160 150 30\.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 active servants retired and pensioners active servants retired and pensioners Source: Receita Estadual/Secretaria da Fazenda do RS 12\. Average wages of active staff (measured as expenditures per occupied positions, termed as ‘vinculações’) have climbed steadily over this period, however\. As shown in Figure X-3, the average wage of current employees in 2015 was roughly 40 percent higher than in 2007\. This is due to periodic salary increases by a succession of governors: average real wages increased 24 percent during his four years in office (2011-2014)\. At the end of his term, he promised an even larger (60%) increase to the police force, to be phased in over the years 2014-2018\. The full implementation of this increase could create an additional expenditure of R$ 4 billion in 2018\. The current administration is seeking to freeze wages in nominal terms\. 13\. The administration is currently under pressure to increases the salaries of teachers, however\. This pressure arises from a federally mandated minimum wage for teachers, which was fixed in national legislation in 2008\. The legislation was intended to set a minimum level of compensation (piso) for teachers at the lowest rank of the magisterial career structure\. In Rio Grande do Sul, however, few, if any, teachers are employed at this grade\. Even entry-level teachers earn more than the piso because they are normally required to have university degrees\. (The lowest grade in the magisterial career structure is reserved for teachers without these qualifications\.) While the state contends that it therefore does not have to increase salaries to comply with the law, the teachers’ union says that it does\. The union contends that the since the piso implies a percentage increase in the base salary, all higher-grade salaries should be increased by the same percentage\. The state, so far, has not conceded the argument and the case remains in dispute, giving rise to one of contingent liabilities described in the discussion of prior action 5\. 14\. The majority of personnel costs consist of payment to retirees and their surviving dependents\. In 2015, current and retired public servants represented 55 percent of personnel expenditures (and an equal percent of occupied positions - vinculações)\. The retirement benefits of nearly all state employees are paid by the state on a pay as you go basis\. The rules of the pension system are largely determined by federal legislation\. The 1988 Constitution entitled employees to retire while still relatively young (more so for women than men) and more so for 57 teachers, police officers and firefighters than for employees in other occupations\. Retirees were guaranteed a pension equal to their exit salaries (termed the ‘salário integral’) indexed to changes in the salary of the position they formerly occupied\. Upon the death of the retiree, surviving unmarried dependents could continue to receive a partial pension\. While this generous pension regime applied to all states, it has particularly adverse effects in RGS due in part to an expansion in basic education that occurred under the administration of Governor Box A8-2 Other State Efforts to Reduce Expenditures According to the PD for DPL1, the government in office at that time eliminated 20 percent of commissioned positions (about 750 positions); restructured the Executive Branch (reducing from 76 entities to 69 entities); issued a decree imposing expenditure ceilings for all the state secretariats and indirect administration entities; mandated a linear cut of about 30 percent in the operating cost of all the state secretariats; and implemented a reduction in planned investment by more than 50 percent\. As discussed in the main text, these measures had an immediate but short-lived impact on personnel spending\. Their impact on other categories of expenditure (including capital expenditure) is less obvious\. The PD also notes a variety of measures that the state could take, independently of the federal government, to reduce pension costs\. It says, ‘among the most distortionary compensation practices that affect pensions benefits are the special bonuses incorporated in the pension base, bonus for additional hours worked, multiple contracts, inefficient compensation structures, automatic pre- retirement promotions and relaxation of indexation rules\. The correction of these anomalies could bring short term savings\.’ Brizola (1959-1963)\. It is the retired teachers from this era, and their immediate successors, that swell the ranks of the state’s current retirees\. Other states that were slower to expand basic education do not (so far) face so large a problem\. 15\. Since 1988, there have been some attempts at federal level to reduce the generosity of retirement benefits\. In 1998, Constitutional Amendment no\. 20 introduced a minimum age of retirement into the public employee retirement system (RPPS - Regime Próprio de Previdência Social)\. In order to qualify for retirement, for people hired after 1998, the employee is required to have 35 years of contributions (if male) or 30 years (if female)33\. In addition, a man must be 60 and a woman must be 55\. (A five-year reduction for rural workers of either sex and for teachers in elementary school and high school remained in place\.) Perhaps most importantly, the Constitutional amendment removed the generous benefit formula from the Constitutional text\. This opened the door to future reforms, because it meant that legislation governing pensions could be amended without amending the constitution itself\. 16\. This did not have immediate impact, however\. During the late 1990s and early 2000s, sub-national governments continued to struggle with large and growing pension obligations\. They were only able to prevent an even greater increase in pension costs by containing the growth of public sector wages in real terms\. Because pensions are indexed to the wage in the position formerly occupied by the retiree, any increase in the wages of current employees would have spilled over to pensions\. 33 Years of contribution to the pension system for private sector employees ( RGPS – Regime Geral de Previdência Social) count against this total\. 58 17\. A second round of reforms occurred in 2003, in the form of Constitutional Amendment No\. 41\. This made four significant changes\. The first applies to all staff — current employees, retirees and pensioners — regardless of when they were hired\. It permitted states to impose a mandatory pension contribution on current employees, retirees and pensioners of at least 11 percent\.34 As noted earlier, these contributions are treated as revenues in the state’s fiscal accounts, but they in effect reduce the net wages and net pensions of current employees, retirees and pensioners respectively\. In 2004, RGS introduced a rate of 13\.25 percent\. At the time of DPL1, there was plan to capitalize the pension fund using half of the proceeds from the initial public offering for the state bank (Banrisul)\. (This raised a total of about R$ 2\.25 billion in July 2007\.) The state assembly did not approve this proposal, however, and it never occurred\. 18\. Two other reforms applied only to staff hired after 2003\. The first eliminated the salário integral\. The initial pension of employees hired after 2003 is equal to 70 percent of the retiree’s average monthly wage over his/her entire working life\.35 Second, the adjustment factor for subsequent pension increases is now tied to inflation (or more precisely, to the adjustment factor for RGPS) rather than the salary of the position formerly occupied by the retiree\. In principle, this second measure frees states to increase the salaries of current employees without increasing the pension benefits of retirees and pensioners—at least for employees hired after 2003\. Nevertheless, it also carries a downside risk\. With pension benefits tied to inflation, states no longer have the ability to control the level of pensions by controlling the salary level of current employees\. Since this provision only applies to people hired after 2003, it has had little impact to date\. (Most of the people hired after 2003 are still working\.) 19\. A fourth reform occurred in 2011\. Staff hired between 2011 and July 2016 now contribute to a separate fund (FUNDOPREV) which is legally separated from the state general fund and cannot be used to finance general expenditures\.36 20\. The most recent reform is more radical\. Under Constitutional Amendment no\. 41/2002, the federal government, states and municipalities are permitted to reduce the starting pensions of new employees to the RGPS level\. However, governments wishing to adopt this reform are also required to reduce the new employees’ mandatory pension contributions to the RGPS level as well, thereby reducing their contributions to the general revenues of the government they work for\. Those governments are also required to create an authentic complementary pension fund for the new employees, inaccessible to the state, to which the new employees would contribute\. (Contributions into this fund would be made only on wage income above the RGPS threshold\.) Thus, these new employees would have the same pension benefits (and contribution levels) as employees in the private sector, but would have the option of contributing to—and benefitting from—the complementary pension fund\. 34 The mandatory contribution applies only to the difference between the wage/pension of the contributor and the RGPS ceiling, which was R$ 5,189 in 2016\. Law no\. 10\.887/2004 set the level for federal employees at 11% and stipulated that the level adopted by states cannot be less than federal level\. 35 The lowest 20 percent of the retiree’s monthly salaries are excluded from this calculation\. 36 Article 7 of RGS Law no\. 13\.758/2011 states: ‘Todos os valores em espécie destinados ao FUNDOPREV serão depositados em conta específica e exclusiva do Banco do Estado do Rio Grande do Sul S\.A – BANRISUL –, distinta da conta do Tesouro do Estado, vedada sua utilização pelo Sistema Integrado de Administração de Caixa no Estado do Rio Grande do Sul – SIAC’\. 59 21\. This option only applies to staff who are hired after the state has adopted the required legislation, including the establishment of the complementary fund\. In RGS, this did not occur until August of this year (2016)\. Thus, it affects very few current employees\. When this reform does start to affect significant numbers of staff (i\.e\., when the 2000 new police to be hired in 2016 come on board) it will, ironically, have an adverse short term effect on the state’s finances: the mandatory contributions of these staff will drop from 13\.25 percent to the RGPS rate and any employee contributions in excess of the RGPS level will go into an account that the state cannot touch\. While this reform will pay off in the long term, the long term is far away\. Figure A8-4: Trends and Composition of Current and Capital Expenditures 50000 40000 amortization Constant R$ mns of 2015 interest 30000 investments net transfer to FUNDEB 20000 other current exp transfers to muns 10000 retired and pensioners active servants 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Receita Estadual/Secretaria da Fazenda do RS 22\. For the time being, expenditures on retirees and pensioners continue to rise\. As shown in Figure A8-2, the number of retirees and pensioners continues to climb steadily\. Between 2007 and 2015, their ranks increased at an average annual rate of 1\.8 percent\. 37 The average cost per retiree/pensioner grew at an average annual rate of 3\.6 percent\. As a result, spending on retirees and pensioners increased by over 50 percent (53 percent) in real terms over this period\. 23\. Certain other categories of expenditure grew during this period (2007-2015\. Transfers to municipalities increased, not surprisingly, in line with ICMS revenues\. (As noted earlier, states are required to transfer 25 percent of their ICMS revenues to their respective municipalities)\. Spending on other forms of transfers also grew rapidly (7\.2 percent per year between 2007 and 2015)\. The largest single category of such expenditures consists of ‘outros servicos de terceiros’, most of which consists of payments to health care facilities under the state/federal health insurance system (SUS)\. Expenditures in this category grew at an average 37 For reasons that remain unclear, the number of pensioners declined over this period (at an average annual rate of 0\.7 percent)\. The number of current employees increased at an average annual rate of 2\.7 percent\. 60 annual rate of 28 percent between 2008 and 2015\. (Data for 2007 is not available\.) Spending on capital investment grew between 2007 and 2015 (at an average annual rate of 21 percent) but from such a low level, that it had little impact on the state’s overall fiscal situation\. Most of the increase occurred between 2007 and 2008\. Since then, the level of spending on capital investment has stabilized at 2 to 4 percent of total state expenditures\. 24\. Debt service (including both interest and amortization) makes a significant claim on the state budget\. In 2015, it accounted for about eight percent of total state expenditure\. Even this figure understates the size of the state’s future debt service obligations, as it is the product of series of debt rescheduling and World Bank loans accompanied by interest caps and grace periods, as discussed in the paragraphs below\. As a result, it does not necessarily reflect the burden that debt service will pose once these concessions expire\. Debt 25\. RGS has a large stock of debt\. At time of the first DPL (2008), the state’s consolidated debt totaled R$ 40\.53 billion, equal to 224 percent of its net current revenues38\. RGS was one of only two states (out of 27) that had been unable to comply with the federal Fiscal Responsibility Law’s restriction on the stock of debt\. At the time, the vast majority of contractual debt was owed to the Federal Government, much of that arising from the federal debt restructuring in the late 1990s\. (Box A8-3)\. Court judgments accounted for five percent with ‘precatórios’ (a kind of debt originated of a judicial decision)\. Since then, the total stock of debt has grown to roughly R$ 68 billion, of which R$ 62 billion consists of contractual debt\. As shown in Table A8-3, 87 percent of this is still owed to the federal government, with the remainder owed to the World Bank and the IDB\. ‘Precatórios’ totaled R$ 5\.87 billion in 2015\. Box A8-3: The Federal Bailout of 1997 On three different occasions (1989, 1993 and 1997) the Federal Government has assumed and rescheduled the debts of the states\. The largest operation occurred in 1997, under Law 9496, when the Federal Government restructured R$200 billion (12 percent of national GDP) of the debts owed by the states\. In the 1997 refinancing operation, the debts were refinanced for 30 years\. This refinanced debt (termed intra-limite debt, carried an interest rate of 6 percent and an inflation index, with principal indexed to inflation\. One feature of the agreement was the capping of the debt service at 13 percent of states’ net current revenues\. Any debt service above the 13 percent cap is recapitalized and added to the intra-limite debt stock\. At the end of the contracts (in 2028), if there are residual debt balances, the state will have to pay off the remainder within 10 years\. The 1997 bailout was conditioned upon the state’s compliance with medium-term fiscal adjustment and structural reform programs\. In exchange for the rescue package, the debt renegotiation contracts mandated the implementation of three-year rolling Programs of Fiscal Adjustment (PAFs) to be agreed upon by the STN and the 25 states that had their debt restructured by the STN during the period of the contract\. The PAFs set annual targets on indebtedness, primary balances, personnel spending, tax revenue and public investment, in order to guarantee a gradual decline in indebtedness\. In addition, the PAFs include structural reforms such as privatization or other public 38 sector modernization initiatives\. Source: Relatório de Gestão Fiscal do Estado do Rio Grande do Sul \. Figure includes R$ 2\.27 billion in precatórios\. In 2000, PAF targets were institutionalized and made uniform under the Fiscal Responsibility Law, which sets limits on set limits on personnel costs, credit operations, total debt, debt servicing, and 61 guarantees\. Complementary resolutions from the Senate limit sub national borrowing\. 26\. Under the debt restructuring agreement, the debt owed to the federal government was classified into two categories\. The first, termed intra-limit debt, included all debt covered under the restructuring program as well as residual debt from the previous bail-out operations of 1997 (Law no\. 9\.496/1997)\. This totaled R$ 30\.1 billion in 2007 and represented more than 80 percent of the total\. The interest rate on this debt was set at 6 percent plus an inflation index\. Principal was also indexed to inflation\. Annual debt service, however, was capped at 13 percent of the state’s net revenues, with any residual automatically capitalized into the stock\. In effect, this last provision limited the state’s debt service obligations in the short run but added to the stock of debt that would have to be serviced in the future\. The other component—the extra-limit debt-- included all the remaining debts that had not been restructured with the STN and any new debts contracted after that time\. It included external debt, a floating rate bond, debts incurred under the Program of State Bank Restructuring (PROES, and debts to the pension fund of Banrisul employees\. It also included contingent liabilities, most of them coming from judicial decisions (precatórios)\. Much of this debt was coming due in 2008-2012\. Table A8-3: Debt Stock 2012-2015 (R$ millions) 2012 % 2013 % 2014 % 2015 % Law 9\.496/97 and PROES 42,619 90\.3 45,231 89\.7 47,181 86\.1 51,617 83\.5 Law 9\.496/97 Principal 17,888 37\.9 18,097 35\.9 17,984 32\.8 18,733 30\.3 Law 9\.496/97 Residual 19,285 40\.9 21,625 42\.9 23,723 43\.3 27,182 44\.0 PROES Intralimit 4,608 9\.8 4,662 9\.2 4,633 8\.5 4,826 7\.8 PROES Extralimit 837 1\.8 847 1\.7 842 1\.5 877 1\.4 Law 8727/93 581 1\.2 341 0\.7 239 0\.4 183 0\.3 DMLP 97 0\.2 106 0\.2 0 0\.0 0 0\.0 Caixa Econômica Federal 20 0\.0 18 0\.0 15 0\.0 13 0\.0 BNDES 563 1\.2 788 1\.6 1,001 1\.8 919 1\.5 Banco do Brasil 300 0\.6 300 0\.6 785 1\.4 747 1\.2 INSS - Débitos Parcelados 75 0\.2 102 0\.2 91 0\.2 82 0\.1 PASEP - Parcelamento 174 0\.3 Debt owed to the Federal Government 44,254 93\.8 46,886 92\.9 49,312 90\.0 53,736 87\.0 Other domestic debt 20 0\.0 20 0\.0 20 0\.0 20 0\.0 Total Domestic Debt 44,274 93\.8 46,906 93\.0 49,332 90\.0 53,756 87\.0 World Bank - IBRD 2,307 4\.9 2,717 5\.4 4,002 7\.3 5,979 9\.7 Inter\. Dev\. Bank - IADB 521 1\.1 767 1\.5 1,418 2\.6 2,023 3\.3 Japan Bank International Coop\. 77 0\.2 58 0\.1 43 0\.1 42 0\.1 External Debt 2,906 6\.2 3,541 7\.0 5,463 10\.0 8,043 13\.0 Total Debt 47,180 100\.0 50,448 100\.0 54,795 100\.0 61,800 100 Source: Receita Estadual/Secretaria da Fazenda do RS 27\. This debt was refinanced under the Bank’s DPL1 operation\. According to the PD for DPL1, the first tranche of DPL1 (US$650 million) was to be disbursed upon loan effectiveness, with the second tranche (US$450 million) contingent upon the Government’s adherence to the conditions described in the loan agreement which were expected to be 62 accomplished by the end of 2009\. Resources from the first tranche were to be used, inter alia, to pay down the debts with the Banrisul employees’ pension fund and the floating debt\. Resources from the second tranche would be used to pay down the debts incurred under PROES\. 28\. The result of this arrangement was a high level of expenditure on amortization payments in 2008-2011 (as the existing debts were paid off) which then fell abruptly in 2012\. (See Figure A8-5)\. Expenditures on interest however, moved in the opposite direction\. Spending on interest was surprisingly low in the period before 2012, averaging a rate of only 0\.4 percent of the stock\. It subsequently increased due to growing obligations on loans from the World Bank and BNDES, both of which were not subject to the intra-limit cap\. While it averaged 2\.7 percent from 2012 to 2015, it remains remarkably low—suggesting a further jump in interest payments when current grace periods and caps expire\. It should be noted that the Federal government recently agreed to grant the states temporary debt service relief, allowing them to postpone debt service on loans from the federal government from July 1, 2016, to December 31, 2016\. (Debt service due during this period will be capitalized into the stock\.) States are required to begin to service this debt starting January 1, 2017, but at a reduced level\. Full debt service will resume on July 1, 2018\. Figure A8-5 Trends on Debt Service 5000 Constant R$ Mns of 2015 4000 3000 2000 1000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 interests amortization Source: Receita Estadual/Secretaria da Fazenda do RS Overall Fiscal Performance 29\. Since 2008, the state’s fiscal performance has steadily declined\. It was expected that the first DPL loan, in connection with other reforms,39 would improve the state’s fiscal condition--slowly but consistently\. As described in the fiscal sustainability annex (Annex V) of the PD for this DPL, the state’s operating deficit was expected to shrink to 0\.8 percent of net current revenues in 2020\. Net consolidated debt was expected to drop to 174 percent of net 39 Including reforms in the civil service pension system, modest growth in employee compensation and reduced spending on goods and services\. However, the projections did assume a doubling of expenditure on capital investment\. 63 current revenues in 2015\. 30\. This did not happen\. Growth in personnel spending has gradually overtaken growth in tax revenues, resulting in a sharp decline in the state’s operational balance after 2011\. In 2015, the state did manage to slow the growth of expenditures\. As noted earlier, spending on current employees grew by only two percent in real terms (while spending on retirees and pensioners grew by 4\.4 percent\.) Transfers to municipalities declined by 2\.7 percent\. Other transfers (e\.g\., for health care) declined by three percent\. Investments in capital works fell nearly 60 percent\. But this was not enough to turn the tide\. The state’s operational deficit increased to 8\.8 percent of net current revenues\. (Figure A8-6)\. The state’s cash flow deficit40 grew to 13\.7 percent of net current revenues\. 31\. The state appears to be financing its cash flow deficit in a number of ways\. First, it is delaying payment of some obligations, including salaries\. The expenditure figures shown in the preceding tables represent expenditure commitments; ‘despesas empenhadas’\. They do not represent actual disbursements of cash (despesas liquidadas and pagas)\. The state is covering its ostensible cash flow deficit by postponing the latter\. As of the February 2016, restos a pagar processados (i\.e\., accounts payable) totaled R$ 3\.2 billion, an increase of R$2\.36 billion over the figure only two months earlier (end of 2015)\. The state is also resorting to some questionable sources of borrowing\. These include an arrangement whereby the state treasury ‘borrows’ judicial deposits arising from lawsuits between private parties\. This practice, while widespread among the states, has been challenged on Constitutional grounds\.41 The amount of third party judicial deposits ‘borrowed’ by RGS totals R$ 9\.4 billion and constitutes an important contingent liability of the state\. (Note that these contingent liabilities are not included in the total reported in the discussion of Prior Action 5\.) 32\. The state has not engaged in much further contractual borrowing, however\. Proceeds from contractual borrowing in 2015 totaled only R$ 439 million\. Amortization payments, on the other hand, totaled R$ 2,075 million\. Nevertheless, the state remains above the current Federal ceiling on state debt\. Senate Resolution 40/2001 sets the ceilings for states at 200 percent of net current revenues\. As of end-2015, the stock of Rio Grande do Sul’s debt (including precatórios) stood at R$ 68 billion, 2\.18 times the level of net current revenues\. The state’s actual fiscal performance has varied considerably from the baseline scenario described in the PD for this operation\. The PD provided a detailed set of projections of the state’s fiscal prospects, running through the year 2020, with debt projections through 2030\. It set out three scenarios: a baseline scenario, a scenario incorporating expected reductions in the interest rate on federal loans, and a ‘worst case’ scenario, which assumed zero growth in revenues in nominal terms in the years 2013 and 2014\. Under the baseline scenario, the state’s GDP was expected to grow by six percent in 2013\. The growth rate was then projected to slow to two percent in 2014, but then gradually increase to 2\.4 percent in 2015 and 2\.6 percent in all the following years of the projection\. Growth in the major categories of revenue was expected to largely follow suit, at least in the outer years\. Growth in the largest 40 Defined as total receipts including borrowing, minus total expenditures including amortization\. 41 In 2015, the Federal Government adopted Complementary Law no\. 151/2015, which allows the states to draw upon judicial deposits, only if the state is a party to the lawsuit\. The law also restricts the proportion of the deposit that can be used\. 64 category of VAT revenues (‘other’) was expected to exceed growth in GDP by three percentage points in 2013 and 2014, but then grow at the same rate as state GDP in subsequent years\. Expenditures, on the other hand, were projected to grow independently of GDP\. The figure for employee compensation in the education sector for 2013-2015, for instance, was based on the level of expenditure in 2012, plus three percent each year, plus the estimated cost of certain one-time increases in wages granted by previous administrations\. Subsequent spending in this category was projected to increase by three percent annually, in real terms42\. Other categories of expenditure, on the other hand, were projected to grow more slowly\. Spending on goods (other than health-related) were projected to remain constant in 2013 and then decline by 1\.7 percent per year over the rest of the projection period\. 34\. The result, according to the baseline projection, was to be a slight worsening of the state’s fiscal situation in the short term\. The operational deficit43 was projected to increase to 2\.7 percent of net current revenues by 2015\. Due to extensive borrowing, the cash flow deficit was projected to decline to zero\. The situation was expected to improve from 2016 onwards, as growth in revenues was projected to gradually outstrip growth in expenditures, resulting in an operational deficit of only 0\.8 percent in 2020\. Under the ‘worst case’ scenario, on the other hand, the operational deficit was projected to increase to 18 percent of NCR in 2015 and 22 percent of NCR in the following year\. By 2020, Rio Grande do Sul was projected to be running an operational deficit of 25 percent of NCR and borrowing R$ 8 billion (in prices of 2012) to cover its cash flow\. Figure A8-6 Trends in Operating Balance and Cash Flow 15% Percent of Net Current Revenues 10% 5% 0% -5% -10% -15% 2007 2008 2009 2010 2011 2012 2013 2014 2015 op balance/ncr cash flow/ncr Source: Receita Estadual/Secretaria da Fazenda do RS 42 The projections were made in nominal terms and assumed an inflation rate of 5\.8 percent in 2013 and 2014, declining to 5\.3 percent in 2015 and five percent in all subsequent years\. For purposes of clarity, growth rates in this text are expressed in real, rather than nominal, terms\. 43 ‘Operational deficit’ is defined as total current revenues minus total expenditures excluding amortization\. 65 35\. In the event, actual performance in the 2013-15 period fell in between the ‘base case’ and ‘worst case’ scenarios\. State GDP growth outstripped the projection in 2013, growing by 8\.2 percent\. But GDP then fell—by 0\.4 percent in 2014 and 3\.4 percent in 2015\. As a result, actual revenues grew at a much more modest rate than anticipated in the base case scenario\. As shown in Table A8-4, current revenues increased only five percent, in real terms, between 2012 and 2015\. Current expenditures also grew more slowly (13 percent compared to a projected 18 percent)\. Nevertheless, the gap between projected and actual revenues was wider than the gap between projected and actual expenditure\. As a result, the operating deficit in 2015 was considerably larger than projected (8\.8 percent as opposed to 2\.7 percent)\. Amortization expenditures were also considerably higher than anticipated, resulting in the ostensible cash flow deficit equal to 13\.7 percent of NCR\. Table A8-4: Comparison of Projected and Actual Changes in n Revenues and Expenditures, 2012-2015 (real terms) Projected Base Case Actual Current revenues 15% 5% VAT 17% 3% Current expenditures 18% 13% personnel 16% 17% interest 77% -9% other current 14% 9% Capital investment -34% -46% Comparison of Projected and Actual Fiscal Indicators 2015 (% NCR) Operating deficit -2\.7 -8\.8 Cash flow balance 0 -13\.7 Source: Receita Estadual/Secretaria da Fazenda do RS 66 1\. The Bank’s efforts to improve RGS’ fiscal situation date back nearly twenty years\. The first operation of this sort was the Rio Grande do Sul State Privatization and Reform Loan (US$ 125 million, approved in March of 1997, fully disbursed and closed on schedule in December 1998)\. This policy-based loan was one of several loans the Bank made to Brazilian states at the time to support structural reforms\. The loan to RGS emphasized fiscal adjustment and privatization\. The privatization components of the project were successful, with the privatization of the telecommunications and electricity companies and the concessions of ports and road maintenance services\. However, the state’s fiscal condition did not improve\. On the contrary, the state adopted an expansionary policy financed in part by the privatization proceeds, undermining its medium-term fiscal sustainability\. 2\. The second bank operation of this type was a two-tranche DPL in the amount of US$ 1\.1 billion (approved in 2008): Rio Grande do Sul Fiscal Sustainability for Growth Program\. At the time the loan was prepared, RS’s finances had continued to deteriorate\. According to the Program Document (PD) for the operation, RGS was one of only two states (out of 27) that had been unable to comply with the federal Fiscal Responsibility Law (LRF)\. This reflected years of rising expenditures on personnel (both active and retired) and the extensive use of tax incentives\. The operation was designed to assist the Government in attaining a more sustainable fiscal position and undertaking important public sector reforms\. 3\. On the revenue side, Government actions were geared toward increasing tax collection efficiency, given the limited scope the state had to raise rates on its principal revenues source, a state-administered VAT44\. On the expenditure side, the Government undertook to (1) eliminate 20 percent of commissioned positions (about 750 positions); (2) restructure the Executive Branch (reducing the number of entities from 76 to 69; (3) issue a decree imposing expenditure ceilings for all the state secretariats and indirect administration entities; (4) mandate a cut of about 30 percent in the operating cost of all the state secretariats; and (5) implement a reduction in planned investment by more than 50 percent\. 4\. The loan also permitted the state to restructure its debt\. As elaborated in Annex 8, the state was facing a steep increase in amortization and interest obligations\. The Bank loan allowed the state to pay off a significant proportion of these obligations, replacing them with the Bank loan at longer maturities\. The state also undertook some organizational reforms to its pension system (although as discussed in Annex 8, these had little long term impact)\. In fiscal terms, the operation was successful\. The state’s operational surplus doubled (as a percent of net current revenues) between 2007 and 2008\. 5\. The 2008 DPL was followed by a SWAp in 2012, in the amount of US$ 480 million (P120830)\. According to the PD for the operation, ‘the Government was conscious that the 44 As discussed in Annex 8, federal law exempts exports from the VAT and fixes the ceiling on interstate sales\. The state does have some latitude to increase the rate on intrastate sales, but this option faced determined opposition in the state legislature\. 67 (preceding) fiscal adjustment had been achieved largely through cuts in public investment and recognized that the state has slipped in national rankings of educational and infrastructural quality as a result\. It therefore requested that the Bank support a set of selective well-targeted growth-oriented interventions in transport, education and private sector development supported by improvements in public sector management, environmental management and public service delivery\. Privatizaton and Reform SWAP (2012) FISCAL AND WATER First DPL (2008) Loan (1997) RESOURCES DPL (2014) 6\. The SWAp had two parts: (1) a cross-cutting public sector management part comprising of technical assistance of approximately US$ 55\.3 million and (2) an eligible expenditure program (EEP) part of approximately US$ 423\.5 million\. Under the latter part, the project undertook to finance eligible expenditure programs encompassing investments in public sector management (inter alia, public asset management), transport (inter alia, highway rehabilitation and repair), education (inter alia, technological modernization, buildings repair), and private sector development for small and medium-sized enterprises (inter alia, cluster programs, industrial extension services and technology parks) identified by the Government as critical for restarting economic growth\. 7\. The loan became effective in August 2012\. Its closing date is February 28, 2019\. Up to now, the disbursements have amounted US$ 277\.6 million (58 percent of the total)\. According to the ISR of June 2016, implementation is broadly on track\. However, there have been concerns over the delays in the execution of eligible expenditure programs in the transport component, particularly in the preparation and execution of road rehabilitation contracts\. The project was restructured in December 2015 to allow the completion of these contracts within its amended duration\. Concerns have been alleviated for the time being with the borrower meeting the agreed June 30 2016 milestones\. The Bank intends to continue to focus its attention on ensuring that the roads agency (DAER) meets its commitments and that its attempts at short crisis management can be converted into longer term gains in managerial efficiency\. 68

REVIEW

P073330

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23493 IMPLEMENTATION COMPLETION REPORT (IDA-3 1820; IDA-3 182 1) ON ECONOMIC RECOVERY CREDIT LOAN/CREDIT/GRANT IN THE AMOUNT OF 75\.0US$ MILLION TO THE REPUBLIC OF RWANDA FOR ECONOMIC RECOVERY CREDIT 02/08/2002 PREM 3 Economic Management and Social Policy Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective 2001) Currency Unit = RF (Rwanda Franc) RF 420 = US$ 1\.00 US$ 1 = RF 420 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS Vice President: C\. Madavo Country Manager/Director: E\. Mbi Sector Manager/Director: C\. Atta Mills Task Team Leader/Task Manager: C\. Obidegwu  FOR OFFICIAL USE ONLY RWANDA ECONOMIC RECOVERY CREDIT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 2 3\. Assessment of Development Objective and Design, and of Quality at Entry 3 4\. Achievement of Objective and Outputs 6 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability I 1 7\. Bank and Borrower Performance 12 8\. Lessons Learned 13 9\. Partner Comments 15 10\. Additional Information 20 Annex 1\. Key Performance Indicators/Log Frame Matrix 21 Annex 2\. Project Costs and Financing 21 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 24 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P057294 | Project Name: ECON\. REC\. CREDIT Team Leader: Chukwuma F\. Obidegwu TL Unit: AFTP3 ICR Type: Core ICR Report Date\. February 20, 2002 1\. Project Data Name: ECON\. REC\. CREDIT L/C/TF Nimber: IDA-31820; IDA-31821 Country/Department: RWANDA Region: Africa Regional Office Sector/subsector: KN - Macro/Non-Trade KEY DATES Original Revised/Actual PCD: 09/29/1998 Effective: 05/26/1999 05/26/1999 Appraisal: 01/15/1999 MTR: Approval: 03/30/1999 Closing: 12/31/2000 03/31/2001 Borrower/Implementing Agency: GORtMINISTRY OF FINANCE Other Partners: NONE STAFF Current At Appraisal Vice President: C\. Madavo Callisto Madavo Country Manager: Emmanuel Mbi Emmanuel Mbi Sector Manager: Cadman A\. Mills Luca Barbone Team Leader at ICR: C\. Obidegwu C\. Obidegwu ICR Primary Author: Prosper Biabo 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The objectives and the ERC need to be assessed in the context of the exceptional economic, political and institutional conditions that prevailed in Rwanda and the Great Lakes region during the last seven years\. The genocide in Rwanda in April-July 1994 resulted in the death of up to 800,000 people, the exodus of two million refugees to neighboring countries, the internal displacement of another one million people, the massive disruption of economic activities, the ouster of the ruling regime, and the destruction of the social and institutional fabric\. Since then, Rwanda made remarkable but bumpy progress toward peace, economic recovery and stability, and rebuilding its social fabric and institutions\. Most of the refugees who left the country in 1994 have returned, especially in 1996/97 after Rwanda's used military force to break up the camps in the DRC\. This resulted in the massive return of about 1\.2 million Rwandan refugees from the DRC and Tanzania in three months from November 1996\. However, some of the refugees, including remnants of the forces that perpetrated the genocide, fled deeper into Zaire\. After its success in breaking up the refugee camps, the Rwandese army in alliance with rebel Congolese groups, ousted the regime of Mobutu in Zaire\. The massive return of the refugees, the success in resettling them, and the ouster of Mobutu gave rise to optimism for peace and economic revival in Rwanda and the Great Lakes region\. Following the first wave in the massive return of refugees to Rwanda, a joint Bank-UN mission visited Rwanda in December 1996 and assessed Rwanda's needs for resettlement and reintegration\. In February 1999, a joint Bank/IMF mission collaborated with the GoR in preparing a policy framework document: Post-Conflict Reconstruction: a Framework for Economic Policies (FEP) World Bank: Memorandum and Recommendation of the President of IDA on the Emergency Reintegration and Recovery Credit for Rwanda (Report No P-7149-RW, 6/11/97), Annex elaborating the Government's strategy for tackling the social and economic challenges facing the country in the transition from post-conflict crisis to sustainable development\. The FEP provided the basis for the request for assistance under the IMF's Post-Conflict Assistance, approved by the IMF Board in [March 1997] and the ERRC, approved by the Board in June 1997\. The ERRC was part of the Bank's response to the intemational efforts needed to resettle and reintegrate the refugees in communities in Rwanda\. The progress made in the reforms identified in the FEP strengthened the case for a full economic reform program and the Economic Recovery Credit (ERC) was conceived as the instrument for the Bank to support to the reform program alongside an IMF's ESAF\. However from late 1997, the Rwandan Govemment was increasingly preoccupied with the intensive insurgency by Rwandese rebel groups from bases in the DRC\. The Rwandan army entered the DRC in July 1998 in an effort to stem the attacks and also to support new rebel groups in the DRC fighting against the regime that Rwanda had helped to install in Kinsasha\. This resulted in a broad war, involving other African countries fighting on the side of the DRC government and Uganda and Rwanda backing the rebels\. While the international community had acquiesced to the first military intervention of Rwanda in the DRC, this second round raised concerns about the Rwanda government's intentions in the region, its commitment to peace, reconciliation and development at home, and the diversion of resources to the military\. These concerns slowed the flow of development assistance from donors, particularly budget support\. This second military intervention, starting from July 1998, just after a successful donor meeting in June to raise funds for the reform program, put the proposed reform program at risk, as donors initially withheld financial support\. The start of the preparation of the ERC was delayed while the Bank and the donor community considered the implications of providing budget assistance to a country engaged in a war with its neighbor\. After agonizing over their support for reform in Rwanda for a few months, most donors decided to resume budget support, following assurances by the Government of its intentions in the DRC and its willingness to engage in negotiations for a peaceful resolution of the crisis\. Following negotiations under the auspices of the OAU and the UN, the belligerents signed a peace agreement (Lusaka Accord) to end the conflict\. However, it was not until January 2001, following a change of leadership in the DRC, that the - 2 -  implementation of the Accord started\. There is a sense of optimism in the region that progress will be made this time in ending the conflict\. In the end, it was felt that Rwanda had understandable security concerns and furthermore, a suspension of assistance would damage the fragile economic and social recovery of Rwanda and increase risks of vulnerability, intensified conflict and population displacement\. Thus, while not condoning military actions, the Country Team and most of the donors agreed that the planned assistance should be resumed\. For the ERC, it was agreed that it should put emphasis on monitoring the budget expenditures and increasing social spending, to mitigate the effect of the pressure for military spending\. The decision to move ahead was not one that pleased everyone but it typified the vexing decisions that have to be taken in conflict-affected countries\. Rwanda's strategy for the transition from conflict to peace and development consisted of parallel programs of socio-political and economic reforms aimed at national reconciliation, rapid economic growth and poverty reduction\. The GoR considered an economic reform program as the comerstone of its efforts to build a peaceful and prosperous Rwanda\. A climate of economic revival, with private sector led growth and employment creation, and increased rural economic activity, was considered essential to success of the processes of national reintegration and reconciliation that would underpin nation building\. The ERC supported the GoR's reform program aimed at sustaining the economic recovery and stability and laying the institutional foundation for national reconciliation, sustainable economic growth and poverty reduction\. The strategic thrust of the program was a rapid transition from a lethargic state-controlled system to a liberal economy, in which the state creates the proper social and economic institutions and the right conditions for private sector-led growth, and all social groups in Rwanda have equal access to economic opportunities\. The program focused on (a) revitalizing agriculture and the rural economy; (b) building human resources/social sector reform; (c) gender and the role of women; (d) private sector development; and (e) public sector reform\. These objectives and focus reflected the essential priorities for the transition from emergency to economic development in post-conflict Rwanda, as identified both by the GoR and reflected in its Letter of Development Policy, and by the Bank's Country Assistance Strategy\. Credit Design The preparation of the ERC was preceded by the elaboration, in 1998, of Policy Framework Paper (PFP) and a Donors Meeting in June 1998, to discuss the policy framework and raise resources to support the program\. The Government prepared the PFP in collaboration of the Bank, the IMF, the European Union and the AfDB, the principal financial backers of the reform program\. At the Donors Meeting, the partners including the Bank, pledged US$250 million in budget support, sufficient to close the projected financing gap\. Furthermore, some of these pledges were used to establish a Multilateral Debt Trust Fund (MDTF), administered by the Bank, to service the multilateral debts (IDA, AfDB, IFAD) of Rwanda until Rwanda receives assistance under the Heavily Indebted Poor Countries (HIPC) Initiative\. This was to preclude any interruption of the program and the support from multilateral institutions that would result from the failure of the GoR to meet its debt-service obligations\. The policy and institutional measures supported by the proposed credit were considered essential to consolidate the economic recovery and stability while enabling Rwanda make the transition, defacto and the jure, from a state controlled to a market-oriented economy\. The ERC was designed to be disbursed in three tranches consisting of an initial tranche of US$40 million on effectiveness, a fixed tranche in January 31, 2000 of US$17\.5 million, and a floating tranche of US$17\.5 million, expected to be disbursed in July 2000\. The Government took substantial up-front actions including the removal of the coffee export tax, the increase in the tea producer price and the submission to the National Assembly of the long discussed revision of the Labor Code\. Recognizing the fragile socio-political situation in Rwanda, the Credit avoided tranche release conditionalities on measures that could exacerbate social tensions, for instance retrenchment in the civil service\. The conditionalities also reflected a deliberate effort to prepare action plans for the next stage of reforms\. The conditions for the - 3 -  releases of the fixed and floating tranches are outlined in annex\. The operation was prepared over a six-month period\. The Credit was signed April 9, 1999 and following the fulfillment of the conditions of effectiveness, declared effective on May 26, 1999\. The first tranche was released on May 29, 1999\. The second tranche was released on July 27, 2000 following the full compliance with the conditions for the release for the second tranche\. The high level of oil prices starting in 1999 and persisting in 2000-2001 raised the extemal financial needs of Rwanda far beyond the estimate made in the preparation of the ERC\. Following the request of the GoR, a supplemental credit to the ERC of US$15 million equivalent was prepared, packaged with similar supplementals for six other borrowers in the Africa Region, and approved by the Board in December 22, 2000\. The objectives of the supplemental were the same as the original credit\. The third/floating tranche was released in March 2001, following full compliance with the conditionalities and the supplemental was also released in March 2001 on effectiveness\. 3\.2 Revised Objective: Project objectives remained unchanged and project design was not modified during the credit life cycle\. Sustain Economic Recovery and maintain macroeconomic stability; Transfer incomes to rural areas and poor producers through the elimination of commodity taxes and increasing producer prices; Enhance Gender equality and strengthen the participation of women in economic and social activities; Improve agricultural productivity by ensuring the security of land tenure and the availability of agricultural inputs; Improve access and quality of social services; Create jobs, broaden ownership of productive assets by privatizing state owned enterprises and productive assets; Liberalize economic activities to open up economic opportinities to all Rwandese social groups and thereby contribute to national reconciliation\. 3\.3 Original Components: The reform program supported by the ERC had four major components: (i) maintaining macroeconomic stability and improving public resource mobilization and management; (ii) developing market-oriented agriculture and reviving the niral economy; (iii) enhancing the role of women; (iv) establishing the institutional and legal framework conducive to private sector growth and competitiveness; and (v) privatizing state enterprises and reforming public administration\. 3\.4 Revised Components: Components were not modified\. Component; Cost; Rating ALL; $75,000,000\.00; S PRIVATIZATION AND PSD; $15,000,000\.00; S PUBLIC SERVICE REFORM; $20,000,000\.00; S AGRICULTURE MARKET DEVELOPMENT; $20,000,000\.00; S HUMAN RES DEVELOPMENT; $20,000,000\.00; S 3\.5 Quality at Entry: Quality at Entry was ensured by (i) consistency of objectives with the priorities of the CAS to support the consolidation of the recovery of the economy and lay the foundations for sustainable growth and poverty reduction; (ii) use of the lessons learned under the previous Emergency Reintegration and Recovery Credit, (iii) intensive discussions with the Borrower leading to an agreed PFP and the participation of and consultations with key partners on the program to be supported by the credit; (iv) credit design, which took into account the institutional constraints and risks; and (v) strong commitment to reforms by the Borrower\. 4\. Achievement of Objective and Outputs - 4 -  4\.1 Outcome/achievement of objective: The ERC was implemented in the context of post-conflict domestic insecurity, heightened by broad regional conflict in which Rwanda was deeply involved\. Assistance from official development agencies fell short of expectations and the region was not attractive destination for private investment\. This affected the pace of the implementation of the reforms, the supply response and the macroeconomic performance, and slowed the transition from emergency to development\. Nevertheless the program largely achieved its objectives of consolidating the economic recovery and stability and laying the institutional basis for sustained economic growth and poverty reduction\. The economy remained stable and continued its rebound from the decline in 1994\. Poverty, measured by the headcount index decline from an estimated 70 percent in 1997 to 65 percent in 1999\. The program achieved the structural reform objectives to liberalize the economy and build the institutional framework for the economy to simultaneously make the transition from emergency to development, and from state controlled to private sector led economy\. The implementation of the reform program established the track record and basis for Rwanda to reach the Decision Point of the Enhanced HIPC in December 2000\. 4\.2 Outputs by components: The ERC was implemented in the context of post-conflict domestic insecurity, heightened by broad regional conflict in which Rwanda was deeply involved\. Assistance from official development agencies fell short of expectations and the region was not attractive destination for private investment\. This affected the pace of the implementation of the reforms, the supply response and the macroeconomic performance, and slowed the transition from emergency to development\. Nevertheless the program largely achieved its objectives of consolidating the economic recovery and stability and laying the institutional basis for sustained economic growth and poverty reduction\. The economy remained stable and continued its rebound from the decline in 1994\. Poverty, measured by the headcount index decline from an estimated 70 percent in 1997 to 65 percent in 1999\. The program achieved the structural reform objectives to liberalize the economy and build the institutional framework for the economy to simultaneously make the transition from emergency to development, and from state controlled to private sector led economy\. The implementation of the reform program established the track record and basis for Rwanda to reach the Decision Point of the Enhanced HIPC in December 2000\. Macroeconomic Objectives The macroeconomic performance was broadly in line with the ambitious program targets\. The economy has rebounded, growing by 70 percent in 1994-97 and 9\.5 percent in 1998\. The economy continued to grow, albeit at a lower than expected rate, with real GDP growth rates of 5\.9 percent in 1999 and 5\.6 percent in 2000, below the projected rate of 8 percent\. The growth of industrial output fell due to the sluggish demand for industrial products resulting from the decline in the activities and related employment by intemational NGOs and relief agencies\. Furthermore, economic performance was negatively affected by the DRC war as well as the oil price related extemal shocks\. Inflation measured by the Consumer Price Index (CPI), declined from 17 percent in end- 1997 to an average of 6\.8 percent in 1998 and -2\.5 percent in 1999, reflecting a steep decline in food prices\. It rose to [4] percent in 2000 reflecting adjustments in food prices, increased transportation costs due to higher fuel costs, and overall increase in the prices of imported goods due to the depreciation of the exchange rate\. On the fiscal front, a number of measures were taken to rationalize the tax system and increase government revenues - the establishment of a semi-autonomous revenue authority, the adoption of a new tax code, the move away from a reliance on trade taxes, and the introduction of the VAT in 2001\. However, revenue performance in 1999 and 2000 were below targets, reflecting the deceleration of economic growth from 1999, the unexpected decline in import volumes combined with the planned tariff reduction, and the start-up problems of the Revenue Authority\. On the external front, the current account deficit excluding - 5 -  official transfers amounted to 15\.3 percent of GDP in 1999 compared to 16\.9 percent in 1998\. The deficit rose to an estimated 16\.8 percent of GDP in 2000\. The gross intemational reserves have remained over 6 months of imports in 1999 and 2000 in accordance with the targets\. Achievements by Structural Components Agriculture and Rural Development In 1999, the GoR eliminated the 30 percent tax on coffee exports and increased the producer price of tea by 37 percent\. These actions improved the incomes of poor farmers and the prospects for reviving both the coffee and tea sectors\. The removal of the coffee export tax in 1999 increased producer prices and attracted a number of new firms into the marketing and processing of coffee\. With competition among exporters, producers have been the main beneficiaries of the removal of the tax\. Another important development has been the emergence of producers associations that have become active in selling coffee directly to exporters and in distributing inputs such as fertilizers and pesticides to members\. Legislation was passed in 2000 to change the legal mandates of OCIR-Cafe and OCIR-The, the two parastatals involved in production, marketing and regulatory functions in the coffee and tea sectors\. The new agencies would be industry-based, with mandates were limited to regulation, monitoring and promotion\. Aggregate production of both coffee and tea declined in 1999 but rose in 2000 but it is too early to assess the impact of the measures, especially for tea where a more fundamental action - the privatization of the tea factories has not yet taken place\. Most of the coffee-processing plants have been privatized and the privatization of the 9 state-owned tea estates are expected to take place in 2001-2002\. In line with its policy of liberalization of markets, the Govemment has reaffirmed the policy of market-based pricing and distribution of these inputs, thus abandoning the pre-genocide practice of state control of the market for these inputs\. This would encourage the adoption of modem inputs (fertilizers, seeds) by farmers\. Gender Reforms Gender issues have become important parts of the reform agenda and public debate in part because they were included in the PFP and the ERC and thus elevated to the highest level of national decision-making\. The National Assembly passed, and the President signed into law in late 1999 an amendment to the civil code to eliminate gender discrimination on inheritance and property rights\. The revision of the labor code eliminated the discrimination against women in the previous code\. Progress has been made in promoting gender issues through the coordinated efforts of the Ministry of Gender and Women in Development, local Women NGOs, relief agencies and development partners including the World Bank\. The Govemment has developed a broad Gender Action Plan for 2000-2005\. Under the ERC, a Comprehensive Legal Action Plan, to eliminate all discrimination against women, was prepared in consultation with the stakeholders, and with the assistance of the Bank\. An IDF Grant was recently approved to support the implementation of this Plan\. The situation of women in Rwanda is improving\. Within the last two years, mandatory representation of women in the national Assembly, the local councils and executive committees has become obligatory\. While enrolment of females lags that of males in tertiary education, the enrolment of females is at par with that of males in secondary and primary education\. -6 -  Private Sector Development The Government controlled Chamber of Commerce, to which all commercial enterprises were required to belong, was abolished by law in 2000\. The private sector has since formed the Rwanda Private Sector Federation as the apex institution to represent its interests\. The labor code was revised to remove restrictions on labor movements and government intervention in the employment decisions of private firms\. The National Assembly also approved the revision of the Internal Trade law, to revoke the broad powers of the Government to control prices and profit margins\. These actions are in line with the objective of the reform program to transform the economy of Rwanda, de facto and de-jure, from a state controlled to a private sector-led growing economy\. The Arbitrage Center was formally established but the lack of capacity has impeded its effectiveness\. The GoR and the private sector are addressing the problem of capacity\. The Rwanda Investment Promotion Agency (RIPA) was established by an Act of Parliament to promote and facilitate investments, and promote exports and business development\. The same law also enacted a new liberal investment code that provided some incentives for investors\. In early 2000, RIPA opened for business\. Some progress was made in bank supervision and bank restructuring\. The NBR continued to strengthen its bank supervision department according to an agreed plan, and the restructuring plans agreed with some commercial banks by June 2000 began to be implemented\. The stock of non-performing loans of banks was provisionally estimated at about 38 percent of credit to the private sector as of end-September 2000, compared with just over 20 percent at end- 1997-mainly owing to a stricter application of the NBR's loan classification procedures\. Provisioning for these loans in accordance with requirements consistent with the Basel Committee on Banking Public Sector Reform Privatization: The poor implementation capacity and weak response of domestic and foreign investors to buy state owned enterprises (SOEs) offered for sale slowed the pace of privatization\. However, the start-up of the program in 1998, about 42 enterprises, out of about 70 existing SOEs, have been offered for sale, about 35 have been brought to the point of sale, and the Cabinet has approved about 25 divestiture transactions\. Difficulties in obtaining titles and however delayed the transfer of properties to private buyers\. However, as of early 2001, 19 of the enterprises sold have become operational under the new private owners\. While efforts are continuing on finalizing the transactions and the sale of the remaining commercial state enterprises, the focus has turned to major assets in utilities and the tea industry\. With the support of the Bank, the GoR has prepared and adopted strategies for the privatization of Rwandatel (the telephone monopoly) and the nine publicly owned tea factories, and the restructuring/privatization of Electrogaz, the energy/water utility\. The National Assembly has approved a regulatory framework for the telecommunications sector\. This framework was developed with the support of the Bank\. For the tea industry, the strategy is to sell the assets of the tea factories and the associated publicly owned estates to private investors, with minority stakes reserved for cooperatives of tea out-growers\. The latter was responding to the demand by the tea out-growers for participation in the ownership of the factories\. The strategy also provides for the establishment of a Tea Board, an industry-based organization to promote the development of the tea business\. The privatization process for Rwandatel, the sale of majority shareholding to a strategic investor, started February 2001 and the sale should be concluded within a year\. The privatization of the tea factories/estates will start with the offer of two estates for sale in early 2001\. In May 2000, the Cabinet approved a plan to restructure Electrogaz\. As a first step, a private operator will be hired by end-2001 to run the new restructured company, to be followed by a concession arrangement in later years\. Reform of Public Administration: The Govemment embarked in early 1998 on a program of civil service -7 -  reform aimed at establishing a leaner, more efficient civil service\. The first phase of the program, has aimed at managing entry into and exit from the civil service, filling immediate staffing needs, enhancing the control of the payroll, and rationalizing civil service remuneration,\. This agenda was largely achieved\. A civil service census was carried out in late 1998 providing the basis for the rationalization of the civil service\. This facilitated the removal of ghost workers (over 7,000) and unqualified employees (about 3,000), and the regularization of the status of employees, largely returned refugees-teachers\. In early 1999, fringe benefits were monetized and civil service salaries, which had dropped by over one-half since 1993, were increased by over 40 percent on average\. The Government also privatized janitorial services formerly carried out by civil servants\. This has been reflected in improved janitorial services throughout the government facilities\. Studies and consultations were undertaken to facilitate the overhaul the organization of public administration and establish an appropriate framework for staffing and managing the public sector\. A restructuring of Government, with a view to focus attention on the key priorities of the country, was undertaken in 1999\. This resulted in a small increase in the number of ministries from [17 to 19]\. Based on this organizational arrangement, new organizational structures for each ministry/agency, consistent with the vision of a lean efficient civil service, were prepared and submitted to cabinet for approval\. Position descriptions and related qualifications requirements, job categorization and grading were also prepared\. The National Assembly adopted the Public Service Code (Statut General de la Fonction Publique) in 2001, formalizing all the agreed institutional changes\. The cabinet has approved the new organizational structures and the deployment of staffing in new positions has been underway since mid-2000\. As a result of these changes, the staffing requirements for public administration has been reduced considerably to about 9000 compared to the staffing level of over 13,000 in 1998\. The new positions and job requirements in the new public administration does not have room for current civil servants without a high school diploma\. Thus about 6,000 civil servants, mostly those unqualified have been retrenched\. Public Sector Resource Management: Since 1998, the Govemment treated the social sectors as budget priorities, with increasing budget allocations to them\. The policy, adopted in 1999 to protect the allocations to the priority sectors from cuts during the course of the fiscal year, was respected in the mid-year budget cuts in 1999 and 2000\. For the 2001 budget, an expanded list of programs, including poverty focused non-social sector activities, has been selected as priority program areas (PPAs)\. These PPAs receive increased budget allocations and will be protected from budget cuts\. The Govemment introduced the Medium-Term Expenditure Framework (MTEF) approach to budgeting in 2000 for the 2001 budget\. The strong commitment of the Govemment to the MTEF, the careful preparations involving the sensitization of the key stakeholders including members of the National Assembly, and the culture of budget discipline in Rwanda, bodes well for the success of the MTEF approach\. A new functional budget classification has been introduced to replace the existing complex organization/economic classification\. The burden of security-related expenditures, while still high, is being progressively reduced and contained within the budget allocation\. Security related spending, as a proportion of GDP, is estimated to be 3\.4 percent in 2000 compared to 4\.3 percent in 1998 and 4\.2 percent in 1999\. Monitoring of the budget spending and trends in poverty, and accountability and transparency of budget transactions is improving\. The budget flash report continues to provide monthly information on government expenditures and commitments\. The Poverty Observatoire du Rwanda (OPR), created in 1999 to monitor trends in poverty and the impact of public policies and programs designed to reduce poverty is now functioning\. An expenditure monitoring and tracking survey of primary education and health facilities, coordinated by the OPR, is underway\. A National Tender Board and an Office of the Auditor-General were established in 1998 and 1999 respectively\. - 8 -  4\.3 Net Present Value/Economic rate of return: Not applicable 4\.4 Financial rate of return: Not applicable 4\.5 Institutional development impact: Institutional change and development was important part of the reform program supported by the ERC\. The progress made in the implementation of the reform program has contributed to substantial institutional development\. The elimination of the instruments of state control through the revision of the Chamber of Commerce Act, the Labor Code, the Intemal Trade Act, the new investment code, and the laws establishing the Coffee and Tea Boards has moved forward the transformation of the economy from state-controlled to private-sector led and established the institutional basis for rapid private sector development\. The adoption of a Public Service Code has provided the framework for the progressive overhaul of public administration, and the enhancement of capacity and the improvement in public service provision\. The budget reforms undertaken and the adoption of the MTEF approach will lead to a result-oriented transparent and accountable public expenditure management system\. The establishment of the Office of the Auditor-General and the National Tender Board should have lasting impact on accountability, transparency and efficiency in the management of public resources\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The major factors affecting the implementation and outcomes of the reforms included (i) the security situation in Rwanda and the region; (ii) the flow of resources from the donors; (iii) the capacity of the Government to implement reforms; and (iv) the commitment of the GoR and the support of the civil society to the reform program\. Given the volatile nature of the situation in Rwanda, it is easy to separate these factors into those that are or are not outside the control of the government\. The war in the DRC and the overall conflict in the region was a major hindrance to the implementation and outcomes of the reform program\. Private investment has been anemic due to the perception of Rwanda and the region as insecure, fueled by the genocide and sustained by the conflict in the DRC\. This insecurity adversely affected the supply response to the policy reforms\. It also affected the volume and reliability of donor flows\. The war in the DRC also led to a diversion of financial and human resources from the development program to military uses\. To the extent that Rwanda's military intervention in the DRC was a response to the insurgency that was taking lives, destroying property and threatening to destabilize Rwanda, this was a response to actions it could not control\. However, the scope of the intervention was within its control\. The weak response to the development needs of Rwanda by the bilateral donors, some of this weakness resulting form the DRC conflict, affected the implementation and outcomes of the reformn program\. Rwanda experienced a huge loss of human resources in the genocide\. It basically had to rebuild its public administration, employing what was left of the prewar civil servants and new ones recruited from returned old caseload refuges\. In 1995 less than 5 percent of the civil servants had university education and a large proportion did not finish high school\. Furthermore, Rwanda also had a large agenda of reconstruction and reform that stretched its thin capacity and adversely affected the pace of implementation of these programs\. Rwanda needed technical assistance and rapid capacity building for which it needed donor assistance\. Government commitment to the reform program was strong, and the organized private sector and local -9-  NGOs generally supported the reforms\. This somehow mitigated the effect of the weak capacity\. Factors generally subject to Government control 5\.2 Factors generally subject to government control: Not applicable 5\.3 Factors generally subject to implementing agency control: Not applicable 5\.4 Costs andfinancing: The Economic Recovery Credit (ERC) was designed to finance eligible imports based on a negative list and a counterpart funds from the imports to finance programs in the national budget\. Disbursement of the credit was made directly into a central bank account, which then credited the treasury with the equivalent amount in domestic currency\. An unanticipated sharp increase of intemational oil prices increased the financing gap and the GOR requested a SDR 11\.8 million supplemental credit to ERC to close the gap\. Overall the US$90 million from the ERC financed 10\.2 percent of Rwanda's imports (cif) and 8\.3 per cent of the total budget expenditures from 1999 to 2001\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The sustainability of the reform program supported by ERC is likely\. During six years of implementing reforms, there have been no policy reversals\. Rather there has been effort to build on and improve reforms already made, for instance on the liberalization of the exchange rate\. Reform measures are widely debated before adoption, within the civil service, with the stakeholders, in the Cabinet and often the National Assembly\. In accordance with the Arusha Accord, Cabinet has to approve all key Government measures, and decisions are by consensus\. This process resulted in delays but helped to build ownership and promote sustainability\. Cabinet decisions and legislation adopted by the National Assembly were announced on radio and subsequently published in the Official Gazette\. Finally, the Government is committed to the reform program and the economic liberalization is seen as a key anchor for the national reconciliation effort\. The Bank, the IMF, the European Union, AfDB and bilateral donors are continuing to support the GoR's effort to deepen the reforms\. Nevertheless, Rwanda is entering into a period of implementation of complex social and political reforms needed to foster national reconciliation and establish socio-political stability\. These reforns include the acceleration of the trials of the genocide suspects, using an adaptation of the traditional system of justice (gacacha)\. Other reforms include the decentralization of government and the transition to full representative government in 2003\. While the approaches to these reforms are conceptually sound and there appears to be strong commitment to them, implementation will be a challenge, especially given the fragile technical capacity and social fabric\. Furthermore, Rwanda will remain exposed to the insurgency from the interahamwe militia, unless the Lusaka Accord is fully implemented\. The implementation risks associated with these socio-political reforms and the Lusaka Accord are also risks to the sustainability of the policy and institutional reform program supported by the ERC\. 6\.2 Transition arrangement to regular operations: The ERC is the first regular operation in Rwanda by the Bank since the genocide\. It followed two emergency operations designed to support economy recovery and capacity building and initiate policy dialogue\. The ERC was followed in 2000 by projects on education and rural water supply\. - 10 -  7\. Bank and Borrower Performance Bank 7\.1 Lending: The performance of the Bank from implementation to completion is rated satisfactory\. The reform program was formulated through intensive consultations between the Government, the IMF, the Bank and other development partners\. It was clearly focused on actions needed to help Rwanda consolidate its ongoing economic recovery and stability and enhance the prospects for national reconciliation\. The Bank organized a successful Donors Meeting that raised money in support of the reform program\. The Bank recognized the operation as a high risk one in a post-conflict country also involved in an extemal war\. The Bank considered the risks and the options, consulted with the development partners before deciding to move ahead\. The credit design also took into account the fragile post-conflict social situation and the weak capacity of the GoR in formulating the conditionalities\. However, the design of the program underestimated the severity of the capacity problem and overestimated the pace of the decision-making process in Government, particularly the Cabinet and the legislative process of the National Assembly\. 7\.2 Supervision: Bank supervision was satisfactory\. During program implementation, the Bank maintained a close and frank dialogue with the Borrower and its main partners\. Supervision missions were frequent, at least three times in a year\. The resident representative and economist, who were deeply involved in the dialogue during the preparation of the credit, were also actively involved in the day-to-day supervision and monitoring of the reform program\. The supervision of the credit also benefited from the dialogue on parallel Bank supported activities such as the PRSP, the preparation of the preliminary and decision point documents for the enhanced HIPC, and the preparation of the CAS Progress Report in 1999\. These activities required intensive assessment of the progress of the reform program\. One area of weakness in Bank supervision was in supporting the Borrower with technical assistance to deal with identified capacity problems\. While it was realized in the design phase that TA would be essential to implement the ambitious reform program, the Bank could not meet the needs for medium-term TA that could have strengthened implementation capacity\. This lack of capacity delayed the implementation of the program\. 7\.3 Overall Bank performance: Based on the above, overall performance of the Bank is rated satisfactory\. The Bank helped to sharpen the reform agenda through frank and patient dialogue with the Government, carefully nurtured the ownership of the reform program in the country by raising awareness in the local opinion and stakeholders of the need for reforms to address Rwanda's deep-seated economic and social problems\. Borrower 7\.4 Preparation: Government performance in the preparation of the credit was satisfactory\. Between 1995 and 1997, the government of Rwanda had successfully implemented two IMF staff monitored programs and made critical reforms on the exchange and trade regimes and the financial sector\. To prepare the PFP which provided the framework for the reform program to be supported by the ERC, the Cabinet nominated a subcommittee of ministers, headed by the Minister of Finance, to discuss the PFP with the Bank and Fund staff\. This Committee was eventually was transformed into the [National Commission for Reform], to guide the implementation of the reform program\. The draft PFP was debated in a cabinet meeting and specific changes were proposed\. It was clear that in the PFP discussions that the Rwandese would not buy into any - 11 -  proposals that were not consistent with their objectives\. The detailed discussion of the PFP in the Cabinet and the consultation with groups outside the executive, strengthened the ownership of the reform program\. 7\.5 Government implementation performance: The performance of the Borrower is also rated satisfactory\. Overall, the Government approached the reform program with a high degree of ownership\. The lack of capacity often delayed the implementation of the program but the authorities showed a willingness to take corrective action to avoid the interruption of the program\. The Cabinet put priority on items on the reform program in its deliberations\. However, in mid-2000, there was a backlog of items needing Cabinet approval that could have put the program off-track\. To clear this backlog, the Prime Minister called extraordinary sessions of the Cabinet\. Program monitoring was also weak\. The GoR examined the options for dealing with the problem and decided that a focal point was needed\. In late 2000, it appointed a Permanent Secretary for Reform, with the primary responsibility to coordinate and monitor the reform program\. 7\.6 ImplementingAgency: Performance of the implementation agency, the Ministry of Finance and Economic Planning (MINECOFIN), was adequate\. The instability in staffing in MINECOFIN was a problem for the management of the reform program\. As there was no specific project implementation unit, monitoring and coordination was to be carried out by the Macroeconomic Department of MINECOFIN\. However, frequent changes in key personnel in the Department undernined the capacity to monitor the program\. The National Commission for Reform, which was active at the design stage, was less visible at the implementation stage\. Similarly, the Technical Reform Committee, composed of civil servants from key ministries, active during the preparation of the Credit, was supposed to play a key coordinating role during implementation\. However, at this stage, it was dormant, and a result, the line ministries were often not current in their responsibilities in the implementation of the program\. 7\.7 Overall Borrower performance: The overall perfornance of the Government during the ERC program is assessed as satisfactory\. 8\. Lessons Learned The credit was an effective instrument in an emergency, post conflict situation, for improving the provision of govemment services, stimulating private sector development and enhancing the prospect for national reconciliation\. The economic, political and social returns from such an investment in a post-conflict situation is considerable\. However to be effective, the design of the project needs to be sensitive to the capacities in such situation\. Some lessons learned include: It is important to be flexible and patient, and to regularly consult with other development partners as the capacity is often weak and the operating conditions are subject to unexpected change\. There are often widely divergent perceptions of the risks, which can be narrowed by dialogue between all the parties\. Thus open, frank and regular dialogue with the Govemment, and the development partners, and the civil society, particularly the private sector, is essential for dealing with the volatile environment\. Regular supervision missions and strong monitoring by the Bank is essential as the Borrower's capacity is often limited\. Provision for capacity building is essential since without prior experience in the implementation of reforms, initial expectations about the capacity to perform could be off the mark\. Experience in these situations show that the Government and the bank and the Fund are usually optimistic about the capacity\. Specifically in the case of Rwanda, we overestimated the speed of processing legislation through the bureaucracy, the Cabinet and the National Assembly\. To avoid delays and avoid undue - 12 -  pressure on the National Assembly, it is recommended that conditionality be linked only to presentation of the relevant laws to the National Assembly and not to the adoption of the laws 9\. Partner Comments (a) Borrower/implementing agency\. A\. Partner Comments MINISTRY OF FINANCE AND ECONOMIC PLANNING Central Projects and External Finance Bureau (CEPEX) Tel\. 7 54 36 B\.P\. 6019 Fax\. 7 09 65 ECONOMIC RECOVERY CREDIT (Credit IDA 3182-RW) B\. RAPPORT D'ACHEVEMENT Introduction Lors dune reunion convoquee par la Banque Mondiale a Stockholm en juin 1998, les bailleurs de fonds ont avalise le programme de reformes presente par le Gouvemement Rwandais, et ils ont promis leur appui s'elevant a 250 millions USD (dont 60 millions de la Banque Mondiale)\. Apres une certaine hesitation de la part des bailleurs de fonds due A la situation d'insecurite qui regnait dans la sous-region, ces demiers se sont decides A poursuivre leur engagement au Rwanda afin de ne pas aneantir tous les efforts qui avaient e deployes pendant 4 ans pour la construction du pays\. Pourtant, les bailleurs ont exige du Gouvemement Rwandais que l'assistance accordee devait etre orientee vers un programme de developpement, et qu'elle devrait ainsi appuyer un budget refletant les objectifs de developpement et les priorites qu'ils a definis\. Lors de la reunion avec les bailleurs de fonds qui a eu lieu A Kigali en date du 10 novembre 1998, le Gouvemement Rwandais a reaffirme son engagement A poursuivre son programme dans le cadre du budget negocie dans le document-cadre de la politique de developpement et des reformes (Policy Framework Paper - PFP)\. Celui-ci qui prevoyait le retrait progressif des depenses publiques du domaine de la securite en faveur du secteur social\. Il a souligne son engagement A developper la transparence dans les transactions budgetaires et a demande une assistance pour renforcer les services y relatifs tels que le National Tender Board et l'Office de l'Auditeur General\. Le Gouvemement Rwandais a en outre r6affirm6 son engagement A renforcer les efforts visant la reconciliation nationale, la promotion des droits de l'homme, et la recherche d'une solution pacifique A la crise dans la sous-region\. En date du 23 fevrier 1999, le Gouvemement Rwandais a adresse une lettre a la Banque Mondiale dans laquelle il detaillait son programme d'actions, les objectifs et les mesures politiques visant A consolider la - 13-  relance et la stabilite economiques en cours, a reduire la pauvrete rurale, a renforcer le developpement des ressources humaines, A developper les capacites, a relancer le secteur prive ainsi qu'A mettre sur pied un systeme economique diversifie\. Enfm, le Gouvemement Rwandais, se declarant engage A executer ce programme, a sollicite l'assistance de la Banque Mondiale pour la mise en ceuvre de toutes ces reformes economiques et il a obtenu de l'Association International pour le Developpement (IDA) un credit d'un montant de 53\.000\.000 DTS\. L'accord y relatif a ete signe le 09 avril 1999\. L'Accord prevoyait que ce Credit serait libere en trois (3) tranches: (1) Premiere Tranche: DTS 28\.400\.000 (40 millions USD) (2) Deuxieme Tranche: DTS 12\.300\.000 (17\.5 millions USD) (3) Troisieme Tranche: DTS 12\.300\.000 (17\.5 millions USD) TOTAL DTS 53\.000\.000 La premiere tranche devait etre libere A la mise en vigueur du credit\. Les conditions generales pour la liberation des tranches etaient: * le cadre des mesures de la politique macro-economique du pays est compatible avec les objectifs du programme; * I'avancement dans l'execution du programme par l'emprunteur est satisfaisant A 1'egard de l'IDA\. Le Conseil d'Administration de la Banque Mondiale a accorde un credit supplementaire d'un montant de 11,8 millions de DTS (environ 15 millions USD) le 22 decembre 2000, suite A la haute augmentation des prix des produits petroliers qui n'avait pas et prevue lors de la preparation du credit\. Voici les dates de liberation des trois tranches : la premiere tranche de 28,4 millions de DTS a ete libere le 29 mai 1999, la deuxieme le 27 juillet 2000, et le troisieme en mars 2001\. - 14 -  Objectifs et mise en oeuvre L'objectif primordial du credit etait d'aider le Rwanda a consolider la relance et la stabilite economiques qui etaient en cours, de reduire la pauvrete rurale, de relancer le secteur prive et de mettre sur pied un systeme economique ouvert a tous les Rwandais afm de favoriser la reconciliation de la population\. Le programme de reforme finance par le Credit comportait les composantes suivantes: 1) la gestion des ressources et la gestion macroeconomique y compris une politique fiscale et monetaire prudente afin d'assurer la stabilite macroeconomique; 2) les refornes structurelles, y compris le developpement d'une agriculture de marche, le developpement du secteur prive ainsi que le reforme de l'administration publique; 3) le renforcement du r6le de la femme ; et 4) la privatisation des entreprises de l'Etat ainsi que la reforme de l'administration publique\. Etant donnee la situation difficile dans laquelle se trouvait le Rwanda pendait les annees de la periode post-genocide, le Gouvemement a voulu engager un programme de reformes socio-politiques et economiques qui devaient constituer la base pour la reconstruction du pays avec l'objectif d'atteindre la reconciliation de la population, de reduire la pauvrete et d'atteindre une croissance economique rapide\. Le Credit 3182-RW devait alors aider le Rwanda a revitaliser son economie, et les objectifs qu'ils s'etait fixe correspondaient tout a fait aux priorites du pays pour la transition allant de la periode d'urgence a la periode de developpement durable\. Le credit octroye a permis au Rwanda d'atteindre des resultats satisfaisants, notamment: * le PIB a connu une croissance de 5,9 en 1999 et de 5,6 en 2000; * la taxe sur 1'exportation du cafe a ete supprimee et le prix du the accorde au producteur a ete augmente; * les unites de depulpage de cafe ont ete privatisees; * les prix des produits agricoles ainsi que la commercialisation des intrants agricoles ont e completement liberalises ; ceci devrait aboutir a une meilleure distribution et une meilleure utilisation d'intrants modemes; * I'approche «( genre >> est prise en consideration a tous les niveaux ; a titre d'exemple, le code civil a ete egalement revis6 dans le meme sens; a le secteur prive a connu plusieurs reformes, notamment la creation d'un centre d'arbitrage, la creation de la Federation Rwandaise du Secteur Prive (apres la suppression de la << Chambre de Commerce et d'Industrie >>), la revision du Code du Travail et la creation de l'Office Rwandais de Promotion des Investissements; * plusieurs entreprises publiques ont ete privatisees ou sont en voie de l'etre; * les strategies pour la privatisation de Rwandatel ainsi que des usines a the appartenant a l'Etat ont et preparees et adoptees; * le Gouvemement a approuve le plan de restructuration de l'ELECTROGAZ; * le secteur public a connu d'autres reformes : rationalisation de la Fonction Publique et regularisation des statuts des agents de l'Etat, privatisation de certaines taches (par exemple gardiennage et nettoyage des batiments publics), et tout recemment l'adoption de la nouvelle loi sur les statuts des agents de la Fonction Publique; - 15 -  * le budget de l'Etat est regulierement et mieux suivi, et le Gouvemement a mis un accent particulier sur les secteurs sociaux, dont la part au budget a sensiblement augmente; * I'Observateur de la Pauvrete a ete cree avec le but de suivre de pres et de coordonner les politiques et les programmes visant la reduction de la pauvrete et il est deja operationnel\. Performance de la Banque Mondiale La Banque mondiale a appuye sensiblement le Gouvemement Rwandais lors de la fonnulation du programme de reformes et elle a organise des reunions et des consultations avec d'autres bailleurs de fonds a travers lesquelles les fonds necessaires pour appuyer le programme de reformes ont pu etre trouves\. La Banque a reconnu la situation particulierement difficile dans laquelle se trouvait le Rwanda et a evite d'imposer au Gouvemement Rwandais des conditions trop rigoureuses pour la liberation des differentes tranches du Credit\. La Banque a suivi de tres pres la mise en aeuvre du credit, et plusieurs missions de supervision ont ete effectuees pour se rendre compte de son etat d'execution\. Ces missions ont men6 des discussions avec les autorites du pays et les differents partenaires, et ont donne leurs observations et recommandations a travers des aide-memoires, ce qui a e d'une grande utilite pour le bon avancement de l'execution du Credit\. Performance de l'Emprunteur DMs la preparation du credit, le Gouvemement Rwandais a fait preuve d'un engagement tres pousse pour sa bonne mise en 'euvre: le Conseil des Ministres a discute du PFP et il a mis sur pied une equipe de haut niveau qui devait poursuivre les discussions avec la Banque mondiale et le FMI, et les corrections necessaires y ont e apportees\. Malgre les changements qui ont eu lieu au sein du Ministere des Finances et de la Planification Economique, specialement au poste de Secretaire G6neral, le Gouvernement a suivi de pres la nuise en ceuvre du credit au niveau macroeconomique, et les differentes reformes qui constituaient les conditions prealables pour la liberation des tranches ont e realisees, meme si parfois des retards etaient constates\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): There were no co-financiers in the ERC, although the project benefited from a number of simultaneous and complimentary activities financed in parallel by other donors\. 10\. Additional Information - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix - 17 -  Annex 2\. Project Costs and Financing - 18 -  Annex 3\. Economic Costs and Benefits Table 3: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Status Approval Preceding Operations 1\. Sectoral & Pre-investment Assist Government to strengthen its planning 1987 Closed Studies and investment capabilities 2\. Energy Sector Promote rational energy policies and 1993 Ongoing establish basis for efficient utilization of Rwanda's energy resources\. 3\. Communications II Promote efficient communications through 1990 Closed institutional reform\. 4\. Private Sector Development Promote expansion of the private sector, 1993 Closed establish APEX line of credit and support fund, and support for institutional strengthening\. 7\. Health and Population Support implementation of the National 1991 Ongoing Health Strategy, and the formulation and implementation of a population policy\. 10: Emergency Recovery Credit Support the restoration of public services and Closed the revival of private sector activity\. 10\. Emergency Reintegration and Support the provision of services to returned 1997 Closed Recovery Credit refugees and the population and the reconstruction of Rwanda Following Operations 17\. Community Reintegration and To explore the process of decentralization 1999 Ongoing Dev\. Project (LIL) and participation for community reintegration and development\. 13\. Agriculture Rural Market To explore the process of rural market 2000 Ongoing Development (LIL) development for agricultural intensification\. 19\. Rural Water Supply and Support water projects in rural communities 2000 Ongoing Sanitation using a participatory approach to design and management\. 15\. Human Resources and Support capacity building through education 2000 Ongoing Development Project and skills development\. 12\. Rural Sector Support Project Support agricultural intensification and the 2001 Ongoing revitalization of the rural economy\. 14\. Competitiveness and Enterprise Support the development of competitive 2001 Ongoing Development Project private enterprises\. -19 -  Table 4: Project Timetable Steps in Project Cycle Date Planned Date Actual/Latest Estimate Board Approval March 30, 1999 March 30, 1999 Effectiveness May 26, 1999 May 26, 1999 Closing Date December 31, 2000* March 31, 2001 PSR December 30, 1999 December 30, 1999 Last Site Visit July 20, 2000 February 10, 2001 * The closing date was expected November 30, 2000 - 20 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 8/98 5 Economists (2) Commodity Specialists (2) ResRep Appraisal/Negotiation 11/98 6 Economists (3), Private Sector Dev\. Specialist, Public Sector Mgmt Specialist 2/99 4 ResRep, Lawyer, Economists (2) Supervision 07/99 2 Economists S S 11/99 4 Economists (2) U S 03/00 4 Economists (2), Op\. S S Officer/Social Scientist, ResRep 07/00 3 Economists (2), Commodity S S Specialist 11/00 3 Economists (2), Gender S S Specialist, Lawyer 02/01 2 Economists (2) S S ICR (b) Staff3 Stage of Project Cycle 1 Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation Appraisal/Negotiation Supervision ICR Total - 21 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA-Not Applicable) Rating ?Macro policies O H * SU O M O N O NA Sector Policies O H OSUOM O N * NA F Physical O H OSUOM O N * NA F Financial O H * SU O M O N O NA F Institutional Development 0 H * SU O M 0 N 0 NA ISEnvironmental O H OSUOM O N * NA Social N Poverty Reduction O H * SU O M O N O NA f Gender *IH OSUOM ON ONA El Other (Please specify) O H OSUOM O N * NA F Private sector development 0 H * SU O M 0 N 0 NA * Public sector management 0 H * SU O M 0 N 0 NA El Other (Please specify) 0 H O SU O M 0 N * NA - 22 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating • Lending OHS OS OU OHU • Supervision OHS OS O U O HU • Overall OHS S s O U O HU 6\.2 Borrower performance Rating 3 Preparation OHS OS O u O HU • Government implementation performance O HS O S 0 U 0 HU • Implementation agency performance O HS OS O U 0 HU F Overall OHS OS OU O HU - 23 -  Annex 7\. List of Supporting Documents Table 3: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Status Approval Precedin2 Operations 1\. Sectoral & Pre-investment Assist Govermment to strengthen its planning and investment 1987 Closed Studies capabilities 2\. Energy Sector Promote rational energy policies and establish basis for 1993 Ongoing efficient utilization of Rwanda's energy resources\. 3\. Comnmunications II Promote efficient communications through institutional 1990 Closed reform\. 4\. Private Sector Promote expansion of the private sector, establish APEX line 1993 Closed Development of credit and support fund, and support for institutional strengthening\. 7\. Health and Population Support implementation of the National Health Strategy, and 1991 Ongoing the formulation and implementation of a population policy\. 10: Emergency Recovery Support the restoration of public services and the revival of Closed Credit private sector activity\. 10\. Emergency Reintegration Support the provision of services to returned refugees and the 1997 Closed and Recovery Credit population and the reconstruction of Rwanda Following Operations 17\. Community Reintegration To explore the process of decentralization and participation 1999 Ongoing and Dev\. Project (LIL) for community reintegration and development\. 13\. Agriculture Rural Market To explore the process of niral market development for 2000 Ongoing Development (LIL) agricultural intensification\. 19\. Rural Water Supply and Support water projects in rural communities using a 2000 Ongoing Sanitation participatory approach to design and management\. 15\. Human Resources and Support capacity building through education and skills 2000 Ongoing Development Project development\. 12\. Rural Sector Support Support agricultural intensification and the revitalization of 2001 Ongoing Project the rural economy\. 14\. Competitiveness and Support the development of competitive private enterprises\. 2001 Ongoing Enterprise Development Project - 24 -  Table 4: Project Timetable Steps in Project Cycle Date Planned Date Actual/Latest Estimate Board Approval March 30, 1999 March 30, 1999 Effectiveness May 26, 1999 May 26, 1999 Closing Date December 31, 2000* March 31, 2001 PSR December 30, 1999 December 30, 1999 Last Site Visit July 20, 2000 February 10, 2001 * The closing date was expected November 30, 2000 - 25 -  Table 5: Costs and Financing Cumulative Estimate and Actual Disbursement (US$ millions equivalent) Bank Fiscal Year FY99 FY00 FOI Appraisal estimate 40 35 0 Cumulative 40 75 75 Actual 40 35 15* Cumulative 40 75 90 Actual as % of estimate 100\.0 100\.0 120\.0 __~~~~~7 * A supplemental credit of US$ 15 million was approved by the Board on December 22, 2000 Table 6: Bank Resources - Input by Resource Type Nature of Staff / Weeks Labor Travel Others Total Costs Staff US$ Consultants 0\.00 0\.00 0\.00 19,437\.16 19,432\.16 WB Staff 38\.64 135,027\.59 55,076\.32 0\.00 190,142\.55 Others 0\.00 0\.00 0\.00 102\.84 102\.84 (DHL,\.) TOTAL 38\.64 135,027\.59 55,076\.32 19,540\.00 209,682\.55 Source: SAP - WB - 26 -  Table 7: Bank Resources - Missions Program Cycle Month/ No of Specialized Staff Skills Per\. Rating Per\. Rating Year Persons Represented Imple-ment Develop-me ation Status nt Objectives Through Appraisal Aug/98 5 Economist (2), Commodity Specialists (2), ResRep Nov/98 6 Economist (3), Private Sector Dev Specialist, Public Sector Mgmt Specialist\. Appraisal through Board Feb/99 4 ResRep, Lawyer, Approval Economist (2) Supervision I July/99 2 Economist (2) Substantial Substantial Supervision 2 Nov/99 4 Economists (2), Modest Substantial Gender specialist/Op\. Officer, Gender specialist/lawyer Supervision 3 Mar/00 4 Economists (2), Op\. Substantial Substantial officer/social scientist, Resrep Supervision 4 July/00 3 Economists (2), Substantial Substantial Commodity specialist Supervision 5 Nov/00 3 Economists (2), Substantial Substantial Gender specialist-lawyer Supervision 6 Feb/01 2 Economist (2) Substantial Substantial Note: Number of Persons refers to persons participated in the different missions; therefore, if one participates in three missions during preparation to appraisal that is considered as three persons\. - 27 -  Table 8: Selected Macroeconomic Indicators 1996 1998 1999 2000 2001 2002 Real GDP growth 15\.8 12\.8 9\.5 5\.9 5\.2 6\.0 6\.4 Inflation (CPI change) 8\.9 11\.7 6\.8 -2\.4 3\.9 3\.0, 3\.0 As % of GDP Gross domestic investment 15\.5 14\.9 15\.7 14\.3 15\.7 16\.9 17\.6 Gross domestic savings -4\.3 -2\.8 -1\.7 -1\.4 -1\.1 -2\.5 -0\.6 Govemment revenues 9\.1 10\.3 10\.4 9\.8 10\.0 10\.9 11\.7 Total grants 7\.3 6\.7 5\.2 5\.9 9\.6 4\.7 4\.8 Total government expenditure 22\.1 19\.5 18\.6 19\.7 19\.8 20\.4 20\.5 Fiscal balance (include grants) -5\.7 -2\.4 -2\.9 -4\.0 -0\.2 -4\.8 -4\.0 Current account balance (incl\. Transfers) -0\.2 -3\.2 -4\.8 -2\.8 0\.3 -10\.2 -8\.6 Off\. Reserves (months of imports) 5 5 6 7 9 7 7 External debt (% of GDP) 79 61 58 68 77 73 66 Memo: Exchange rage (RWF per dollar) 307 302 314 335 390 414 420 GDP million US dollar 1407 1860 2012 1928 1761 1808 1957 Source: World Bank Rwanda Economic Reform Program under the Economic Recovery Credit Donors Contribution (US$ miUlions) AGENCY/DONOR Initial PLEDGE CONTRIBUTION ___________________ ________________C reditG rantTotal IDA 60 90\.090\.0 AfDB 20 20\.020\.0 EU 60 60\.060\.0 Netherlands 25 25\.025\.0 UK 50 50\.050\.0 USA 8 8\.08\.0 Canada 3\.5 Sweden 18 18\.018\.0 Switzerland 4\.0 TOTAL 248\.5 110\.0161\.0256\.5 ource: World Bank and IMFstaff estimates - 28 -  - 29 -

REVIEW

P069326

Document of The World Bank Report No\.: 62732 PROJECT PERFORMANCE ASSESSMENT REPORT HASHEMITE KINGDOM OF JORDAN HIGHER EDUCATION DEVELOPMENT PROJECT (LOAN 4539-JO) EDUCATION REFORM FOR KNOWLEDGE ECONOMY I PROGRAM (TF053276) June 27, 2011 IEG Public Sector Evaluation Independent Evaluation Group Currency Equivalents (annual averages) Currency Unit = Jordanian Dinar 2003 US$1\.00 JD 0\.708 2004 US$1\.00 JD 0\.709 2005 US$1\.00 JD 0\.709 2006 US$1\.00 JD 0\.709 2007 US$1\.00 JD 0\.709 2008 US$1\.00 JD 0\.709 2009 US$1\.00 JD 0\.709 2010 US$1\.00 JD 0\.710 Abbreviations and Acronyms BAU al Balqa Applied University ICR Implementation Completion and Results Report CAS Country Assistance Strategy ICT Information and Communications CIDA Canadian International Technology Development Agency IEG Independent Evaluation Group DfID Department for International Development (of UK) MIS Management Information System DCU Development Coordination Unit M&E Monitoring and Evaluation ECE Early Childhood Education NAfKE National Assessment for the Knowledge Economy EDSS Education Decision Support System NCHRD National Center for Human Resources Development ERfKE Education Reform for the Knowledge Economy NSC National Steering Committee EU European Union OECD Organization for Economic Development and Cooperation HEAC Higher Education Accreditation Commission (formerly Council) PDO Project Development Objective HEC Higher Education Council PHRD Population and Human Resource Development HEDF Higher Education Development Fund PIU Project Implementation Unit HEDP Higher Education Development PPAR Project Performance Assessment Project Report HERfKE Higher Education Reform for the TIMSS Trends in Mathematics and Knowledge Economy Sciences Study HRSIL Human Resources Sector USAID United States Agency for Investment Loan (1 and 2) International Development IBRD International Bank for Reconstruction and Development Fiscal Year Government: January 1 – December 31 Director-General, Independent Evaluation : Mr\. Vinod Thomas Director, IEG Public Sector Evaluation : Ms\. Monika Huppi (Acting) Manager, IEG Public Sector Evaluation : Ms\. Monika Huppi Task Manager : Ms\. Pia Schneider  iii Contents Principal Ratings \. v Key Staff Responsible \. v Preface \. vii Summary \. ix 1\. Background and Context \. 1 2\. Higher Education Development Project, 2000-2007 \. 7 Design \. 7 Implementation \. 10 Achievement of objectives \. 12 Improve the Quality of Higher Education \. 12 Increase the Relevance of Higher Education \. 13 Raise the Efficiency of Higher Education \. 15 Governance \. 16 Ratings \. 17 Outcome \. 17 Risk to development outcome \. 19 Bank performance \. 19 Borrower performance \. 20 Quality of Monitoring and Evaluation \. 20 3\. Education Reform for the Knowledge Economy I Program, 2003-2009 \. 21 Design \. 21 Implementation \. 23 Achievement of objectives \. 25 Improve the Quality of Early Childhood, Basic, and Secondary Education \. 25 Improve the Relevance of Early Childhood, Basic, and Secondary Education \. 26 Improve the Efficiency of Early Childhood, Basic, and Secondary Education \. 27 Produce Graduates with the Skills for the Knowledge Economy \. 28 Ratings \. 28 Outcome \. 28 Risk to development outcome \. 30 This report was prepared by Maurice Boissiere, who assessed the project in October 2010\. The report was peer reviewed by H\. Dean Nielsen and panel reviewed by John Eriksson\. Marie-Jeanne Ndiaye and Viktoriya Yevsyeyeva provided administrative support\.  Bank performance \. 31 Borrower performance \. 31 Quality of Monitoring and Evaluation \. 31 4\. Lessons and Perspectives \. 32 Lessons \. 32 Perspectives\. 33 Annex A\. Basic Data Sheet: Higher Education Development Project (Loan 4539-JO) \. 37 Annex B\. Basic Data Sheet: Education Reform for Knowledge Economy I Program (Loan 7171-JO)\. 41 Annex C\. People Consulted \. 44 Annex D\. Timeline of Events\. 46 Annex E\. Borrower Comments \. 48 References \. 51 Boxes Box 1-1\. The World Bank’s Higher Education Reform Strategy \. 4 Box 1-2\. Key Dimensions of the Knowledge Economy \. 5 Box 2-1\. Components of the Higher Education Development Project \. 8 Box 3-1\. Components for the Education Reform for Knowledge Economy Project\. 22 Tables Table 1\.1: School Enrollment (2000-2010) \. 3 Table 2\.1: Higher Education Project: Planned and Actual Cost by Component (US$ million) \. 11 Table 3\.1: Planned and Actual ERfKE Project Cost Financed by the IBRD Loan, by Component (US$ million)\. 23  v Principal Ratings HIGHER EDUCATION DEVELOPMENT PROJECT (LOAN 4539-JO) ICR* ICR Review* PPAR Outcome Moderately Moderately Moderately Unsatisfactory Unsatisfactory Unsatisfactory Risk to Development Moderate Moderate Moderate Outcome Bank Performance Moderately Moderately Moderately Satisfactory Unsatisfactory Unsatisfactory Borrower Moderately Moderately Moderately Satisfactory Performance Unsatisfactory Unsatisfactory EDUCATION REFORM FOR THE KNOWLEDGE ECONOMY I PROGRAM (LOAN 7170-JO) ICR* ICR Review* PPAR Outcome Satisfactory Satisfactory Satisfactory Risk to Development Moderate Moderate Moderate Outcome Bank Performance Satisfactory Satisfactory Satisfactory Borrower Satisfactory Satisfactory Satisfactory Performance * The Implementation Completion and Results Report (ICR) is a self-evaluation by the responsible Bank department\. The ICR Review is an intermediate IEG product that seeks to independently verify the findings of the ICR\. Key Staff Responsible HIGHER EDUCATION DEVELOPMENT PROJECT (LOAN 4539-JO) Stage Task Manager/Leader Sector Director Country Director Appraisal Francis Steier Jacques Baudouy Inder Sud Completion Adriana Jaramillo Michal Rutkowski Joseph Saba EDUCATION REFORM FOR KNOWLEDGE ECONOMY I PROGRAM (LOAN 7170-JO) Stage Task Manager/Leader Sector Director Country Director Appraisal Mae Chu Chang Jacques Baudouy Joseph Saba Completion Juan Manuel Moreno Steen Lau Jorgensen Hedi Larbi Olmedilla/Peter Buckland  vi IEG Mission: Improving development results through excellence in evaluation\. About this Report The Independent Evaluation Group assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrity of the Bank’s self-evaluation process and to verify that the Bank’s work is producing the expected results, and second, to help develop improved directions, policies, and procedures through the dissemination of lessons drawn from experience\. As part of this work, IEG annually assesses 20-25 percent of the Bank’s lending operations through field work\. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevant to upcoming studies or country evaluations; those for which Executive Directors or Bank management have requested assessments; and those that are likely to generate important lessons\. To prepare a Project Performance Assessment Report (PPAR), IEG staff examine project files and other documents, visit the borrowing country to discuss the operation with the Government, and other in-country stakeholders, and interview Bank staff and other donor agency staff both at headquarters and in local offices as appropriate\. Each PPAR is subject to internal IEG peer review, Panel review, and management approval\. Once cleared internally, the PPAR is commented on by the responsible Bank department\. The PPAR is also sent to the borrower for review\. IEG incorporates both Bank and borrower comments as appropriate, and the borrowers' comments are attached to the document that is sent to the Bank's Board of Executive Directors\. After an assessment report has been sent to the Board, it is disclosed to the public\. About the IEG Rating System for Public Sector Evaluations IEG’s use of multiple evaluation methods offers both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach\. IEG evaluators all apply the same basic method to arrive at their project ratings\. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEG website: http://worldbank\.org/ieg)\. Outcome: The extent to which the operation’s major relevant objectives were achieved, or are expected to be achieved, efficiently\. The rating has three dimensions: relevance, efficacy, and efficiency\. Relevance includes relevance of objectives and relevance of design\. Relevance of objectives is the extent to which the project’s objectives are consistent with the country’s current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies)\. Relevance of design is the extent to which the project’s design is consistent with the stated objectives\. Efficacy is the extent to which the project’s objectives were achieved, or are expected to be achieved, taking into account their relative importance\. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives\. The efficiency dimension generally is not applied to adjustment operations\. Possible ratings for Outcome: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Risk to Development Outcome: The risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized)\. Possible ratings for Risk to Development Outcome: High, Significant, Moderate, Negligible to Low, Not Evaluable\. Bank Performance: The extent to which services provided by the Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loan/credit closing, toward the achievement of development outcomes\. The rating has two dimensions: quality at entry and quality of supervision\. Possible ratings for Bank Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Borrower Performance: The extent to which the borrower (including the government and implementing agency or agencies) ensured quality of preparation and implementation, and complied with covenants and agreements, toward the achievement of development outcomes\. The rating has two dimensions: government performance and implementing agency(ies) performance\. Possible ratings for Borrower Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\.  vii Preface This is a Project Performance Assessment Report (PPAR) covering two education projects in Jordan\. The first operation, the Higher Education Development Project, was financed through IBRD Loan No\. 4539-JO in the amount of US$34\.7 million and a planned government contribution of US$31\.1 million\. The loan was approved on February 29, 2000, became effective on October 7, 2000, and was closed on June 30, 2007, one and a half years after the original closing date\. The second operation, the Education Reform for the Knowledge Economy Project, was financed through IBRD Loan No\.7170-JO in the amount of US$120 million, a planned donor contribution of US$120 million, and a planned government contribution of US$130 million\. The loan was approved on May 8, 2003, became effective on May 28, 2003, and closed on June 30, 2009, one and a half years after the original closing date\. This PPAR was prepared by Maurice Boissiere, IEG consultant\. The findings are largely based on a two-week mission to Jordan from October 17 - 28, 2010\. The mission met with education authorities in Jordan as well as private business people\. The mission visited schools in Amman and Irbid as well as a number of universities\. A list of persons met is in Annex C\. The mission also examined: (a) World Bank project files; (b) project related reporting and evaluation; and (c) education studies with data by government, other development partners, and civil society organizations, as well as the relevant research literature\. IEG gratefully acknowledges the logistical assistance and support of the Ministry of Planning and International Cooperation, especially Eng\. Lamia Al Zou’bi (Head of Evaluation Division) and Ms\. Sana Elhennawi (Senior Evaluator, Impact Assessment Unit) for expediting the work of the mission\. A special acknowledgement is also due to Ms\. Firyal Aqel of the Ministry of Education and Ms\. Buthaina Alshare of the Ministry of Higher Education and Research for their support\. Many other ministry and university officials were generous with their time, especially in arranging visits to project sites\. Following standard IEG procedures, a copy of the draft PPAR was sent to the relevant government officials and agencies for their review and feedback\. Their comments are presented in Annex E\.  ix Summary The objective of this PPAR is to assess the development effectiveness and lessons arising from two education projects in Jordan\. The Higher Education Development Project (HEDP), with a total cost of US$65\.8 million and a loan of US$34\.7 million, was approved on February 29, 2000\.The Education Reform for the Knowledge Economy Project (ERfKE), with a total cost of US$370 million and a loan of US$120 million, was approved on May 8, 2003\. With a Gross National Income per capita of $3,310 (2008), the economy of Jordan depends very much upon remittances from its skilled labor working abroad in the oil-rich countries of the region and external grants/loans from international and regional partners\. During the 1970s the economy showed robust economic growth in the range of 10 percent per year, driven by high oil prices and remittances from Jordanian workers abroad\. However, during the 1980s, especially after oil prices dropped, Jordan experienced a difficult economic period\. After working through an IMF adjustment program the economy stabilized, but the robust growth of the 1970s has not yet resumed\. In recent years the Kingdom enjoyed good economic growth of about 6 to7 per cent annually, except for a slowdown in 2009 with the onset of the global financial crisis\. Despite this good macroeconomic growth, there are still persistent problems with high unemployment (12\.1 percent in 2008), even among university graduates (17\.7 percent in 2005, falling to 12 percent in 2008)\. Partly this is due to rapid population and labor force growth, which requires even higher rates of economic growth\. However, there is evidence that this unemployment problem also has structural causes rooted in mismatches between job expectations and skills needed in the growing economy\. Thus, the education system is in need of reforms to produce skills needed for the global knowledge economy\. Based upon concerns about the declining quality of higher education, the government requested the Bank to conduct an in-depth study, resulting in the “Jordan Higher Education Development Study” (1996), which also set the stage for preparation of the Higher Education Development Project (2000)\. Many of the issues in Jordan are shared with higher education reforms world-wide, as shown in the Bank’s 1994 policy paper, “Higher Education: The Lessons of Experience”\. The policy paper identified a package of reform elements that the Bank regarded as “best practice\.” Adapting this “best practice” package to the Jordanian situation began with project preparation in 1997 and led to HEDP, which is based on the Jordanian Higher Education Study and the Bank Higher Education policy paper recommendations\. The HEDP, financed by a of US$34\.7 million, was approved by the Bank in February 2000 and became effective in October 2000\. The project closed in December 2007 after an extension of 18 months\. The objective of the project was to: “initiate improvements in the quality, relevance and efficiency of higher education in Jordan and support the Government’s program to reform sector governance\.” The project aimed to achieve these objectives by investing in Information Communication Technology (ICT), scientific equipment and faculty training needed to upgrade university academic programs, as well as a Management Information System (MIS) to improve system-wide efficiency\. The reform program for sector governance aimed at increasing relevance by strengthening  x recently created governance structures such as the Higher Education Accreditation Council for quality assurance and the Higher Education Council for overall policy making\. The system of community colleges under the oversight of Al Balqa Applied University (BAU) was to be reformed to improve links to the labor market\. The overall outcome of the HEDP is rated as moderately unsatisfactory\. The objectives of the project are relevant to the human resources pillar of the Country Assistance Strategy and project design was substantially relevant\. Some improvements in quality resulted from provision of much needed ICT equipment for teaching and learning and some changes in teaching methods\. However, the reforms of governance fell short of most of their objectives\. The HEC did not implement the formula funding for recurrent budgets, the MIS needed for the formula funding was not completed, the competitive fund for new academic programs only became fully competitive near the end of the project, and the reforms of the community colleges under the oversight of BAU to improve labor market relevance were not completed\. Thus, the objectives for quality, relevance, efficiency, and governance were only modestly attained\. The risk to development outcome is moderate since there are many outstanding issues in reform to be addressed\. The performance of the Bank was moderately unsatisfactory, given the long delays in preparation and insufficient focus on reforms during supervision\. The performance of the Borrower was moderately unsatisfactory based upon insufficient leadership for the reforms during implementation\. Preparation for the Education Reform for the Knowledge Economy Project began in May 2002\. The loan of US$120\.0 million was approved in May 2003 and became effective a few weeks afterwards\. This project closed in June 2009 after a six month extension\. The objective of the project was to: “assist the Borrower in improving the quality, relevance and efficiency of its early childhood, basic and secondary school education systems, so as to produce the graduates with skills necessary for the knowledge economy\.” The project aimed to achieve these objectives by developing a new comprehensive vision and strategy for basic and secondary education, developing new curricula and training teachers, upgrading the learning environment in schools, and promoting early childhood education\. The skills needed for the knowledge economy were interpreted to cover the broad cognitive competencies of critical thinking and creative problem-solving, as opposed to memorizing masses of facts\. On balance, the overall outcome of the ERfKE project is rated satisfactory\. Relevance of project objectives and design and efficiency of the project are rated substantial\. The project objectives are relevant to the human resources pillar of the CAS, which also emphasizes the knowledge economy\. The Ministry of Education produced a new curriculum for all grades, and completed the final roll-out stage in 2008\. Textbooks, teachers’ guides, and e-learning materials in key subject areas supplemented the curriculum\. The target of training 50,000 teachers in basic ICT skills was exceeded, in that 85,118 teachers were trained and 55,000 were certified, compared with a baseline of 5,000 trained ICT teachers in 2003\. By project closing, 80 percent of Jordan’s schools were connected to the Internet, exceeding the target of 70 percent\. In addition, almost all schools now have at least basic ICT equipment\. Classroom construction and renovations somewhat reduced crowding, contributing to an improved learning environment, although overcrowding still remains a challenge\.  xi Results on a number of indicators, including performance on learning assessments, show improvements from the new curricula, learning materials, and teacher training\. The results of the 2008 National Assessment for the Knowledge Economy learning evaluation showed a clear improvement in performance in math, science, and reading\. Information from IEG interviews with private sector enterprises suggests improvement in those areas of knowledge economy skills that are desired by Jordanian employers with, an increase in the proportion of computer literate graduates entering the labor force\. An education management information system was completed but required further fine- tuning\. At project closing, it was not yet ready to play its critical role within the education decision support system, which, in turn, was intended to be one of the major instruments to improve efficiency\. Consequently, although the design of Education Decision Support System was completed, its utilization had to be put on hold for the next phase of the ERfKE program (which is supported under a follow-on project)\. Major outputs were produced to support evidence-based strategic policy and planning, although these are not yet used for decision-making\. The project costs were kept reasonable and, in some areas, cases showed substantial cost savings\. The performance of the Bank was satisfactory at entry and during supervision, as the Bank team was proactive in identifying and resolving project issues\. The performance of the Borrower was satisfactory, based on the high level of leadership and the efficient implementation by the Ministry of Education team\. Lessons A number of lessons can be highlighted based upon the experience of these two projects\. ï‚ The continuing high unemployment rates among university graduates is a cause for concern, despite attempts to make higher education more relevant\. Although limited progress has been made, the higher education system can do much more to improve quality and relevance, including becoming actively linked in real time with the labor market and economy\. More up-to-date labor market information is needed as well as much more private sector representation in the governance of universities and community colleges\. ï‚ Despite the problems in the first two rounds of the competitive Higher Education Development Fund, the modest success of the third round demonstrated that such competitive funding mechanisms can work in Jordan, if time and care are taken to adapt them to local circumstances\. ï‚ The difficulties experienced in the formula funding arrangement for recurrent higher education budgets were both technical and political (in terms of getting stakeholder consensus)\. The technical part has to do with establishing a good MIS and the design for this has been completed\. Although this reform measure did not come to pass, it generated useful debate and may still be feasible if more political effort is forthcoming\. ï‚ The emphasis on critical thinking and creative problem-solving at each level means that some mutual adjustments are needed\. Higher education curricula need  xii to continue adapting to the new secondary graduates and the admission procedures for higher education need to adapt to the criteria of the knowledge economy\. Vinod Thomas Director-General Evaluation  1 1\. Background and Context 1\.1 The objective of this PPAR is to assess the development effectiveness and lessons arising from two projects related to higher education reforms and the knowledge economy in Jordan, spanning about a decade of World Bank support\. The Higher Education Development Project (HEDP), with a total cost of US$65\.8 million and a loan amount of US$34\.7 million, was approved on February 29, 2000 and closed June 30, 2007\. The Education Reform for the Knowledge Economy Project (ERfKE), with a total cost of US$370 million and a loan amount of US$120 million, was approved on May 8, 2003 and closed June 30, 2009\. Jordan’s economy and employment issues 1\.2 The modern day Hashemite Kingdom of Jordan, with a population of about 6 million (2008), covers a geographic area with rich and ancient history going back to earliest ancient times of the Middle East\. The Kingdom has many sites from ancient Mesopotamian times to Greek and Roman times and afterwards\. As a modern nation- state, Jordan was formed after the dissolution of the Ottoman Empire at the end of World War I and has enjoyed relative domestic stability in a region noted for instability\. This stability and the forward looking attitude of its government, a constitutional monarchy under King Abdullah II, led to a strategy that emphasizes development of its human resources, given its lack of oil and natural resources, except for potash, some phosphates\. There is also considerable potential from tourism sites based upon its ancient heritage\. 1\.3 With GNI per capita of $3,310 in (2008), the economy of Jordan depends very much upon remittances from its skilled labor working abroad in the oil rich countries of the region and external grants/loans from international and regional partners\. About one- third of the labor force was working abroad throughout the past decade with their remittances accounting for around 15 percent of GDP during 2004 - 2008\. Agriculture plays a small but important role (about four percent of GDP), limited very much by arable land and shortages of water\. The modern service sector, including a growing tourism sector, is becoming more important at about two-thirds of GDP, and industry, especially mining and construction contributes the remaining 30 percent\. After the June 1967 Arab-Israeli war, Jordan had to make major adjustments, and during the 1970s managed to enjoy robust economic growth in the range of 10 percent annually as oil prices and remittances from Jordanian workers abroad drove economic growth\. However, during the 1980s, especially after oil prices dropped, Jordan experienced a difficult economic period\. After working through an IMF adjustment program the economy stabilized, but the robust growth of the 1970s has not yet resumed\. In recent years the Kingdom enjoyed good economic growth of about 6 to7 percent annually except for a slowdown in 2009 with the onset of the global financial crisis\. 1\.4 Despite good macroeconomic growth, Jordan is still experiencing high unemployment rates, while at the same time employing low skilled foreign labor in some sectors\. The unemployment rate, defined according to International Labor Organization standards as the ratio of those not employed but seeking work to the total labor force, has been high overall for the past decade, rising from 13\.7 percent in 2000 to a peak of 15\.3  2 percent in 2002 and declining to 12\.1 percent in 2008\. Among university graduates, for example, the unemployment rate reached 17\.7 percent in 2005, higher than the 14\.4 percent for community college graduates and the 11\.1 percent for secondary graduates in the same year\. In 2008 the unemployment rate for university graduates was still high, at 12 percent\. To some degree this is structural as the foreign labor is unskilled and employed in occupations such as maids and domestic service that would not fit with Jordanian traditions\. Other unskilled occupations in construction were done in the past by Jordanians, but rising expectations have led to young Jordanians avoiding heavy manual labor\. The Bank’s Labor Market Report (2008) finds that much of the youth unemployment is rooted in social attitudes and expectations among educated youth, often times unrealistic\. In this respect, young Jordanians may be adopting attitudes seen in the oil rich economies of the Gulf Cooperation Council, such as Saudi Arabia or Kuwait, even though Jordan has no such source of income\. Since there was not an extensive unemployed insurance program until the recent Social Security Law of 2010, most unemployed youth are supported by their families while they wait to find what they consider an appropriate job in the domestic public sector or the oil economies of the Gulf region\. 1\.5 However, more rapid economic growth is needed to create employment to match the rapid population growth, still averaging around 2\.5 percent per year\. To address these challenges, the government developed the National Agenda (2006), a comprehensive strategic plan developed through a process of consultation with all stakeholders in Jordanian society\. The Bank’s 2006 Country Assistance Strategy (CAS), which supports the National Agenda, estimated that economic growth in the range of 6 to7 percent annually is needed over a sustained period to make a dent in the unemployment problem\. The government is hoping to develop high growth in some export sectors, having concluded a Free Trade Agreement with the United States and an Association Agreement with the European Union (EU), and also hopes to attract more foreign direct investment as well\. It recognizes that this means Jordanian workers must be seen as competitive in a knowledge economy environment\. The problem has been that many of the jobs created have been in sectors like construction or textiles that do not demand high knowledge and skills\. The labor market and unemployment problems are rooted in both the macro- economy and the structure of the demand and supply of and for educated labor, a problem discussed in greater detail in later sections of this report\. Evolution of education policy 1\.6 The Jordanian government for many years has supported a strong education policy to develop its human resources, which it regards as the principal source of its wealth\. By 1960 Jordan already had established a reputation for efficiency in executing public projects, such as roads, and had also set up an extensive elementary and secondary school system\. The first two-year teacher training colleges were established during the 1950s to provide teachers for this growing school system, and it was clear that a national university was also needed\.1 In 1961, the University of Jordan was established and now the country has 10 public universities and 12 private ones\. To promote scientific and 1 See Kamal Salibi, “The Modern History of Jordan” (1998), IB\.Tauris, the Jordan Book Centre\. Annex D contains a time line of key events of education in Jordan\.  3 technical progress the Royal Scientific Society was formed in 1968\. During the 1980s the teacher training colleges were transformed into a set of community colleges to provide a broad range of practical training as well as to continue to provide teacher training\. In 1988 the requirements of entry level teachers for basic education were upgraded to a four-year university degree, leaving the community colleges to serve mainly as technical training colleges\. Throughout all of these changes, the government of Jordon has been trying to keep pace with the demographic pressure by continuously building schools, but it has been forced to use rented facilities sometimes to accommodate the surge in enrollment\. 1\.7 The education system has undergone rapid expansion over the past few decades and access has improved almost to the point of universal primary education\. Early childhood education (ECE) includes kindergarten 1 and 2, typically for ages 4 and 5\. Basic education is compulsory and defined as grades 1 to 10, while grades 11 and 12 comprise secondary education, which ends with a General Secondary School Certificate of Education (often referred to as the Tawjihi in Arabic)\. The Tawjihi is a high-stakes exam, which is used for selection to university\. The primary gross enrollment rate has increased from 71 percent (1994) to 98\.2 percent (2006)\. The transition rate to secondary increased from 63 percent to 97 percent over the same period\. The table below shows the absolute increase in enrollment of the past decade\. Table 1\.1: School Enrollment (2000-2010) Level 2000 2010 Increase (annual) Early Childhood 83,777 99,168 1\.7% Basic (1 to 10) 1,173,314 1,337,296 1\.3% Secondary (11, 12) 173,755 192,017 1\.0% Source: Ministry of Education statistics department 1\.8 University enrollment in 2007 was 218,900 in total, with 163,200 in public universities and 55,700 in private ones\. The public universities tend to be large - seven of the ten have more than 10,000 students, including the University of Jordan with over 37,000 students in 2008\. None of the private universities have more than 10,000 students\. The 45 community colleges enrolled about 26,000 students in 2007\. The gross enrollment rate for the 18-25 year old population was 22 percent in 2006 compared to 18\.5 percent in 2001\. These represent significant achievements for a country that has experienced such rapid population growth and absorbed waves of refugees from conflicts in the region\. 1\.9 Not surprisingly this expansion of enrollments has translated into considerable fiscal pressure on government resources\. Overall, the government spends about 4\.5 percent of GDP and 15 percent of public expenditures on education\. However, only 14\.7 percent of education expenditure is for higher education, which is about 0\.65 percent of GDP\. In contrast, other middle income countries spend about 1\.6 percent of GDP for higher education\. Relative to other countries, Jordan spends more on basic education, reflecting in part the need to keep up with population growth\. On the other hand, in higher education finance, Jordanian society is more willing to contribute to cost recovery via tuition and private education than are societies in Egypt and Yemen, where tuition fees are unconstitutional\. Cost recovery in Jordan makes up to some extent for reduced  4 government funding, which declined from JD 60\.1 million (2004) to JD 45 million (2007) while enrollments in public universities have more than tripled since 2001\. World Bank engagement 1\.10 The Bank started support of education projects in Jordan in 1972, with a total of 16 projects approved since then, covering all levels of education\. The early projects focused on skilled manpower goals and school construction to increase access\. By the late 1980s, quality considerations came to the fore and sector work emphasized the need for reform of the curricula and teacher training to overcome the outdated emphasis on memorization of subject matter\. In 1989, the first Human Resources Sector Investment Loan (HRSIL1) was approved to initiate a 10-year program of education reform at the elementary and secondary level\. HRSIL2 followed in 1995 to continue the 10-year program\. These two projects focused on developing creative thinking and problem solving skills, especially in improving educational performance in science and mathematics\. The Bank has also supported demand-driven vocational training (The Employer Driven Skills Development Project ( 2008)) aimed at helping the Vocational Training Corporation, which was established to oversee job training, and the Ministry of Labor respond better to labor market demands\. 1\.11 Based upon concerns about the declining quality of its higher education, the government requested that the Bank conduct an in-depth study, resulting in the “Jordan Higher Education Development Study” (1996), which also set the stage for preparation of the Higher Education Development Project (2000)\. The study identified many issues that are still prominent on the agenda up to now\. Many of the issues in Jordan are shared with higher education reforms world-wide\. The Bank’s 1994 policy paper on “Higher Education: the Lessons of Experience” examined reforms in Europe and the US as well as higher education reform projects in Asia, East Europe and Latin America and Caribbean\. The Bank policy paper identified a package of reform elements that the Bank regarded as a “best practice” set of higher education reforms (Box 1-1)\. Adapting Box 1-1\. The World Bank’s Higher Education Reform Strategy “Higher Education: the Lessons of Experience” (World Bank 1994) developed the elements of the Bank’s higher education reform strategy, which include: university autonomy: accountability: quality assurance and accreditation; transparent financinga usually under a finance council; competition for research and investment funding, usually under a research council; differentiated missions among colleges (short-cycle labor market) and universities (long cycle and research programs); diversified finance, including some public subsidy; cost recovery via tuition and loans; equity safeguards via student loans and scholarships; and overall system coordination and oversight via some sort of higher education council or ministry\. This “reform package” was refined further in the Bank’s “Constructing Knowledge Societies: New Challenges for Tertiary Education” (2002)\. Source: "Higher Education: The Lessons of Experience"\. 1994\. Development in Practice Series\. World Bank\. a\. See Chapter 2 for formula funding based upon number of students enrolled and unit costs by fields of study\.  5 this package to the Jordanian situation began in the 1997 Project Concept Document, which was followed by many studies in Jordan by international and local consultants supported by a Population and Human Development (PRHD) grant\. It will be seen in the next section that the components of HEDP are derived almost directly from the Jordanian higher education Study and the Bank higher education policy paper\. 1\.12 There is still the widespread perception that the quality and relevance of higher education in Jordan is below where it should be given the acceleration of international mobility of professors and students and competition among national higher education systems, and the slow progress in Jordanian higher education\. The concern was expressed by the academic community and the government that Jordanian economic competitiveness was being reduced due to shortfalls in quality and relevance in the higher education system\. It is often mentioned in the press that universities in Jordan and the Arab region as a whole are low in international rankings, such as in the Times Higher Education Supplement, the Shanghai Jiao Tong University, or Webometrics of the Cybermetric Lab of the National Spanish Research Council (this is the largest, ranking 12,000 universities based upon information available via the Internet)\. Despite caveats that such international rankings may not use standards relevant to Jordan’s aspirations and situation, Jordanian academics are concerned about the perceived decline of the higher education system\. The Higher Education and Accreditation Commission (HEAC) is starting work on its own system of ranking that would have more direct relevance for Jordan\. 1\.13 Around this time the concept of a “knowledge economy” was also being brought to the fore, partially through the 1999 World Development Report, the dissemination of economic research on the contribution of knowledge to economic growth, and the rapid development of the internet (Box 1-2)\. The knowledge economy concept fits in well with the emphasis on critical thinking and problem solving in the first and second Human Resources Sector Investment Loans (HRSIL), but in Jordan it was recognized that an even greater push was needed beyond these approaches\. Both schools and universities in Jordan were lacking in sufficient quantity and quality of Information and Communication Technology (ICT) infrastructure along with the human resources base to make optimal use of it\. After starting up the HEDP project, preparation began on the ERfKE project since it was believed that economic competitiveness would also be enhanced by integrating the knowledge economy into the reform of basic education\. After completing HEDP, a Higher Education Reform for Knowledge Economy was prepared and approved by the Bank (May 2009), but it was cancelled by the government Box 1-2\. Key Dimensions of the Knowledge Economy The Bank’s flagship report on education in the Middle East and North Africa, “The Road NotTaken” (2008), highlights the following four key dimensions of the Knowledge Economy: (1) an incentives framework for acquiring and using knowledge; (2) an educated population capable of responding to these incentives; (3) an innovative network of firms, universities, consultants, research and other organizations that can acquire and adapt knowledge; and (4) a dynamic information infrastructure that facilitates transfer and use of knowledge\. Source: "The Road Not Taken: Education Reform in the Middle East and North Africa\." 2008\. Middle East North Africa Region\. World Bank\.  6 based upon budgetary concerns due to the global financial crisis in 2008-2009\. The Bank continued to support higher education through programmatic economic and sector work on specific topics, such as the reform of the community colleges and student financial aid\. 1\.14 By the time these two projects started, Jordan was thus in the position of having provided almost universal access to education at all levels for its rapidly growing population, except for early childhood education\. Over-crowded schools are still a concern in urban areas, while in rural areas schools are underutilized\. The government is also concerned about learning achievement and quality\. The unemployment problems in the labor market also gave rise to concerns about relevance of the education and professional training being provided in higher education\. The government believed that the problems of the education sector were also related to management and governance deficiencies in these sectors, hence the need to stress governance issues in the reform of education\. Moreover, having concluded trade agreements with European Union and the United States, the government wanted to attract foreign direct investment and hoped a more skilled and knowledge oriented labor force would play a key role\. In an attempt to improve role of community colleges in providing such labor force development, in 1997, the government created the new Al Balqa Applied University that would oversee the community college system as well as being a university in its own right\. Thus, by this time, the structure, and also the problems and challenges of the basic and higher education system, that led up to the two Bank supported projects under review in this PPAR were in place 1\.15 The role of other donors has been important for the development of education in Jordan, and the government and Ministry of Education have been exercising good coordination of grants from a variety of donors\. The largest donors have been the Arab Fund for Economic and Social Development, Canadian International Development Agency (CIDA), European Union (EU), United States Agency for International Development (USAID) and the United Kingdom’s Department for International Development (DFID), while others have carved out smaller specialty roles\. JICA has been important in support of the science curriculum, especially areas like physics\. Comprehensive data for all donor contributions to education is not available, but the financial contributions to recent education projects give a picture of the pattern of grants\. For example, in the ERfKE project the EU contributed US$45 million, the Arab Fund US$33 million, USAID US$26 million, CIDA US$ 17 million, and Islamic Bank US$23 million\. However, most of the external donor involvement has been in the basic education sector, with the exception of CIDA’s significant technical assistance for the community college segment of the HEDP\.  7 2\. Higher Education Development Project, 2000-2007 Design 2\.1 The Higher Education Development Project (HEDP) was approved on February 29, 2000 and became effective on October 7, 2000\. It was financed by a US$34\.7 million IBRD loan with a planned government contribution of US$31\.1 million\. Although Jordan was well-endowed with university graduates at the time the project was being prepared, their skill mix and the nature of their teaching methods, which was based largely on lecture and memorization, resulted in shortages of managerial and midlevel modern technical skills which included innovative problem-solving capacity\. The problems of quality and efficiency at the university level were affecting Jordan's international competitiveness\. Universities and colleges lacked modern information technology systems, laboratories and libraries required for modernizing programs of study\. Teaching was theoretical and most programs were not relevant to the needs of high-growth export sectors\. Enrollments in community colleges were declining sharply and unemployment among graduates reached over 20 percent during the 1990s, although now it has lowered to about 14 percent\. The university sector lacked effective policy-making advisory boards to assist decision makers in reforming the sector and making resource allocation decisions\. There was no strategy to link the allocation of resources in public university programs to the needs of the labor market\. 2\.2 During the 1990s changes were initiated in the governance structure of the higher education sector to make it more effective\. The Ministry of Higher Education and Scientific Research was abolished in 1998, and the Higher Education Council (HEC), which existed before as an advisory and policy making body to this Ministry, was kept as the main the policy-making body\. Universities had their own Boards of Trustees and their role the governance was strengthened, while the Presidents of the universities were responsible to the Boards of Trustees and for university administration\. The Higher Education Accreditation Council was started in 1998 to oversee the quality of higher education, although at first it started its work with the private universities\. On paper the governance of Jordanian higher education was moving in the direction of the Jordanian Higher Education Study (1996) cited in Chapter 1\. In practice, the capacity and financial resources of these institutions were lacking and the HEDP project was being prepared to address these concerns\. 2\.3 The Project Development Objective, as stated in both the Loan Agreement and Project Appraisal Document, was to “initiate improvements in the quality, relevance, and efficiency of higher education in Jordan, and support the Kingdom’s program to reform sector governance”\. It should be noted that reform of sector governance would also support the objectives of quality, relevance and efficiency, but the importance of sector governance to project success led it to be singled out as an objective\. Box 2-1 summarizes the components\.  8 Box 2-1\. Components of the Higher Education Development Project (Costs exclude contingencies) Component 1-Initiate Improvements in Quality, Relevance and Efficiency (US$52\.0 million)\. This component was to provide System-wide Support to (i) establish an ICT infrastructure to provide access for faculty and students to internet and data bases, (ii) link universities to each other, (iii) provide an integrated MIS, (iv) develop an inter-university library system, and (v) establish Faculty Development Centers in eight universities to upgrade faculty\. It also was to set up the Higher Education Development Fund (HEDF) to provide grants to universities via three windows: (i) competitive grants for new programs, (ii) a Faculty Development Center Fund, and (iii) an ICT Fund\. Component 2 (US$1\.9 million) Improving Sector Governance\. This component was to strengthen the Higher Education Council (HEC) by establishing an HEC Secretariat and (i) providing technical assistance to set its analytical functions, (ii) providing equipment needed to support these functions, (iii) technical assistance to design student loan and scholarship schemes, and (iv) staff training locally and internationally\. It supported the Higher Education Accreditation Council (HEAC) in its role of accreditation and evaluation of public and private universities and their programs of study, providing technical assistance, computers, and other resources\. It also supported improved planning and management at the university level by providing training for university managers and faculty to improve financial management and overall management, consistent with the new autonomy and accountability features allowed under the HEC and HEAC\. Component 3 - Reform of the Community College System (US$5\.6 million)\. Al Balqa Applied University (BAU) was formed as a new university in 1997 to oversee the community colleges as a system to make them more relevant and effective\. The component supported (i) the development of a manual for organizational structure and procedures, (ii) an assessment of an MIS for BAU and the community colleges , (iii) provision of the required hardware and software, and (iv) fellowships and training for MIS staff and users\. Activities to support program development, included: (i) fellowships for staff in the Program Development Unit to manage program renewal, (ii) fellowships for five Program Unit staff to establish a competency based curriculum, (iii) technical assistance to establish procedures for the Unit and to guide the first year of the new Associate Degree Programs\. Teaching staff were to be strengthened through a variety of mechanisms such as using lead instructors for the Associate Degree Program framework, providing fellowships to lead instructors, and short-term secondment to business or industry\. Computers and other equipment were financed, as well building technical skills needed for the BAU Associate Degree Program\. Component 4 - Project Implementation Capacity (US$1\.5 million)\. This included staffing of the PIU, administrative costs, incremental staff at universities and support to the National Steering Committee (NSC), which was established during preparation to as a high level body to guide policy and project preparation, and continued as a high level steering committee of ministers and other officials, while the PIU was responsible for day to day implementation Source: "Higher Education Development Project\. Hashemite Kingdom of Jordan\." Project Appraisal Document\. 2000\. World Bank\. 2\.4 The design and preparation of this project extended over a period from July 1997, when concept review took place, to appraisal in September 1998 and approval in February 2000\. The preparation process was a participatory one supported by many background studies by Jordanians and international consultants financed from Population and Human Resource Development (PHRD) grants at the time\. The preparation period took a relatively long time compared to the average for Bank projects, partly due to the  9 institutional complexity of the project and the preparatory work done with the support of the PHRD\. Sometimes Jordanian counterparts needed more time for their work program, and other times Bank management discussions and meetings over the complexity of the ambitious design absorbed more time than usual\. Internal processing changes, such as the new Loan Administration Change Initiative and standards of readiness for appraisal, introduced delays as well\. 2\.5 The project design provided for technical assistance in the Loan, which was reduced by US$6\.0 million at the time of Negotiations (November 1998) at the request of the government\. It was reluctant to borrow so much for technical assistance and believed that it would be able to obtain finance for the technical assistance from other donor grants\. Resolving this took time, both within the government and the Bank\. The Bank’s management looked upon this as a “high risk, high return operation”\. A post- Negotiations mission took place in November 1999 to reach final agreement\. The project was approved in February 2000 and became effective in October 2000, almost two years after appraisal\. 2\.6 The rationale for the objectives and design are rooted in the Bank policy towards higher education as it evolved over the 1990s\. The Bank policy paper, Higher Education: the Lessons of Experience (World Bank 1994), and the background studies starting back in 1995 provided much of the conceptual rationale for public investment in higher education and the encouragement of diversified funding and differentiation in the missions of higher education institutions\. Formula funding and competitive funding arrangements were becoming more common in Bank support for higher education\. Formula funding refers to setting transparent principles for allocating recurrent budgets based upon the number of students in different fields of study, the unit costs of different fields of study, and other policy objectives, such as reducing repetition or the time to graduate\. This is in contrast to the practice of institutions negotiating their budget each year with the authorities, which is not transparent and often depends upon political clout\. Competitive funding refers to funding investments in new programs and equipment through the process of institutions submitting proposals that are judged competitively based on merit, criteria, and procedures agreed upon beforehand by all involved\. This is considered to be more effective and demand driven by the institutions as opposed to central planning\. This project, along with some covenants in the Loan Agreement, followed most of the elements of the Bank higher education reform strategy identified in the 1994 Bank policy paper and the background literature upon which it was based\. The only elements of the Bank’s higher education reform package not included in the project was the reform of university research and a student loan/scholarship program, which were to come later in the Jordan higher education strategy\. 2\.7 Finding appropriate arrangements for implementation was problematic\. There was no Ministry of Higher Education and Scientific Research at the time, since it was abolished in the mid-1990s, leaving only the HEC with the oversight of relatively autonomous universities\. The arrangements for implementation originally envisaged a Project Implementation Unit (PIU) located within the Ministry of Planning and International Cooperation, but that was rejected as inappropriate for a higher education project\. The HEC was considered, but it had no secretariat with a developed capacity for implementation\. The National Center for Human Resources Development (NCHRD),  10 which had developed an implementation and Monitoring and Evaluation (M&E) capacity in previous education projects, was therefore selected as the home base for the PIU\. Near the end of the project, after the re-establishment of the Ministry of Higher Education and Scientific Research in 2001, the PIU was moved back into this Ministry, but with considerable downsizing of staff\. At the level of individual universities, the University Implementation Units were established to implement the grants and other activities\. Although their capacity varied considerably among universities, overall they played as essential role for those decentralized activities of the project, such as the execution of the grants under Higher Education Development Fund (HEDF)\. 2\.8 According to the M&E framework prepared during appraisal, the PIU was to monitor indicators, including collecting baseline data, and present reports to the National Steering Committee (NSC), comprised of high level representatives of the universities and ministries, which was the top level oversight body for the project\. Depending on the indicator, the universities were to supply some of the needed data\. The Results Framework was developed during preparation and the indicators for each objective carefully chosen\. Implementation 2\.9 The project was approved February 29, 2000 but did not become effective until eight months later on October 7, 2000\. This was followed by project launch mission in November 2000 in which there was extensive participation by all of the universities and Government agencies\. The Bank team conducted a seminar that provided training in all aspects of the project implementation, such as procurement and disbursement procedures\. 2\.10 Table 2\.1 below shows the actual versus planned expenditure for the project by components and total\. The loan amount of US$34\.7 million was almost fully disbursed with US$1\.7 million being cancelled at the end\. According to the disbursement category of the Loan Agreement, US$32\.0 million was allocated for goods and equipment and only US$500,000 for technical assistance, reflecting reluctance by the government to borrow for technical assistance\. However, during the Mid-Term Review mission in June 2003, the government requested, and the Bank agreed, to increase the amount for technical assistance by US$1\.5 million (for a total of US$2\.0 million) by using the unallocated category of the Loan Agreement for technical assistance\. There was no distinction made in the disbursement categories with respect to goods for ICT infrastructure and for the HEDF grants\. The goods needed for a demand-driven grants program like HEDF cannot be predicted before the proposals from each round come in\. In the end, there was more disbursed for the ICT infrastructure than for the HEDF grants, but the Loan Agreement was flexible in that regard\. The government counterpart budget at appraisal was estimated to be US$31\.4 million, but the actual turned out to be only US$9\.3 million\. Almost all government counterparts were to cover the staffing costs of the HEC, HEAC, and the PIU\. In the end, as a result of government austerity, these entities were not staffed as fully as was intended\. It must also be taken into account the re-establishment of the Ministry of Higher Education and Scientific Research in 2001 meant that the staffing needs of the HEC were less than at appraisal\.  11 2\.11 Subcomponent 1\.1 aimed to improve the quality, relevance and efficiency of teaching, learning and administration in the universities\. This subcomponent provided ICT networks, infrastructure including servers and PCs, which upgraded access for student and faculty\. This was the most procurement intensive part of the project in terms of equipment and goods\. Table 2\.1: Higher Education Project: Planned and Actual Cost by Component (US$ million) Appraisal Percent of Actual Components Estimate Appraisal 1\.1\. Infrastructure for Quality, Relevance, 17\.92 19\.28 107\.58 Efficiency 1\.2\. Higher Education Development Fund 34\.07 17\.14 50\.30 a 2\. Improvement in Governance 1\.91 0\.00 0\.00 3\.Reform of the community college System 5\.62 4\.08 72\.60 4\. Project Implementation Capacity 1\.51 1\.29 85\.43 Total Baseline 61\.03 41\.80 68\.50 Physical Contingencies 2\.56 0\.00 0\.00 Price Contingencies 2\.19 0\.00 0\.00 b Total Project Cost 65\.78 41\.80 63\.55 Source: Bank Disbursement Data Base Notes: a\. This amount was technical assistance eliminated at Negotiations; b\. Most of the shortfall reflects shortfall in government contribution\. 2\.12 Subcomponent 1\.2 included the HEDF which also had the objective of improving quality and relevance of higher education\. The HEDF was to achieve this by sponsoring competitive proposals that followed the agreed guidelines and procedures of the project\. The guidelines were formulated during preparation to select and fund projects that would add to the quality and relevance of higher education programs\. During the course of the project three rounds of competitions were held, in total financing 33 grants for new or upgraded programs and 7 entrepreneurial grants for projects with private sector industries\. The HEDF also involved large amounts of procurement of equipment and other resources needed to carry out the individual grants\. Procurement for this subcomponent was carried out efficiently\. 2\.13 Component 2 was aimed mainly at initiating improvements in governance and did not require so much spending and procurement of equipment as opposed to institutional reforms\. Significant legal and institutional changes took place soon after the project become effective\. In September 2001 a Royal Decree re-established the Ministry of Higher Education and Scientific Research, which had been abolished in the mid-1990s\. The Decree also realigned the roles of the HEC and HEAC and established Boards of Trustees for each university\. Still, the project activities to support HEC and HEAC were relevant and carried out\. Support was also provided for the Ministry of Higher Education and Scientific Research as well\.  12 2\.14 A major element of the governance reform was to be the introduction of formula funding for allocating recurrent budgets from the government to the universities\. Although most universities had some sort of data or information system, and had basic information on enrollment and finance, it was necessary to design a system that was compatible across all universities\. It was decided that this could be done in-house with local expertise, but eventually, after a few years of difficulties, it was decided to engage an outside consulting firm\. In the meantime, fundamental technical information was lacking for the formula funding\. There were political and administrative problems involved as well, including gaining a sufficient consensus on the formula to be used\. Given that the government subsidy to higher education budgets were declining to a small proportion of higher education spending (in the range of 10 to 20 percent), the universities increasingly felt that formula funding had become irrelevant due to the relatively small amount to be determined by formula\. Changes also took place in the policy and governance environment, such as the re-establishment of the Ministry of Higher Education and Scientific Research in September 2001\. In July 2003 the government requested that the Bank modify the loan covenant for formula funding in light of such changes and the preparation of a new higher education strategy that was in process, to which the Bank agreed\. 2\.15 Component 3 was aimed at the governance reforms for the community colleges\. An organizational study was conducted in 2003 to analyze and recommend changes in the organizational structure and procedures of the community college system\. Training and fellowships were provided to BAU and community college staff to strengthen the capacity for new program development\. A tracer study was conducted in 2005 to assess to provide labor market analysis and feedback from employers\. This component also financed equipment for computer, language and science labs as well as for the infrastructure for the MIS of the community college system\. The Canadian International Development Agency provided technical assistance the studies and training under another separate Canadian-Jordanian project for vocational and technical education\. 2\.16 With respect to fiduciary concerns, there were no issues\. The audit reports were prepared and no fiduciary issues were encountered\. The environmental category for the project was Category C\. The standard safeguard and management procedures were included in the Project Appraisal Document and followed during implementation and there were no safeguard issues\. Achievement of objectives IMPROVE THE QUALITY OF HIGHER EDUCATION 2\.17 The main purpose of the large investment in ICT (computers, network equipment,and others) was to improve quality of learning and teaching programs in the public universities\. These investments together with improved funding and governance arrangements were intended to result in better quality\. The main outputs that would contribute to quality were the higher education system-wide ICT network, the Faculty Development Centers, and the HEDF financed 33 new programs and 7 entrepreneurial grants with private sector institutions\. The HEAC improved capacity would also be a key output to improve quality\.  13 2\.18 The quality of higher education was also to be monitored by the introduction of new teaching methods, use of new media and technology, and the introduction of student evaluations of faculty teaching\. As a baseline of comparison, teaching methods at the project start was still traditional lecture, many times faculty reading from old and out of date notes\. At the start of the project hardly any new technology or media was used in the classroom and student evaluations were not used at all\. As a result of the project component activities, at least 20 percent of faculty were trained via the Faculty Development Centers, new technology and media was in use in 70 percent of the classes\. Student evaluations of faculty and teaching were done in all public universities involving 12,500 teacher evaluations between 2004 and 2006\. However, analysis of the results of these surveys was not available and the practice has not continued in all universities and there has been no practical impact of this potentially useful tool\. Faculty training was also provided to the community colleges to improve quality, but the teacher evaluations as above were not applied and evaluation studies for quality of teaching were not done\. 2\.19 The work of the HEAC became more independent and far reaching over time\. Initially, it was accrediting only private universities, but after the legal changes of 2001 and 2007, all universities are subject to its accreditation and quality assurance\. The IEG mission meetings with the HEAC revealed a readiness to move to output/outcome based measures of quality, such as introducing the use of field examinations (physics, economics, others\.) in collaboration with the Educational Testing Service of Princeton, New Jersey, USA\. In visits to universities, the mission learned that comprehensive examinations in major fields of study are still administered by various faculties\. There have apparently been no efforts to determine trends of achievement over time\.2 2\.20 When asked about the quality of incoming university students, most professors commented that they were well prepared to make use of the heavy investments in ICT by the project\. Given the increased use of ICT in basic and secondary education, this probably reflects positively to a large extent on the Education Reform for the Knowledge Economy Project, discussed in Chapter 3\. In terms of higher-level cognitive skills, there was more variation in opinion among university professors, with some still complaining about a gap in the ability to think creatively and solve problems\. Most of those interviewed thought that the university entrance exam (the Tawjihi) still relied too heavily on rote learning\. It should be noted that this was not at all a scientific survey, so more rigorous M&E is needed on learning outcomes in the universities\. This was not a part of the project design, but it should be considered for the future\. INCREASE THE RELEVANCE OF HIGHER EDUCATION 2\.21 The practical definition of relevance implied by the indicators and discussions of results has to do with programs that relate to the economic and social needs of the country\. The main outputs that would contribute to this objective were the HEDF (which 2 However, it should be noted that assessing learning achievement in higher education has not made as much progress internationally as in basic education\. Nothing like TIMSS yet exists for higher education, although OECD has made some recent attempts and the Collegiate Learning Assessment in the United States is in progress\. The major fields tests of the Education Testing Service referred to above has not reached the scope of international assessments, but they could be useful if a country wants some feedback for academic accountability\.  14 was also aimed at quality) and governance reforms aimed at the labor market, especially reform of the community colleges \. The competitive HEDF was conceived as a measure to encourage and provide incentives for such new programs\. However, these new programs can also be viewed as contributing to quality and the competitive mechanism as contributing to the efficiency of the investment program\. There was no concept of competitive funding prior to the project\. By the end of the project, 33 subprojects were approved while enrollment in new programs sponsored by the HEDF was 2,150 for the first set of 11 new undergraduate programs and 5,200 in the revised and upgraded program\. Compared to the student population of about 163,000 in public higher education, these are small numbers, but they were expected to grow, for which no data is now available\. The IEG mission reviewed the list of programs for all three rounds and they dealt with relevant topics like geology and water engineering, biotechnology, upgrading computer engineering, and restoration of archeological sites\. Each round introduced new and relevant program themes to the higher education system\. 2\.22 An external evaluation of all three rounds by external consultants was commissioned in 2005 as part of the M&E for the project and it was concluded that, although it did not fully reach its objectives in terms of being fully competitive, by the third round the HEDF was operating competitively as planned\. Part of the problem in the first two rounds was a failure to communicate clearly to university teams what kinds of proposals were requested\. By the third round many workshops and support to the university teams resulted in better prepared proposals\. The IEG mission also visited and talked to a few academic leaders of these new programs, most of which are still on-going\. Despite the initial round not being fully competitive, it appears that the HEDF introduced an entrepreneurial spirit which, in some cases, spilled over to other areas of university operations\. Some professors also reported that they felt more confident about applying for grants under the EU Frame Work Programs for which Jordan is now eligible as a result of its Association Agreement with the EU\. 2\.23 In terms of labor market relevance, the reformed community colleges under BAU were to play the major role in the project\. The governance problems (discussed below) of the community college system did not lead to improved employer satisfaction with the skills of graduates according to surveys carried out by the Canadian technical assistance to the community colleges (parallel funding to the project)\. Employers felt the training was still too theoretical and lacking in practical skills\. Enrollment in community colleges fell from 29,000 to 25,500, partly due to some programs with little labor market relevance being closed\. But there is also a preference among students for the four-year degree programs being offered by some community colleges, even though graduate unemployment remains high\. Some community college administrators reported to the mission that community college graduates in technical fields have much better employment rates compared to graduates in the humanities/social sciences\. 2\.24 The World Bank Labor Market Study in 2008 shows that for university graduates the lowest unemployment rates are for the medical (7 percent) and engineering (9 percent) fields\. The highest unemployment rates are for education (29 percent), public administration (28 percent), and computers (22 percent)\. The high unemployment rate for computer fields is surprising, given the perception that there is high demand\. Universities should question why their graduates have such a high unemployment rate in  15 computer fields\. Is it the quality of training, or is the training too theoretical? Or is there just too much supply relative to demand? There appears to be only a small response to higher unemployment in humanities, compared with engineering\. The proportion of students enrolled in engineering relative to humanities/social studies has hardly changed between 2001 and 2008\. Enrollment in the high unemployment humanities/social science decreased slightly from 60 percent (2001) to 56 percent (2008), while that in low unemployment engineering increased slightly from about 12 percent (2001) to 15 percent (2008), according to a study by a private research institute (Jordan Center for Policy Research and Dialogue)\. The Labor Market Study (2008) also mentions that students lack accurate information about the current demand for the specializations from which they can choose\. 2\.25 According to the Labor Market (2008) study, Jordanians and foreigners are on a par with respect to quantity of education, but there is concern with respect to quality, initiative and critical thinking ability among Jordanian workers\. Moreover, employers report that “attitude toward work” or “employability” is much higher among foreign workers, resulting in higher productivity of foreign labor\. This factor involves attitudes and expectations of young Jordanians, and it is similar to complaints that employers in the richer countries of the Gulf Cooperation Council have been making about their national labor force versus foreign labor force\. All of the Council’s countries are trying to “nationalize” their own professional job markets and are encountering similar problems as in the Jordanian labor market\. Career information and counseling might help here, but it is difficult to address such expectations through higher education alone\. RAISE THE EFFICIENCY OF HIGHER EDUCATION 2\.26 The main outputs that would contribute to this objective are the MIS for higher education, the formula funding for allocating recurrent budgets to the universities, and the HEC that was to oversee higher education policy and the formula funding\. The efficiency objective of the project was not defined in great detail, but the main indicator used specified the reduction of administrative staff relative to teaching staff\. The idea here was that administrative staff was excessive and that more resources could be allocated to the frontline mission of teaching without losing administrative efficiency\. While there was no hard evidence presented in the project documentation that the target ratio of 2\.0 (administration to faculty) was optimal, there was a consensus in Jordanian higher education that the baseline value of 2\.7 in the year 2000 was too high and should be reduced\. It turned out that the ratio of administrative to teaching staff did not improve, starting out at 2\.7 (2000) administrative to teaching staff and rising to 2\.8 (2007), compared to the target of 2\.0 for the year 2007\. 2\.27 The system-wide MIS could also be counted as one of the efficiency measures of the project if it had been implemented as planned\. The main shortfall of the HEC and Ministry of Higher Education and Scientific Research was in not implementing formula funding of recurrent costs of higher education\. This was planned to be operational by the end of the project, but it failed to become operational\. It would have provided information on other aspects of efficiency, such system-wide unit costs by fields, graduation rates, costs to produce a graduate, etc\. The MIS could have provided information on efficient use of all resources\. Although the public finance for higher  16 education dropped from 50 percent to 20 percent of operational spending within public , the revenues generated by the parallel tuition and fee paying programs partially made up for the declining public finance\. Overall, spending per student (in nominal terms) declined from 1,886 Jordanian dinars in 2001 to 1,775 Jordanian dinars in 2007 according to a higher education finance study conducted by a Jordanian private research institute\.3 With inflation averaging 3\.4 percent over this time period, the reduction in spending per student was even more in real terms, a reduction of about 28 percent\. Thus, all sources of revenues should be counted in the efficiency objective, which a good MIS would help to track\. The MIS design also failed to provide measures of collection of data on the benefit side which could have been used for a cost-benefit analysis of external efficiency\. Without good information about learning outcomes, it is difficult to say if the decline in cost per student is improved efficiency or under-spending\. If learning outcomes remained constant, for example, reduced spending would indicate improved efficiency\. GOVERNANCE 2\.28 The Governance objective was stated as supporting the government’s program to reform sector governance\. The reform program was laid out in the Letter of Sector Development Policy included in the Project Appraisal Document\. In one way or another, all component activities were aimed at governance reform, but improved governance would also support the objectives for quality, relevance, and efficiency of the system\. The MIS and the HEDF in component 1 were to move the system in the right directions, providing relevant information and competition for new program development\. The main outputs for the governance PDO were the HEC and HEAC reforms and capacity development in component 2, which were aimed at governance in the universities\. The main output for governance of the community colleges focused on the reform of governance and management of BAU in component 3 and the community colleges it managed, so as to improve their labor market relevance\. 2\.29 Some elements of the package of policy reforms were achieved\. The HEDF became more competitive after each round, the first round only being competitive within each university, i\.e\., the best proposal in each university was selected\. In rounds 2 and 3, the competitive criteria were applied more rigorously and some universities received more than one grant\. Also, the capacity of the HEAC has been augmented and after the 2007 legal changes, the HEAC is now officially named the Higher Education Accreditation Commission, completely independent of the HEC and the Ministry of Higher Education and Scientific Research\. In addition, to eliminate potential conflicts of interest, in 2009 further changes to the Higher Education Law no longer allowed university presidents to be members of the HEC, while at the same time strengthening the 3 See the study “Higher Education in Jordan: Access and Equity in its Financing” by Taher Kanaan with M\. Al-Salmat and and M\. Hanania (2009) by the Jordan Center for Policy Research and Dialogue\. However, more detailed cost data by fields of study would be needed\. There seems to be no technical reason to prevent to the establishment of an MIS\. Indeed, near the end of the project, a design was produced, but funding was not available\. Another study on higher education finance conducted for preparation of the second higher education project showed how variation in per student spending across universities could be analyzed and factored into the MIS and formula funding\. See “The Financing of Public Universities in Jordan” (2008) by the Higher Education Policy Institute, Oxford UK\.  17 role of the Boards of Trustees in governing universities and broadening the private sector membership of the Boards\. 2\.30 The HEC played its proper role of formulating policy to be implemented by the universities and coordinated/facilitated by the Ministry of Higher Education and Scientific Research according to the 2001 law\. The project did provide some results in improving the capacity of the secretariat of the HEC by way of ICT equipment and some training\. However, as cited in the previous sections, the main shortfall of the HEC was its leadership in formula funding and ensuring competition in the first two rounds of the HEDF grants\. 2\.31 BAU oversight of the network of community colleges initiated prior to the project did not turn out to be the solution to the problem\. However, the project did attempt to reform the structure of BAU and its community colleges and the organization plan and procedures manual were completed\. No decisions were taken on this\. The MIS for the community colleges was completed in contrast to that for the universities\. BAU itself appears to have more academic aspirations as a four-year degree and research university within its fields of technology and applied sciences, as opposed to developing two-year community college training programs\. The community colleges did not appear to have enough autonomy within this oversight scheme, although improvements were introduced, such as the Deans’ Council, which allowed heads of community colleges to participate in management meetings and decisions at BAU\. Still, there is evidence from some of the community colleges visited by the mission that individual community colleges are being innovative and pro-active in seeking out connections with private employers and providing needed occupational training\. New arrangements for technical education will take the community colleges from under BAU’s oversight and place it under the Jordanian Academy for Technical Education and attempt to tap into and foster this innovative spirit shown by a few community colleges\. Ratings OUTCOME 2\.32 Relevance of objectives\. The relevance of project objectives is rated substantial, given the importance of higher education to the government program of human resource development and also to the most recent Bank CAS (2006) and CAS Progress Report (2009)\. The first of the four CAS clusters was to strengthen the investment climate and build the human resources base for a knowledge economy\. The National Agenda, the overall economic strategy document of the government that was formulated in 2006, is also very similar to the CAS in that respect\. 2\.33 The relevance of project design was also substantial, but ambitious, as it attempted to introduce into Jordanian higher education the package of “good principles and practices” developed by the Bank and partners over the decade of the 1990s in sector work and policy papers\. If fully implemented, the reforms of the project were likely to help achieve the objectives since the governance reforms would make the allocation of recurrent and investment spending more effective and efficient\. Other aspects of the reforms, such as improving the HEC and HEAC, were project outputs likely to contribute  18 to initiating improved quality and relevance\. Also, the improved ICT infrastructure and the faculty training would update quality of learning and teaching\. Overall, the list of outputs of the project (system-wide ICT network, Faculty Development Centers, MIS, competitive funding, formula funding, the higher education councils, and reforms of BAU and community colleges) seemed appropriate for the objective of initiating improvements in quality, relevance, efficiency and governance\. Given the debate and ferment in Jordanian Higher Education, it seemed like a good time to attempt this reform\. These goals are still relevant for higher education today and looking forward\. 2\.34 Efficacy\. The project development objectives were modestly achieved, except for the objective of improved efficiency, for which was achievement was negligible\. The widespread introduction of new computers and scientific equipment is very evident along with teaching innovations, many of which are being continued\. These are input measures and outcome measures, such as learning assessments, were not part of the M&E design or available as part of the normal university operations\. Thus the achievement of the objective to improve the quality of higher education is rated as modest\. The achievement of the objective of increasing the relevance of higher education is rated modest since surveys of employers still showed dissatisfaction with graduates of the community colleges and, despite introduction of new academic programs under the HEDF\. , enrollment patterns are still concentrated in the humanities/social science fields where unemployment rates for university graduates are still high\. Yet, most of the new programs, such as those training professionals to deal with the water problems of the country, are relevant to the national economy\. The achievement of the objective of improving the efficiency of higher education is rated as negligible since the major goal of cost savings by the reduction in excessive administration was not achieved\. There was no evidence of improved efficiency in other respects\. The governance objective, which also supports all of the other project objectives, had shortcomings in terms of community college reform and the overall programs of university governance did not achieve formula funding and competitive funding in the first two rounds\. However, the third round worked as planned according to the external evaluation of the HEDF (2005)\. The capacity of the HEC and HEAC, which is important for system governance, did improve during the course of the project through staff development for their secretariats and provision of equipment and facilities for their operations\. The governance objective is also rated as modest\. 2\.35 Efficiency\. Efficiency is also rated modest\. The project resources went mainly to finance ICT, scientific and engineering equipment to support quality improvement and relevance of new programs\. Procurement of these items was carried out for the most part in professional and timely manner\. It was noted before that delays were encountered in the design of the MIS by the individual universities until this was contracted out to an ICT consulting firm\. The competitive fund for new programs (HEDF) also had shortcomings in efficiency during the first two rounds of competition when they did not function competitively according to the program guidelines\. Another source of inefficiency came about from delays in the community college component which led to failure to complete the strategic plan for reorganization of the subsector\. Overall, physical inputs and equipment were procured efficiently for all components, but outcomes were not fully achieved\. Thus, although lacking data to compute a cost-benefit ratio, these qualitative considerations lead to rating efficiency as modest\.  19 2\.36 Outcome\. Based upon the above, the outcome of the project is rated moderately unsatisfactory\. Relevance of project objectives and relevance of design were each substantial, efficacy of each PDO was modest, except for the efficiency PDO which was negligible, and efficiency of the project was modest\. RISK TO DEVELOPMENT OUTCOME 2\.37 The risk to development outcome is rated moderate\. Although there is a consensus on the need to reform, there is also a lively debate on reform priorities\. However, all of the reform issues were discussed openly in the 2007 Dead Sea Forum on higher education and the result was a new strategy for the higher education sector\. Despite the cancellation of the Second Higher Education Project to follow up on these reforms, the government and Ministry of Higher Education and Scientific Research are cooperating with the Bank via programmatic economic and sector work to confront priority issues\. The risk is that there are a large number of issues that need to be tackled in a systemic way and the Ministry will be moving too slowly on individual issues\. As a result, some of the limited achievements of the Project, such as the Competitive Fund, the completed design of the MIS and technical basis for formula funding, may not be sustained\. BANK PERFORMANCE 2\.38 Overall Bank performance was moderately unsatisfactory\. Quality at entry, which was moderately unsatisfactory, suffered from unduly long delays in preparation\. Bank management reviews took a long time while risks associated with an ambitious reform were being debated\. All of the risks were rated in the end as modest except the one that the government might not secure adequate technical assistance grants to replace the technical assistance from reducing the loan amount\. This was rated high and was to be monitored carefully\. However, there was no measure specified to be taken if the grants for technical assistance did not materialize even though it had been looked upon as a “high risk, high return operation”\. The Bank team, staffed by qualified higher education experts, and building upon the analysis of the 1996 Higher Education Development Study, carried out good background studies\. However, preparation lost momentum during the delays\. In hindsight, the PHRD grant could have been used to do pilot programs and trial runs of difficult reforms, such as formula funding and competitive grants\. There were good examples of this from other Bank operations, which could have been adapted to the Jordanian situation during piloting, given that the culture of higher education in Jordan was not used to competitive institutions\. This would have improved the implementation plan adopted at appraisal and negotiations and reduced the need for dated covenants on these important reform measures\. 2\.39 Quality of supervision is rated moderately unsatisfactory\. The negative risks identified in the Project Appraisal Document predominated and higher level Bank management reacted too slowly\. The supervision team provided regular assistance on implementation issues, such as procurement and disbursement, beginning with an excellent project launch mission in October 2002 at the time of effectiveness\. This, along with increasing the amount of technical assistance by US$1\.5 million from the loan at mid-term review, helped to compensate to some extent for the reduced amount of  20 technical assistance due to government reluctance to borrow for technical assistance\. While this helped with the provision of equipment and computers under Component 1, the aide-memoires of supervision missions indicate that there was insufficient focus on reform measures of governance in Component 2 (University Governance) and 3 (community colleges)\. There was no evidence that high level regional management intervened in efforts to get the policy reforms of the project on track\. BORROWER PERFORMANCE 2\.40 Overall Borrower performance was moderately unsatisfactory\. Government performance is rated moderately unsatisfactory\. During preparation, there was no strong leadership from the side of the borrower\. The Ministry of Higher Education and Scientific Research was abolished in the mid-1990s before preparation began in favor of the HEC exercising oversight of autonomous universities\. While this works in some countries, in this case the HEC was not strong enough with a high capacity secretariat\. As a result, the Ministry was re-established in 2001 after the project had been effective for more than a year\. Frequent changes in ministers, did not allow for this development to take root\. Although the system wide MIS experienced delays and problems, holding back progress on the technical aspects of formula funding, lack of high level leadership was also a critical factor\. By the time a strong minister was appointed, much delay had been experienced, and this minister eventually was changed as well, creating another leadership vacuum\. Although autonomous in many ways, the universities were still subject to external pressures in other ways\. Thus, the executive branch could pressure universities to hire more administrative staff than they needed, presumably for some government job creation or personal favors\. Admissions to universities outside of the unified admissions framework were also the result of external pressure, thus reducing the efficacy of the project in improving the efficiency of the higher education system\. 2\.41 Implementing agency performance is rated moderately unsatisfactory\. The PIU was staffed with competent and dedicated professionals and performed its technical tasks of procurement satisfactorily\. It did a good job of delivering some intermediate outputs for ICT and computer labs in the universities\. Because of its location in the NCHRD, outside of the Ministry of Higher Education and Scientific Research and HEC, it performed less well on reform measures\. Partly as a result of this arrangement, the system wide MIS experienced delays and problems, holding back progress on the technical aspects needed for formula funding of university recurrent budgets\. In addition, the PIU staff lacked the prestige of high level academics when it came to dealing with the universities and could not supply the leadership needed to get the universities to change behavior\. QUALITY OF MONITORING AND EVALUATION 2\.42 The quality of M&E is rated modest\. Its design was comprehensive in terms of a global MIS and indicators, though these were all input oriented as opposed to outcomes\. Although the PIU was responsible overall for monitoring indicators, the plan for obtaining these indicators did not assign clear responsibility within the universities, which would be the originators of much of the data\. A few indicators for intermediate outcomes were defined, but these were also affected by lack of a clear plan to produce the  21 needed data\. The M&E design could have followed the overall results framework more closely and could have used more control groups in the methodology of evaluating the achievement of project objectives\. 2\.43 Implementation of M&E was affected by the problems with the global MIS, which was not achieved, although individual universities implemented or improved their own individual systems\. A few evaluation studies, including tracer study for community colleges and the performance of the competitive fund (HEDF), were carried out, but they were done too late for the results to be used\. These could not be used for a system wide improvement, but were used at the institutional level\. 2\.44 Utilization of the results turned out to be limited\. The Ministry of Higher Education and Scientific Research was motivated to also establish a Directorate of Computers, Information and Statistics which is producing enrollment data at the system level, but cost and financial data is lagging for the system as a whole\. The individual universities submit financial statements and reports to the Ministry which could be utilized further as a basis for analyzing costs per students\. 3\. Education Reform for the Knowledge Economy I Program, 2003-2009 Design 3\.1 The US$370 million Education Reform for the Knowledge Economy I Program (ERfKE) was approved on May 8, 2003\. It was to be financed by a US$120\.0 million IBRD loan, US$130 million in counterpart funds by the Borrower, and US$120 million from donors\. The PDO as stated in the Loan Agreement was “to assist the Borrower in improving the quality, relevance and efficiency of its early childhood, basic and secondary school education systems, so as to produce graduates with the skills necessary for the knowledge economy\.” The Project Appraisal Document, however, stated the PDO was “to support the government to transform the education system at the early childhood, basic and secondary levels to produce graduates with skills necessary for the knowledge economy”\. The two formulations are identical with respect to skills necessary for the knowledge economy\. The Loan Agreement formulation is more specific with respect to what is meant by “transforming the education system,” thus this formulation will be followed here\. 3\.2 The rationale behind the objectives and design is rooted in the experience of Jordan and changes in the global economy\. Access to education in Jordan had been making good quantitative progress throughout the 1980s and 1990s\. This has occurred despite the rapid growth in school age population\. The two operations prior to this one (HRSIL 1 and 2, 1989 and 1995) also supported curriculum changes that promoted more student centered learning, especially in science education\. But the shift in the role of knowledge in the economy and the use of ICT made it imperative for Jordan to aim higher in its goals for education\. It was decided that an overall transformation of  22 curriculum, teaching and management was needed as opposed to incremental improvements\. 3\.3 In September 2002, the “Vision Forum for the Future of Education” was held\. This high level conference, held under the auspices of King Abdullah, advanced the vision of Jordan as a regional hub for ICT\. The Bank arranged to bring in high level policy makers from East Asia-Pacific region to this Vision Forum to share their practical experience in reforms for the Knowledge Economy with Jordanian policy makers\. With Bank assistance, a “Statement of Sector Policy” was developed to build upon the outcome of the “Vision Forum\.” The government thus developed a comprehensive proposal for the reform of education that was aimed at the education dimension of the knowledge economy (refer back to Box 1\.2) that was elaborated in the Education Reform for the Knowledge Economy Project\. Box 3-1\. Components for the Education Reform for Knowledge Economy Project Component 1 was to Reorient Education Policy and Administration (US$8\.1 million)\. Subcomponent 1\.1 was to redefine the vision and prepare a comprehensive national strategy for education\. Subcomponent 1\.2 was to improve management and decision making\. Subcomponent 1\.3 was to set up an integrated Education Decision Support System (EDSS) to improve decision making\. Subcomponent 1\.4 was to conduct research, monitoring and evaluation, national and international learning assessments, and policy analysis\. Subcomponent 1\.5 to develop effective and efficient management and investments in educational reform, including school based innovations\. Component 2 was to Transform Education Programs and Practices for the Knowledge Economy (US$46\.8 million)\. Subcomponent 2\.1 aimed at a new curriculum and learning assessment methods\. Subcomponent 2\.2 focused on the professional development of teachers, supervisors and principals to implement the new curriculum\. Subcomponent 2\.3 provided the required resources in terms of equipment and learning materials\. Component 3 was to Support a Quality Physical Environment for Learning (US$57\.7 million)\. Subcomponent 3\.1 aimed to replace structurally unsafe and overcrowded schools\. Subcomponent 3\.2 was to upgrade existing schools to support learning for the knowledge economy through provision of computers and science labs\. Component 4 was to Promote Readiness for Learning through Early Childhood Education (ECE) (US$6\.2 million)\. Subcomponent 4\.1 focused on institutional capacity building in the field of ECE, and Subcomponent 4\.2 was to promote professional development of early childhood educators\. Subcomponent 4\.3 was to provide increased access to KGs, especially in rural areas that had limited access to ECE, while Subcomponent 4\.4 was to promote parental/community participation by piloting community-based centers in selected governorates\. Source: "Education Reform for the Knowledge Economy Project: Hashemite Kingdom of Jordan"\. Project Appraisal Document\. 2003 World Bank\. 3\.4 The implementation arrangements in the Project Appraisal Document called for the Ministry of Education departments to carry out the project as part of their functional responsibilities, supported and coordinated by the Development Cooperation Unit (DCU) located in the Ministry\. Thus, there was no PIU in the usual sense of that term\. The idea was to build up the capacity of the Ministry of Education\.  23 3\.5 The design of M&E assigned a key role to the National Center for Human Resources Development, which was to carry out external M&E by conducting 30 studies and surveys\. The Center had been involved in previous Bank-supported education projects in the role of a policy and coordination body\. The day-to-day progress of implementation was to be monitored by the DCU and respective directorates in the Ministry of Education\. Implementation 3\.6 The project became effective on May 28, 2003, only 3 weeks after Board approval, and the project launch mission took place in July 2003\. Thus from appraisal to start-up the project progressed much faster than average for Jordan and the Bank wide average\. This reflected strong ownership by the government and Ministry of Education as well as the detailed and thorough preparation\. 3\.7 Planned and actual expenditures financed by the loan, by component, are presented in Table 3\.1\. The donors referred to in Chapter 1 made parallel contributions for separate parts of the overall ERfKE program and their contributions and those of the government are not included in the table\. The loan was fully disbursed with the government counterpart actual contribution of US$144 million exceeding the planned US$130 million contribution estimated at appraisal Table 3\.1: Planned and Actual ERfKE Project Costa Financed by the IBRD Loan, by Component (US$ million) Percent of Components Appraisal Estimate Actual Appraisal 1\. Reorient Policy 8\.1 2\.5 30\.9 2\. Transform Programs and Practices 46\.8 37\.0 79\.0 3\. Quality Learning Environment 57\.7 78\.6 136\.3 4\. Early Childhood Education 6\.2 0\.4 6\.5 b Total Costs financed by the Loan 118\.8 118\.5 99\.8 Source: Bank Disbursement Data Base\. a\. Actual costs by component for the entire $370 million project, including contributions from government and donors, were not available\. b\. Front end fees brought the total loan amount to US$120 million\. 3\.8 Component 1 on Policy and Administration made good progress throughout implementation\. The Vision Forum 2002 was elaborated further into a comprehensive and detailed National Strategy that was completed by 2006\. This helped to guide decision making and the work on the MIS and EDSS\. However, delays in the MIS, which provided an essential input to the EDSS, caused the EDSS to be put on hold resulting in lower-than-planned expenditure on this component (only 30\.9 percent of the appraisal estimate)\. The consulting firm engaged for the EDSS did complete the design, and it is anticipated that sometime in the future the EDSS will be operational\. A communications strategy to educate and inform the public and stakeholders was developed but not implemented\. Within the Ministry of Education a policy unit was set  24 up and staffed as planned, and a Directorate of Information and Computer Technology was established to help with education statistics and ICT support\. This component also included an Innovation Fund that awarded grants to schools based upon proposals\. However, it was not well connected to other activities of the project and turned out to be not very effective or innovative or result in changing policy\. This functioned like a matching grant in the end, but schools learned to prepare proposals based upon self- evaluations and school development aims\. 3\.9 An important part of Component 1 was the monitoring measures set up as a part of policy analysis\. The continuing participation of Jordan in Trends in Mathematics and Science Study (TIMSS) was part of this, and a new national assessment of learning, National Assessment for Knowledge Economy (NAfKE), was also implemented under this component\. In conjunction with the NCHRD, 30 studies were conducted on various topics of importance to the reform program\. 3\.10 Component 2 on Education Programs and Practices was in some ways the heart of the transformation for knowledge economy reform\. A new knowledge economy curriculum was formulated and plans were made to train teachers to implement the new curriculum\. During the first two years curricula teams were formed and trained with some external support from the loan and other donors\. A plan for an orderly phased roll- out of the new curricula was made, starting with Grade 10 in 2006, Grade 6 in 2007 and Grade 1 in 2008\. This plan was implemented as designed, allowing time for teachers to be trained and new texts and materials to be prepared\. Science lab equipment for the new curriculum was also procured during this time\. 3\.11 Component 3 on Quality Learning Environment was mainly a program of civil works\. A main issue was safety, since many rented facilities were not appropriate as schools\. This component also sought to respond to the rapid growth of the school-age population and reduce overcrowded classrooms, thereby improving the learning environment\. As result, this component wound up costing more than all the other components combined, making up for the reduced expenditure on Component 1 when the EDSS was put on hold\. The civil works were carried out well with only a few problems along the way\. Early in the project there were some delays in the evaluation of bids and the quality of bid evaluation reports needed to be improved\. These problems were resolved through intensive help in supervision to improve familiarity with Bank procurement procedures\. As a result of the Bank loan, the government constructed 41 new schools and renovated or extended 538 schools\. In addition, classrooms were constructed for ECE, building 300 public kindergartens and rehabilitating classrooms (140 from the Bank loan and 100 with USAID support)\. These new schools were also provided with appropriate furniture and equipment\. 3\.12 Component 4 on Early Childhood Education provided the much needed increased access in rural areas\. It also provided a new curriculum and approach, with the extensive training and provision of materials required\. The construction of classrooms came under Component 3 and was carried out efficiently for ECE as for the other grades\. Equity was a partial consideration in this component in so far as access of rural areas to ECE was part of the goal\.  25 3\.13 While the project objectives and components were not changed during the life of the project, some modifications were made to the Loan Agreement\. In May 2005 and October 2006, changes were made to streamline implementation and procurement procedures for the Innovation Fund\. Since the grants for this subcomponent were small, a specific disbursement category was created and allowance was made for direct contracting for the acquisition of goods\. In September 2006, there was a reallocation of US$9 million for school construction\. At mid-term review, it was determined that there would be a budget over run estimated to be US$8\.8 million, mainly in school construction\. The government revised its project implementation plan together with its financing plan, and the budget overrun was avoided\. 3\.14 With respect to fiduciary aspects, there were no concerns\. The audit reports were prepared and no fiduciary issues were encountered\. With respect to environmental safeguards, the project was rated as environmental category B due to the school construction and rehabilitation under the project\. The Project Appraisal Document included an Environmental Management Plan and school construction and rehabilitation were done according to this plan without any issues\. Achievement of the Objectives IMPROVE THE QUALITY OF EARLY CHILDHOOD, BASIC, AND SECONDARY EDUCATION 3\.15 The concept of quality used in the project can be taken as implicitly defined in the Vision Forum 2002 and the National Education Strategy that followed during project implementation\. Quality was conceived of as improved learning outcomes as result of increased teacher training, new books and curricula\. To a large extent the project made good progress on improving quality as measured from the vantage point of learning outcomes, key outputs (curricula, books, and teacher training), and inputs\. One of the main indicators chosen was the performance of Jordanian students on the international assessment of learning Trends in Mathematics and Science Study (TIMSS)\.4 A small positive improvement was recorded in the TIMSS from 2003 to 2007 at the same time as enrollments increased\. Math scores went from 424 to 427 and science scores from 475 to 482\. This represented a small but marginally significant increase in scores\. However, going back further to Jordan’s 1999 first participation in TIMSS, Jordan made the largest improvement of all participating countries between 1999 and 2007 and some experts argue that looking at this longer term trend is more significant than looking at shorter term variations (Patrinos 2008)\. In addition, the ranking of Jordan improved more than most other participating countries, both within the region and internationally\. All of these components and their outputs were evaluated by the NCHRD under the M&E part of the project, using evidence collected from credible sampling methods and instruments, and showed substantial results\. 4 The Tawjihi or General Secondary School Certificate of Education exam, which is taken by most secondary school graduates as university selection exam, was not chosen as an outcome indicator because of its heavy reliance on memorization of subject matter, according to many informed observers, and thus not in line with the project objectives\. TIMSS and NAfKE are sample based tests carefully constructed to assess critical thinking and problem solving\. The Tawjihi is under reform and will be changed over the next few years\.  26 3\.16 The difficult question is to what extent this could be attributed to new curriculum framework that was implemented from 2005 to 2007\. After all, it takes a few years to design the new curriculum, during which time things continue as before, and the TIMSS data cover 2003, two years before the new curriculum started, to 2007\. Meanwhile, teachers need to be trained and new textbooks and learning materials provided\. Then there is the issue of how widespread is the adoption of the new teaching methods\. One of the M&E studies by NCHRD shows that the dissemination of new methods takes some time after their design\. The other attribution issue is that there were two large education projects in Jordan during the 1990s (HRSIL 1 and 2) and, given the time lags in improving any education system, some of the improved performance may be also due in part to those interventions\. For example, the TIMMS science score improved most from 1999 to 2003 when it rose from 450 to 475, larger than the gain from 475 to 482 from 2003 to 2007\. The TIMSS math score was unchanged from 1999 to 2003\. 3\.17 However, the results from the NAfKE learning assessment in 2008 showed a clear improvement in performance in math, science, and reading since 2006\. The percentage of students in the lower levels of achievement was reduced, while their percentage increased in the high and advanced levels of performance\. There was an improvement in math for 9th and 11th grades, in science for the 9th grade, and in reading for all three grades tested\. Early childhood learning outcomes were not assessed in this round of NAfKE, but will be assessed in future rounds\. It might be possible to attribute some of the improvement from 2006 to 2008 inputs from the project, but the previous HRSIL projects may still be part of the causal chain\. The HRSIL-2 ended December 2002, with a great deal of curriculum, textbook, and teacher development that entered the system during the last years of the project\. It would be expected that the impact would continue to be felt during the first few years of ERfKE, and could be partly responsible for the improvements in TIMSS from 1999 to 2003, but it is less likely to be responsible for the NAfKE improvement\. The sample-based studies of teacher training, curricula and new text books showed a significant improvement in these areas from 2005 -2007\. These evaluation studies, which are among those carried by the NCHRD, used stratified sampling methods that were adequate in size and used appropriate instruments to collect data, such as classroom observations and structured interviews\.5 Given the improvements in teacher training and curricula from 2005-2007, it is likely that the sustained effort of ERfKE1 in these areas is also responsible to a large degree for the improved learning outcomes registered by NAfKE in 2008\. IMPROVE THE RELEVANCE OF EARLY CHILDHOOD, BASIC, AND SECONDARY EDUCATION 3\.18 The project objectives define relevance in terms of the skills needed for the knowledge economy\. The project outputs aimed at this objective included the revised 5 The teacher training evaluation used a sample of 164 schools representative of those participating in the NAfKE study\. The sample was a random stratified one with strata by sex , location and school level\. This involved 486 teachers, 164 principles and 60 trainers\. The curriculum evaluation used a similar random stratified methodology with a sample size of 117 schools with 276 teachers\. Six instruments were developed for: textbook analytical scheme, teachers’book analytical scheme, electronic content analytical scheme, classroom observation schedule, students’ attitude questionnaire, and focus group interviews\.  27 vision and strategy for basic education, the development of cognitive skills via the new curricula and teacher training, access to ICT and how to apply ICT in the new curricula\. While no precise definition is given for knowledge economy in the project documents, it is broadly assumed by the government, Ministry of Education, and the Bank project team to include a high level cognitive skills that can be creatively applied by graduates of the system\. As mentioned in Chapter 1, the high-level National Vision Forum held during 2002 as part of preparation, explored many aspects of the Knowledge Economy and its implications for education\. ICT skills are assumed in most of the literature on this topic as essential for the knowledge economy, especially for the service sectors that are important for Jordan\. The ability to access, assess and apply information via the Internet and elsewhere will be critical to success in the knowledge economy\. To that extent, ensuring access to on-line portals to 70 percent of basic and secondary students starting from a base of virtually zero at the start of the project is a considerable achievement\. As mentioned previously, most university professors attest to the vastly increased ICT proficiency of incoming university students\. This will take a stronger root in the future as the ECE component has given a big push to cognitive development early on with Kindergarten access rising to 51 percent from 41 percent at the start of the project\. Overall, access to computers at all levels has improved and the evaluation evidence from NAfKE (although ECE evaluation results are still to come) and the new curriculum on improvements in cognitive skills (as opposed to rote learning) indicate that there are substantial outputs to knowledge economy skills as usually formulated in the literature\. IMPROVE THE EFFICIENCY OF EARLY CHILDHOOD, BASIC, AND SECONDARY EDUCATION 3\.19 The key outputs aimed at efficiency of the sector were the completion of the MIS and its incorporation in the EDSS\. Some major progress was made in efficiency, which the Project Appraisal Document took to mean the conventional cost-benefit ratio, but some of the goals had to be put on hold or moved into the next phase (ERfKE2)\. Jordan’s basic school system appeared to be fairly efficient in terms of student flows (repetition rates range from less than one percent in lower grades to less than 3 percent in upper grades), which was maintained throughout the project\. Costs per students (in real terms) increased from 310 JD in 2004 to 380 JD in 2008, reflecting investments made in the quality of the system (see Rawle (2008) in preparation of ERfKE2)\. However, benefits, especially defined in terms of wage differentials from more education, could not be measured, so the project focused on the cost side of efficiency\. Some examples of progress on the cost side of efficiency equation relate to the management of school construction and the cost savings that were realized\. The planned EDSS was to be one of the major measures to improve efficiency\. The MIS was completed, but required further fine tuning before it could be connected to the EDSS\. As a result, although the design of the EDSS was completed after some delays, it was put on hold until the next phase of ERfKE\. 3\.20 There were some pilot initiatives for decentralization supported by CIDA that also made progress\. Their wider replication, however, is being included also in the ERfKE\. Thus, Ministry of Education planning and budgeting continued along its traditional lines\. The newly created Policy and Strategic Planning Secretariat was created and the use of evidenced-based policy and planning was partially implemented\. The efficient utilization  28 of school facilities, in terms of overcrowding in many areas and underutilization in others, remained a challenge as demographic changes took place as rapidly as school construction\. PRODUCE GRADUATES WITH THE SKILLS FOR THE KNOWLEDGE ECONOMY 3\.21 The concept of knowledge economy is discussed in the official Letter of Sector Policy included in the Project Appraisal Document, based in part upon the National Vision Forum held in 2002\. Still, as in many other Bank projects, the concept remains elusively broad\. It usually involves use of ICT to transform the education system in terms of learning goals, professional development and overall system management\. Much progress was made in knowledge economy goals on the input side with documented increases in computer installation and usage\. IEG mission visits to the schools confirm such widespread progress, despite the comments from teachers that much more is needed, mostly because of enrollment growth\. 3\.22 Key outputs of the project included a new strategy for the Knowledge Economy (the Vision Statement) and the new curriculum structure that integrated ICT into the curriculum at all levels\. Other key outputs involved the ICT infrastructure for the schools and teacher training to make this effective\. The Vision Statement 2002 sees education as responding flexibly to the economy and also stimulating the economy\. The ability to access, assess and apply information in a variety of job situations is at the heart of the concept of knowledge economy\. 3\.23 The evidence from evaluations on learning outcomes, new curricula emphasizing cognitive skills, and access to ICT shows improvements in areas in which Jordanian employers said they wanted to see improvements\. The impression gained from the IEG mission from visits to schools was consistent with these evaluations\. Interviews by the IEG mission of professors and representatives of private employers suggest that these improvements are already showing up in more computer-literate graduates going into university and the labor force\. This is being addressed more systematically in the collaboration between the Ministry of Education (and other ministries) and the Bank in the current programmatic wconomic and sector work that deals with the topic of school to work transition\. Ratings OUTCOME 3\.24 Relevance\. The relevance of objectives is rated substantial due to the importance of knowledge economy objectives to the overall CAS (2006) and, in particular, the human development pillar in the CAS\. The CAS in 2006 aimed overall at transforming Jordan from a lower middle income economy into a modern knowledge based economy\. A Progress Report on the CAS was prepared in 2009 and reaffirmed the original four clusters of CAS objectives, including the first one about building human resources for a modern knowledge-based economy, that is, ICT skills and basic cognitive competence to use ICT appropriately\. The National Vision Forum (2002), a conference that set national education policy based upon the concept of the knowledge economy, is  29 also strongly supported by the project\. This education policy vision is still in place as set out it in the Letter of Sector Development Policy prepared for the follow-on Second Education Reform for Knowledge Economy Project\. The other aspects of project objectives (quality, relevance and efficiency) are important to developing human resources in a way that takes into account the fiscal priorities of the government\. 3\.25 The relevance of the project design is also rated substantial due to the way it integrates ICT in education with developing the critical thinking and problem solving skills needed for the knowledge economy\. Given that the concept of knowledge economy stressed an educated population with access to and ability to use the national ICT infrastructure, the project results chain linked up with this human resources component of a knowledge based economy\. The various outputs of the components of the project, especially reorienting education policy and transforming curricula, teaching and learning, are aimed at the PDOs for the knowledge economy\. There are other dimensions of a knowledge based economy outside the purview of the education system, such as a network of dynamic firms and research institutions along with a system of market incentives to use knowledge in creating economic value added\. However, the project contributed to those dimensions of the knowledge economy for which the education system is deemed responsible\. 3\.26 Efficacy\. The efficacy of each PDO is rated substantial, except for the objective of improving the efficiency of education, which is rated modest\. The improvements in learning that are at the core of the project are confirmed by improving test scores for both basic and secondary levels\. The steady increase in the test scores on TIMSS for grade eight from 1997 to 2007 demonstrates important progress, despite the fact that some of that increase could be due to the previous two education projects\. The national assessment (NAfKE) was initiated under the M&E part of the project and also demonstrated significant progress in reading, math and science from 2006 to 2008\. The NAfKE, as part of the evaluation studies done by the NCHRD, was conducted for grades 5, 9 and 11 for reading, mathematics and science based upon the new curricula\. Evaluation studies carried out by the NCHRD for curricula development and teacher training, all of which showed significant improvement\. The early childhood activities were not subject to assessment of learning outcomes, but they were evaluated by the NCHRD for their impact on access, new curricula and training of teachers, all of which showed significant progress\. Studies of readiness to learn were also started for grade 1 and should provide outcome data over time\. Thus the quality objective in terms of learning outcomes and provision of quality inputs (curricula, textbooks and teaching) for early childhood, basic and secondary levels is rated substantial\. 3\.27 The relevance objective is also rated substantial since the project achieved a redefined vision and strategy and went a long way towards providing the new curriculum and teacher development needed, although more time is needed to mainstream the changes\. The achievement of the objective of improving the efficiency of early childhood, basic and secondary education faced some short comings\. An important aspect of efficiency for the system was improving student allocations to schools so as to alleviate overcrowded or underutilized schools\. The IEG mission observed overcrowding in almost all of the schools visited (except for early childhood levels) and was informed that this was typical\. The mission was also informed by principals and Ministry of  30 Education staff that there are still rural schools that are underutilized due to low enrollment\. On the positive side, many new schools/classrooms were constructed that allowed for reduction of rented school facilities and helped to keep overcrowding of schools in check\. Completion of the EDSS, a key tool to enhance efficiency was carried forward to the follow-on project\. Overall, the objective of improving the efficiency of the system is rated as modest\. The last objective of graduates for the knowledge economy is rated substantial\. The evidence from the evaluations on learning outcomes, new curricula emphasizing cognitive skills, and access to ICT showed improvements in these areas in which Jordanian employers said they wanted to see improvements\. Visits to schools by the IEG mission gave impressions that were consistent with the evaluations\. Although this is also anecdotal, interviews of the IEG mission with professors and representatives of private employers, these improvements are already showing up in more computer literate graduates going into university and the labor force\. 3\.28 Efficiency\. The efficiency of the project is rated substantial\. Although the project involves aspects that are hard to quantify in terms of calculating rates of return, the project costs were kept reasonable due to efficient implementation and the economic analysis of the Project Appraisal Document cited Jordanian labor market data indicating that the benefits of increased learning would be significant\. The procurement of computers for the knowledge economy (Component 2) and civil works for school construction (Component 3) were carried out with cost savings in these components\. Considering the likely benefits, this would give a good cost-benefit ratio, although it is difficult to quantify\. The ECE was also implemented efficiently, using the same cost- benefit criteria as for the other components\. The main efficiency problem was in EDSS not being set up completely, though the MIS needed for this eventually did come on line\. 3\.29 Outcome\. Based upon the above, the outcome of the project is rated satisfactory\. Relevance of project objectives and relevance of project design were substantial, efficacy of each of the PDOs was substantial (except for the efficiency PDO which was modest), and efficiency was substantial\. The evidence from project Monitoring and Evaluation showed that the outputs (new curricula, teacher training, provision of ICT access, new school buildings where needed) from each of the components resulted in learning outcomes aimed at graduates for the knowledge economy\. Implementation went smoothly with the loan being fully disbursed in a way that kept the focus on the PDOs and not just on procurement and disbursement for computers equipment and buildings\. RISK TO DEVELOPMENT OUTCOME 3\.30 The risk to development outcome is moderate\. A strong foundation with considerable momentum for reform was established by the project\. However, the adoption rate of the new methods still needs improvement according to M&E studies of the project\. In the schools visited by the mission the interest of the staff in receiving more training and equipment was evident\. The outcomes achieved thus far must be sustained in the face of increasing enrollment pressure and overcrowding from demographic changes internally and externally\. The next phase of transformation and reform calls for decentralization and school-based management, a challenge that will test the capacity gained under the first project\.  31 BANK PERFORMANCE 3\.31 The Bank’s performance was satisfactory\. Quality at entry was satisfactory\. The Bank helped to organize the 2002 Vision Forum and the team organized international experts and background studies related to knowledge economy themes that were relevant and completed on time\. This Vision Forum kept the focus on strategic issues in the knowledge economy as well as on procurement of ICT equipment\. The Bank made use of its comparative perspective from high performing Asian countries to benefit the perspective of Jordanian policy makers\. The preparation was efficient and proceeded faster compared to the Higher Education Project\. By the time of appraisal a detailed LogFrame and results framework was ready, although it could have been more clear about specific responsibilities for M&E\. 3\.32 During supervision, some of these areas of responsibility for M&E were clarified with the NCHRD, which had the bulk of responsibilities for carrying out studies\. The quantity and quality of supervision was satisfactory with the Bank supervision team being proactive in identifying and resolving procurement and staffing issues\. The team also discovered that there would be cost over-runs, which it helped to resolve\. The supervision team also ensured the experience of this project was used in the preparation of the follow on project\. BORROWER PERFORMANCE 3\.33 The Borrower’s performance was satisfactory\. The government provided adequate support to the overall project and its performance was satisfactory\. government counterpart funding was provided on time and in sufficient amounts\. The Ministry of Education senior executives provided the high level leadership needed to keep the reform moving and provided advocacy for the project within the Cabinet in a way that was lacking in the HEDP since there was no Ministry of Higher Education and Scientific Research for a while during preparation and start-up of the HEDP\. The planning capacity of Ministry of Education could have been stronger if the EDSS had become operational on schedule\. 3\.34 The DCU was the implementing agency and performed satisfactorily\. The DCU was established within the Ministry of Education to support this complex project requiring coordination and sustained effort\. The DCU was not a PIU in the usual sense, but played the role of coordinating among the directorates/departments of the Ministry of Education which maintained their usual lines of responsibility\. This helped to develop Ministry of Education capacity internally and maintained Ministry ownership of the project\. The DCU also helped in coordinating the contributions of various donors who came into the project as it progressed QUALITY OF MONITORING AND EVALUATION 3\.35 The quality of M&E is rated substantial\. The M&E design called for an intensive use of data\. The use of both national and international assessments for benchmarks was a novel feature for the Middle East and North Africa region\. The M&E  32 design also provided for a large number (more than 30) of evaluation studies to be carried out by the NCHRD\. 3\.36 Implementation of M&E was completed according to the M&E framework\. However, the EDSS was not completed since this required the MIS, which was behind schedule\. The MIS was completed by the end of the project, the learning assessments involving both TIMSS and NAfKE were completed, and the NCHRD carried out the planned evaluation studies\. The design of the EDSS, which would improve utilization of M&E results in decision making, was also completed\. 3\.37 The utilization of M&E contributed to project activities and objectives\. In terms of the knowledge economy objective, the learning assessments and large number of background evaluation studies are giving a detailed picture of students’ strengths and weakness\. This was used for the preparation of next phase of the reforms (ERfKE2) and has fostered a culture of evidence-based policy in the Ministry of Education\. The EDSS is planned to be implemented when financing becomes available\. 4\. Lessons and Perspectives 4\.1 Although this report focuses on two projects, it should be viewed in a broader and longer-term perspective, taking into account four decades of Bank support for Jordanian education\. The Bank’s support has been made more effective overall because the government has been serious and forward looking in its vision for education policy and programs\. Both the Bank and the government need to look back now and analyze what adjustments are needed to improve implementation and adapt to the much different policy environment that now prevails\. Lessons 4\.2 A number of lessons can be highlighted based upon the experience of these two projects\. ï‚ The continuing high unemployment among university graduates is a cause for concern, despite attempts to make higher education more relevant\. Although limited progress has been made, the higher education system in Jordan can do much more to improve quality and relevance, including becoming actively linked in real time with the labor market and economy\. More up-to-date labor market information and private sector representation is needed in the governance of universities and community colleges to gain this real-time and up-to-date perspective on the labor market\. ï‚ Despite the problems in the first two rounds of the competitive Higher Education Fund, the success of the third round demonstrated that such a competitive funding mechanism can work in Jordan, if time and care are taken to adapt it to local circumstances\. ï‚ The difficulties experienced in the formula funding arrangement for recurrent higher education budgets were both technical and political (in the sense of getting  33 stakeholder consensus)\. The technical part has to do with establishing a good MIS and the design for this has been completed\. Although this reform measure did not come to pass, it generated useful debate and may still be feasible if more political effort is forthcoming\. ï‚ The emphasis on critical thinking and creative problem-solving at each level means that some mutual adjustments are needed\. Higher education curricula need to continue adapting to the new secondary graduates from the reformed curricula and the admission procedures for higher education need to adapt to the criteria of the knowledge economy\. Perspectives 4\.3 Jordan has a long history of high aspirations for education and Jordanian society is willing to sacrifice and pay the costs required for quality education\. However, with limited resources these high aspirations have to be tempered by considerations of effectiveness and efficiency\. Recognizing the need to find its appropriate place in the global knowledge economy, the government and its education authorities are honestly taking steps to assess and measure its progress by international standards as well as by its own national needs\. Performance in TIMSS and PISA shows how far Jordan has to go in basic education, yet their have been solid improvements in the last decade or so\. In higher education there are a variety of international rankings, all of which put Jordanian universities in the middle tier internationally, although regionally the country ranks high\. 4\.4 In the case of the higher education interventions, while the shortcomings with respect to objectives of the HEDP are acknowledged, the project set in motion positive developments in higher education that should be continued in an effort to increase the reform momentum that has not yet reached its potential\. As a result of the debates occasioned by the two higher education projects (including one that was cancelled) and Jordanian-World Bank sector analysis, there is now a window of opportunity for reform\. Bank support can still be a catalyst for reforms and should take an even longer perspective than that of the five- or even ten-year time frame\. Experience of higher education reform in other regions, for example in East Asia or Latin America, shows that it takes a full generation for reform to take root\. It takes time to develop the academic community, students, and professoriate, to world class standards\. The Bank can play a support role in the twenty-year vision, helping to analyze and better define the implications for a small country such as Jordan\. In the end, Jordan will have to decide what vision it subscribes to and what costs it is able and willing to pay\. 4\.5 Although progress has been made in specific areas, there is still no sense of a coherent “national system of higher education ” for public universities\. Rather, the universities enjoy some autonomy, although very limited in some areas, but effective coordination of overall higher education policy and its implementation is still not yet well developed\. The Ministry of Higher Education and Scientific Research and HEC have their roles to play in this respect, but they do not appear to have a strong enough set of coordination incentives to get the constituent parts to behave as a system with a well defined purpose\. For example, the formula funding came to be seen as irrelevant by the universities since the public budget to be allocated was reduced to a very small proportion of university operating budgets\. This fits with the experience in some  34 countries that the amount allocated by formula funding needs to reach a critical minimum size to have influence as an incentive to steer the system in the desired policy direction\. 4\.6 As a result of success in expanding secondary enrollment and high social demand, the fiscal pressure on higher education will continue and likely increase\. Since Jordanian higher education is part of a global system with demand for good faculty and modern equipment all being subject to international prices in a way not present in primary education, international unit cost norms will apply to Jordan as well\. More cost recovery, increased public budgetary support, and increased provision of quality private higher education will all be needed in a properly balanced way to maintain access, quality, and relevance of higher education in Jordan\. A slower rate of expansion of higher education would also help to manage fiscal pressures, but social demand is such that political pressure to expand enrollments must somehow be managed\. The political strategy to form a sufficient social consensus for this is critical\. 4\.7 At this stage of education reform, more attention needs to be paid to the linkage between secondary and tertiary education\. Better secondary school graduates contribute to a better quality higher education system and the quality and relevance of that system provides better teachers for basic education levels\. If the secondary reforms are successful at improving the critical thinking and problem-solving skills of graduates, then the university and community college pedagogical approaches must adapt as well\. Old- style lectures based upon a professor’s notes should become completely a thing of the past\. The use of e-learning and other uses of ICT in university education should continue to be disseminated throughout the system\. Some professors have remarked that the higher cognitive competencies generated by secondary reforms are still not widespread enough among first-year students\. In such cases, the burden of developing these cognitive competencies needs to be taken up in the higher education system\. Students graduating from secondary also need better information and counseling about potential choices of fields of study and careers, given that some fields with high unemployment appear to have excess supply\. The Bank is starting up some econimic and sector work on labor markets that could help in this direction\. 4\.8 For both basic and higher education, the concept of knowledge economy needs more elaboration and precision in order to provide an operational set of principles and achieve the aim of a more global competitive economy\. It needs to be broadened beyond education and encompass the whole network of education, labor market, innovative firms and institutions that promote economic growth\.6 This has been given a good start thus far in Jordan, where education projects have involved more than buying ICT equipment\. Although there has been real institutional change in education, there is still a need for some kind of high-level coordinating and steering mechanism that can at the same time pay attention to strengthening links of the education system to the rest of the knowledge 6 See the previously cited Bank report, “The Road Not Traveled: Education Reform in MENA” (2008) for an excellent analysis of the components of the knowledge economy\. Also see the study by M\. Noland and H\. Pack, “The Arab Economies in a Changing World” (2007), which includes examples from Jordan in comparison to other Arab as well as high performing Asian economies\. Both of these studies emphasize the first lesson above that education is limited in what it can do for employment creation unless education and economic reform work together to create jobs that demand knowledge and skills\. This does not diminish the urgent need for education reforms, but places these reforms in proper context\.  35 economy network\. On the Government side this involves a wide range of ministries (such as education, labor, commerce, and planning)\. On the private sector side this involves chambers of commerce and industry, private universities, and training institutes\. An inter-ministerial mechanism has been established to review programs and make adjustments, all with the aim and incentives for contributing to the knowledge economy according to the comprehensive strategy of the National Agenda\. The challenge is to sustain this effort and avoid bureaucracy while promoting dynamic coordination among all of these agencies\. 4\.9 To summarize, the main challenges going forward based upon by the experience of these projects within the context of economic developments over the past decade are: ï‚ Recognizing that higher education reforms require sustained effort beyond the standard five-year project cycle\. Based upon the HEDP experience and that of higher education reform projects in other countries, the Bank and the government can work out a strategy of Bank support for higher education over the long run\. This has already started with the programmatic sector work and could be scaled up even more, given the magnitude of the reform challenge\. ï‚ Developing a truly “national system of public higher education ” by using increased levels of public subsidies allocated though a clear set of formula and competitive funding mechanisms that can steer the system in the desired policy directions\. ï‚ Improving the linkages in reform of basic and higher education by making the curriculum reform at both levels consistent with higher order cognitive skills and the admissions and examinations policies more consistent with the curriculum\. ï‚ Improving the operational aspects of the concept of the knowledge economy and linking it more closely with the National Agenda by setting up implementation structures that can monitor and evaluate the knowledge economy initiatives (basic and higher education) on a regular basis\. ï‚ Developing a labor market monitoring system for higher and basic education that makes full use of the quarterly surveys of employment/unemployment as well as tracers and special purpose surveys to determine trends in the labor market by sectors and professions that could be used in timely fashion for education policy\. As noted above, this will require cooperation of all ministries and agencies involved in the execution of the National Agenda\.  37 Annex A\. Basic Data Sheet: Higher Education Development Project (Loan 4539-JO) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 65\.8 41\.8 63\.5 Loan amount 34\.7 32\.9 94\.8 Cancellation - 1\.7 - Cumulative Estimated and Actual Disbursements FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Appraisal estimate* 1\.0 5\.0 11\.0 19\.5 29\.0 33\.0 34\.3 34\.3 34\.3 Actual 0\.0 1\.4 4\.7 9\.1 13\.8 18\.7 25\.5 31\.6 32\.9 Actual as % of appraisal 0\.0 28\.0 42\.7 46\.7 47\.6 56\.7 74\.3 92\.1 95\.9 Date of final disbursement:10/29/2007 *Does not include the Front End Fee of US$347,000 (1% of loan amount) Project Dates Original Actual Initiating memorandum 11/09/1999 07/07/1997 Negotiations 10/13/1998 11/21/1998 Board approval 06/16/1998 02/29/2000 Signing NA 06/08/2000 Effectiveness 10/07/2000 10/07/2000 Closing date 12/31/2005 06/30/2007 ANNEX A 38 Staff Time and Cost Stage of Project Cycle Staff Time and Cost (Bank Budget Only) USD Thousands (including No\. of staff weeks Lending travel and consultants costs) FY00 13 37\.87 FY01 7 13\.85 FY02 6\.18 FY03 0\.00 FY04 0\.00 FY05 0\.38 FY06 0\.00 FY07 0\.00 FY08 0\.00 Total: 20 58\.28 Supervision/ICR FY00 0\.00 FY01 7 39\.39 FY02 8 69\.01 FY03 9 67\.14 FY04 13 69\.11 FY05 22 105\.60 FY06 24 99\.90 FY07 31 152\.27 FY08 7 32\.70 Total: 121 632\.12  39 ANNEX A Task Team Members Responsibility/ Names Titles Unit Speciality Lending Francis Steier Senior Education MNSHD Task Team Leader Economist Bassam Ramadan Senior Operations MNSHD Institutional Officer Arrangements Christian Rey Procurement Specialist MNSHD Procurement Nabil Shehadeh Financial Management MNAVP Financial Management Specialist Ghassan N\. Alkhoja Senior Information SDNIS ICT Officer Al-Sheikh Counsel LEGAF Lawyer Dumg-Lim Pham Operations Officer MNSHD Costing Ambrose Gardiner Disbursement Officer LOALEF Disbursement Christine Djemmal Operations Analyst MNSHD Operations Alenoush Saroyan Consultant MNSHD Faculty Development Centers Robert Davies Consultant MNSHD Library System Arthur Hauptman Consultant MNSHD Financing Higher Education Johan Aitkins Consultant MNSHD Budget Management John Bislec Consultant MNSHD University Management Jean-Francois Desnos Consultant MNSHD Management Information Systems Roger Pearson Consultant MNSHD Community colleges Quentin Thompson Consultant MNSHD Competitive Funds Supervision Afifa Alia Achsien Senior Program MNSHD Administration Assistant Ghassan N\. Alkhoja Senior Information SDNIS ITC Officer Mouna Couzi Senior Program MNCLB-LVL Administration Assistant Ramadan Basam Senior Operations MNSHD Task Team Leader Officer Robert Bouo Jaoude Senior Procurement MNSHD Procurement Officer ANNEX A 40 Responsibility/ Names Titles Unit Speciality Christina W\. Djemmal Operations Analyst MNSHD Operations Supervision Diana C\. El Masri Financial Management MNAFM FMS Specialist Adriana Jaramillo Senior Education MNSHD Task Team Leader Specialist Mona El-Chami Financial Management MNAFM FMS Specialist Haithan Omar Procurement Officer MNAPR Procurement Lina Fares Procurement Specialist MNAPR Procurement J\. Roger Pearson Consultant MNSHD Community colleges Imad Saleh Lead Procurement Specialist EAPCO Procurement Haneen Ismail Sayed Senior Operations MNSHD Task Team Leader Officer Mona Taji Consultant MNSHD Higher Education Jamil Salmi, Lead Higher HDNP Higher Education Education Specialist Management & Financing Other Project Data Borrower/Executing Agency: Follow-on Operations Operation Credit no\. Amount Board date (US$ million) Higher Education Reform for Knowledge Not signed 25\.0 May 2009 Economy (cancelled before signing) Note: This operation was cancelled after Board approval but prior to signing at request of government due to fiscal uncertainties at time of global financial crisis 2008-2009  41 ANNEX B Annex B\. Basic Data Sheet: Education Reform for the Knowledge Economy I Program (Loan 7171-JO) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 370\.0 422\.4 114\.2 Loan amount 120\.0 119\.7 99\.8 Cofinancing 120\.0 158\.5 132\.1 Cancellation - 0\.3 - Cumulative Estimated and Actual Disbursements FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Appraisal estimate (US$M) - 4\.9 24\.7 54\.7 82\.9 108\.4 120\.0 120\.0 Actual (US$M) 1\.7 4\.3 27\.2 44\.3 73\.8 93\.3 117\.2 119\.7 Actual as % of appraisal - 87\.8 110\.1 81\.0 89\.0 86\.1 97\.7 99\.8 Date of final disbursement: 11/12/2009 Project Dates Original Actual Initiating memorandum 05/22/2002 05/22/2002 Negotiations 03/17/2003 03/17/2003 Board approval 05/08/2003 05/08/2003 Signing NA 05/23/2003 Effectiveness NA 05/28/2003 Closing date 12/31/2008 06/30/2009 ANNEX B 42 Staff Time and Cost Stage of Project Cycle Staff Time and Cost (Bank Budget Only) Lending USD Thousands (including No\. of staff weeks travel and consultants costs) FY02 22 223\.49 FY03 53 229\.91 FY04 0\.11 FY05 0\.00 FY06 0\.00 FY07 0\.00 FY08 0\.00 Total: 75 453\.51 Supervision/ICR FY02 0\.00 FY03 1\.04 FY04 28 110\.85 FY05 24 153\.14 FY06 23 120\.23 FY07 26 144\.38 FY08 22 126\.92 FY09 13 0\.00 Total: 136 656\.56 Task Team Members Responsibility/ Names Titles Unit Speciality Lending Lead Education EASHD Task Team Leader Mae Chu Chang Specialist Regina Maria Bendokat Sector Manager MNSHD Sector Manager Ghassan N\. Alkhoja Sr\. Operations Officer MNSHD Operations/ITC Margaret M\. Clarke Sr\. Education Spec\. HDNED Mouna Couzi Sr\. Program Assistant MNCLB Administration Vincent M\. Greaney Consultant MNSHD J\. Roger Pearson Consultant MNSHD Diana C\. El Masri Consultant MNAFM Financial Mgmt Mona El-Chami Sr\. Financial Mgmt MNAFM Financial Mgmt Specialist  43 ANNEX B Responsibility/ Names Titles Unit Speciality Nazaneen Ismail Ali Procurement Specialist MNAPR Procurement Imad Saleh Sr\. Procurement EAPCO Procurement Specialist Lina Fares Procurement Specialist MNAPR Procurement Antonio C\. Lim Operations Officer ECSSD Operations Supervision Juan-Manuel Moreno Sr\. Education Specialist MNSED Task Team Leader Francis Peter Buckland Lead Education HDNED Task Team Leader Specialist Haneen Ismail Sayed Lead Operations MNSHD Task Team Leader Officer Ghassan N\. Alkhoja Senior Operations MNSHD Operations/ITC Officer Josephine Masanque Sr\. Financial MNAFM Financial Mgmt Management Specialist Jad Raji Mazahreh Financial Management MNAFM Financial Mgmt Specialist Imad Saleh Sr\. Procurement EAPCO Procurement Specialist Lina Fares Procurement Specialist MNAPR Procurement Celine Gavach Operations Analyst MNSHD Operations Mouna Couzi Sr\. Program Assistant MNCLB Administration Christina Djemmal Operations Analyst MNSHD Operations J\. Roger Pearson Consultant MNSHD Dung-Kim Pham Operations Officer MNSHD Lianqin Wang Senior Education MNSHD Specialist Mary Eming Young Lead Specialist WBIHD Afifa Alia Achsien Sr\. Program Assistant MNSHD Administration Other Project Data Borrower/Executing Agency: Follow-on Operations Operation Credit no\. Amount Board date (US$ million) Second Education Reform for the Knowledge Ln\. 7702 60\.0 05/19/2009 Economy ANNEX C 44 Annex C\. People Consulted Professor Abdalla Ababneh, President for National Center for Human Resources Development Dr\. Emad Ababneh, Monitoring and Evaluation Unit Wafa Mosa Abdallat, Director of Curricula, Ministry of Education Professor Majed Abu-Jaber, Vice-President, Higher Education Accreditation Commission Professor Dr\. Abdallah S\. Al-Zoubi, Vice-President, Al Balqa Applied University Dr\. Maher H\. Al-Mahrouq, General Manager, Jordan Chamber of Industry Eng\. Lamia Al-Zou’bi, Head of Evaluation Division, Ministry of Planning and International Cooperation Munir Asad, Chief Information and Technology Center, King Hussein Cancer Center Professor Adnan Atuom, Vice President Academic Affairs, Yarmouk University Amjad H\. Attar, Technical Advisor, Ministry of Planning and International Cooperation Susan Ayari, Education Team Leader, Social Sectors Office, United States Agency for International Development Dr\. Ahmad Ayasrah, Secretary General, Educational and Technical Affairs, Ministry of Education Peter Buckland, Team Leader for preparation of ERfKE2 Project, Senior Education Specialist, World Bank Mae Chu Chang, Team Leader for preparation of ERfKE Project, Senior Education Specialist, World Bank Eng\. Mohammed Daradkeh, Director of Textbooks, Ministry of Education Linda English, Co-Team Leader for preparation of Higher Education Reform for the Knowledge Economy Project, Senior Education Specialist, World Bank Professor Abdul R\. Hamdan, Vice President, The Hashemite University Kamal Bani-Hani, M\.D\., FRCS, Dean, Faculty of Medicine, Professor of Surgery, Jordan University of Science and Technology  45 ANNEX C Professor Dr\. Qazem Mah’d Jaber, Dean Faculty of Engineering, Al Balqa Applied University Omar al-Jarrah, Ph\.D\., Vice-President, Professor of Computer Engineering, Jordan University of Science and Technology Dr\. Ahmad M\. Al-Khasawneh, Director of e-Learning, The Hashemite University Dr\. Eng\. Monser Krishan, Al Balqa Applied University, Zarka University College, Dean of Zarka University College Dr\. Khattab M\. Abu Libdeh, Researcher, National Center for Human Resources Development Prof\. Dr\. Walid Maani, Minister of Higher Education and Research Enrique Madueno, Head of Cooperation, Embassy of Canada Professor Hanan Malkawi, Vice President\. Scientific Research and International Relations, Yarmouk University Dr\. Rafe Aref Msaedeh, Managing Director, Curricula and Textbooks, Ministry of Education Juan Moreno, Team Leader for implementation of ERfKE2 Project, Senior Education Specialist, World Bank Professor Dr\. Sultan Abu-Orabi, President, Yarmouk University Wajih M\. Owais, Ph\.D\., President, Jordan University of Science and Technology Francis Steier, Team Leader for preparation of HEDP, Senior Education Economist (Ret\.) World Bank ANNEX D 46 Annex D\. Timeline of Events\. Year National Event Education Event World Bank 1921 Emirate of TransJordan formed after World War 1 1946 Hashemite Kingdom of Jordan formed after World War 2 1948 First Arab-Israeli War\. Wave of refugees\. 1956 Suez Canal Crisis 1961 University of Jordan established 1967 Arab-Israeli 1967 War\. More refugees\. 1968 Royal Jordanian Scientific Society established\. 1972 First Bank Education Project 1987 First National Education Conference with Royal sponsorship\. 1988 Education Reform Law\. All teachers require university degree\. 1989 HRSIL-1 Project in support of Educ\.Reform 1991 First Gulf war\. Return of Jordanians working abroad\. 1995 HRSIL-2 Project\. Continue Educ\. Reform\. 1996 Bank/Jordanian Higher Educ\.Dev\.Study 1997 Begin preparation of HEDP 2000 HEDP approved, effective 2002 Vision Forum for Knowledge Economy 2003 ERfKE project approved, effective 2007 Dead Sea High Level Forum for higher education 2009 HERfKE and ERfKE approved 2009 HERfKE cancelled by government\. Financial concerns due to global crisis\. 2010 New Student Loan Program\. 2010 Jordanian Academy for Technical  47 ANNEX D Year National Event Education Event World Bank Education formed to oversee community colleges \. 1921 Emirate of TransJordan formed after World War 1 1946 Hashemite Kingdom of Jordan formed after World War 2 1948 First Arab-Israeli War\. Wave of refugees\. 1956 Suez Canal Crisis 1961 University of Jordan established 1967 Arab-Israeli 1967 War\. More refugees\. 1968 Royal Jordanian Scientific Society established\. 1972 First Bank Education Project 1987 First National Education Conference with Royal sponsorship\. 1988 Education Reform Law\. All teachers require university degree\. 1989 HRSIL-1 Project in support of Educ\.Reform 1991 First Gulf war\. Return of Jordanians working abroad\. 1995 HRSIL-2 Project\. Continue Educ\. Reform\. 1996 Bank/Jordanian Higher Educ\.Dev\.Study 1997 Begin preparation of HEDP 2000 HEDP approved, effective 2002 1\. Vision Forum for Knowledge Economy 2003 ERfKE project approved, effective 2007 Dead Sea High Level Forum for Higher Education 2009 Both HERfKE and ERfKE approved 2009 HERfKE cancelled by government\. Financial concerns due to global crisis\. 2010 New Student Loan Program\. ANNEX E 48 Annex E\. Borrower Comments Feedback by the Ministry of Education Hashemite Kingdom of Jordan June 14, 2011 General Comments Thank you for the submitted project performance report conducted by The Independent Evaluation Group (IEG) that covered two educational programs funded partially by the World Bank: The Higher Education Development Project and the Education Reform for Knowledge Economy Project (ERfKE I)\. The report is a comprehensive, evaluation focuses mainly on the achievement of objectives, the risks to development outcome, Bank Performance, Borrower Performance and the quality of Monitoring and Evaluation\. The report has clearly addressed these evaluation aspects\. However, the evaluation has less focus in addressing the sustainability aspects and the impact of the said two projects\. The evaluation covered two essential educational projects and separately addressed the key analyses and findings for each project\. This is also a good opportunity to have wider perspectives and address key findings, analysis, and recommendations with respect to the education sector as a whole\. The report covered this with limited scope (bullets points as lessons learnt)\. This aspect, which is not fully covered and analyzed in the report, was proposed as one of the key questions to be covered: Has the interaction among the levels of education improved with respect to quality, relevance and efficiency, e\.g\., better prepared entrants to higher education ? Did improvements in higher education make for better prepared teachers in basic and secondary education Specific Comments Page 22, para 3\.5, it is mentioned that: The design of M&E assigned a key role to the National Center for Human Resources Development, which was to carry out external M&E and also more than 30 studies and surveys\. The Center had been involved in previous Bank supported educational projects\. The day-to-day progress of implementation was to be monitored by the DCU and respective directorates in the MoE\. Please note the following: ï‚ Because of the M&E role, NCHRD conducted 30 studies and surveys not beyond this\.  49 ANNEX E ï‚ The Center had been involved in previous Bank supported educational projects but with different functions (not M&E functions), but rather as a policy and coordination body\. Page 23 Para 3\.8: it is mentioned that: A public relations campaign to educate and inform the public and stakeholders was carried out\. A public relations campaign was not implemented; however, a communication strategy was developed but not implemented\. Page 24, Para 3\.11: ï‚ Component 3 on Quality Learning Environment was mainly a set of civil works procurement\. A main issue was safety since many rented facilities were not appropriate as schools\. Please note that in addition to safety and growth issues, this component also targeted overcrowded schools\. ï‚ The government constructed 41 new schools and renovated/extended 538 schools\. Please note that is what constructed through the WB loan only not through the whole ERfKE reform in general\. Page 29, Para 3\.5: It is mentioned that: The early childhood activities were not subject to assessment of learning outcomes, but they were evaluated by the NCHRD for their impact on access, new curricula and training of teachers, all of which showed significant progress\. Please note that NCHRD conducted a study using EYE tool to assess grade 1 students readiness to learn, which could provide good feedback on learning outcomes! Page 32, Para 3\.35 It is mentioned that: Implementation of M&E did not complete the EDSS since this required the MIS, which was behind schedule\. It is not clear what the link is between the M&E and the EDSS\. M&E activities were completed based on the M&E framework and the identified studies\.  51 References Aubert, Jean Eric\. 2008\. “Building Knowledge Economies: A Forum for Senior Asian Policy Makers\.” Korea Development Institute/World Bank\. Forum in Seoul, South Korea\. Bekhradnia, Bahram\. 2008\. “Financing of Public Universities in Jordan”\. Higher Education Policy Institute\. Oxford, U\.K\. Hanania, May\. 2010\. “Knowledge in the Arab Countries\.” Jordan Center for Public Policy Research and Dialogue\. Presentation at KDI Seminar\. Seoul, South Korea\. Kanaan, T\. and M\. Al Salamat, M\. Hanania\. 2010\. “Higher Education in Jordan: Access, Equity and its Financing\.” Jordan Center for Research and Policy Dialogue\. Amman\. Government of Jordan\. 2000\. Jordanian Letter of Sector Development Policy-Higher Education\. Annex 11 in Project Appraisal Document\. Higher Education Development Project\. Amman\. ---------\. 2003\. Jordanian Letter of Sector Development Policy-Basic Education\. Annex 12 in Project Appraisal Document\. Education Reform for Knowledge Economy Project\.Amman\. ---------\. 2006\. National Agenda\. Amman\. ---------\. 2007\. National Strategy for Higher Education and Scientific\. Research\. Amman\. ---------\. 2009\. Letter of Sector Development Policy: Higher Education\. Amman\. ---------\. 2009\. Letter of Sector Development Policy: Basic Education\. Amman\. Hat`akaneka, Sachi and Quentin Thompson\. 2005\. Evaluation of the Higher Education Development Fund\. External Consultant Report\. International Monetary Fund\. 2010\. Jordan Article IV Consultations\. Staff Report and Public Information Notice\. Washington, D\.C\. Noland, M\. and H\.Pack\. 2007\. “The Arab Economies in a Changing World\.” Peterson Institute for International Affairs\. Washington, D\.C\. Patrinos, H\. 2008\. “Case Studies\.” Presentation to Seminar on Education Reform and International Assessments\. World Bank, Washington, DC\. Rawle, G\. 2008\. “Preparation Study on Education Finance for Education for Knowledge Economy-2 Project\.” Oxford Policy Management Institute\. World Bank Project Files\. Salibi, K\. 1998\. The Modern History of Jordan\. I\.B\.Taurus\. The Jordan Book Center\. Amman\. Salmi, J\. 2009\. The Challenge of Establishing World-Class Universities\. World Bank\. Washington, D\.C\. World Bank\. 1994\. Higher Education: The Lessons of Experience\. Development in Practice Series\. Washington, DC\. ---------\. 1995\. Priorities and Strategies for Education: A World Bank Review\. Development in Practice Series\. Washington, DC\. ---------\. 1996\. Jordan Higher Education Development Study\. Human Resources Division\. Country Department 2\. Middle East North Africa Region\. Washington, DC\. ---------\. 1997\. Implementation Completion Report\. Hashemite Kingdom of Jordan\. Human Resources Development Sector Investment Loan\. Washington, DC\. ---------\. 1999\. Knowledge for Development\. World Development Report\. Washington, DC\.  52 ---------\. 2000\. Higher Education Development Project for the Hashemite Kingdom of Jordan\. Project Appraisal Document\. Human Development Group\. Middle East North Africa\. Washington, DC\. ---------\. 2003\. “Project Appraisal Document on Education Reform for Knowledge Economy Project for the Hashemite Kingdom of Jordan\.” Middle East North Africa\. Washington, DC\. ---------\. 2003\. “Implementation Completion and Results Report\. On Hashemite Kingdom of Jordan\.” Human Resources Development Sector Investment Loan II\. Washington, DC\. ---------\. 2004\. Jordan: Supporting a Stable Development in a Challenging Region\. Joint World Bank-Islamic Development Bank Country Assistance Evaluation Report\. Country Assistance Evaluation\. Operations Evaluation Department\. Washington, DC\. ---------\. 2005\. Economic Growth in the 1990s: Learning from a Decade of Reform\. Poverty Reduction and Economic Management Network\. Washington, DC\. ---------\. 2006\. “The Country Assistance Strategy for the Hashemite Kingdom of Jordan for the Period 2006 – 2010\.” Jordan Country Management Unit\. Middle East North Africa Region\. Washington, DC\. ---------\. 2007\. “Implementation Completion Report for the Higher Education Development Project for the Hashemite Kingdom of Jordan\.” Human Development Group\. Middle East North Africa Region\. Washington, DC\. ---------\. 2008\. The Road Not Traveled: Education Reform in the Middle East and North Africa\. MENA Development Report\. Washington, DC\. ---------\. 2008\. Resolving Jordan’s Paradox of Concurrent Growth and Unemployment\. Social and Economic Development Group\. Middle East North Africa Region\. Washington, DC\. ---------\. 2008\. Growth Report: Strategies for Sustained Growth and Inclusive Development\. Commission on Growth and Development\. Washington, DC\. ---------\. 2009\. Project Appraisal Document on Higher Education Reform for Knowledge Economy Project for the Hashemite Kingdom of Jordan\.” Human Development Sector\. Middle East North Africa\. Washington, DC\. ---------\. 2009\. “Implementation Completion Report for the Education Reform for Knowledge Economy Project for the Hashemite Kingdom of Jordan\.” Human Development Sector\. Middle East North Africa\. Washington, DC\.

REVIEW

P074642

Document of The World Bank Report No: 26755 IMPLEMENTATION COMPLETION REPORT (IDA-35860) ON A CREDIT IN THE AMOUNT OF US$39\.4 MILLION TO THE REPUBLIC OF SIERRA LEONE FOR THE SECOND ECONOMIC REHABILITATION AND RECOVERY CREDIT November 5, 2003 Poverty Reduction Economic Management Unit Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective 31 August 2003) Currency Unit = Leone (Le) Le 2,352 = US$ 1\.00 US$ 1\.00 = Le 0\.0004251 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ACC Anti-Corruption Commission AfDB African Development Bank AGD Accountant General's Department CFAA Country Financial Accountability Assessment CGAP Consultative Group to Assist the Poorest CRRP Community Reintegration and Rehabilitation Project DDR Disarmament, Demobilization and Reintegration DfID Department for International Development (U\.K\.) ERRC Economic Rehabilitation and Recovery Credit EU European Union FIS Financial Information System FMASU Financial Management and Accounting System Unit GDP Gross Domestic Product ICR Implementation Completion Report IDA International Development Association IDP Internally Displaced People IMF International Monetary Fund MF Micro Finance MOF Ministry of Finance MOP Memorandum of the President MTEF Medium-term Expenditure Framework NCP National Commission for Privatization PE Public Enterprise PETS Public Expenditure Tracking Surveys RRR Resettlement, Reconstruction and Rehabilitation TTL Task Team Leader UNDP United Nations Development Program Vice President: Callisto Madavo Country Director Mats Karlsson Sector Manager Emmanuel Akpa Task Team Leader/Task Manager Douglas Addison  SIERRA LEONE Economic Rehabilitation and Recovery Credit II CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 9 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Learned 12 9\. Partner Comments 12 10\. Additional Information 15 Annex 1\. Key Performance Indicators/Log Frame Matrix 16 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 19 Annex 4\. Bank Inputs 20 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 21 Annex 6\. Ratings of Bank and Borrower Performance 22 Annex 7\. List of Supporting Documents 23 Annex 8\. Government Comments 24  Project ID: P074642 Project Name: Economic Rehabilitation and Recovery Credit II Team Leader: Douglas M\. Addison TL Unit: AFTP4 ICR Type: Core ICR Report Date: November 5, 2003 1\. Project Data Name: Economic Rehabilitation and Recovery Credit II L/C/TF Number: IDA-35860 Country/Department: SIERRA LEONE Region: Africa Regional Office Sector/subsector: Central government administration (52%); Micro- and SME finance (12%); Primary education (12%); General industry and trade sector (12%); Mining and other extractive (12%) Theme: Public expenditure, financial management and procurement (P); Other financial and private sector development (P); Small and medium enterprise support (S); Conflict prevention and post-conflict reconstruction (S); Access to urban services for the poor (S) KEY DATES Original Revised/Actual PCD: 09/13/2001 Effective: 12/20/2001 12/20/2001 Appraisal: 10/09/2001 MTR: Approval: 12/13/2001 Closing: 03/30/2003 03/30/2003 Borrower/Implementing Agency: GOVERNMENT OF SIERRA LEONE/MINISTRY OF FINANCE Other Partners: STAFF Current At Appraisal Vice President: Callisto E\. Madavo Callisto E\. Madavo Country Director: Mats Karlsson Peter Harrold Sector Manager: Emmanuel Akpa Emmanuel Akpa Team Leader at ICR: Douglas Addison ICR Primary Author: William D\. Cooper 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:L Institutional Development Impact:SU Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Second Economic Rehabilitation and Recovery Credit (ERRC II) was a policy-based quick-disbursing credit in the amount of US$50 million that supported the transitional phase of the Government's interim poverty reduction strategy\. The policy objectives of that strategy, and hence of the Credit, were to establish national security and good governance, revive the economy, and restore basic public services\. These objectives are presented in the Government's Interim Poverty Reduction Strategy Paper (I-PRSP), which was discussed at the Board in September 2001\. The ERRC II pursued further the reforms initiated under the ERRC\. It provided critical balance of payments and budgetary support to finance part of the costs associated with the implementation of the policy objectives\. The proceeds of the Credit allowed the import of essential commodities, including food products, petroleum products, and raw materials and intermediate goods required to revive the economy\. It enabled the Government to provide basic services, including the rehabilitation of social and economic infrastructure in those parts of the country that had become accessible following the positive developments on the peace and security fronts\. The ERRC II was part of the Bank's Transitional Support Strategy (TSS) for Sierra Leone\. The TSS, discussed by the Board on December 14, 2000, had two main elements\. In the short term, it would continue ongoing Bank support for economic recovery and rehabilitation through this ERRC II and the Community Reintegration and Rehabilitation Project (CRPP), and also via the Bank's role as administrator of the Multi-Donor Trust Fund (a fund that helped finance the costs of the Government's Disarmament, Demobilization and Reintegration (DDR) Program for ex-combatants)\. In the longer term, the TSS would support investments in poverty-related sectors such as education, agriculture, rural development and infrastructure, provided that national security and satisfactory economic performance would be maintained\. With respect to national security, the Government had made good progress in disarming and demobilizing ex-combatants under its ongoing DDR program\. By late 2001, when ERRC II was being appraised, about 27,000 combatants had been disarmed and demobilized, and about 19,000 of them had received financial support (about US$150 each) from the Multi-Donor Trust Fund to help their re-insertion into civilian life\. It was expected that the DDR Program would be mostly completed in late 2001 or early 2002, which would enhance security throughout the country and pave the way for presidential and parliamentary elections\. With respect to economic performance, the Government remained strongly committed to maintaining and strengthening macroeconomic stability\. It had prepared a medium-term macroeconomic framework in collaboration with the Fund and the Bank, and had agreed to implement its poverty reduction strategy within that framework\. It was expected that recovery in agriculture and mining, and rehabilitation and construction activities would - 2 -  contribute significantly to GDP growth, and that low inflation would be attained through prudent fiscal and monetary policies\. In addition, the Government had prepared, in collaboration with the Bank and the Fund, a three-year economic program, which was supported under the Fund's Poverty Reduction and Growth Facility (PRGF)\. 3\.2 Revised Objective: Objectives were not revised during implementation\. 3\.3 Original Components: Policy objectives and associated implementation measures were detailed in Annex B of the MOP under four headings or components, as follows: (1) National Security and Good Governance\. Key elements of this component were: (a) full implementation of the DDR program; (b) establishing a decentralized system of government; (c) enhancing transparency in budget preparation and implementation; and (d) participatory monitoring of budget implementation and service delivery\. (2) Revival of the Economy\. This was to be achieved by ensuring macroeconomic stability and facilitating private sector development\. Key elements of this component were: (a) maintaining macro-economic stability; (b) divestiture of public sector enterprises; (c) promotion of formal activity in the mining sector; (d) establishing sustainable micro-finance services; and (e) facilitating the resettlement and reintegration of internally displaced peoples (IDPs), refugees and war victims\. (3) Public Expenditure Management\. The efficient and equitable use of public resources was to be promoted by: (a) the adoption of a medium term expenditure framework (MTEF) and a strengthened budget process; (b) improving financial accountability by strengthening the financial information system (FIS); and (c) shifting budget allocations to the social and economic sectors\. (4) Access to Social Services\. Key elements supporting this component were: (a) increasing allocations for social services at regional levels; (b) introducing free primary education and increasing the supply of teaching materials; (c) expanding school nutrition and health programs; and (d) improving access to clean water and sanitation\. 3\.4 Revised Components: There were no revisions to the original components\. 3\.5 Quality at Entry: ERRC II was a quick-disbursing two-tranche operation of SDR 39\.4 million (US$ 50 million equivalent) covering the 15-month period Dec 2001 to March 2003\. Its design was based on evidence that the Borrower had maintained a satisfactory macroeconomic framework for 2001 and had achieved acceptable progress in consolidating peace and reconciliation, promoting social and economic security, and establishing transparent and inclusive governance\. This evidence was provided as a condition of Board presentation and accepted during negotiations\. - 3 -  Quality at entry is rated satisfactory, based on the strength of consistency of objectives with the priorities for economic and social rehabilitation as set forth in the Government's Letter of Development Policy, and with those of the Bank's Transitional Support Strategy for Sierra Leone\. The project built on experience gained under the previous Economic Rehabilitation and Reconstruction Credit, and attempted to foster ownership and accountability at all levels\. The MOP amply documented developments on the peace process, and presented the government's poverty reduction strategy in sufficient detail\. The MOP correctly identified potential risks as (i) the Government's failure to establish full security and control in all parts of the country; (ii) the possible lack of political commitment; and (iii) weak institutional capacity that could cause implementation delays\. Useful matrices of policy objectives, implementation measures and key performance indicators were included in project design\. The Credit also played a catalytic role in promoting the extensive coordination of, and collaboration with, other donor agencies such as the DFID, EU, UNDP, and AfDB in addressing post-conflict needs and in rebuilding institutional capacity\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Achievement of objectives and outputs under ERRC II was satisfactory overall\. Progress was good in all areas, even when judged independently of the challenges inherent in operating during civil conflict\. Objectives for improving governance, reviving the economy and improving public resource management were substantially met\. Objectives for improving access to basic social services are considered met on the basis of restored 2002 budget allocations for education, health and water services in the three provinces where order and security have been re-established, and on provisional data on service access\. Acceptable flexibility in the pace of implementation was demonstrated by adjusting completion dates as needed for some agreed program actions, depending on constraints and opportunities during the course of implementation\. It is also recognized that ERRC II was a 15-month time slice of a three-credit program of Bank support for economic rehabilitation and recovery, where the completion of preparation and the implementation of programs was expected to be continued under the next economic rehabilitation and recovery credit (ERRC III)\. Assessment was slightly hindered by MOP references to overlapping performance indicators in the I-PRSP, in Annex B, Annex C and Annex E\. These might have been usefully summarized in one just table of measurable indicators and completion dates\. 4\.2 Outputs by components: i\. National Security and Good Governance\. Achievement of this component is rated satisfactory\. Demobilization of ex-combatants: The National Security and Intelligence Act, promulgated - 4 -  in 2000, provided the framework for re-establishing and maintaining peace and security in all parts of the country\. Within this context, the Government has successfully implemented and in 2002 completed its demobilization, disarmament and reinsertion (DDR) program, involving about 95,000 ex-combatants\. Implementation of the DDR program was facilitated by paying ex-combatants re-insertion grants from the Multi-Donor Trust Fund administered by the Bank, and by the training and employment program supported by the Bank and the AfDB under the Community Reintegration and Rehabilitation Project (CRRP)\. Budgetary transparency: Transparency in budget preparation and implementation has been enhanced through the creation of Budgetary Oversight Committees to assist in the determination of budgetary priorities through the MTEF process and to monitor implementation\. Transparency in implementation was also facilitated through the regular production of budgetary monitoring reports at the activity level, including the payroll\. Decentralization of Government functions: Decentralization is seen by the donor community as being essential to the consolidation of the peace\. Prior to the conflict, the level of representation and service provided within the Western Area, host to the central government, was far greater than what was accorded to the remaining districts deeper inland\. This inequity contributed to the sources of the conflict\. Satisfactory progress has been made in the strengthening of local governments and the decentralization of government functions to local levels\. Paramount chiefs in vacant chiefdoms have been elected\. Preparations for holding local government, municipal and rural council elections are well advanced\. Legislation defining the roles and responsibilities of central and local governments is being formulated with UNDP assistance and elections are scheduled for late 2003\. The Bank will support continued progress towards decentralization under ERRC III\. Participatory outcome monitoring: A participatory system of Public Expenditure Tracking Surveys (PETS ) has been set up to track expenditures from ministerial headquarters to regional and district offices and to assess the quality of service delivery at the beneficiary level\. It is planned they will be conducted on a semi-annual basis\. The first PETS was completed in late 2001 and revealed appreciable leakages between budgets and actual delivery of resources to communities\. The second PETS, conducted for the second half of 2001, reported improvements in expenditure management and the utilization of public funds in 2001 compared to 2000\. The PETS are proving their value in outcome monitoring\. The next PETS will be used in the tracking survey for 2002\. In addition, the Government has established Budget Oversight Committees in all districts to facilitate budget formulation, implementation and monitoring of budget outcomes\. Budget monitoring reports at the activity level, including payroll reports, are produced regularly on a monthly basis\. Other actions have also contributed to better security and the restoration of law and order in most parts of the country\. The military and the police have been restructured and reorganized, and their capacities strengthened\. Law courts and district magistrate courts have been rehabilitated and refurbished, leading to improved courtroom productivity\. The Anti-Corruption Commission (ACC), established in 2001, is actively pursuing cases of corruption in both the private and public sectors\. - 5 -  ii\. Revival of the Economy\. The overall assessment of this component is rated satisfactory\. This is based on the fact that the reforms are well advanced and that satisfactory arrangements for their continuation and completion have been made under ERRC III\. Macroeconomic stability: Macro-economic stability was achieved in 2002, following the end of the conflict, with rapid real growth and re-monetization of the economy\. Real GDP grew by 6\.3 percent and broad money grew by 28 percent\. (See Table 1 below\.) The inflation rate was estimated to be slightly negative at 3\.1 percent\. This was made possible by the end of war-time profiteering and the introduction of more goods into the economy via rapid GDP growth and a large inflow imports financed by foreign aid\. Budgetary revenues in 2002 increased to 14\.5 percent of GDP, slightly above the target of 14\.3 percent of GDP, while expenditures grew to 34\.2 percent of GDP\. Spending was well below the target of 40\.7 percent for 2002, owing to over-optimistic programming, capacity constraints at the line ministry level and delays in procurement at the central level\. The fiscal balance, after grants, was relatively steady at 9\.9 percent of GDP compared to 9\.4 percent of GDP in 2001\. The current account balance in 2002 was -10\.1 percent of GDP versus 8\.9 percent of GDP in 2001\. Table 1: Sierra Leone: Selected Economic Indicators, 2001-2002\. 2001 2002 Estimated Consumer inflation, period 2\.2 -3\.1 average (%) Real GDP growth (%) 5\.4 6\.3 Broad money growth (%) 33\.7 28\.0 Revenues (% of GDP) 14\.0 14\.5 Expenditures (% of GDP) 29\.8 34\.2 Fiscal Balance (% of GDP) -9\.4 -9\.9 Current Account Balance (% -8\.9 -10\.1 of GDP) Public enterprise reform: The Strategic Plan for the Divestiture of Public Enterprises (PEs) was adopted by Parliament in June 2001\. A detailed action program to implement the divestiture plan was established under ERRC II and attached to the MOP (Annex C)\. Most measures defined in the action program were successfully completed and include: the collection of outstanding payments relating to past or ongoing privatization transactions; the establishment of the National Commission for Privatization (NCP) in October 2002, after some delay, and the appointment of its chairman and commissioners; the preparation of draft legislation on privatization; and a review of policies regarding the establishment and operations of hotels\. As part of its mandate, the NCP has taken control as prudent shareholder of all PEs, and Government representatives on boards of PEs have been removed\. - 6 -  More might have been achieved, absent the delay in establishing the NCP with its initially limited capacity\. In particular, the NCP was not able to prepare a detailed plan for full implementation of the divestiture policy\. It is recognized, however, that ERRC II was a 15-month time slice of a three-credit program of Bank support for economic rehabilitation and recovery, where the completion of preparation and the implementation of programs was expected to be continued under the next economic rehabilitation and recovery credit (ERRC III)\. Thus, preparation of a comprehensive plan for full implementation of the Government's divestiture strategy became an effectiveness condition that was met for ERRC III\. Mining sector development: A study was conducted in 2001, jointly with a Government task force, to provide recommendations and an action plan for the revival and development of the mining sector\. The study included recommendations regarding required fiscal, legal and regulatory reforms and formed the basis for a draft mining policy framework that defined the conditions for attracting new investments in the mining sector\. The draft policy framework was approved by Cabinet in December 2002 and satisfied one of the conditions that triggered the release of the second tranche of the Credit\. Subsequently, the framework was discussed and agreed with key stakeholders at a workshop conducted in May 2003, prior to the presentation of ERRC III to the Board\. The Bank will support the implementation of agreed mining development policies and programs under ERRC III\. Micro-finance services: The goal was to develop a policy framework that provides the basis for sustainable micro finance (MF) services with maximum impact\. This objective has been achieved\. With assistance of the Bank's senior financial sector specialist, the Government mobilized the Consultative Group to Assist the Poorest (CGAP) ­ reputed to be a repository of international best practice in micro-finance ­ to conduct a sub-sector review of micro-finance activities in Sierra Leone and to provide a framework for developing a national micro-finance policy\. The sub-sector review was carried out in April 2002\. Workshops were held to discuss the CGAP report, study tours for key policy makers were conducted, and four members of the MF taskforce attended a micro-finance training program in the USA\. A draft MF policy framework was developed and discussed with stakeholders in September 2002, approved by cabinet in December 2002 and accepted by the Bank as satisfying one of the second tranche release conditions of ERRC II\. Implementation of the framework is supported under the Bank's Social Fund operation\. Resettlement and Reintegration: The Government is actively and successfully implementing its Resettlement, Reconstruction and Rehabilitation (RRR) program\. This program covers ex-combatants, refugees, internally displaced people (IDPs), amputees, war widows and orphans\. The program is supported in part by the Bank-administered Multi-Donor Trust Fund, which provides reinsertion payments to ex-combatants, and by the training and employment program supported by the Bank's Community Reintegration and Rehabilitation Project\. The CRRP provides, in addition to training, farm inputs, extension services, improvements in feeder roads and other physical support to facilitate the resettlement process\. - 7 -  iii\. Public Expenditure Management\. Achievement of this component is rated satisfactory\. Medium Term Expenditure Framework (MTEF): The ongoing process of improving budget preparation and implementation and strengthening expenditure control has been successful\. A medium term expenditure framework (MTEF) was introduced with IMF assistance in 2001 and was used to prepare the 2001 and 2002 budgets\. The MTEF is being gradually introduced to all line ministries to deepen the reform\. The MTEF technical committee (consisting of the ministries of Finance, Development and Economic Planning, the Bank of Sierra Leone and other line ministries) was set up in 2002 to coordinate and facilitate the entire MTEF process for better budgetary management\. Bank/Fund missions have provided strong technical support to the installation and operation of the MTEF\. Financial accountability: The basis for reform of the financial information system (FIS) in the Account General's Department was the limited-scope Country Financial Accountability Assessment (CFAA), jointly conducted with the DFID and the Government\. Two actions were recommended: (1) full documentation of the FIS architecture and preparation of user manuals for implementing the system, and (2) separation of the functions of administrator and system operator\. This has been done: full documentation of the updated system architecture including technical manuals for implementing the system has been prepared and staff training based on the manuals is ongoing\. The functions of the system administrator and the system operator have effectively been separated by setting up a financial information unit in the AGD\. This has improved cross checking of financial controls, thus ensuring a degree of impartiality\. As a result, the accounting systems of the various Government departments are becoming better integrated, providing improved accountability and transparency in the use of public funds\. Budget allocation and monitoring: Expenditure management and utilization of public funds have improved through the work of budget oversight committees that were established in all regions to oversee budget preparation and implementation and issue monthly reports\. These committees will be decentralized to the district level by end-2003, thereby significantly expanding the budget monitoring function\. The semi-annual Public Expenditure Tracking Surveys (PETS) complement the activities of the budget oversight committees\. iv\. Access to Social Services\. Achievement of this component is rated satisfactory\. Increasing budget allocations: Summaries of expenditure actuals for 2001 and 2002 show that current expenditures for the social sectors, except for personnel costs, were restored in the 2002 budget for the Northern, Southern and Eastern provinces when hostilities had ceased\. As a result, students have returned to school in those regions and enrollments have significantly increased\. Similarly, funding was restored for Public Health Units and hospitals in all four provinces, which has increased access to health care\. As for water supply, fully two-thirds of the Ministry of Energy and Power's 2002 budget was allocated to water services, confirming the Government's priority in this area\. Reliable statistics on increases in school enrollments, operating health care units and water supply systems are not yet - 8 -  available\. Education: Free primary education was introduced in 2001 for grades 1-3, and extended to all six grades in 2002\. Books and other teaching supplies are being subsidized\. The program has been extended to all parts of the country, as planned\. Health: School health and nutrition programs were re-introduced in 2000 and have been maintained in subsequent years\. Water supply: Government is implementing its urban water supply project and is extending facilities in major provincial towns\. 4\.3 Net Present Value/Economic rate of return: Not applicable\. 4\.4 Financial rate of return: Not applicable\. 4\.5 Institutional development impact: Achievement of this component is rated substantial\. Most institutional development (ID) support was provided by other donors including DFID, EU, UNDP and others, coordinated by the implementation unit in the Ministry of Finance (MOF)\. The Credit, however, had a direct and substantial impact on institutional development in the MOF and in several technical ministries through specialist support provided by Bank and Fund staff on mission\. For the MOF, this included the introduction of the MTEF process, budget preparation and monitoring, strengthening the financial information system, and coordination of donor support\. The preparation of policy frameworks and implementation plans in mining, micro-finance, public enterprise reform was assisted by Bank staff or consultants and impacted positively on the institutional capacities of the ministries concerned\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The end of the war in Sierra Leone in 2001, accompanied by the demobilization of all ex-combatants in 2002, created conditions that allowed for free presidential and parliamentary elections, and the re-establishment of Government authority throughout the country\. The establishment of law and order and an improved security situation inevitably impacted positively on the Government's capacity to implement its strategies for poverty reduction and revival of the economy, including the development and implementation of policies and programs supported by this project\. On the negative side, continuing fighting in Liberia led to the influx of thousands of Liberian refugees into Sierra Leone, stretching the already limited resources of the Government\. 5\.2 Factors generally subject to government control: Main factors in achieving the largely satisfactory results of the programs supported by this Credit were the Government's firm and steadfast commitment to the reforms, and the effective coordination of program implementation by the Ministry of Finance\. Other - 9 -  contributing factors include the Government's decision to effectively decentralize its services and encourage the participation of the population in monitoring the effectiveness of service delivery, for example through Public Expenditure Tracking Surveys\. In general, institutional capacity constraints have tended to slow down project implementation in areas such as the preparation of legislation, the conduct of studies and the procurement of services, without however a major impact on the project's outcome\. 5\.3 Factors generally subject to implementing agency control: The Ministry of Finance, responsible for program coordination and implementation, maintained effective communications with the Bank and the Fund, which facilitated program implementation and follow-up\. 5\.4 Costs and financing: The full amount of the Credit was disbursed in two tranches, as scheduled\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Sustainability of the policy program pursued under the credit is rated likely\. Government commitment remains strong, and the policy environment is relatively stable\. Fiscal sustainability has been helped by HIPC debt relief granted in 2002 and is expected to be further enhanced by the resumption of rutile mining expected in 2004\. In the long-run, however, future sustainability will also depend on a combination of expenditure reductions as post-conflict needs are phased out and/or continued donor support\. Major legislation such as the act for the privatization of public enterprises, and policy frameworks for the mining sector and for micro finance services, have been approved by parliament\. These programs will be implemented within the time frame of ERRC III and are therefore considered sustainable\. Institutional and management capacities in the Ministry of Finance, in particular with respect to budget preparation (acceptance of MTEF) and financial management (installation of FIS) have improved\. This provides reasonable assurance for continued good macro-economic and financial performance\. Local interest and participation in budget implementation and monitoring is strong, as evidenced by the community-based public expenditure tracking surveys (PETS), and the regional and district level budget oversight committees\. These activities are expected to continue if not expand, as the reform program proceeds\. Finally, sustainability is implicitly assured by the follow-up phase of the reform program under ERRC III\. 6\.2 Transition arrangement to regular operations: There are no specific transition arrangements for this project\. 7\. Bank and Borrower Performance - 10 -  Bank 7\.1 Lending: Identification was consistent with the Government's development priorities, and with the Bank's transitional support strategy for Sierra Leone\. The Bank supported local teams in project preparation and supplied specialized expertise when and where needed\. Project design was adequate\. Attention was paid to the borrower's institutional weaknesses and provision was made to address them, mostly by ensuring support from other donors\. Policy objectives, implementation measures and output indicators were spelled out in the form of matrices attached to the MOP\. The lending instrument, a budget support program with tranche release conditions tied to achievements of project objectives, was appropriate and effective\. 7\.2 Supervision: There were three full supervision missions conducted by the Task Team Leader (TTL), and two separate missions by sector specialists\. Missions were appropriately staffed, with specialized expertise in the areas of privatization, microfinancing, community participation and mining development\. Mission members participated in workshops organized by the Borrower to help implementation along\. Joint missions with the Fund were held in connection with the installation of the MTEF and the preparation and review of annual budgets\. Coordination with multilateral and bilateral agencies was well organized; inter-agency cooperation was close and productive\. 7\.3 Overall Bank performance: The Bank's overall performance in both lending and supervision is rated satisfactory\. Borrower 7\.4 Preparation: The Borrower has actively participated in the preparation of this Credit\. It has demonstrated high commitment to the objectives of its interim poverty reduction strategy (I-PRSP) and the Bank's Transitional Support Strategy by implementing a number of key actions prior to Board presentation: (i) a satisfactory macroeconomic framework; (ii) budget implementation reports for the first three quarters of 2001; (iii) public accounts for 1999 and 2000; (iv) public expenditure tracking surveys for the first six months of 2001; and (v) a payment plan for clearing cross-debts between Government and parastatals\. 7\.5 Government implementation performance: Government departments and units at the central, regional and district levels have actively participated in the rehabilitation and recovery program supported by the Credit\. The Government has actively and successfully mobilized the participation of the population in economic recovery and rehabilitation through budget oversight committees and expenditure tracking surveys, as well as in the implementation of its reinsertion program for ex-combatants and displaced people\. 7\.6 Implementing Agency: The Ministry of Finance, through a steering committee chaired by the Minister of Finance, managed project implementation and monitoring in an effective way\. Despite the scope of - 11 -  the reform effort and the administrative and institutional weaknesses in some departments, the positive results obtained at the closing of the Credit are in a significant way attributable to the diligent management and supervision efforts of the MOF\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated satisfactory\. 8\. Lessons Learned Lessons learned from this operation can be summarized as follows: The catalytic role of the Credit enhanced the benefits of donor coordination\. In particular, the Government was able to make good progress in economic and sectoral performance without reducing the effectiveness of its efforts in demobilization, resettlement and reintegration because of the well coordinated and effective participation of the donor community in post-conflict activities and in institutional development\. Task forces can be used effectively to develop narrowly focused tasks such as, in the case of this Credit, policy frameworks and implementation roadmaps\. A particularly good example was the task force set up to develop a plan for micro-finance services, that included not only an implementation roadmap but also provided for study tours and formal training programs for local staff to run the program once installed (see para 4\.2 of this ICR)\. To be successful, taskforces should be limited in size, have independence of action, report directly to a minister or other high-level official, and have access to external expertise if needed\. Similarly, the creation of the National Commission for Privatization appears to have been a useful move\. It should be recognized, however, that privatization is often a complex and time-consuming process\. In this light, the implementation schedule could have capitalized more on the phased nature of the reform program\. The ERRC II might have focused more on ensuring adequate funding for the NCP, more time to build capacity within the new NCP and more time to build capacity within the sectoral ministries that would need to establish new regulatory capacities\. This would set the stage for the subsequent development of a detailed divestiture plan\. Process indicators and performance or output indicators should be carefully and realistically set, with sufficient specificity to measure progress and assess achievement while allowing room for flexibility\. The use of process indicators with target dates for meeting specified steps in the process (as was done in MOP Annex C), was more relevant and more useful for tracking progress in the Credit than output indicators\. The Credit also benefitted from the periodic revision of some indicators in accord with implementation progress\. 9\. Partner Comments (a) Borrower/implementing agency: The Second Economic Rehabilitation and Recovery Credit (ERRC II), in the amount of US$50 million, was successfully disbursed in two tranches within a period of 15 months\. Government fulfilled all the conditionalities for tranche release, including the maintenance of a stable - 12 -  macroeconomic environment, and made significant progress in the implementation of structural reforms\. The World Bank task team provided excellent supervision support throughout the implementation of the program\. The Disarmament and Demobilition phase of the DDR programme was completed in the review period\. By December 2002, 56,751 ex-combatants were registered for reintegration support throughout the country\. A total of 38,689 were either in on-going or completed programmes or waiting to be placed in approved projects\. Government put in place a structured intelligence network operating both within and outside the country as a preventive measure in our national security strategy\. A task force on immigration to review and monitor the operations at our borders and entry points was put in place, as well as procedures for the issuance of passports\. The objective was to safeguard the nation against undesirable external elements that could penetrate our territory and threaten the security of the State\. Our Police Force has been equipped with high quality leadership, technical support and logistics\. These measures have significantly enhanced the capacity and effectiveness of the Force in maintaining law and order\. Government set up a Governance Reform Secretariat which has been working in conjunction with the Ministry of Local Government to strengthen and empower all institutions relevant to the policy on decentralization\. Paramount Chiefs' elections were concluded and Government is working steadfastly towards the holding of local government elections\. Government adopted the Medium-Term Expenditure Framework (MTEF) to orientate public expenditures in line with its growth and poverty reduction priorities and to obtain increasing gains in terms of service delivery to rural communities with a role for civil society in budgetary oversight\. The MTEF process aims at promoting planning and budgeting over a three-year horizon, channeling increased resources to the social and economic sectors, and promoting efficiency and effectiveness of public expenditures\. To enhance the participatory nature of the MTEF process, Government has established Budget Oversight committees in all regions to assist in the determination of priorities and monitor budget implementation in their respective districts\. Within the MTEF process, a participatory monitoring system (the Public Expenditure Tracking Survey or PETS) has been commissioned to assess the efficient and effective utilization of public resources allocated to both urban and rural communities\. Two PETS were conducted covering public expenditures for FY2001 and their results were published\. The key findings of these surveys have been used as a basis for the introduction of new procedures and regulations for accessing public funds from the Accountant General's Department\. The credit contributed towards Government's efforts to minimize corruption and reduce the scope for non-transparent budgetary transactions by ensuring sound financial management\. The credit provided support for a mini-Country Financial Accountability Assessment (CFFA) to identify the strengths and weaknesses of the public financial management system and recommend ways to improve financial accountability\. A work plan has been developed to implement the recommendations\. As a major initiative, a Financial Management and Accounting System Unit - 13 -  (FMASU) has been established in the Accountant General's Department to separate the functions of the Accountant General and the operations of the Computerized Financial Management and Accounting system\. The establishment of the FMASU has improved the accuracy and timeliness of cash management and adherence to financial regulations\. This has resulted in significant progress at the Accountant General's Department to control commitments, firm up the payroll, improve the accuracy and timeliness of information on budget implementation, cash management, and the accrual of arrears\. On the macroeconomic front, the credit enabled Government to promote economic recovery and maintain a stable economy while raising the resources to finance critical reconstruction and rehabilitation needs\. The economy grew from 5\.4 percent in 2001 to 6\.3 percent in 2002\. The growth was facilitated in part by the foreign exchange resources generated by the credit channeled through the foreign exchange auction, which financed the importation of intermediate goods, raw materials, and machinery for industry that remarkably revamped manufacturing activity\. The credit provided budgetary support, which minimized recourse to bank financing thereby helping to control inflation\. Annual average inflation declined from 2\.2 percent in 2001 to minus 3\.1 percent in 2002\. The exchange rate was relatively stable\. The gross foreign exchange reserves of the Bank of Sierra Leone rose to US$84\.6 million (2\.2 months of imports) in 2002 from US$52 million (1\.8 months of imports) in 2001\. The improvement in gross foreign exchange reserves can be attributed partly to the foreign exchange resources funded by the credit\. The budgetary support provided by ERRC II facilitated the payment of domestic arrears, which prevented crowding out of the private sector\. Policies were formulated and implemented under the credit to ensure that Government does not accumulate new arrears\. The credit also complemented Government's efforts in the formulation of a micro-finance policy, as the basis for high-impact sustainable micro-finance schemes\. The main objective of the policy is to integrate Microfinance into the broader financial system and facilitate the provision of viable and sustainable microfinance services to low income Sierra Leoneans in a transparent and accountable manner\. The development of the mining sector as a potential source of income and employment generation is centered in current national priorities\. Under the credit, Government has formulated a new Mining Policy that will attract private capital from credible foreign mining companies and create conditions for development of artisanal mining\. The credit also aimed at reinforcing reforms of public resource management and promoting a greater private sector role in the economy\. In this regard, the credit supported the formulation of the Strategic Plan for the divestiture of public enterprises\. Following the approval of the Strategic Plan by Cabinet in May 2001, a National Commission for Privatization (NCP) was established to implement the public enterprise divestiture programme which would cover 23 state enterprises\. According to the Act, all government representatives on the boards of parastatals were replaced, and technical and financial performance benchmarks were established, to be monitored on a regular basis\. Government remained committed to re-establish and improve access to social services, especially - 14 -  primary education, healthcare, and clean water and sanitation that have direct impact on the quality of life of the poor, as laid out in Sierra Leone's interim poverty reduction strategy\. The credit provided budgetary support to the social sectors to increase access to social services and improve service delivery\. Specifically, provision of school fee subsidies for pupils in classes 1-111 was expanded to class VI\. Government continued to provide free teaching, learning materials and textbooks for Government owned and assisted primary schools, and subsidized textbooks for secondary schools\. These policies have resulted in a significant increase in enrollment rates, particularly in primary schools\. The provision of subsidized NPSE, BECE and WASSCE fees for pupils in Government owned and assisted schools remains on track\. School bus transportation to minimize truancy is on course and plans are underway to expand the programme to provincial headquarter towns\. In the health sector, the proceeds from ERRCII have been utilized to improve access to and the quality of health services\. Government continues to provide free basic drugs for pregnant women, nursing mothers, under-five and school going children\. With support from the credit, farm tools and implements have been provided to farmers to improve food production and enhance agricultural productivity\. Government's institutional and implementation capacities have been strengthened by the support from various multilateral and bilateral donors, including that of the World Bank and the IMF during the preparation and implementation of ERRC II\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information - 15 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Development Indicator Outcome at completion Objective Promoting National Ex-combatants re-inserted into civilian life 71,000 combatants disarmed and demobilized\. Security and Good 56,000 ex-combatants re-inserted into society\. Governance Reduction of crime in major cities Crime rate reported down Accurate and timely reporting of public finances Improved; Monthly reporting ongoing\. Macro-economic program on track Macro-economic program on track in 2002\. Democratic parliamentary and presidential elections Elections held June 2000; results accepted by national and international community\. Financial information system (FIS) strengthened Full documentation for FIS architecture and implementation manuals prepared\. Implementation completed\. Well-functioning Anti-Corruption Commission Anti-Corruption Commission functioning and its capacity strengthened with DFID support\. Revive the Availability of basic commodities such as rice and Petroleum imports estimated at US$40 economy petroleum\. million in 2002, up from US$31 million in 2001\. Rice imports about US$27 million in 2002, down from US$31 million in 2001\. Agriculture production increased\. Agricultural production increased due to resettlement of displaced populations and re-integration of ex-combatants\. \. Mining sector exports increased\. Mining sector exports reached US$80 million in 2002, up from US$ 75 million in 2001\. Updated strategy for remaining public enterprises in Preparation of implementation plan delayed Government's portfolio implemented pending establishment of National Commission for Privatization\. Financial performance of public enterprises monitored PE financial monitoring system being developed by NCP\. Mining sector policy and strategy adopted\. National Mining Policy Framework adopted 12/02\. Draft implementation plan issued\. Micro finance policy framework established Micro finance framework adopted by Cabinet Dec\.2002\. Acceptable micro-finance framework established; to be put into operation in 2003 under the Bank's Social Fund operation\. Strengthen public Improvement in revenue mobilization by at least 1 percent Revenues increased from 14 percent in expenditure of GDP over the 2001 program level\. 2001 to 14\.5 percent in 2002\. management Public expenditure control at the commitment level\. Improving; slippages have arisen in the creation of departmental accounts\. Public resources reach administration units in all provinces\. Budgets restored in all provinces\. No new accumulation of arrears No new arrears\. Achieved - 16 -  Improve access to Enrollment rates in primary classes Budgets for primary education and primary health basic services facilities in Northern, Southern and Western Number of primary health care centers in operation provinces restored from zero in 2001 to adequate levels in 2002\. School and health unit attendance Child immunization rate significantly increased as result\. Access to safe water Budget allocated in 2002 to restore water supplies in all provinces\. - 17 -  Annex 2\. Project Costs and Financing Available electronically - 18 -  Annex 3\. Economic Costs and Benefits Not Applicable\. - 19 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 09/2001 4 ECONOMIST, TEAM LEADER S S (1); MINING SECTOR SPECIALIST (1); PRIVATE SEC\. SPECIALIST (1); MICRO-FINANCE SPECIALIST (1) Appraisal/Negotiation 10/2001 4 ECONOMIST, TEAM S S LEADER (1); MINING SECTOR SPECIALIST (1); PRIVATE SEC\. SPECIALIST (1); MICRO-FINANCE SPECIALIST (1) Supervision 6/2002 1 ECONOMIST, TEAM S S LEADER (1) 7/2002 1 MICRO-FINANCE S S SPECIALIST (1) 11/2002 3 ECONOMIST, TEAM LEADER S S (1); MINING SECTOR SPECIALIST (1); PRIVATE SEC\. SPECIALIST (1) ICR 09/2003 1 ECONOMIST, TEAM S S LEADER (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 9\.30 31,839\.49 Appraisal/Negotiation 3\.99 13,645\.49 Supervision 13\.48 48,744\.18 ICR 5 18,000 Total 31\.77 112,229\.16 Based on available data from SAP\. - 20 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 21 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 22 -  Annex 7\. List of Supporting Documents Transitional Support Strategy for the Republic of Sierra Leone, November 21, 2000\. Sierra Leone ­ Economic Rehabilitation and Recovery Credit, Project Identification Document, December 16, 1999\. Appraisal Mission for a Proposed Second Economic Rehabilitation and Recovery Credit, October 24-November 4, 2001\. Republic of Sierra Leone ­ Second Economic Rehabilitation and Recovery Credit, Memorandum of the President (Report No\. P7499SL), November 20, 2001\. Republic of Sierra Leone ­ Second Economic Rehabilitation and Recovery Credit, Development Credit Agreement (Cr\. 3586-SL), December 14, 2001\. Transitional Support Strategy for the Republic of Sierra Leone, March 3, 2002\. Sierra Leone ­ Microfinance Review and Policy Formulation Mission, March 3-8, 2002, Aide Memoire\. Sierra Leone ­ Microfinance Review and Policy Formulation Paper, August, 2002, Report\. Republic of Sierra Leone ­ Country Financial Accountability Assessment (CFAA), March 30, 2002\. Project Status Report ­ Sierra Leone ERRC II, December 17, 2002\. Sierra Leone ­ Second Economic Rehabilitation and Recovery Credit (Cr\. 3586-SL), Release of the Second Tranche, December 19, 2002\. - 23 -  Additional Annex 8\. Government Comments - 24 -  - 25 -  - 26 -

REVIEW

P117279

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) Report Number : ICRR0020454 1\. Project Data Operation ID Operation Name P117279 LR- RRSP 3 - Budget Support Country Practice Area(Lead) Liberia Macro Economics & Fiscal Management L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IDA-H6240 30-Jun-2011 11,000,000\.00 Bank Approval Date Closing Date (Actual) 30-Sep-2010 30-Jun-2013 IBRD/IDA (USD) Co-financing (USD) Original Commitment 11,000,000\.00 0\.00 Revised Commitment 11,084,576\.00 0\.00 Actual 11,485,200\.00 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Jose M\. Rodriguez Robert Mark Lacey Lourdes N\. Pagaran IEGEC (Unit 1) Alvarez 2\. Project Objectives and Policy Areas a\. Objectives The Program Document, dated September 13, 2010 (p\. 40), states that the objectives of the proposed grant are to support government-owned ongoing reforms to strengthen governance and improve the environment for private sector-led growth that is more broadly shared\. More specifically, the Third Reengagement and Reform Support Program (RRSP-III) focuses on: (i) improving budget planning and execution; and (ii) improving land administration to reduce conflict and enhance the investment climate\. Page 1 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) b\. Were the program objectives/key associated outcome targets revised during implementation of the series? No c\. Pillars/Policy Areas The operation aimed to support the Government’s reform program under two Policy Areas (Program Document, p\. vi): 1\. Improving budget planning and execution\. This area included two actions: a) The preparation by the Ministry of Finance (MoF) and the approval by the Cabinet of a multi-year budgeting strategy that would allow the government to place the annual budget in the context of the medium- term fiscal framework for the Poverty Reduction Strategy (PRS), taking into account the multi-year nature of investments, and help reduce the variance between budget and actual out-turns through the discipline it would bring to the overall budget process\. b) The adoption of International Public Sector Accounting Standards (IPSAS-cash basis) and adoption of public finance management enabling regulations and manuals based on the new Public Financial Management Act\. 2\. Improving land administration to reduce conflicts and enhance the investment climate\. The program supported the establishment and adequate resourcing of a Land Commission to identify, guide and facilitate reforms in land policy, law and program, as a significant step toward improving the environment for investment in Liberia, and the establishment of a working system to promote the reconciliation of land disputes\. d\. Comments on Program Cost, Financing, and Dates The RRSP III was approved on 09/30/2010, became effective on 11/16/2010, and closed on 06/30/2013\. Originally the closing date was 06/30/2011 The disbursed amount was XDR7\.5 million (US$11\.485 million)\. Initially, the design consisted of two operations: RRSP-III and RRSP-IV\. RRSP-IV was approved by the World Bank Board on 10/18/2011, thirteen months after the approval of RRSP-III, when all prior actions and triggers were met, and its closing date was extended to 12/31/2012 at the Government’s request\. However, the legislature delayed the ratification of RRSP-IV until it was finally cancelled by the Bank on 06/30/2013\. According to the ICR, the legislature disagreed with the Bank’s policy of changing the second operation of the programmatic series from a grant to an IDA credit\. The shift would have been consistent with Liberia's change from a high risk debt distress country to a low risk following attainment of the HIPC Completion Point\. Page 2 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) 3\. Relevance of Objectives & Design a\. Relevance of Objectives The Objectives of RRSP-III were relevant to Liberia’s development priorities as expressed in the Joint Country Assistance Strategy (JCAS) of the World Bank with the Africa Development Bank for the period 2009-2012, and Liberia’s Poverty Reduction Strategy (PRS), which were closely aligned between each other\. The 2009-2012 JCAS, which was designed to support Liberia’s transition from post-conflict recovery to long- term development country, focused on three strategic objectives: (i) rebuilding core state functions and institutions; (ii) rehabilitating infrastructure to sustain economic growth; and (iii) facilitating pro-poor growth\. These objectives are fully aligned to Pillars II, III, and IV of the government’s PRS\. The program directly supported JCAS goals, including continuing and deepening government-owned policy reforms to rebuild core state functions and institutions and support private sector development\. The proposed land administration reforms were particularly relevant considering that the lack of legal recognition of customary rights to land in Liberia, which affects more than half of the population, had been one of the drivers of the long civil war and one of the main sources of court disputes in the post-conflict era\. The objectives remain highly relevant to the World Bank Group’s Country Partnership Strategy (CPS) 2013- 2017\. Pillar III (Governance and Public Institutions comprises among its objectives Public Financial Management, including procurement, to "strengthen public institutions to ensure that revenues and government assets are well managed, free from corruption and monitored", and "Land administration: Develop comprehensive national land tenure and land use system that will provide equitable access to land and security of tenure to facilitate inclusive, sustained growth and development, ensure peace and security and provide sustainable management of the environment"\. Rating High b\. Relevance of Design The Policy Matrix (Program Document pp\.39-43 and Annex 3) presents a clear and convincing logical chain between objectives, prior actions, triggers, and expected results\. Overall, the operation supported a coherent set of reforms consistent with the PDOs\. For example, in the area of Public Financial Management, one Prior Action was the adoption of International Public Sector Accounting Standards (IPSAS-cash basis) and Public Financial Management tools to enable the adoption of regulations and manuals based on the new Public Financial Management (PFM) law; the Program Trigger for RRSP-IV was “Internal Audit Units established and well-resourced in terms of staffing and operational budget in 5 high risk Ministries and agencies using General Auditing Commission (GAC) risk profile and producing quarterly internal audit reports for the Internal Audit Governance Board”; the Related HIPC Completion Point Trigger was “to complete successive annual external audits of five key government ministries (Health, Education, Public Works, Finance and Lands, Mines and Page 3 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) Energy) prepared under the authority of the General Auditing Commission, submitted to the Parliament and disclosed publicly”, and the expected end of program outcome was “Financial accounting and audits in line with international standards”\. In the case of land reform, the Prior Action was “establish and adequately resource a Land Commission to identify, guide and facilitate reforms in land policy, law and program”; the Program Trigger for RRSP-IV the “completion of assessment of the legal framework for land (both statutory and customary law) to determine amendment required to existing land laws”; and the expected end program outcome an “increased efficiency in the registration of property”\. With respect to Liberia’s macroeconomic policy framework, despite significant postwar recovery, the 2008-09 global financial crisis brought serious challenges to Liberia’s economy\. At the macro level, the global crisis resulted in a much weaker economy than that envisaged under the PRS, which expected an average annual growth of 11\.5 percent over the period 2008-2010\. However, as a result of the global financial crisis, lower exports levels, investment, and demand in the domestic economy due to reduced remittances, and credit resulted in a growth of 5\.9 percent over the same period\. The fiscal space was severely eroded because of the lower economic activity, and the trade balance and overall balance of payments also deteriorated\. The RRSP III operation therefore provided timely financial support to the government in the context of a severe global environment\. The amount of the grant was increased from US$5 million to US$11 million through the addition of US$6 million from the Crisis Response Window (CRW) to help mitigate the ongoing effects of the global slowdown on key priorities reflected in the PRS\. Liberia also entered a Poverty Reduction and Growth Facility/Extended Fund Facility (PRGF/EFF) program with the International Monetary Fund (IMF) in March 2008, enabling Liberia to clear its arrears to the IMF\. Rating Substantial 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective Improving budget planning and execution Rationale Under this objective, the program supported (i) the preparation of a multi-year budgeting strategy; and (ii) the adoption of International Public Sector Accounting standards and of enabling regulations and manuals for the new PFM Law\. Until June 2010, Liberia’s budgets were single-year budgets and there was no medium-term expenditure framework\. In June 2010, the Cabinet of the Government of Liberia adopted a multi-year budgeting strategy\. Since then, the government has been implementing its multi-year budgeting strategy that places the annual budgets in the context of the medium-term fiscal framework\. Although the budget prepared for 2010/11 was Page 4 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) still a one-year budget, for the first time it was cast in a medium-term context set out in the Budget Framework Paper published on the Website of the Ministry of Finance\. As a component of the PRS, the government undertook a three-year costing exercise, yielding costing estimates by fiscal year and sector required to meet the PRS objectives\. It also provided estimates of the anticipated budgetary resources to be devoted to the PRS objectives, making a first step towards a multi-year budget\. The target for a reduction in the difference between out-turn and legislated budget for each Ministry from a baseline of 16 percent (FY 09/10) to 10 percent (FY 10/11) was exceeded, since the average budget deviation for FY10/11 was 8\.4 percent\. The ICR does not provide information about FY11/12\. In FY12/13, the average budget deviation at 11\.6 percent exceeded the target, but it fell again in FY14/15 to 7\.6 percent\. The target of complete compliance with the International Public Sector Accounting Standards (IPSAS) for the FY09/10 financial statement was partially met because the statement for was only submitted for external audit in November 2011, 17 months after the closing of the fiscal year\. According to the ICR, the 2012 Public Expenditure and Financial Accountability Assessment (PEFA assessment) found significant improvements compared to the 2007 PEFA\. These were, however, limited to only nine out of thirty assessed PEFA indicators, of which sixteen remained constant and five worsened\. The quality and timeliness of annual financial statements experienced a modest improvement after five years (from D to D+)\. In summary, this objective was partially attained, the main achievement being the reduction of the difference between out-turn and legislated budget, although even this shows considerable year-to-year variance\. Rating Modest PHREVDELTBL PHEFFICACYTBL Objective 2 Objective Improving land administration to reduce conflicts and enhance the investment climate Rationale The program supported the establishment of a Land Commission to identify, guide and facilitate reforms in land policy, laws and programs\. This Commission was launched in March 2010\. Since its establishment, the Commission has: (i) developed interim policy guidelines and procedures as a pre-condition to the lifting of the moratorium on the sale of public land by the government; (ii) completed an inventory of land dispute cases in Circuit and Magisterial Courts in five counties, and; (iii) conducted consultations in all 15 counties to build awareness of its mandate\. The number of land disputes, representing 1183 cases by 2010, dropped by 56 percent (556) at the end of 2011, exceeding the target of 50 percent\. In 2012, the number of land disputes dropped further to 318 cases, Page 5 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) and by 2013 only 92 disputes were reported\. According to the Bank task team, the percentage of land deeds consolidated in the National Archive rose from a pre-program baseline of 65 percent to 85 percent in 2011, and to 99% in 2016\. This achievement is noteworthy in the context of a country where more than half of the total population of 4\.5 million lives in areas where the property system is customary tenure\. The percentage of digitalized deeds filed in the National Archive, rose to 90 percent in 2011 and further to 95 percent in 2016, compared to a baseline of zero in 2009\. This was well in excess of the program target of 75 percent\. Rating Substantial PHREVDELTBL PHREVISEDTBL 5\. Outcome Relevance of objectives is rated high and is well aligned with Government and Bank strategy\. Relevance of design is rated substantial\. Progress in budget planning and execution was mixed, with the only real achievement being a reduction of the average difference between the legislated budget and the actual out-turn\. The efficacy of the first objective is therefore rated modest\. However, that of the second objective is rated substantial\. There were important achievements in the area of improved land administration – the number of land disputes fell significantly following the program, while the consolidation of land deeds and the percentage of digitalized deeds registered in the National Archives both rose significantly\. a\. Outcome Rating Moderately Satisfactory 6\. Rationale for Risk to Development Outcome Rating The specific reforms achieved under the operation are likely to be sustained, particularly because they have been fully owned by the Government and have already begun to have some tangible demonstration effects, particularly in the case of the land administration policy\. Notwithstanding this positive outcome and the government’s commitment, Liberia, as a fragile, post-conflict state, is vulnerable to many domestic and external shocks, which could adversely affect the sustainability of the reforms\. The most significant risks are political, macroeconomic, and fiduciary, and there are also risks associated Page 6 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) with reform implementation\. To mitigate the political risk, the government is currently engaged in an inclusive communication process to explain its policy positions and to build support from civil society for the reforms\. The macroeconomic risk is related to the economy’s dependence on export of commodities and on imported food and fuel, all of which are vulnerable to external shocks, particularly in a country with limited fiscal space and a low level of international reserves\. So far, these risks have been mainly mitigated by the Government’s prudent fiscal stance\. The overall fiduciary control environment remains fragile, despite the progress made in improving economic governance, The most effective mitigating measure in this regard has been the improvement in financial management and procurement systems and procedures, supported by the World Bank and other external partners\. Implementation capacity remains weak despite recent capacity building efforts\. There is considerable reliance on external consultants and short-term appointments to senior civil servant positions, but these remedies are not sustainable over the long-term\. There is a need to intensify training efforts already supported by external partners\. a\. Risk to Development Outcome Rating Substantial 7\. Assessment of Bank Performance a\. Quality-at-Entry Quality at entry was underpinned by the close alignment of the operation with the WB JCAS and the Government’s PRS\. The reforms supported by the operation were critical elements of the Government’s strategy, strongly supported by the MoF in donors’ fora\. Considering the weak implementation capacity of the Government, significant efforts were adopted to limit the number of prior actions, as jointly agreed by the World Bank and the Government, taking also into account the input from other external partners\. The design of RRSP-III drew on lessons from previous operations, particularly from the two previous Reengagement and Reform Support Program Grants (Program Document, pp\. 38-39)\. These include: (i) the embedding of the reforms into the government’s own program articulated in the PRS; (ii) the focus on a few carefully selected prior actions that, in an environment of limited capacity, are deemed essential for keeping the overall governance reform program on track; (iii) the careful selection of prior actions that are likely to open the door for other important policy and institutional reforms; (iv) the assessment of key risks to the individual policy and institutional reform measures to be undertaken and to be proactive in the application of mitigating measures; and (v) the Bank’s effective support to policy and institutional reform operations can be substantially enhanced by its complementarities with other Bank financed operations, particularly technical assistance\. The design was also closely coordinated with the technical assistance from the African Development Bank, the IMF and other external partners, benefiting not only from the complementarity with the technical assistance operations, but also from the wider cross-sectoral policy dialogue\. The IDA grant instrument was appropriate to provide support to structural reforms of relevant public policies and programs with a substantial institutional and/or sectorial policy dimension\. The task team also provided a good analysis of the diverse and complex risks existing in a post-conflict country and suggested appropriate Page 7 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) mitigation measures\. The results framework was also appropriate and clear, based on indicators well aligned with the PDOs\. However, the task team had to deal with the country’s limited M&E capacity and the lack of a reliable baselines data for key indicators\. Quality-at-Entry Rating Satisfactory b\. Quality of supervision The Bank team followed up the implementation of the program and worked closely with the Government to ensure the continuity of reforms\. Supervision was conducted within the context of the Common Assessment Framework (CAF), which progressively became the main mechanism for harmonizing budget support to Liberia\. The CAF helped to reduce transaction costs incurred in Government dealings with external partners, and helped to ensure that the latter’s’ programs were consistent with Government priorities\. CAF also served as the appropriate forum for discussing and solving implementation issues\. However, the completion of the ICR, initially due for June 30, 2914, was delayed until September 8, 2016, more than 26 months later, a delay which could only partly be explained by the Ebola epidemic\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 8\. Assessment of Borrower Performance a\. Government Performance The Government commitment and ownership of reforms was strong during preparation and implementation of RRSP-III\. Implementation was led by the Ministry of Finance, and despite challenges posed by weak coordination between the different departments of the Ministry and limited capacity, it was able to implement the prior actions\. Nonetheless, the unexpected cancellation of the planned successor operation of the programmatic series - the RRSP-IV- had a negative impact on RRSP-III\. Liberia’s Parliament did not ratify the financing agreement of RRSP-IV although all the triggers and prior actions were met, because the lawmakers objected that the financing of the new operation was an IDA credit rather than another grant\. According to the ICR, the Government only indicated the possibility of cancellation late in the implementation period\. Government Performance Rating Moderately Satisfactory Page 8 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) b\. Implementing Agency Performance The Government implemented the program and there is no separate assessment of implementing agency performance\. Implementing Agency Performance Rating Moderately Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The M&E arrangements were prepared with the Government\. The results framework included five results indicators: (i) the average difference between out-turn and legislated budget for each Ministry as measured by PEFA indicator PI-2; (ii) the timely production of IPSAS compliant financial statements to facilitate complete audit of the final accounts of the budget in keeping with the PFM Act; (iii) the consolidation of land deeds in the National Archive, (iv) the number of deeds digitized and filed in the National Archives; and (v) the percentage decrease in the number of land dispute cases in the docket\. These indicators were consistent with the PDOs and directly attributable to the prior actions, and target values were in line with the expected program results\. The M&E arrangements were aligned to the process designed for the overall monitoring and evaluation system for the Government’s PRS, although this provided challenges due to the lack of a reliable baselines data for key performance indicators for the PRS\. b\. M&E Implementation Liberia’s capacity for M&E was and remains weak, despite some progress\. There is a lack of statistical data and analysis and an absence of reliable base-line data\. This is aggravated by a weak coordination across ministries and agencies, which makes data gathering difficult\.　 Despite this challenging environment, external partners have invested considerable, and partially successful, efforts to improve fiscal data collection and publication within the Ministry of Finance and Development Planning, through projects promoting public financial management reporting, such as the Governance and Economic Management Assisted Program (GEMAP), which ended at HIPC completion point in June 2010 and the Integrated Financial Management Information System (IFMIS), facilitating in- year and annual fiscal data reporting, although at a slow pace\. Despite capacity limitations, the Government managed to monitor progress on the results indicators\. c\. M&E Utilization Page 9 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) No specific information was provided in the ICR or by the task team about M&E Utilization\. M&E Quality Rating Modest 10\. Other Issues a\. Environmental and Social Effects No safeguard policies were triggered by the operation, and the policy actions supported had no environmental impact\. The ICR (p\. 18) states that the operation had a significant direct impact on poverty\. The grant allowed the Government to commit additional fiscal resources to its poverty reduction priorities\. Ministries that have benefited from greater access to resources include those of Education, Health, Agriculture and Public Works\. Total spending by these ministries increased by more than 40 percent between 2009 and 2012\. However, the ICR does not show how these results could be attributed to this program, or how a grant of US$11 million could create sufficient fiscal space to increase social spending from US$ 81\.7 to US$127\.5 million, as actually occurred in FY2011\. b\. Fiduciary Compliance No fiduciary issues were identified in the ICR\. c\. Unintended impacts (Positive or Negative) None d\. Other None 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Efficacy of one of the two Outcome Satisfactory Moderately Satisfactory program objectives is rated Page 10 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) modest\. Liberia is a fragile, post- conflict country subject to Risk to Development many domestic and external Modest Substantial Outcome shocks which could adversely affect the sustainability of reforms\. Moderately Bank Performance Moderately Satisfactory --- Satisfactory Moderately Borrower Performance Moderately Satisfactory --- Satisfactory Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 12\. Lessons The first three lessons are taken from the ICR with some adaptations; the fourth is drawn by IEG: • In fragile countries, it is essential to select the prior actions carefully, which should be critical to the government’s overall reform program, and take into consideration implementation capacity\. Such an approach is necessary not only to reduce the transaction costs for the Authorities, but also to increase the probability of full action implementation and long term sustainability\. In this case, only three previous actions were selected, all of which were critical to the Government’s overall program, and fully owned\. • The harmonization of external support contributes to the reduction of transaction cost for the Government\. The Common Assessment Framework (CAF) plays an important role in harmonizing such support\. The effect of the CAF in reducing the transaction cost on the government could be even greater with more commitment to the instrument, since the dialogue is centered on a single agreed matrix\. There was still a great deal of bilateral dialogue, at the initiative both Government and of the external partners\. • It is important to engage with political actors outside the Executive branch, particularly the legislature and civil society\. In the case of Liberia, the political economy of the country was such that even though the President’s party was in the majority in the Legislature, the President was not necessarily the leader of the party in the legislature\. Thus, in spite of the Executive’s endorsement of a Bank operation, the legislature had the capacity to override it\. An earlier engagement with political party leaders and other key players could have led to a more successful result\. • In fragile and post-conflict countries, the establishment of a steering committee representing government and external partners is a critical tool to coordinate the national construction agenda\. This was the case of Liberia, where a Liberia Reconstruction and Development Committee (LRDC), was established, chaired by the President of Liberia herself, and composed of the Ministers of Defense, Finance, Planning and Economic Affairs, and Public Works, as well as major partners including the United Nations, the United States, China, the Page 11 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LR- RRSP 3 - Budget Support(P117279) World Bank Group, the European Commission, the International Monetary Fund, the African Union and the Economic Community of West African States\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR provides a candid assessment of the operation\. There is a clear presentation of the importance of the objectives within the framework of the country’s economic, institutional, and social context, the diversity of risks to the Development Outcome, and of the lessons learned\. However, the ICR would have benefited from better editing\. The information could have been better organized and structured\. The text includes some repetitions about the same issues in different sections and, in some cases, the information about specific issues appears disseminated in different sections (for example, the information about the achievements of the objectives)\. There are inconsistencies, particularly in the indicators and ratings\. For example: (i) quality at entry is rated as “moderately satisfactory” on page vii, and as “satisfactory’ on page 21; (ii) Outcome is rated as “satisfactory on pages vi and 17, but on page 23 it is said that “With the GoL performance Satisfactory, the implementing agency’s rating Moderately Satisfactory and the outcome rating is moderately satisfactory the overall rating for borrower performance is moderately satisfactory”; (iii) government’s Performance is rated as “Moderately Satisfactory” on pages vii and 22, while on page 23 (paragraph 75) is rated as “Satisfactory”; and (iv) the actual value (achieved at completion) of indicator 3 (“consolidation of land deeds in the National Archive”) is 85 percent on pages viii, 7, and 8, but on page 16 (paragraph 50) it is said that “some progress has been made on the consolidation of the deeds in the Archive with approximately 75 percent of the total deeds in the Archive up from an estimated 65 percent in 2009”\. The ICR is in the low side of substantial\. a\. Quality of ICR Rating Substantial Page 12 of 12

REVIEW

P111741

Document of The World Bank Report No: ICR2911 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-12410 TF-95351 TF-96770 TF-11407) ON A TRUST FUND GRANT IN THE AMOUNT OF US$10 MILLION AND AN ADDITIONAL TRUST FUND GRANT IN THE AMOUNT OF US$2 MILLION TO THE PALESTINE LIBERATION ORGANIZATION FOR BENEFIT OF PALESTINIAN AUTHORITY FOR SUPPORT TO A MUNICIPAL DEVELOPMENT PROGRAM – Phase 1 IN WEST BANK AND GAZA April 23, 2014 Sustainable Development Department Country Department MNC04 Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective August 31, 2013) Currency Unit = NIS (New Israeli Shekel) US$1\.00 = NIS 3\.6057 US$1\.00 = €0\.75532 US$1\.00 = SDR 0\.65994 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing Municipal Development and Lending Fund MDLF AFD French Development Agency (Agence Municipal Development Program MDP Française de Développement) Monitoring and Evaluation M&E BTC Belgian Technical Cooperation Ministry of Local Government MOLG Danida Danish Development Cooperation (formerly Mid-Term Review MTR Danish International Development Agency) Not Applicable N/A EMSRP Emergency Municipal Services New Israeli Shekel NIS Rehabilitation Project (I&II) Net Present Value NPV FARV Fixed Assets Registration and Valuation Operations and Maintenance O&M EMP Environmental Management Plan Operational Manual OM FPPM Financial Policies and Procedure Manual Operational Policy/Bank Procedure OP/BP ERR Economic Rate of Return One-Stop Shop OSS FP Funding Partners Palestinian Authority PA FY Financial Year Project Appraisal Document PAD GAM Grant Allocation Mechanism Project Development Objective PDO GIZ German Technical Cooperation (Deutsche Project Grant Management PGMIS Gesellschaft für Internationale Information System Zusammenarbeit, formerly GTZ) PLO Palestine Liberation Organization GOI Government of Israel PRDP Palestinian Reform and Development ICR Implementation Completion and Results Plan Report SDIP Strategic Development and Investment IFR Interim Financial Report Plan ISR Implementation Status and Results Report Sida Swedish International Development KfW German Bank for Development (formerly Cooperation Agency Kreditanstalt für Wiederaufbau) TFGWB Trust Fund for Gaza and West Bank LG Local Government TOR Terms of Reference LGU Local Government Unit TTL Task Team Leader LGCBP Local Government Capacity Building Project VAT Value Added Tax LTC Local Technical Consultant WBG West Bank and Gaza Vice President: Inger Andersen Country Director: Steen Lau Jørgensen Sector Manager: Franck Bousquet Project Team Leader: Christianna Johnnides ICR Team Leader: Christianna Johnnides ICR Author: Christian Eghoff  West Bank and Gaza MUNICIPAL DEVELOPMENT PROGRAM CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes \. 16 4\. Assessment of Risk to Development Outcome\. 28 5\. Assessment of Bank and Borrower Performance \. 29 6\. Lessons Learned \. 31 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 33 Annex 1\. Project Costs and Financing \. 34 Annex 2\. Outputs by Component \. 36 Annex 3\. Economic and Financial Analysis \. 39 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 56 Annex 5\. Beneficiary Survey Results \. 58 Annex 6\. Stakeholder Workshop Report and Results\. 63 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 64 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 80 Annex 9\. List of Supporting Documents \. 81 MAP A\. Basic Information Municipal Country: West Bank and Gaza Project Name: Development Program TF-12410,TF- Project ID: P111741 L/C/TF Number(s): 95351,TF-96770, TF- 11407 ICR Date: 04/23/2014 ICR Type: Core ICR PLO for benefit of Lending Instrument: SIL Borrower: Palestinian Authority Original Total USD 37\.69M Disbursed Amount: USD 37\.69M Commitment: Revised Amount: USD 37\.69M Environmental Category: B Implementing Agencies: Municipal Development and Lending Fund (MDLF) Cofinanciers and Other External Partners: AFD, BTC, Danida, GIZ, KfW, Sida B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept 10/06/2008 Effectiveness: 01/26/2010 01/26/2010 Review: 03/06/2012 Appraisal: 06/22/2009 Restructuring(s): 04/26/2013 Mid-term Approval: 09/17/2009 05/16/2011 05/16/2011 Review: Closing: 04/30/2013 08/31/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Satisfactory Government: Satisfactory Quality of Implementing Satisfactory Satisfactory Supervision: Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time Yes None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Public administration- Energy and mining 7 0 Sub-national government administration 93 93 General energy sector 0 7 Theme Code (as % of total Bank financing) Municipal finance 42 42 Municipal governance and institution building 16 16 Urban services and housing for the poor 42 42 E\. Bank Staff Positions At ICR At Approval Vice President: Inger Andersen Shamshad Akhtar Country Director: Steen Lau Jørgensen A\. David Craig Sector Manager: Franck Bousquet Anna M\. Bjerde Project Team Leader: Christianna Johnnides Meskerem Brhane ICR Team Leader: Christianna Johnnides ICR Primary Author: Christian Eghoff F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of Phase 1 of the Municipal Development Program (MDP) is to improve municipal management practices for better transparency\. This is the necessary condition for improving service delivery in subsequent phases\. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Municipalities that graduate up the performance category in which they Indicator 1 : are currently classified\. Value quantitative or 0% 25% 30% 96% Qualitative) Date achieved 09/01/2009 04/30/2013 04/30/2013 08/31/2013 Comments (incl\. % Revised target of 30 percent achieved by 320 percent\. achievement) Municipalities that apply at least two public disclosure methods (publicly Indicator 2 : available SDIPs, annual external audits, project related data, municipal budgets and performance rankings) Value quantitative or 0% 50% 60% 68% Qualitative) Date achieved 09/01/2009 04/30/2013 04/30/2013 08/31/2013 Comments (incl\. % Revised target achieved by 113 percent\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Investments financed that were identified in the municipal Strategic Indicator 1 : Development Plans\. Value quantitative or 0% 100% N/A 100% Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments (incl\. % Target achieved by 100 percent\. achievement) Indicator 2 : Investments financed that are operational\. Value quantitative or 0% 80% N/A 97% Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments 121 percent achieved\. According to the technical audits, 97 percent of (incl\. % sub-projects are operational\. achievement) Indicator 3 : Amalgamation initiatives\. Value quantitative or 4 6 N/A 8 Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments (incl\. % Target 133 percent achieved\. achievement) Indicator 4 : Energy efficiency pilots completed\. Value quantitative or 0 2 N/A 4 Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments Target 200 percent achieved according to target set in ISRs\. The (incl\. % component description in the PAD mentions 3 to 4 pilots; this was fully achievement) achieved\. Indicator 5 : One-Stop Shops piloted\. Value quantitative or 0 3 N/A 3 Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments (incl\. % Target 100 percent achieved\. achievement) Indicator 6 : Municipal performance improvements\. Value quantitative or 0% 25% 30% 96% Qualitative) Date achieved 09/01/2009 04/30/2013 04/30/2013 08/31/2013 Comments (incl\. % See PDO indicator\. achievement) MDLF performance satisfactory as measured by meeting targets it defines Indicator 7 : in the Annual Work Plan Value Satisfactory Satisfactory N/A Satisfactory quantitative or Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments (incl\. % Target fully achieved\. achievement) Procedures for operation and maintenance are established and piloted in at Indicator 8 : least 5 municipalities\. Value quantitative or No O&M procedures 5 municipalities N/A 10 municipalities Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments Target achieved by 200 percent\. Coaching on the use of the manual was (incl\. % ongoing at the time of finalizing the ICR\. achievement) Indicator 9 : Direct project beneficiaries (of which female beneficiaries)\. Value 4,800,000 2,117,160 quantitative or N/A N/A (49%) (49%) Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments Achieved 44 percent\. Core indicator added in March 2012\. The ISR (incl\. % expects 4\.8 million beneficiaries, but this was explained by the team as a achievement) typo as this number surpasses the total population of WBG\. Indicator 10 : Roads rehabilitated (km)\. Value quantitative or 0 N/A 300 310 Qualitative) Date achieved 09/01/2009 04/30/2013 08/31/2013 Comments Target 103 percent achieved\. Core indicator added during project (incl\. % restructuring in March 2012\. achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 12/23/2009 Satisfactory Satisfactory 0\.00 2 06/14/2010 Moderately Satisfactory Satisfactory 0\.14 3 01/14/2011 Moderately Satisfactory Satisfactory 7\.88 4 09/30/2011 Satisfactory Satisfactory 15\.56 5 04/27/2012 Satisfactory Satisfactory 21\.58 6 12/26/2012 Satisfactory Moderately Satisfactory 29\.14 7 01/09/2014 Satisfactory Satisfactory 35\.69 H\. Restructuring (if any) ISR Ratings Amount Board at Disbursed at Restructuring Reason for Restructuring Approved Restructuring Restructuring Date(s) & Key Changes Made PDO Change in USD DO IP millions To provide Additional 03/06/2012 N S S 21\.58 Financing for the project and adjust PDO indicator targets\. To extend the closing date 04/26/2013 N S MS 33\.74 by four months to 08/31/2013\. I\. Disbursement Profile 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Country context 1\. The economic climate in the West Bank and Gaza (WBG) had deteriorated dramatically since the second intifada in 2000\. Continuing restrictions on movement and access by the Government of Israel (GOI) had caused a shift from growth led by investment and the private sector, with the economy growing at about 6 percent per year, to one sustained mainly by government spending and significant inflows of donor aid\. Per capita gross domestic product had declined by a cumulative 13 percent between 2000 and 2008\. Unemployment was rising and stood at about 21 percent in the West Bank and 42 percent in Gaza\. Although data on poverty were limited, there were clear indications that overall poverty in both the West Bank and Gaza Strip had risen since 2000\. 2\. The Palestinian territories of the West Bank (population 2\.35 million) and Gaza (population 1\.5 million) had been effectively split since June 2007\. Following the 2006 elections a Hamas-led government was formed and in response many donors withdrew their assistance to the Palestinian Authority (PA), while the GOI intensified its economic and security restrictions\. In June 2007, Hamas took control of Gaza by force, and President Abbas responded by dissolving the government and setting in place a caretaker government of technocrats, which continued to provide basic services in Gaza through PA civil servants\. The international community had restored its full cooperation with the PA in Ramallah, while Gaza was isolated by a strict closure policy by the GOI\. The continued deterioration of conditions in Gaza led to a widening political, social, and economic gap between the West Bank and the Gaza Strip\. Sector context 3\. The key issue facing Palestinian local governments (LGs) was to ensure adequate municipal service provision to the largely urban population in the face of an eroding revenue base and a crippling financial and economic crisis\. Municipalities predate the establishment of the PA and have historically been responsible for the provision of a variety of infrastructure and services: electricity and water, solid waste management, roads, parks and recreation, slaughter houses, markets, building schools and health clinics\. 4\. Prior to the year 2000, 90 percent of municipal budgets were derived from local revenue collection\. Over the 8 years preceding project appraisal of the MDP, municipal budgets had declined by 31 percent\. Military incursions had led to sizable losses in municipal assets, which in turn had negatively affected service delivery\. Low levels of municipal revenue generation had also been exacerbated by poor municipal management practices, with a growing culture of non-payment for services provided by municipalities\. Non-payment of electricity bills by the municipalities to the Israeli Electricity Company resulted in deductions in the clearance revenues transferred from GOI to the PA, recorded as net lending\. 1 5\. Border closures had led to a near collapse of municipal services in Gaza\. The impoverishment of the population and the near absence of private sector activities meant that municipalities were unable to collect taxes and fees for service provision\. They had accumulated debts to suppliers and arrears in salary payments, and mounting unpaid electricity bills\. Substantial improvements were needed across all areas of service provision\. Response of the Palestinian Authority 6\. The PA, with substantial support from the international community, had articulated a national development agenda in its Palestinian Reform and Development Plan (PRDP, 2008- 2010) in December 2007\. The PRDP recognized that local governments needed to be better managed and more accountable to provide effective services to their citizens\. It highlighted the need to build the operational, administrative, and financial management capacity of local governments and called for new legislation to clarify and regulate the relationship between central and local governments and to establish a policy framework which promotes fiscal autonomy and discipline at the local level\. 7\. The Ministry of Local Government (MOLG) was taking the lead on policy formulation and oversight of the LG sector, while the Municipal Development and Lending Fund (MDLF) was charged with implementing PA policies\. The PA had made significant strides in laying down the foundation for reforms to systems for municipal financial management and accounting practices which would enable them to better manage and account for their tight budgets\. Building on these gains, the two-phase MDP would contribute to building better managed and more accountable LGs that are able to provide improved services to their citizens through a stronger social contract\. Rationale for involvement of the World Bank 8\. The World Bank had a long history of support to Palestinian local governance and held the convening power to effectively integrate and coordinate donor and PA interventions in the sector\. The Bank was the Technical Advisor for the Sector Working Group on Municipal Development and Local Governance (co-Chaired by Denmark and the MOLG), the local aid coordination structure\. 9\. The World Bank’s main focus in the WBG was to assist the Palestinians in their aspirations for institutional sustainability and future statehood\. Drawing on its global experience, the World Bank had supported a series of operations to contribute to LG development\. In partnership with key donors (KfW - the German Bank for Development, AFD – The French Development Agency, Netherlands, Sweden, and Denmark), the Bank supported the establishment of the MDLF in 2005, the implementing agency for the MDP\. As such, the Bank was in a unique position to assist the PA in implementing its MDP\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 10\. The objective of Phase 1 of the MDP was to improve municipal management practices for better transparency\. This was the necessary condition for improving service delivery in subsequent phases\. The key performance indicators were as follows: 2  (i) Percentage of municipalities that graduate up the performance category in which they are currently classified\. (ii) Percentage of municipalities that apply at least 2 public disclosure methods (publicly available Strategic Development and Investment Plans (SDIPs), annual external audits, project related data, municipal budgets, and performance rankings)\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 11\. The PDO and key indicators were not revised but targets for both indicators were revised upwards in connection with the approval of Additional Financing (AF) in March 2012 (see Datasheet and section 2\.3 for details)\. 1\.4 Main Beneficiaries 12\. The main beneficiaries were the populations of the municipalities of the WBG, which would benefit from improved municipal management practices and from direct investments in sub-projects\. The municipal administrations would benefit from support to improved management and service delivery capacity through training, technical assistance, and equipment\. The MDLF would benefit from capacity building to improve program implementation\. 1\.5 Original Components (as approved) 13\. The MDP was designed as a national program with contributions from the World Bank’s Trust Fund for Gaza and the West Bank (TFGWB), other Funding Partners (FPs) and the PA 1\. The financing tables in Annex 1 provide a detailed breakdown of initial financing estimates and actual disbursements\. The components are presented below as in the Project Appraisal Document (PAD) with the initial contribution from the TFGWB, as submitted for approval by the Board of the World Bank\. Window 1: Municipal Grants for Capital Investment (Total: US$46\.16 million\. TFGWB: US7\.6 million) 14\. Window 1 allocated performance-based grants to municipalities for capital investments or operating expenditures for service provision\. This investment component financed sub-projects in municipalities based on SDIPs supported under Window 3, as an incentive for improved municipal performance\. A grant allocation formula was designed to incentivize better management practices, based on population (40 percent), needs (20 percent), and performance (40 percent)\. Municipalities’ performance was ranked using 12 key indicators of good municipal management, provided in Table 1 below, which shows the initial ranking of municipalities carried out in 2009 based on data for 2007\. Window 1 was designed 1 Denmark (Danida) and Sweden (Sida) had committed to co-financing through a World Bank-administered Multi-Donor Trust Fund (MDTF)\. France (AFD), Germany (GIZ and KfW), the Netherlands, and the PA were also expected to provide co-financing\. All co-financing was parallel in terms of the definitions of Annex A of OP 14\.20 – Cofinancing, but with the World Bank holding fiduciary responsibility for managing the TFGWB and MDTF and all financing contributing to achieving the PDO as measured through the Key Indicators\. 3 to be implemented in two cycles of two years each, with updated ranking of municipalities after each cycle\. The higher a municipality ranked after each evaluation (with support provided under Windows 3 and 4 for the municipalities to move up the rankings), the larger its allocation for sub-project investments\. Table 1: Performance criteria and initial rankings\. Rank Indicators of Performance Number of municipalities 1-A 1\. Current account surplus (for 2 consecutive years) 0 2\. Unqualified external audit 3\. Integrated financial management system 2-B 4\. Operational account surplus 0 5\. Fixed assets register 6\. Maintenance plan in place 3-C 7\. Municipal development/investment plan 16 8\. Financial accounting policies & procedures in place 9\. External audit 4-D 10\. Capital budget (approved and executed, properly submitted to the MOLG) 90 5-E 11\. Recurrent budget (approved and properly submitted to the MOLG) 26 6-F 12\. No budgetary information 0 Window 2: Support to Municipal Innovations and Efficiency (Total: US$3\.7 million\. TFGWB: US$0\.7 million) 15\. This Window promoted learning and innovation to promote municipal development, including implementation of MOLG policy decisions\. (a) Strengthening newly amalgamated local governments (US$2\.8 million, entirely financed by Denmark)\. This activity promoted the amalgamation of LGs and funded the expansion of their services, building on lessons learned of an ongoing Danish- financed operation in Jenin governorate\. Under the MDP-I, additional new areas in the West Bank were to be included\. (b) Piloting innovations to improve municipal revenue, responsiveness, and efficiency (Total: US$0\.9 million\. TFGWB: US$0\.7 million)\. (i) Improved energy efficiency of municipal service delivery in 3 to 4 large municipalities (Total: US$0\.7, fully funded by TFGWB), and (ii) Municipal service centers or One-Stop Shops (OSS) to promote municipal transparency, accountability, citizen-responsiveness and public participation (US$0\.2 million, no TFGWB funding)\. Window 3: Capacity Building for municipalities and the MDLF (Total: US$5\.43\. TFGWB: US$0\.6 million) For Municipalities (Total: US$5\.23 million\. TFGWB: US$0\.55) 16\. This Window would provide demand-driven technical assistance to municipalities to graduate to higher performance categories in the performance ranking system, with training targets determined by the performance ranking of municipalities\. The Window built on 4 elements piloted under the Local Government Capacity Building Project (LGCBP, 2005- 2012) under implementation at appraisal\. (a) Improved Financial Management (US$3\.7 million)\. Support would be provided for: (i) Roll-out of the financial management manual to minimum 50 municipalities not yet targeted by LGCBP, (ii) Asset registration and valuation support to a minimum of 30 municipalities, (iii) Roll-out of the municipal budgeting procedures to a minimum of 20 municipalities, (iv) Promotion of municipal external audits, (v) Office and IT equipment for a minimum of 30 municipalities, (vi) Roll-out of an Integrated Financial Management Information System (IFMIS) for a minimum of 20 municipalities not covered under the LGCBP\. (b) Strategic Development and Investment Plans (US$1\.26 million)\. Support to minimum 40 municipalities to develop simple SDIPs with the participation of communities and relevant stakeholders\. The methodology was to draw on (i) the manual and procedures being tested by the SDIP working group led by the MOLG and supported by the GIZ, as well as (ii) lessons learned from the MDLF pilot project in the Jenin area under Danish financing\. (c) Improved Operations and Maintenance (O&M) plans and procurement (US$0\.27 million), including: (i) Development of O&M guidelines and a procedural manual, and (ii) Piloting use of the manual in 5 municipalities\. For MDLF (Total: US$0\.2 million\. TFGWB: US$0\.05) 17\. This activity was to strengthen the MDLF’s capacity to implement the MDP and provide support for human resource development and institutional building based on the MDLF’s Medium Term Strategic Plan and its Human Resources Development Plan\. Window 4: MDP Management (Total: US$6\.64 million\. TFGWB: US$ 1\.1 million) 18\. This activity would finance implementation of the program: (a) MDLF Management Fee (Total: US$4\.34 million\. TFGWB: US$0\.7 million)\. All FPs paid a 7 percent administration fee on their grants to the MDLF\. (b) Monitoring and Evaluation (Total: US$0\.2 million\. TFGWB: US$0\.05 million)\. Institutional compliance audit fees, a municipal infrastructure survey at the end of Phase 1, client and citizen satisfaction assessments and technical audit fees\. (c) Outreach and Communications (Total: US$0\.3 million\. TFGWB: US$0\.15 million)\. Design and implementation of a communication and outreach program around the MDP, especially on the Grant Allocation Mechanism (GAM)\. (d) Local Technical Consultants (LTC) (Total: US$1\.8 million\. TFGWB: US$0\.2 million)\. LTC support to municipalities which require additional assistance in identifying, applying for, and implementing sub-projects\. 1\.6 Revised Components 19\. The components were not revised\. 5 1\.7 Other significant changes 20\. On March 6, 2012, Additional Financing (AF) of US$2 million was approved by the World Bank in response to a request from the PA as the MDP was exceeding its Key Performance Indicator targets\. The AF would be used to finance implementation of expanded activities to scale up the project’s impact and development effectiveness primarily through support for additional grants for municipal infrastructure (an estimated 98\.3 percent of the AF), and to finance cost overruns to complete some original project activities (an estimated 1\.7 percent of the AF)\. Due to political constraints, the Netherlands were not able to provide the funding for MDP-I anticipated at appraisal\. On October 28, 2010, Belgium signed a financing agreement with the PA for the financing of Cycle 2 only\. The funding per cycle for all FPs is presented in Annex 1\. A second restructuring was approved on April 26, 2013 to extend the closing date by four months to accommodate a delayed start to several capacity building packages, and some anticipated delays in a few civil works packages\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 21\. Preparation of the MDP was led by the MDLF, charged with implementing PA policies in the municipal sector, and with support from the World Bank and other FPs\. The MDLF developed the MDP to operationalize the PRDP’s goals of promoting local development\. The preparation process drew upon the experiences of several donor-supported operations in the WBG, including especially the LGCBP, the First and Second Emergency Municipal Services Rehabilitation Projects (EMSRP I&II, 2003-2006 and 2007-2011 respectively), and the Local Development Project\. With the MDLF in the lead, FPs would provide assistance to designing specific aspects of the project, depending on their area of expertise and interest: for example, GIZ supported the design of the capacity building and the Monitoring and Evaluation (M&E) aspects and OSS, Denmark championed the institutional assessment and amalgamation, KfW assisted in technical aspects of sub-projects, while the World Bank supported the development of the performance-based grant mechanism as well as fiduciary and safeguards procedures and the energy efficiency pilot\. There was strong sector coordination through the existing municipal development and LG sector working group with the MOLG, the MDLF, and FPs also participating regularly\. 22\. The project marked a strong will by all stakeholders to consolidate efforts, based on substantial sector knowledge and detailed background studies on service delivery and municipal finances\. With outset in the establishment of the MDLF and the introduction of a grant transfer system under the EMSRP I&II, with allocations based on population, the MDP introduced an element of performance in the allocation of grants for sub-projects to improve service delivery\. The MDP design included technical assistance for the municipalities to help them meet the performance criteria\. The two-phase MDP with two cycles in each phase had focus on improving first municipal performance under MDP-I and then service delivery under MDP-II\. The formula for performance-based grants was designed to create incentives for municipalities to progress towards creditworthiness in the longer run (starting at the end of MDP-II), which would ultimately allow municipalities to access resources from the market for investments to enhance service delivery\. Each sub-project was to be based on a detailed needs assessment through the SDIPs or other local consultative process\. 6 23\. The analysis of lessons was thorough and well presented in the PAD\. The most important lessons from previous operations in the WBG and from global best practices were: (a) transparency and clarity of implementation arrangements, as essential for a successful municipal development program, was assured through contractual distribution of roles in the Operational Manual (OM) and communications campaign to make the municipalities and local population aware of the performance criteria; (b) investment grants were linked to measurable performance standards while emphasizing capacity building aspects, since this was known to improve LG accountability, transparency and service delivery; (c) the programming tools and rules of the game were clear, allowing the program to target a large number of municipalities\. The MDP was designed to ensure that all 132 municipalities 2 adhere to the discipline and rules-based approach made explicit in the GAM; and (d) the goals were realistic, but with clearly defined incremental improvements through the ranking of municipalities, allowing them to be achieved within existing constraints\. 24\. The rationale for the Bank’s involvement was to complement technical and financial support provided by other partners, in line with its comparative advantage\. This included: (a) drawing on experience from previous operations and dialogue, bringing in global experiences in designing performance-based grant systems, and (b) providing procedures which could be acceptable to all FPs\. Having the Bank Task Team Leader (TTL) based in the country office was an additional advantage, allowing the Bank to participate in dialogue on a daily basis\. 25\. Risk assessment and mitigation was adequate\. The main risks were correctly identified as project-external due to the socio-political conditions in Palestine and the project was designed to be sufficiently flexible to accommodate changes to context, and was based on a strong ownership of sub-projects and technical assistance at the local level\. For example, the collective FPs were able to continue to provide funding for the project throughout, in spite of the precarious situation between the West Bank and the Gaza Strip, and sub-projects were implemented in both areas\. 26\. The quality at entry was satisfactory, with well-defined interventions clearly laid out in the PAD, and with the MDP-I forming a self-contained first phase of the PAs overall MDP developed by the MDLF\. The hierarchy of objectives was very well developed and baselines for higher-level objectives, PDO, and intermediate-level results were presented in the PAD\. The results chain was clearly established with outputs leading to outcomes, and the MDP-I was designed to set in place improved management tools, as a first step towards improving service delivery which would come later in MDP-II\. Responsibility for project coordination and management was placed in the MDLF, the PA’s implementation arm for municipal development, and which had satisfactorily implemented several operations in the LG sector\. Preparation benefited from inputs and excellent coordination of all FPs\. While the project was a joint effort, there was no pooling of funds (separate accounts for each FP’s contributions), but all FPs agreed to use World Bank procedures\. The procurement plan for the first 18 months was available, and the division of roles between donors was clearly established, with all FPs having staff in the field to accompany the project and some FPs (Denmark, GIZ) 2 At the end of the MDP-I the total number of municipalities is 135 due to amalgamation of smaller LGUs into municipalities\. 7 having technical assistants based in the field\. LTCs were contracted to provide support to the municipalities on a daily basis, which was beyond the capacity of the MDLF\. 27\. PA commitment was high as demonstrated by the willingness to have most of the LG sector donors group together around a joint project\. The LG sector featured prominently in the PA’s development plans, and the PA was fully engaged in project preparation, confiding the details of the development of the program to the MDLF\. 28\. The PAD stated that the MDLF had the appropriate organizational structure in place and that it had filled some of the key positions that were vacant at pre-appraisal (e\.g\., General Director, Procurement Specialist, Public Relations Officer, and Capacity Building Manager)\. The PAD should have been more forthright about the other key positions for the successful implementation of the program that were still vacant (e\.g\. Procurement Manager, Procurement Officer in Gaza, Municipal Finance Specialist and the Manager for Strategic Development) and proposed concrete mitigation measures to assure smooth start-up of the project\. Finally, it should be noted that the estimate of project cost in the PAD varies from the final project cost\. This was essentially due to post-appraisal developments in donor cofinancing (with Window 1 being scalable to accommodate funding changes), combined with overestimation, at appraisal, of cost of some activities of Windows 2 and 3\. 2\.2 Implementation 29\. The TFGWB-funding was approved by the World Bank Board on September 17, 2009 and was declared effective on January 26, 2010\. Between November 12, 2009, and October 28, 2010, agreements were signed with the PA for the financing of MDP-I by GIZ, KfW, and AFD 3 and for the World Bank administered Multi-Donor Trust Fund (Danish and Swedish Co-financing) for the equivalent of approximately EUR 33 million (see financing details in Annex 1)\. Cycle 1 30\. Startup of the project was marked by some difficulties, mostly due to unfilled procurement positions in the MDLF\. This initially slowed down the procurement, but as the positions were filled within 6 months of effectiveness, implementation generally picked up\. However, the fact that the MDLF staff in the West Bank were prevented from traveling to Gaza due to security restrictions posed challenges to effective coordination\. The MDLF Gaza office initially lacked key skills for project implementation (e\.g\. social and planning skills), and the fact that Gaza City municipality received the largest share of MDP funding of any municipality also meant that, although relatively well staffed, the capacity of the municipality was stretched in relation to MDP\. The LTCs hired to assist the municipalities also faced difficulties to adequately support the municipalities in Gaza\. The World Bank staff based in 3 GIZ on November 12, 2009; KfW on December 6, 2009; AFD on April 6, 2010, the co-financed MDTF administered by the World Bank on behalf of Sweden and Denmark on June 10, 2010\. 8 Gaza were able to help overcome some of the shortcomings, and use of audio conferencing to connect the two MDLF offices also helped mitigate the problems\. 31\. It also took some time for municipalities to fully master the sub-project selection and approval process\. All 47 sub-project proposals from the first round of proposals were rejected due to non-compliance with the proposal criteria and lack of understanding of public participation requirement or World Bank safeguard policies as “safety-related issues\.” The MDLF conducted a reorientation workshop with sessions on public participation, social safeguards, capacity building, and fiduciary aspects, stepped up its field visits to municipalities and adopted a more proactive approach to technical assistance for municipalities via phone calls or visits by municipal staff to the MDLF offices\. In addition, municipalities, on the advice of the MDLF, held participation workshops at differing times to increase participation, especially of women\. Training was also provided to municipalities on gender aspects and MDLF as well as the LTCs followed up on cases where women and youth were not represented in the SDIP process\. In the second round, the MDLF received 221 sub- project applications, of which only 35 were rejected\. 32\. In Cycle 1 the MDLF approved 120 applications for municipal capacity building (75 for Financial Policies and Procedure Manuals (FPPM), 41 for SDIP, 4 for Fixed Assets Registration and Valuation (FARV))\. Each municipality could only receive one package, to avoid overloading municipalities with implementation of several new processes and concurrent changes in the administrations\. In addition, targeted budget preparation support was provided to 26 municipalities ranked in the lowest ranking category “E” to help them to graduate up the rankings\. The capacity building packages for municipalities under Window 3 initially ran behind schedule, in part because municipalities had difficulty correctly completing the application forms but the MDLF held targeted orientation sessions to municipalities on how to complete application forms for capacity building packages and by June 2010, 120 municipalities had been selected for capacity building support\. 33\. During 2010, the project provided procurement training to the MDLF procurement agents and technical staff and to municipalities in both the West Bank and the Gaza Strip\. The project also implemented regular municipal learning days, which contributed to enhancing coherence, coordination, and synergy among municipalities, especially in Gaza\. By October 2010, the MDLF had hired additional staff which largely helped overcome the constraints, although the procurement for capacity building packages had experienced significant delays compared to the timeline, due to the high volume of work\. By the Mid-Term Review (MTR) an additional Community-Based Planner was hired to the MDLF in Gaza\. Project implementation delay in Gaza was also reduced by the increasingly effective support of the LTCs and through intensive follow up by the MDLF team, and weekly audio conferences between the two MDLF offices in Ramallah (West Bank) and Gaza\. Mid-Term Review 34\. The MTR took place in May 2011\. The World Bank was part of a group of FPs (with Denmark and KFW) that carried out a technical and environmental assessment of 20 sub- projects in 10 municipalities, including in Gaza\. The MTR was also used to follow up on pending issues, such as the delay of the OSS activity\. The OSS pilot had experienced some 9 delay resulting from difficulties in finding a qualified consultant in Gaza\. Once the consultant was recruited, he proved very useful, and the presence of an MDLF staff in Gaza well-versed in IT also meant the pilot could be concluded successfully\. The assessment of existing OSS in the West Bank was carried out during the first half of 2011, with a program for roll-out under MDP-I Cycle 2 developed by the MDLF in February 2011\. Before the MTR, the energy efficiency pilot was already well under way with energy audits carried out in targeted municipalities and equipment procured and installed\. 35\. According to the project design presented in the PAD, Gaza recurrent expenditure financing would be revised when the conditions allowed\. However, the project was marked by difficult circumstances in Gaza throughout, and so it was decided to maintain the possibility to finance recurrent expenditure in Gaza, up to a maximum of 20 percent of allocations\. The MTR was used to review and agree on the plan formulated by the MDLF on how the amalgamated municipalities would be assisted to enable them to receive funding under Cycle 2\. 36\. The MTR was also the opportunity for the Belgian Technical Cooperation (BTC) to formally engage with the project\. By the MTR, the approximate commitment amounts for Cycle 2 amounts were known for AFD (EUR 5M), the World Bank and KFW (who would examine possibility for AF), and Sweden (US$5M)\. The Bank followed up pro-actively on this, as recorded in aide-memoires and Implementation Status and Results Reports (ISRs) and was supporting the MDLF starting in December 2010 to make sure contributions were known before Cycle 2 was foreseen to start in June 2011\. The financing of all FPs was eventually confirmed by October 25, 2011 during a joint FP mission\. Cycle 2 37\. Cycle 2 should have started in June 2011, but was delayed until the end of October of the same year due to municipal elections, to allow the new councils to be in place before implementing capacity building packages and assure ownership of the process\. In Cycle 2 the MDLF approved applications from 98 municipalities for capacity building (21 for FPPM, 49 for SDIP, 52 for SDIP update, 28 for FARV)\. In the second cycle, municipalities could benefit from several packages if they had proven capable of improving performance during Cycle 1\. The MDLF provided training to newly elected mayors and council members on the legal framework, management and administrative issues, financial issues, technical issues and gender issues\. To improve sub-project preparation process and quality, the Terms of Reference (TOR) for LTCs were improved to specifically include support to this process\. The TOR were also updated to strengthen environmental monitoring\. 38\. Additional Financing from the TFGWB was requested by the PA and approved by the World Bank on March 6, 2012 to scale up the project, which was performing well with PDO indicators exceeding their targets\. On January 27, 2013, the PA requested extension of the project closing date from April 30 to August 31 in order to accommodate a delayed start to several capacity building packages due to the elections, and some anticipated delays in a few civil works packages, especially in Gaza due to the November 2012 hostilities, which involved incursion by the Israeli Defense Force\. 10 39\. At project closing, almost all activities have been completed\. No municipalities received support to implement IFMIS, as the piloting under the LGCBP took longer than expected and no municipality was ready to graduate to “A” ranking, for which IFMIS is a condition\. Also, the PA counterpart funding for 10 approved sub-projects was pending; these sub-projects have not been implemented\. 2\.3 Monitoring and Evaluation Design, Implementation and Utilization Design 40\. The project had a well-defined hierarchy of objectives and the PDO of MDP-I was adequately focusing on improvements in management practices and transparency, with two PDO indicators in place to measure this\. Baselines were in place for all indicators\. The results hierarchy was further very well defined, with clearly articulated links to higher-level sector goals in the PAD\. Since the implementation of a performance-based grant for municipalities was new in the WBG, the PDO indicator targets were set modestly and following discussions and agreement between all FPs\. There were no targets for sub-project outputs at appraisal due to the demand-driven nature of the investments, but the MDLF designed a database to keep track of expected outputs based on data from sub-project screening templates\. Implementation 41\. During implementation, reporting on progress by the MDLF was generally timely and precise, which was made possible by the Project Grant Management Information System (PGMIS) in place in the MDLF and the results database\. Indicators were updated in ISRs when information was available\. Updated implementation plans were provided quarterly with the Interim Financial Reports (IFRs)\. The MDLF provided (and continues to provide) semi- annual progress reports to all its donors covering all financing managed by the agency\. No separate reporting was prepared for individual FPs, which facilitated information sharing and sector coordination\. Additional independent surveys were carried out to rank the municipalities at the end of each cycle of Window 1\. Bank ISRs were filed regularly and gave accounted well for project progress\. Utilization 42\. Each semi-annual joint donor mission would include detailed review of progress, including per Window 1 sub-project, which was always preceded by a detailed presentation of progress by the MDLF, drawing on the MDLF M&E database and PGMIS, which assured that updated and accurate information was available\. The availability of data made it possible to solve problems as they arose, including minor technical problems for sub-projects\. After Cycle 1 the ranking survey determined the performance-part of the grant for Cycle 2 and was used to adjust the support given to municipalities, to help the maximum number of municipalities move up the rankings\. The ranking exercise after Cycle 2 served to evaluate the achievement of PDO at the end of the MDP-I but was expanded to also serve as baseline for MDP-II, incorporating additional criteria developed for the follow-on operation\. The beneficiary satisfaction survey also served to improve the ranking mechanism for MDP-II by adding specific indicators on quality and coverage of services\. The database analysis on service provision in municipalities, carried out for the project by the Palestinian Central Bureau of Statistics (see section 3\.2) has also contributed to improving data availability for sector monitoring, which is otherwise quite scarce\. 11 43\. When the AF was appraised for approval by the World Bank (approved in March 2012), the project was overachieving on the two PDO indicators\. PDO indicator 1 had already reached 68 percent against the target of 25 percent while PDO indicator 2 had achieved 68 percent for the target of 50 percent\. During negotiations with the MDLF it was agreed to adjust the targets upwards, to 30 percent for PDO indicator 1 and 60 percent for PDO indicator 2\. From the Bank’s point of view this was a too low an increase compared to the results already achieved, especially for PDO indicator 1\. However, understandably the other FPs did not consider it necessary to adjust targets since their bilateral engagements were based on the original targets; also the AF brought by the Bank was only US$2 million out of the total MDP-I funding of about US$75 million\. Since preserving unity in the donor group was found to be important, it was therefore agreed during negotiations for the AF to make only minor adjustments\. Unfortunately even these adjustments were not reflected in revised targets in ISRs, which they should have been\. Also, the target for the indicator on total number of beneficiaries, which was added at the time of restructuring, should have been set more realistically and entered correctly (480,000 instead of 4\.8 million in the ISR, while the project had already achieved 2\.1 million beneficiaries)\. 2\.4 Safeguard and Fiduciary Compliance 44\. There was only one project OM for the MDP-I, which followed World Bank procedures and was used by the MDLF and all FPs\. This meant that the MDLF did not have to deal with a different set of procedures for each FP\. However, in terms of Operational Policy/Bank Procedure (OP/BP) 14\.20 on Cofinancing, financing was parallel; each FP signed separate financing agreements directly with the PA 4, funds were channeled through separate project accounts, and funds were disbursed against discrete expenditure items\. For Window 1, the municipal allocations and sub-projects were determined first and then the MDLF attributed each sub-project to a specific donor’s funds\. That way, each activity financed by the MDP-I was always attributed to a specific source of funding, with the fiduciary responsibility placed with the donor financing the activity\. Safeguards compliance 5 45\. Supervision of compliance for all MDP-I funding was part of each mission\. Further to the description below, cofinancing donors confirmed that no other significant safeguards issues came to their attention\. World Bank safeguards procedures were complied with for the MDP-I\. 46\. Environmental safeguards\. MDP-I was classified as a category "B" project and triggered OP/BP 4\.01 on Environmental Assessment\. An Environmental Management Framework (EMF) was prepared and disclosed before project appraisal and was used by the MDLF during implementation to screen sub-projects proposed by municipalities\. Sub-project 4 The exception being the MDTF, receiving funds from Denmark and Sweden and managed by the World Bank, which signed the financing agreement with the PA\. 5 OP 4\.09 (Pest Management) was triggered at appraisal in anticipation that some municipalities might request procurement of pest management substances and/or equipment, which was part of eligible expenditures\. Procedures were developed in the EMP to treat these cases\. However, during implementation, no sub-projects were implemented that necessitated application of OP4\.09\. 12 specific EMPs were prepared and included as part of the bidding documents\. Implementation of environmental mitigation measures was initially underfunded, which was highlighted by the World Bank during supervision missions and was corrected\. During implementation of sub-projects, the MDLF, and municipal engineers, and LTCs closely monitored the contractors' implementation of the environmental and safety provisions of the EMP\. Overall, environmental safeguards compliance during project implementation is rated "satisfactory"\. 47\. Social safeguards\. The Bank’s Policy on Involuntary Land Acquisition and Resettlement (OP 4\.12) did not apply to the MDP1 since all sub-project level works were carried out on state lands, therefore not affecting private lands nor livelihoods (either permanently or temporarily)\. The project included a clear negative list as part of the OM, which clarified to the project proponents the mechanism by which to ensure that all sub project level activities would be carried out on state lands\. During the initial phase of MDPI, weaknesses in counterpart and municipality capacity to identify and manage social risks were evident especially in areas such as understanding some of the basic principles/tenets of the Bank’s safeguards policies and broader social development issues\. Some of the key gaps in understanding included the value of, and protocol for developing complaints handling processes; how voluntary land donation processes should be carried out, including on the documentation for ensuring no coercion is involved; and also the challenges (especially for the municipalities) associated with effectively carrying out screening at the sub project level\. To address this, several formal and informal capacity building sessions related to the above and broader social risk topics were carried out by the Bank starting in December 2012 and throughout the remainder of the project life cycle\. Increased client awareness was noted over time (i\.e\., client halted the Wadi Salqa sub-project contract due to contested land ownership as a direct result of the trainings)\. The client also undertook the initiative to design and pilot a grievance redress mechanism in three Gaza municipalities which will be fully rolled out in MDP2\. The mechanism includes contacts for complaints, advertisement of the mechanism, a log to track complaints, defined the response time, etc\. For the remaining municipalities, LTCs monitored complaints through weekly reports\. The overall Social Safeguards rating is Satisfactory\. Fiduciary compliance 48\. Financial management: All financial management was handled by the MDLF\. Quarterly and annual financial reporting was done by the MDLF to each FP in collective reports with separate sections on each FP’s funds\. External audits were carried out jointly on all project accounts by the same auditor\. Financial management has been steadily rated as "Satisfactory" since Board approval, except for periodically in 2011 due to problems providing accurate disbursement projections and delays with providing an internal audit strategy to FPs\. 49\. The external auditor has always issued unqualified “clean” audit opinion on the annual audited financial statements for the MDP-I and for the consolidated financial statements of the MDLF\. IFRs have been audited by an independent external auditor, which has always issued unqualified “clean” audit opinions on the MDLF’s compliance, except for one IFR for the first quarter of 2011\. The qualified opinion concerned compliance with the grant agreement, since the MDLF did not submit the cumulative annual report for the preceding calendar year 13 (i\.e\. 2010) to the FPs within the required 60 days period\. No accountability issues or issues of fraud or corruption were raised\. World Bank financial management procedures were complied with for all FP’s funds\. 50\. Procurement: Each donor was responsible for conducting pre- and post-reviews as applicable for the contracts they financed\. Procurement activities at the central level under Windows 2, 3 and 4 were directly carried out by the MDLF, while all procurement under demand-driven sub-projects (Window 1 and part of Window 2) were implemented by municipalities with the assistance and oversight of the MDLF or/and LTCs\. This built on previous projects having successfully piloted procurement by municipalities under the supervision of the MDLF\. 51\. Project implementation initially experienced delays attributable to the lack of procurement staff\. For this reason procurement was rated unsatisfactory in the second ISR (June 2010)\. Under Cycle 1, the lack of adequate participation to tenders was noted for consultants’ services assignments under Window 3\. The Bank advised the MDLF to consider repackaging of the capacity building assignments into larger contracts including multiple clusters of municipalities to increase competition\. Also, delays in implementation of works packages occurred due to the scheduling of the works packages under the municipal grants\. The Bank advised the MDLF to consider repackaging of similar works within each municipality and to publish tenders more continuously to avoid problems with contractors’ implementation capacity\. 52\. Throughout project implementation, the procurement capacity of the MDLF, LTCs, and the municipalities has improved\. The MDLF established an effective system to monitor all procurement aspects of Window 1 sub-projects\. As a result, procurement performance under MDP improved; its rating was upgraded, as of September 2011 to satisfactory and remained so until the closing of the project\. Procurement compliance was regularly monitored during the project, including through 4 post-reviews of Bank-financed activities; no major noncompliance was noted\. Bank procurement procedures were complied with for all contracts financed by the World Bank\. Other donors conducted regular procurement reviews on the contracts they financed\. Cofinancing donors confirmed that no other procurement compliance issues came to their attention\. World Bank procurement procedures were complied with for the MDP-I\. 2\.5 Post-completion Operation/Next Phase 53\. The reforms to municipal management supported by the MDP-I continue to receive strong PA and FP support (including continued funding) under the MDP-II\. On May 23, 2013 the World Bank approved US$10 million from the TFGWB for the MDP-II (out of foreseen total donor funding of US$75 million)\. Starting in 2013, the MOLG has a budget line for MDP activities, with NIS 20 million (US$5\.5 million) allocated plus a commitment to provide an additional NIS 10 million (US$2\.8 million) as counterpart funding\. New donors have joined the MDP-II, namely the EU, the Netherlands (through the International Cooperation Agency of the Association of Netherland Municipalities), and Switzerland (through SDC, the Swiss Agency for Development and Cooperation)\. 14 54\. Building on the substantial municipal performance improvements under MDP-I, MDP-II will place more emphasis on supporting and monitoring progress on service delivery, in line with the initial concept for the incremental two-phase MDP\. While the MDP-I performance ranking mechanism included indicators covering key interventions related to tools, the performance ranking mechanism has been upgraded for MDP-II to also incorporate measures of quality and coverage of services\. 55\. Some ISRs during Cycle 1 mentioned that sub-project quality appeared to be mixed in terms of preparation of grant applications, supporting documents, design, and construction\. This was especially the case in Gaza\. However, this was corrected during implementation and transition arrangement to post-completion operation of sub-projects financed by the MDP-I is assured as verified by the technical audit and usability assessment, which confirms that 97 percent of sub-projects are operational\. This corroborates the impression of FPs from numerous site visits during missions\. Starting in MDP-I Cycle 2, sub-projects were also accompanied by an O&M plan, giving good reassurance that sub-projects will continue to be operational\. 56\. Overall, the MDP-II continues where the MDP-I left off, with investment funding for sub-projects as a performance incentive and continued support to the municipalities to improve performance and move up the rankings\. Under MDP-II, the percentage allocated to the performance criteria in the transfer formula has been substantially increased to further capitalize on this successful incentive program\. MDP-II is also paying particular attention to O&M issues and will start rolling out specific O&M capacity building packages\. Implementation of these will be requirements for most municipalities to continue to graduate up the rankings\. The inclusion of O&M in economic and financial screening of sub-projects also provides some measure of certainty that these costs will be covered, in spite of municipal budgets generally being limited\. MDP-II also re-introduces the IFMIS capacity building package to assure that the best performing municipalities will be able to graduate to performance ranking “A”\. Finally, although municipalities now have much better capacity to regularly update their FARV and SDIP, some of the main tools of municipal management, some will continue to need support going forward; this is provided by the MDP-II\. Finally, the MDP-II continues to support amalgamated municipalities – the current amalgamation process has resulted in the formation of eight new municipalities\. 57\. Regarding the two pilots supported under Window 2, they both had satisfactory outcomes (presented in section 3\.2)\. The OSSs are being rolled out under the MDP-II (as “e- governance”), with funds allocated for 10-12 municipalities; this will contribute to improving the transparency and quality of interaction between citizens and the municipalities\. There is now a municipal learning network on OSS (through the Association of Palestinian Local Authorities)\. The energy efficiency pilot had high economic rates of return, with a simple pay-back period of just over two years, and will also see continued roll-out under MDP-II (mainstreamed into Window 1), based on a procurement manual developed with ESMAP financing\. New pilots supported under the MDP-II include activities in renewable energy (with a focus on solar energy for public buildings) and support to local economic development pilots selected through a call for proposals from municipalities\. 15 58\. A hindrance to continued improvements to the MDLF operation is the pending approval of the MDLF law to confirm its role as the main channel for development funds and technical assistance to the Local Government Units (LGUs) for the PA through which additional PA funds could be transferred to LGUs\. This is paramount for the MDLF to move from a “project entity” to a national “spending center”\. A study is ongoing on how to implement the lending part of the MDLF (AFD funded)\. The draft was not yet available at the time of finalizing this ICR\. Other studies (World Bank funding) are being carried out on municipal revenue generation and on municipalities and social accountability and will inform MDP-II as they become available\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Relevance of Objectives: High Relevance of Design and Implementation: Substantial 59\. The relevance of the MDP objectives remains high\. The PA has made commitments to increase funding to the MDP through the MDLF (although a very tight fiscal situation makes it difficult to fulfill its obligations on time) and more donors are coming on board for the MDP-II, since their financing objectives are aligned\. The MDP fully supports the PNDP (2011-2013), which builds upon the PRDP local government goals by emphasizing the acceleration of fiscal decentralization and the promotion of community participation in local government\. 60\. The project's relevance to the World Bank Group's Interim Strategy Note (FY2012- 2014) falls within Pillar 1: "to strengthen the institutions of a future state to efficiently manage public finances and ensure services to citizens\." In particular, the project supports Outcome 1\.2: "Reinforced Public Administration targets LGUs’ management capacity as an area of engagement", and Outcome 1\.3: "Service delivery more responsive to users' needs further reinforces the link between improved service delivery, accountability, and demand for good governance\." It does so by improving municipal performance through the implementation of a performance based grant and municipal capacity building packages focused on municipal finance, social accountability, and community based strategic planning\. Finally, MDP-financed capital infrastructure investments also support Pillar 2 by "\.Supporting the creation of an enabling environment for private sector led growth\." The project is also aligned with The Bank’s Middle East and North Africa Region’s strategic priorities and contributes to its strategic pillars of Inclusion, Growth, and Governance\. 61\. The World Bank 2009 Urban and Local Government Strategy (Systems of Cities) has at its center a focus on the core elements of the city system\. The MDP is fully aligned with the objective of assisting cities and LGs in planning and financing service delivery, strengthening urban governance, and making city management more effective\. This is done by making sure that provision of training and capacity building includes reforms that change the “rules of the game,” using incentives and rule-based policy frameworks\. The MDP is further cutting-edge in benchmarking performance through data collection and dissemination\. 16 62\. The relevance of implementation and design is substantial\. The project was designed to achieve the development objective, with the sub-projects providing the right incentives (along with the municipalities’ inherent will to improve services) for the municipalities to move up the rankings, combined with adequate support from LTCs and with access to a menu of capacity-building activities\. The hierarchy of objectives in the overall MDP was further relevant, with the MDP-I designed to facilitate improved municipal management, setting the scene for more focus on improved service delivery under MDP-II\. 63\. The project design and implementation had minor shortcomings, the noteworthy ones of which related to: (a) a slightly optimistic implementation schedule for Cycle 1, as presented in section 2\.2; (b) target setting and revision for PDO indicators; and (c) provision of counterpart funding\. Regarding point (b), the initial targets were quite low, which was reasonable given that this was the first operation introducing performance-based investments in the WBG\. However, by Bank standards and in a typical operation with the Bank as the only donor, the targets should have seen more substantial increases in connection with the AF, particularly given that the original targets had been over-achieved already at the time of AF approval\. However, MDP-I was a multi-donor operation and FPs were bound by their own legal documents that would not be revised\. During negotiations for the Bank financed AF, the discussion of revised targets for PDO indicators resulted in a compromise between the Bank’s wish for more substantial increases of indicator targets, and the other FPs wish to maintain the original targets\. As to point (c), the PA did not provide the full counterpart contribution, which led to the project closing with 10 sub-projects (out of 522 total) not being implemented\. 3\.2 Achievement of Project Development Objectives Achievement of PDO: Substantial 64\. The objective “to improve municipal management practices for better transparency” was fully achieved as measured through the PDO indicators and as demonstrated by the supporting evidence presented below\. The project further contributed to progress towards overall medium-term (program-level) and longer-term (sector level) goals\. This result was possible by building on a long history of engagement in the LG sector in the WBG by the World Bank and other FPs\. The MDP-I was truly a joint effort, but nonetheless, for accountability reasons, we will return to the question of attribution of results to individual FPs and the PA institutions after the discussion of overall outcomes\. Project-level (short term goals) 6 65\. The two PDO indicators related to graduation in performance ranking and use of public disclosure methods\. The project as a whole was designed to achieve the results presented below, with investments under Window 1 serving as incentives for the 6 The project was restructured in March 2012 and the PDO indicator targets were amended\. Therefore, according to the harmonized criteria for rating restructured projects, the rating of PDO should be based on a split evaluation of the project against the PDO indicators and targets before and after restructuring\. However, in each case, the targets were surpassed and the split evaluation is implied and not explicitly presented in this section\. At that time of restructuring US$21\.58 million of the total Bank-administered funds of US$37\.69 million were disbursed, corresponding to 57 percent of final disbursements\. 17 municipalities to improve performance and the accompanying measures under Windows 3 and 4 making the performance improvements possible\. In this connection, Window 2 (supporting amalgamation, OSS, and energy efficiency) contributed to laying the groundwork for continued improvements to municipal transparency and responsiveness to citizen needs under MDP-II\. The management tools set in place in the municipalities and the improved performance has laid the ground for the MDP-II to focus more on the delivery of services and measuring the impact of these efforts\. PDO 1 – Improved municipal management practices: Substantial 66\. For Cycle 1, 68 percent of municipalities graduated up the rankings against a target of 15 percent at MTR\. The final result was 96 percent of municipalities moving up the rankings, which is a highly satisfactory result, even though the revised target should have been set higher than 30 percent at the time of restructuring, based on the already good track record\. The result was achieved by targeting capacity-building packages to the specific needs of each municipality to graduate to the next ranking level\. For example, in Cycle 1 the capacity- building package most in demand was training on the FPPM (75 packages), which moved a number of municipalities up to rank C\. In Cycle 2, many municipalities needed to prepare or update their SDIP (as basis for investment planning and sub-project selection, 101 packages total), but a number of municipalities were also ready to implement FARV (28 packages)\. Even municipalities that did not receive a specific capacity-building package often made an effort to respect the related criteria, such as maintaining budget discipline to turn an operational account surplus and set in place a maintenance plan\. Also, some municipalities were already been respecting all but one of the performance indicators for a specific ranking, meaning that by additional effort on just one indicator, they could move up the rankings\. 67\. The table below provides the details of ranking evolution compared to the baseline\. The average ranking on the baseline performance assessment was 4\.1 at appraisal (with 1 being the best possible ranking, 6 the lowest); this had improved to 3\.1 by the end of Cycle 1 and continued to improve to 2\.6 by the end of Cycle 2\. This continued improvement through Cycle 2 and after the restructuring in March 2012, with net graduation (of one or more ranks) of almost all municipalities fully warrants rating achievement of PDO indicator 1 as substantial, irrespective of the rather low level of adjustment of the indicator target during restructuring\. Table 2: Performance criteria and initial rankings\. Rank Indicators of Performance Number of municipalities Baseline After After Cycle 1 Cycle 2 1-A 1\. Current account surplus (for 2 consecutive years) 0 0 0 2\. Unqualified external audit 3\. Integrated financial management system 2-B 4\. Operational account surplus 0 11 56 5\. Fixed assets register 6\. Maintenance plan in place 3-C 7\. Municipal development/investment plan 16 114 75 8\. Financial accounting policies & procedures in place 9\. External audit 18 4-D 10\. Capital budget (approved and executed, properly 90 0 1 submitted to the MOLG) 5-E 11\. Recurrent budget (approved and properly submitted 26 9 2 to the MOLG) 6-F 12\. No budgetary information 0 0 1 68\. As can be seen from the detailed breakdown of ranking changes below, several municipalities graduated up more than one ranking category, due to a combination of capacity-building packages provided by the MDP and the municipalities’ own efforts to improve performance: • Graduated E-B: 8 municipalities\. • Graduated D-C: 58 municipalities\. • Graduated D-B: 32 municipalities\. • Graduated C-B: 14 municipalities\. • No change: 4 municipalities (2 in C and 2 in E)\. • Two newly amalgamated municipalities ranked B\. • One newly established municipality (included in the right column in the table above)\. • Demoted E-F: 1 municipality\. 69\. The changes from the baseline ranking in 2009 (based on data for 2007) to the second ranking exercise at the end of Cycle 2 in fact support a highly positive evaluation of improved municipal management practices\. At the outset, 26 municipalities were only able to do the very least in terms of adopting a recurrent budget, but were not even doing planning of capital investments\. At the end of the MDP-I this had been reduced to 2 municipalities\. For the baseline survey most municipalities were ranked D, with their only municipal management tools in place being the budget\. At the end of MDP-I, most municipalities are ranked C or B meaning that they now as a minimum carry out municipal development/investment planning, have in place adequate financial accounting policies and procedures and are being subjected to external audits\. On top of this, many municipalities are also demonstrating good use of these tools by turning an operational account surplus, maintaining a fixed assets register, and linking this to a maintenance plan\. It should also be noted that one municipality moved backwards from E to F, which was due to internal municipal problems\. 70\. The majority of the Window 3 allocation (73 percent) was used for strategic planning and benefited all municipalities, either to develop or upgrade SDIPs\. The next phase for SDIPs is to improve realism and link them closer to budgets and to increase efforts to mobilize own resources, and to make the planning function operate more constantly, beyond the preparation of SDIPs\. At the end of 2013, all municipalities in the WBG have updated SDIPs in place\. Support to SDIPs improved participation considerably, in particular through the inclusion of women and youth in the process of prioritization\. The MDLF considers that sub-projects selected from SDIPs generally had higher quality and more representative participation than other sub-projects based on a less structured consultative process\. The national working group of the SDIP (which includes the MOLG, the MDLF, and GIZ) has launched a knowledge center for learning and exchange among municipalities on SDIP\. 19 71\. Packages on improving financial management made up 23 percent of the allocation and included support and training for FARV, development and coaching on the FPPM, development and implementation of budget preparation guideline, and promotion of external audits\. Most municipalities received support on FPPM (96 municipalities) and FARV (32 municipalities), while all municipalities attended orientation workshops on budget preparation guidelines and external audits\. Finally, only 4 percent of the allocation went to planning for O&M which included an initial assessment of current practices and developing guidelines to operationalize the O&M package for roads and public facilities\. The details on per-cycle capacity building packages are presented in Annex 2\. 72\. The TOR for external audit of municipalities were elaborated by the MDLF and published, so that municipalities could recruit auditors themselves\. As a result, 64 municipalities have done so, marking a very substantial progress in financial management from the baseline where only 31 municipalities had been subjected to external audits, but this mostly only included financial statements and not compliance with MOLG norms\. The availability of the TOR now permits the MOLG to determine which municipalities that have in fact had a qualifying external audit\. 73\. The LTCs in both Gaza and West Bank provided valuable support to the MDLF technical department and municipalities\. This support included capacity building of the MDLF technical team, which showed significant improvement on (a) safeguards monitoring and implementation, (b) quality control of the bidding documents and technical designs\. Municipalities also benefited from the LTCs and showed parallel improvements in the preparation of the bidding documents, technical designs and specification, supervision of contractors during projects implementation, and their filing/archiving systems for the projects\. 74\. It was foreseen that the MDP-I could support the roll-out of IFMIS to 20 municipalities that were not already covered under the LGCBP\. However, delays with implementing the IFMIS due to technical problems meant that the MDP-I opted not to implement the IFMIS\. This did not affect the municipal rankings, as IFMIS is required to graduate to ranking “A”, which no municipality was ready to do during MDP-I\. 75\. All intermediate outcome indicators were achieved\. The Window 2 support to municipal innovations and efficiency promoted amalgamation, energy savings, and responsiveness to citizens\. The MDP-I supported 8 amalgamated municipalities through an allocation of EUR 608,185; the projects ranged from maintenance of schools, construction of health centers to road safety\. The projects implemented under Window 2 to support amalgamated municipalities reduced the most pressing needs raised from amalgamation process and improved citizen satisfaction with the performance of the merged municipalities\. Finally, these projects helped reduce the service gaps between the municipalities\. Pre- amalgamation activities were already supported by separate projects (the first and second Local Development Projects) funded by BTC and Denmark\. 76\. The outcome of the energy efficiency pilot was satisfactory and activities will be scaled-up under MDP-II\. Under the energy efficiency pilot, innovative approaches to reduce operating costs (for street lighting, public buildings, and water and sewage pumps) were 20 piloted in 4 municipalities\. The results of the pilots are encouraging with total cost savings of US$481,213, savings of 3,046,470 KWh of electricity over the three year period and an expected simple payback period of just over two years\. Scaling up the good results will lead to better services through e\.g\. better street lighting, while freeing up municipal resources due to cost savings\. A manual to operationalize the results has been completed with a grant from ESMAP and will be used in MDP-II under the capital investment component\. Workshops were conducted to familiarize the municipalities with use of the manual\. PDO 2 – Better transparency: Substantial 77\. As to the use of public disclosure methods, 68 percent of municipalities used at least two of the specified methods, against a target of 60 percent\. The vast majority of municipalities (119) publically disclosed their SDIP, while 41 out of 61 municipalities subjected to external audits disclosed these\. There were also 75 of all municipalities that disclosed their budgets, whereas 89 out of 135 disclosed their performance ranking\. These are quite satisfactory numbers, given the historic lack of outreach by municipal administrations in the WBG, which the MDP is contributing to changing\. The citizen satisfaction survey presented in section 3\.5 below and detailed in Annex 5 demonstrates upwards tendencies in the citizens’ evaluation of municipalities on parameters of interaction, awareness, public participation, and transparency between 2009 and 2012 (see the numbers in section 3\.5)\. The increase in satisfaction with municipal transparency from 34\.8 to 36\.6 percent was however quite limited given the effort by municipalities to publically disclose different types of documents\. The MDP-II is continuing to support transparency initiatives, including better definition of what documents to disclose and how\. 78\. The OSS pilot under Window 2 was designed to increase transparency and supported the establishment of OSSs in 3 municipalities in Gaza\. These OSS will allow the citizens to have a single point of entry to the municipality, no matter what type of problem or grievance\. Apart from this allowing municipalities to deliver better services and keep track of requests from citizens and responses to these, the OSS also improve municipal transparency by making it clear how the citizens’ requests or inquiries are being processed\. Although technical difficulties remain (notably weak IT skills, software maintenance, and frequent power cuts in Gaza OSS will be rolled out under MDP-II\. Program-level (medium-term goals) 79\. The MDP-I contributed to significant progress towards the sector-related objectives in the PAD, which are taken from the PRDP: (a) PRDP Objective 1: Bringing Government closer to the people by ensuring that local government is both empowered and accountable\. The LGs are becoming more empowered to manage resources and development process, as described in this section\. The accountability aspect is being supported by the MDP’s contribution to publishing municipal planning and budgeting information\. (b) PRDP Objective 2: Strengthening local government, enhancing efficiency and effectiveness of local government, and moving local governments towards fiscal stability\. Fiscal stability is predicated upon raising income and having adequate management tools in place to plan and execute development programs in relation to 21  the available resources including O&M\. The MDP-I made significant progress on the tools part\. (c) PRDP Objective 3: Harmonized donor approach to local government assistance\. The MDP-I (followed by the ongoing MDP-II) marks a significant stride towards increased donor harmonization, and laid the groundwork for increasing the number of donors coming on board for MDP-II\. 80\. The project further contributed to significant progress towards the program-related objectives in the PAD: (a) Program-Level Indicator 1: At the end of each program phase, municipalities are rated satisfactorily on the quality and coverage of service delivery by citizens, through citizen satisfaction surveys\. Although no specific target was set, the beneficiary satisfaction surveys carried out for the MDP-I clearly indicate improvements in citizen satisfaction with municipal services, from 50 percent to 57 percent in areas benefiting from MDP-I sub-projects\. In non-MDP areas, the satisfaction was 45 percent\. (b) Program-Level Indicator 2: Percentage of coverage of municipal services (households, neighborhoods) through MDP-financed investments as shown in the MDLF municipal infrastructure database\. A post survey of the municipal infrastructure database was conducted by the Palestinian Central Bureau of Statistics\. The improvements and the part attributable MDP-I is presented in Table 2 below\. The MDP-I contribution is 14\.7 percent (overall), (10\.3 percent WB), (34 percent Gaza) of the total invested amounts in municipalities over the 2010-2012 period\. Table 3: MDP-I contribution to improved municipal services\. Indicator 2009 2012 Difference MDP-I MDP-I baseline contribution contribution Number of municipalities with 78 mun\. 58 mun\. 20 mun\. 5 mun\. 25% outdated water network Length of water networks need 1,753 km 1,698 km 55 km 6\.5 km 12% rehabilitation/maintenance Length of existing wastewater 2,176 km 2,695 km 519 km 21 km 4% networks in municipalities in Palestine Length of paved roads in good 3,289 km 3,823 km 534 km 162 km 30% condition in municipalities in Palestine Number of lighting units in 112,433 units 168,844 units 56,411 units 2,049 units 4% municipalities in Palestine Source: Palestinian Central Bureau of Statistics report submitted to the MDLF in March 2013\. 81\. The survey was carried out while the MDP-I was still in progress and does not capture results of the sub-projects that were completed during 2013\. The survey does serve to demonstrate that the MDP-I contributions to improved municipal service delivery were substantial\. The results are especially striking for roads, which account for 72 percent of Window 1 funds\. With the final result for roads at the end of the project (310 kilometers financed by the MDP-I) the contribution would be around 45 percent of the difference\. 22 Sector-level goal (long term) 82\. Municipalities are slowly making progress towards creditworthiness\. Only municipalities ranked “A” are considered sufficiently financially sustainable to be creditworthy, and the MDP-II aims to have at least 5 creditworthy municipalities by the end of the MDP-II, which is an objective of the PA\. The Lending part of the MDLF is currently being investigated under French funding, which will help clarify the mandate of the MDLF going forward\. Outcome of sub-projects 83\. Window 1 consisted of capital investment grants based on a formula that included performance, needs, and population criteria\. By the end of the project, 522 sub-projects were implemented from an allocation of US$64\.7 million across the municipalities in the WBG\. The (GAM) is available as a tool with transparent graduation criteria\. Access to investments through sub-projects was designed to incentivize municipalities to perform better\. As described above, this approach fully succeeded, with substantial improvements to municipal administration, and with the MDP also making substantial contributions to overall improvements in municipal services\. The distributional and qualitative aspects of these improvements are analyzed below\. 84\. As a result of cycles 1 and 2, roads were the most requested sub-projects, constituting 57 percent of the number of sub-projects implemented for a total of US$49\.0 million; the second most requested type of sub-project was public facilities, which accounted for 11 percent of the number of sub-projects at a cost of US$7\.6 million\. The remaining allocation went to wastewater, water, solid waste, electricity and other projects\. 85\. The MDLF carried out a survey of the reasons for the large investments in roads and it was found that this was due to a combination of factors\. First of all, roads are one of the main services provided by municipalities, and figure prominently in the SDIPs\. The grant implementation period was also a factor, since roads investments generally have relatively short implementation periods, as was the size of the grants and the ability to scale road investments to fit the grant amount\. Other reasons given were that that needs for investments in other types of infrastructures were to some extent covered by other funding sources (principally other donor funded projects), and that the amounts were not always sufficient to consider other types of sub-projects\. Finally, part of the explanation for the bias towards road investments was that other donors finance investments in education and health, which are also services provided by the municipalities (although the hard financing data is not available to quantify this support)\. 86\. In general, with few exceptions, the bulk provision of water supply and sewage disposal and electricity are managed by utilities on behalf of municipalities\. Consequently, municipalities only extend water and sewerage networks\. In the cases where municipalities provide such services, the amount of MDP-I allocations are not sufficient to cover the financing needs and such allocations can only be used for extensions or repairs to such networks\. It should be noted that larger municipalities have access to more sources of funds, whether internally generated or from the Ministry of Finance and donors, and the MDP allocation is not the main source of financing for them\. 23 87\. As confirmed by site visits and the beneficiary satisfaction survey, the selection of road investments was generally well-founded, with works done to serve areas with schools and/or health facilities, connecting villages within the municipal boundaries, and for improving access to densely populated areas or opening roads to newly developed areas\. 88\. As part of project monitoring, the MDLF kept track of the employment generated under Window 1 during construction\. A total of 246,047 person-days of temporary employment were generated by construction activities (of which 143\.991 in the West Bank and 102,083 in Gaza)\. Attribution of results 89\. The question of attribution of results to the respective contributing FPs and the PA (including the MDLF) cannot be answered definitely\. All donor and PA funds for sub-projects under Window 1 contributed to providing incentives for municipalities to improve performance and move up the rankings, and to increase transparency\. The most objective measure of attribution - weighing results by financial contributions (see Annex 1) - would also be overly simplistic\. In the first place, this would attribute only 7 percent of results to the MDLF (the management fee)\. The MDLF was the implementing agency and primary responsible for getting results on the ground\. Secondly, financing ratios does not capture how the FPs provided specific inputs to the MDP-I and sought to maximize synergies with other related projects in the sector\. Finally, some FPs (the GIZ and Denmark) fund technical assistants for the MOLG, while all FPs had technical specialists based in the field who all contributed to implementation support missions and daily monitoring of progress\. 90\. It can be said that World Bank provided expertise in municipal management and funded key consultants for the background study which fed into the development of the GAM\. The use of Bank procedures was essential to enabling all FPs to co-finance the project using one set of procedures\. The Bank also provided (through ESMAP) a consultant to implement the Window 2 energy efficiency pilot\. As described in section 2\.1, specific donors provided input to other aspects of project preparation and appraisal, and continued to play key roles in these aspects throughout implementation\. Annex 2 provides the detailed activities for Windows 2, 3, and 4, with attribution of financing\. TOR for all consultants’ services were submitted to all FPs for review and clearance\. The FP financing the specific assignment consolidated comments and issued no-objection to the MDLF accordingly\. 3\.3 Efficiency Rating: High 91\. No economic analysis was carried out at appraisal due to the demand-driven nature of the sub-projects, but a detailed economic and financial screening methodology was developed (including economic and financial modeling in Excel) to support dialogue between the MDLF and municipalities on sub-project efficiency\. This was an innovative approach for the type of demand driven sub-projects financed by the MDP-I and contributed strongly to assuring that least-cost options were chosen to meet identified needs and supported equitable sharing of benefits from investments among the populations of each municipality by analyzing Net Cost per Beneficiary (NCB)\. The methodology was based on investment costs, any financial 24  revenues, and operation and maintenance costs over the life cycle of the sub-project\. This introduced an element of sustainability in the analysis, further supporting economic viability through assuring that cost to assure continued flow of benefits was taken into account\. The detailed analysis carried out for the ICR per sub-project category (presented in Annex 3) shows that the methodology developed at appraisal, and as actually implemented, supported high efficiency and equity of investments\. The MDLF further maintained a unit price database, which was updated yearly and used in elaboration and verification of budgets and cost estimates and control of bidding prices\. 92\. For the ICR, ex-post cost-benefit analysis was carried out for the main types of investments under Window 1 (roads and public facilities) and for revenue-generating pilots under Window 2 (energy efficiency)\. The detailed results and assumptions are presented in Annex 3, with an overview given in Table 3 below\. Table 4: Result of economic analysis\. Number Percentage Percentage Cost Ex-post analysis (ERR, Category of sub- of W1 of MDP-I Ex-ante analysis (millions) NPV, other measure) projects costs costs Least cost design based on traffic counting\. ERR: 29\.7% Roads US$45\.8 265 65\.5% 63\.6% Analysis of ratios of NCB per NPV: US$48\.8 M beneficiary\. Analysis of financial potential of buildings, market analysis, Public incorporation of O&M to ERR: 15\.7% US$6\.8 50 10\.0% 9\.4% facilities assure sustainability\. NPV: $2\.5 M Unit-cost considerations\. Least cost analysis based on Maintenance more cost- standard designs\. efficient than reinvesting Wastewater Verification of ability to in new networks\. US$6\.9 63 10\.3% 9\.7% and water cover O&M cost\. Water meters to have FRR of at least 15%\. For equipment: Cost savings Financial resources in part compared to market rates, allocated to maintenance, incorporation of O&M cost\. which is estimated to be For street lighting: Respect of more cost-efficient than Others US$4\.5 105 6\.4% 6\.0% guidelines developed for reinvesting in new energy efficiency\. networks\. Systematically Public parks: Market analysis, competitive bidding and revenues to cover O&M cost, request price quotations, to visitor count\. assure low cost\. Energy Energy audit to evaluate ERR: 22\.8% efficiency US$0\.5 4 mun\. N/A 0\.7% savings potential\. NPV: US$0\.3 M (Window 2) Source: Economic analysis for the ICR – detailed in Annex 3\. 93\. Investments of US$45\.8 million to rehabilitate or construct 310 kilometers of roads were analyzed (out of US$49\.0 million in the roads sub-project category)\. The analysis 25 quantifies benefits from savings in transport time and maintenance cost of vehicles and incorporates cost of maintaining the roads\. The result shows Economic Rate of Return (ERR) of 29\.7 percent, substantially above the opportunity cost of capital (discounting rate of 8 percent, which is conservative, given that the PA can currently lend in the market at about 5 percent), and Net Present Value (NPV) of US$48\.9 million\. Sensitivity analysis shows that with benefits lowered by 25 percent, ERR drops to 20\.2 percent, still well above the opportunity cost of capital\. 94\. In public facilities, US$7\.6 million were invested in 56 sub-projects to construct new buildings, rehabilitate old buildings, and construct public gardens and parks\. The ICR analyzes 50 sub-projects to construct 16,783 square meters of new buildings\. The analysis quantifies benefits from savings in rentals and revenue from renting out space\. The result shows Economic Rate of Return (ERR) of 15\.7 percent, well above the opportunity cost of capital, and NPV of US$2\.5 million\. Sensitivity analysis shows that with benefits lowered by 25 percent, ERR drops to 8\.2 percent, and NPV to US$0\.1 million, only just above the opportunity cost of capital and not as robust a result as for roads given lack of detailed knowledge of effective rental prices and building usage\. 95\. The energy efficiency pilot invested US$533,547 in cost-saving electric installations, based on prior auditing of savings potentials\. At the end of the trial period, measurements were carried out to verify savings\. The results show NPV of US$310,956 and ERR of 22\.8 percent\. The simple pay-back period is low, at only 2\.2 years\. The importance of these results is underlined by considering the impact on the overall fiscal situation of the PA and potential to reduce “net lending” (the term used for deduction in clearance arrears to the PA by the GOI to make up for payment arrears to the Israeli Electric Company by Palestinian municipalities)\. The conclusive results let to the pilot being mainstreamed into Window 1 for MDP-II; a procurement manual is available for the municipalities\. 96\. For other categories of sub-projects, the ex-ante screening was carried out as follows\. (a) Cost savings of equipment was compared to market rates; (b) for street lighting, guidelines were developed for energy efficiency; (c) public parks were subjected to market analysis, revenues to cover O&M cost, and visitor count\. The ex-post analysis shows that financial resources were in part allocated to maintenance, which is estimated to be more cost-efficient than reinvesting in new networks\. Further, it was confirmed that the MDPF systematically applied competitive bidding and requested price quotations, to assure low cost\. 97\. The efficiency of project implementation was acceptable, with a four month extension necessary to finalize all project activities\. An initial delay was due to slow startup of implementation, but the external circumstances towards the end of the project (in particular the hostilities in Gaza) were a contributing factor\. The substantial economic efficiency of project investments by far outweighs these slight implementation delays\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 26 98\. The relevance of objective and design of the project were substantially to highly relevant, with clearly defined activities to meet relevant targets in the results framework\. These results further corresponded to, and continue to correspond to, the development priorities of the PA and the Bank, as well as other FPs\. The project achieved its objectives with only minor shortcomings, and further contributed substantially to furthering medium- term program-level goals as well as long-term sector-level goals, with data available to substantiate the evaluation\. The implemented sub-project screening methodology contributed to developing least-cost solutions and ex-post evaluation of cost-benefits of the main investments demonstrate rates of return substantially above the opportunity cost of capital, even under conservative assumptions\. The information presented in the ICR, including cost- benefit analysis of a substantial part of investments, fully justifies a Satisfactory rating\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 99\. The level of participation of women to the SDIP elaboration process was initially not very high but was improved, e\.g\., by moving meeting times to times where women would be more available (e\.g\. on weekends)\. Inclusion of gender and youth in the investment planning and decision-making process is being strengthened further in the MDP-II (see section 6)\. (b) Institutional Change/Strengthening 100\. The institutional change induced by the project is fully described in the outcome section above\. (c) Other Unintended Outcomes and Impacts (positive or negative) 101\. There were no unintended outcomes of impacts\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 102\. The customer and citizen satisfaction survey was carried out as baseline and repeated again in 2012\. The results of the surveys are for the most part positive and indicate improvements from 2009, as shown in the table below\. There was improvement for three out of six services (water, sewage, and roads) and deterioration for the other three services (electricity, solid waste, and parks)\. Some recurring issues were highlighted (e\.g\. shortage of solid waste containers, water shortage, and electricity cuts in Gaza, prepaid metering, and insufficient spaces for green areas)\. The factors underlying the decreased satisfaction with electricity and space for parks are largely outside the control of the PA\. By comparing the overall satisfaction with services (calculated as a weighted score for all services), which increased in MDP areas (from 50 percent in 2009 to 57 percent in 2012), to the satisfaction in non-MDP areas, at 45 percent in 2012, we can conclude that the upwards tendency in MDP- areas is statistically significant\. 103\. Each of the areas of citizen satisfaction with municipal administration showed improvement over the period, although from a low base in some cases\. It might have been expected that the satisfaction with transparency had increased more, given the effort by municipalities to publish SDIPs, budgets, external audits and rankings; the underlying reason should be examined more\. Detailed analysis of results is presented in Annex 5\. 27  Table 5: Evolution in scores of customer and citizen satisfaction surveys\. 2009 2012 Services Indicators Satisfaction Overall Satisfaction Overall Score score Score score Electricity 65\.1 58\.1 Water 42\.7 54\.8 Sewage 57\.8 68\.4 57\.1 50\.0 (non-MDP Solid Waste 52\.3 50\.6 areas: 45) Roads 49\.7 58\.7 Parks 51\.8 32\.3 Interaction 68\.8 72\.5 Awareness 18\.6 33\.4 --- --- Public Participation 16\.4 23\.2 Transparency 34\.8 36\.6 Source: Surveys financed by the MDP-I\. 4\. Assessment of Risk to Development Outcome Rating: Substantial 104\. The risk to development outcome is rated Substantial\. It is likely that project outputs will continue to provide the achieved benefits in terms of improvements to municipal performance achieved by the MDP-I\. Roll-out will continue mainly under the MDP-II, and expectations of further improvements in the longer term are justified by the PAs strategy for the sector coupled with strong and growing donor engagement\. Even though the overall country context remains fragile and unpredictable, the LG system operates rather independently of the macro-context, as shown by the fact that the MOLG continues to provide oversight to LGUs in Gaza and pay salaries in spite of the political divide between the West Bank and Gaza\. It is unlikely that any future resurgence of violence between Israeli authorities and the PA will pose a significant threat to development outcome, even if individual sub-projects should be damaged under such circumstances\. 105\. The main risk to outcome comes from the lack of an adopted LG sector law, as the PA cannot adopt any laws without a functioning legislative body\. The law has been adopted by the cabinet, but cannot be implemented in the current political environment\. Another risk comes from the execution of non-performance based municipal financing programs, which present a risk to the sector and program level objective of the MDP (although data is not available to evaluate the scale of non-MDP financing to municipalities)\. Other donors provide funding to the PA for municipal investments outside the MDP system\. Throughout the project the FPs have highlighted the importance of maintaining the integrity of the performance- based mechanism and the three key ministries (finance, planning and development, and LGs) confirmed their engagement to not undermining the incentive system\. Some large investments (e\.g\. wastewater treatment plants, landfills) could require investments outside the performance-based mechanism\. 28 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 106\. The World Bank was the main convening FP around when the MDP was developed, since the project was designed based on Bank procedures\. By providing procedures acceptable by all parties, the Bank made the first steps towards a sector-wide approach possible\. The Bank further provided valuable input to the definition of the performance ranking mechanism\. The overall concept was sound and the project was fully ready for implementation when it was approved\. The only minor shortcoming is that the PAD should have been more forthcoming about staffing shortcomings in the MDLF at appraisal and the Bank should have proposed solutions to overcome this shortcoming\. This did not affect the final outcome of the project, since implementation delays were overcome\. (b) Quality of Supervision Rating: Satisfactory 107\. Implementation support missions were regular, about once every 6 months, and saw participation of all FPs\. The fact of having a World Bank team member based in the World Bank office in Gaza allowed the Bank to support the MDLF and municipalities in the difficult project start-up phase\. The World Bank TTL changed once during implementation and apart from changes for two other donors, the team of FPs saw through the MDP-I from start to end\. Most missions included field visits to sub-projects and activities under Window 2\. The Bank took the lead on supervising fiduciary and safeguards policies; minor problems related to voluntary land donation, procurement and financial management were pro-actively addressed\. ISRs were filed regularly and provided full and covering account of project implementation\. The Bank should however have assured that changes to PDO indicator targets were reflected in ISRs and that the target for total number of beneficiaries was set realistically; this is the only noteworthy shortcoming in project supervision and did not affect the final project outcome\. 108\. The World Bank TTL was based in the country office throughout project implementation; each of the other FPs also had technical experts based in the field, and GIZ and Danida further provided a full-time technical assistant to the MOLG, who worked regularly with the MDLF to follow up on any technical issues\. All mission aide-memoires were joint\. The Borrower’s ICR (Annex 7) confirms the positive contributions of the Bank team to the project, including day-to-day follow-up by team members in the field, the participation of sector experts to missions and of team members from both the West Bank and Gaza\. 109\. The MDP FPs were actively supporting the PA to align donor support to the MDP\. The Bank had staff based in Gaza, which contributed to supporting project implementation and carried out regular field visits to verify safeguards compliance and quality of works\. The joint donor missions also visited Gaza three times during implementation\. Targeted missions 29 were undertaken by the World Bank or other donors for specific activities as and when needed, e\.g\. for the Window 2 energy efficiency pilot, for which it was not necessary to mobilize the collective FPs\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 110\. The overall satisfactory rating is justified by the fact that there were only minor shortcomings on Bank performance during preparation and implementation, with the Bank providing key inputs to project design and taking the lead in project preparation as described above and pro-actively identifying solutions to problems encountered during implementation\. 5\.2 Borrower Performance (a) PA Performance Rating: Moderately Satisfactory 111\. The PA was actively involved in assuring project preparation\. The project launch workshop in December 2009 was chaired by the Prime Minister\. During project implementation, the PA also made an effort to bring donors in the LG sector into the MDP or to assure that approaches are well coordinated, but could not fully align all LG donors to a performance-based mechanism during the MDP-I\. There was initially a problem of segregation of duties as it took until the approval of the MDLF Board manual in 2010 to clarify the role of the MDLF Board in overseeing the management of the organization\. The Chairman of the Board at the time (the Minister of Local Government) was reluctant to even partially devolve responsibility for the signing of checks to the Managing Director of the MDLF\. 112\. The PA was late to provide counterpart funds for Cycle 1 (only provided by December 2012), which led to significant delays for payment of contractors by the MDLF\. The PA did not provide the full counterpart funding for Cycle 2 (see Annex 1 on financing)\. As a result, 10 sub-projects (out of 522) were not implemented\. This leaves the project with a reputational risk, and potential maneuvering under MDP-II for municipalities to avoid having their sub- projects attributed to PA funding\. Some FPs may also not being willing to finance Value- Added Tax (VAT) during MDP-II (since the PA counterpart funds were to make up for the de facto budget support resulting from FPs financing of VAT for sub-projects)\. 113\. The PA financing shortfall can be partly explained by the fact that financial systems of the MDLF and PA ministries were not fully compatible so that funding requests for sub- projects were handled by hardcopy letters\. This meant they did not receive automated transfer treatment by the Ministry of Finance\. Also the PA is under significant budget pressure due to reduced inflow of donor support, so are faced with very real constraints, but ratings should be based on objective criteria and this demands that the lack of counterpart funding leads to a moderately satisfactory rating, due to its impact on the MDP reputation and sustainability\. The progress in transitioning to a preponderantly PA-funded performance-based LG transfer system would also be slowed down given that some donors provide LG investment financing through non-performance based mechanisms\. 30 114\. The MDLF Board of Directors did not play an important role, and in spite of repeated requests to have focal points present from key PA institutions during missions this did not happen\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 115\. The MDLF assured day-to-day implementation of the MDP-I, which achieved very good results through oversight of the LTCs and ongoing dialogue with municipalities around performance improvements and economic evaluation of sub-projects\. At times the MDLF was overwhelmed with the number of contracts in the project outset, but moved quickly to recruit the necessary personnel to correct implementation shortcomings\. For cycle 1, the MDLF capacity was stretched due to simultaneous processing several procurement packages for sub- projects and capacity building, and for this reason project implementation was delayed\. The change in workload is unavoidable in a cyclical project but for cycle 2, the MDLF adopted a smarter approach by packaging similar works in larger lots, publishing tenders more continuously, and clustering municipalities for capacity building packages to reduce the number of tenders to process\. This significantly reduced time to implement cycle 2 to about 18 months against more than 24 months to complete all construction under cycle 1\. 116\. The client and citizen satisfaction survey (see Annex 5) confirmed that municipal staff generally feel that the MDLF is sufficiently clear about municipal rankings and gives fair chance to appeal the rankings\. The MDLF’s reporting to FPs was generally of high quality\. The MDLF has good project management systems and reported well on project progress, including indicator data\. There were no shortcomings on fiduciary management, apart from minor temporary problems to provide accurate disbursement forecasts\. Another minor shortcoming was that the MDLF was late in contracting the auditor for the internal audit compliance and also took long to develop a plan to implement the audit recommendations\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 117\. The satisfactory performance of the MDLF contributed to program implementation, to the satisfactory outcome, and to the availability of data to support the ratings\. The shortcomings on the PAs performance contribute to a less positive rating of overall borrower performance, but the satisfactory overall outcome of the project justifies a satisfactory rating\. 6\. Lessons Learned 118\. Improvements in service delivery should be conceived as a long-term process in well- defined phases, by focusing first on improvements to the underlying institutional and municipal management aspects and improved monitoring\. Building the MDP (I&II) design on a homegrown hierarchy of objectives with well-determined sector, program and project goals allowed tracking and benchmarking the incremental progress on municipal management and service delivery performance improvements at each level of objectives\. This was made possible by building on a long history of Bank engagement and coordination with other 31 donors in the LG sector in the WBG, with each successor project building upon and expanding on achievements of its predecessor\. The two-cycle nature of the MDP-I allowed some lessons of Cycle 1 to be incorporated already in Cycle 2, such as better definition of the “need” part of the allocation formula, while the overall lessons inform the MDP-II\. 119\. A performance-based grant system can be introduced successfully and gradually and establish the basis for a formal fiscal transfer mechanism\. The list below catalogs the factors that led to success and areas that need further consideration going forward: • The addition of performance criteria to the transfer mechanism and linking the size of investment grants to performance under MDP-I were effective in incentivizing municipalities to improve financial management and planning procedures and to increase transparency\. Under MDP-II, the percentage allocated to the performance criteria in the transfer formula has been increased to further capitalize on this successful incentive program\. • The benchmarking of performance in itself also caused municipalities to strive for better rankings compared to peers, supported by the ambition of municipal officials and administrators to provide better services\. • Notwithstanding these positive elements, the channeling of non-performance based investment funds to the same municipalities risks weakening the performance incentive and making transaction cost to access MDP funds appear high\. For this reason parallel funding should be reduced and over time limited to major investments\. • A more explicit consensus on a timeframe for aligning donors to a performance-based mechanism and transition to a preponderantly PA-funded transfer system will help assure the integrity of the system and transition process\. • The delicate balance between performance incentives and investment financing should be resolved more explicitly from a policy perspective, since the success of a performance-based grant system as an incentive tool to implement national policies depends on alignment and attaining critical mass\. 120\. Improved donor coordination is a rewarding albeit lengthy process, which can be successfully facilitated by making use of World Bank procedures\. The history of donor coordination in the LG sector in the WBG spans several projects, and has improved further with the continued inclusion of additional donors under the MDP umbrella\. Under EMSRP-I, several donors worked with the MOLG to ensure that their financing was allocated through a single formula, under EMSRP-II this was taken a step further by the MDLF providing all donors with a joint financing report\. Under MDP-I, the joint donor approach was successfully expanded to include joint development of the project, use of single procurement, financial management (FM), and monitoring systems, based on Bank procedures, and joint supervision missions\. A strong factor of success was the in-field presence of World Bank sector experts throughout this process\. The Bank’s procedures are well-accepted by donors and can facilitate donor-coordination and provide the outset for designing a multi-donor operation\. However, the World Bank should seek to improve procedural flexibility for pooling of funds, as the two Bank-administered funding windows (TFGWB and MDTF) as well as all other donor funding use separate designated accounts, with accounting implications for the MDLF\. 32 121\. There is room for improving the incorporation of gender and youth aspects, which is being done on several levels in MDP-II\. While the MDP-I provided training to the MDLF and municipalities on gender aspects, there was no systematic gender approach to decisions on investment planning\. The MDP-I experience confirmed and deepened the understanding that female beneficiaries often select different priorities (e\.g\. sidewalks for safer access of children to school or street lighting for security)\. The MDP-II will mainstream gender inclusion\. The M&E system uses gender sensitive program monitoring which will disaggregate the male and female beneficiary population and the extent to which "family friendly" infrastructure is built\. The updated (2013) SDIPs manual includes female and youth quotas in committee formulation and meetings\. Finally, the citizen and client beneficiary satisfaction surveys will be reviewed to ensure a gender-sensitive approach to target groups\. 122\. Municipalities can be successfully supported to incorporate economic efficiency considerations into investment decisions through introduction of simple screening tools and well-targeted pilot activities in energy conservation\. Economic reasoning and screening of investments supported by standardized modeling in Excel can encourage development of least-cost solutions and designs for investments in improved service delivery, leading to high rates of return\. Further, energy efficiency investments are financially and technically feasible in the WBG\. With a simple payback time of just over two years, these investments have the potential to improve municipal finances substantially and to reduce “net lending”\. The positive results have led to the energy efficiency investments being mainstreamed into Window 1 of MDP-I and introduction of a new renewable energy pilot\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 123\. The draft ICR was shared with the MDLF for comments\. The MDLF confirmed that they had no comments on the ICR\. (b) Cofinanciers 124\. The draft ICR was shared with FPs for comments\. KfW responded with a list of comments (reproduced in Annex 8) and found the report generally well written and comprehensive\. The comments from KfW have been incorporated into the final report as relevant\. DANIDA and AFD confirmed that they had no comments on the ICR\. No responses were received from other FPs\. (c) Other partners and stakeholders 125\. There were no other partners\. 33 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) PAD MDLF Actual/Latest Percentage of Percentage of Appraisal Appraisal Components Estimate PAD MDLF Estimate Estimate (US$ millions) Appraisal Appraisal (US$ millions) (US$ millions) Window 1 46\.16 68\.58 64\.69 140\.14% 94\.33% -of which TFGWB 7\.60 9\.31 10\.03 131\.97% 107\.79% -of which MDTF 0\.00 20\.73 21\.09 N/A 101\.73% Window 2 3\.70 1\.75 1\.91 51\.62% 108\.77% -of which TFGWB 0\.00 0\.70 0\.67 N/A 95\.88% -of which MDTF 0\.00 1\.05 1\.23 N/A 117\.34% Window 3 5\.43 2\.30 2\.52 46\.41% 109\.57% -of which TFGWB 0\.60 0\.63 0\.14 23\.33% 21\.51% -of which MDTF 0\.00 1\.60 0\.86 N/A 53\.51% Window 4 6\.64 6\.68 6\.53 98\.34% 95\.72% -of which TFGWB 1\.10 1\.36 1\.59 144\.55% 116\.84% -of which MDTF 0\.00 2\.27 2\.41 N/A 106\.16% Total Baseline Cost 61\.93 79\.27 75\.47 121\.86% 95\.21% Physical Contingencies 0\.00 0\.00 0\.00 N/A N/A Price Contingencies 0\.00 0\.00 0\.00 N/A N/A Total Project Costs 61\.93 79\.27 75\.47 121\.86% 95\.21% Front-end fee PPF 0\.00 0\.00 0\.00 N/A N/A Total Financing Required 61\.93 79\.27 75\.47 121\.86% 95\.21% (a) (c) -of which TFGWB 10\.00 12\.00 12\.43 124\.30% 103\.57% -of which MDTF 0\.00 25\.65 (b) 25\.59 (d) N/A 99\.75% Note 1: All appraisal amounts for the MDTF are “zero” in the column for “PAD Appraisal Estimate”, as the ICR presents the appraisal estimates in the PAD, which only breaks down funding by World Bank (TFGWB) and “Other Donors + PA”\. The column “MDLF Appraisal Estimates” reflects the full funding of the MDP-I, once the expected per-cycle contributions from all FPs (including the MDTF) were known, and including the AF from the TFGWB\. Note 2: The disbursements column in section G of the Data Sheet (Ratings of Project Performance in ISRs) does not include funds from the AF (TF-11407, US$2M), since a technical omission at the time of restructuring necessitated a retroactive relinking of the TF to the parent project\. The amount of the TF-11407 is included in the disbursed amount listed in section A of the Data Sheet\. (a) Includes the original financing from the TFGWB (TF-95351, US$10M) and the AF from the TFGWB (TF- 11407, US$2M)\. (b) Includes the funds from TF-12410 (US$12\.21M according to Bank systems) and TF-96770 (US$13\.48 according to Bank systems)\. (c) The amounts provided by the MDLF are maintained for the ICR, as they are broken down by Window cost, and add up to the total as per MDLF audited accounting\. The total actual disbursement (US$12\.00 according to Bank systems) differs slightly from the amount (US$12\.43M) in Table (a) due to exchange rate fluctuations\. (d) The amounts provided by the MDLF are maintained for the ICR, as they are broken down by Window cost, and add up to the total as per MDLF audited accounting\. The total actual disbursement (US$25\.69M according to Bank systems) differs slightly from the amount (US$25\.59M) in Table (a) due to exchange rate fluctuations\. 34 (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower Parallel 6\.56 3\.36 51\.25% World Bank Special Financing – 10\.00 12\.43 124\.28% TFGWB MDFT (Denmark and Sweden) 25\.65 25\.59 99\.77% AFD Parallel 11\.82 11\.59 97\.98% KfW Parallel 20\.99 20\.32 96\.84% GIZ Parallel 0\.97 0\.90 93\.54% BTC Parallel 1\.28 1\.28 99\.64% Note 1: Appraisal Estimate as provided by the MDLF, they do not appear in the PAD, which did not include all expected FP contributions\. The Appraisal Estimates in Table (b) plus the US$2 million AF from the TFGWB add up to the column “MDLF Appraisal Estimates” in Table (a) above\. Note 2: Table A7\.1 in Annex 7 presents the grant amounts from each FP in the original currency\. 35  Annex 2\. Outputs by Component Window 1: Municipal Grants for Capital Investment 1\. Grant amounts were allocated to municipalities according to the three criteria of population, needs, and performance ranking\. The grants were first distributed according to the allocation formula and then regrouped so that specific donors could fund specific sub-projects\. All FPs (with the exception of BTC) supported both the West Bank and Gaza; the FP contribution in Window 1 was split with 40 percent for Gaza and 60 percent to the West Bank)\. Window 1 further financed EUR 2,066,030 of recurrent expenditure for service delivery in Gaza (financed only by the Bank-administered TFGWB and MDTF)\. Table A2\.1: Outputs of Window 1 sub-projects\. % Sector Sub-Sector Indicator Unit Targeta Achievedb Achievedc Paving Roads rehabilitated Km 295 310 105% Side Walks Sidewalks rehabilitated m 50,312 49,927 99% Roads Retaining Walls Retaining walls rehabilitated m 4,405 6,279 143% Street Lighting Street lighting units supplied No\. 3,386 3,415 101% Culverts Storm water drainage rehabilitated m 1,060 740 70% Water network rehab\. Water networks rehabilitated Km 9 11 119% Ground water wells Wells maintained No\. 27 47 174% maintenance (Gaza) Water Households connection Households connection installed No\. 142 167 118% Pumps Pumps installed No\. 1 1 100% Water meters Water meters installed No\. 3,230 3,157 98% Wastewater network rehab\. Wastewater networks rehabilitated Km 50 35 71% Wastewater Households connection Households connected No\. 70 103 147% Vehicles Vehicles installed No\. 1 1 100% Solid Waste Solid waste containers Containers supplied No\. 498 498 100% Public buildings Public buildings constructed m2 17,184 16,783 98% construction Public Public gardens Public gardens constructed m2 27,500 29,000 105% Facilities Public buildings Public buildings maintained m2 35,187 35,159 100% maintenance Tractors supplied No\. 2 2 100% Rollers supplied No\. 3 3 100% Others Service tools Excavators supplied No\. 7 7 100% Total stations supplied No\. 1 1 100% a) Sum of all approved sub-project applications in each category\. b) Actual result\. c) Percentage achievement b/a\. Overachievements are due cost savings and approval of additional works\. 36  2\. The share of investments going to each sector is presented below per cycle and overall (amounts in Euro provided by the MDLF; dollar amounts vary from the cost table in Annex 1 due to currency fluctuations)\. Table A2\.2: Sector breakdown of Window 1 sub-projects\. Cycle 1 Cycle 2 Total Percent (by Sector Percent (by Percent (by allocation Allocation No\. of Allocation No\. of Allocation No\. of allocation allocation in EUR/ by (EUR) projects (EUR) projects (EUR/US$) projects /no\.) /no\.) no\. of sub- projects) €37,012,874 Roads 18,852,496 151 75\.9 / 68\.0 18,160,378 147 68\.6 / 49\.0 298 72\.2 / 57\.1 $49,002,905 Public €5,722,702 1,903,143 19 7\.7 / 8\.6 3,819,559 37 14\.4 / 12\.3 56 11\.2 / 10\.7 facilities $7,576,527 €3,182,386 Wastewater 1,883,965 20 7\.6 / 9\.0 1,298,421 13 4\.9 / 4\.3 33 6\.2 / 6\.3 $4,213,295 €2,090,399 Water 1,043,571 13 4\.2 / 5\.9 1,046,828 17 4\.0 / 5\.7 30 4\.1 / 5\.7 $2,767,567 €1,040,565 Solid wastes 230,220 4 0\.9 / 1\.8 810,345 24 3\.1 / 8\.0 28 2\.0 / 5\.4 $1,377,648 €601,070 Electricity 536,118 7 2\.2 / 3\.2 64,952 1 0\.2 / 0\.3 8 1\.2 / 1\.5 $795,782 €1,633,840 Others 378,527 8 1\.5 / 3\.6 1,255,313 61 4\.7 / 20\.3 69 0\.3 / 13\.2 $2,163,110 €51,283,836 Total 24,828,040 222 26,455,796 300 522 $67,896,833 Window 2: Support to Municipal Innovations and Efficiency 3\. Window 2 financed the following activities as foreseen at appraisal: • Financing of service expansion in 8 newly amalgamated LGs (MDTF)\. • Energy efficiency pilot and evaluation in 4 municipalities (TFGWB)\. • OSS pilot and evaluation in 3 municipalities (MDTF)\. Window 3: Capacity Building for municipalities and the MDLF 4\. Window 3 financed the following activities: 37  Table A2\.3: Capacity-building packages in Cycle 1\. Capacity Building Package No\. of West Bank Gaza Financing Partner Municipalities FPPM (Financial Policies & 75 60 15 GIZ Procedures Manual) SDIP 41 31 10 AFD: 10 mun\. West Bank MDTF: 8 mun\. West Bank KFW: 8 mun\. West Bank KFW: 4 mun\. Gaza Strip GIZ: 5 mun\. West Bank GIZ: 6 mun\. Gaza Strip FARV (Fixed Assets 4 4 0 MDTF Registration & Valuation) Total Number of Municipalities 120 95 25 Table A2\.4: Capacity-building packages in Cycle 2\. Capacity Building Package No\. of West Bank Gaza Financing Partner Municipalities FPPM (Financial Policies & 21 14 7 GIZ Procedures Manual) SDIP 49 36 13 AFD: 8 mun\. West Bank AFD: 6 mun\. Gaza Strip MDTF: 17 mun\. West Bank GIZ: 11 mun\. West Bank GIZ: 7 mun\. Gaza Strip SDIP Update 52 42 10 AFD: 13 mun\. West Bank MDTF: 29 mun\. West Bank MDTF: 10 mun\. Gaza FARV (Fixed Assets 28 26 2 MDTF Registration & Valuation) Total number of municipalities 98 76 22 5\. Further, 10 municipalities are benefiting from the piloting of the O&M manual financed under Window 3\. Window 4: MDP Management 6\. This Window financed: • The operating expenses of the MDLF (7 percent of all FPs grants)\. • Technical Audit (MDTF)\. • Municipal Infrastructure Survey (AFD)\. • Beneficiary Satisfaction Survey (TFGWB)\. • Communication and outreach, especially for the GAM (TFGWB, MDTF, AFD)\. • Hiring of LTCs to support municipalities in sub-project identification, application, and implementation (TFGWB, MDTF, AFD, KfW)\. 38 Annex 3\. Economic and Financial Analysis Overview 1\. The project financed municipal sub-projects through the MDLF\. The funds were allocated to municipalities to finance their priority sub-project investments according to the conditions and processes laid out in the main text of this ICR\. As actual investments were not known at appraisal, no ex-ante analysis of expected ERRs or NPVs were carried out for any of the MDP investments\. Therefore, no comparison can be made between the expected and actual results of MDP investments\. The value added of the economic and financial analysis for this ICR is that it demonstrates the usefulness of the methodology and the economic and financial viability of the executed investments\. 2\. Past practices for economic evaluation in the MDLF and approval of sub-project investments (notably under the EMSRP-II, under implementation by the MDLF at the time of appraisal of the MDP and closed in 2011) were based on verification of prior public consultations and prioritization process in the municipalities, and whether sub-project costs fell into the municipal allocation\. A new methodology was developed for the MDP to address the shortcoming that even if the public consultation process led to identifying priority problems to be solved, the chosen program approach did not necessarily solve the problems in the most efficient way\. The new MDP methodology allowed the MDLF to carry out economic and financial evaluation of sub-projects and assure cost-efficiency of investments and equitable sharing of benefits from investments among the populations of each municipality by analyzing Net Cost per beneficiary (NCB)\. 3\. The analysis carried out for the ICR shows that the methodology developed at appraisal, and as actually implemented, supported high efficiency and equity of investments\. The approach developed for the MDP is considered as innovative for the type of project (demand-driven sub-projects)\. Bank-funded projects of this type have typically struggled to find ways to incorporate economic considerations into sub-project screening, although this is often formally part of the screening process\. Therefore, the fact of introducing a standardized methodology in and of itself is a positive indicator of project efficiency\. The actual use and implementation of the methodology, as described below, further supports the positive evaluation\. 4\. Each of the main categories of sub-projects (roads and public buildings – corresponding to 83\.3 percent of Window 1 investments and 78\.1 percent of total MDP-I costs), are further subjected to cost-benefit analysis for the ICR\. The result shows that NPV is positive in each case, and ERRs are substantially above the opportunity cost of capital (estimated at 8 percent for the WBG)\. Even with sensitivity analysis (benefit stream lower by 25 percent), the rates of return on sub-project investments are substantially above the opportunity cost of capital\. The present economic and financial analysis is valid for sub- project investments under the MDP-I financed on all donor funds; US$67\.9 million invested under Window 1\. Further, the energy efficiency pilot (investment of US$274,000 fully funded by the Bank under Window 2) was subjected to economic analysis based on ex-post measurements of energy savings\. An overview of the results of the detailed analysis in this Annex is presented in the table below\. 39  Table A3\.1: Overview of investment breakdown and results of economic analysis Cost of Number sub- Percentage of sub- Percentage Ex-post analysis (ERR, projects of total Category projects of Window Ex-ante analysis NPV, other measure) – analyzed MDP-I analyzed 1 costs ERR (millions) (b) costs (a) Least cost design based on traffic counting\. ERR: 29\.7% Roads US$45\.8 265 65\.5% 63\.6% Analysis of ratios of NCB NPV: US$48\.8 M per beneficiary\. Analysis of financial potential of buildings, Public market analysis, ERR: 15\.7% US$6\.8 50 10\.0% 9\.4% facilities incorporation of O&M to NPV: $2\.5 M assure sustainability\. Unit-cost considerations\. Least cost analysis based Maintenance more cost- on standard designs\. efficient than reinvesting Wastewater Verification of ability to in new networks\. US$6\.9 63 10\.3% 9\.7% and water cover O&M cost\. Water meters to have FRR of at least 15%\. For equipment: Cost Financial resources in savings compared to part allocated to market rates, incorporation maintenance, which is of O&M cost\. estimated to be more For street lighting: Respect cost-efficient than Others US$4\.5 105 6\.4% 6\.0% of guidelines developed reinvesting in new for energy efficiency\. networks\. Systematically Public parks: Market competitive bidding and analysis, revenues to cover request price quotations, O&M cost, visitor count\. to assure low cost\. Energy Energy audit to evaluate ERR: 22\.8% efficiency US$0\.5 4 mun\. N/A 0\.7% savings potential\. NPV: US$0\.3 M (Window 2) (a) Amounts may differ from the classification in Annex 2 due to reclassification for the economic analysis\. See details in the Annex below\. (b) Numbers may differ from the classification in Annex 2 due to reclassification for the economic analysis\. See details in the Annex below\. General considerations 5\. The MDP introduced economic and financial analysis in the MDLF’s sub-project appraisal to enhance awareness and knowledge of municipal staff and the MDLF technical unit on cost effectiveness and cost efficiency of sub-projects\. The methodology and related templates in Excel were developed to cover most categories of sub-projects\. It was not intended to lead to direct rejection of sub-projects based of their Financial Rate of Return (FRR), ERR or other thresholds for basic economic indicators, but as a tool for dialogue between the MDLF and municipalities on sub-project selection and optimal designs\. In each case, when economic indicators were not positively conclusive, the MDLF sought further information and clarification from the municipalities, and this lead to sub-project design being revised to maintain reasonable ratios\. 40 6\. The application forms were developed to include a basic economic cost to benefit assessment based on the methodology laid out below\. The assessment was done by the municipalities and screened by MDLF technical staff\. The methodology foresaw that sub- projects with a total value over US$500,000 would be subjected to full cost-benefit analysis as part of the application; no such sub-projects were part of the MDP\. Revenue-generating sub- projects, such as public buildings with rental potential, were subjected to financial analysis, including appraisal of market demand\. In the first cycle of MDP-I, the guidelines were not fully understood by applicants, who had difficulty to use the Excel templates\. For this reason, hard economic evaluation was not stringently applied for cycle 1, although the principles were used during dialogue between the MDLF for selecting and designing sub-projects\. In cycle 2 the methodology was simplified, with a less ambitious concept for the cost-benefit analysis, and improved, with standard Excel evaluation for the main categories of sub-projects\. For smaller sub-projects in other sectors, the approval of the relevant technical authority was sufficient\. Further, municipal staff was trained on the concept of economic and financial analysis and how to use the simplified methodology\. 7\. The methodology was developed to promote basic techniques to analyze the projects qualitatively and then estimate basic indicators to monitor economic outcomes and cost effectiveness\. The methodology included questionnaires to be attached to the application form and Excel templates that deliver the basic indicators when nurtured with adequate data by the municipalities\. The methodology compared sub-projects’ costs to their benefits using simple indicators\. It also assessed sub-project effectiveness\. Finally, when different alternatives were considered, it helped deciding the least cost alternative\. 8\. The economic and financial analysis took into account direct and indirect costs and benefits\. Most municipal projects were small investments leading to broad social, economic, and environmental costs and benefits that could only be accounted for at high cost\. For this reason, no threshold was set for economic indicators below which projects were automatically rejected; instead judgment was used to assess if the basic indicators and the multi-form benefits of the project were high enough to justify the costs\. Ex-ante screening methodology 9\. The methodology walked the municipal technical staff through basic evaluative steps to be answered: (a) What is the objective of the sub-project? What will the sub-project finance? (b) What will happen if the sub-project is undertaken? What if not? (c) What is the problem that the sub-project is trying to address? (d) What other solutions can solve the problem? (e) Are other technical alternatives envisaged? (f) What are the investment costs of the sub-project? (g) What is the average maintenance cost for the sub-project over its life expectancy? (h) What is the life expectancy of the sub-project? (i) What are the direct revenues of the sub-project? Does the sub-project result in savings? (j) What are the other expected benefits? Do they have a monetary value? 41  (k) How many people directly benefit from the sub-project? Are there secondary beneficiaries? 10\. After answering these basic questions, the municipality assessed the real need for the sub-project\. This step allowed the municipal staff to develop a low-cost solution to address the problem identified\. To do so, it first determined the needs for the sub-project generated service (hours of waste truck collection, public building, etc\.) within the municipal boundaries\. Then, it estimated the level of existing service\. Finally it proposed to fill in the gap without excess\. 11\. The economic and financial analysis of sub-projects was based on investment costs and operation and maintenance costs over the life cycle of the sub-project\. Operation and maintenance costs were estimated even if they would not be paid by the municipality\. This introduced an element of sustainability in the analysis, further supporting economic viability through assuring that cost to assure continued flow of benefits was taken into account\. In sub- projects with direct financial benefits such as rent or user fees, they were estimated, and taken into account\. Revenue-generating sub-projects were required to demonstrate financial rate of return above 15 percent to be approved\. Some projects also resulted in savings; these were regarded as benefits or revenues\. 12\. For Cycle 1 the methodology used a discount rate of 5, which is considered an appropriate rate for Palestine since the current long-term borrowing rate of public loans is about 4 percent and projected inflation rate is quite low (about 2 percent)\. However, following adjustments to the methodology and Excel templates for cycle 2 the discount rate was increased to 8 percent to provide a more conservative estimate of the discounted benefit stream\. 13\. Some projects had indirect costs and benefits which were not taken into account in the analysis, and might include health costs or benefits that affect people living in the sub-project vicinity, protection of the environment, or social effects\. At the preliminary screening stage, not all these benefits were accounted for\. However, although it was not easy to put a monetary value on some of these outcomes, when feasible, all costs and benefits of a sub-project, including direct and indirect ones, were estimated\. 14\. Because not all the effects of the sub-project could be easily integrated in the economic and financial analysis as described above, an additional indicator, NCB, was used\. 7 It allowed getting a sense of the benefits of the sub-project, if not a full description\. This indicator was measured by dividing the net costs of the sub-project (costs less benefits) in present value terms into the number of beneficiaries\. In sub-projects where there were direct and indirect beneficiaries, the number of indirect beneficiaries was attenuated by a factor reflecting the benefits indirect beneficiaries were expected to derive from the sub-project compared to the benefits of the direct ones\. The indicator served to assure that benefits did not only accrue to a minority in each municipality\. E\.g\. for roads this meant that the road that 7 Except those sub-projects without clearly identifiable beneficiaries, such as construction equipment, municipal workshops or similar\. 42 would serve only a few people living along the road, but that costs were reasonable compared to the number of beneficiaries, which was estimated by considering factors such as whether the road provided access to public facilities or shops as well as residents, if it was a main entrance road to the city or a main road\. 15\. The MDLF maintained a unit price database, which was updated yearly and used in elaboration and verification of budgets and cost estimates and control of bidding prices\. The MDLF technical staff compared the indicator for each proposed project to a database of the same indicator for similar projects and requested further information and details if the indicator did not fall within a reasonable range (first to third quartiles)\. The MDLF staff only approved a sub-project if they were fully convinced that it would benefit the population, or requested a detailed analysis, or advised municipal staff on alternatives to enhance economic benefit of the sub-project\. The average NCB was US$90\.3 in the West Bank and US$82\.0 in Gaza for cycle 1, and US$46\.0 in the West Bank and US$81\.0 in Gaza for cycle 2\. Ex-post methodology Data sources 16\. The full overview of 522 sub-projects was available from the MDLF, which had already analyzed the employment generated\. Since many of the sub-projects funded by the MDP-I were not income generating, economic benefits will be estimated as follows: • Benefits of roads are quantified by the timer savings to users, and savings in vehicle maintenance cost\. • Benefits of public buildings and facilities are quantified by savings in rental cost\. Without MDP-I sub-projects, municipalities would rent such facilities\. Discounting 17\. A discount rate of 8 percent is used in the ex-post economic analysis, as for the ex- ante economic analysis\. Cost adjustments 18\. Financial cost of the Window 1 investments and the energy efficiency pilot are adjusted in the following ways to estimate the economic cost: • Value added tax: 15 percent of the financial cost is deducted since VAT is a transfer from the project to the PA budget\. • Costs of capacity-building activities of Window 3 and 4 were not added to the economic cost of investments analyzed\. Even though sub-projects and the pilot would not be implemented without such cost, the capacity building benefits of Windows 3 and 4 will spread to other activities of the MDLF, municipal councils, and other stakeholders\. • Investment cost is assumed to be equally distributed over four years for Window 1 (2010-2013) and two years for Window 2 (2011-2012)\. 43 Reclassification of sub-projects and investment cost 19\. The classification by of sub-projects by the MDLF is not conducive to economic analysis\. The road sub-projects category contains investments in rehabilitation of the actual road surface as well as in retaining walls, drainage, and street lighting\. The public building category sub-project contains construction, rehabilitation, and public gardens\. The cost of these two categories is therefore adjusted as described in the relevant sections below\. Economic analysis of roads 20\. The MDP-I invested about US$49\.0 million in 298 sub-projects in the roads category to rehabilitate and reconstruct 310 kilometers of roads, 50 kilometers of sidewalks, 4\.4 kilometers of retaining walls, 1\.1 kilometer of storm water drainage, and supply over 3,000 units of street lighting\. The category includes 265 sub-projects in actual road rehabilitation (some of which include sidewalks and street lighting) for an investment of US$45\.8 million, which are subjected to economic analysis in this section\. Economic screening of roads ex-ante 21\. The general methodology for economic and financial screening, described above, was in the case of roads complemented by peak hour traffic counting and counting of pedestrians for each sub-project to determine the optimal width of the road and any side-walk\. This assured least-cost design of roads\. The sub-project template in Excel further presented cost per running meter as a tool for the MDLF to verify if unit-costs were reasonable\. In each case, additional justification was provided when NPV per beneficiary was above the maximum or if the unit cost was outside the norm (e\.g\. road considered to be essential to the physical cohesion of the urban space, benefits underestimated in the model)\. Table A3\.2: Example of ex-ante efficiency screening of road - Rehabilitation and asphalting of internal roads in Howwara 8 Basic data Costs of the investment -77,540 EUR Eligible costs -124,064 EUR Own share of municipality 46,524 EUR Costs of maintenance (% of 1% 0% 1% 1% 1% --- 1\.5% 1\.5% 1\.5% investment costs) Life expectancy of the project 15 years Discount factor 8% Results Net cost per beneficiary (NCB) -43 EUR Investment cost per beneficiary -39 EUR Investment cost per running meter -129 EUR Years 1 2 3 4 5 --- 7 14 15 Investment -77,540 EUR Maintenance -775 0 -775 -775 -775 --- -1,163 -1,163 -1,163 8 All examples are in Euros, as analyzed by the MDLF\. 44  Discounted costs -78,315 EUR -665 -616 -570 --- -733 -428 -396 FNPV -85,638 EUR Estimation of beneficiaries Number of beneficiaries for the rehabilitated street section 1,990 Total population of the municipality 5,970 Length of the roads to be rehabilitated in meters 600 Total length of roads in the municipality in meters 20,000 Amplification factor 11\.11 Eligible max\. road width 8 N° of vehicles at peak hour 20 Outer connection road FALSE Width of road in meters (including sidewalks) 5 Total width of sidewalks in meters 0 N° of pedestrians at peak hour- 200 Amplification factor (only to be filled in for internal roads) Is the street one of the main entrances of the city TRUE If yes, how many entrances are there? 3 Is the street a main road? TRUE If yes, how many secondary roads cross it? 1 Is the street bordering houses TRUE Is the street bordering three shops or more TRUE Is the street bordering schools, health centers, or public buildings such as municipal building? TRUE If yes, how many 2 Ex-post evaluation 22\. Cost: The cost-benefit analysis was carried out comparing the situation of roads “without” and “with” the project, in order to determine the net effect, among other aspects, on the net expenditure needed for the O&M of rehabilitated roads\. The analysis applied the same amount for O&M cost as the ex-ante analysis (1\.5 percent of investment cost per year)\. 23\. Benefits: The direct benefits of roads quantified in the analysis derive from savings in transportation time and vehicle maintenance cost, with a project lifetime of 15 years\. Additionally, the main indirect benefits (which were not quantified for the ex-post analysis) are due to the reduction in accidents (many roads serve schools and other public buildings) and appreciation in market values of real estate properties adjacent to the rehabilitated roads\. The time saved per passenger trip along the rehabilitated roads is estimated at about 3 minutes and the monetary value of time saved is assumed to equal US$2\.9 per hour to derive total savings attributable to the project\. 9 The quantification of benefits is based on the total 9 Based on: (a) Average “without” project vehicle speed of 15 kilometers per hour, and “with” project speed of 45 kilometers per hour\. This is realistic given that many roads were almost impassable before the project\. (b) Average length of rehabilitated roads of 1\.17 kilometers (265 roads sub-projects with 310 kilometers 45 municipal population in the West Bank and Gaza and an estimate of the proportion of vehicles that actually use the improved roads funded by the MDP-I\. The calculation was further based on an estimate of the average yearly expenditure in maintenance, at US$3\.6 per vehicle using the rehabilitated roads\. The relevant number of vehicles remained the same as the one applied for the computation of time savings\. Finally, benefits were estimated to accumulate with 25 percent per year of investment, to reach full benefits after four years\. Tables A3\.3 and A3\.4 below illustrate the calculations made to estimate both time savings and maintenance cost savings\. 24\. Assumptions: Considering that there are no technical studies available in the WBG on passengers per vehicle and the proportions of different types of motor-vehicles, the methodology assumed that such proportions as well as the average number of passengers per vehicle are similar to those in other countries in the region\. It was further assumed that vehicle ownership is equal across the territory, although in reality urban areas are more affluent and a disproportionately higher percentage of vehicles would operate in urban areas (leading to higher benefits than in the model)\. The analysis assumes that the number of beneficiaries and vehicles will grow at the same pace as the current population growth rate in the WBG (2\.95 percent annually)\. Furthermore, based on analysis of the composition of sub-project investments in the road category, benefits from sidewalks, street lighting, and retaining walls made as part of the same sub-projects were not included as the benefits are difficult to quantify\. It was assumed that the financing for roads went to rehabilitation and reconstruction of the actual road surface; benefits from auxiliary works are additional and pull the ERR and NPV in the analysis below up\. Table A3\.3: Road benefits – vehicle and person usage Daily Total Total motor Total Municipal Total motor passengers Year population vehicles passengers population vehicles WBG using rehab\. (WBG) benefiting (4\.3 p/veh\.) roads 2010 4,045,429 3,074,526 210,199 159,751 686,930 34,346 2011 4,166,791 3,166,761 216,505 164,544 707,538 70,754 2012 4,291,795 3,261,764 223,000 169,480 728,764 109,315 2013 4,420,549 3,359,617 229,690 174,564 750,627 150,125 2014 4,553,165 3,460,406 236,581 179,801 773,146 154,629 2015 4,689,760 3,564,218 243,678 185,195 796,340 159,268 2016 4,830,453 3,671,144 250,988 190,751 820,230 164,046 --- --- --- --- --- --- --- 2027 6,686,477 5,081,723 347,427 264,044 1,135,391 227,078 2028 6,887,071 5,234,174 357,850 271,966 1,169,452 233,890 rehabilitated)\. (c) Average daily wage of US$22\.95 in WBG in 2013 and considering that transport is essentially an economic activity with benefits to both supply and demand side\. 46  Table A3\.4: Road benefits – time and maintenance savings Yearly Total yearly Daily Time savings Yearly time Total veh\. in maintenance savings, time and Year passengers in (minutes savings benef\. mun\. savings maintenance vehicles per day) (US$) (US$) (US$) 2010 159,751 34,346 107,144 1,869,827 567,201 2,437,028 2011 164,544 70,754 220,716 3,851,843 584,217 4,436,060 2012 169,480 109,315 341,007 5,951,097 601,744 6,552,841 2013 174,564 150,125 468,316 8,172,840 619,796 8,792,636 2014 179,801 154,629 482,365 8,418,025 638,390 9,056,415 2015 185,195 159,268 496,836 8,670,566 657,542 9,328,108 2016 190,751 164,046 511,741 8,930,683 677,268 9,607,951 --- --- --- --- --- --- --- 2027 264,044 227,078 708,369 12,362,154 937,497 13,299,651 2028 271,966 233,890 729,621 12,733,019 965,622 13,698,641 25\. Economic rate of return and NPV: The economic analysis of investments of US$49\.0 million in road sub-projects (US$41\.7 million less VAT) show ERR of 29\.7 percent and NPV of US$48\.9 million (Table A3\.5 below), demonstrating returns on investment substantially higher than opportunity cost of capital and hence economic viability of the road investments\. Sensitivity analysis shows that if the net benefits had been 25 percent lower compared to the base case, this would lead to ERR of 20\.2 percent and NPV of US$27\.5 million\. These are quite robust results, demonstrating the economic viability of public works on roads\. Table A3\.5: Road costs and benefits – ERR and NPV Investment cost O&M Total cost Gross benefit Net benefits Year (US$) (US$) (US$) (US$) (US$) 2010 9,733,833 0 9,733,833 2,437,028 -7,296,805 2011 9,733,833 146,007 9,879,840 4,436,060 -5,443,780 2012 9,733,833 292,015 10,025,848 6,552,841 -3,473,007 2013 9,733,833 438,022 10,171,855 8,792,636 -1,379,219 2014 0 584,030 584,030 9,056,415 8,472,385 2015 0 584,030 584,030 9,328,108 8,744,078 2016 0 584,030 584,030 9,607,951 9,023,921 --- --- --- --- --- --- 2027 0 584,030 584,030 13,299,651 12,715,621 2028 0 584,030 584,030 13,698,641 13,114,611 ERR 29\.7% NPV@8% $48,878,796 47 Economic and financial analysis of public buildings 26\. The MDP-I invested about US$7\.6 million in 56 sub-projects to construct and rehabilitate public buildings and gardens\. Of this, US$6\.8 million was invested in 50 sub- projects for new construction of municipal buildings, which are analyzed for the ICR\. Economic and financial screening of public buildings ex-ante 27\. The general screening methodology, described above, was in the case of public buildings based on financial (cost-saving and revenue-generating) potential of buildings\. In each case, estimates were made of the cost-savings from not having to rent space for the municipal functions, combined with additional rental potential from additional space constructed (e\.g\. renting out space in a municipal building for private-sector operators or for conferences and weddings)\. Building design is highly standardized in the WBG, so the main justification came from demonstrating the market potential and financial viability of investments, including by incorporating O&M cost in the analysis (e\.g\. cleaning, watchman, water and electricity, and a standard percentage for building maintenance)\. The sub-project template in Excel further presented cost per square meter as a tool for the MDLF to verify if unit-costs were reasonable\. In each case, additional justification was provided when NPV per beneficiary was above the maximum or if the unit cost was outside reasonable norms (e\.g\. providing a municipal building as a gathering space for the population, supporting a sense of place and belonging, other substantial socio-economic benefits not captured by the financial screening tool)\. Table A3\.6: Example of ex-ante screening of public building - Construction of public building in Beit Liqya Basic data Costs of the investment -104,117 EUR Total additional effective building area 365 m² Cleaner, watchman -3,600 EUR per year Electricity and water -1,800 EUR per year Costs of operation -5,400 EUR per year Costs of maintenance -3,000 EUR per year Financial estimates Rent revenues per year 32,400 EUR % of foreseen renting out 20% % of rented surface or of days rented out Expected rent in average per month 2,700 EUR % used for own purposes 80% Total population of municipality 8,200 Share of population using the facility 53% Description of the user group attached to justify Number of beneficiaries 4,346 Life expectancy of the project 50 years Discount factor 5% Investment cost per m² -285 EUR FNPV per m² 1,178 EUR Net cost per beneficiary (NCB) 99 EUR 48  Expected rent / m² and month 36\.99 EUR Cost / m² and month for own use 7\.09 EUR Financial analysis Years 1 2 3 --- 47 48 49 50 Own used surface 0 292 292 --- 292 292 292 292 Investment -104,117 Maintenance -3,000 -3,000 --- -3,000 -3,000 -3,000 -3,000 Revenues 32,400 32,400 --- 32,400 32,400 32,400 32,400 Cash flow -104,117 29,400 29,400 --- 29,400 29,400 29,400 29,400 Discounted cash flow -104,117 28,000 26,667 --- 3,116 2,968 2,827 2,692 FNPV 430,043 FIRR 28\.2% EUR NPV/m² annual own use 85 EUR Ex-post evaluation 28\. Cost: The cost-benefit analysis was carried out comparing the situation “without” and “with” the project to determine the net financial effect, including expenditure needed for the operation (including cleaning, watchman, water, and electricity) and maintenance of buildings\. O&M was estimated at 8 percent of invested capital\. 29\. Benefits: The direct benefits of public buildings quantified in the analysis derive from cost savings in rental and additional income from renting out space (for social events or private sector operators)\. Additionally, the main indirect benefits (which were not quantified for the ex-post analysis) are due to the added value of having a clear identity of the municipality, providing a gathering space for the local population, and appreciation in market values of real estate properties adjacent to the buildings\. Only two relatively stabilized benefit streams were available at the time of finalizing the analysis, based on actual revenue and savings from public buildings constructed under Cycle 1\. This was found to be too limited basis for an analysis; therefore the analysis for the ICR was carried out based on the assumptions presented below\. 30\. Assumptions: criteria to estimate economic net benefits are based on the estimated yearly savings in expenditures in rent per square meter of 16,783 square meters of office space constructed\. The monthly savings in rent per square meter were estimated at US$6\.4 for the average sub-project (based on actual rent from the two sub-projects for which data is available and expected rent from other sub-projects)\. Indirect benefits may include productivity increases in both the municipal administration and in the services the municipality provides to the private sector\. 31\. Economic rate of return and NPV: The economic analysis of investments of US$6\.8 million in construction of public buildings (US$5\.8 million less VAT) show ERR of 15\.70 percent and NPV of US$2\.5 million (Table A3\.7 below), demonstrating returns on investment substantially higher than opportunity cost of capital and hence economic viability of investments\. Sensitivity analysis shows that if the net benefits had been 25 percent lower compared to the base case, this would lead to ERR of 8\.2 percent and NPV of US$66,599, 49 only just above the opportunity cost of capital\. These results are still encouraging but not as robust as the results for roads, given the uncertainties at this point around actual rent prices and effective usage rates of buildings\. Table A3\.7: Public buildings costs and benefits – ERR and NPV Investment cost O&M Total cost Gross benefit Net benefits Year (US$) (US$) (US$) (US$) (US$) 2010 1,442,786 0 1,442,786 0 -1,442,786 2011 1,442,786 0 1,442,786 324,688 -1,118,098 2012 1,442,786 72,139 1,514,926 649,377 -865,549 2013 1,442,786 144,279 1,587,065 974,065 -613,000 2014 0 216,418 216,418 1,298,754 1,082,336 2015 0 375,124 375,124 1,298,754 923,629 2016 0 375,124 375,124 1,298,754 923,629 --- --- --- --- --- --- 2027 0 375,124 375,124 1,298,754 923,629 2028 0 375,124 375,124 1,298,754 923,629 ERR 15\.7% NPV@8% $2,486,825 Economic analysis of wastewater and water supply 32\. The MDP-I invested about US$4\.2 million in 33 sub-projects to rehabilitate and extend sewerage systems\. No new wastewater treatment plants were constructed\. Further US$2\.8 million were invested in 30 sub-projects to rehabilitate water supply networks\. Economic and financial screening of water supply and wastewater ex-ante 33\. The rehabilitation or replacement of a section of an existing network which may be damaged causing environmental or health hazards and the installation of new water or sewerage house connections under streets prior to paving required a least cost analysis based on standard designs\. An additional requirement for wastewater was that the sewers were connecting to an operating wastewater treatment plant\. In addition, the revenues in the utility should be sufficient to cover at least the operation and maintenance costs of the water and sewerage services\. For investments which consisted mainly in the installation of water meters, the expected increase in billing and collection efficiency was expected to result in an FRR of at least 15 percent\. Table A3\.8: Example of ex-ante screening of water network - Rehabilitation of Anata water network (main pipe) Basic data Costs of the investment -37,287 EUR Costs of maintenance -559 EUR 1\.5% per year Financial estimates Revenues from connection fee 4,000 EUR 50  Annual revenue or loss from water sales 4,180 EUR Expected annual water sale per household 240 M3 Connection fee per newly connected household 200 EUR Number of households newly connected 20 Number of households already connected 284 Life expectancy of the project 50 years Discount factor 5% Financial analysis Years 1 2 3 --- 47 48 49 50 Investment -37,287 Maintenance -559 -559 --- -559 -559 -559 -559 Revenues 4,000 4,180 4,180 --- 4,180 4,180 4,180 4,180 Cash flow -33,287 3,621 3,621 --- 3,621 3,621 3,621 3,621 Discounted cash flow -33,287 3,448 3,284 --- 384 366 348 332 FNPV 32,496 EUR FIRR 11% NPV/m² annual own use 85 EUR Amplification factor Number of beneficiaries 1994\.4 Beneficiaries new connections 120 Average size of household 6 Already connected 1,704 Amplification for households connected prior to investment 10% FNPV per beneficiary 16 Investment cost per beneficiary -19 Revenues > maintenance cost TRUE Ex-post evaluation 34\. The project funded a wide variety of rehabilitation and network extension activities, many of which were undertaken in connection with investments in road rehabilitation\. In some cases, the rehabilitation did not add new beneficiaries, but resulted in better service to existing beneficiaries\. Other projects consisted in installing water meters and primarily had financial benefits\. Therefore the costs and benefits are not easily quantifiable and no actual ex-post cost-benefit analysis was carried out for this category of sub-projects\. Given that many sub-projects were carried out as rehabilitation, and that rehabilitation is more efficient than constructing new networks, the chosen technical solutions is likely least-cost to provide service to the maximum number of beneficiaries\. Economic analysis of other categories of sub-projects 35\. The MDP-I invested about US$4\.3 million in 105 other sub-projects, which breaks down into US$1\.3 million in 28 solid waste management sub-projects, US$0\.8 million in 8 electricity sub-projects, and US$2\.2 million in 69 other sub-projects\. The latter category mainly covers purchase of construction equipment, street lighting, and public parks\. 51 Economic screening of other sub-projects ex-ante 36\. The screening methodology was developed in Excel for construction equipment, street lighting, and public parks\. The indicators are presented in Table A3\.8 below\. No standard tool was available for solid waste management and electricity sub-projects\. Table A3\.9: Screening tool for other projects - main ratios Category Ratios Construction equipment NCB/discounted number of working hours < 90 percent of market rate Street lighting NCB/ kilometer of lighted street NCB / beneficiary Investment cost / m² of building Expected rent / m² of building and month Total investment / m² of park Public parks FNPV / beneficiary FNPV / visitor Projected operation and maintenance cost < projected direct revenue from the site 37\. The benefit of purchase of construction equipment was that the municipalities would save cost compared to outsourced the services\. The financial justification included the downtime for maintenance and repairs, the liability insurance, O&M costs (including salaries of municipal staff), etc\. compared to the cost of hiring such equipment\. Table A3\.9 below illustrates the methodology\. Table A3\.10: Example of ex-ante screening of purchase of construction equipment - Purchase of bob-cat in Quaffin Basic data Costs of the investment -54,600 EUR Plan of construction measures over coming five Hours of own activity / year 450 h years attached, relate to foreseen hours of activity Hours of planned renting out / year 150 h Price for renting out equipment / hour 30 EUR Market rent for this type of equipment per hour Financial estimates Savings 13,500 EUR per year Expected revenue 18,000 EUR per year Cost of staff -700 EUR per year Cost of fuel, lubricants, depreciation -9,210 EUR per year Insurances, taxes -300 EUR per year Costs of operation -10,210 EUR per year Cost of maintenance (1%) -546 EUR per year Life expectancy of the investment 10 years Discount factor 5% Financial analysis 52 Years 1 2 3 --- 7 8 9 10 Hours of own operation 450 450 450 --- 450 450 450 450 Investment -54,600 Revenues 18,000 18,000 18,000 --- 18,000 18,000 18,000 18,000 Operation and maintenance -10,756 -10,756 -10,756 --- -10,756 -10,756 -10,756 -10,756 Discounted cash flow -47,356 6,899 6,571 --- 5,406 5,148 4,903 4,670 FNPV 4,133 EUR Discounted working hours 3,475 38\. The street lighting sub-projects provided benefits mainly in terms of improved security and safety, and more economic activity during the dark hours of the day\. Electricity sub- projects were required to be cost-efficient with regard to investment and operation and maintenance and respect the guidelines developed for energy efficiency\. 39\. The investments in public parks were considered to be important for social coherence and well-being, especially for densely urbanized areas\. To assure adequate maintenance, which was a main concern, MDP-I gave priority to projects that responded to a demand and for which the municipality could demonstrate that operating costs (watering, gardening, solid waste management) could be covered from site specific revenues (e\.g\. parking tickets, entrance fees, or rental revenue from small shops or restaurants)\. For existing facilities, the assessment included a visitor count and an evaluation which share of the population uses the facility\. Ex-post evaluation 40\. No ex-post cost-benefit analysis was carried out for these categories of sub-projects\. The analysis of the public works in these categories of sub-projects reveals that financial resources were in part allocated to maintenance, which is estimated to be more cost-efficient than reinvesting in new networks\. Cost-efficiency methods were applied for the assessment of the economic merits of these expenditures (constituting US$4\.4 million in total disbursements)\. It was verified that the MDLF's procurement system did in fact systematically require competitive bidding and request price quotations, as part of established selection procedures, for ensuring low maintenance costs, and still ensuring the compliance with minimum acceptable technical specifications\. Consequently, it may be considered that the execution of investments in these categories of sub-projects met cost-efficiency standards\. Financial analysis of energy efficiency pilot 41\. The MDP-I invested US$533,547 in an energy efficiency pilot in four municipalities (Qalqilya, Anabta, Jericho, and Hebron)\. The objectives of the energy efficiency pilot was to: • Test innovative approaches to enhance municipal revenue generation\. • Reduce operating costs through promoting of energy efficiency initiatives\. • Contribute to improved environment\. 42\. Based on prior auditing of savings potentials, investments and installations were made in buildings, street lighting, waste water, and heating-ventilation-air-condition\. At the end of 53 the trial period, measurements were carried out to verify savings, followed by a workshop and post-evaluation\. The results, presented in the tables below, show NPV of US$310,956 and ERR of 22\.8 percent for an investment of US$533,547 (US$463,954 less VAT)\. This result is based on a project lifetime of 10 years (considering the expected life-span of equipment) and yearly operation and maintenance cost at 10 percent of investment cost\. The simple pay-back period is low, at only 2\.2 years\. These results are based on financial gains to the municipalities and do not quantify economic benefits form CO2 savings, which are additional\. Sensitivity analysis was done on the project life span, showing that even with an estimated project life-span of only 5 years, the NPV remains positive, at US$41,143, and ERR is 3\.2 percent\. Table A3\.11: Benefits from energy efficiency pilot Parameter Savings over pilot Savings assumption period 2011-2012 2011-2013 (18 months) (36 months) Total savings (kWh) 1,523,235 3,046,470 Total annual environmental savings (kg CO2/year) 1,599,402 3,198,804 Saving (US$) 240,607 481,213 Simple payback time (years) 2\.2 2\.2 Table A3\.12: Economic analysis of energy efficiency pilot Annualized Value of Present value Investment O&M savings annualized of benefits Year cost Cost (kWh) savings (US$) (US$) 2011 231,977 0 0 0 -231,977 2012 231,977 46,395 507,745 80,202 -151,775 2013 46,395 1,015,490 160,404 114,009 2014 46,395 1,015,490 160,404 114,009 2015 46,395 1,015,490 160,404 114,009 2016 46,395 1,015,490 160,404 114,009 2017 46,395 1,015,490 160,404 114,009 2018 46,395 1,015,490 160,404 114,009 2019 46,395 1,015,490 160,404 114,009 2020 46,395 1,015,490 160,404 114,009 2021 46,395 1,015,490 160,404 114,009 2022 46,395 1,015,490 160,404 114,009 Total 463,954 463,954 10,662,645 1,684,246 756,338 EIRR 22\.8% NPV @ 8% 310,956 43\. As a result of the positive results, energy efficiency initiatives are being mainstreamed into Window 1 under MDP-II\. A manual is available for the municipalities\. 54 44\. The importance of these results is further demonstrated by looking at the impact on the overall fiscal situation of the PA\. Municipalities pay for electricity directly to the Israeli Electricity Company, but often incur arrears due to a tight fiscal situation in the municipalities\. When municipalities do not pay the utility bills, the GOI deducts the corresponding amount from the clearance revenues due to the PA, a situation known as “net lending” and which transfers municipal budget deficits (arrears in payment of electricity bill) directly to the PA budget\. Reducing electricity consumption in the WBG municipalities thus has the potential to contribute to reducing net lending\. 45\. Based on prior auditing of savings potentials, investments and installations were made in buildings, street lighting, waste water, and heating-ventilation-air-condition\. At the end of the trial period, measurements were carried out to verify savings, followed by a workshop and post-evaluation\. The results, presented in the tables below, show NPV of US$176,140 and ERR of 23\.2 for an investment of US$274,536 (US$233,356 less VAT)\. This result is based on a project lifetime of 10 years (considering the expected life-span of equipment) and yearly operation and maintenance cost at 10 percent of investment cost\. The simple pay-back period is low, at only three years\. These results are based on financial gains to the municipalities and do not quantify economic benefits form CO2 savings, which are additional\. Sensitivity analysis was done on the project life span, showing that even with an estimated project life- span of only 5 years, the NPV remains positive, at US$58,515, and ERR is 7\.6 percent\. 55 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Infrastructure/ Zeyad Abu-Hassanein Sr\. Water & Sanitation Specialist MNSWA environmental safeguards Khalida Seif El-Din Al-Qutob Program Assistant MNCGZ Meskerem Brhane Sr\. Urban Specialist EASIN TTL Lina Abdallah Urban Specialist MNSSU Operations, M&E Sabine Beddies Sr\. Social Development Specialist MNSSU Lamis Aljounaidi Junior Professional Associate MNSTI Transport Afaf Khalil Abbasi Procurement Specialist MNAPC Lina Tutunji Procurement Specialist MNAPC Ahmed Merzouk Sr\. Procurement Specialist SARPS Suhair M\. Saah Consultant MNAFM Deepali Tewari Sr\. Municipal Dev\. Specialist MNSSU Mario Zelaya Consultant MNSSU Engineering Hernando Garzon Consultant MNSSU Municipal finance Samira Hillis Operations Officer MNSSP Infrastructure/ Zeyad Abu-Hassanein Sr\. Water & Sanitation Specialist MNSWA environmental safeguards Supervision/ICR Lina Abdallah Urban Specialist MNSSU Operations, M&E Infrastructure/ Zeyad Abu-Hassanein Sr\. Water & Sanitation Specialist MNSWA environmental safeguards Khalida Seif El-Din Al-Qutob Program Assistant MNCGZ Lamis Aljounaidi Junior Professional Associate MNSTI Transport Meskerem Brhane Sr\. Urban Specialist EASIN TTL Lina Fathallah Rajoub Procurement Specialist MNAPC Samira Ahmed Hillis Sr\. Operations Officer MNSSP Majd Laisoon Consultant MNAFM Suhair M\. Saah Consultant MNAFM Christianna Johnnides Urban Specialist MNSSU TTL, ICR Hana Salah Consultant MNSF1 Social safeguards Basheer Jaber Consultant MNAPC Procurement Nadi Mashni Financial Management Specialist MNAFM Christian Eghoff Consultant MNSSU ICR primary author Noriko Oe Consultant MNSSU Municipal finance Municipal finance, Hernando Garzon Consultant MNSSU economic analysis Verena Pfeiffer Consultant MNSSU Municipal finance, 56  economic analysis Sabine Beddies Sr\. Social Development Specialist MNSSU Financial Suhair J\. D\. Musa Consultant MNAFM management Mario Zelaya Consultant MNSSU Engineering Soraya Goga Lead Urban Specialist MNSSU TTL Mary Koussa Public Information Assistant MNCGZ Communication Florencia Liporaci Sr\. Program Assistant MNSSD Alexandra Ortiz Sector Leader LCSSD ICR peer reviewer Barjor Mehta Lead Urban Specialist SASDU ICR peer reviewer (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending 57\.50 229\.30 Supervision/ICR 94\.17 478\.18 Total: 151\.67 707\.48 57 Annex 5\. Beneficiary Survey Results 1\. A client and citizen satisfaction survey was carried out as baseline in September 2009 and repeated in 2012 (report finalized in March 2013)\. The methodology and results are summarized here\. Scope and methodology 2\. In September 2009 a baseline assessment was conducted to assess the satisfaction of citizens with the performance of their municipalities, and to assess the satisfaction of municipal staff with the performance of the MDLF\. In 2013 the same company was commissioned to undertake a post assessment of municipal staff and citizen satisfaction at the end of MDP-I to compare to the 2009 baseline\. 3\. In addition to the above-mentioned respondents, the 2013 survey also covered citizens and organizations that participated in SDIP processes and LTCs who supported the municipalities in the infrastructure projects and in preparing the SDIPs\. The updated assessment also serves as baseline for MDP-II\. Main changes between the first and second survey included the inclusion of councilors and increasing qualitative data collection via focus groups and key informant interviews\. 4\. The surveys were conducted as follows: • Baseline questionnaire for citizens’ in 2009, repeated in 2013 for citizens living in urban locations benefiting from Window 1 sub-projects as well as citizens living in urban locations which did not benefit from Window 1\. • Municipal staff questionnaire in 2009 and again in 2013 targeting municipal staff involved in the implementation of Window 1 sub-projects\. • Focus group discussions in 2009 and again in 2013 which targeted the citizens living in localities that benefited from the MDP (Window 1 and Window 3)\. 5\. Two additional questionnaires were developed in 2013 for the following groups: • Citizens and organizations that participated in SDIP process\. • LTCs that supported the municipalities in the infrastructure projects and in preparing the SDIPs\. 6\. The sample design and selection was similar for the two surveys, with details for the second survey presented here: • Citizens: 1,230 citizens selected in 31 municipalities using stratified multistage cluster sampling\. The sample was stratified according to the size of each municipality in accordance with the MOLG size and administrative classification (A, B, C, D) and according to geographical area (West Bank and Gaza)\. Within each municipality 25 to 40 households were selected, half of them located in the areas that benefited from Window 1 sub-projects and the other half selected from the areas not benefiting from Window 1 sub-projects\. Then the individuals within the household were selected using 58  Kish method to guarantee a random and representative sample, in terms of age and gender\. • Municipal staff: 199 municipal staff were selected from 70 municipalities distributed in the WBG\. The selection of municipalities was based on stratified systematic random sampling\. The stratification was based on the MOLG size classification, the benefit from the SDIPs projects and according to geographical area (West Bank and Gaza)\. Two to three municipal staff were interviewed from each selected municipality\. • Citizens and organizations participating in the SDIP process survey: 165 citizens and representatives of local organization were selected for this survey\. The 165 respondents were selected from 28 municipalities which received support to elaborating SDIPs\. Three to seven persons who participated in SDIP preparation process were selected for each one of the 28 municipalities\. • Local technical consultants: All the LTC staff (14) who supported the municipalities in the infrastructure and SDIP projects were interviewed; 6 interviews were conducted with infrastructure consultants and 8 with SDIP consultants\. • Focus group discussions: Nine focus groups were conducted; six in the West Bank (two in each of North, Center and South of West Bank) and three in Gaza\. Each focus group included nine to 13 participants\. In total, 103 persons participated in the focus groups; 51 of them were males and 52 were females\. The ages of participants were between 20 and 58 years\. 7\. Questionnaires and responses were centralized in the survey company’s headquarters, reviewed, and post-coded (in the case of open-ended questions)\. Data entry was done in Access 2007 database and data was checked for errors or outliers\. After the cleaned files were produced, data were analyzed using SPSS software\. Results 8\. The results of the surveys and interviews were for the most part positive and indicated improvements from 2009 but highlighted some reoccurring issues\. The effects of the MDP-I were clear on some of the services but issues that extended beyond the capacity of the municipalities may have skewed the perceptions of respondents\. Furthermore, it was clear that the main reasons behind many of the issues mentioned throughout were related to shortage of funds for investments\. The numbers are presented in Table A5\.1 and elaborated more in the text below\. 9\. The surveys show upwards tendencies for overall satisfaction with service delivery and quality of the municipal administration, although the trend for individual services is not uniform\. The 2012 survey showed that overall satisfaction with services in areas not benefiting from MDP sub-projects had actually declined to 45 percent in 2012\. Since, the overall satisfaction with services had increased in MDP areas (from 50 percent in 2009 to 57 percent in 2012), this is enough to allow us to affirm that the upwards tendency in MDP-areas is statistically significant\. Each of the areas of citizen satisfaction with municipal administration showed improvement over the period, although from a low base in some cases\. It might have been expected that the satisfaction with transparency had increased more, given the effort by municipalities to publish SDIPs, budgets, external audits and rankings; the underlying reason should be examined more\. 59  Table A5\.1: Results of Citizen Satisfaction Survey Type of service 2009 2012 Satisfaction (%) Overall score (%) Satisfaction (%) Overall Score (%) Electricity 65\.1 58\.1 Water 42\.7 54\.8 Sewage 57\.8 68\.4 57\.1 50\.0 (non-MDP Solid Waste 52\.3 50\.6 areas: 45) Roads 49\.7 58\.7 Parks 51\.8 32\.3 Interaction 68\.8 72\.5 Awareness 18\.6 33\.4 N/A N/A Public Participation 16\.4 23\.2 Transparency 34\.8 36\.6 Source: Palestinian Central Bureau of Statistics: Citizen satisfaction with municipal service delivery in 2009 and 2012\. March 2013\. Satisfaction refers to responses of “satisfactory” and “highly satisfactory” on a 5-pont scale\. 10\. The survey measuring the citizen satisfaction with the municipality highlighted major areas of improvement from 2009 with regard to municipal services\. Specifically, essential services such as potable water witnessed overall improvement from 2009 to 2012, especially in the historically contaminated waters of Gaza where the satisfaction with water quality doubled but quality still remains well below international standards\. Moreover, there was improvement in delivery management of the services and dealing with the citizens as improved ratings were recorded for continuity of services without cut-offs and the dealing with problems and deficiencies on time, in addition to high satisfaction with the municipal staff’s treatment and interaction with the citizens\. 11\. One of the services rated less positively in 2012 was solid waste collection where citizens requested more frequent rounds of solid waste collection and an increase in bins\. However, it was cited that lack of budgets hinder the municipalities’ ability to collect solid waste in a timely manner, especially with few staff\. 12\. It is interesting to note that citizens were mostly satisfied with the opening of new roads and rehabilitation of roads with their satisfaction also significantly increasing from 2009\. However some aspects of road service did not fare well, such as the availability of speed bumps, retaining walls, and road signs\. The increase of new roads and the rehabilitation of others, as attested to by the citizens, have increased the needs for road services that may otherwise be outside of municipal budgets\. Consultants working with the municipalities, especially those consulting on infrastructure, expressed a great need to increase the budget\. 13\. Other key points from the citizen survey are the increased levels of participation and interaction with the municipality and a much higher level of overall awareness by the citizens, specifically increased awareness for projects implemented by the municipality where the awareness doubled between 2009 and 2013\. Participation, transparency, and awareness can be said to be still low, but rising\. 60 Citizens participating in developing SDIPs 14\. Responses from citizens who participated in developing SDIPs indicated that the citizens were very pleased with the part they played and with the activities involved\. The biggest concern of the participants was the level of promotion of the activities related to the SDIP preparation but the majority still felt that it was enough\. Others were not very pleased about the level of participation from the community citing that not all segments of the community were fairly represented\. It is true that the majority of the participants were male but the number of females who participated was relatively good considering the norms and culture of the region\. Municipal staff survey 15\. The municipal staff members were generally pleased with the interaction and communication with the MDLF\. The main issues that were mentioned by the employees concerning their relationship with the MDLF were mostly related to the funding provided as there was a sense by some that their municipality deserved more than what was provided based on the needs of the projects proposed\. Other issues included the communication with the MDLF where some wanted a more direct communication method with concerned persons at the MDLF instead of having to go through someone else or through the consultant\. 16\. Although the municipal staff were mostly satisfied with the support given by the MDLF, they cited some issues relating to the complicated procedures involved as part of the projects\. These issues with the procedures were also recognized by the consultant but the consultants related these issues more to the skills of the municipal staff\. 17\. The majority of staff expressed that funding is not enough in order to fully achieve the objectives of the projects\. Although they realize that the MDLF funds are limited, half still think that those funds are not being fairly allocated\. This issue is mainly related to the GAM and not the MDLF performance as the staff felt that the allocation should be based on the needs instead of the municipalities’ performance ranking\. That said the overwhelming majority of staff members feel that the MDLF is clear about the municipal rankings and also the majority said the MDLF gives the municipalities a chance to appeal the ranking\. Consultant survey 18\. The consultants of both the infrastructure and the SDIP projects turned out to have big roles to play in the project\. Their input was for the most part appreciated and needed by the majority of the municipal staff to such an extent that some mentioned that there are not enough consultants\. The consultants were mainly concerned about the capacity of the municipalities as they believed that some of the staff are not qualified to do their job while others citing that the municipalities expect too much from the consultant\. 19\. As for the project procedures and regulations, the majority of the consultants were satisfied but cited complication with some of the procedures that have created confusion for the municipalities, mainly because they feel that the staff is not adequately trained or prepared to handle some of the tasks\. However, the consultants indicated that this is part of the learning curve and they have already seen improvement in the municipalities overall culture\. 61 20\. All the consultants indicated that the projects meet the needs of the citizens and more funding is needed to fully cover those needs\. 62 Annex 6\. Stakeholder Workshop Report and Results No stakeholder workshop was held\. 63 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. The borrower’s ICR, prepared by the MDLF, was provided to the Bank in October 2013, and is presented below\. It is edited for consistency with the rest of the document regarding layout and acronyms\. The Bank ICR was shared with the MDLF for comments\. By email of April 16, 2014 the MDLF confirmed that they had no comments on the Bank’ ICR\. Municipal Development Project Phase 1 MDPI – Completion Report Submitted By: Municipal Development and Lending Fund (MDLF) - Palestine October, 2013 I\. Context, Development Objectives, and Design  Project context: why was the project initiated? 2\. Despite the continued emergency and conflict, the PA, with substantial support from the international community, has moved ahead with creating the institutional structures required to provide needed services to the Palestinian people\. It has articulated a national development agenda in its PRDP (2008-2010) in December 2007\. 3\. The PRDP recognizes that for LGs to provide effective services for their citizens, they need to be better managed and more accountable\. It, therefore, highlights the need to build the operational, administrative, and financial management capacity of LGs\. It calls for new legislation to clarify and regulate the relationship between central administration and LGs and to establish a policy framework which promotes fiscal autonomy and discipline at the local level\. The MOLG is taking the lead on policy formulation and oversight of the LG sector, while the MDLF is charged with implementing PA policies\. 4\. The MDP contributes to the implementation of the reform agenda highlighted in the PRDP – improved local governance and accountability\. Improved local governance is expected to lead to better service provision to citizens\. Furthermore, it contributes to state- building as it lays the foundations for more sustainable LGs, making them less aid dependent\. The MDP lays the groundwork for a future sector-wide approach, building on a legacy of effective coordination among the FPs\.  Original Project Development Objectives 5\. The MDP is a multi-phase national program which provides municipalities with a combination of technical assistance and annual performance based grants for sub-projects that improve service delivery\. The formula for performance grants is designed to create incentives for municipalities to progress towards creditworthiness\. The MDP has a three-stage hierarchy of objectives, as described below: 64  (a) Sector-Level objective: Drawing on the MDLF’s institutional mandate and vision, over the long-term the MDP contributes to strengthening municipal governance to enable municipalities to become creditworthy and thereby access resources from the market for investments that will enhance service delivery\. At present, no municipalities are creditworthy\. (b) Program-Level objective: Drawing on the PRDP, over the medium-term, subsequent phases of the MDP will be designed to support municipalities in providing better coverage and improved quality of services\. (c) Objective of the First Phase of the MDP: Over the short-term, the MDP – Phase 1, will support municipalities in improving their management/governance practices\.  Financing Partners 6\. The MDP is supported by the Palestinian National Authority along with the Agence Française de Development (AFD), the Danish Government, the Swedish International Development Cooperation Agency (Sida), the World Bank, the German Development Bank (KfW), and the German International Technical Cooperation (GIZ)\. Furthermore, the savings from the KfW under the EMSRP-II with an amount of EUR 1,640,094 was invested in Window 1 of the MDP 1 – Cycle 1\. In addition to that, the Kingdom of Belgium has committed to supporting the MDP through its ongoing program (Local Government Reform and Development Programme) and starting from the 2nd cycle of MDP Phase 1\. All the 1st cycle agreements were signed in late 2009, with the exception of Sida and Denmark who chose to finance the MDP through a trust fund administered by the World Bank\. The agreement was signed on June 10th, 2010\. The total allocated amount for the 1st cycle fund was EUR 30,004,263\. 7\. With regard to the 2nd cycle funds, some of the agreements were signed in late 2011, particularly the World Bank amendment and the AFD agreement\. However, the other funding agreements were signed during the 1st half of 2012\. The total allocated amount for the 2nd cycle fund was EUR 29,706,587\. Table A7\.1 below illustrates the funding amounts, the signature dates and the completion dates for both cycle agreements of MDP Phase 1\. Table A7\.1: MDP Financing Partners Contribution for the 1st and 2nd cycles\. Donor Amount Signature Date Completion date as Amount Signature Date Completion date as (1st cycle) per the Agreement (2nd cycle) per the Agreement GIZ € 450,000 November 12, 2009 March 31, 2012 € 300,00 June 27, 2012 March 31, 2015 KfW € 7,500,000 December 6, 2009 December 6, 2012 € 9,500,000 February 14, 2012 February 14, 2015 AFD € 3,200,000 April 6, 2010 December 31, 2012 € 6,000,000 December 21, 2011 December 31, 2014 World Bank $10,000,000 October 29, 2009 August 31, 2013 $ 2,000,000 December, 21, 2011 August 31, 2013 MDTF $13,477,042 June 10, 2010 August 31, 2013 $ 12,209,718 June 27, 2012 August 31, 2013 The Kingdom --- --- --- € 1,000,000 This contribution to MDP is allocated of Belgium under the third component of the ongoing Local Government Reform & Development Programme, with total amount of €3 million distributed on MDP cycles\. 65 8\. In addition to the above listed agreements, 10 percent of the total fund excluding the share of (AFD in Cycle 1 and the Belgian contribution in Cycle 2) is to be funded by the PA and will be invested in Window 1\.  Main Beneficiaries 9\. The MDP - Phase I has reached 132 municipalities (107 in WB and 25 in Gaza) during the implementation of Cycle 1, however, additional two newly amalgamated municipalities in the West Bank were targeted by MDP-I Cycle 2\. It is worth mentioning that about 75 percent of the Palestinian population is served by municipal services in a total population of 3,147,560 inhabitants (53\.5 percent in the West Bank and 46\.5 percent in the Gaza Strip)\. More specifically, and based on the data received from the municipalities regarding the Window 1 sub-projects, the total number of direct beneficiaries was estimated at 2,117,160 inhabitants, (55 percent in the West Bank and 45 percent in the Gaza Strip)\.  Project Components 10\. The MDP has four Windows as follows: Window 1 - Provides municipalities with performance-based grants for municipal service delivery, using the newly created GAM\. Municipalities decide on how to use the funds based on their SDIP and consultation with citizens\. Window 2 - Promotes learning and innovation to facilitate municipal development, including implementation of national policy directives\. The MDP supports the PA in its goal to encourage amalgamation of LGs to achieve better efficiencies and economies of scale\. It also establishes pilot programs to improve revenue collection, responsiveness, and community involvement\. Window 3 - Helps municipalities to improve their performance rankings in accordance to the GAM\. It provides technical assistance to improve financial management, planning capacities and technical capabilities, particularly in O&M\. Window 4 - Provides funding for program management, client and citizen satisfaction assessments, technical assistance for municipalities, and outreach programs to make sure citizens and municipal leaders have a full understanding of the GAM and the MDP development objectives\. It helps citizens to understand where their municipality is ranked, and encourages leaders to meet higher performance levels\. II\. Key factors affecting implementation 11\. The challenges that have faced the implementation of MDP-I have resulted in delaying a number of key activities in both cycles of MDP-I\. Below are the main challenges: • Market conditions: Limited resources among the local service providers resulting in re-tendering some assignments\. • Municipal Capacity: Municipalities have widely varying capacity that is influenced by: 66  o Lack of certain specialties, understaffing, overload of routine works and multi- tasking, and bureaucracy in some municipalities caused delays in collection and verification of data\. o Limited commitment of some decision makers towards reforms in management\. o Dependency on the consultants to execute capacity-building packages\. • Political conditions: Delays in the start of implementation of capacity-building packages due to the Israeli war on Gaza in November 2012 and the local elections for the majority of municipalities in the West Bank, which took place in October 2012\. • Low capacity of municipalities’ staff in evaluation, bidding documents preparation and project supervision\. Some of the municipal engineers are working in municipalities as a part time, and working in more than one municipality; this required more efforts from LTCs\. • Some municipalities did not assign site engineers for following up on the implementation of MDP projects\. Accordingly, in many cases, the technical output, coordination with LTC, and following the project in terms of technical, administrative, and financial issues was not satisfactory\. • Municipalities are not ready to implement the strategic plan projects (lands, master plan, or governmental permits)\. • Procedures in the large municipalities in the evaluation of biddings documents took longer time than what was expected by the LTCs and the MDLF engineers\. • There have been delays observed in progress of work especially in the projects funded by the PA\. Delay in no objection to award and delay in paying bills to contractors\. III\. Assessment of MDP-I results Program Overall Objective: To improve the quality and coverage of municipal service delivery\. Indicator 1: At the end of each program phase, municipalities are rated satisfactorily on the quality and coverage of service delivery by citizens, through citizen satisfaction surveys\. During the implementation of MDP, the need was identified to more systematically apply social accountability, which has 4 pillars: (i) transparency, (ii) (participation), (iii) response, and (iv) monitoring\. It is defined as an approach that works to strengthen accountability and improve efficiency of public agencies by involving citizens and civil society organizations in policy decisions and in monitoring public programs\. It is a way to make government work more effectively by enabling citizens to articulate their needs, demand greater inclusiveness and equity in policymaking and service delivery, and express their satisfaction or dissatisfaction with government performance\. One goal of social accountability is to restore or strengthen the social contract between municipalities and their citizens\. MDP has enhanced the municipalities’ transparency and response, as well as public participation through sub- project design/implementation, design of SDIPs, and effectiveness of municipal OSSs/public relations units\. However, more needs to be done, especially on third-party monitoring\. 67 In the same context, a specific indicator related to citizens satisfaction survey or the municipal services provision was set to be part of the MDP-I results framework\. To measure this indicator the MDLF had contracted a consultancy firm to conduct a Client and Citizens Satisfaction Assessment as a post evaluation of the MDP-I by combining two surveys: (a) MDLF clients’ satisfaction survey with municipalities and (b) citizens satisfaction survey with municipalities’ performance\. In particular, the aims of the assignment are to: • Assess the satisfaction of municipalities with the performance of the MDLF\. • Assess the satisfaction of citizens with the performance of municipalities\. • Performing comparative analysis between the situation before and after the MDP- I, i\.e\. between the 2009 baseline and the 2012 survey\. • Develop recommendations and lessons learned, based on the empirical findings, to address the identified performance concerns for the MDLF and municipalities - that are within the realm of both entities\. This assessment was utilized specifically for evaluation purposes of the MDP Phase 1 and will be used as baseline for the upcoming MDP - Phase 2\. • The results of the Customer and Citizen Satisfaction surveys were for the most part positive and indicated improvements from 2009 but highlighted some reoccurring issues (for example shortage of solid waste containers, water shortage and electricity cuts in Gaza, prepaid metering, and insufficient spaces for green areas\.) • The effects of the MDP-I were clear on some of the services’ coverage and quality, such as roads and citizen support centers (where applicable), but issues that extended beyond the capacity of the municipalities, such as prices of certain municipal services as purchased from the Israeli sources, and water sources, may have skewed the perceptions of respondents\. • The descriptive table below shows the 2009 base line scores of municipal services compared with 2012 survey scores of the citizens who benefited from the MDP-I interventions\. • Finally, the total score was calculated by summing the weighted scores for all services together\. The Customer and Citizen Satisfaction Survey results report includes more details\. 68  Table A7\.2: Results of Customer and Citizen Satisfaction Survey\. Item 2009 2012 Satisfaction Score Overall Satisfaction Score Overall score Score Electricity 65\.1 50\.0 58\.1 57\.1 Water 42\.7 54\.8 Sewage 57\.8 68\.4 Solid Waste 52\.3 50\.6 Roads 49\.7 58\.7 Parks and entertainment 51\.8 32\.3 Interaction 68\.8 --- 72\.5 --- Awareness 18\.6 33\.4 Public Participation 16\.4 23\.2 Transparency 34\.8 36\.6 *Satisfaction refers to responses of “satisfactory” and “highly satisfactory” on a 5-pont scale\. Chart A7\.1: Citizen Satisfaction Results (2009 versus 2012) Indicator 2: Percentage of coverage of municipal services (households, neighborhoods) through MDP-financed investments as shown in the MDLF municipal infrastructure database\. • This indicator was measured through a post survey of the municipal infrastructure database\. This assessment was conducted by the Palestinian Central Bureau of Statistics as a single source where the results indicated such improvements in coverage of municipal services and municipal infrastructure\. • The assessment indicated improvements in municipal infrastructure coverage at the municipal level in water, wastewater, roads, and electricity\. 69  • MDP-I has noticeable contribution in the overall change, in particular roads construction and rehabilitation\. • The MDP-I contribution is 14\.7 percent (overall), (10\.3 percent WB), (34 percent Gaza) of the total invested amounts in municipalities over the last three years (2010, 2011, 2012) regarding the infrastructure coverage and services quality\. Chart A7\.2: MDP-I contribution to municipal infrastructure services (2010, 2011, 2012) Table A7\.3a: Achievement of PDO and intermediate results indicators\. Project Development Objective (PDO) : To improve municipal management practices for better transparency Indicators Baseline End of cycle 1 End of cycle 2 Comments (end of (mid 2011) (end of 2012) 2009) Target Achieve Target Achieved d The percentage of 0 15% 86% 30% 95\.5% This PDO Indicator is surpassed\. municipalities The municipal graduation by end of that graduate up MDPI is described as follows: the performance Graduated E-C: 18 category in which Graduated E-B: 8 they are currently Graduated D-C: 58 classified, by the Graduated D-B: 32 end of phase 1 Graduated C-B : 14 No change: 4 (2 in C, 2 in E) Backward (E-F): 1 (Al Oja) Noting that the graduation was measured in accordance to the difference of municipal ranking between 2009 and 2012 (following appeal)\. It is worth mentioning that the assessment was done based on the compliance of municipalities with 12 KPIs indicated in the transfer mechanism for MDPI\. The auditing was done by a consultancy firm\. 70  Chart A7\.3: Municipal Ranking (2009 -2012) Table A7\.3b: Achievement of PDO and intermediate results indicators\. Project Development Objective (PDO) : To improve municipal management practices for better transparency Indicators Baseline End of cycle 1 End of cycle 2 Comments (end of (mid 2011) (end of 2012) 2009) Target Achieved Target Achieved Percentage of 0 30% 68% 60% 68% This PDO indicator is municipalities that surpassed: apply at least two SDIP disclosure: public disclosure (119 out of 129) – 92% methods (publicly External Audit disclosure: available SDIPs, (41 out of 61) – 67% annual external Municipal budgets disclosure: audits, project (75 out of 134) - 56% related data, Ranking disclosure : municipal budgets (89 out of 134) – 66% and performance The verification of the survey rankings) by the was conducted by an end of Phase 1\. outsourced consultant\. Intermediate Outcomes (Component Indicators) IO1 - Window 1 - Improved municipal infrastructure through capital investment grants Indicator Baseline End of cycle 1 End of cycle 2 Comments (2009) (mid 2011) (end of 2012) Target Achieved Target Achieved Percentage of 0 100% 100% 100% 100% This Component Indicator is investments fully achieved: financed that were identified in the All the municipalities that have municipal SDIPs\. SDIPs submitted sub-projects that are already identified in their SDIPs (37 sub-projects in the 1st cycle and 198 in the 2nd cycle\. 71 Percentage of 0 80% NA 80% 97% This Component Indicator is investments surpassed: financed under Based on the technical audit & MDP Phase 1 that usability assessment which was are operational conducted by individual and in adequate consultants in West Bank and state of usability Gaza, the audit reports according to indicated that the functionality, technical audits\. usability, and sustainability are acceptable and satisfactory\. Based on a sample of 30 sub- projects\. However one sub- project in Gaza is partially utilized\. I\.e\. this indicator is overachieved with more than 97% of sub-projects in adequate state of usability\. IO2 - Window 2 - improved municipal management through application of innovative initiatives Indicator Baseline End of cycle 1 End of cycle 2 Comments (2009) (mid 2011) (end of 2012) Target Achieved Target Achieved The number of 4 NA NA 6 8 This component indicator is municipal surpassed: amalgamation 8 newly amalgamated initiatives municipalities had selected 12 initiated, by the social and small-scale end of Phase 1\. infrastructure sub-projects in health, education, culture, roads\. The number of 0 NA NA 2 4 This component indicator is energy-efficiency met: projects for One year after the installation enhancing of energy saving equipment’s, municipal a post process evaluation was revenues that are conducted\. implemented The results of the measurement and verification in 2012 indicated noticeable achievements regarding the energy savings in the 4 piloted municipalities in the amount reached 1,523,235 KWh (EUR 165,479)\. The evaluation report for this sub-window illustrates these figures in detail\. Pilots of OSSs 0 1 NA 3 3 This indicator is likely to be implemented in at achieved by the end of the least 3 project\. The assignment is municipalities in ongoing and it is anticipated to Gaza\. have OSSs established and ready to receive clients in 3 municipalities in Gaza, by the end of August 2013 (Jabalia, Al Qarara, and Bani-Suhaila)\. 72 IO3 - Window 3 - Developed capacities for municipalities through the capacity development packages Indicator Baseline End of cycle 1 End of cycle 2 Comments (2009) (mid 2011) (end of 2012) Target Achieved Target Achieved The percentage of 0 15% 86% 25% 95\.5% This component indicator is municipalities that surpassed: as illustrated at the graduate up the PDO level\. performance category in which they are currently classified, by the end of Phase 1\. Procedures for 0 O&M O&M This indicator is not achieved O&M are procedures procedures yet, but is expected to be established and approved are piloted surpassed by the end of project: piloted in at least 5 in at least 5 The scope of this assignment municipalities\. municipalit was developed to have a ies and manual for O&M for roads and relevant public facilities\. A set of 10 training is municipalities (compared to 5 completed targeted) will be coached on the use of the manual\. The target, which was identified by end of Cycle 1, was not met due to planning issues related to O&M package\. The main deliverable of the coaching process of the 10 pilot municipalities is to have O&M plans that, which is expected to be ready by April 2014, where the contract with the consultancy firm was extended upon the approval from the KFW\. IO4 - Window 4 - Good and effective management of MDP I Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory This component indicator is performance of the fully achieved: MDLF as measured by The MDLF has achieved more meeting targets it than 95% of the forecasted defines in the disbursement for 2010, 2011 Annual Work Plan and 2012\. 73  Table A7\.4: Outputs of Window 1 and percentage achievement\. % of Sector Sub-Sector Indicator Unit Target Achieved Achievements ** Roads Pavement Length of roads rehabilitated Km 295 310 105% Sidewalks Length of Sidewalks rehabilitated m 50,312 49,927 99% Retaining walls Length of retaining walls m 4,405 6,279 143% rehabilitated Street lighting No\. street lighting units supplied No\. 3,386 3,415 101% Culverts Length of storm water drainage m 1,060 740 70% rehabilitated Water Water network Length of water networks Km 9 11 119% rehabilitation rehabilitated Ground water wells # of wells maintained No\. 27 47 174% maintenance (Gaza) Households connections No\. of households connection No\. 142 167 118% installed Pumps No\. of pumps installed No\. 1 1 100% Water meters No\. of water meters installed No\. 3,230 3,157 98% Wastewater Wastewater network Length of wastewater networks Km 50 35 71% rehabilitation rehabilitated Households connection No\. of households connected No\. 70 103 147% Vehicles No\. of vehicles installed No\. 1 1 100% Solid Waste Solid waste containers No\. of containers supplied No\. 498 498 100% Public Public buildings Area of public buildings constructed Sq\.m 17,184 16,783 98% Facilities construction Public gardens Area of public gardens constructed Sq\.m 27,500 29,000 105% Public buildings Area of public buildings maintained Sq\.m 35,187 35,159 100% maintenance Others Service tools No\. of tractors supplied No\. 2 2 100% No\. of rollers supplied No\. 3 3 100% No\. of excavators supplied No 7 7 100% No\. of total stations supplied No 1 1 100% ** This is a comparison to the targets stated in the application forms\. As such, changes in outputs compared to the expected (whether more or less) are mainly due to final contract costs compared to the estimated (i\.e\. in some cases more could be done with the contract amount than expected, and in other cases less could be done)\. Table A7\.5: Outputs of Window 3\. 90 municipalities have been supported in preparing SDIPs\. 52 municipalities have updated their SDIP\. 96 municipalities have benefited from the financial package, through coaching on the use of the Financial Policies and Procedural Manual (FPPM)\. 32 municipalities have benefited from the fixed assists registration and valuation package (FARV)\. 74 IV\. Challenges related to the implementation of the project activities at the output level  Window 1 • The limited capacity and availability of staff in some municipalities to supervise the projects\. • The types of projects in some SDIPs, which can be considered large scale can’t be implemented with the expected allocations in the coming years\. Some municipalities could not implement some projects in the strategic plan due to unavailability of public lands (SDIP’s wishful list of projects)\. • There was a major influence of the allocation amounts on the types of projects\. • The noncompliance between the municipalities’ SDIPs and the ministries’ plans and other institutions\. • Regarding PA projects: o In cycle 1: All PA projects were completed with some delay in disbursements\. o In cycle 2: In the West Bank the projects were implemented\. o In Gaza there are 10 projects not implemented due to the delay in the PA fund transfer\.  Window 2 • Regarding the OSS and concerning the mapping of municipal functions and optimizing procedures, there is lack of unified systems in service delivery: mostly tendency towards centralization, and bureaucratic procedures\. • Regarding the supply & installation of OSS computerized System: o There is weak knowledge in IT and automation, and high dependency on paper work\. o Some of the software in the municipalities is not compatible with the OSS software\. o The closed source software and maintenance was an issue to municipalities\. o Some equipment was stuck for some time on the border\. o The electricity problem in Gaza forced certain modifications in the software - “24 hour service by web” wasn’t possible\.  Window 3 (General Challenges facing the implementation of W3) • Limited capacity, lack of sufficient staff and overloaded staff at the municipalities\. • The procurement for the different packages started simultaneously, (e\.g\. there were large numbers of expression of interest (129) and proposals that needed to be evaluated technically)\. • Contract management, financial management, and follow up are time consuming and hinder the ability of the MDLF staff to have better outreach with the municipalities creating a gap in communication\. 75 A\. Improve financial management • The lack of proper documentation and archiving in some municipalities made it difficult to identify the ownership, acquisition year, and costs regarding the fixed assets registration and valuation\. • The slow process in response to financial management reforms (adaptation of new procedures, software, reporting and monitoring systems etc\.)\. • IFMIS: through (LGCBP) 34 municipalities had IFMIS\. At the time of the municipal ranking update (end of 2012), 19 municipalities were using the software\. Others faced problems with running it, causing a reputation risk that no municipality applied to MDP-I for IFMIS\. B\. Strategic Development and Investment Plans • Limited capacities in the municipalities for integrated planning\. • The level of participation of youth, women, and marginalized groups was minimal\. • The dependency on external funds in implementing the SDIPs projects, with less than 5 percent from own resources\. C\. Operation and Maintenance • No systematic documentation for maintenance interventions or guidance\. • There is no coding and numbering for roads in the city\. • There is lack of recent maps - Master plans\. • There is no public buildings inventory\. V\. Evaluation of the MDLF’s performance at project stages with special emphasis on lessons learned 12\. Throughout the project the performance of the MDLF was satisfactory\. Despite all the challenges and obstacles that faced the implementation of the project the MDLF was able to complete the planned activities successfully and meet the project development objectives\. The main lessons learnt from this experience:  Window 1 • LTC responsibilities in identification and planning stages will mainly focus on reviewing and verifying designs and bills of quantities in addition to implementing technical training programs for municipalities staff especially in required design, quality control and contract management, and assisting municipalities in the implementation stage\. • Conducting site visits for the project’s sites during the appraisal stage which will be necessary for: o The appraisal recommendation for approval or pre-approval\. o The verification of submitted information within the application form\. 76  • The MDLF will select some municipalities which would have increased financial and procurement responsibilities for sub-projects to be financed under MDP-II (as post review)\. • The MDLF will continue strengthening the municipal institutions and improving their staff capacities through training sessions and on job training and transfer of know-how\. This will enable the municipalities to be efficient and sustained institution\. • In the Gaza Strip: Part of its allocation was an operating cost and will continue in MDP-II\.  Window2-OSS • High commitment from decision makers in the municipality is needed (behavior change in service delivery)\. • There is a need to have in-depth analysis/studies to procedures followed by municipalities and the necessity in the future to develop O&M for service delivery (with the support of the MOLG)\. • Software development: there is a need to concentrate on the M&E and reporting systems\.  Window3 – financial management • There is a need for strong stakeholder involvement (enforcement of regulations: the MOLG, the MDLF, the Association of Palestinian Local Authorities, and municipalities)\. • A constant capacity building follow-up of financial departments is needed concerning the training, coaching, and automation using simplified software\. • The development of new packages tackling the revenue generation and the financial management is recommended for MDP-II\. • There is a need to update of manuals if required based on lessons learnt and recommendations\. • There is a need to update the TOR for MDP-II concerning the duration of the contracts, and tools used for the implementation\.  Window 3 – SDIP • There is a need for stronger involvement from the MOLG and other stakeholders and keeping coordination channels with other stakeholders\. • There is a need to outreach and mobilize the local community about strategic planning/participatory planning prior to commencement of the planning process\. • The use of quotas among planning committees (youth and women) is recommended for MDP-II\. • There is a need to encourage active volunteering, especially among the youth\. 77  • It is recommended to deal with the variations of different communities/ municipalities (scale, services delivered, etc\.): Light SDIP < 8,000, amalgamated municipalities\. • There is a need to work more on change behavior and introduce citizenship manual and outreach manual (mainstream gender)\. • There is a need to apply and activate the SDIP units (employee or department) at each municipality\.  Window 3 - O&M • The operation and maintenance needs to be phased\. • New capacity building interventions might be needed to enhance service delivery by applying new tools of operations, GIS, etc\. VI\. Evaluation of World Bank Performance 13\. Throughout the project, the performance of the World Bank was satisfactory\. There was continuous follow up by the project team leader and Bank related staff on the progress of implementation and on financial and management issues\. 14\. During implementation, there was day-to-day follow up by the field based members\. Semiannual structured supervision missions were organized which featured team members from West Bank and Gaza\. This ensured the mobilization of a multi-disciplined team much needed to oversee this project\. Moreover, safeguard policies were also monitored closely and were timely addressed\. For example, procurement was constantly monitored with periodic post-reviews as part of the supervision missions' activities\. 15\. In addition the team leader, related staff and experts were involved in the periodic missions\. During the missions, progress, technical comments, procurement, and financial reviews took place and comments were discussed with MDLF staff\. VII\. Sustainability 16\. The MDP was designed in such a way as to ensure the sustainability of its effects regarding the services delivery, piloted innovations, and municipal capacity development issues\. The sustainability of MDP impacts is ensured by to the following factors: • The linkage between the municipal grants and municipal performance is an important factor that incentivizes for better performance to get more funds from MDP as a multi-phase incentive program\. • The capacity development packages were designed to institutionalize the procedures, guidelines, and manuals within the municipalities as a first step towards the reform and good governance for the LG sector in Palestine\. • The MDP was designed in line with national LG policies, which implies that all procedures, manuals, and other institutional arrangements within the municipalities regarding the financial and planning aspects will be supported by the central government\. 78 • The participatory approach which was adopted during the implementation of MDP-I activities, in both the strategic planning and sub-project identification, is an important factor towards building a strong relation between the citizens and their municipalities\. This leads to increased level of confidence with municipalities and increases the loyalty towards the implemented sub-projects\. • Most importantly, the manuals and guidelines regarding the FARV, SDIP, OSS, etc\., are being utilized by other institutions working in LG sector development\. 79 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders 1\. The draft ICR was shared with all FPs for comments\. The responses are provided below\. Comments from KfW 2\. The comments below were received from the KfW by email on April 14, 2014: We have the following comments, • Item 35: KfW did not agree on financing recurrent expenditures in Gaza\. • Item 45: KfW confirms the statement\. • Item 52: KfW confirms the statement\. • Item 55: the following is an update on the four phases of developing an O&M packages, which its implementation was divided into four phases: o The following was completed in MDP I:  Phase one: assessment of the current practices of O&M at the municipalities\.  Phase two: develop an operation and maintenance system and document it in a manual\. The coaching of municipalities on its use is ongoing\. o The following is being implemented or planned for MDP II  Phase three: develop a computerized O&M system and test it on a pilot of municipalities\. This phase is under implementation (MDPII-Cycle1) where we approved the ToR, so the procurement process started\.  Phase four: Roll out the computerized system to the municipalities, which is planned for MDPII-Cycle2\. • Item 78: we agree on the comment regarding the creditworthiness of municipalities\. • Item 81: The following are two main reasons for large investments in roads, o The construction/rehabilitation of roads was considered priority in SDIPs\. o The allocations for most municipalities were not sufficient to consider other types of projects\. In general, the report is well written and comprehensive\. Comments from DANIDA 3\. By email of April 16, DANIDA confirmed that they have no comments on the ICR\. Comments from AFD 4\. The AFD confirmed by telephone follow-up that they have no comments on the ICR\. 80 Annex 9\. List of Supporting Documents 1\. The following documents are in the project file: • Project Appraisal Document (August 13, 2009) • Trust Fund Grant Agreement (2009) • Multi-Donor Trust Fund Grant Agreement (2010) • Multi-Donor Trust Fund Project Agreement – MDLF (2010) • Subsidiary Agreement PLO-PA (2010) • On-granting Agreement PA-MDLF (2010) • 2011 AF allocation requests • 2011 AF Letter from Sweden • Trust Fund Grant Agreement Amendment (2011) • Additional Grant Project Paper (2012) • Additional Financing Agreement – Sweden (2011) • Additional Financing Agreement – Denmark (2011) • Municipal Infrastructure Database Survey (2012) • West Bank and Gaza Municipal Finance and Service Provision (2010) • Technical Audit and Usability Assessment for Infrastructure Sub-Projects –Gaza (2013) • Technical Audit and Usability Assessment for Infrastructure Sub-Projects –West Bank (2013) • Project aide-memoires (3, 2010-2011) • Client Satisfaction Survey (2013) • Implementation Status and Results Reports (ISRs #1-7, 2009-2013) • Environmental and Social Management Framework • Mid-Term Review Report • Government Implementation Completion Report (2013) 81 MAP 82

REVIEW

P155689

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004583 IMPLEMENTATION COMPLETION AND RESULTS REPORT TF0A0823 ON A SMALL GRANT IN THE AMOUNT OF US$0\.45 MILLION TO THE REPUBLIC OF UZBEKISTAN FOR INTEGRATED SINGLE WINDOW OFFICE FOR SOCIAL ASSISTANCE AND EMPLOYMENT SERVICES (P155689) APRIL 3, 2019 Social Protection and Jobs Global Practice Europe And Central Asia Region  ABBREVIATIONS AND ACRONYMS BETF Bank-Executed Trust Fund CPF Country Partnership Framework CPS Country Partnership Strategy CRI Corporate Results Indicator ECA Europe and Central Asia FM Financial Management ICR Implementation Completion and Results Report ICT Information and Communication Technology ISWO Integrated Single Window Office IT Information Technology M&E Monitoring and Evaluation MELR Ministry of Employment and Labor Relations MIS Management Information System MLSP Ministry of Labor and Social Protection MOF Ministry of Finance MOH Ministry of Health MOL Ministry of Labor PDI Project Development Indicator PDO Project Development Objective PIU Project Implementation Unit RETF Recipient-Executed Trust Fund RSR Rapid Social Response SOE Statement of Expenditure SPJ Social Protection and Jobs SPL Social Protection and Labor Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Michal J\. Rutkowski Practice Manager: Cem Mete Task Team Leader(s): Oleksiy A\. Sluchynskyy ICR Main Contributor: Ngoc Dung Thi Tran  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 4 II\. OUTCOME \. 8 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 13 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 13 V\. LESSONS LEARNED AND RECOMMENDATIONS \. 16 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 18 ANNEX 2\. PROJECT COST BY COMPONENT \. 23 ANNEX 3\. TEAM COMPOSITION \. 24  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Integrated Single Window Office for Social Assistance P155689 and Employment Services Country Financing Instrument Uzbekistan Investment Project Financing Original EA Category Revised EA Category Not Required (C) Organizations Borrower Implementing Agency Ministry of Finance Ministry of Employment and Labor Relations (MELR) Project Development Objective (PDO) Original PDO Increase coordination among SPL programs and functions, strengthen capacity of MLSP in delivering services to the vulnerable and needy groups of the population and implementing complex reforms, and establish a solid foundation for implementation of a national social Registry\. Page 1 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-A0823 450,000 445,638 445,638 Total 450,000 445,638 445,638 Total Project Cost 450,000 445,638 445,638 KEY DATES Approval Effectiveness Original Closing Actual Closing 18-Aug-2015 12-Oct-2015 30-Jun-2017 29-Jun-2018 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 21-Jun-2017 0\.16 Change in Loan Closing Date(s) Change in Implementation Schedule 20-Mar-2018 0\.31 Change in Loan Closing Date(s) Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 31-May-2017 Moderately Satisfactory Moderately Satisfactory 0\.16 02 21-Mar-2018 Moderately Satisfactory Moderately Satisfactory 0\.31 Page 2 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) ADM STAFF Role At Approval At ICR Regional Vice President: Cyril E Muller Cyril E Muller Country Director: Saroj Kumar Jha Lilia Burunciuc Senior Global Practice Director: Arup Banerji Michal J\. Rutkowski Practice Manager: Andrew D\. Mason Cem Mete Task Team Leader(s): Oleksiy A\. Sluchynskyy Oleksiy A\. Sluchynskyy ICR Contributing Author: Ngoc Dung Thi Tran Page 3 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context 1\. Uzbekistan is a lower-middle-income country that enjoyed a robust annual gross domestic product growth rate of 8 percent during the 2000s\. Because of the rapid economic growth, the country’s poverty rate was declining rapidly, from 27\.5 percent in 2001 to 12\.8 percent in 2015\. The Government’s vision was to make Uzbekistan an industrialized, upper-middle-income country by the mid-century\. Achieving this goal would require transformation of the country’s economy, society, and institutions\. In terms of social protection, Uzbekistan inherited a Soviet-styled system based on principles of full employment, universal childcare, and guaranteed old-age income, which in the long run would create a financial burden on the budget and fiscal instability, with the estimated costs of social allowances increasing from 5\.7 percent of the Gross Domestic Product in 2012 to 6\.7 percent in 2030\. As part of country’s transition to a market-based economy, Government acknowledged the need to modernize its social protection system, emphasizing importance of targeted social assistance to the most vulnerable groups, while promoting employment services and providing professional training and re-training to the unemployed population\. Being decentralized with the social assistance and employment programs implemented by various government agencies and local community organizations (Mahalyas), the system needed a better coordination among the programs and better targeting of beneficiaries to enhance the efficiency and quality of social protection services\. 2\. In response to the challenges of making the country’s social protection system more efficient and delivering better-quality public services, the Government defined a vision of establishing a unified registry system of beneficiaries of social assistance and employment services\. The Government’s effort eventually would involve establishing a centralized management information system (MIS) consolidating data on beneficiaries from multiple programs and possibly multiple institutions, investing in hardware, establishing an extensive communication network, and improving infrastructure of district offices of the Ministry of Labor and Social Protection (MLSP)1 to provide better service to beneficiaries\. The future system was also expected to improve monitoring and coordination between the center and the local communities, where most of the eligibility decisions and delivery take place\. 3\. As the first step toward building the unified system of Social Registry, in 2015, the Government of Uzbekistan requested the support from the World Bank to develop and pilot an Integrated Single Window Office (ISWO) for social assistance and employment services at the district offices of the MLSP as a unified beneficiary enrollment mechanism, with streamlined administrative and referral functions; effective data consolidation and information management (including establishing a centralized MIS); and robust monitoring provisions\. The ISWO Project was approved by the World Bank Regional Vice President for Europe and Central Asia (ECA) on August 18, 2015, in the amount of US$0\.45 million, funded by the Rapid Social Response (RSR) Program Multi-Donor Trust Fund\.2 1 The MLSP was responsible for managing social assistance, social care, and employment programs\. It was reorganized into the Ministry of Labor (MOL) in 2016 and then to the Ministry of Employment and Labor Relations (MELR) in 2017\. 2 The funding partners for the RSR Program Multi-Donor Trust Fund include the Russian Federation, Norway, the United Kingdom, Australia, Sweden, and the Global Facility for Disaster Risk Reduction (GFDRR)\. Page 4 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Project Development Objectives (PDOs) 4\. The PDOs are to increase coordination among SPL programs and functions, strengthen capacity of the MLSP (or MELR) in delivering services to the vulnerable and needy groups of the population and implementing complex reforms, and to establish a solid foundation for implementation of a National Social Registry\. 5\. The PDOs were consistent with the priorities set in the Country Partnership Strategy (CPS) for Uzbekistan for FY12–15 dated November 1, 2011 (Report No\. 65028-UZ), which emphasized the importance of improving the social protection system, especially the targeting of assistance to the most vulnerable groups\. And it remains relevant according to the Country Partnership Framework (CPF) for FY16–20 dated May 19, 2016 (Report No\. 105771-UZ) and the Performance and Learning Review (PLR) of the CPF dated May 29, 2018 (Report No\. 126078-UZ), which included ‘extending coverage and targeting of social protection services’ as one of the five objectives of the focus area on public service delivery of the CPF and ‘building effective social safety nets (SSNs)â€? under Focus Area 3 “Investing in Peopleâ€? of the PLR\.3 6\. The project’s direct beneficiaries include (a) households and individuals using social assistance, social care, and employment facilitation services provided by the MLSP at the district level and (b) Mahalyas4 and MLSP employment office staff whose service provider workload is expected to be reduced, owing to the streamlined administrative processes and improved data availability\. In addition, the MLSP management at the central and district levels also benefit from the newly improved information system as it allows them to better monitor the performance results of their district offices and have up-to-date data on the beneficiaries and services available, to make better-informed and timely decisions\. Key Expected Outcomes and Outcome Indicators 7\. The first intermediate outcome of the project was the increased coordination among social protection and labor (SPL) program and functions (social assistance and employment services)\. The following PDO indicator (PDI) and corporate results indicators (CRIs) were used to track this outcome: • A roadmap and detailed blueprint national reform of administration of the social protection and employment programs (PDI) • The number of direct project beneficiaries (CRI) • The percentage of female beneficiaries (CRI)\. 3 The five objectives for public service delivery set out in the CPF for FY16–20 include (a) improving the quality of education and health services, (b) extending coverage and targeting of social protection services, (c) increasing access and improving the quality of water supply and sanitation services, (d) promoting energy security and efficiency and reducing the economy’s energy intensity, and (e) enhancing the reliability and reducing the cost of transport services and strengthening the efficiency of local infrastructure service delivery\. The Focus Area 3 “Investing in Peopleâ€? of the PLR focuses on two areas: (i) improving access to quality education and health and (ii) building effective SSNs\. 4 Mahalyas are local community organizations whose role is to identify and enroll the neediest families in social assistance, social care, and employment programs in rural communities, while the ministry provides for centralized management and oversight\. Page 5 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 8\. The second intermediate outcome of the project was the strengthened capacity of the MLSP (MELR) in delivering services to the vulnerable and needy groups of the population and implementation of complex reforms\. This outcome was measured by two PDIs: • Capacity of staff increased (staff trained) • Management and fiduciary capacity established within the MLSP 9\. The achievement of these two intermediate outcomes was expected to create a solid foundation for the implementation of the National Social Registry—a unified system with an MIS of synchronized beneficiary data from different programs and institutions that allows better targeting of social protection services to the most vulnerable groups\. This is the longer-term outcome of the project\. Components 10\. The RSR Grant included a Recipient-Executed Trust Fund (RETF) of US$450,000 and a Bank- Executed Trust Fund (BETF) of US$100,000 for the World Bank’s supervision and implementation support\.5 This Implementation Completion and Results Report (ICR) covers the RETF activities only\. At approval, the project was designed with three components, which remained unchanged during its implementation\. 11\. Component 1: Design and pilot the ISWO concept, develop a reform roadmap (US$300,000)\. This component focused on developing operating procedures and specifications and piloting an ISWO software that supports services of the MELR district offices, including job search and facilitation, retraining, public works, unemployment registration and benefit award, and various forms of cash assistance\. Importantly, the ISWO software integrates the national ID and register of businesses and public databases, as well as the MELR’s database of nationwide job vacancies\. This forms a solid foundation for a future intended Social Registry database that keeps record of all applicants, benefit awards, and services provided\. The ISWO pilot was initially planned in up to two MELR district offices only\. This component also covered some office renovations and equipment upgrade for the selected district offices\. 12\. Component 2: Strengthen capacity to improve service delivery (US$70,000)\. This component included (a) assessment of the human resource development needs; (b) design and delivery of customized training programs to the staff of the district offices, where the new software is introduced; and (c) campaigns to raise the staff awareness about benefits of the anticipated changes and prepare them for the new operational mode\. 13\. Component 3: Project management (US$80,000)\. This component financed a Project Implementation Unit (PIU) within the MLSP, including the management and fiduciary team of national consultants, the costs of audit, operating expenses, and various national and international consultancies\. 5 The BETF number is TF0A0917\. Page 6 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Summary of Implementation and Significant Changes Implementation Issues 14\. The project became effective on October 12, 2015, with the original closing date of June 30, 2017\. However, in the first year of its implementation, the project experienced implementation delays\. • The key positions of the PIU—a project manager, a financial management (FM) specialist, and an information technology (IT) specialist—could not be filled immediately\. The project manager was eventually appointed by the implementing ministry and the process of hiring key consultants (FM and IT specialists) was initiated in early 2016\. • Subsequent delays concerned the project FM arrangements\. Due to the small size of the Grant, the PIU was not established as a separate legal entity with independent FM function and responsibilities—they were shared with the Accounting Department of the Ministry\. This resulted in ambiguity about the FM requirements and practices that needed to be applied\. To resolve this issue, the World Bank allowed the accounting records to be kept in Excel spreadsheets in accordance with the cash basis of accounting and then later transferred the records to the Ministry’s accounting software UzASBO\. • The restructuring within the Government caused further and prolonged delays that directly affected the implementing agency\. In February 2016, the Government decided to transfer the social assistance and social services functions out of the MLSP to the Ministry to Finance (MOF) and the Ministry of Health (MOH), respectively, and changed the MLSP’s name to the Ministry of Labor (MOL)\. Then in May 2017, the Government reversed the original decision by transferring the social assistance function back to the MOL and changing the ministry’s name again to the Ministry of Employment and Labor Relations (MELR)\.6 These institutional changes and the subsequent changes in the leadership of the ministry affected the implementation schedule of the project, causing a delay in some critical activities until late 2016\. The World Bank team and the PIU suggested a solution to keep the project running in this fluctuating institutional setting, which was to approach the system design process from the angle of a public service delivery function and not the agency responsibilities\. 15\. By early 2017, some progress in project implementation could be seen\. Key vendor contracts were signed, the ISWO software developed and rolled out, and staff trained on its use\. The PIU was also fully staffed with a full-time project manager, a part-time FM specialist, and a part-time IT specialist, who had adequate skills and experience as evaluated by the World Bank’s supervision missions\. Despite the frequent changes in the Ministry’s leadership and the PIU team itself, the PIU managed to closely coordinate with the Ministry and MOF on designing a common framework for the MIS, thus keeping the project progressing in the right direction toward achieving its intended objectives\. 6 The Government issued the Decree on ‘Measures on further improving state policy in the field of employment and radical improving effectiveness of labor bodies’ on May 24, 2017\. According to the decree, the newly reorganized MELR would develop state orders for creation of new jobs, coordinate implementation of territorial and sectoral employment programs, and monitor timely payment of benefits and material assistance to low-income families\. Page 7 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 16\. By the end of the project closing date of June 29, 2018, all project activities were completed, and the Grant was 99 percent disbursed\. Project Restructurings 17\. Project restructuring 1\. The project was scheduled to close on June 30, 2017, but due to the abovementioned changes and delays, on March 23, 2017, the Government submitted a formal request for extension of the closing date by 12 months\. However, the RSR management approved only a nine- month extension for the Grant to March 31, 2018\. During this extended period, the ISWO software was finalized and piloted, procurement of the hardware and office upgrade activities were initiated, and a follow-up beneficiary survey was conducted\. 18\. Project restructuring 2\. In late 2017, new challenges emerged concerning (a) a possible transfer of the social assistance function out of the MELR to a new agency, which caused some confusion in the new institutional responsibilities; (b) changes in the PIU management personnel (the PIU manager changed twice within four months); and (c) disputes among the project counterparts on the scope of the ISWO software application due to potential overlaps in functionality with other software development initiatives ongoing in the country at that time\. These challenges caused some additional delays to project implementation, which prompted the Government to request a second extension of the project closing date to June 29, 2018\. This three-month extended period allowed the PIU to (a) complete the office upgrade activities with all hardware and furniture procured and installed; (b) update the ISWO software with additional functionality, as requested in a feedback from the Ministry; (c) provide additional user training; and (d) complete the follow-up beneficiary survey (to assess effects of the investments and define further development needs)\. II\. OUTCOME Assessment of Achievement of Each Objective/Outcome Relevance of the PDOs 19\. The CPS for 2012–2015 emphasized the importance of improving the social protection system, including the targeting of assistance to the most vulnerable groups\. Specifically, it focused on a result area that supports the Government's objective to reduce regional and rural-urban inequities through promoting social inclusion and human capital development\. The PDOs were consistent with the priorities set in the CPS for the country at the time\. They remained relevant according to the CPF for FY16–FY20, which included ‘extending coverage and targeting of social protection services’ as one of the five objectives of the focus area on public service delivery\. And they continued being supportive of the revised objectives under Focus Area 3 “Investing in Peopleâ€? of the PLR of the CPF, focusing on building effective SSNs among others; which is important, especially in the context of the ongoing economic reforms that might adversely affect the poor and those non-poor but close to the poverty line groups of population\. 20\. The relevance of the PDOs is rated High\. Page 8 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Achievement of the PDOs (Efficacy) 21\. The PDO has two intermediate objectives, which are (a) ncreased coordination among SPL programs and functions and (b) strengthened capacity of MLSP in delivering services to the vulnerable and needy groups of the population and implementing complex reforms\. The achievement of these two objectives would lead to the achievement of the final, longer-term objective of establishing a solid foundation for implementation of a National Social Registry, which the World Bank team expected to be further developed and implemented with the World Bank support\. Objective 1: Increased coordination among SPL programs and functions 22\. The achievement of the first objective on increased coordination among SPL programs and functions was tracked by a PDI on ‘A roadmap and detailed blueprint national reform of administration of the social protection and employment programs’ and two intermediate results indicators (‘ISWO concept designed, piloted, and evaluated’ and ‘Assessment of the current MLSP systems at district level’)\. 23\. A roadmap toward a unified system for all social assistance and employment programs (a National Social Registry) was developed and adopted by the MELR in late 2015\. At the beginning of the project, the country’s social and employment service delivery system was evaluated as highly fragmented and inefficient\. Employment services are provided by the Ministry’s district offices, while social assistance services are handled by local community organizations (Mahalyas), with no unified information system to support these processes or monitor results\. The MELR plays the centralized management and supervision role and provides benefit payments\. The efficiency was low due to the lack of digitalized business processes and records management, as well as multiple application processes for beneficiaries\. The roadmap developed with the World Bank assistance included (a) high-level design of business processes, (b) a new methodology of delivering services, (c) a modular structure of an MIS consolidating data on beneficiaries from multiple programs, (d) an outline of the information and communication technology (ICT) infrastructure, and (e) a design of the office space\. 24\. The ISWO software design and pilot was the first step in implementing the roadmap after a full assessment of the Ministry’s systems at the district level was conducted and approved\. It was designed to be an automated one-stop shop with streamlined processes for use across programs in the MELR district offices, including registering information that comes from the Mahalyas\. It links with other databases of the Tax Administration, the Internal Affairs Ministry, and the national vacancy database (under the management of the MELR’s Center for Computerization and Automation), which allows personal data of the applicants to be auto-populated when their passport number is entered into the software and a quick job search for available vacancies is done based on the applicant qualifications\. The satisfactory results of the new software pilot in in two employment offices of Tashkent region led to the Government’s decision to roll out the use of the software nationwide, using their own budget\. By the end of the project, the ISWO software has been installed and in full operation in close to 80 percent of 200 district employment offices of the MELR\. The software supports the new consolidated enrollment processes into various programs operated by the ministry\. 25\. The rapid assessment of beneficiary satisfaction and operations of the MELR district offices indicated that introduction of the ISWO software into the daily business process of the offices is making Page 9 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) positive changes owing to the readiness of the data\.7 The assessment results showed that the performance monitoring system has been improved, as up-to-date beneficiary data from different SPL programs is available electronically from all offices to help inform the MELR management’s decision making (see table 1 on service cases registered in the system, indicating the increasing usage of the new systems in 2018)\. The beneficiaries, who often came to the district offices to obtain their labor book, receive information on compensation, or register for a job or training, also expressed their high satisfaction because they could get the services in one place and benefit information immediately retrieved from the ISWO system\. It should be noted that before the ISWO system was put in place, they had to visit other government offices, such as the Pensions Fund, to obtain needed information\. Similarly, even when visiting one district office, to obtain consultation or service related to different programs, an individual had to talk to different specialists or visit different rooms\. After the ISWO was introduced, the function of the front-end interactions with a client on variety of programs and issues was integrated with facilitation of one unified electronic platform\. Thus, in the context of this small Grant, having beneficiary data from different social protection and job programs readily available in one place to serve the beneficiaries and inform the decision-making process of the MELR management, was seen as improved coordination within the social protection system\. Table 1\. All Services Provided by the MELR, as Registered in ISWO Programs Q1-2018 Q2-2018 General consultation 11,945 19,093 Job facilitation 32,637 63,736 Retraining 1,072 3,267 Public works 25,866 49,008 Registration for unemployment 671 1,324 Assistance to families with children 21,092 47,696 Childcare allowance 15,995 32,276 Assistance to poor families 5,781 11,034 Total 115,059 227,434 26\. The results of two other CRIs (‘Number of direct project beneficiaries’ and ‘Percentage of female beneficiaries') were available owing to the new information system\. There are employment programs targeting women, where a certain quota of jobs is reserved for women and people with disabilities\. According to the data from the Tashkent Regional Office of Employment, about 48 percent of job seekers who were assisted with employment during January–May 2018 in the region were women\. And by the end of the project, close to 350,000 direct beneficiaries have received improved services owing to the ISWO software\. This number includes 214,000 recipients of individual, mostly employment programs and 136,000 households that applied for social assistance, against the targeted number of 8,000 beneficiaries of the project\. Female beneficiaries accounted for 52 percent against the targeted 55 percent, among the recipients of the individual programs where data was available\. 7Al Mar Consulting\. 2018\. Beneficiary Satisfaction Survey and Operational Evaluation of the Employment Centers of the republic of Uzbekistan\. Final Stage\. Project report, March\. Page 10 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 27\. The software was designed with capacity to connect with Mahalyas, but they often do not have computers or Internet connection\. In the meantime, the Mahalyas receive social benefit applications, check the beneficiary eligibility, decide on the benefit payment, and then hand them over to the district employment inspector for verifying and entering into the system at the district level\. This issue of digitizing the application process at the Mahalya level was given consideration but was beyond the scope of this Grant and will be further assessed in the context of the design of the forthcoming IDA operation focusing in part on building a National Social Registry\. Coordination with Mahalyas, however, was improved as shown in the beneficiary satisfaction survey report, with 14 percent of the respondents saying that they knew about and were referred to the district offices by their Mahalyas officials, compared to 9 percent of the respondents in the baseline survey\. 28\. Objective 1 of the project was achieved\. The results achieved were beyond expectations, with the ISWO software rolled out to close to 80 percent of MELR district offices against the initially planned two district offices, using a combination of the Government’s own budget and the Grant funding\. By design, the ISWO was a one-stop shop for both social benefits and employment services, providing for a unified enrollment mechanism across programs, as well as capturing and storing all beneficiary data in one place for easy tracking, retrieval, and reporting\. The availability and readiness of the data on different social assistance and job programs retrieved from the new information system under the ISWO Project proved to play an important role in helping the MELR management monitor the performance and service quality of their offices and inform the decision making, thus improving their ability to coordinate across programs\. Moreover, the ISWO development and pilot involved different agencies in its process, including the MELR and MOF\. As a result, it contributed to increasing coordination across SPL programs and concerned institutions to the full extent the scope of this small Grant could accommodate\. Objective 2: Strengthened capacity of the MLSP in delivering services to the vulnerable and needy groups of the population and implementing complex reforms 29\. This objective was tracked by two PDIs, which are (a) capacity of staff increased (staff trained) and (b) management and fiduciary capacity established within the MLSP\. 30\. The MELR district office staff has been trained and retrained to prepare themselves for the new business model\. After the ISWO software was installed, training was provided by the project’s IT vendor (Micros Design) to the district officers in different formats: (a) technical accommodations—video materials were produced and uploaded online for easy access by the users and (b) in-person training was conducted\. In addition, an online chat function was available for the users to ask questions and obtain instant answers while using the software\. The competency in the use of the new software was crucial for them to continue delivering the services to the beneficiaries efficiently\. Findings of the beneficiary survey conducted by Al Mar Consulting showed that after introduction of the new system, the efficiency has been increased by reducing the application processing time down to less than 10 minutes per application, compared to the 20-minute manual processing time\. Most of the visitors to the employment offices spent less than 30 minutes to get their services done, 95 percent of the survey respondents were satisfied with the professionalism and competence of the employment officers, and 84 percent of them thought the service speed was very good\. This increased efficiency of the MELR staff proved that the training in the use of the new software and the new business processes contributed to strengthening their knowledge and skills necessary for better quality services\. Page 11 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 31\. At the management level, with implementation of the new system, the Ministry has been made aware of new challenges in provision of its services and benefits\. Differences in performance across different district offices became more obvious, so the Ministry now can better target its resources and training effort\. Importantly, the work on the Grant implementation exposed various weaknesses of the system, informed the dialogue between the MELR and MOF, and helped elaborate a vision of a bigger system of benefit delivery and Social Registry—contributing to the dialogue between the Government and the World Bank on the objectives and content of the forthcoming IDA operation\. In terms of fiduciary capacity development, the Ministry’s staff were acquainted with the World Bank FM and procurement procedures and reporting, with support provided by the designated World Bank specialists\. The World Bank’s FM supervision missions found the Ministry’s accounting, internal control, funds flow, contract management, and reporting functions adequate, which was an improvement as the FM risk was assessed Substantial at the beginning of the project due to inadequate FM capacity and lack of experience in implementing the World Bank’s investment financing operations\. This was an important step to prepare the Ministry staff in terms of fiduciary and project management capacity for a larger investment financing operation on strengthening the social protection system, which would include the deployment of the functions of a Social Registry for social programs in one of its components\. 32\. Objective 2 was achieved\. Introduction of the processes and new software, along with adequate and effective training has resulted in increased productivity of the MELR district staff and higher beneficiary satisfaction\. This small Grant was the first World Bank investment project that the MELR has ever had, so it provided a good opportunity for the Ministry’s staff to get used to the World Bank’s investment lending procedures and increase their fiduciary and project management capacity before preparing for a larger lending operation\. Objective 3: Establish a solid foundation for implementation of a National Social Registry 33\. The ISWO software, while currently operating in most of the districts of the country and serving as a unified platform for service delivery by the MELR, forms a digital and conceptual core of the future National Social Registry—a centralized and comprehensive repository of all data related to operations of the social sector\. This is the long-term objective/outcome of the Grant, and by having the ISWO software successfully piloted and rolled out nationwide and its users trained and prepared for more complex reforms, the outcome was achieved\. 34\. All of the targets set out in the project results framework have been achieved or even exceeded the expectations (e\.g\., 300 MELR staff were trained versus 40 targeted; 214,000 direct beneficiaries recorded at completion versus 8,000 targeted)\. The female beneficiaries at completion accounted for 52 percent, which was a bit lower than the target of 55 percent\. However, these numbers represented individual beneficiaries of mostly employment programs, while there were additional 136,000 families- beneficiaries of general and child assistance programs with majority of all applicants for benefits for needy families with children being women\. If included, the female beneficiary target could be considered achieved\. 35\. Because all objectives have been achieved, the efficacy is rated Substantial\. Page 12 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Overall Outcome Rating 36\. Given the high relevance of the objectives and the substantial efficacy but due to delays in the project implementation, the overall achievement of the project objectives is rated Satisfactory\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME 37\. The preparation was conducted in the context of policy discussions around setting up the national registry of social protection\. The Bank mobilized the Technical Assistance on “Modernizing Administration of Public Social Assistance in Uzbekistanâ€? (P153562), which emphasized the Government’s motivation to improve quality of service delivery and guided the preparation of this grant\. 38\. As discussed in section I, frequent institutional restructuring and changes in the MELR leadership during project implementation were the key factors that affected the project progress, causing delays to the project procurement and disbursement and as a result, the design of the ISWO software\. With the social assistance function transferred to the MOF in 2016 and then back to the MELR in 2017, the solution that the World Bank team and the PIU suggested to keep the project running in this fluctuating institutional setting was to approach the system design process from the angle of a public service delivery function, not the agency responsibilities\. This meant that no matter which agency was in charge, the project would continue focusing on the intended clients, not the changing institutional context and find technical solutions that would seamlessly integrate provision of public services across social assistance and employment service programs\. This approach proved to be working, and the ISWO software design was completed and its pilot started in September 2017—almost two years after the project became effective—and the final product was approved in January 2018\. Despite all the delays, with the enormous efforts of the World Bank and PIU teams and the government’s strong commitment, the project still achieved its expected outcomes at the end (see section II)\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME Quality of Monitoring and Evaluation (M&E) 39\. The project was designed to support the Government’s efforts of designing and piloting the ISWO in two of the MELR district offices\. Given the small size of the project, the Government counterpart and the World Bank team agreed on a streamlined Results Framework and a realistic PDO that captured intermediate outcomes, given the short time line for implementation\. There was one PDI to measure the achievement of Intermediate Objective 1 on increased coordination of SPL programs and functions and two PDIs to measure the achievement of Objective 2 on increased capacity\. Objective 3 to ensure a solid foundation established for implementation of a National Social Registry did not have PDIs but was intended to be achieved once Objectives 1 and 2 were achieved\. 40\. The PDI for Objective 1 was output based, but the World Bank and PIU collected further evidence to measure outcomes and substantiate the implementation of the roadmap and use of its outputs\. In addition, ‘the number of direct project beneficiaries’ (CRI) was tracked and provided additional evidence of the use of a consolidated system of enrollment and registration for employment and social assistance beneficiary data\. Page 13 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 41\. The PDI used to measure the strengthened staff capacity under the Intermediate Objective 2 was quite general, tracking the number of staff trained on the use of the new software and corresponding process, thus making it difficult to fully evaluate the outcome of the training\. The World Bank team thus worked with the PIU on the design of a beneficiary feedback survey to be used as an evaluation method for performance of the new system and the staff\. A baseline beneficiary survey was conducted in late 2016 and a follow-up survey was conducted in March 2018 to measure the performance and impact of the project (which informed this report; see below) as well as the beneficiaries’ satisfaction\. Beneficiary satisfaction was considered a measure of the performance of the staff after receiving training on and applying the new system in their daily work, and hence their strengthened capacity\. Thus, while there were shortcomings in the ambition of the PDIs, this was addressed with the collection of additional data\. 42\. M&E mechanisms were also set up by the client\. After the social assistance and social services functions were transferred out of the MELR to the MOF and the MOH respectively in 2016, an interagency consultative process between the MELR and MOF was set up to confirm mutual interests in developing mechanisms of joint monitoring activities in employment and in social assistance\. 43\. The overall rating for M&E is Modest\. Safeguard and Fiduciary Compliance 44\. Financial management\. The FM performance under the Grant was Moderately Satisfactory throughout the Grant period\. The PIU was not established as a separate legal entity, and the FM function sharing between the PIU and the accounting department of the MLSP resulted in significant delays in processing the project payment documents and fulfilment of other fiduciary requirements\. For instance, the Grant became effective on October 12, 2015, and advance to the Designated Account was received on January 4, 2016; however, the first statement of expenditure (SOE) for documentation was not submitted until October 7, 2016, while SOEs were required on a quarterly basis\. Then between March 2017 and March 2018, the PIU did not have a dedicated FM specialist and an accountant, relying on support provided by the Ministry\. The World Bank FM specialist provided continuous guidance to the PIU throughout project implementation\. 45\. Only a single audit covering the entire Grant period was required due to the small size of the Grant\. The final audit report was submitted on January 31, 2019\. The audit found no issues concerning the project fiduciary management\. 46\. Procurement\. The procurement performance was Moderately Satisfactory\. Procurement reviews were carried out as part of the supervision missions\. Contracts were concluded for key vendors working on the design and implementation of the beneficiary survey, MIS design and development, and design of new office space, and individual consultants in project management, FM, and civil engineering\. Finally, the project also procured goods (computers) and minor works (office renovation)\. The World Bank procurement procedures were strictly followed\. However, the final procurement post-review found that the PIU maintained a poor filing system, which might result in the loss of the project records and the institutional memory once the PIU personnel change or rotate\. This issue has been brought to the attention of the MELR senior management\. Page 14 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 47\. Disbursement\. By the project closing date of June 29, 2018, cumulative disbursements under the Grant amounted to US$445,057 including the advance made to the Designated Account, accounting for 99 percent of the total Grant funds\. The amount remaining undisbursed was US$4,943\. 48\. Safeguard compliance\. The project was rated Category C and thus, did not have any safeguards triggered\. Gender 49\. The project was gender tagged in error after it was migrated from Operations Portal 2 to the Portal 3\. The PAD, the restructuring papers, and other project reports did not include any reference to gender issues and actions\. Although the ISWO system was set up in such a way that gender aspect of service provision was captured for all individual benefits, there was no analysis conducted to identify relevant gender gaps and no specific actions designed to address any possible gaps\. The project results framework included a core indicator on the number of female beneficiaries to meet the institutional requirements only\. Bank Performance 50\. Quality at entry\. Although it was small in scale, the project was initiated with an aim to design and pilot a new service delivery concept—introducing mechanisms of referral and coordination between different programs on social assistance and employment services\. Two internal review meetings (a virtual quality enhancement review on May 13, 2015, and a decision review on June 25, 2015) were conducted to ensure that (a) the PDOs were clearly defined, relevant, and achievable; (b) the ISWO concept was clearly stated and its design considered all necessary technical aspects and alternative solutions; (c) the implementation plan was rational and feasible; and (d) risks were fully assessed\. It was noted during the reviews that the implementation time line might be too ambitious, with only 22 months from the expected project approval to the original closing date, in the context of substantial political and governance risks, low institutional capacity, and substantial fiduciary risks\. To mitigate the risks, the World Bank task team conducted extensive consultations with the government counterparts and provided technical assistance to assist the MELR in developing key working documents for the project\. 51\. Quality of supervision\. The World Bank task team, including the Task Team Leader, the FM specialist, and the procurement specialist, provided intensive implementation support by undertaking short missions every two months and frequently having direct interactions with the PIU\. This supervision approach made the project monitoring more effective because it allowed the team to timely identify issues and provide solutions\. Despite the prolonged delays in the project implementation due to the institutional restructuring and MELR leadership changes, the Government remained committed and the PIU and the World Bank team kept pushing the implementation forward\. As a result, all project objectives and outcomes have been achieved by the end of the project in June 2018\. 52\. Client feedback\. While no formal written feedback was received on this ICR, at the meetings in Tashkent, the Minister of Employment and Labor Relations thanked the team for support in implementation of the grant, noting its significance for the Ministry in helping identify various gaps in its systems and processes, as it embarks on important reforms and efforts of modernization of the social assistance and labor system\. Page 15 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 53\. The overall rating for Bank performance was Satisfactory\. Risk to Sustainability 54\. The risk to sustainability is assessed as Moderate\. There is uncertainty about the institutional changes regarding the social protection function, currently under the MELR\. If a new autonomous social protection agency would be established, it would imply an important shift from the current ISWO paradigm, whereby the same agency (MELR) is equipped to provide both employment facilitation and assistance services, as a one-stop shop\. If these services are to be unpacked, the coordination between the new agency and the MELR will need to be well thought through, both at the front end of working with the clients and at the back end of recordkeeping, as well as the software maintenance and expansion\. 55\. To ensure the sustainability, the Ministry initiated discussions with the Computerization and IT Development Center of Uzbekistan (Uzinfokom) on installing both the server and the ISWO database in the specialized Uzinfokom's ICT facilities\. This would be a workable solution for the long-term maintenance of the software, as Uzinfokom provides professional hosting services\. Moreover, a new investment lending operation currently under preparation includes further development and rollout of the Social Registry and would use the work on development of ISWO and potentially increase the ISWO sustainability\. V\. LESSONS LEARNED AND RECOMMENDATIONS Policy-Level Lessons 56\. Institutionalization of the ISWO software is important for the results achieved under this Grant to be fully applied and to ensure the sustainability of the software\. The software has proved to be making positive changes to the business processes and increased the efficiency in the MELR district offices\. However, currently the focus largely is on strengthening the front end of the system, where clients are registered and services provided\. It will be important to ensure that all business processes are fully aligned with the new digital capabilities of the Ministry and all staff are fully trained in new functions, as it is moving toward consolidating, upgrading, and scaling up the Social Registry, which will be supported by the World Bank under a new Investment Project Financing (IPF)\. Expanding the capabilities and uses of the Social Registry would potentially help the Government respond effectively to emerging new policy and operational needs in the provision of social services\. Design and Implementation Lessons 57\. A continuous management role proved to be very important for the success of the project, starting from the design stage throughout its implementation\. The institutional changes to the structure and functions of the MELR during the project caused prolonged delays to the project activities and affected the design process of the ISWO software as well\. The introduction of the software, in fact, has changed the Ministry’s business processes on the delivery of social assistance and employment services positively, improving efficiency and providing better management capabilities\. Thus, there needs to be a person responsible for business process change, including the ISWO software, to ensure the consistency and sustainability of existing and new databases\. Page 16 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) 58\. Types of management information should be clearly identified when designing the software\. For the senior management to get engaged and see the benefits of the project, it is important to identify in advance what management information they need to help inform their decisions\. Thus, from the beginning, what information is needed for each level of management should have been considered and then the reporting forms customized to meet their demand\. That was eventually implemented but it is important to have that activity as an integral part of the development throughout the process, so even early results could be monitored to keep senior management motivated\. 59\. Training for the MELR staff should be constant\. Standardized learning materials that are easily accessible should be created to help the staff learn at their own pace and refresh their knowledge when needed\. This would ensure that the staff acquire the required proficiency in the use of the software and improve their level of understanding and knowledge of the service contents, as some parts of the services in the process heavily rely on their discretion (for example, the job matching service)\. That function should be coordinated centrally by a designated person within the Ministry\. \. Page 17 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Increased coordination among SPL programs and functions Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion A roadmap and detailed Text No roadmap The roadmap The roadmap A roadmap of blueprint national reform of developed and developed and Individual Single administration of the social approved by MLSP approved my MLSP Window Office protection and employment designed and adopted programs by MOL, including high level design of business processes, modular structure of MIS and registry of beneficiaries, outline of ICT infrastructure, and design of the office space\. 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): Page 18 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Objective/Outcome: Strengthened capacity of MLSP in delivering services to the vulnerable and needy groups of the population and implementing complex reforms Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Capacity of staff increased Number 0\.00 40\.00 40\.00 300\.00 (staff trained) 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Management and fiduciary Text No fiduciary PIU established and PIU established and PIU established and all capacity established within framework to operate framework exists for a framework exists for a consultants hired\. MLSP WB funded projects large operation large operation Project governing structure within the Ministry adopted\. Procurement plan approved and all FM procedures followed\. Discussions around the forthcoming operation are on- going\. 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): Page 19 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) Unlinked Indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Direct project beneficiaries Number 0\.00 8000\.00 8000\.00 214000\.00 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Female beneficiaries Percentage 0\.00 55\.00 55\.00 52\.00 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): This number represents individual beneficiaries of mostly employment programs\. Additionally, there have been 136,000 families who were beneficiaries of general and child assistance programs\. A\.2 Intermediate Results Indicators Component: Component 1\. Design and pilot the ISWO concept, develop a reform roadmap Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion ISWO concept designed, Text No ISWO concept ISWO concept ISWO concept piloted, and evaluated designed, piloted, and designed, piloted, and designed, baseline evaluated evaluated established (beneficiary survey completed), pilot implemented, evaluation completed Page 20 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) and report prepared\. 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Assessment of the current Text No Full assessment and Full assessment and Assessment of MELR MLSP systems recommendations recommendations systems produced, produced and produced and including survey of approved by MELR approved by MELR institutional capacity, HR, ICT resources, and client cervices of the front offices at the two pilot locations\. 29-Jul-2015 30-Jun-2017 30-Mar-2018 29-Jun-2018 Comments (achievements against targets): Page 21 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) B\. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1: Increased coordination among SPL programs and functions 1\. A roadmap and detailed blueprint national reform of administration of the Outcome Indicators social protection and employment programs 1\. ISWO concept designed, piloted, and evaluated Intermediate Results Indicators 2\. Assessment of the current MLSP systems at district level 1\. A roadmap toward a unified system for all social assistance and employment programs (a national Social Registry) developed and approved by the MELR 2\. The ISWO software designed, tested, and installed in all district offices of the Key Outputs by Component MELR (linked to the achievement of the Objective/Outcome 1) 3\. Assessment of MELR district level systems conducted, including survey of institutional capacity, human resources, ICT resources, and client cervices of the front offices at the two pilot locations Objective/Outcome 2: Strengthened capacity of the MLSP in delivering services to the vulnerable and needy groups of the population and implementing complex reforms 1\. Capacity of staff increased (staff trained) Outcome Indicators 2\. Management and fiduciary capacity established within the MLSP 1\. In-person training provided to more than 300 MELR district office staff 2\. Video materials on the ISWO use developed and posted online for instant Key Outputs by Component access and reference (linked to the achievement of the Objective/Outcome 2) 3\. Management and fiduciary capacity, including the PIU formally established by minister’s directive, approved Procurement Plan, and all compliant FM procedures\. Page 22 of 23  The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) \. ANNEX 2\. PROJECT COST BY COMPONENT Amount at Actual at Project Percentage of Components Approval Closing (US$, Approval (%) (US$, millions) millions) 1\. Design and pilot the ISWO concept, 300,000 300,000 100 develop a reform roadmap - RE 2\. Strengthen capacity to improve 70,000 70,000 100 service delivery - RE 3\. Project management - RE 80,000 75,057 94 Total 450,000 445,057 99 Page 23 of 24 The World Bank Integrated Single Window Office for Social Assistance and Employment Services (P155689) ANNEX 3\. TEAM COMPOSITION Name Role Specialization Unit Location Oleksiy Sluchynskyy TTL Social Protection GSP03 Washington, DC Fasliddin Rakhimov Procurement Specialist Procurement GGOPC Tashkent Djamshid Iriskulov FM Specialist FM GGOEE Tbilisi Arcadii Capcelea Environmental Environment GEN03 Washington, DC Safeguards Specialist Kristine Schwebach Social Safeguards Social Development GSU03 Washington, DC Specialist Yelena Vinogradova Team member Social Protection GSP03 Almaty Ngoc Dung Thi Tran Team Member Operations Support GSP03 Washington, DC Page 24 of 24

REVIEW

P102508

Document of The World Bank Report No: ICR00001766 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H4220 TF-93192) ON GRANTS IN THE AMOUNT OF SDR 34\.5 MILLION (US$55 MILLION EQUIVALENT) TO THE REPUBLIC OF BURUNDI FOR THE SECOND ECONOMIC REFORM SUPPORT GRANT (ERSG II) AND THIRD ECONOMIC REFORM SUPPORT GRANT (ERSG III) June 6, 2011 Poverty Reduction and Economic Management 2 Country Department AFCE1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective) November 30, 2010 Currency Unit = Burundi Franc (FBU) US$1\.00 = FBU 1219\.00 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BRB Central Bank of Burundi (Banque de la République du Burundi) CAS Country Assistance Strategy CNDD-FDD National Council for the Defense of Democracy-Forces for the Defense of Democracy CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Report CPIP Country Procurement Issues Paper DBC Directorate of Budget and Control DC Directorate of Accounting DeMPA Debt Management Performance Assessment DFID Department for International Development (UK) DGP Planning Directorate DPO Development Policy Operation EAC East African Community EC European Commission EMSP Economic Management Support Grant ERSG Economic Reform Support Grant EU European Union FBU Burundi Franc FDI Foreign Direct Investment GoB Government of Burundi HIPC Heavily-Indebted Poor Countries (Initiative) HIV/AIDS Human Immunodeficiency Virus/acquired Immune Deficiency Syndrome ICA Investment Climate Assessment IDA International Development Association IFMIS Integrated Financial Management System IGF Inspectorate of Finance (Inspection des Finances) IMF International Monetary Fund ISR Implementation Status and Results Report LDP Letter of Development Policy MDG Millennium Development Goal MEFCD Ministry of Economy, Finance, and Coordination for Development MOCI Ministry of Commerce and Industry MOF Ministry of Finance MOP Ministry of Planning MTEF Medium-Term Expenditure Framework NGO Non Government Organization PEM Public Expenditure Management PEMFAR Public Expenditure Management and Financial Accountability Review PE Public Enterprise PER Public Expenditure Review PETS Public Expenditure Tracking Survey PFM Public Financial Management PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PSD Private Sector Development REFES Technical Committee for Monitoring of Economic Reforms SDR Special Drawing Rights SIGEFI Système d’Information de Gestion Financière (Financial Management Information System) SME Small and Medium Enterprise TA Technical Assistance UNDP United Nations Development Programme USAID United Nations Agency for International Development Vice President: Obiageli K\. Ezekwesili Country Director: John M\. McIntire Country Manager: Mercy M\. Tembon Sector Director: Marcelo Giugale Sector Manager: Kathie Krumm Task Team Leader: Dorsati Madani/Jean-Pascal N\. Nganou ICR Team Leader: Jean-Pascal N\. Nganou ICR Primary Author: Sulaiman S\. Wasty  THE REPUBLIC OF BURUNDI SECOND ECONOMIC REFORM SUPPORT GRANT (ERSG II) AND THIRD ECONOMIC REFORM SUPPORT GRANT (ERSG III) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 3 3\. Assessment of Outcomes \. 8 4\. Assessment of Risk to Development Outcome \. 10 5\. Assessment of Bank and Borrower Performance \. 10 6\. Lessons Learned\. 12 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 13 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 14 Annex 2\. Beneficiary Survey Results \. 16 Annex 3\. Stakeholder Workshop Report and Results \. 17 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 18 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders \. 19 Annex 6\. List of Supporting Documents \. 20 Burundi MAP i A\. Basic Information Program 1 Country Burundi Program Name BI-ERSG II Program ID P102508 L/C/TF Number(s) IDA-H4220,TF-93192 ICR Date 06/13/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower BURUNDI Original Total USD 30\.0M Disbursed Amount USD 28\.2M Commitment Implementing Agencies Ministry of Finance Cofinanciers and Other External Partners Netherlands Norway Belgium Program 2 Economic Reform Country Burundi Program Name Support Grant III (DPL) Program ID P113235 L/C/TF Number(s) IDA-H5330,TF-95937 ICR Date 06/13/2011 ICR Type Core ICR BURUNDI MINISTRY Lending Instrument DPL Borrower OF ECONOMY AND FINANCE Original Total USD 25\.0M Disbursed Amount USD 25\.2M Commitment Implementing Agencies Ministry of Finance Cofinanciers and Other External Partners Netherlands Norway B\. Key Dates BI-ERSG II - P102508 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/13/2007 Effectiveness: 10/03/2008 10/03/2008 ii Appraisal: 03/28/2008 Restructuring(s): Approval: 08/05/2008 Mid-term Review: Closing: 06/30/2009 06/30/2009 Economic Reform Support Grant III (DPL) - P113235 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/05/2009 Effectiveness: Appraisal: 06/02/2009 Restructuring(s): Approval: 10/29/2009 Mid-term Review: Closing: 12/31/2010 12/31/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance Performance iii C\.3 Quality at Entry and Implementation Performance Indicators BI-ERSG II - P102508 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status Economic Reform Support Grant III (DPL) - P113235 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status D\. Sector and Theme Codes BI-ERSG II - P102508 Original Actual Sector Code (as % of total Bank financing) Central government administration 60 60 Crops 10 10 General industry and trade sector 30 30 Theme Code (as % of total Bank financing) Legal institutions for a market economy 14 14 Other financial and private sector development 14 14 Public expenditure, financial management and 29 29 procurement Regulation and competition policy 29 29 State-owned enterprise restructuring and privatization 14 14 iv Economic Reform Support Grant III (DPL) - P113235 Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 15 15 General education sector 20 20 General public administration sector 30 30 Health 20 20 Other social services 15 15 Theme Code (as % of total Bank financing) Judicial and other dispute resolution mechanisms 6 6 Legal institutions for a market economy 6 6 Public expenditure, financial management and 70 70 procurement Rural policies and institutions 12 12 Tax policy and administration 6 6 E\. Bank Staff BI-ERSG II - P102508 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: John McIntire John McIntire Sector Manager: Kathie L\. Krumm Jan Walliser Task Team Leader: Jean-Pascal Nganou Dorsati H\. Madani ICR Team Leader: Jean-Pascal Nganou ICR Primary Author: Sulaiman S\. Wasty BI-ERSG II - P102508 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: John McIntire John McIntire Sector Manager: Kathie L\. Krumm Jan Walliser Task Team Leader: Jean-Pascal Nganou Jean-Pascal Nganou ICR Team Leader: Jean-Pascal Nganou ICR Primary Author: Sulaiman S\. Wasty v F\. Results Framework Analysis Program Development Objectives (from Program Document) ERSG II was the first in the series of two grants designed to assist the Government of Burundi (GoB) in implementing the Poverty Reduction Strategy (PRS) of the country in order to transition from a post-conflict economy with a focus on maintaining peace and stability to one geared toward designing and implementing policies to accelerate growth and human development\. It will continue supporting the government in: (i) reforming the public financial management (PFM) system to improve fiscal transparency and accountability; (ii) reforming the business, legal, and institutional environment to foster private-sector-led-growth; and (iii) supporting reforms in the coffee sector\. As a follow-up of ERSG II, ERSG III was focused on the same issues, which included: (i) improving public finance management; and (ii) promoting private sector development\. As in ERSG II, the PSD component of ERSG III had two main subcomponents: (a) improving the business environment; and (b) restructuring the export crops sector\. In addition, ERSG III attempted address issues affecting the supply and price of petroleum products, which are critical to support activities of private enterprises\. Revised Program Development Objectives (as approved by original approving authority) Not Applicable (a) PDO Indicator(s) BI-ERSG II - P102508 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years (a) Up-to-date budget framework law with clear definitions of tasks and responsibilities\. Future budgets are developed and e xecuted based on the new Indicator 1 : budget framework law\. (b) PFM Strategy will provide a tool to donors in their harmonization process\. (a) The 2009 budget is developed (a) The 2009 based on the new budget is organic law\. Since developed based then, it is being Value (a) Old law in practice; on the new law; progressively (quantitative or (b) No existing strategy\. (b) PFM strategy implemented in the Qualitative) is prepared and sect oral ministries; priority action plan (b) A core strategy formulated\. has been developed with donor assistance\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (a) Since its promulgation in 2009, the new organic law is being progressively (incl\. % implemented in line ministries\. [Highly Satis factory; (100%)]\. vi achievement) (b) Institutional arrangements are in place with support from the Technical Support Unit\. [Satisfactory; (75%)]\. Draft budget for each year is presented to the National Assembly three months Indicator 2 : before the beginning of the new fiscal year (fo r 2008 and 2009), and respect of the interim timetable and procedures\. Yes, the delays are Value respected in (quantitative or No decree Yes preparing the Qualitative) budget\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Highly Satisfactory; (100%)]\. achievement) (a) Implementation reports for HIPC financed and pro-poor expenditures are published\. Indicator 3 : (b) Public Expenditure Tracking Surve y (PETS) statistics available, and recommendations satisfactorily implemented\. (c) National accounts (NA) of 2005 produced\. (a) Programmed (a) Programmed shares in the 2009 shares in the 2009 adopted budget: 62 adopted budget: 62 %; (a) Increased share of %; (b) PETS expenditures in health, (b) PETS available; available; actions education, actions plans plans partially infrastructure, and partially implemented; Value social protection at implemented; (c) As o f (quantitative or 50\.8%; (c) As o f December 2008, Qualitative) (b) No PETS data a nd December 2008, national accounts action plans available; national accounts for 2005 are (c) No national for 2005 are available and accounts for 2005 available and posted on the available\. posted on the website of the website of the National Statistics National Statistics Office Office (ISTEEBU)\. (ISTEEBU)\. Date achieved 08/01/2007 12/30/2009 12/30/2009 (a) Exceeded (12 percentage points)\. [Highly Satisfactory; (100%)]; Comments (b) PETS data available but action plans partially impl emented; (incl\. % [Moderately Satisfactory; (50\.0%)]\. achievement) (c) In Dec\. 2008, NA for 2005 available\. [Moderately satisfactory; (50\.0%)]\. vii  (a) Improved institutional framework for cash management; (b) Percent of expenditure authorized and executed by exceptional procedures Indicator 4 : will decrease; (c) Budget execution data as reported by SIGEFI will report most include most operations\. Quarterly consultation and Quarterly Very little sectoral Value cash flow consultation and consultation, no (quantitative or planning\. cash flow planning\. adequate quarterly cash Qualitative) Cash flow Cash flow planning flow planning\. planning tables are tables are available\. available Date achieved 08/01/2007 12/30/2009 12/30/2009 (a) [Highly Satisfactory; (100%)]\. Comments Regulatory Authority functional; (incl\. % (b) [Highly Satisfactory; (100%)]; achievement) (c) SIGEFI functio nal as anticipated, [Highly Satisfactory; (100%)]\. Indicator 5 : The IGF is operational\. The reestablishment of The reestablishment the internal of the internal inspection and inspection and control unit has led control unit has led Value No internal inspection to a minimum of to some reports (quantitative or unit existed, no internal 15 reports covering some Qualitative) audits took place\. covering 30 percent of total percent of t otal state income and/or state income expenditure by end and/or expenditure 2009\. by end 2009\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Moderately Unsatisfactory; (33%)]\. achievement) Timely and reliable accounting is produced and published: comprehensive Indicator 6 : monthly reports and government accounts is provided t o the audit court in a timely manner\. Comprehensive Submit 2006 accounting reports are Submitted 2006 Government not produced regularly government#s Value general account or in a timely manner\. general account and (quantitative or and extra Government accounts extra budgetary Qualitative) budgetary are not provided to t he accounts for audit accounts for audit audit court in timely to the Audit court\. to the audit court\. manner\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments [Satisfactory; (80%)]\. (incl\. % viii achievement) Updated PSD legal framework with simpler and more transparent guidelines; and Regular dialogue on economic policy between the private sector and the Indicator 7 : government\. The three other New law prepared codes adopted by in 2008 for the the council of investment code Old investment code Ministers, approved by and commercial and submitted to the Parliament\. Value enterprise codes; parliament; Commercial and (quantitative or Lack of structured decree adopted to corporations codes Qualitative) communications relaunch the priv submitted to Parli between the two ate-public ament\. Some groups\. dialogue\. Regular dialogue with the dialogue between private sector the two parties\. initiated\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Satisfactory; (80%)]\. achievement) The analysis of the institutional capacity and financial status of PE contributes Indicator 8 : to the knowledge base of the Government and donors providing grounds for development of action plans for the reform program\. No capacity assessment of the privatization unit Action plan Value existed\. No full Action plan available\. (quantitative or knowledge of the available\. Financial Financial studies Qualitative) financial status of six studies available\. available\. large fully publ ic enterprises\. No action plan available\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Satisfactory; (80%)]\. achievement) ix Indicator 9 : Delays in settlement of commercial litigation to be reduced\. Computerized detailed data on No computerized court performance system\. available\. Target Computerized Value 40% of cases where the for 2009: 25%\. but detailed data on (quantitative or maximum delays in early estimates court performance Qualitative) rendering judgement is suggest available\. over 60 days\. that the court will surpass this improvement\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Satisfactory; (75%)]\. achievement) Indicator 10 : Business Registration and taxation is simplified\. Software for business Value registry is functional, Registry non- (quantitative or No update\. and staff trained (Non- existent\. Qualitative) existent)\. Date achieved 08/01/2007 12/30/2009 12/30/2009 The authorities decided to address this reform in the framework of the overall Comments reform of the General Tax Code, whose start w as significantly delayed despite (incl\. % initial efforts in 2007\. achievement) [Highly Unsatisfactory; (0%)]\. Rules governing the campaign, preparation, marketing and exportation of Indicator 11 : coffee are cleared\. Options clarified: New regulation has increased competition in the No clear direction: No marketing process; Value modern regulation for Action plan on action plan for (quantitative or marketing, public divestiture divestiture Qualitative) ownership of coffee implemented\. adopted; re assets\. duction in government ownership of coffee assets\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Satisfactory; (90%)]\. achievement) x Indicator 12 : Government has clear time bound plan for divestiture of key tea sector assets\. Formulation of a Formulation of a Value divestiture plan divestiture plan No divestiture plan in (quantitative or underway\. underway\. tea sector available\. Qualitative) Followed by Followed by implementation\. implementation\. Date achieved 08/01/2007 12/30/2009 12/30/2009 Comments (incl\. % [Moderately Unsatisfactory; (33%)]\. achievement) Economic Reform Support Grant III (DPL) - P113235 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Up-to-date budget framework law provides clear definition of responsibilities for all entities involved and simplifies budget execution procedures and Indicator 1 : controls\. Draft budgets submitted to Parliament 3 months before beginning of fiscal year\. New organic law adopted\. Partial implementation, but Preparation of gradually picking Value Old law in practice\. No 2010 budget in up pace\. More (quantitative or budget preparation line with organic important, program Qualitative) decree\. law and budget budgeting will be i preparation decree\. ntroduced in selective sectors by 2014\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Satisfactory; (80%)]\. achievement) Indicator 2 : Improved quality of public spending (access to, and quality of public services)\. Design and testing of mechanism for PETS and specific involving elements of action community-based plans prepared for Value organizations in education, health, (quantitative or No PETS available\. evaluation of and justice\. Qualitative) delivery of basic However, services\. Th ree beneficiary surveys PETS completed need to be more (education, health, extensive\. and justice)\. Date achieved 08/01/2007 12/31/2009 12/31/2009 Comments [Satisfactory; (75%)]\. (incl\. % xi achievement) Maintaining rates of budget allocation and execution in priority sectors at a Indicator 3 : satisfactory level through a reduction in secur ity expenditures\. Priority economic Priority economic and and social sectors social sectors account Priority economic account for 45\.7 Value for 42\.6 percent of and social sectors percent of actual (quantitative or actual spending\. Share account for 48\.5 public spending\. Qualitative) of security is 29\.7 percent of actual Share of security percent of actua l public public spending\. reduced to 26\.4 p spending\. ercent of actual public spending\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Highly Satisfactory; (100%)]\. achievement) Indicator 4 : Planned budgets more in line with PRSP objectives and sector strategies\. Share of priority 48\.5 percent of Priority economic and Value sectors in 2010 2009 budget social sectors account (quantitative or budget equal to or allocated to priority for 45 percent of 2007 Qualitative) higher than in economic and budget allocations\. 2009 budget\. social sectors\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Highly Satisfactory; (100%)]\. achievement) Reliable financial management information system aimed at producing timely Indicator 5 : and reliable budget execution reports and governme nt accounts\. SIGEFI is expanded to ensure adequate coverage of the All functions have Value Incomplete coverage of full cycle of been introduced (quantitative or budget execution by budget execution\. into the SIGEFI Qualitative) SIGEFI\. Submit 2007 system\. general government#s accou nt to Court of Accounts\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Satisfactory; (80%)]\. achievement) xii  Elimination of risk of arrears through strengthening of the principle of Treasury single account by reducing the number of ir regular off-budget Indicator 6 : accounts and share of direct payment orders\. Reduction in the average time necessary for payment of invoices\. No irregular off- Only one off- budget account\. budget account, Eleven accounts, No accumulation amounting to FBU amounting to FBU 18\.1 Value of arrears toward 0\.6 billion\. In direct billion\. In direct (quantitative or suppliers\. payment orders\. payment orders\. No Qualitative) Average time Average time for data available on necessary for payment of average payment time\. payment of invoices es timated: invoice s: 40 days\. 45 days\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Satisfactory; (90%)]\. achievement) Indicator 7 : Strengthened internal and external audit and control institutions\. IGF produces a minimum of 15 Value reports covering IGF re-established; No IGF\. No internal (quantitative or 30 percent of staff appointed, and audit report\. Qualitative) government fully functional\. revenue and expenditures\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Satisfactory; (75%)]\. achievement) Indicator 8 : Effective procurement institutions and systems\. New procurement code promulgated in July 2008\. Regulation agency Old cumbersome and and central Value Two procurement over-centralized procurement (quantitative or units operational procurement procedures directorate Qualitative) in line ministries\. and institutions\. established\. Staffing and training units in line ministries under preparation\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Moderately Satisfactory; (65%)]\. achievement) xiii Indicator 9 : Modernized business legal framework\. The new investment code adopted by the Council of Ministers and Existing investment Investment, promulgated in code, commercial code, commercial, and Value September 2008\. and companies# code companies# codes (quantitative or Draft commercial inadequate to best are promulgated Qualitative) and companie s# modern international and are codes adopted by practices\. operational\. the Council of Ministers in August 2009 and transmitted to Parliament\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Highly Satisfactory; (100%)]\. achievement) Indicator 10 : Periodic consultations between government and private sector\. Decree creating consultation mechanism adopted No effective First meeting in Value and signed in June communication system the context of the (quantitative or 2008\. Private between public and new consultation Qualitative) sector reorganizing private sector\. mechanism\. its representation in vi ew of future meetings\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % [Moderately Satisfactory; (50%)]\. achievement) Indicator 11 : More efficient #Tribunal de Commerce#\. By January 2009, 22 percent of cases were beyond the Less than 25 60-day deadline percent of cases mandated by the Value pending before the 40 percent of cases in law\. This (quantitative or commerce court excess of 60 days\. percentage Qualitative) will go beyond the improved significa 60-day deadline ntly to 14\.3 percent mandated by law\. in May 2009 and to 10 percent at the end of July 2009\. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments [Highly Satisfactory; (100%)]\. xiv (incl\. % achievement) Indicator 12 : Strengthened analytical base for the reform of PEs\. Financial audits of Gradual five public improvement in the No efficient public enterprises (PEs) Value performance of enterprise monitoring are finalized and (quantitative or SCEP\. Audits of and management an action plan Qualitative) five public system\. established for enterprises (PEs) reflecting the are underway\. conclusions \. Date achieved 12/31/2007 12/31/2009 12/31/2009 Comments (incl\. % Moderately Satisfactory; (50%)\. achievement) Indicator 13 : A more efficient and productive coffee sector\. Action plan adopted for State divestiture from coffee sector\. The government has adopted new Several (at least Value measures to No modern marketing 10) washing (quantitative or liberalize the regulation system\. stations are sold to Qualitative) comme rcialization private sector\. of coffee by opening the coffee export market to local and international participants\. Date achieved 12/31/2007 12/31/2009 12/31/2009 After years of studies and consultations with stakeholders, as well as internal Comments political debate, GoB approved and began to implement a strategic option for (incl\. % the reform of the coffee sector and privatization of processing facilities\. achievement) [Satisfactory; (80%)]\. Indicator 14 : A more efficient and productive tea sector\. Formulation of a Formulation of a Value Rapidly declining roadmap initiating roadmap initiating (quantitative or production and the design of the design of Qualitative) productivity reform program reform program for for the tea sector\. the tea sector\. Date achieved 12/31/2008 12/31/2009 12/31/2009 The ERSG-1's ICR (2008) argues the restructuring of the coffee sector was so Comments complex, the government and the donor comm unity considered that tea sector (incl\. % reforms, while essential, would be of less importance\. [Moderately achievement) Unsatisfactory; (33%)]\. xv Indicator 15 : A more flexible price fixing mechanism for petroleum products\. Agreement in Implementation on principle for the the Agreement to quasi-automatic the principle of adjustments; and a Value quasi-automatic Late decisions by the draft law to this (quantitative or adjustment pricing government\. effect approved by Qualitative) mechanism and the Cabinet and stabilization of Parlia ment margin s, taxes, promulgated in July and duties 2009\. Date achieved 08/01/2008 12/31/2009 12/31/2009 Comments (incl\. % [Satisfactory; (80%)]\. achievement) (b) Intermediate Outcome Indicator(s) BI-ERSG II - P102508 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years We have no intermediate outcome indicator\. This is a one tranche Indicator 1 : DPL\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Economic Reform Support Grant III (DPL) - P113235 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years We have We have no intermediate outcome indicator\. This is a one Indicator 1 : tranche DPL\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) xvi G\. Ratings of Program Performance in ISRs BI-ERSG II - P102508 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 02/24/2009 Satisfactory Satisfactory 28\.24 Economic Reform Support Grant III (DPL) - P113235 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 01/12/2011 Satisfactory Satisfactory 25\.15 H\. Restructuring (if any) xvii 1\. Program Context, Development Objectives and Design 1\.1 Context at Appraisal Burundi emerged from a thirteen-year civil war after the signing of the comprehensive peace and reconciliation agreement by 39 political parties in Arusha (Tanzania) in August 2000 which marked a significant turning point\. Peace is still in the process of the consolidation--with intermittent negotiations, deadlocks, and ceasefires between the elected government and the rebel movement\. Hence, the overall political situation remains fragile at best\. Nonetheless, recent economic developments have created positive prospects for Burundi\. The economy has gradually recovered from the shocks experienced during 1999-2003 such as political turmoil, embargos, deteriorating terms of trade (partly stemming from being a landlocked country with political conflict adversely affecting trade routes), and severe drought\. Annual real GDP growth is estimated to have risen to 5\.1 percent in 2006 from an annual average of 1\.8 percent during the decade of economic and political turbulence\. Since January 2004, the government authorities have implemented an economic reform program supported by the Bank and the IMF\.1 In short, within a difficult political, social, and economic environment, the GoB has made good initial progress in macroeconomic stabilization, implementation of financial and structural reforms, and restoration of social services\. In September 2005, Burundi reached the HIPC decision point and was granted access to interim debt relief, which will reduce its debt by over 90 percent in NPV terms, and its scheduled debt service, by some US$30-40 million annually for the next 30 years\. As was expected, the country reached the HIPC completion point in January 2009\. Notwithstanding these developments, Burundi will continue to require significant external assistance (including Bank’s concessional assistance) as domestic savings—even augmented by those resulting from the HIPC initiative—will be far below the level needed to make substantial progress in accelerating growth, raising living standards, reducing poverty, and making progress toward meeting the MDGs\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators ERSG II built upon on the Emergency Economic Recovery Credit (EERC, 2000), the Economic Recovery Credit (ERC, 2002), and especially the ERSG (2006), and 1 In September 2006, the government approved its first full PRSP which was presented to IDA and the IMF Boards in March 2007\. The government program, set out in the PRSP, intends to redirect the economy away from a post-conflict focus toward economic growth and development\. The PRSP aims to strengthen political stability, consolidate peace, and reduce poverty through accelerated, sustainable, and equitable growth\. The principal axes of the PRSP are: (a) improving governance and security; (b) promoting sustainable and equitable economic growth; (c) developing human capital; and combating HIV/AIDS\. 1 accompanying technical assistance with these operations\. Notably, ERSG II incorporated lessons from the ERSG I (a stand-alone grant) which had slightly ambitious objectives in supporting the government in implementing the interim PRSP in three areas: (a) improving public expenditure management (PEM) and the impact on the poor; (b) reviving agriculture export crop sectors (coffee, tea, and cotton); and reviving the private sector by improving business climate, accelerating State divestiture, and settling the government domestic arrears to the private sector\. ERSG II had less-varied PDOs of supporting the GoB to continue: (a) reforms in the PFM system to improve accountability and transparency in public spending; (b) reforms in the business, legal, and institutional environment to foster the private-sector-led- growth; and (c) reforms in the coffee sub-sector\. It proposed to: (a) consolidate reforms already underway (in PFM as indicated in the completed joint PEMFAR); and (b) re- energize the reform process in private sector development (the legal and regulatory framework for the general business environment and the coffee sub-sector)\. Further, it aimed at continuing diagnostic work and to develop a strategic approach in areas where action was needed but the existing knowledge was too limited (public enterprise reform)\. As a follow-up of ERSG II, ERSG III was focused on the same issues, which included: (i) improving PFM; and (ii) promoting private sector development\. As in ERSG II, the PSD component of ERSG III had two main subcomponents: (a) improving the business environment; and (b) restructuring the export crops sector\. In addition, ERSG III attempted to address issues affecting the supply and price of petroleum products, which are critical to support activities of private enterprises\. 1\.3 Revised PDO and Key Indicators, and Reasons/Justification Not Applicable\. 1\.4 Original Policy Areas Supported by the Program The ERSG II and ERSG III program structure kept a balance between the need for essential reforms and the simplicity dictated by weak institutions and national implementation capacity, with a bias toward deepening the reform process in areas already supported by the earlier ERSG\. Overall, this programmatic series (ERSG II and III) continued to support the establishment of new legal and institutional frameworks to implement essential reforms\. It was also designed to help the GoB in securing sustained financial resources through: (a) economic growth; (b) external financial assistance; and (c) debt relief\. Specific policy areas emphasized by the program consist of: (i) More accountable and transparent budget management process through: (a) budget preparation and alignment with PRSP; (b) budget execution; and (c) budget accounting and control\. (ii) Improved business, legal, and institutional environment for growth\. 2  (iii) Renewed impetus in coffee sector reforms\. 1\.5 Revised Policy Areas Not Applicable\. 1\.6 Other significant changes Not Applicable\. 2\. Key Factors Affecting Implementation and Outcomes [Please note that this ICR for EGRS II and EGRS III is a desk review, and could not benefit from interviews with GoB authorities or principal stakeholders in the country]\. 2\.1 Program Performance The details of achievements to date are enumerated in the Results Framework Analysis, which compares the performance against benchmarks and targets (Section F of the ICR)\. Additionally, the current status of the prior and subsequent actions taken under the series is listed in the subsequent section below\. To reiterate, ERSG II focused on three principal areas, all of which envisaged to be implemented in a high-risk environment (mainly: political fragility and weak institutional capacity)\. (i) More Accountable and Transparent Budget Management Process: (a) budget preparation and alignment with PRSP; (b) budget execution; and (c) budget accounting and control\. Significant progress has been made in the enactment in 2009 of the Organic Law organizing public finance (Budget Framework Law)\. Its implementation, initially gradual, is now picking up pace\. Importantly, several off-budget items have been closed, and cash management has been streamlined\. Under the ERSG III, the GoB plans to introduce program budgeting in selective ministries by 2014\. In the context of transparency, the national accounts are available on a government website: www\.ISTEEBU\.BI\. Unfortunately, there seems to be a technical glitch, which has affected the normal functioning of the website of the National Statistical Institute (ISTEEBU) in recent days\. As for the PFM strategy, its implementation is also on track with the coordination of the Council of Ministers\. A core strategy has been developed with donor assistance\. Institutional arrangements are in place under the direction of the Technical Committee Support Unit\. (ii) Improved Business, Legal, and Institutional Environment for Growth\. 3 This is perhaps a weak area of implementation, whereby more concerted actions would be required in the subsequent budget support operations\. To date, there are not enough mechanisms and for consultations between the government and the private sector\. (iii) Renewed Impetus in Coffee Sector Reforms\. It is premature to determine how the contemplated divestiture options have materialized in reforming this export crop sector\. Subsequently, ERSG III--amongst its other objectives--attempted to address issues affecting the supply and price of petroleum products, which are critical to support activities of private enterprises\. (a) Establishing a transparent PFM\. Notwithstanding substantial improvements, additional efforts are needed to improve the strategic content of the budget planning process\. (b) Improving business environment\. The main challenge to the development of the formal sector and privatization of public enterprises is institutional constraints\. Notably, these are: the small size of the domestic market, the landlocked position of the country, an uninviting business climate, and the absence of an effective dialogue between the government and the private sector\. (c) Restructuring the coffee sector\. The process is in nascent stages, beginning with a Presidential decree for establishing a regulatory authority\. (d) Reforming the domestic downstream petroleum sector\. The government has established a quasi-automatic mechanism for adjusting local prices to changes in the international market\. *For multi-tranche DPL: Not Applicable\. Tranche # Amount Actual Release Release (SDR Million) Date ERSG II: Tranche 1 18\.5 10/03/2008 Regular ERSG III: Tranche 1 16\.0 12/23/2009 Regular 4 First Operation in a Programmatic Series List prior actions from Legal Agreement/ Program Document Status 1\. A new organic law that is in line with modern international New law used to execute standards is approved by the Council of Ministers and 2008 budget\. submitted to the Parliament\. 2\. Adopt a decree establishing the budget preparation timetable, Appropriate action taken\. responsibilities, and the content of the “letter de cadrage” to improve timeline and efficiency in the budget preparation process\. 3\. Improve identification of expenditures for poverty reduction in Pro-poor expenditure share the functional classification based on the PRSP\. increased from 50\.8 percent to 60\.6 percent\. 4\. The MEFCD prepares and implements in consultation with Actions taken, as envisaged\. main line ministries revolving cash flow plans: (i)) based on realistic revenue forecasting and assessment of seasonal expenditure requirements and (ii) providing line ministries the quarterly ceiling of commitments (starting Q2 2008)\. 5\. Submit 2006 government general account and extra-budgetary No verifiable information accounts for audit to the Audit court\. was available at the approval stage of ERSG II\. 6\. Re-establish the internal control and audit unit and ensure Produced a minimum of five satisfactory staffing and functioning\. reports covering 15 percent of total state’s income and/or expenditure\. 7\. The new investment code that is in line with modern No verifiable information international standards is approved by the Council of was available at the approval Ministers and submitted to the Parliament\. stage of ERSG II\. 8\. Re-launch the public-private consultation framework through Regular dialogue is in effect\. the adoption of a decree\. 9\. Launch a study that will analyze the institutional capacity for Action plan available; public enterprise reform and that will include a related action financial studies available\. plan to improve said capacity\. 10\. Publish the regulation for commercialization of coffee to Options clarified; action plan stakeholders in the coffee sector the rules regarding marketing developed\. for the upcoming coffee campaign (2008)\. 5 Subsequent Operation(s) (add more rows, if needed) List prior actions from Legal Agreement/ Program Document Status 1\. Finalization of public expenditure tracking surveys (PETS) PETS and elements of action with respect to the 2005 and 2006 budgets in the education, plans prepared for education, health, and justice sectors, and publication of related reports\. health, and justice\. 2\. Execution of the 2008 budget reflecting a significant increase Priority economic and social in the proportion of public expenditure allocations to priority sectors accounted for 45\.7 economic and social sectors (ministries at the time responsible percent of public spending\. for: (i) primary education; (ii) higher education and scientific Share of security reduced to research; (iii) public health; (iv) fight against AIDS; (v) 26\.4 percent of public national solidarity, human rights, and gender; (vi) youth, spending\. sports, and gender; (vii) agriculture and livestock; and (viii) public works and equipment) relative to total public expenditure allocations, as compared with the Recipients’ 2007 budget\. 3\. Preparation of a medium-term expenditure framework Draft MTEF prepared for (MTEF) in the agriculture, education, and health sectors agriculture, education, and reflecting priority expenditures protected in the event of health sectors\. budget cuts\. 4\. Expansion of the integrated computerized financial All functions introduced into management system to ensure adequate coverage of the full SIGEFI system\. cycle of budget execution, including verification of the availability of funds at commitment, transmittal of expenditure files, reservations and transfers, partial payments, account closings, and entry balance management\. 5\. Preparation and implementation of quarterly commitment Only one off-budget plans reflecting the operational requirements of sector account, amounting to FBU ministries and overall resource and cash management 0\.6 billion\. In direct payment constraints\. orders\. Commitment ceilings fixed for Q2 of 2009\. 6\. Establishment of a public procurement regulatory authority New procurement code with an institutional framework and functions in accordance promulgated in July 2008\. with the provisions of the Public Procurement Code of Regulation agency and February 2008\. central procurement directorate established\. Staffing and training of units in line ministries being prepared\. 7\. Cabinet approval and submission to Parliament of a new The new investment code commercial code and private and public companies code adopted by the Council of reflecting prevailing international standards in the area\. Ministers and promulgated in September 2008\. Draft 6  commercial codes adopted by the Council of Ministers in August 2009 and transmitted to Parliament\. 8\. Effecting an improvement in the performance of the By January 2009, 22 percent commercial court through a reallocation of resources in the of cases beyond 60-day juridical sector, as evidenced by a 50 percent reduction in the deadline mandated by the number of cases pending before such court beyond the 60-day law\. This percentage deadline mandated by law, as compared with the improved significantly over corresponding number in March 2008\. the past few months to 14\.3 percent in May 2009 and to 10 percent at the end of July 2009\. 9\. Cabinet approval of the modality of the sale of 117 coffee Action plan adopted for washing stations and initiation of such sale in 29 lots of 3-6 State divestiture from coffee units each, targeting a potential 75-25 percent ownership split sector\. A Presidential decree between private enterprises, producer organizations, establishing the regulatory respectively, including launch of a press campaign, issuance agency adopted by the of a Presidential decree establishing a regulatory agency in the Cabinet and signed on June coffee sector, and related revision of the management 1, 2009\. Bidding documents arrangements for such washing stations\. published on June 5, 2009; and a conference for potential investors held on June 25, 2009\. The bidding call was closed on August 6, 2009 but the conclusions of the bidding process yet to be released to the public\. 10\. Issuance of an ordinance with respect to the petroleum sub- Government agreed in sector establishing the principles of quasi-automatic monthly principle to quasi-automatic adjustment of local prices to changes in international prices adjustment mechanism and and stabilization of operational margins at an appropriate stabilization of margins, level; and Cabinet approval and submission to Parliament of duties, and taxes\. This legislation converting customs duties and transaction taxes in principle and the each sub-sector into specific duties\. stabilization of operational margins were confirmed by an ordinance from Minister of Commerce\. A draft law converting duties and “taxes de transaction” into “droits specifiques” approved by the Cabinet and Parliament promulgated in July 2009\. 7 2\.2 Major Factors Affecting Implementation From the outset, the ERSG grant series were understandably considered as high risk operations (because of the factors mentioned earlier)\. Most of these implementation risks were however mitigated by the availability of accompanying technical assistance (TA) and capacity building efforts through the EMSP and in partnership with the IFC PEP- AFRICA program\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design, implementation, and utilization relied exclusively on government arrangements and country systems\. However, in the Burundi setting, no major efforts were made to strengthen the capacity of the weak institutions—especially for the focus on results, beyond focusing on fiduciary (Financial management and Procurement) safeguards\. 2\.4 Expected Next Phase/Follow-up Operation ERSG IV was approved by the Board in December 2010\. As the first in a new series of two DPOs, ERSG IV will aim to consolidate many of the reforms that begun in the ERSG II and ERSG III series\. This follow-on operation will be focused on: (a) improving budget credibility, planning, and controls; and (b) strengthening the business environment and performance of the traditional export crop sectors\. The PFM component of ERSG IV has three main sub-components: (a) strengthening strategic and budget planning to improve the quality of public spending; (b) reinforcing PFM systems; and (c) improving the management of the public wage bill\. The PSD component of ERSG IV also has three main sub-components: (a) promoting private investment development through improvements in the legislative framework and economic infrastructure; (b) facilitating the restructuring or privatization of public enterprises; and (c) modernizing export sectors\. In addition, ERSG IV will lay the groundwork for reforms in future budget support operations in the energy sector—the success of which is critical to support private-sector-led-growth\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The programmatic series was timely and highly relevant to the country conditions\. It was fully consistent with the CAS and the PRSP\. 3\.2 Achievement of Program Development Objectives The PDOs emphasized mainly outputs and activities—rather than outcomes\. Hence, these interventions achieved their intended purposes of creating building blocks for future development operations\. 8 3\.3 Justification of Overall Outcome Rating Ratings: ERSG II: Moderately Satisfactory\. ERSG III: Satisfactory\. The first operation provided the building block for the subsequent operation(s)\. However, a major pre-requisite for programmatic DPLs (the formulation of a concrete and clear long-term vision (even an evolving MTEF) was not in place, and which was delayed until the initiation of ERSG III)\. Further, ERSG III was much more focused on key issues and removing the concomitant impediments toward their resolution\. The achievements to date are reiterated below: First, important progress was realized toward the deployment and institutionalization of the central and sectoral MTEFs, through the development of the central tools, and engagement at the highest levels (second Vice President of Burundi) to ensure that the tools become later standardized amongst the agencies and institutionalized in the budget preparation process\. A model of central MTEF developed with a Bank technical assistance in December 2009 was only developed in May 2010 when the Directorate General of Budget significantly improved its initially limited involvement in the deployment of this tool\. Nevertheless, this central MTEF is not yet used to define the overall budget envelope and to allow for inter-sectoral budgetary choices consistent with national priorities\. Second, the authorities have made efforts toward the application of the new Procurement Code, particularly through the creation of the new agency to regulate procurement (Agence de Regulation des Marchés Publics, ARMP), along with the provision of budget and the recruitment of main members of the staff\. Visits by the team to the ARMP and the Direction Nationale des Marchés Publics (DNMP) indicate that these units are functioning, however significant capacity constraints remain\. Third, the new Investment Code was promulgated, and several actions were undertaken to apply the code, including the establishment of the new Investment Promotion Agency (API)\. Later missions conducted for the follow-on operation (ERSG IV) indicated that the Agency had become operational in April-May, with the naming of key staff and the establishment of an office of the Agency\. Finally in the coffee sector, 13 of the country’s 117 coffee washing stations were sold to an international company (WEBCOR) after competitive bidding\. There were other interested parties, but their applications were rejected after the price proposed fell below the authorities’ reservation price (which was not published)\. The authorities are considering putting this reservation price in the bidding documents in the future, but a definite position on this issue has not yet been taken\. It is anticipated that the next round of bidding would begin in August 2010, after the end of the 2010 coffee campaign\. The first year of operations of WEBCOR appears to have gone well, and the coffee regulatory 9 agency (ARFIC) and the recently established inter-profession entity (INTERCAFE) appear to be pleased with the investment and capacity building efforts that the firm has conducted\. For the next round of bidding process of washing stations, and to avoid some of the problems with the implementation of the strategy encountered during the first round, the authorities have commissioned a study aimed at analyzing the implementation of the first round of bidding process\. Results of this assessment will be reflected in the second phase of bidding process of washing stations\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The ERSG series have had a significant impact on enhanced resource allocation for priority social areas\. Likewise, business climate reforms are expected to have a long- term positive growth and poverty implications\. But, most of these actions are yet to be translated into visible improvements in poverty reduction\. (b) Institutional Change/Strengthening Even in more advanced countries, institutional change/strengthening requires a longer gestation\. So, it is quite premature to witness immediate results in the Burundi context\. (c) Other Unintended Outcomes and Impacts None\. 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable\. 4\. Assessment of Risk to Development Outcome Ratings: Moderate\. With the inception and implementation of the ERSG series (and follow-on operations), the risks to development outcome have been upgraded from Substantial to Moderate\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Ratings: Satisfactory\. 10 The Bank relied considerably on the lessons learned from the previous operations as well as from the experience other fragile countries\. Consequently, and especially with the ERSG, the PDOs were kept simple and less complex under the overall umbrella of the PRSP\. Further, the Bank developed a strong relationship with other key development partners—especially the IMF, the Netherlands, and Norway\. These co-financiers (i\.e\., the Netherlands and Norway) contributed US$23\.4 million to the ERSG II-III series\. Additionally, the resort to accompanying technical assistance and capacity-building efforts through the IDA’s Economic Management Support Project (EMSP), and coordination with the IFC PEP-Africa program has been instrumental to program design\. (b) Quality of Supervision Ratings: Satisfactory\. Initially, the ISR for ESRG was too optimistic (and less candid) for the achievement of DO and the Implementation Progress\. It should have taken into account the shortcomings in government capacity and flagged these lacunae to the Bank management for feedback to the government authorities\. The subsequent ISR was more focused on these issues\. Several supervision missions of ERSG III were conducted in the course of FY10-11\. The most recent supervision missions, which also coincided with the preparation of the new programmatic series (ERSG IV-V) found that the targeted reform measures were being achieved and that progress continued in the consolidation of these reforms\. (c) Justification of Rating for Overall Bank Performance Ratings: Satisfactory\. In light of the factors mentioned earlier, considerable improvements took place in the Bank’s attention, performance, and supervision with respect to ERSG III compared with those in the context of ERSG II\. The intended reforms will be further targeted and consolidated in the new programmatic series (ERSG IV-V)\. 5\.2 Borrower Performance (a) Government Performance Ratings: Moderately Satisfactory\. Though the government’s commitment to policy reforms was evident at the highest levels, the consensus building amongst the implementing agencies needed enhanced efforts\. In sum, there should have been a greater involvement of sectoral ministries and the key officials responsible for the implementation of the reform program\. 11 (b) Implementing Agency or Agencies Performance Ratings: Moderately Satisfactory\. The implementing agencies are still too weak to implement the envisaged reforms, and would require hands-on training and technical assistance\. (c) Justification of Rating for Overall Borrower Performance Ratings: Satisfactory\. The operations were conducted satisfactorily on the Bank side\. Notwithstanding the limited implementation capacity of the government authorities, the Bank is making concerted efforts of remedying these shortcomings in the context of the preparation of the new series ERSG IV and V\. 6\. Lessons Learned (a) Operation specific - The programmatic series of DPOs in a fragile setting has served as a useful grant instrument to progress toward the intended program results\. Specifically, the ERSG II and III have provided the building blocks for institutional development and capacity building for enacting the regulatory framework for private-sector-led-growth in Burundi\. Still, the program components needed to be embedded in a viable MTEF to enable the envisaged PFM (especially budgetary formulation and execution)\. - Unavoidably, the program has focused on activities and outputs—rather than on outcomes\. The subsequent operations (e\.g\., ERSG IV and beyond) need to focus on results that can be monitored and evaluated\. Hence, more emphasis should be placed on the “evaluability” of indicators to be tracked; in other words on robust M&E\. The PETS findings for health and education would be crucial for better understanding transparency and accountability-related issues in these sectors\. - GoB’s commitment to the reform program may be present at the highest echelons\. But, it is not clear that broad consensus exists at the level of the implementing agencies\. Accordingly, the design of future operations (ERSGs) should attempt to engage the broader audience (including program beneficiaries)\. - For fiduciary safeguards in DPOs, it may be commendable to rely on GoB’s systems of procurement and financial management\. Nonetheless, the Bank needs to ensure that the systems of control and compliance are robust enough (through diagnostic CFAAs, CPIPs, and CPARs)\. 12 (b) Bankwide general application - With the Bank’s increasing emphasis on Governance and Anti-Corruption (GAC), greater attention is needed on: (a) political economy analysis; (b) fraud and abuse of government funds; and (c) voice and accountability (the demand side of governance)\. For complying with the expanding agenda, the Task Team would need to take cognizance of the recommendations of the Bank’s GAC Council\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies [None received] Persons Interviewed via video conference: - Mr\. Bwabo, Head of Reform Unit in the Ministry of Finance\. (b) Cofinanciers Written comments were received from Ms\. Anja Sundby Hem from the Royal Norwegian Embassy in Kampala on the behalf of the co-financier Norway\. These comments essentially endorsed the findings of the ICR\. More important, the co-financier emphasized the importance of the lessons learned and their incorporation in future development interventions in Burundi\. (c) Other partners and stakeholders [None] 13  Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P102508 - BI-ERSG II Responsibility/ Names Title Unit Specialty Lending Wolfgang M\. T\. Chadab Senior Finance Officer CTRFC Finance Sameena Dost Sr Counsel LEGES Legal Eric Mabushi Economist AFTP2 Macroeconomics Paul Jonathan Martin Sr Environmental Spec\. AFTEN Environment Maria Carolina Monsalve Transport\. Economist ECSS5 Transport Jean-Pascal Nganou Senior Economist AFTP2 Macroeconomics Hannah Sibylle Nielsen Economist AFTP3 Macroeconomics David Tchuinou Senior Economist AFTP3 Macroeconomics Supervision Marie-Christine Balaguer Paralegal LEGAF Legal Aissatou Diallo Senior Finance Officer CTRFC Finance Sameena Dost Sr Counsel LEGES Legal Babacar Sedikh Faye Operations Officer CAFAN Legal, IFC Eric Mabushi Economist AFTP2 Macroeconomics Jean-Pascal Nganou Senior Economist AFTP2 Macroeconomics Judite Fernandes Program Assistant AFTP4 Macroeconomics Prosper Nindorera Senior Procurement Specialist AFTPC Procurement Renaud Seligmann Sr Financial Management Specialist AFTFM Financial Management P113235- BI-ERSG III Responsibility/ Names Title Unit Specialty Lending Sherri Ellen Archondo Senior Operations Officer AFTFE Operations Aurelien Serge Beko Consultant AFMBI Poverty Mourad Belguedj Consultant SEGOM Poverty Mariama Daifour Ba Program Assistant AFTP3 Program Support Xavier F\. De La Renaudiere Consultant AFTP2 Food Security Bleoue Nicaise Ehoue Senior Agriculture Economist AFTAR Agriculture Eric Mabushi Economist AFTP2 Macroeconomics Janine E\. Mans Junior Professional Associate AFTP3 JPA Hannah Sibylle Nielsen Economist AFTP3 Macroeconomics Renaud Seligmann Sr Financial Management Specialist AFTFM Financial Management Supervision Aurelien Serge Beko Consultant AFMBI Poverty Eric Mabushi Economist AFTP2 Macroeconomics Janine E\. Mans Junior Professional Associate AFTP3 JPA Judite Fernandes Program Assistant AFTP4 Macroeconomics Renaud Seligmann Sr Financial Management Specialist AFTFM Financial Management 14 (b) Staff Time and Cost P102508 - BI-ERSG II Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY07 4\.6 31\.8 FY08 41\.4 243\.0 FY09 5\.6 45\.0 Total: 51\.6 319\.8 (c) Staff Time and Cost P113235 - BI-ERSG III Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY09 16\.3 112\.4 FY10 16\.7 84\.9 Total: 33\.0 197\.3 15  Annex 2: Beneficiary Survey Results Not Applicable\. 16  Annex 3: Stakeholder Workshop Report and Results Not Applicable\. 17 Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR No comments were received from the Borrower\. 18  Annex 5: Comments of Cofinanciers and Other Partners/Stakeholders “Norway acknowledges the receipt of the ECR for ERSG II-III to which Norway contributed with NOK 160 million\. It is rewarding to learn from the report that a number of indicators have been achieved, in particular in the PFM field\. Of particular issues we would like to highlight: - The report says that the ERSG series has had a significant impact on enhanced resource allocation for priority social areas\. We would like to learn more about this\. Which social sectors and sub sectors have benefited the most and how has this affected other (non social) sectors? Have there been any absorption challenges? - We notice one of the lesson learned, which recognises that the programme has focused more on activities and outputs rather than on outcomes\. It further states that future operations will need to focus on the “evaluability” of indicators and ensure a robust M&E framework\. If this implies that there will also be more focus on outcomes that would be very much welcomed by Norway\. - In the lessons learned chapter it further says that greater attention is needed on political economy analysis, fraud, etc\. Norway would like to stress the importance of including gender as a cross cutting issue as well\. In the next operation we would like to see how the objectives and planned interventions have taken gender issues into consideration and how they to the extent possible are gender sensitive\.” 19  Annex 6: List of Supporting Documents None\. 20  IBRD 33380 BURUNDI SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS PROVINCE BOUNDARIES NATIONAL CAPITAL INTERNATIONAL BOUNDARIES RIVERS 29°E 30°E 31°E Lake This map was produced by the Map Design Unit of The World Bank\. To Kigali Kivu The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any To endorsement or acceptance of such boundaries\. Gitarama Kagera Lake Lake Rweru Cohoha R WANDA KIRUNDO To Cyangugu Kirundo To Butare To Rulenge u ar y u an uv uv K R CIBITOKE MUYINGA NGOZI Muyinga To Cibitoke Nyakanura Ngozi Kayanza Rusiba 3°S Musada Ruvuvu 3°S Buhiga To Bubanza AYA AY K AYA N Z A Karuzi si Kakonko M w eru BUBANZA izi KARUZI CANKUZO Rus vu Cankuzo vu Muramvya V YA Ru R AM MU To Uvira BUJUMBURA L uvironza Gitega WA M WA R O RA Ruyiga DEM\. REP\. Mwaro RUYIGI BU OF CONGO GITEGA To Kibondo M gu JU p un Mt\. Heha U Rum (2,670 m) Bukirasazi B Matana TA NZA NIA BURURI Mutangaro R U TA N A Bururi Most distant Rutana Rumonge headwater of the Nile River 4°S 4°S Makamba BURUNDI MAKAMBA z i ara Mabanda r ag Mu Lake Nyanza-Lac Tanganyika To Kasulu 0 10 20 30 40 Kilometers 0 10 20 30 Miles 29°E 30°E 31°E SEPTEMBER 2004

REVIEW

P115717

 ICRR 14447 Report Number : ICRR14447 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 11/03/2014 Country : South Sudan Project ID : P115717 Appraisal Actual Project Name : South Sudan Gender US$M ): Project Costs (US$M): 10 9\.02 Support & Development Project L/C Number : Loan/ US$M): Loan /Credit (US$M): 10 10\.5 Sector Board : Gender and Cofinancing (US$M): US$M ): Development Cofinanciers : Board Approval Date : 08/26/2009 Closing Date : 06/29/2011 12/31/2012 Sector (s): General agriculture fishing and forestry sector (70%); Micro- and SME finance (30%) Theme (s): Gender (100% - P) Prepared by : Reviewed by : ICR Review Group : Coordinator : Vibecke Dixon Ridley Nelson Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: According to the Grant Agreement (article 2\.01\., p\.4), the Project Objective is to “achieve immediate peace dividends for targeted women in Southern Sudan, through the provision of (a) improvements in access to the existing economic opportunities and (b) support to the Ministry of Gender to develop gender policies and strategiesâ€?\. The formulation of the Project Objective is identical on p \.43 of the PAD (March 2009)\. On page 12 of the PAD, part (b) of the Project Objective is slightly rephrased, and reads as follows : (b) support to the Ministry of Gender, Social Work and Religious Affairs to develop and implement gender policies and strategies (our italics)\. This review is based on the statement of the objective in the Grant Agreement \. Note: The Ministry of Gender is referred to as the Ministry of Gender, Social Welfare and Religious Affairs (MGSWRA) in the Grant Agreement and the PAD, while referred to as the Ministry of Gender, Child and Social Welfare (MGCSW) in the ICR\. For ease of reference, this review will use the term Ministry of Gender (MoG) only\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: There were three components and Component 3 consisted of three sub-components\. Component 1:  Economic empowerment of women (Appraisal Estimate US$4 million, Actual: no information)\. This component supported the empowerment of vulnerable women through the implementation of income -generating sub-projects in all ten states of Southern Sudan, mainly, but not exclusively, within the agriculture, fisheries and livestock sectors\. This was implemented by local CBOs through 108 projects and covered activities such as : (i) training of women in agricultural best practices; (ii) access to inputs for productive farming; (iii) access and linkage to market opportunities; (iv) development of a strategy to link activities to micro -credit programs; (v) introduction of cash crops as a complement to subsistence farming; and (vi) training in micro/enterprise management\. The type of activities supported by these interventions also covered tailoring, livestock, fishponds, trading, grinding machines, bricks, hotels, beekeeping and processing of oil \. Component 2: Construction of a Building for the Ministry of Gender (Appraisal estimate US$3\.1million; Additional financing June 2012 US$546,975\.-, i\.e\. total estimated US$3\.646 million\. Actual: No information)\. Purchase and installation of temporary prefab facilities and provision for the construction of an office building to relocate the offices of the Ministry of Gender \. Component 3: Institutional Development of the Ministry of Gender (Appraisal Estimate US$2\.9 million, Actual: No information) supported the strengthening of human and institutional capacity of the Ministry of Gender and relevant ministries to support the formulation of a strategy for addressing gender inequalities in Southern Sudan \. There were three sub-components: Subcomponent 3 (a); Studies\. A Country Gender Assessment (CGA) was financed to compile, review and analyze existing and on-going work by various agencies on the economic, social, legal and cultural environment of women for policy recommendations \. Subcomponent 3 (b); Institutional Development of the MoG and State Ministries \. This subcomponent included a capacity assessment and training program to address The Ministry ’s and States’ needs to prepare them to monitor CBO’s sub-projects and to mainstream gender activities and implement direct interventions for gender equality and women’s empowerment in the future\. This subcomponent also included setting up of the Project Coordination Unit including staffing \. Subcomponent 3 (c); Monitoring, Evaluation and Reporting \. The establishment of an M&E system within the MoG and the preparation of regular evaluation reports were supported under this subcomponent \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost : The ICR is unclear about the actual project cost \. In table A Basic Information (page unnumbered), the total disbursed amount is stated to be US$ 9\.02 million\. In Annex 1 of the ICR, page 22, table (a) Project cost by component (in US$ million), reports on appraised and revised expected cost only and not on actual cost : Component 1: Original Cost: US$4\.0, Revised Cost: US$4\.0; Component 2: Original Cost US$3\.1, Revised Cost US$3\.6; and Component 3: Original Cost US$2\.9, Revised Cost US$2\.9\. On page 10, para 46 of the ICR, it is stated that "of the allocated amount of US$10,546,795, total disbursement stood at US$8,999,899, or 85% at closing\. Out of the total US$3,860,408 for sub-grants released to beneficiaries (subcomponent 1), US$579,966, or 15% remains unaccounted for\. The Bank issued a memo in April 2013 to MoG requesting documentation for the missing funds \.â€? There is no further information in the ICR regarding the ac tual cost of each sub-component or the total actual cost\. Nor does the ICR explain the discrepancy in the reported Total Actual Cost (US$9\.02 million as stated in table A versus US$8\.99 million as stated in para 46 on page 10)\. According to the TTL, all the funds (US$10\.546 million) were disbursed, and the actual cost of each component equalled the planned cost, except from under component 1 where nearly US$600,000 were unaccounted for at project completion\. At MTR, some of the CBOs proved not to be performing, and the project was given the permission to reallocate funds from the non -performing CBOs to the better performing CBOs, and it is the TTL ’s impression that the funds were lost in that process \. The TTL followed up by a) informing the INT, and b) by sending a letter to the Ministry of Finance and MoG through the Country Manager asking for either an  explanation for the unaccounted funds or repayment \. The TTL has no information of how this has been followed up after project completion, but the funds have not yet been repaid \. Financing : The original approved grant from the South Sudan Multi -Donor Trust Fund (MDTF) was for US$10 million\. It was later revised to US$10,546,795\. The extra funds were also provided by the South Sudan MDTF (See Amendment No\. 1 to Grant Agreement, August 3, 2012, para 1\. page 1)\. There were no other external financing sources\. Recipient contribution : There was no financial contribution from the Government of the Republic of South Sudan \. Dates : There were two extensions of the Closing Date for a cumulative period of 18 months\. The first extension, a one-year extension of the Closing Date until June 2012 was approved in June 2011 to: (i) complete transfers of funds to CBOs and allow sufficient time for sub -project activities; and (ii) complete the procurement of materials and equipment and construction of the Ministry building \. The second restructuring was carried out in June 2012 to extend the project closing date another six months and to provide additional financing under Component 2 (construction of the building)\.The project closed on December 31st 2012, just over 18 months later than originally scheduled \. The six-month's extension, from June 29, 2012 till December 21, 2012, brought the cumulative extension to 18 months\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High The objectives are highly relevant to the Bank's strategy for South Sudan as outlined in the Fiscal Year 2013-2014 Interim Strategy Note\. The project’s objectives are in line with three of the four development priorities outlined in the Note (pages i and 20): (i) build transparent and accountable national institutions to convert oil revenues into equitably shared development gains for men and women; (ii) build local institutions to establish the authority and capability of the state to deliver services, represent local constituencies and resolve local conflict; and (iii) create an enabling environment for the private sector to generate jobs and economic opportunities, including women and youth \. It is stated in the Note that the strategy is informed by the World Bank’s 2011 strategy for Africa Africa's Future and the World Bank's Support to It \. The Project Objectives are also well in line with the priorities stated in the regional strategy, where agribusiness, agricultural development and women's empowerment are included\. The objectives are also highly relevant to the South Sudan IDA 16 Priorities (as quoted in Box 3, page 23 of the ISN 2013-2014): "Gender: Based on a review of gender issues in South Sudan, all investment projects are being and will continue to be prepared with full consideration for the unique needs and constraints of male and female participants/beneficiaries with particular attention given to interventions that contribute to reducing severe gender disparities\." b\. Relevance of Design: Substantial The relevance of design is rated Substantial \. The project design was largely coherent and logical in that the components complement each other and in that most of the identified outputs for each component link to the identified outcomes \. The causal chain between funding and outcomes is clear, despite a vague statement of objectives \. The main objective was “to achieve immediate peace dividends for women â€? This objective is vague and not defined or elaborated upon in the documents \. The TTL explained that the expression "immediate peace dividends" was commonly used in South Sudan at the tim e, The women who were consulted during the preparatory mission had stated that they wanted “peace dividendsâ€?, and by this they meant increased household  income\. At the time, most of the “peace dividendsâ€? projects in Sudan concentrated on infrastructure and physical construction, according to the TTL \. This project was designed primarily as a community development project, with the intention of supporting women to increase their income \. It was stated that the means by which the objective was to be achieved were through (a) improvement in access to economic opportunities for women and (b) support to the MoG to develop gender policies and strategies \. This review regards (a) “improvement in access to economic opportunities for women â€? as a potential early intermediate outcome, while (b) “support to the Ministry of Gender to develop gender policies and strategies â€? is an input (“support toâ€?)\. However, it does also include an expected output; the development of gender policies and strategies\. As discussed later under Quality at Entry the two year project period was unrealistic \. 4\. Achievement of Objectives (Efficacy): The project’s objective, "to achieve immediate peace dividends for targeted women in Southern Sudan, through the provision of (a) improvements in access to the existing economic opportunities and (b) support to the Ministry of Gender to develop gender policies and strategies â€? can be divided into two sub-objectives: (i) improvements in access to the existing economic opportunities; and (ii) support to the Ministry of Gender to develop gender policies and strategies\. Support to the Ministry of Gender is an input rather than an outcome, while the development of gender policies and strategies is an output \. Although, as noted, "immediate peace dividends" was a vague objective, it is clear from discussion with the TTL that what was intended was increased household income for the targeted women (see also section 3 above): the project was designed primarily as a community development project, with the intention of supporting women to increase their income\. Due to the lack of baseline data and the delay in setting up the M&E system, targets for the indicators were only set during the MTR in June 2011\. In the table called (a) PDO Indicator(s) in the fact sheet at the beginning of the PAD, it is stated that the final number of women benefitting from the project was 7,134\. This figure is based on information gathered from field visits, interviews with CBOs, focal persons and chairpersons of women ’s organizations and monitoring reports, and is used as the basis for the efficacy assessment \. The figures in the table are percentages of the total number of actual beneficiaries; and as such only provide information of the percentage of total women participants partaking in each activity \. It does not provide any information on the extent to which the project reached its target, as it is unclear what the target was \. It is unclear whether the numbers reported in the table are actual baseline figures at MTR, and actual figures at project ending, or whether the figures under “MTRâ€? represent target figures for the end of the project \. The ICR provides no information on how many women were in the target group; the ICR seems to equatthe total number of actual participants with target numbers \. The key performance indicator for the PDO is stated as : “% of target women who perceive increase in income as a result of project interventions â€?\. There are some shortcomings with this key performance indicator : Target women’s perception : Surveys that assess beneficiaries ’ perception do not necessarily provide a measurement of the actual outcome \. Other factors might influence people ’s perception than what is supposedly measured\. Studies have shown that even when people ’s perceptions are positive, it does not necessarily coincide with actual improvement \. However, given the difficult circumstances under which this project was implemented and the lack of quantitative baseline data, a perception survey might be appropriate in that it at least offers information on how the beneficiaries perceived the project outcomes\. Increase in women’s income is here measured as a goal in itself \. The underlying assumption is that “women’s increased incomeâ€? will lead to “women’s economic empowermentâ€? (the stated goal of Component 1) and/or “immediate peace dividendsâ€? (the stated POD)\. The assumption that an increase in women ’s income automatically will lead to women’s economic empowerment or other higher level results, however, is a weakness in the project’s theory of change\. The crucial question of who controls the money (men or women) was not explicitly dealt with\. This major assumption that women control their own income is not questioned or discussed in any of the project documents, nor in the ICR, and no measures have reportedly been taken in the project to ensure women’s control over own income\. However, in the meeting with the TTL, it was pointed out that the women consulted (in the perception survey and during supervision missions) reported that they did perceive an increase in income, and that they were now able to feed their  children, send them to school and take them to the health clinics when necessary \. This indicates that women funded by the project actually did control at least a significant share of their own income; this was also the impression of the TTL who did not find information that indicated otherwise \. That the women were able to feed the children and provide clothes and healthcare for them indicates positive outcomes from the project, although it cannot be verified by more rigorous evaluation methods due to the security situation \. “as a result of project interventions â€?: In order to be able to determine attribution, a counterfactual analysis would have been needed\. Given the emergency nature of this project and the lack of data (both before and during operations), a counterfactual analysis has not been done \. Thus it is not possible to establish whether the outputs and outcomes reported are attributable to the project intervention or whether the results are primarily due to other factors\. In the absence of a baseline and more rigorous monitoring data, it becomes difficult to attribute all the project ’s outcomes to the actual intervention \. However, as pointed out by the TTL, the women themselves, both in the perception survey and during supervision missions, attributed their increased income to the project interventions \. Some interventions were very clearly a direct result of the project, as for example the Blind Women ’s CBO in Juba\. Almost 100% of poultry for Juba was imported from Uganda, this CBO started poultry and egg production and were providing some of the hotels in Juba with poultry and eggs\. Their business became self-sustaining by the end of the project and is still in operation\. Outcome: The target was set at 20% (1,527 women) at the MTR (or the actual figure was 20% at the MTR) but reached 40% (2,854 women) of the target group who perceived an increase in income as a result of project interventions \. This is a considerable achievement directly relevant to the project objective "to achieve immediate peace dividends for women"\. (i) Improvements in access to the existing economic opportunities Outputs: Indicator 1: 18 % of target women received training in non -farm income generating activities (20% at MTR)\. This indicator is listed under Intermediate Outcome Indicators in the ICR (unnumbered page), but is here treated as an output\. Indicator 2: 29% of target women received training in agricultural production activities \. (30 % at MTR)\. This indicator is listed under Intermediate Outcome Indicators in the ICR (unnumbered page), but is here treated as an output\. Outcomes: Indicator 3: 29% of target women utilized at least one new agricultural production technology or practice due to project intervention\. (30% at MTR)\. Indicator 4: 20% of target women perceived an increase in crop yields or harvest due to project interventions (10% at MTR)\. Indicator 5: 40% of sub-projects are expected to continue post project closure activities (the total number of sub-projects is 108)\. Of the 108 CBOs who received funds to implement income -generating activities for women, 90 of them completed the projects\. This is a substantial achievement considering the mobility, capacity and security challenges\. Efficacy rating : Substantial ii) Support to the Ministry of Gender to develop gender policies and strategies (ii) Outputs: Indicator 8: Interim prefabricated buildings, furniture and equipment installed; Yes \. Indicator 9: Construction of new Ministry building completed \. No, only 31% Indicator 10 : Country Gender Assessment completed \. 10: Yes Indicator 11 : Completion of capacity building training program \. 11: Yes (no info of how many trained or who) 12: Indicator 12 : Number of GoSS and state ministry staff received training 41 (target: 52) 13 : Number of CBO participants in project training Indicator 13: 3,395 (target: ?) 14 : Number of monitoring reports submitted by sub -projects Indicator 14: 10 and 8  15 : Number of supervision visits to approved project sites Indicator 15: 83 of 108 only at closing Outbreak of violence in some states prevented supervision visits 16 : Number of project staff onboard within 6 months of effectiveness 7 (target: 7) Indicator 16: 17 : Number of sub-projects receiving full disbursement of grants Indicator 17: 94 (of 108) 18 : Number of sub-projects complete by 2012 Indicator 18: 94 Outcomes: No outcome indicators were developed for this sub -objective\. The sub-objective itself is at input/output-level only\. However, according to the TTL, the capacity strengthening of the Ministry Staff was successful; they are now able to write proposals, manage projects \. No indicator was developed in the M&E framework with regard to the intended development of a gender policy and strategy\. It is mentioned in the ICR text, however, (page 13, para 53 and page 14 para, 62), that the Country Gender Assessment was critical in enhancing the Gender Policy \. Final approval of the 2008 Gender Policy by the Council of Ministers and the Legislative Assembly had been delayed due to lack of evidence -based recommendations, but the CGA provided the basis for updating the existing Gender policy Framework draft into a National Gender Policy for approval by the Legislature \. The relevance of two of the indicators, 6 and 7, is unclear, Indicator 6 “% of women joining associationsâ€?, and Indicator 7 “% of collective action among women in project sites â€? (here the actual achievement is measured to be 500%, due to an assumption that collective action was non -existent prior to the project, which is unlikely )\. There is no direct logical link between these indicators and the intended sub -objective of increased access to economic opportunities by women although there may be indirect links \. This indicates a weakness in the M&E design\. The infrastructure element of the support to the ministry was not achieved \. Efficacy rating : Modest 5\. Efficiency: Negligible Given the emergency nature of the operation and absence of data, no detailed economic analysis was conducted during preparation \. The ICR does not contain any economic analysis or estimation of the Value for Money of the total grant nor of the different components \. It is mentioned in the ICR (page13, para 57-58 and Annex 3 page 28) that a Value for Money assessment was carried out for two of the activities (construction of the Ministry building and the purchase of 10 motorcycles) in October 2012\. The assessment concluded that performance for the construction was partially achieved (construction was assessed at 31% at project closing), but fully achieved for the purchase of motorcycles \. Annex 3 on page 28 provides a table summarizing the assessment, but does not provide sufficient information for a verification of the assessment \. Furthermore, substantial parts of the project (other than the construction of the building and the purchase of the ten motorcycles) have not undergone any efficiency assessment \. The ICR does not compare final costs at project closure with estimated costs at appraisal \. Experiences during implementation confirmed the accuracy of the high risk rating at appraisal: The project faced challenges specific to a fragile and post -conflict state\. Security issues caused delays or failure in a number of sub-projects (23 out of 108) under Component 1, and lack of security forced the relocation of a number of sub-project activities\. Pilfering of sub-project inputs was also a problem \. These constraints affected the ability of the PCU to undertake monitoring and technical assistance visits \. The lack of Banking infrastructure delayed fund transfers to grantees for sub -project activities\. Most banks operated from Kenya and this delayed the remittance of funds\. The remoteness and lack of access to some sub -project sites hindered the monitoring and reporting \. The two extensions indicate a degree of inefficiency, and were mainly due to the delay in the construction of the Ministry building\. The failure to complete the construction (still not completed in 2014) involved a significant expenditure with no benefit stream \. There were also delays in 23 of the 108 community projects\. Furthermore, 15% of the project funds are still unaccounted for which suggests no benefits \. Efficiency is rated Negligible \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation :  Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance of objectives is rated high but relevance of design modest\. The efficacy of the first sub -objective, “improvements in access to the existing economic opportunities â€?, was substantially achieved, while efficacy of the second sub-objective was modestly achieved, mainly due to lack of approval of the gender policy and the non-completion of the construction of the Ministry building \. Efficiency is negligible due to limited evidence and a delay in the construction of the ministry and therefore no benefit streams attributable to that substantial expenditure\. The overall project outcome is assessed as moderately unsatisfactory \. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: High \. The Risk to Development Outcome is rated High\. The Republic of South Sudan is a fragile, post -conflict state where risks associated with uncertainties in the security environment and macroeconomic framework are high \. The project development objectives rank high in the list of Government priorities, making the risk to changes in policy that would adversely affect the objectives low \. The risk that existing institutions within the Government will not build sufficient capacity is high \. The numbers of staff trained under project activities are too few to impact sustainably the functioning of these institutions over time, and the risk of staff turnover is high \. a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance: a\. Quality at entry: The Quality at entry is rated Moderately Unsatisfactory \. The project design was appropriate given the situation and development priorities of the Government of Southern Sudan at Appraisal\. Response to the women’s dire economic situation was among GoSS ’ key priorities\. The absence of information to address gender concerns and the overall weak capacity in the country informed the institutional building component \. Past donor and GoSS funded programs in the country informed the design of Component 1\. GoSS had been providing resources, although small, for the economic empowerment of women to the 10 states from 2006 to 2008 for livelihood projects\. Various donors also provided support targeting women and children \. The design was furthermore based on workshops and reviews with a range of stakeholders \. The design provided arrangements to ensure fiduciary compliance during implementation \. Assistance provided by international consultants ensured that the project ’s financial and procurement systems were adequate\. Assurances from the Ministry of Housing were relied on in moving forward with the construction component\. All activities, except from the building construction, were completed \. The project extensions secured were primarily to complete the construction activity \. However, there were serious shortcomings \. The time to construction and the cost for the ministry building was under-estimated at appraisal\. Although the Final Project Proposal had recognized the difficult operating  environment, it under-estimated the extent of the risks to implementation \. The implementation horizon of two years for the project was highly unrealistic for achieving, in difficult country circumstances, an objective of income gains for women on any scale built on enhanced institutional capacity \. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: The Quality of supervision is rated Moderately Satisfactory \. The Bank’s supervision of the project was conducted regularly with one to two missions per year \. They were undertaken by the Team Leader supported by a country -based task team\. The team provided hands-on support to the PCU during project implementation \. It also provided significant support to the project on all components with particular attention to Component 1 and the procurement of studies and contractors for the building construction\. Aide-Memoires from Bank supervision highlighted key accomplishment and called the attention of the Ministry and Bank management to key issues and follow -up actions by both Client and the Bank\. Among these issues were the challenges in undertaking monitoring and reporting of sub -project grants; delays in the procurement of CGA studies, and delays in procurement and supervision by the building contractor\. The Bank team played a particularly critical role during the MTR by reviewing and revising the Results Framework, together with the Government, and putting in place corrective actions to support the reporting of CBOs\. The Bank was proactive in addressing implementation issues, including those in procurement \. The resources that were allocated at the start proved to be insufficient and additional funds were allocated and more time provided\. However, more effort could have been devoted to improving M&E in the early stages of implementation \. M&E data for the development objectives was only available after the MTR \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Government performance is rated Moderately Satisfactory \. The Government showed ownership at the project preparation stage \. The Government’s commitment to the project is a reflection of its commitment to the Joint Assessment Mission (JAM) and its priorities, one of which is to address the dismal status of women through policy action and directed programs for economic empowerment\. The PCU was established and staffed \. The Ministry of Gender was tasked to implement the project and other government agencies, such as the Ministry of Finance and the Ministry of Housing, provided support\. The Government established a PFMU in the Ministry of Finance to handle the financial aspects of the project, including the filing of withdrawal applications, reimbursements and financial reporting \. According to the ICR (page 18, para 78), the PFMU performed this function well\. Other line Ministries (Agricultural, Animal Resources) provided technical support to CBOs to maximize their production and income generating potential\. States also provided support through the Ministries of Social Development, whose staff acted as focal persons for the project \. States’ involvement was however limited to the focal persons \. The Ministry of Housing played a key role in the construction component \. Delays in the approval of design  and bid documents however became the major cause for the non -completion of the building\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: Implementing Agency Performance is rated Moderately Unsatisfactory \. The Ministry of Gender (through the PCU) implemented the project\. It appointed counterpart staff to the project and named two of its Directors -General to lead the implementation and closely collaborate with the Bank in the implementation of the project \. According to the ICR (page 18 ,para 80), there was an overdependence on external consultants \. While a number of staff were assigned to work with counterpart specialists in a twinning arrangement, this did not take place and the transfer of knowledge, particularly on Financial Management, procurement and training was negligible\. Monitoring of sub-projects and management of contracts were challenging from the start \. Information was generated through interviews, phone calls and monitoring visits (key staff did not travel to project sites due to the security situation)\. After closing, with financial reports still pending and consultancies terminated, collection of information and submission of key reports slowed down even more \. The limited role played by the States and the failure to provide oversight to the construction component and meet reporting requirements for the sub -projects diminished the good performance by the Ministry of Finance in managing the financial aspect of the project \. The failure of the Ministry of Gender to provide competent and responsive staff and counterpart officials necessitated a replacement at project mid -term\. While a good number of CBOs performed adequately, a number of them still have to comply with reporting requirements, especially for the funds received \. As noted, there were some missing funds not yet accounted for \. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: M&E was given appropriate consideration in the design in that it figured in one of three subcomponents under Component 3, and an M&E system was as such planned to be built into the project design \. Appropriate M&E staff were recruited (albeit late) and were responsible for the development and implementation of the M&E system\. The design of the M&E system and the self -reporting baseline questionnaires had a very slow start, partly due to lack of adequately skilled staff in the beginning, and the M&E system, based on the Results Framework, was finally established in the second year of the project \. Implementing CBOs were required to include detailed benchmarks and provide information on baselines, against which project progress would be measured \. The results framework was revised during the project Mid -Term Review to take into account new knowledge of development problems and local conditions \. A beneficiary survey, complemented by information received from project monitoring staff and MDTF Monitoring Agents generated significant data to revise the indicators in the results framework\. The indicators chosen by the team in the original Final Project Proposal are mostly in line with the development objectives, but most of them focus on outputs rather than outcomes \. The project design did not factor in the extent to which data requirements and collection would be a challenge \.  No baseline data were available for most of the indicators \. b\. M&E Implementation: From its inception, the M&E system was inadequate and the PCU lacked adequately skilled staff in the beginning\. Information on sub-project grantees for a baseline was not available until the MTR \. Data verification for Component 1 was very challenging\. Data collected from different sources suffered from discrepancies making it difficult to determine the actual impact of the sub -projects\. To compensate for the lack of data, verification of information was done using in -depth interviews with Focal Persons, chairpersons and beneficiaries\. Site verification visits supplemented these interviews \. Data collected remains incomplete and actual figures for each of the indicators for Component 1 cannot be determined\. Financial monitoring of CBOs was especially problematic due to their lack of skills in preparing reports and sub -project site inaccessibility\. However, the ICR reports that the information collected appeared to be a good representation of the achievements (page 9 para 39)\. c\. M&E Utilization: The M&E system became the basis for the project performance report, allowing the PCU to review sub -project status and take corrective measures \. The reports generated became the basis for providing additional support to performing CBOs\. The M&E System was still being utilized by the Ministry at the time of the ICR but in a limited way after project completion\. The data gathering and performance measuring have largely been left to one -two ministry staff who already have a heavy workload and other responsibilities \. Reason for M&E Quality Rating: The project operated under very challenging conditions in a post -conflict environment with substantial security issues coupled with low human and institutional capacity \. Under these circumstances, the project staff showed professionality and flexibility in applying alternative, adequate techniques (like the perception survey ) when information gathering and reporting proved difficult \. Given the emergency nature of the operation and the relative short period of the intervention, the project focused more on outputs than on outcomes \. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: According to the Final Project Proposal, the operation was classified as Category “Bâ€? under the Bank’s OP4\.01 Environmental Assessment Sub-projects were very small and did not trigger any safeguard policies \. The overall project did not trigger any social safeguard policies \. Project grantees were already engaged in productive activities and any expansion covered donated government lands \. For the building construction, unoccupied land was procured by the Ministry of Gender and legal requirements and consultations were undertaken prior to design\. b\. Fiduciary Compliance: Financial Management Out of the allocated amount of US$10,546\.795, total disbursement stood at US$ 8,9 million (85%) at closing\. The first tranche for 95 of the 108 beneficiaries and the second tranche for 47 have been accounted for \. Out of the total of US$3,860,408 for sub-grants released to beneficiaries, US$ 579,966 (15%) remains to be accounted for\. The Bank issued a memo in April 2013 to the MoG requesting documentation for the missing funds \. Significant attention was paid to the fiduciary framework at the design stage, and financial management and  institutional systems were assessed as weak \. The overall Financial Management risk was rated as high, but according to the ICR (page 19 para 44) it is moderate in reality because of the mitigating measures that were put in place\. These included: (i) monitoring the actual expenditures by a Monitoring Agent; (ii) assigning the responsibility over accounting systems to the Project Financial Management Unit (PFMU) established for the MDTF-SS; and (iii) selecting and External Audit Agent (EAA) to provide independent assessment of financial statements\. All Interim Financial Reports (IFRs) and the audit report for the Financial Years 2010 and 2011 were prepared and submitted on time\. Mitigating measures were implemented and contributed to the moderately satisfactory rating of the Financial Management aspect of the project \. Procurement The overall procurement risk was rated high at appraisal\. An international Procurement Specialist was hired to assist the PCU build the capacity of the Ministry by pairing up with its procurement staff \. The Procurement Specialist was responsible for the procurement of works, goods and services \. There were significant delays in the procurement process of goods and services, especially in undertaking the CGA and in the construction of the Ministry building\. At project closing, the construction of the building was only 31% complete with an estimated shortage of funds of US$ 4\.2 million to complete the building\. At the MTR in May 2011, concerns were raised on the slow progress in the submission of financial accountability reports by grantees and delays experienced in three major activities, namely the preparation of the CGA, the construction of the building for the Ministry of Gender and supervision of construction \. Delays in procurement for the three packages were caused by capacity constraints in managing procurement activities and in the preparation and approval of bidding documents \. Measures were taken to solve these challenges, and the CGA was completed before project closing in December 2012\. c\. Unintended Impacts (positive or negative): The ICR (page 15 para 66) mentions some potential positive unintended effects by some of the sub -projects, such as revenues from renting out stalls used for assistance grants and a tailoring project secured a supply contract from a local school\. However, such effects should be regarded more as intended and expected rather than positive unintended effects \. In the meeting with the TTL, two positive unintended effects were mentioned : The CBOs were strengthened through the project, both by receiving relevant training and also from gaining experience in managing projects \. Many of the CBOs had no previous experience in working with donors, and the project contributed to a strengthened civil society at the local level through these women ’s CBOs\. Most of the CBOs are still operating in South Sudan, and some of the activities are still ongoing \. The CBOs’ capacities were strengthened in such a way that several other WB operations (and other donor projects) now work through those same CBOs \. The Country Gender Assessment led not only to the completion and approval of the Gender Policy by the Council of Ministers (yet to be endorsed by the parliament due to the recent civil war ), but it also led to the formulation of a Social Protection Policy \. d\. Other: 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Unsatisfactory Unsatisfactory Risk to Development Significant High There are high risks associated with Outcome : the security situation and the weak institutional capacity\. Bank Performance : Moderately Moderately Quality at Entry suffered from an Satisfactory Unsatisfactory unrealistically short two year project period, far too short for a community  development approach to gender and income supported by enhanced institutional capacity\. Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons, emphasizing those that would be applicable in other post -conflict environments, are taken from the ICR with some adaptation of language : 1\. In post-conflict settings with extremely weak institutional capacity, continuing post -conflict insecurity and serious accessibility challenges due to the lack of infrastructure, projects should start at small -scale and be gradually scaled-up; experience suggests that nation -wide coverage at project start -up is over-ambitious\. Small-scale and a focused set of activities should be prioritized to draw lessons for future expansion of coverage and scope\. 2\. In a post-conflict setting it is especially important to have realistic timetables for physical construction components\. 3\. It takes time to build capacity; capacity cannot be built within one two -year project – in any setting, but especially not in a new country where government and donor support is starting with a low level of capacity and with a need for capacity to be cross -sectoral\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is clearly written and consistent with Bank guidelines \. It presents good analysis of almost all dimensions required to evaluate the project \. However, there are some shortcomings : There is no information of the total actual cost or the actual cost per component \. A description and explanation of the discrepancies in the ICR between the reported planned and actual costs would have been useful \. A fuller explanation of who the target group would be, how targets were set and what the targets were, would have been useful\. A complete list of acronyms would also have been useful; the ICR uses several acronyms that are not spelled out or listed in the list of acronyms \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P057933

 ICRR 13736 Report Number : ICRR13736 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 01/09/2013 Country : China Project ID : P057933 Appraisal Actual Project Name : Tai Basin Urban US$M ): Project Costs (US$M): 178\.7 148\.6 Environment Project L/C Number : L4748 Loan/ US$M ): Loan /Credit (US$M): 61\.0 57\.3 Sector Board : Water US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 08/03/2004 Closing Date : 12/31/2009 06/30/2010 Sector (s): Sewerage (90%); Flood protection (10%) Theme (s): Water resource management (29% - P); Pollution management and environmental health (29% - P); Other urban development (28% - P); Infrastructure services for private sector development (14% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Brett J\. Libresco Robert Mark Lacey Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: The project's development objective as stated in the Loan Agreement was : "to assist Jiangsu Province in reducing the degradation of water resources and improving the quality of the urban environment in Wuxi Municipality and Suzhou Municipality, both of which are located in the Tai Basin " (pg\. 15)\. The objective as stated in the Project Appraisal Document (PAD) was: "to improve the quality of life of the rapidly increasing urban population and enhance economic competitiveness in Wuxi and Suzhou, key municipalities in the Tai Basin and the Yangtze River Delta economic region, by alleviating degradation of water resources and improving the quality of the urban environment \." (pg\. 2)\. This ICR Review uses the statement of objectives in the Loan Agreement because it is more monitorable \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The PAD lists three components\. Component 1: Wuxi Municipality 1a) Wuli Lake Sub-project (Appraisal: $35\.0m; Actual: $31\.3m) This sub-somponent, financed wholly by the Borrower, aimed to build pollution control facilities, restore the lake bank, and pilot research in ecological restoration at Wuli Lake, the most heavily polluted perimeter lake \. 1b) waste water Treatment Plants (WWTP) and Networks (Appraisal: $68\.5m; Actual: $71\.4m)  This subcomponent included construction of two waste water treatment plants (the first phase of Chengbei-Huishan with capacity of 50,000 m3/day of primary and 25,000 m3/day of secondary treatment; and a new plant with 25,000 m3/day capacity serving three townships and a proposed industrial park in Xishan District ) and expansion of another (the Dongting plan in Xishan District, from 20,000 to 50,000 m3/day capacity)\. It also includes construction of sewers in the surrounding areas for each of the three plants \. The ICR notes that the project also financed the second phase of construction of the Chengbei -Huishan wate water treatment plant, using funds from the portion of component 2b that was cancelled, to increase capacity by 25,000 m3/day with tertiary treatment\. Component 2: Suzhou Municipality 2a) Urban Area Canal Network Rehabilitation (Appraisal: $19\.7m; Actual: $13\.9m) This subcomponent was intended to enhance flood protection and prevent the intrusion of polluted water into the urban canal system, and to prevent the loss of clean water \. It included two control gates, one each on the Xujiang River and Shangtang River with bank heightening works \. It also included sediment dredging of canals in Suzhou\. 2b) waste water Treatement Plants and Networks (Appraisal: $49\.4m; Actual: $31\.0m) This subcomponent was to include the construction of three waste water treatment plants (second phase of Fuxin plant 100,000 m3/day capacity serving the south and west of Suzhou city; second phase of Loujiang plant 80,000 m3/day capacity serving north and east areas of Suzhou city; and first phase of anew plant of 25,000 m3/day capacity serving Wuzhong Economic Development Zone in Wuzhong District ), and associated sewers for one of those plants (the Wuzhong plant)\. The ICR notes that the part of this component associated with Wuzhong District "was cancelled because the District pursued private financing due to a shortage of counterpart funds"\. This was the result of a new master plan that changed the land use for the site \. To date, the plant has not been constructed\. Component 3: Implementation Management and Sector Development Assistance (Appraisal: $1\.9m; Actual: $ 1\.0m) This component included technical assistance for capacity building for waste water utilities management and financing; training in project management; technical assistance for engineering design and construction supervision; and locally-financed preparation and updating of waste water masterplans for Wuxi and Suzhou Municipalities\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project cost \. Total cost at appraisal was estimated at $ 174\.5 million\. Part of component 2b was cancelled partially to a reported shortage of counterpart funds, and new activities were initiated \. The actual cost came in under the appraisal estimate at $ 148\.6 million\. Financing Fin ancing \. The Bank was the only external partner \. It ultimately disbursed $57\.3 million of the $61 million committed\. The undisbursed balance of $ 3\.7 million was canceled\. Borrower contribution \. Government contributions were estimated at $ 117\.4 million at appraisal\. At closure, they were $91\.6\. No explanation of the shortfall is provided in the ICR \. Dates \. The closing date was extended once (on July 14, 2009), by 6 months, to allow for the introduction of additional works when one sub -project was dropped\. This extension, in an amendment to the legal agreement, was approved by the Country Director \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. High The objectives of reducing the degradation of water resources and improving the quality of the urban environment fall squarely within the third pillar of the Bank's 2006-2010 Country Partnership Strategy with China \. This pillar is titled "Managing resource scarcity and environmental challenges, " and among other things calls for building a more resource efficient society \. This includes "expanding waste water collection and treatment facilities while upgrading utility management and performance, so that affected cities expand the reuse of water\."  The objectives are also closely aligned with the priorities of Jiangsu Province \. The project was part of a broader effort to improve water quality in Lake Tai, the third largest freshwater lake in China \. b\. Relevance of Design: Modest \. The causal chain linking Bank finance to project outputs, and outputs to intended outcomes is clear and convincing for the first objective (reducing the degradation of water resources ), but not for the second (improving the quality of the urban environment )\. All four of the intermediate outcomes identified in the results framework --(i) increased collection and treatment of domestic and industrial waste water; (ii) restored urban water environment; (iii) improved sustainability of waste water service; and (iv) enhanced capacity for waste water -- are closely linked to reducing the degradation of water resources\. Three of these four have water treatment -related activities attached to them --(i) new sewer connections and enforcement of industrial discharge standards; (ii) clean-up and restoration of urban canals and lakes, and water diversion through engineering gates; and (iii) updating of waste water master plans and capacity-building for waste water utilities management and financing \. The third intermediate outcome -- improved sustainability -- is predicated on the quality of financing plans and the political will to reform waste water utility management and financing arrangements, but not directly linked to any activities associated with the project\. By contrast, only the second intermediate outcome in the results framework -- restored urban water environment -- is linked to the objective of improving the quality of the urban environment \. This objective is nowhere further defined, and so it is unclear whether or how it would be achieved \. The project also aimed to "strengthen water resource protection in the Tai Basin through improved and integrated planning, water quality monitoring and environmental management " as a means of achieving its two development objectives\. But the implementation management and sector development assistance component of the project did not include adequate technical assistance for implementation given the ambitious nature of the reform agenda\. 4\. Achievement of Objectives (Efficacy): Objective 1: Reducing the degradation of water resources in Wuxi Municipality and Suzhou Municipality \. Substantial \. Outputs The physical investments in lake rehabilitation, canal rehabilitation and waste water treatment plants, as restructured, were completed\. Nearly 2\.5 million m3 of polluted lake bed sediment was removed from Wuli Lake \. Likewise, the canal network in Suzhou was dredged, increasing its flood control capacity \. Capacity for waste water treatment was expanded by 50,000 m3/day in Huishan, 30,000 m3/day in Xishan Dongting, 25,000 m3/day in Xishan (Anshen), and 180,000 m3/day in Suzhou\. In addition, 344 km of sewers were constructed \. The ICR summarizes that the project increased the total waste water treatment capacity from 160,000 m3/d to 305,000 m3/d of Class 1A quality, exceeding the original project targets of 280,000 m3/d\. Moreover, the project exceeded all of its targets for capacity utilization at WWTPs financed by the project \. Outcomes The first key performance indicator in the PAD was relevant to this objective : "reducing the proportion of untreated waste water discharges in Wuxi and Suzhou Municipalities \." The PAD did not identify a baseline or target for this indicator\. Baselines and targets were first identified in the sixth Implementation Status and Results Report (ISR) in June 2009 (nearly five years after the project was approved by the Board )\. Baselines, targets, and final outcomes for the indicator are as follows: Table 1: Share of Waste Water Discharges Treated Jurisdiction Baseline Target Final Suzhou 0% 90% 85% Xishan urban Nearly 0% 85% 83% Xishan town Nearly 0% 70% 62% Huishan Nearly 0% 90% 80% There was near achievement of the target in each geographic region, but full achievement in none of them \.  Objective 2: Improving the quality of the urban environment in Wuxi Municipality and Suzhou Municipality \. Modest \. There was no indicator related to this objective in the main text of the PAD, although Annex 1 of the PAD did list as its second indicator a "cleaner urban water environment and improved livability in the two major urban and tourism centers\." But there was no definition of this indicator, and the ICR listed its achievement as uncertain because there is no clear way to measure "livability\." The ICR notes that the water quality of receiving water bodies has improved, and the Bank team reported that part of the lake and canal rehabilitation included the establishment of an ecological park (financed by a counterpart fund ) and the restoration of wetlands, but it is unclear how one would measure "improved livability" (and the ICR makes no attempt to do so )\. 5\. Efficiency: Substantial \. Least cost options were identified at appraisal, and all but one were adopted \. The exception (in which diverting water from Gong Lake was estimated to improve the water quality in Wuli Lake to a higher degree than diverting it from Meiliang Lake, the least cost option ) was for a locally-financed sub-component of the project, and the decision was made by the local government \. The three least cost options supported by the Loan were implemented at lower than the appraised least cost estimates, and additional treatment capacity was built using Loan savings\. There was a short time extension (6 months), but this was not due to inefficiencies but rather to enable the completion of additional works \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of the objectives of the Tai Basin project is high --closely aligned with the CAS, the priorities of Jiangsu Province, and part of a broader effort to improve water quality in Lake Tai \. But the relevance of design is rated modest, as the second objective on improving the quality of the urban environment was ill -defined and not well-linked to indicators or activities \. Moreover, the planned technical assistance (and buy-in) was insufficient given the ambitious nature of the expected reforms \. The first objective of the project, to reduce the degradation of water resources in Wuxi and Suzhou Municipalities was substantially achieved \. Achievement of the second, less well-defined objective, to improve the quality of the urban environment, is rated modest in the absence of evidence\. Efficiency is assessed as substantial \. Overall, the project outcome is rated as moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: There is solid commitment by the national and provincial governments to continue to address water quality issues in Lake Tai\. The central government prepared in 2007 a national master plan to be implemented at the provincial level, which requires project cities and districts to continue making environmental investments \. Jiangsu province is highly committed to the task, making funds available and monitoring the utilization, operation, and discharge standards at the relevant waste water facilities \. The waste water companies have experienced staff, which have overseen high utilization of capacity and proper operation and maintenance \. However, while adequate budgets have been made available by local governments to waste water facilities to date, and are expected to in the future, waste water tariffs remain insufficient to meet full costs, and so potential policy reversals by local governments in the future could harm the sustainability of the plants \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank appropriately linked the government's strategy, the Bank's country and sector strategies, and the specific needs of the local communities in preparing the project \. The Bank also helped to train local government staff in the peculiarities of complying with Bank implementation requirements \. However, as noted in the ICR, "the appraisal team underestimated local institutional complexities, and incorporated an institutional and financial reform agenda that was far too pioneering in the local context and had little chance of realization \." It goes on to note that the design "did not include adequate technical assistance for implementation of the reform agenda, which was quite ambitious "\. In addition, there were significant delays in preparation (three years for identification and preparation ), and as noted above one of the objectives was too broad and only loosely related to the project's activities, while core issues regarding institutional and financial reforms were not reflected \. The M&E framework had important weaknesses (see Section 10 below)\. There were no indicators for one of the two main objectives, and there were no baselines or targets for any of the indicators that were identified \. Moreover, the Government had not agreed to the indicators approved by the Board, and so the Bank and Government had to negotiate alternative indicators thereafter \. Several of these indicators were in service of objectives that were not a part of the project;s development objectives (cost recovery and preparation of waste water master plans)\.The statement of objectives was not not fully clear, especially as regards the second objective\. Objectives in the PAD and Loan Agreement differed \. The PAD objectives aimed high, specifying final outcomes that were not closely linked to planned activities, including enhancing the quality of life in, and improving the economic competitiveness of, the two municipalities, while the Loan Agreement scales those objectives back \. The ICR reports that the Bank strongly encouraged counterparts to include financial reforms among the covenants in the project agreement \. These ultimately included requirements to merge waste water facilities (not met), corporatize a drainage facilities management division (partially met), authorize project companies to levy and collect waste water tariffs (not met), return waste water tariff revenues to districts (met), achieve full cost recovery (not met), and achieve a debt service coverage ratio target (not met)\. These financial reform goals were not a priority for the government (the "had little chance of realization " according to the ICR), which was much more focused on physical investments, and ultimately they were mostly not achieved \. But they created tensions throughout implementation, and required significant attention during supervision to sort out which reforms would be pursued in practice \. at-Entry Rating : Quality -at- Unsatisfactory b\. Quality of supervision: The ICR reports considerable time and resources devoted to supervision, including support for the institutional and financial reform agenda that was not explicitly included as part of the development objective but for which the Bank identified monitoring indicators \. These were issues for which, according to the ICR, the Borrower had little ownership\. This continued even when it became clear that it was "virtually impossible" (Implementation Status and Results Report (ISR), June 25, 2009) to comply with two of the covenants--requiring waste water companies to set and collect waste water fee revenue, and to convert the waste water fee to a commercial tariff\. The ISR concedes that the covenants should have been revised at an earlier date to include performance targets that were realistic and achievable \. The Bank responded flexibly and appropriately when the Government decided not to pursue one sub-component of the project after major changes to the Wuzhong District Master Plan, cancelling that portion of the project and reallocating the resources to expanding another sub -component\. The weak M&E framework with inadequate monitoring indicators for intermediate outcomes was revised, but only very near the end of project implementation \. Quality of Supervision Rating : Moderately Unsatisfactory Overall Bank Performance Rating : Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The local governments showed a strong commitment to achieving the development objectives, particularly with regard to physical investments \. This commitment was also demonstrated by their willingness to charge a high waste water fee relative to the norm in China, and their selection of a high discharge standard for treated waste water to reduce nitrogen and phosphorus pollution \. Compliance with fiduciary requirements was strong, and the governments had adequate capacity to implement the project \. But the local governments chose not to charge tariffs sufficient for full cost recovery and did not pursue policies that would make the waste water companies financially autonomous \. Instead, district finance bureaus collect the revenues and provide a budget to the waste water companies for operations and maintenance (which require a subsidy)\. The government also was not able to consolidate waste water services in Xishan District\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The performance of the implementing agencies --including a construction company, drainage company, and two waste water treatment companies --was satisfactory\. All physical components were completed below appraisal costs before the original closing date, in spite of unfavorable exchange rate movements \. The various companies did not become financially autonomous, but this was outside their control as they did not own assets or collect a direct revenue stream \. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: There were no key performance indicators to measure improvements in the urban environment quality, which was one of the two PDOs\. Moreover, two of the three key performance indicators focused on institutional reforms which did not form part of the development objectives \. And intermediate outcome indicators were vague and difficult to track\. There were no meaningful baselines or targets at the outset \. The Tai Basin Urban Environment Project Office was to be responsible for monitoring the key performance indicators and for preparing progress reports\. b\. M&E Implementation: As the ICR noted, the weak M&E framework made tracking project progress and assessing the achievements difficult\. Semi-annual progress reports centered on implementation progress, financial expenditures by component, and details on resettlement \. The Bank team identified additional intermediate indicators, and identified end-of-project targets during implementation to make them more meaningful, although this did not happen until late in the project \. The team preparing the ICR gathered additional data on water quality from the utility companies and environmental protection bureaus \. c\. M&E Utilization: Due to design problems--the indicators were not adequate to track progress in meeting objectives --indicators were not used to inform decision -making\. M&E Quality Rating : Negligible 11\. Other Issues a\. Safeguards: The project was classified as Category A for environmental assessment purposes (which indicated that the project was likely to have significant adverse environmental impacts that were sensitive, diverse, or unprecedented)\. The project triggered two safeguard policies (OP 4\.01 related to environmental assessment and OP4\.12 related to involuntary resettlement )\. Environmental assessment \. According to the ICR, the Bank reviewed and cleared the Environmental Management Plan and Environmental Impact Assessments, which complied with domestic environmental impact assessment law and Bank safeguard policies \. Environmental monitoring was carried out by an accredited institute which provided inputs for an international consultant \. The ICR found that mitigation measures were implemented satisfactorily, basing its judgment on the M&E results and field observations of Bank supervision missions\. The ICR reports that overall project compliance through the environmental management plan was satisfactory (pg\. 8)\. Involuntary resettlement \. The ICR reports that resettlement activities were carried out satisfactorily in both municipalities and that "all resettlement was done in accordance with Chines regulations and Bank safeguard policies" (pg\. 7)\. It also notes that "External monitoring of the Resettlement Action Plan implementation was carried out in accordance with the legal agreements \. Annual safeguard compliance reports prepared by the project implementing units were submitted regularly " (pg\. 7)\. A resettlement implementation report indicates that all project affected persons "were resettled in accordance with the agreed resettlement action plan " (ICR, pg\. 30) and that compensation standards exceeded those set out in the resettlement action plan \. Moreover, the ICR reports that the project affected persons were satisfied with the resettlement arrangements which improved their living standards\. b\. Fiduciary Compliance: There were no major procurement or financial management issues raised during implementation, and these were rated moderately satisfactory or better in all supervision reports \. Regarding financial management, the project accounting and financial reporting were in line with the requirements specified in the Loan Agreement as well as Ministry of Finance regulations \. Annual audits were always unqualified and submitted on time for Bank review\. Procurement followed the Bank's guidelines \. One potential mis-procurement was identified during implementation for failure to make a timely award decision for a civil works contract, but the Bank ultimately deemed the procurement satisfactory \. Prolonged bid evaluation was due to lack of procurement experience by the implementing agencies\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Negligible to Low Moderate Outcome :  Bank Performance : Moderately Unsatisfactory There were major shortcomings in Satisfactory Quality at Entry\. Preparation was not adequately tailored to the preferences and needs of the local government, and the results framework (and associated indicators and targets) was insufficiently developed\. Borrower Performance : Satisfactory Moderately Plans for physical investments were Satisfactory implemented as foreseen, but there was an unwillingness to undertake financial reforms important for sustainability\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons are taken from the ICR with some adaptation of language : 1\. A careful examination of the evidence on sources of pollution and consideration of opportunity costs should underpin decisions on waste water treatment \. Under the project, all waste water treatment plants were required reach the Class 1A discharge standard by introducing tertiary treatment to remove nitrogen and phosphorus from water in addition to the solids, organic materials, and nutrients removed in the first and second stages of treatment \. But half of this type of pollution in the Lake Tai Basin comes from agricultural activities, and so the cost effectiveness of the additional stage of water treatment was uncertain \. The requirement was especially burdensome for small towns with limited capacity, and resources may have been more cost-effective if they were used to reduce other sources of pollution \. 2\. Project teams should carefully consider local circumstances when advocating an institutional model for utilities \. The model proposed in the Tai Basin project went well beyond what has been implemented elsewhere in China\. While full cost recovery may be a reasonable longer -term strategy to provide effective waste water collection and treatment services and ensure its sustainability, other Chinese cities have achieved this objective in the short run by making political decisions to set tariffs and subsidizing utilities to cover their costs\. 3\. Strategies to reduce degradation of water resources should consider non -point source pollution \. Roughly half of total pollution loads that enter the water systems in the Lake Tai basin come from non -point-source pollution, primarily from agricultural sources and untreated urban run -off\. IEG adds an additional lesson: 4\. In order to provide clear guidance to counterparts and maximize development outcomes, project development objectives must be clearly drafted, and closely linked to the activities under the project \. In the Tai Basin project, one of the objectives was vague, and much of the activity and attention was devoted to financial and institutional reforms which were not included in the project's objectives, causing a degree of confusion between the Bank and counterparts \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR was concise and outcome -oriented, especially in its assessment of achievement of objectives \. There were detailed annexes with useful data, and the assessment relied on high -quality evidence for the first  objective\. For the second objective, little or no data was available \. Analysis was relatively strong, although a more detailed description regarding disagreements over the financial reform goals would have been helpful \.The ICR is largely consistent with evaluation guidelines (although it includes end-of-project targets that were identified during implementation; it should have noted that these were not identified in the PAD but were all that were available)\. It is internally consistent, except for one baseline value (the baseline waste water treatment rate in Suzhou is specified as 0% in one place and 30% elsewhere)\. Lessons are founded on the evidence \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P006664

 ICRR 10770 Report Number : ICRR10770 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/17/2000 PROJ ID : P006664 Appraisal Actual Project Name : Environmental Institutions Project Costs 32\.7 32\.7 Development US$M ) (US$M) Country : Chile Loan/ US$M ) 11\.5 Loan /Credit (US$M) 11\.5 Sector (s): Environmental Institutions Cofinancing US$M ) (US$M) L/C Number : L3529; LP164 Board Approval 93 FY ) (FY) Partners involved : Closing Date 06/30/1998 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : 2\. Project Objectives and Components a\. Objectives The objectives were (i) to establish an institutional framework to manage environmental protection and conservation of natural resources; and (ii) to strengthen the Government's ability to evaluate and manage priority environmental problems in targeted sectors\. b\. Components In support of the first objective, the project provided technical assistance (i) to strengthen the technical and administrative structure of the National Commission on the Environment (CONAMA), (ii) to implement and update the legal regulatory framework for the environment, (iii) to develop environmental impact assessments (EIAs) as a policy tool, (iv) to provide training and develop a non -formal education program, (v) to support small environmental projects at the community level, (vi) to establish an environmental information system (EIS), (vii) to develop capacity for economic analysis of environmental issues, and (viii) to establish emission standards and prepare decontamination plans for highly contaminated areas \. In support of the second objective, the project provided TA (i) to undertake a cadastre of native forests forests, (ii) to promote the implementation of voluntary emission reduction agreements with industry, and (iii) to develop a regulatory environmental framework for the mining sector \. c\. Comments on Project Cost, Financing and Dates The original closing date of June 30, 1998 was extended by 18 months to accomodate implementation delays \. 3\. Achievement of Relevant Objectives: The objectives of the project were achieved and exceeded in most respects, with one exception \. The project supported the establishment of an effective institutional framework for environmental management, with CONAMA at the center, and a solid track record on impact assessment, policy analysis, information systems, and other aspects of environmental management\. The project also strengthened environmental management in the forestry and industry sectors, but did not achieve its objectives with the mining sector \. 4\. Significant Outcomes/Impacts: The project (i) helped establish a new agency, CONAMA, which is fully operational, and has earned the respect of the private sector, the NGOs and the public; (ii) helped develop a General Environmental Framework Law, which regulates fundamental aspects of environmental regulation, and took effect in 1994; (iii) helped establish broadly applicable EIA rules and regulations that now carry the force of law; (iv) conducted a series of basic courses for 1,500 professionals in environmental management; (v) supported pilot community level projects which provided CONAMA with useful experience to set up the Fund for Environmental Protection, with national financing, to continue financing similar projects; (vi) established an EIS that contributes to decisionmaking at the sectoral and regional level and disseminates most of the information available through CONAMA's website; (vii) led to the creation of an Environmental Economics Analysis Unit which has become a core part of the CONAMA structure; (viii) helped prepare 20 environmental standards (out of 31 scheduled) and decontamination plans for selected highly polluted areas; (ix) conducted a cadastre of all forests in Chile, including complete areal mapping, and detailed maps; (x promoted "clean production" approaches through studies and training that supported the implementation of voluntary emission reduction agreements with seven industrial sectors \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): (i) the development of a regulatory environmental framework for the mining sector was not achieved \. This is a significant shortcoming, since the mining sector is the most important source of industrial contamination; (ii) the environmental training and awareness activities were only modestly effective \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Satisfactory The project achieved or exceeded all its major objectives with the exception of those related to the mining sector, which is a significant shortcoming\. Institutional Dev \.: Substantial Substantial Sustainability : Highly Likely Highly Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Exemplary NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The project represented a test of the "mainstreaming" approach to environmental management, where fundamental responsibility lies with the sectoral agencies rather than in a single environmental ministry \. In this model, while CONAMA has significant tools at its disposal for inter -ministerial coordination, policy development, and pollution provention, it has a very weak monitoring and enforcement role \. The experience with this project suggests that this approach can be successful when environmental objectives are designed in such a way as to be in alignment with sectoral objectives (as with the forestry cadastre and the promotion of cleaner production methods )\. When the sectoral institution cannot resolve the tensions between environmental regulation and investment promotion (as with the mining component), the environmental objective, progress is likely to be much slower \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: This "intensive learning" ICR is rated as exemplary for its well -written overview of the implementation experience of the project, with clear analysis and presentation of the evidence relating to outcome, sustainability, institutional development impact, Bank and borrower performance \. It stands out because of the richness of the lessons learned, and the evidence of extensive dissemination and sharing of these lessons with the Borrower, as well as the quality of the borrower's inputs\.

REVIEW

P128072

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005049 IMPLEMENTATION COMPLETION AND RESULTS REPORT Credit No\. IDA 53300 ON A CREDIT FROM THE INTERNATIONAL DEVELOPMENT ASSOCIATION IN THE AMOUNT OF SDR 97\.6 MILLION (US$ 150\.00 MILLION EQUIVALENT) TO THE Socialist Republic of Vietnam FOR THE VN - Central Highlands Poverty Reduction Project (CHPov) September 28, 2020 Social Sustainabilty & Inclusion Global Practice East Asia And Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2019) Currency Unit = Vietnamese Dong (VND) VND 23,172 = US$ 1 US$ 1\.38 = SDR 1 FISCAL YEAR January 1 – December 31 Regional Vice President : Victoria Kwakwa Country Director : Carolyn Turk Regional Director : Benoit Bosquet Practice Manager : Susan S\. Shen Task Team Leader(s) : Sean Bradley, Nghi Quy Nguyen ICR Main Contributor : Anton Glaeser (FAO), Sean Bradley  ABBREVIATIONS AND ACRONYMS CDB Commune Development Board CDD Community Driven Development CHPov Central Highlands Poverty Reduction Project CPF Country Partnership Framework CPO Central Project Coordination Office DDI Dietary Diversity Index DPMU District Project Management Unit EMs Ethnic Minorities ESMF Environmental and Social Management Framework GoV Government of Vietnam EIRR Economic Internal Rate of Return ICR Implementation Completion and Results (Report) IDA International Development Association EFA Economic and Financial Analysis IE Impact Evaluation IEM Indigenous Ethnic Minorities ISM Implementation Support Mission ISR Implementation Status & Results (Report) LEG Livelihood Enhancement Group M&E Monitoring and Evaluation MDRI Mekong Development Research Institute MEM Migrant Ethnic Minorities MIS Management Information System MPI Ministry of Planning and Investment MTIP Medium Term Investment Plan MTR Mid-Term Review NPV Net Present Value NTP National Targeted Program O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PPMU Provincial Project Management Unit RF Results Framework SDR Special Drawing Rights SEDP Socio-Economic Development Plan SRI System of Rice Intensification TTL Task Team Leader RF Results Framework RFI Results Framework Indicator ToC Theory of Change WB World Bank i  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 A\. CONTEXT AT APPRAISAL \.5 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \.7 II\. OUTCOME \. 8 A\. RELEVANCE OF PDOs \.8 B\. ACHIEVEMENT OF PDOs (EFFICACY) \.9 C\. EFFICIENCY \. 13 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 15 E\. OTHER OUTCOMES AND IMPACTS \. 15 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 17 A\. KEY FACTORS DURING PREPARATION \. 17 B\. KEY FACTORS DURING IMPLEMENTATION \. 18 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 19 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 19 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 21 C\. BANK PERFORMANCE \. 24 D\. RISK TO DEVELOPMENT OUTCOME \. 25 V\. LESSONS AND RECOMMENDATIONS \. 26 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 29 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 49 ANNEX 3\. PROJECT COST BY COMPONENT \. 52 ANNEX 4\. EFFICIENCY ANALYSIS \. 53 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 66 ANNEX 6\. CHPOV IMPACT EVALUATION SUMMARY \. 68 ANNEX 7\. CHPOV END-LINE SURVEY; KEY DATA TABLES \. 73 ANNEX 8\. KEY PROJECT DOCUMENTS \. 88 ANNEX 9\. LIVELIHOOD ENHANCEMENT GROUP SUCCESS STORIES \. 90 ANNEX 10\. CHPOV TIMELINE AND KEY MILESTONES \. 96 ii  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P128072 VN - Central Highlands Poverty Reduction Project (CHPov) Country Financing Instrument Vietnam Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Socialist Republic of Vietnam Ministry of Planning and Investment Project Development Objective (PDO) Original PDO The proposed project development objective of the Central Highlands Poverty Reduction project is to: enhance living standards by improving livelihood opportunities in Project Communes of upland Districts of the central highlands of Vietnam\. Page | 1  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 150,000,000 134,220,275 116,730,890 IDA-53300 Total 150,000,000 134,220,275 116,730,890 Non-World Bank Financing 0 0 0 Borrower/Recipient 9,400,000 7,505,000 7,436,400 Total 9,400,000 7,505,000 7,436,400 Total Project Cost 159,400,000 141,725,275 124,167,290 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 27-Dec-2013 22-Jul-2014 16-Jun-2017 31-Dec-2019 31-Dec-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 24-Oct-2019 108\.62 Change in Components and Cost Cancellation of Financing Reallocation between Disbursement Categories KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 14-Apr-2014 Satisfactory Satisfactory 0 Page | 2  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 02 01-Dec-2014 Moderately Satisfactory Moderately Unsatisfactory 0 03 16-Mar-2015 Moderately Satisfactory Moderately Unsatisfactory 1\.25 04 29-Sep-2015 Moderately Satisfactory Moderately Unsatisfactory 6\.03 05 25-Apr-2016 Moderately Satisfactory Moderately Satisfactory 13\.25 06 23-Dec-2016 Moderately Satisfactory Moderately Satisfactory 27\.13 07 27-Jun-2017 Moderately Satisfactory Moderately Satisfactory 51\.33 08 24-Jan-2018 Moderately Satisfactory Moderately Satisfactory 65\.86 09 27-Jun-2018 Moderately Satisfactory Moderately Satisfactory 78\.37 10 14-Dec-2018 Moderately Satisfactory Moderately Satisfactory 92\.45 11 24-Jun-2019 Moderately Satisfactory Moderately Satisfactory 103\.48 12 03-Jan-2020 Moderately Satisfactory Moderately Satisfactory 117\.45 SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 24 Other Agriculture, Fishing and Forestry 24 Public Administration 30 Central Government (Central Agencies) 3 Sub-National Government 27 Social Protection 23 Social Protection 23 Transportation 23 Other Transportation 23 Page | 3  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 100 Jobs 100 Social Development and Protection 25 Social Inclusion 25 Participation and Civic Engagement 25 Human Development and Gender 46 Health Systems and Policies 20 Health Service Delivery 10 Adolescent Health 5 Child Health 5 Nutrition and Food Security 26 Nutrition 13 Food Security 13 Urban and Rural Development 30 Rural Development 30 Rural Infrastructure and service delivery 30 ADM STAFF Role At Approval At ICR Regional Vice President: Axel van Trotsenburg Victoria Kwakwa Country Director: Victoria Kwakwa Carolyn Turk Director: John A\. Roome Benoit Bosquet Practice Manager: Jennifer J\. Sara Susan S\. Shen Task Team Leader(s): Sean Bradley, Son Thanh Vo Sean Bradley, Nghi Quy Nguyen ICR Contributing Author: Sean Bradley Page | 4  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. In 2012, Vietnam had already achieved remarkable poverty reduction results over the previous two and a half decades transforming into a lower middle-income country\. However, overall progress in further reducing poverty had slowed, large gaps between the poorest and better off households were growing, and the gaps between different regions of the country, and urban and rural areas, were persisting\. The gap between the rate of urban poverty (at 6%) and rural poverty (at 27%) was particularly striking\. In addition, there was a stark difference in the well-being between the Kinh/Hoa majority and the country’s ethnic minorities (EMs)\. In 2010, EMs accounted for 70% of individuals in the lowest income decile, up from 53% in 2006, while making up less than 15% of the total population\. The poverty gap in the two poorest and predominantly EM regions in Vietnam stood at 15\.6% for Northern Mountains and 11\.5% for Central Highlands, compared with a national average of 5\.9%\.1 EMs also lagged in terms of assets and access to essential public goods\. 2\. At the time of project preparation, an estimated 74% of the EMs in the Central Highlands region lived below the Government Statistics Office-World Bank poverty line\. The region ranked at the top in terms of income inequality,2 had the worst rates of stunting and wasting among children in the country,3 the lowest rate of primary school enrolment and less than half of EM children were enrolled in lower secondary school\. 3\. The World Bank has been a long-term partner of the Government of Vietnam in its successful poverty reduction efforts\. This included support beginning in 2001 with the first Northern Mountains Poverty Reduction Project (P059936) and continued with the World Bank-financed development policy lending support for the Program to Support the Mountainous Areas and Ethnic Minorities Communes (P107062), commonly referred to as “Program - 135-2”, in 2007\. The Government therefore requested World Bank support for a project targeting the poorest districts in the six Central Highlands provinces of Dak Lak, Dak Nong, Gia Lai, Kon Tum, Quang Nam and Quang Ngai\. 4\. The project was strategically relevant to and fully aligned with the Government of Vietnam’s (GoV) development priorities and strategies as reflected in the Socio-Economic Development Plan (SEDP), 2011-2015, to reduce poverty and to ensure inclusion and equal opportunity for all communes in the country\. The project was also well aligned with the World Bank Group’s Vietnam Country Partnership Strategy, FY12-FY164, specifically regarding Outcomes 3\.2 (Improved basic infrastructure and public service delivery and access), and 3\.1 (Increased Opportunities for the Poor and Household Resilience to Shocks)\. Theory of Change (Results Chain) 5\. The project’s Theory of Change (ToC), as depicted in Figure 1 below, was retrospectively constructed by the Implementation Completion and Results Report (ICR) team based on the project description in the Project Appraisal Document (PAD)\. 1 Vietnam Household Living Standards Survey 2010 data and calculation, Government Statistics Office\. 2 An absolute inequality measure which is the ratio of income level at the 95th percentile over the income level at the 10th percentile reveals that the dispersion of income between the top “rich” and the “poorest” is the highest in the Central Highlands\. 3 According to the Vietnam Household Living Standards Survey and Nutrition Surveillance data\. 4 Report no\. 65200-VN\. Page | 5  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Figure 1: CHPov Theory of Change Structure Page | 6  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Project Development Objectives (PDOs) 6\. The PDO as stated in the Financing Agreement is “to enhance living standards by improving livelihood opportunities in Project Communes of upland districts of the Central Highlands of Vietnam”\. Components 7\. The project consisted of four components, as summarized below\. 8\. Component 1: Village and Commune Infrastructure Development (total estimated cost of US$54\.7 million, of which IDA US$52\.4 million; actual US$42\.38 million, of which IDA US$42\.22 million) provided grants for the design, construction, operation and maintenance of small-scale village and commune level infrastructure\. 9\. Component 2: Sustainable Livelihoods Development (total estimated cost of US$35\.2 million, entirely IDA financed; actual US$25\.77 million) provided grants to strengthen and diversify income sources, and improve nutrition and food security by enhancing the productive capabilities and dietary intakes of project beneficiaries, and grants for market linkages support for commodities having commercial market potential\. 10\. Component 3: Connective Infrastructure Development, Capacity Building and Communications (total estimated cost of US$53\.0 million, of which IDA US$51\.4 million; actual US$40\.65 million, of which IDA US$40\.13 million) supported the development of selected intra-communal and inter-communal level infrastructure and other investments supporting socio-economic connectivity, capacity building and technical support for project implementation and management, and communication and outreach activities\. 11\. Component 4: Project Management (total estimated cost of US$16\.5 million, of which IDA US$11\.0 million; actual US$16\.99 million, of which IDA 10\.23 million) provided support for project management, monitoring and evaluation\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION Revised PDOs and Outcome Targets 12\. The PDO was not revised nor were there any changes to the outcome indicators and targets\. Revised PDO Indicators n/a Revised Components 13\. There were no changes to the description of the project components\. Other Changes 14\. The project was restructured in October 2019 to cancel SDR 11\.5 million (estimated at US$15\.8 million), which caused a reduction in the estimated level of financing for all four project components (see details in Annex 3)\. This cancellation of credit funds led to a reduction in the value of the eligible expenditure categories by: (a) SDR 4\.9 million for Category 1 (Goods (including vehicles), Works, Non-Consulting Services, Consultants’ Services, Training and Workshops, and Incremental Operating Costs under Part 3 and 4 of the Project), and (b) SDR 6\.6 million for Category 2 (Grants under Parts 1 and 2 of the Project)\. The restructuring also led to a revision of disbursements estimates\. Page | 7  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Rationale for Changes and their Implication on the original Theory of Change 15\. The above cancelation freed up IDA resources to be reallocated to another pending Bank-financed activity5 and facilitated the closure of the project in accordance with the original project design\. These changes did not affect the ToC of the project\. However, the reduction in financing (combined with a 10% reduction in US dollars available under the credit due to changes in the SDR-US Dollar exchange rate) may have somewhat affected the extent to which the project was able to fully achieve its intended outcomes and objective\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 16\. The PDOs remain directly relevant to the World Bank Group’s Vietnam Country Partnership Framework (CPF) for FY 18-20\.6 The project contributes directly to CPF Focus Area 1 (Enable inclusive growth and private sector participation) under Objective 2 (Promote private sector and agri-business development) by strengthening market linkages and private sector partnerships through the establishment of the Livelihood Enhancement Groups (LEGs) and Productive Partnerships (see below)\. The project’s targeting of geographic areas with high ethnic minority populations, and emphasis on the participation of the poor and women are also well aligned with CPF Objective 5 (Broaden economic participation of ethnic minorities, women, and vulnerable groups)\. 17\. The PDO also remains strategically relevant to and aligned with the GoV’s current development priorities and strategies as outlined in its Socio-Economic Development Strategy, 2016-2020, which emphasizes rural development, poverty reduction, and area-based support to ethnic minority regions of the country\. These priorities are reflected in several current national programs including the New Rural Areas Program, the National Targeted Program (NTP) for Sustainable Poverty Reduction, and the Master Plan on Socio-economic Development in Ethnic Minority and Mountainous Areas (2021-2030)\. 18\. Based on the extent to which the PDO remains directly relevant to the Bank CPF, as well as GoV’s development priorities and plans, the relevance of the PDO is assessed as HIGH\. 5 The cancelled IDA credit from CHPov was used for the Climate Change and Green Growth DPO (P172006)\. 6 Report no: 111771-VN\. Page | 8  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 19\. The PDO: “to enhance living standards by improving livelihood opportunities in Project Communes of upland districts of the Central Highlands of Vietnam”, includes both the higher level objective of enhancing living standards and the means adopted by the project to achieve this, i\.e\., improving livelihood opportunities\. This was to be achieved among an estimated 540,472 beneficiaries (RF#1) in the project’s target district and communes\. Ultimately, the project reached an estimated total of 638,536 beneficiaries, mainly as a result of an increase in the population of the project’s target communes\. 20\. The project was designed to achieve three key intermediate outcomes: (a) improved access to infrastructure and services (including those that would enhance economic activities), (b) improved nutrition and livelihood diversification,7 and (c) enhanced community engagement in public investment activities\. These outcomes are directly linked to project activities and outputs (as shown in the ToC figure above), and to several results measures in the project’s results framework (RF)\. 21\. Therefore, the ICR assesses efficacy of the project based on the achievement of or contribution to the following outcomes, as measured by the indicated RF indicators (RFI): • Outcome 1: enhanced living standards, as measured by change in food and non-food consumption of poor households (RFI #3); • Outcome 2: improved access and connectivity, as measured by improvement of poor households in access to services, infrastructure and utilities (RFI#4), and changes in connectivity (RF#11); • Outcome 3: improved nutrition and livelihood diversification, as measured by change in productive and durable assets (RF#8), and dietary diversity (RF#10); and • Outcome 4: enhanced community engagement, as measured by increase in participation of women in decision making on public investments (RFI#7), and percentage of villagers whose identified development priorities are financed (RFI#2)\. 22\. Assessment of the project’s outcomes is based on data and analysis from the baseline and end-line surveys, and the project’s impact evaluation (IE)\.8 The IE was designed around a robust difference-in-differences evaluation method\.9 However, both the end-line survey and the impact evaluation found that the counterfactual “control” communes received relatively equal levels of financing for similar types of investments\. This funding was provided as part of the on-going NTPs that used similar criteria as the project to channel poverty-reduction funding to the same geographic areas as covered under the CHPov\. The IE concluded that these non-CHPov communes are therefore not a pure control group\. As such, and unless otherwise indicated, the percentage changes in the results measures discussed in the remainder of this report are taken from the project’s end-line survey report\.10 23\. The IE did note, however, that those sub-outcome indicators where a positive impact of the CHPov is detected 7 These two distinct outcomes are combined because they are linked in the project’s implementation strategy where support for n utrition included diversification of household livelihoods activities toward more nutritional foods through gardens, small livestock raising, etc\. 8 The CHPov end-line survey was carried out by Mekong Development and Research Institute, a consultant firm hired by the Government, between September and December 2019\. The CHPov impact evaluation was prepared by a World Bank team led by Obert Pimhidzai and finalized in May 2020\. The impact evaluation used data from the end-line survey and applied accepted difference-in-differences methodology in reaching its conclusions\. 9 A difference-in-differences evaluation model is designed to identify causal linkages between project efforts and specified development outcomes by comparing the status of key indicators before and after project implementation in areas that receive project support (“treatment”) and areas that do not receive support (“control”)\. 10 The Central Highlands Poverty Reduction Project Endline Report; Mekong Development Research Institute, Hanoi, 2020\. Page | 9  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) are related to investments the project devoted more resources to as compared with the NTPs, such as commune roads and drinking water systems\. A summary of the project’s IE design, results and comparison of project and non- project investments from other sources is presented in Annex 6\. 24\. Several outcome-level RF indicators (for access, connectivity, dietary diversity and asset accumulation) are composite index measures that aggregate a number of sub-indicators to arrive at a single measure or score\. As such, these measures average out change across multiple sub-indicators that make up the index, which can mask important improvements in specific areas of interest\. For this reason, the discussion below presents both index averages and individual sub-indicator measures for key areas of change that relate to specific CHPov investments\. Annex 7 presents detailed tables of before and after measurements from the end-line survey for all index indicators\. Outcome 1: Enhanced living standards 25\. The PDO level indicator: “change in food and non-food consumption of poor households”, was meant as the main measure to assess the impact of CHPov on “enhanced living standards” and, in effect, reducing poverty\. Overall, the end-line survey found that consumption of poor beneficiaries in the project communes increased by 48\.7% between 2014 and 2019,11 which significantly exceeded the target of 10%\. Non-poor households saw only an 8\.3% increase, suggesting that the poverty targeting efforts of the project also had strong positive results\. Food expenditures of poor households increased by 32% and non-food expenditures by 78%\. This positive trend is also reflected by the reduction of food-expenditures as share of total household expenditures from around 57% to 50%, which also suggests improving living standards\. This change in consumption is linked to an overall increase in household expenditures by 18\.3% over the same period\. These improvements were seen across all groups of project beneficiaries (including the majority Kinh/Hoa, EMs indigenous to the Central Highlands [IEMs], and ethnic minorities who had migrated to the Central Highlands [MEMs])\. As such, the first outcome of the project has been exceeded\. Outcome 2: Improved access to public services and infrastructure, and connectivity 26\. This outcome was expected to be achieved through project investments under Component 1 (block grants for construction, repair, operation and maintenance of village and intra-commune level infrastructure) and Component 3 (block grants for inter-commune level infrastructure to enhance physical connectivity)\. This financing led to the construction and/or repair of 1,173 rural roads (666 kms), 122 schools/classrooms, 164 irrigation systems (serving approximately 1,733 ha\.), 150 water systems (serving approximately 11,400 households), 30 bridges, and other public buildings and utilities (such as communal houses or in-village electrification)\. Operation and maintenance (O&M) financing supported critical maintenance needs of an additional 209 rural roads, 24 bridges, culverts or drainage systems, and 108 commune-level schools\. 27\. The results of these sub-project investments in the construction, repair or maintenance of public infrastructures were measured through: RFI#4—“percent change in access of poor households to services, infrastructure and utilities”, and RFI#11—“percent change of transport connectivity index”\. The index measure12 for RFI#4 showed a modest 2\.3% overall improvement in access between the start and finish of the project\. However, at the sub-indicator level much more significant positive changes in access were noted for several areas relevant to CHPov investments, and more so for the poor and indigenous EMs\. For instance, there was an overall reduction of 30% in travel time to schools (with larger savings for IEM groups and poor); an overall decrease of 26\.3% in travel time to access commune health centers (and more than 30% decrease for IEM and poor households); a nearly 27% reduction in travel time to the commune people’s committee office; an overall 7\.3 percentage point increase in 11 In real terms adjusted to 2019 prices, overall annual per capita consumption of the poor in project areas increased from VND 8\.166 million to VND 12\.142 million\. 12 RFI#4 was constructed based on 12 sub-indicators of household access to four main service domains-- education, health, water supply and agricultural services\. Page | 10  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) access to drinking water (and 9\.5 percentage points for the poor), and a 10\.2 percentage point increase in access to irrigation systems (though lower for poor households)\. 28\. Component 3 financed priority medium-scale (inter-commune) infrastructure that would facilitate “connectivity” between communes, which would in turn support economic integration of EMs and other poor households\. Connectivity was measured by RFI#11 (percent change of transport connectivity index), which was a composite measure of household travel times13 to key infrastructure and destinations such as schools, health station, market, and different administrative centers\.14 Overall, the index showed a modest 2\.8% improvement in connectivity from the beginning to the end of the project, and between project and control communes\.15 However, at sub-indicator levels, statistically significant improvements were seen in connectivity to primary schools (by 9\.7%), to commune health facilities (by 9\.4%) and to local markets (by 6\.8%)\. A separate end-line analysis also showed similar improvements with a reduction of 3 minutes in travel time to local schools (almost 30%) and of 5\.4 minutes to local health facilities of 5\.4 minutes (26%)\. 29\. The project also identified “social” connectivity as an important pathway for the predominantly EM poor of CHPov to be able to enhance their living standards,16and promoted this element of connectivity through a robust training program that included almost 20,000 beneficiaries,17 local government officials, and other project staff (see detailed discussion of RFI#12 in Annex 1), and wide-spread communications that specifically targeted EM populations to facilitate interactions with local government authorities and markets\. While social connectivity was not explicitly analyzed in the end-line survey, two specific data points suggest that the project had important impacts in this area\. First, the increase of 16\.9 percentage points in community members’ participation in local development affairs, and 31\.4 percentage point increase in supervision of local construction activities (with the greatest change being for the poor (31\.8 and 36\.2 percentage points respectively) and indigenous EMs (19\.4 and 39\.0 percentage points)\. Second, the impact evaluation found that households in project communes strengthened their non-farm participation and livelihood diversification strategies, which suggests that project inputs to support external linkages were working\. 30\. Overall, this outcome is assessed to have been substantially achieved\. Outcome 3: Improved nutrition and livelihood diversification 31\. The achievement of this outcome was supported by investments under Component 2: Sustainable Livelihood Development\. This component’s investments included block grants and training support to LEGs for food security and nutrition, income diversification, and market linkages\. The project supported a total of 4,383 LEGs benefitting 63,531 households (approximately 45% of the total target area)\. The intended outcome of this support was principally measured through two RF indicators: RFI#10 “percent change in dietary diversity of poor households”, and RFI#9 “percent change in productive and durable assets”\. Increased dietary diversity was meant as a proxy for improved nutrition, while increases in productive and durable assets were meant as a proxy measure for increased income from diversified livelihood activities and market linkages\. 32\. Dietary diversity was calculated based on the Dietary Diversity Index (DDI) developed by USAID, which includes consumption information on 12 main food groups\.18 Comparing baseline and end-line survey data shows 13 These times (both for motorized and non-motorized connectivity) where then translated into a 5-point scale to compare changes over time\. 14 The index included one destination that was unlikely to be affected by project investments—connectivity to provincial centers—which showed a significantly negative result of -9\.6%, which in turn negatively affects the overall index score\. 15 This overall connectivity measure was better for poor and indigenous EM households, at 4\.1% and 3\.7% improvement respectively\. 16 See: Pro-poor Rural Development Initiatives in Vietnam\. April 2013\. World Bank Report No\. ACS3453\. 17 Of whom 54% were women and 69% ethnic minority beneficiaries\. 18 The DDI calculated for the project was based on recollection of what was consumed over the previous 12 months, which the end-line report notes can be prone to overestimation of the actual DDI of households\. Page | 11  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) that the consumption of all food groups increased, with the exception of roots and tubers\. Overall, the project contributed to a 21% increase in the DDI\.19 In particular, significant increases were observed for the proportion of households consuming fruits (23%), meat (26%), eggs (28%), and for sugar and honey (27%)\. These results indicate a shift toward a healthier diet among beneficiaries (with an increase in fruits and higher protein foods, and reduction in carbohydrates)\. As such, the project was successful in improving nutrition in the project areas\. 33\. The project’s results framework does not include a specific indicator to measure the diversification of livelihoods opportunities, however several different sources of information reflect on this outcome\. First, of the total number of LEGs supported by the project, an estimated 68% were classified as “income diversification” groups\. While this group of 2,935 LEGs were not necessarily different livelihood types, the method or scale of their activities supported under the project were oriented toward ensuring more sustainable income from their livelihood activities (often through diversification)\. In addition, while not strictly a measure of diversification, it is also important to note that 59% of LEG members were women\. Second, as evidence of this diversification, the end-line survey shows that the level of poor households raising cattle and poultry increased by 13 and 11 percentage points respectively (an improvement of 24\.5% and 14\.9% respectively), which was significantly higher than the increase among non-poor households\.20 The survey also revealed important shifts in crop cultivation practices (moving from annual to perennial crops), which should support more sustainable income generation\.21 The proportion of households producing annual crops dropped by 8 percentage points, while the proportion producing perennial crops jumped by 11 percentage points\. The impact evaluation also showed that households’ average incomes from primary wage employment increased by 18\.2 percent and total household wage incomes by 7\.7 percent\. This was a result of workers – mostly men - switching to wage jobs as a primary rather than a secondary occupation\. It is possible that the changes in agriculture related work noted above, and in establishing linkages outside of the communes, contributed to this change\. Taken together, these findings imply that the project helped to increase household livelihood diversification\.22 34\. This diversification of livelihoods is also reflected in an increase in household assets, as measured by RFI#9 “percent change in productive and durable assets of households participating in LEGs”\. The end-line survey found an overall improvement in asset ownership of 9\.3% for the composite measure of nine productive assets, with a higher increase for poor households\. At the sub-indicator level, the study showed significant increases of households owning cattle and poultry (as noted above), water pumps (by 15\.3%) and motorbikes (by 8\.9%)\. 35\. Based on these findings this outcome is assessed to have been substantially achieved\. Outcome 4: Enhanced community engagement in public investment decisions 36\. The project is built on a Community Driven Development (CDD) platform that promotes the participation of beneficiaries in decisions and actions around the use of development resources\. In addition to improving efficiency in the use of such resources,23 this increased participation in development activities will tend to result in investments being more responsive to the development priorities of the community and would increase satisfaction with the support being received\. This outcome was supported by investments under Component 3 relating to capacity 19 The dietary diversity score changed from 0\.56 at baseline to 0\.68 at end-line in project communes, a 21% improvement\. In addition, when comparing project and non-project communes, the impact evaluation found that the overall household dietary diversity score improved by 3\.8% overall, by 6\.5% among the poor, and by 8\.3% for female headed households\. 20 Pig farming, however, did not show similar positive results at end-line, thought to be due to the African swine fever outbreak\. 21 The Central Highlands Poverty Reduction Project Endline Report; Mekong Development Research Institute, Hanoi, 2020\. 22 Impact Evaluation of the Central Highlands Poverty Reduction Project, World Bank, May 2020\. 23 For a discussion of CDD outcomes see: Radical Decentralization: Does Community-Driven Development Work? Katherine Casey, Annual Review of Economics\. 2018, Vol\. 10\.; or Community Driven Development: Myths and Realities\. World Bank Policy Research Working Paper No\. 8435\. Page | 12  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) building and communications, and the technical assistance support provided to communes by the cadre of commune facilitators financed under Component 4\. The achievement of this project outcome was measured through three interrelated RF indicators: RFI#7 “increased rates of participation of women”, (and of community members in general); RFI#2 “rate of responsiveness of development financing to expressed community priorities”; and RFI#6 “general satisfaction with support being provided by local government”\. 37\. Participation\. Participation in local development activities in the project communes increased across all groups\. The end-line survey found a 16 percentage point increase in participation in public meetings (representing an almost 30% improvement) and a more than 30 percentage point increase in supervision of local works (albeit from a very low base of 4\.5%)\. In addition, the end-line survey found that the proportion of women taking part in commune/village meetings and expressing their opinions (a more meaningful measure of “participation”) on project selection increased by 5 and 10 percentage points, respectively (RFI#7)\. Notably, women from female-headed households seemed to be more active in joining local activities than other women\. The survey also found significant increases in participation levels for IEM women, improving by more than 12 percentage points from a low base of 23\.3% participation (or more than a 50% improvement)\. 38\. Responsiveness\. The extent to which the project responded to the expressed priorities of the community was measured through RFI#2 “proportion of poor villagers whose identified development priorities are satisfied”\. The underlying logic of this measure was to test how well the participatory and transparent process of identifying investments was working and be a measure of improved living standards for individual households in that their priority public investment concerns have been responded to\. Comparing preferences from baseline data to implementation of sub-projects in each commune from the project’s administrative data shows a high proportion (87%) of households that had at least one development priority addressed, while 25% of households had all of their top development priorities financed by the project\.24 39\. Satisfaction (RFI#6)\. The end-line survey reports that overall household satisfaction with Government support in the project area in general (i\.e\., including support other than under the project) increased by 13\.8 percentage points (an improvement of almost 32%)\. More specifically, satisfaction increased across five domains: the selection of infrastructure projects (10\.7 percentage point increase), the quality of those projects (6 percentage point increase), the quality of local roads (4\.4 percentage points), the quality of local irrigation systems (32\.4 percentage points), and with agricultural extension services (15\.6 percentage points)\. 40\. Based on these findings the achievement of this outcome is substantially achieved\. 41\. Efficacy Rating\. Based on the assessed achievement of the four outcomes above, efficacy of the project is rated SUBSTANTIAL\. Justification of Overall Efficacy Rating 42\. Given that the four outcomes linked to the achievement of the PDO are rated as substantially achieved or exceeded, and that the end-line survey data used to substantiate these conclusions are robust, a substantial efficacy rating is justified\. C\. EFFICIENCY Assessment of Efficiency and Rating 43\. Project efficiency was assessed through an analysis of: (i) the project’s economic rate of return computed through an economic and financial analysis (EFA), as compared to the appraisal estimates; and (ii) administrative and 24The stated priorities that were compared against actual project investments were those indicated by baseline survey participants, and not those identified during annual planning cycles\. As such, the measure suggests minimal elite capture of the project resources\. Page | 13  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) operational efficiency\. Additional reviews of per beneficiary and per unit of output costs were also carried out\. The detailed analysis of efficiency is contained in Annex 4\. 44\. The project’s economic benefits are derived from various elements of its investments\. Most important to this analysis are the results relating to the project’s livelihoods activities (Component 2) that led to greater production and household income, as suggested by the increased levels of consumption in the project areas\. Second are the effects of public infrastructure that directly contribute to production (irrigation) or access to markets for the sale of agriculture products (roads)\. Lastly, are the project’s investments that indirectly contribute to beneficiary welfare through improved health (water, nutrition education, and roads that improve access to health clinics), increased participation of women, and capacity to engage with local authorities and private sector markets\. However, some benefits cannot be quantified and only the economic benefits derived from the project’s livelihood activities and the road and irrigation investments were quantified in the ex-post EFA for CHPov (see annex 4, para 6)\. As such, the EFA estimates for the project should be considered conservative\. 45\. The project’s EFA at completion finds an economic Net Present Value of VND 1,485 billion, equivalent to US$ 63\.9 million, and an Economic Internal Rate of Return (EIRR) of 29%, showing positive and substantial returns to investment (see Figure 2 below)\. The EFA analysis found that most project benefits are derived from the community infrastructure investments, which accounted for a larger share of the budget (approximately 60%)\. The project EIRR at completion was higher than the ex-ante project design estimate of 15%\. 46\. A sensitivity analysis to assess the effects of lower rates of production or sales of goods, and for higher prices of goods sold at market, found that in all scenarios the EIRR was above the discount rate of 5%\.25 The potential impacts of COVID-19 were not factored into the analysis\. However, COVID-19 has been considered in the discussion of risk to outcomes\. 47\. Operational and Administrative Efficiency\. The project was completed by the original closing date of December 31, 2019\. Overall, project management costs were approximately 13\.5% of total project costs at project close, which, while above the original projections of approximately 10%, are considered reasonable for this type of project\.26 These higher costs reflect the challenges of working through a fully decentralized structure (with implementing units in all 26 districts) in one of the most isolated regions of the country\. This percentage is approximately at the mid-point of a range of project management costs for a group of large-scale national CDD projects (ranging from 5% to 21%) worldwide, suggesting reasonable administrative efficiency\. Moreover, CHPov is above average in allocating more than 75% of total project costs for direct sub-project investments, as compared with this same group of CDD programs\.27 48\. Procurement performance improved significantly over time with delays falling from 84% in the first year of implementation to 1\.3% by the close of the project\.28 The project encouraged wider use of competitive bidding for infrastructure contracts valued below the Government’s allowed threshold for single-source selection, resulting in cost savings\. Procurement practices of Government provincial and district staff were also enhanced, which should help further public financial management efficiencies\. 25 The economic discount rate of 5 percent was used given the very low 10-year bond rates at the time of the ICR (around 4 percent)\. While lower than the 6 percent recommended in the Bank guidelines on estimating discount rates (Discounting Costs and Benefits in Economic Analysis of World Bank Projects, OPSPQ, 2016), given an estimated EIRR of 29% the project’s NPV remains positive even at 6 percent\. 26 The increase in percentage management costs is directly linked to the reduction in value of the overall project investments\. While other project component costs were reduced, project management costs that tend to be front-loaded and contain a high degree of fixed costs were not proportionally reduced\. 27 Based on analyses done for World Bank Report No: ACS13685 Islamic Republic of Afghanistan; Strategic Directions for the National Solidarity Program, that looked at six large-scale and long-running national CDD programs\. 28 Procurement delay is measured as the ratio of total contracts signed by year end to total contracts planned for the year\. Page | 14  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 49\. A project restructuring in the final year of implementation led to the cancellation of SDR11\.5 million, reducing overall IDA financing to SDR86\.1 million (refer to Section I\.B\. “Significant Changes During Implementation” for further discussion of this cancellation)\. By the project’s end-disbursement date, SDR83\.8 million of expenses had been documented, or approximately 97\.34% of the revised credit resources (see Annex 3)\. 50\. The operational efficiency of the project was also supported by a reasonably stable task management with the original lead Task Team Leader (TTL) remaining through to the end of the project, and co-TTL changing only once after the project Mid-Term Review (MTR)\. Fiduciary and safeguard staff were also very stable\. However, technical support for the livelihoods component and Monitoring and Evaluation (M&E) was less consistent, resulting in certain shortfalls in guidance and oversight see M&E section)\. Figure 2: Summary CHPov EFA at Completion 51\. Assessment of Efficiency and Rating\. Based on the project’s EFA at completion and the operational and administrative aspects of project implementation, project efficiency is rated as SUBSTANTIAL\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING 52\. Given the assessments of “relevance of PDO” rated as high, “efficacy” as substantial (with moderate shortcomings), and “efficiency” as substantial, overall project is rated MODERATELY SATISFACTORY\. A rating of “MS” (rather than “Satisfactory”) is warranted due to: (a) the lack of strong counter-factual evidence from the project’s impact evaluation due to the control communes having received similar levels of investments from other National Targeted Programs, and (b) more modest composite results for two key outcome measures for connectivity and productive assets\. E\. OTHER OUTCOMES AND IMPACTS Gender 53\. The project demonstrated a commitment to increased participation and inclusion of women and required at least 30% female participants in the participatory village planning meetings where priorities were established\. The Page | 15  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) rate of participation of women in LEGs and in training activities was notably higher, at 59% and 54% respectively,29 which shows the project’s successful commitment to focus on women\. The end-line survey noted a significant increase in women’s participation in commune/village meetings and in expressing their opinions about project selection\. There was an overall increase of 10 percentage points above baseline for all women in expressing their opinions, and 12\.5 percentage points for indigenous EM women (more than 50% improvement over the base-line value)\. Ethnic Minorities 54\. The project explicitly applied a targeting formula that took into consideration both poverty and the concentration of ethnic minority populations\. The project was also built on a platform of community driven development that incorporates the principles of free, prior and informed consultations and consent for all related project investments to ensure that development activities meet the priorities of local communities\. The project also applied quotas, especially for LEG participation, to ensure on average at least 50% EM household participation\. The project exceeded this commitment and achieved a participation rate of EMs in LEGs of around 85%\. The participation of EMs in project related training was also higher than originally targeted, with 77% EM participation in agricultural techniques training, 67% participation in nutrition training, and 52% participation in LEG management training\. Limited knowledge of the Vietnamese language by EMs posed a challenge to full participation in planning meetings as well as in training sessions, but the project compensated by hiring community facilitators from the area or using interpreters\. The mid-term beneficiary assessment found no violations regarding the application of OP 4\.12 on Indigenous Peoples\. Institutional Strengthening 55\. The project contributed to institutional strengthening and organizational development of various levels of local government (provinces, districts and communes)\. At the commune level, capacity building measures enabled the Commune Development Boards (CDB) to fulfil their role as investment owners, and the Commune Supervisory Board to oversee the implementation of the selected infrastructure activities\. Targeted skills training and exposure visits, especially to village leaders and board members, enabled communes to take ownership of the development activities and to actively participate in decision making, planning, and implementation\. Individual members will, for the most part, continue as members of the Commune People’s Committee and the capacities transferred through the project would be retained in these Government administrative structures\. The capacity of the Provincial and District Departments of Planning and Investment was enhanced through extensive training on fiduciary, environmental and social safeguards procedures\. These staff were also exposed to elements of project management, communications, and community outreach for EM communities\. A cadre of 130 community facilitators were exposed to the development challenges of the poorer and culturally diverse areas of the country and were trained in basic project management and participatory skills; many will take these skills with them to subsequent employment\. 56\. Approximately 63,500 farmers (1 per household) were organized into more than 4,383 LEGs to facilitate training in production techniques relevant to their selected agricultural activities and collaboration between the members for knowledge exchange, joint input supply and/or marketing\. While these structures were effective for the delivery of project support, given strongly held negative views of cooperatives in rural Vietnam, their sustainability remains a challenge\. While an estimated 50% of LEGs has ceased to function as groups at project close, the individual group members remained active in areas where the project had assisted them\. Where LEGs have continued to function, clear benefits from collective action (in sourcing and transporting inputs or marketing production) have tended to be very strong\. 29 Based on data collected during the ICR mission\. Page | 16  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Mobilizing Private Sector Financing 57\. Overall, the limited success with establishing market-linkage LEGs under the project (with only 17 market- linkage LEGs operating at the end of the project) also limited the amount of private sector financing mobilized under the CHPov\. The limited numbers of market-linkage groups formed reflects the lack of beneficiary familiarity with, access to and linkages with predominantly Kinh-dominated, market opportunities; challenging agro-climatic environments; and difficult logistical connections with suppliers and markets\. The low levels of private sector engagement also suggest an unfamiliarity and therefore aversion to implied risks associated with engaging in these communities and with clients less well known\. Poverty Reduction and Shared Prosperity 58\. The CHPov was by design as a poverty reduction project targeting a geographic area and population groups that were specifically identified based on poverty rates\. The evidence of substantial increase in the annual per capita rates of consumption (18\.3% overall, and 48\.7% for the poor) as measured by the end-line survey is strong support for the project’s poverty reduction effects\. The end-line survey also found that the poor enjoyed above average improvements in: access to safe drinking water, travel time to schools and commune health facilities, ownership of important productive assets such as cattle, poultry and motorcycles, and general satisfaction with the project\. Other Unintended Outcomes and Impacts 59\. No other outcomes / impacts have been observed\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 60\. Project objectives and design were guided by the Government’s poverty reduction efforts, which at the time were pursued through several targeted area programs\. Lessons from previous and ongoing World Bank supported poverty reduction projects, specifically the Northern Mountain Poverty Reduction Project Phases I and II, were also considered\. The project was designed along the lines of a classic demand-driven, participatory CDD project focusing on village, communal and district infrastructure, as well as livelihood development\. Given the poverty context in the country at the time, the targeting of the communes in Central Highlands with the highest percentage of ethnic minorities was especially relevant\. 61\. The project’s results framework included a mix of output, process and outcome indicators for the three areas of project support (infrastructure, livelihoods, and participation)\. The PAD did not clearly enunciate the linkages between components, intermediate outcomes, and the PDO\. In addition, the term “enhance living standards” was left open to interpretation and the suggested means of “through increased livelihood opportunities” was overly narrow in focus given other relevant project investments and activities\. However, considerable resources were dedicated to ensuring that a robust evaluation and monitoring system was in place (see section on M&E)\. 62\. The project drew heavily from the Northern Mountains project in terms of operational procedures, Government staff exchanges, and overlapping Bank teams\. It also took advantage of the existing participatory district and commune-level planning under the New Rural Areas strategy to identify the first 18-months of project infrastructure investments, thus enhancing project implementation readiness\. Planning and implementation in the following years followed a more typical CDD approach\. 63\. Critical risks were adequately assessed during project preparation and most risk mitigation measures that Page | 17  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) could be addressed by the project were efficiently implemented, with the exception of a strong M&E/ management information system (MIS) and a more explicit and, perhaps, a more strategic collaboration with the Department of Agriculture and Rural Development as explained under the “Quality at Entry” section\. B\. KEY FACTORS DURING IMPLEMENTATION 64\. Regular, at least biannual, implementation support missions (including a mid-term review) were conducted and detailed Aide Memoires containing useful and relevant recommendations were prepared\. Overall, more than 20 supervision and specific technical support missions were undertaken\. The project benefitted from low turnover of Task Team Leaders (only three co-TTLs over the project period), as well as fiduciary staff, providing continuity in guidance and supervision\. The overall implementation progress of the project was initially rated as Moderately Unsatisfactory for the first 1\.5 years of implementation due to start-up delays, and Moderately Satisfactory thereafter through to the end of the project\. The DO rating was rated Moderately Satisfactory for the duration of the project as the key outcome measures for consumption, access, dietary diversity, assets and connectivity were not available until the end-line survey was completed and the DO could be more accurately estimated\. 65\. Project implementation performance was affected by a slow start in terms of setting up the needed project infrastructure and recruitment of necessary staff, especially at provincial and district level\. Delays in recruiting provincial and district-level livelihoods staff as well as the Technical Assistance Team initially resulted in inadequate technical guidance for already started livelihood activities\. These issues were however successfully resolved during the second year of implementation\. 66\. Several issues regarding budgeting, finance and disbursements also affected implementation\. First, the onset of the Medium-Term Investment Plan (MTIP) of 2016-2020 created discrepancies between project budgets (based on the overall IDA and Government financing envelope for the project) and annual allocations (the funds that central and provincial implementing units were allowed based on MTIP parameters)\. Second, these discrepancies slowed annual approval of implementation plans and budgets in turn slowing down annual implementation\. They also generally led to a reduction in the value of approved annual budgets for the project’s implementing units\.30 Third, the processing of withdrawal applications by the Ministry of Finance was at times significantly delayed (in some cases by more than one month) leading to cash-flow constraints of implementation units\. 67\. The project was restructured in 2019 to cancel SDR11\.5 million (also see discussion of cancellation in Section I\.B\. “Significant Changes During Implementation” and Section II\.C: “Efficiency”), which led to a relatively proportional reduction in the value of all three technical components of the project (see Annex 3)\. The task team advised Government against the cancellation and recommended a six-month project closing date extension to allow the full and efficient utilization of remaining project funds\. The cancellation, coupled with the loss of the US Dollar value of the original credit due to SDR-USD exchange rate changes, is likely to have reduced somewhat the levels of potential project achievement\. 68\. Roads constructed under Component 1 were designed per the master plan for road networks in the communes/villages, generally with a carrying capacity of around 3 tons for light trucks\. However, much heavier trucks are using these inter-village roads and causing damage\. Local government authorities have had mixed success in addressing this, and this could reduce the productive life of these roads\. Factors outside the control of government and/or implementing entities 69\. In 2019 the project area experienced two significant natural disaster events that likely had negative effects 30The MTIP limits on ODA financing also contributed to the request by Government to cancel SDR 11\.5 million in the final year of project implementation as provinces were unable to utilize their full allocation of project funding\. Page | 18  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) on some measures of project-related change during the end-line survey and may have had negative impacts on project results\. First, a severe outbreak of African swine fever affected the project areas and the LEGs who were involved in pig rearing\. The project responded quickly to the outbreak to agree on revised LEG proposals with the affected groups, which nonetheless postponed support during the period when end-line data was being gathered\. Second, in August 2019, toward the very end of the project, several provinces of Vietnam were affected by floods, and four project provinces (Dak Lak, Dac Nong, Gia Lai, and Kon Tum) were among the nine most affected provinces in the country\. Losses -- of homes, livelihoods, and lives -- were widespread\.31 These floods affected the project’s ability to fully implement planned infrastructure and slowed down LEG operations in the final year\. They also potentially affected the measures of outcome\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 70\. The project’s M&E system was guided by the project’s RF, which consisted of 12 indicators\.32 The RF had a reasonable balance of output, process and outcome measures for the three project components and PDO\. The PAD outlined how and at what frequency data on each results indicator would be collected, either through annual progress reports, at mid-term review, or through the final impact evaluation, and definitions or measurements of indicators were partly detailed\. The key performance indicators under the PDO were: (i) total number of beneficiaries; (ii) proportion of poor villagers whose identified development priorities are satisfied; and (iii) percentage change in food and non-food consumption of poor households\. The first two PDO indicators were at the time standard measures used for CDD programs globally\. The third indicator was considered critical in measuring the achievement of “enhanced living standards” that were identified in the PDO\. 71\. The project’s evaluation strategy was built around a robust difference in differences impact evaluation design, which was developed by a Bank team drawn from the Poverty Global Practice\. The CHPov impact evaluation was part of the regional commitment made (under IDA-16) to apply rigorous evaluation methods that include both baseline measures and plausible counterfactuals to determine the ultimate results of the project\. This team prepared the detailed methodology for the project’s evaluation and worked with Government on the design of the project’s baseline survey\. Seven of the project’s results indicators were drawn from the IE, with the remaining output indicators to be captured through the project’s MIS\. 72\. The overall results framework would have benefitted from additional analysis to clarify the relationship between components, intended outcomes, and the ultimate objective of the project\. The indicators could also have benefitted from more clarity in formulation and estimated levels of achievement\. Specifically, the PDO could have been more precise, or at least the term “enhanced living standards” defined for the purposes of measuring project results\. Component outcomes were not explicitly expressed in the PAD nor their linkage to the PDO, both of which had to be derived from the description of the project components as part of the ICR assessment\. In addition, it can be argued that too great an emphasis was placed on complex (composite index) measures of outcome (e\.g\., for assets, access and connectivity) and a long-term impact evaluation to determine the project’s results\. The RF could 31International Federation of Red Cross and Red Crescent Societies, 2019\. Emergency Plan of Action Operation Update Vietnam: Floods\. 32An additional operational indicator (RF#13: percentage delays in procurement activities as per approved annual procurement plan) was added early on during implementation without a formal restructuring of the project\. Page | 19  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) have given more consideration to additional intermediate outcome measures relating to livelihoods and priority infrastructure investments either through the project MIS or periodic specialized studies\.33 73\. The project relied on a web-based MIS platform that was designed to use mobile-data connectivity and smart- phone/tablet capabilities to facilitate real-time data collection led by the commune facilitators\. This system was designed to simplify and accelerate basic project progress data collection and reporting (including for the remaining six RF output indicators) on a regular basis\. The overall system, called “community collect”, was based on the prototype system developed by the World Bank Social Development Global Practice, which also committed to provide technical support in system installation\. General aspects of the M&E system and the MIS were outlined in the PAD, while the procedural details and reporting formats were in the Project Implementation Manual\. The project’s MIS was designed to work from the commune level up to the Central Project Coordination Office (CPO) in Hanoi, and specific staff at all levels had designated responsibilities for this purpose\. M&E Implementation 74\. The design and execution of the project’s impact evaluation was out-sourced and the baseline survey was successfully carried out in early 2015 prior to significant field-level implementation\. Baseline values were established for six of the seven outcome measures in the RF by 2016\.34 However, some confusion persisted on the definition and means of measuring some of the RF indicators until the time of the end-line survey, when the assessment methodology and interpretation of some indicators were sharpened to produce more meaningful results\. 75\. Because the IE was outsourced, the task team and government placed more attention on the design and operationalization of the MIS to monitor physical progress, which nonetheless proved challenging\. After some start- up delays and glitches, there were initial signs that the system was functioning reasonably well with web-based sub- project data and photos available, and regular standardized progress reports prepared\. However, continued technical problems with data-collection forms and a failed launch of the program’s version 2\.0 platform, led the Government to suspend further efforts to fully operationalize the system in 2018\. The required key output data were made available through parallel excel-based systems at provincial and central levels\. 76\. Optimal functioning of the project’s M&E system was also impeded by a lack of qualified staff\. Several project staff and consultants at different implementation levels also had received limited M&E training\.35 The MTR reviewed the status of M&E and recommended several additional intermediate outcome measures\. However, Ministry of Planning and Investment (MPI) project management resisted the recommendation for further data collection as it felt that this would further overburden the community facilitators\. MPI was also reluctant to add additional studies under the project given that the State Auditor had questioned the conduct of special studies (as part of the MTR) during the project’s annual audit\. 77\. In addition to the baseline survey, the project conducted the end-line survey cum impact evaluation in 2019\. The project also undertook mid-term review studies, including a beneficiary assessment and technical and economic assessment of infrastructure investments (albeit of uneven quality) in 2017\. Timely quarterly and annual progress reports were produced, as well as a Rapid Assessment of Livelihood Enhancement Group Outcomes (2019), and several technical reports on infrastructure and livelihood activities, including some success stories\. Existing data allowed MPI to finalize its own Project Completion Report (PCR) in May 2020\. 78\. The results of the impact evaluation were confounded by the fact that the non-project supported communes received roughly equal levels of financial support for similar types of investments that the CHPov was also providing 33 WB, June 2017\. Aide Memoire Mid Term review, p\.34\. 34 With the exception of RFI#2 on development priorities satisfied\. 35 WB, June 2017\. Aide Memoire Mid Term review, p\.34\. Page | 20  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) to project communes, thus rendering the counter-factual, “without project”, role of these communes moot\. This possibility could have been checked in advance of the end-line survey and possible adjustments made to the approach used for the ultimate evaluation of the project\. This was not done and may have been a missed opportunity to improve understanding of the direct impacts of the project\. M&E Utilization 79\. Initial data from the baseline that highlighted drinking water and nutrition issues in project communes led to enhanced efforts to support these types of investments under the project\. The project’s progress reports and monitoring data were periodically confirmed by the Bank through field assessments\. The exact extent to which the monitoring systems were used to guide management decision by District Project Management Units (DPMU), Provincial Project Management Units (PPMU) and CPO is however not known\. The end-line survey and related impact evaluation report are currently being used to better understand the outcomes of the project and should readily help MPI, the Committee for Ethnic Minorities Affairs and other key stakeholders guide further NTPs that focus on EM poverty\. Justification of Overall Rating of Quality of M&E 80\. The M&E system suffered from design and implementation challenges that had a negative effect on its utility\. Balancing these with the robust baseline and end-line studies carried out, the M&E system is rated as MODEST\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental Safeguards Compliance 81\. The project was classified as an Environmental Category “B – Partial Assessment” and three environmental safeguard policies, namely Environmental Assessment (OP 4\.01), Forests (OP 4\.36) and Pest Management (OP 4\.09), were triggered\. MPI and the project provinces prepared and disclosed (on September 16, 2013) an Environmental and Social Management Framework (ESMF)36 as part of the project’s feasibility study\. In accordance with the country’s environmental regulations and the World Bank OP/BP 4\.01, the ESMF served to guide the project in screening, assessing and mitigating project environmental and social impacts\. The ESMF also contained a “Negative List” for identifying ineligible subproject proposals\. Overall, the risk of potential negative impacts was considered to be minor, localized, and temporary in nature and reasonably easy to mitigate in the context of the project\. 82\. The government recruited or appointed adequate staff at provincial and district levels to oversee environmental (and social) safeguard matters and provided sufficient training for commune representatives and beneficiaries\. Central office technical staff, in coordination with district/commune agriculture officers, provided guidance on Good Agriculture Practices and waste management to LEGs involved in livelihood sub-projects\. Guidelines on construction of animal pens, techniques of crop cultivation and livestock raising, proper use of fertilizer and pesticides and hands-on training on treatment of animal waste were provided under Component 2\. Local authorities also made efforts to provide storage tanks for empty pesticide containers\. Farmers were made aware of proper handling and disposal of agro-chemicals and their containers to avoid health and environmental hazards\. The central project office in coordination with provincial management units (and local communities) regularly carried out monitoring and supervision of construction contractors’ compliance with agreed mitigation measures and periodically reported to the Bank throughout implementation\. No major incidents and accidents happened during implementation and there were no complaints from beneficiaries about environmental impacts associated with construction activities\. 36WB, 2013\. Central Highlands Poverty Reduction Project (P128072), Environmental and Social Management Framework, (Draft for disclosure)\. Page | 21  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 83\. Bank missions found the project to be generally in compliance with triggered policies\. The overall safeguard rating remained at moderately satisfactory for the project’s duration, but implementation under individual policies gradually improved to satisfactory as the knowledge of project teams improved\. Field studies by the Bank team’s engineer reported that a number of infrastructure projects had incomplete documentation files, including environmental reports\.37 Other implementation support missions found that all subprojects included the required Environmental Codes of Conduct (ECOPs) and approved Environmental Protection Plan, which were incorporated in bidding documents\. However, it was also noted that works contracts did not reference these documents, therefore making it difficult to hold contractors accountable for implementing the intended impact mitigation measures\. This was noted by the Bank and rectified later on by the respective project implementing units\.38 Environmental, social health and safety requirements were included in project documents, but they were not regularly monitored and reported on as part of construction supervision\.39 The project encountered initial challenges adhering to the agreed Environmental Codes of Conduct and Good Agriculture Practices for rice and maize subprojects, that led to an initial MS ratings for OP 4\.09, Pest Management\.40 Social Safeguards Compliance 84\. Bank supervision missions found the project to generally be in compliance with relevant social safeguard policies\. The project triggered two social safeguard policies: OP 4\.10 Indigenous Peoples and OP 4\.12 Involuntary Resettlement\. Social safeguard instruments, including a Resettlement Policy Framework and the Social Assessment were prepared, reviewed, approved and disclosed (on August 12, 2013) per the policy requirements\. The project was considered responsive to the requirements of OP 4\.10 and the PAD itself was considered an Indigenous Peoples Plan or Framework\. Project implementation was responsive to the requirements of the operational policy, as demonstrated by the high percentage of ethnic minorities participating in the overall project and in livelihood groups\. The project’s overall estimation of EM participation is 85% of LEG members and 69% of trainees\. Key ethnic minority languages were used in both village meetings and for various audio-visual communication materials 85\. Minor land acquisition impacts were generally addressed through voluntary donation criteria and mechanisms set forth in the project’s resettlement policy framework and the ESMF\.41 Early project missions noted shortfalls in the proper documentation of land acquisition, which was the cause of the only consistent MS rating under safeguards\.42 Towards the second half of project implementation units at district level gradually improved their efforts in order to comply with the mentioned provisions\. Communities were better informed on compensation policies, and a proper documentation system for land donation practices was put in place\. As of December 2019, the project reported that more than 1,200 households in the project areas had donated approximately 106,700 square meters of affected lands (equal to 2\.16% of the households’ total land holdings)\. No physical relocation was recorded and only one complaint relating to land donation was received by the project (in Kon Tum province), which was resolved to the satisfaction of the affected person\. 86\. The establishment of a functioning grievance redress system through various channels (mobile text messages, voice messages, project website, etc\.) faced difficulties throughout project implementation related to problems with the MIS\. Fewer than 100 comments or complaints were filed through this system and only one was addressed in this 37 BKG Group, 2017\. Quality inspection and evaluation of investment extent and efficiency for completed infrastructure works of Central Highlands Poverty Reduction Project\. 38 WB, June 2017 and March 2018\. Aide Memoires\. 39 WB, August 2019\. Aide Memoire\. 40 WB, January 2015, Aide Memoire, p\.24\. 41 Compensation in different forms was generally arranged by local authorities, contractors or community members themselves\. 42 WB, November 2016 and March 2018\. Aide Memoires\. Page | 22  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) manner\. All other grievance cases were reportedly settled either through project staff, e\.g\., Community Facilitators, or through personal contacts with commune and district authorities\. Despite having the official project hotline widely disseminated on most project communications materials at commune levels, target beneficiaries and community members were reported to doubt the efficacy of this official mechanism or fear that by complaining in this manner they would risk the continued support under the project\. Financial Management 87\. The project complied with all financial covenants regarding the submission of annual audited financial management reports and quarterly Interim Financial Reports, which were submitted on time and were of acceptable quality\. Qualified project consultants were in place at central, provincial and district levels to manage project finances, which were overseen by relevant Government staff\. The World Bank and central government provided training in project financial management to project staff to enable them to manage project finances\. The project’s accounting and reporting functions, internal controls and the disbursement were maintained adequately\. 88\. As previously noted, the onset of the MTIP of 2016-2020 created discrepancies between the project operating budget, which was based on the overall IDA and Government financing envelope for the project, and the authorized allocations, which were the funds that central and provincial implementing units were allowed based on MTIP parameters\. In general, the authorized allocations were less than the operating budget, which limited the extent to which the different management units could implement project activities\.43 The processing of withdrawal applications by the Ministry of Finance took on average three weeks, but was at times much more significantly delayed (by 1-2 months) leading to cash-flow constraints for implementation units\. 89\. Financial management under the project was generally satisfactory but was rated moderately satisfactory during the course of the project implementation due to MTIP and withdrawal application processing issues\. There were no significant audit findings\. By relying heavily on project consultants for the day-to-day management of the project’s finances, the Government, however, missed an opportunity to build financial management capacity within MPI, provincial and district governments\. Procurement 90\. In accordance with the requirements of the financing agreement, the government recruited and installed relevant staff at central, provincial and district levels for overseeing procurement under the project\. These staff were guided by a detailed Project Implementation Manual and received relevant training from central consultants, with support from Bank staff, to help ensure compliance with Bank procurement guidelines and GoV regulations\. 91\. The Project Implementing Agencies, including the CPO, PPMUs, DPMUs and CDBs, made considerable efforts to improve their performance to address several issues that contributed to procurement and project implementation delays\. These delays related to: (a) slow annual budget allocation and preparation of the procurement plan; (b) slow recruitment of design consultants for works; (c) lengthy internal processes for review and approval of designs; (d) delays at the stage of solicitating quotations and bid evaluations; and (e) delays in execution of works\. 92\. Contract management was initially sub-optimal, especially for the construction of infrastructure at the community level\. Bank mission aide memoires highlighted several relevant issues, including: (a) contractors not respecting warranty periods; (b) lack of minutes of checking and approval of field laboratories of the contractors; (c) lack of acceptance minutes for input materials; (d) lack of material transportation diagrams; and (e) lack of minutes of handing over of the finished construction items\.44 Given these issues, the overall rating of procurement remained 43This fact contributed to the cancellation of project financing\. 44BKG Group, 2017\. Quality inspection and evaluation of investment extent and efficiency for completed infrastructure works of Central Highlands Poverty Reduction Project\. Page | 23  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) moderately satisfactory for the duration of the project\. Implementation support missions noted gradual improvements in many areas, including: (a) more effective use of procurement consultants to assist in procurement activities; (b) more timely recruitment of design consultants for works; (c) streamlining of internal approval processes; and (d) improved procurement and contract management\. As noted under the discussion of RF#13, annual procurement delays45 fell from 84% in 2014 to 1\.3% in 2019\. C\. BANK PERFORMANCE Quality at Entry 93\. The project preparation team was adequately staffed and conducted four full preparation missions up to appraisal\. The team drew relevant lessons from several global and in-country operations\. The team carried out a quality enhancement review that drew on experiences of lead rural development and livelihoods support specialists from within the Bank\. 94\. The team coordinated closely with and engaged staff from the successful Northern Mountains Poverty Reduction Projects, as well as the Agriculture Competitiveness Project, in designing the project\. Key lessons drawn from these experiences included involving Provincial and District Peoples Committees directly to monitor implementation and ensure participation of other departments; structuring and support of LEGs; and parameters and procedures for sub-project selection and implementation\. 95\. The design of Components 1 and 2 was based on well-established CDD/livelihood models and in-country experiences that had proven effective\. Component 3, for connective infrastructure, capacity building and communication, was added in response to preparation analysis that showed EM connectivity to markets spanned both physical and social/cultural issues\. 96\. The project took advantage of the participatory district and commune-level planning that had taken place under the New Rural Areas strategy to identify the first 18-months of project infrastructure investments\. In this way, the project was thus able to quickly start implementation as first year investment plans needed only to be validated and detailed, rather than undergoing a lengthier process of social analysis and prioritization\. Planning and implementation in the following years followed a more typical CDD approach\. 97\. The project was closely aligned with the World Bank Group’s Vietnam Country Partnership Strategy, FY12- 1646\. It was also consistent with the Government’s Socio-Economic Development Strategy 2011-2015, which emphasised addressing EM poverty, as well as the recent launch of the New Rural Areas strategy\. 98\. Fiduciary and safeguard considerations and requirements were given appropriate attention, as were key risks\. The hybrid fiduciary arrangements that mesh Bank and GoV procedures required additional technical support and capacity building for provincial and district units, which were built into the project\. Specialized social and environmental safeguard arrangements were outlined in the project’s ESMF\. Risk assessment, as detailed in the PAD, anticipated the most relevant risks\. However, the customized MIS to help mitigate risks to delivery and monitoring did not fully materialize\. 99\. As noted, (see Section VI\.A\. “Quality of Monitoring and Evaluation (M&E)”) the project’s M&E system encountered some challenges, which task team efforts were not able to fully resolve\. Importantly, the impact evaluation design was overly complex for Government to adequately manage and there was an overreliance on a prototype MIS that ultimately proved overly optimistic\. The task team could have considered more modest 45 Annual procurement delay is measured as the percentage of works contracted by year’s end versus the number of works activities planned for that year\. 46 World Bank Report no\. 65200-VN\. Page | 24  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) approaches to the M&E functions and targets given the project’s challenging operational context and the range of support provided under the project\. Quality of Supervision 100\. The Bank provided a range of appropriate technical and operational skills through its regular implementation support missions over the course of the project\. More than 20 supervision and specific technical support missions were carried out during project implementation, including more frequent missions in the early and late years of the project\. The Bank team carried out the planned mid-term review in June 2017 and undertook several discrete technical support missions on infrastructure quality, nutrition support, review of safeguards, and the MIS in response to specific issues or concerns identified during regular supervision missions\. The task team also effectively engaged with the Poverty Global Practice on the impact evaluation design and implementation, with the Health team in support of nutrition activities, and with the Food and Agriculture Organization (FAO) to secure specialized support for the livelihood component\. Aide memoires, management letters and ISRs were appropriately candid and highlighted issues requiring Government and Bank management attention\. Ratings appear to have been realistic based on progress and actions taken by Government\. The task team was especially stable with the original co-TTL and all core Bank safeguard and fiduciary staff remaining with the project throughout\. 101\. Supervision support did, however, suffer from some key shortcomings\. There was turnover in the support provided to the livelihood component from preparation through implementation that adversely affected guidance provided to Government\. The market linkages sub-component presented challenges that the task team was also not able to fully resolve (as the difficulties generally related to commercial interests outside of control of both Bank and project personnel)\. Key M&E risks and recommended actions identified in early Aide Memoires and at the MTR (see M&E section) were ultimately not acted upon by Government\. Risks to the sustainability of road investments as a result of overloaded trucks (again, beyond the control of task team and project staff) and insufficiently operationalized O&M committees were also flagged regularly but were not fully resolved\. Justification of Overall Rating of Bank Performance 102\. Based on the above review and the limitations outlined in overall project implementation, and consistent with the rating of project outcome, Bank performance is rated MODERATELY SATISFACTORY\. D\. RISK TO DEVELOPMENT OUTCOME 103\. The main risks to the project’s development outcomes are: (i) the continuation of the O&M needed for the infrastructure built by the project;47 (ii) the expansion and implementation of the participatory socio-economic planning approach beyond the project districts; (iii) the continued provision of appropriate agricultural advisory services to the farmers to maintain or improve their production and marketing efforts once the project has closed; and (iv) the COVID-19 outbreak\. 104\. As discussed earlier, community’s capacity to control heavy truck traffic on project roads appears to be limited\. It also remains to be seen if the O&M groups supported by the project will be in a position to continue their maintenance work (for all commune infrastructure) without a dedicated budget allocation\. This is a particular challenge in Vietnam (and was flagged in the evaluation report for the Northern Mountains Poverty Reduction Project Phase 1) for all CDD projects\. 105\. The project’s success of engaging ethnic minorities and women more actively through participatory approaches and decision making at the village level through the CDBs is not guaranteed, as these are not permanent 47BKG\. Joint Stock Company, 2017\. Quality inspection and evaluation of investment extent and efficiency for completed infrastructure works of Central Highlands Poverty Reduction Project\. Page | 25  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) structures\. Nonetheless, CDB members generally remain with the Commune People’s Committee and can therefore continue to facilitate this type of participatory planning\. The evidence from the impact evaluation also showed general increases in EM and female EM participation and voice in commune development issues more generally\. 106\. The agricultural extension services provided by private sector companies and the Department of Agriculture and Rural Development may not be sustained because private providers were paid a percentage of the sub-project grant, which will no longer be available to farmers\. The project design did not envisage putting in place formal institutional linkages with the Department of Agriculture and Rural Development nor to build the capacity of the department’s extension services, something that could be pursued in future operations\. However, where farmers are engaged in traditional crops and livestock that the Department of Agriculture and Rural Development normally supports, appropriate advisory services should be accessible\. Where private sector linkages are required for non- traditional agriculture production, farmers will have to weigh the potential costs with the benefits of securing outside technical support\. Private providers who also supplied inputs will have an incentive to continue supporting those farmers with whom they have established a productive or commercial linkage\. 107\. The spread of the COVID-19 virus in Vietnam has so far been controlled well and the negative health impacts have been contained, however, the global pandemic will have ramifications for Vietnam’s economy\. Preliminary national data collected since the COVID-19 outbreak suggest substantial reductions in income for vulnerable (and especially EM) households; data from Central Highlands show an increase of approximately 30% in the number of people reporting to be unemployed (between December 2019 and June 2020), and 53% of farming households indicating income losses estimated at more than one-third\.48 V\. LESSONS AND RECOMMENDATIONS 108\. Investment Project Financing-type financing can effectively complement programmatic support for enhanced outcomes\. The project financed similar types of infrastructure and certain livelihood investments as some of the rural and poverty focused NTPs that Government currently supports\. However, such operations, including CHPov (and the predecessor Northern Mountains projects) placed greater emphasis on: (a) soft facilitation (and communication) skills and inputs to enhance participation; (b) more customized livelihood support; and (c) social and environmental safeguards\. As a result, improvements with participation (including of women and of indigenous EMs), satisfaction with agriculture support, and dietary diversity were significantly greater in CHPov communes versus the NTPs\. In addition, provincial authorities noted leveraging the support under the project to facilitate work in NTPs\. As such, the utility of Investment Project Financing to pilot concepts and strategies, reach or address particularly marginal groups or areas, and to augment parallel NTP implementation would argue for their continued support, especially where Government is still experimenting with approaches or is faced with specialized areas of need or demand where a one-size-fits-all approach would not be appropriate\. 109\. Inter departmental coordination across different ministries is challenging without formal arrangements (and financing) in place\. Using the private sector to fill the gap can help as long as financing is available to sustain that support (either through the project or by users)\. While the project was able to more than double the rate of satisfaction with agriculture extension services in project communes, the overall rate remained fairly low at 28%\. This points to a general dissatisfaction with both public and private extension services in these predominantly EM 48Data from: (i) UNWOMEN, UNDP (2020), COVID-19 Impact on Vulnerable Households and Enterprises in Viet Nam: A Gender-sensitive Assessment” (RIM-2020)\. June 2020; (ii) GSO (2020), Labor and Employment Report – Quarter II 2020, Hanoi; and (iii) IFAD, IPSARD, ADB (2020), Impact assessment of COVID-19 on livelihood of farmers in Vietnam, Hanoi\. Page | 26  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) areas of the country, which likely reflects a disconnect between what extension services are supporting (and how) and what is important to EM farmers\. The project was only partially able to bridge this gap\. Given the importance of agriculture development under the project, at design the project should have included a stronger institutional link to appropriate technical services that could be sustained\. 110\. Community supervision of infrastructure must be adequately paired with appropriate technical oversight of contractors\. The project applied standard community-based supervision procedures through the project- facilitated Commune Supervisory Boards that drew from local civil society organizations (women’s union, farmers association, etc\.)\. Evidence from the end-line survey suggests that these structures were quite successful in increasing the level of community supervision of local works\. However, despite basic training there are limitations to the Commune Supervisory Boards’ technical skills\. Therefore, the project engaged a technical supervision firm at provincial level to conduct technical reviews and spot-checks of all civil works implemented in the province, and especially those larger works contracted by districts\. In addition, a supervising engineer was required for all works activities that were contracted out (versus direct community implementation)\. Despite this 3-tiered oversight structure, CHPov experienced some problems with execution, quality of works, and sub-project handover procedures\.49 In future projects of a similar nature, the linkages between such community supervision efforts and the formal and independent supervisory consultants should be strengthened\. The independent consultants also need to be more closely monitored by the project (which was done in the latter half of CHPov’s lifetime to correct the identified issues)\. 111\. Specialized community engagement and facilitation support, which requires relevant language skills, is essential to reach the most isolated EM communities\. In the absence of continued support from community facilitators, the local government authorities at the district level are constrained in their ability to reach and assist the most isolated communities\. In addition, ensuring the substantive participation of EMs in particular requires specific outreach and encouragement that is generally not available\. The increased levels of participation of women and indigenous EMs under CHPov warrant the investment in this specialized facilitation\. This type of support is different and separate from other technical outreach and services from relevant line agencies and the local government\. 112\. Carefully consider the type, ambition and methods of measuring results for multi-sectoral/CDD operations, particularly in complex environments\. CHPov was an ambitious project that looked to improve a wide cross-section of outcomes in a very complex and challenging environment\. In retrospect, the project team likely selected overly ambitious PDO outcomes (enhanced living standards, changes in consumption, etc\.) and some overly optimistic targets\. This is especially true under CDD operations that will tend to spread investments across multiple sectors, and therefore reducing the extent of impact in any one area of measure (e\.g\., access to clean water)\. Given this likely dampening of results across sectors, it is important to include some key intermediate indicators of results that fall between simple output measures and higher-level outcomes\. 113\. There are limitations and risks in using complex, and costly, difference in differences impact evaluations for CDD operations\. The relatively small and multi-sector nature of CDD investments (even when done over multiple years) increases the need for larger survey samples to improve the power of the analysis, which increases the cost of the exercise\. In addition, the normal program approach of purposefully targeting project areas (usually based on poverty measures) will be in tension with a desire to randomly assigning project support to facilitate identification of those areas that do not receive project support (the project’s “counter-factual”)\. Lastly, even when project support can be assigned randomly, or other non-project areas can be identified through techniques such as propensity score matching, the risk of other funds flowing into non-project areas can be high\. Indeed, this risk may be increased when 49 BKG, 2017\. Quality inspection and evaluation of investments Central Highlands Poverty Reduction Project\. Page | 27  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) local authorities are given discretion over local development funds and chose to “compensate” non -project areas with other funding sources, as appears to have happened under CHPov, rendering the “counter-factual” communes moot\. In light of these challenges and risks, task teams should think very carefully about the type of evaluation approach to be used that will best help the project, and the client, learn from the project effort\. In the case of CHPov, it might have been wiser to rely less extensively on a robust IE and more on process and outcome studies\. \. Page | 28  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS B\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Enhance living standards by improving livelihood opportunities in Project Communes Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0\.00 540472\.00 638536\.00 30-Sep-2013 31-Dec-2019 31-Dec-2019 Female beneficiaries Percentage 0\.00 50\.00 50\.14 31-Mar-2017 No\. Beneficiary Households Number 0\.00 120000\.00 141897\.00 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Measure changed to individuals versus households to capture individual LEG member beneficiaries\. Page | 29  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percent Change in Proportion Percentage 0\.00 20\.00 32\.10 of Villagers Satisfied with Support Received for 30-Sep-2013 31-Dec-2019 31-Dec-2019 Development Project Comments (achievements against targets): The average improvement in the satisfaction level of villagers is 32\.1%, which consists of the following changes in satisfaction: (i) the selection of infrastructure projects (increased from 73% to 84%), (ii) the quality of those projects (from 59% to 65%), (iii) the quality of local roads (from 45% to 49%), (iv) local irrigation system (from 29% to 62%), and (v) with agricultural extension activities (from 12% to 28%)\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Change in food and non-food Amount(USD) 8238500\.00 9062350\.00 12191700\.00 consumption of poor households 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Data were collected in VND\. Converted to USD using end-of-project rate of exchange is: baseline: $355\.54, endline: $526\.14 Page | 30  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) A\.2 Intermediate Results Indicators Component: Village and Commune Infrastructure Development Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Annual planned versus Percentage 0\.00 88\.00 76\.20 completed infrastructure investments 30-Sep-2013 31-Dec-2019 31-Dec-2019 irrigation canals Meter(m) 0\.00 0\.00 42450\.00 constructed or repaired bridges constructed or Number 0\.00 0\.00 30\.00 repaired water systems constructed Number 0\.00 0\.00 150\.00 or repaired classrooms constructed or Number 0\.00 0\.00 122\.00 repaired roads constructed or Kilometers 0\.00 0\.00 666\.00 repaired Page | 31  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Comments (achievements against targets): Overall for the 5-year project implementation period a total of 2,226 sub-projects were planned under components 1\.1 and 3\.1, and 1,697 were completed (76\.2%)\. However, an original target of the percentage of planned vs\. completed sub-projects was not established\. Nonetheless, given that approximately 12% of the credit was cancelled the task team proposes that a target of 88% would be a reasonable expectation given this reduction in available financing\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Change in access of poor Text 38\.6% 20\.0% 39\.5% households to services, infrastructure and utilities 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): The overall index measure only found a 2\.3% improvement (between project and non-project communes) across all indicators for the poor\. However, there was an overall reduction in time to travel to schools of more than 30% (with larger savings for indigenous EM (IEM) groups and poor); an overall decrease of 26\.3% of time in accessing commune health centers (and more than 30% decrease for IEM and poor households); a nearly 27% reduction in travel time to commune people’s committee; a 70% improvement in access to drinking water for the poor, and a 17\.6% increase in access to irrigation systems for poor households\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Proportion of poor villagers Percentage 0\.00 20\.00 25\.00 whose identified development priorities are 31-Dec-2014 31-Dec-2019 31-Dec-2019 satisfied Page | 32  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Comments (achievements against targets): Measure considers all households and not just poor as baseline survey found general agreement between poor and non-poor and inclusion of all households improved statistical significance\. Results: 25% of households had all three priorities addressed in their communes; 81% of households had at least 1 or 3 priorities addressed\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase in participation of Percentage 0\.00 25\.00 44\.60 women in decision-making on local public investments 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): The endline survey found that the proportion of women taking part in commune/village meetings and expressing their opinions (a more meaningful measure of “participation”) about project selection increased by 4\.8 and 10 percentage points (a 15\.5% and 44\.6% improvement), respectively\. In addition, the study found an overall 10 percentage point increase-- from 22\.4% to 32\.4%-- in women expressing an opinion at commune/village meetings, represents an almost 50% improvement over baseline\. Component: Sustainable Livelihoods Development Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Livelihoods enhancement Number 0\.00 3687\.00 4383\.00 groups (LEGs) and market link partnerships (MLPs) 30-Sep-2013 31-Dec-2019 31-Dec-2019 Page | 33  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) established female LEG members Percentage 0\.00 0\.00 59\.00 Comments (achievements against targets): Original target established by Government as indicated in their Project Completion Report (May 2020) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Change in productive and Percentage 51\.40 20\.00 56\.20 durable assets of households participating in LEGs 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): On average, asset ownership improved by 7% between baseline and endline, while the increase for poor households was 12%\. A revised index that focused more on productive agriculture-related assets shows an overall 9\.3% improvement at the endline\. In addition, at sub-indicator level, the study reveals significant increases in households owning cattle (24\.5%) and poultry (14\.9%)-- both of which were important for livelihood diversification and household nutrition—water pumps (15\.3%) and motorbikes (8\.9%)\. However, other productive assets such as gardening and irrigated land, mobile phones and pigs fell short of reaching the proposed target increase of 20%\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Change dietary diversity of Text 0\.573 on constructed 20% 0\.68 Page | 34  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) poor households dietary diversity index 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Overall, with the exception of migrant ethnic households, the project contributed to a 21% increase in the DDI\. Sharp increases were observed for the proportion of households consuming fruits (23%), meat (26%), eggs (28%), and for sugar and honey (27%)\. Component: Connective Infrastructure Development, Capacity Building and Communications Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Change of transport Text 68\.2 20% 70\.1 connectivity index 30-Sep-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Overall, the index showed a 2\.8% improvement in connectivity from the beginning to end of the project, and between project and control comments\. This overall connectivity measure was better for poor and indigenous EM households, at 4\.1% and 3\.7% improvement respectively\. At sub-indicator levels, statistically significant improvements were seen in connectivity to primary schools (by 9\.7%), to commune health facilities (by 9\.4%) and to local markets (by 6\.8%)\. A separate endline analysis also showed similar improvements with a reduction in travel time to local schools of 3 minutes (or almost 30%) and to local health facilities of 5\.4 minutes (or 26%)\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page | 35  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Client days of training Number 0\.00 35594\.00 56961\.00 provided (number) 30-Sep-2013 31-Mar-2019 31-Dec-2019 Client days of training Number 0\.00 12394\.00 16758\.00 provided - Female (number) 30-Sep-2013 30-Sep-2018 31-Dec-2019 Staff and beneficiaries Number 0\.00 0\.00 19451\.00 trained Comments (achievements against targets): Original targets drawn from Government Project Completion Report (May 2020) Component: Project Management Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percentage delays in Percentage 0\.00 5\.00 3\.10 1\.30 procurement activities as per approved annual 30-Sep-2013 31-Dec-2015 30-Jun-2017 31-Dec-2019 procurement plan Comments (achievements against targets): Measures ratio of contracts signed by Dec\. 31 to contracts planned for given year\. Page | 36 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Page | 37  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) C\. KEY OUTCOMES/OUTPUTS BY COMPONENT50 Objective/Outcome 1: Improved access to basic infrastructure and public services at village and commune level 1\. RF#4: Percent Change in access of Poor Households to Services, Infrastructure, and Utilities—2\.3% average change\. Sub-set of index measure sub-indicator results for aspects most closely linked to CHPov investments: a\. Average travel time to kindergarten: 31\.8% improvement, 3\.5 minute reduction b\. Average travel time to primary school: 33\.8% improvement, 5\.7 minute reduction c\. Average travel time to commune health facility: 31\.9% improvement, 7\.9 minute reduction d\. Poor households with access to improved water sources: 18\.9% increase e\. Increase in households with irrigation systems in commune: 12\.1% increase 2\. RF#6: Percent Change in Proportion of Villagers Satisfied with Support Received from the Project— 32\.1% average change\. Sub-set of index measure sub-indicator results for aspects most closely linked to CHPov investments: Component 1 Outcomes a\. Increase in proportion satisfied with Selected Investment Project List: 14\.8% b\. Increase in proportion satisfied with Project Quality: 10\.2% c\. Increase in proportion satisfied with Road Quality: 9\.9% d\. Increase in proportion satisfied with Irrigation System: 110\.2% 3\. RF#2: Percentage of households whose development priorities were satisfied (i\.e\., financed)—25% of HHs with all three top priorities financed under project, 81% of HHs with one of top three priorities financed\. 4\. RF#7: Increase in participation of women in decision-making on local public investments—15\.5% improvement in women’s participation, and a 44\.6% improvement in women expressing opinions in community meetings\. There was also an overall improvement in participation of 29\.2% for all community members\. Sub-component 1\.1: Design, construction or repair of small scale village and commune level infrastructure\. Key Outputs by 1\. Number of infrastructure sub-projects (SP): Total SPs 1,525; 1,053 SPs roads; 78 SPs classrooms; 90 SPs Subcomponents irrigation systems; 146 SPs water supply systems; 79 SPs new community houses; 79 SPs other infrastructure\. 50 In this section of the ICR all percentage changes indicated are based on the percentage change between base-line and end-line values for the relevant indicators/measures\. Page | 38  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 2\. Type of Infrastructure built: 445km roads; 98 classrooms; 35,6 km canals; 1,351 ha improved irrigation; 146 domestic water supply systems for 10,927 households, 79 community houses, 25 bridges, 10 underground spillways, 6 low voltage power lines; plus some miscellaneous such as village sport stadiums, etc\. 3\. Training: Total number of people trained in construction supervision: 685 (19% female), 572 trainees from village and commune level, 113 trainees from central, provincial and district level\. Sub-component 1\.2: Repair, operation and maintenance of communal infrastructure\. 1\. Number of infrastructure sub-projects (SP): Total SPs 466; 2\. Type of Infrastructure built: 209 SPs for road maintenance; 24 SPs for repair of bridges, culverts, drainage ditches; 33 SPs for irrigation related repair; 78 SPs for domestic water system related repairs; 11 SPs for repair of community houses; and 108 SPs for repair of primary schools and kindergartens, and some other small repairs\. 3\. Training: Total number of people trained in O&M: 1,402 (16% female), 1065 trainees from village and commune level, 337trainees from central, provincial and district level\. Objective/Outcome 2: Enhanced livelihood options and improved food and nutrition security 1\. RF#10: Percent Change Dietary Diversity of Poor Households—overall 21\.4% improvement\. 2\. RF#9: Percent Change in Productive and Durable Assets of Households Participating in LEGs—overall 9\.3% improvement\. Sub-set of index measure sub-indicator results for aspects most closely linked to CHPov Component 2 Outcomes investments: a\. % increase in LEG households owning pigs 22\.9%, and poultry 25\.2% b\. % increase in LEG households owning a motorcycle: 10\.9% c\. % increase in LEG households owning a water pump: 38\.1% d\. % increase in LEG households owning a mobile phone: 5\.5% Sub-component 2\.1 Self-reliance and Income Generation Key Outputs by 1\. Number of LEGs established: 4,337 LEGs established; 1,402 LEGs (19,031 HHs) under Food Security & Subcomponents Nutrition (out of these 550 LEGs received two support cycles); 2,935 LEGs (43,715 HHs) under Livelihood Diversification\.; overall around 50% of LEGs discontinued to work as groups at project end 2\. Total number of LEG member households: 62,746 (60% females); Page | 39  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 3\. Training: Total number of members trained (i) in agricultural techniques, 42,416 (60% female; 77% ethnic minorities); in (ii) LEG management, 5,709 (51% female; 52% ethnic minorities), (iii) in nutrition 1,647 (66% females; 67% ethnic minorities) Sub-component 2\.2: Market Linkages Initiative 1\. Number of LEGs established: 46 LEGs established under market linkage sub-component; percentage discontinued unknown, but LEGs producing gac, bananas, maize, sweet potatoes, pigs, goats are reported to be not effective\.51 2\. Total number of LEG member households: 785 (60% female); 3\. Training: number of members trained in agricultural techniques unknown; other trainings included under SC2\.1 above\. Objective/Outcome 3: Improved inter-commune connectivity, capacity building & outreach 1\. RF#11: Change in Transport Connectivity Index—overall improvement of 9\.4%\. Sub-set of index measure sub-indicator results for aspects most closely linked to CHPov investments: a\. 7\.7% improvement in connectivity to primary schools Component 3 Outcomes b\. 8\.0% improvement in connectivity to commune health facilities c\. 9\.1% improvement in connectivity to local markets d\. 3\.3% improvement in connectivity to commune peoples center e\. 7\.1% improvement to district center Sub-component 3\.1 Development of selected intra-communal and inter-communal level infrastructure and other investments supporting socio-economic connectivity\. 1\. Number of infrastructure sub-projects (SP): Total SPs 172; 144 SPs roads; 5 SPs classrooms; 15 SPs irrigation Key Outputs by systems; 4 SPs water supply systems; 4 SPs other infrastructure\. Subcomponents 2\. Type of Infrastructure built: 221km roads; 2 suspension bridges; 3 underground overflows; 6\.7 km canals; 382 ha improved irrigation; 6 dams; 4 domestic water supply systems for 445 households; 1 irrigation pumping system; 14 advisory contracts\. Sub-component 3\.2 Training and Capacity Building for all aspects of project management 51 GoV Project Completion Report\. Page | 40 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 1\. Training: Organized 542 training and capacity building events for project staff and governmental officers\. 2\. Number of trainees: 19,451 (30% female; 43% ethnic) Note: training outputs pertaining to other sub-components are listed under the respective sub-components above Sub-component 3\.3 Communications and outreach activities\. 1\. Information, communication and education material: around 450,000 items of information material including: 270 DVDs, 100 CDs, 8 audiobooks, 400,000 posters and leaflets, 1,000 picture books, around 6,300 commune and community meetings, 33,750 farm calendars, 115 television reportages, around 450 articles and newsletters, etc\. Page | 41  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) D\. DETAILED DISCUSSION OF ACHIEVEMENTS OF INDIVIDUAL RESULTS FRAMEWORK INDICATORS 1\. The following discussion draws heavily on the findings from the project’s end-line survey report that was prepared by Mekong Development Research Institute\. Data referenced below can also be found in the selected tables in Annex 7, which are taken from the end-line report\. PDO-level Indicators 2\. RF#1: Number of direct beneficiaries (Core Indicator)\. The indicator measured the outreach of the Project and the percentage of women reached as a sub-indicator\. The number of direct beneficiaries has been defined as “entire population of villages having at least one infrastructure investment (regardless of type) throughout the project cycles, plus the number of LEG beneficiaries in villages having no infrastructure investment\.”52 Accordingly, the project reached 638,536 beneficiaries, or almost 120% of the original target of 540,472, with 50\.14% female (against a target of 50%)\. The percentage of women participating in the livelihoods groups was even higher at 59%\. Using the total population of a community as the basis for estimating project beneficiaries is standard practice for CDD projects given the overwhelmingly public nature of project investments\. Based on this assessment the indicator target is considered to have been exceeded\. 3\. RF#2: Proportion of poor villagers whose identified development priorities are satisfied\. This indicator was meant to measure if the development priorities identified by poor villagers at the beginning of the project have actually been selected for financing and have been implemented by the project\. This meaning was also reflected in the Vietnamese translation of the indicator, although limited to infrastructure (“percentage of infrastructure proposed by poor villagers implemented”)\. This was how the indicator was defined in the original RF of the project that is found in the PAD\.53 The underlying logic of this measure is to test how well the participatory and transparent process of identifying investments was working\. If the priorities of the poorest households were being responded to then we would conclude that the process is effective in facilitating the demand of the community (and avoiding elite capture)\. However, the baseline and end-line surveys interpreted this indicator differently and sought to compare changes in development priorities as an indication that priorities have been met\. This overlooks the reality that priorities that may persist in each commune could reflect an over-demand for a given type of investment and not a lack of supply\. In other words, while households may have selected village roads as their priority, and village roads may have been invested in, there may remain additional roads in need of repair or improvement\. 4\. Therefore, this indicator was measured by the ICR team in a different manner than outlined in the end-line and IE reports\. In addition, in reviewing baseline preferences of poor and non-poor households it was found that in general the preferences for development were aligned in both groups\. Therefore, the IE team recommended using the priorities identified by all households as this improved the statistical relevance of the “priorities”\. As can be seen in the table below, comparing preferences from baseline data to actual implementation of sub-projects in each commune from project administrative data reveals a high proportion of households (87%) having at least 1 development priority satisfied\. In addition, 25% of households had all development priorities “satisfied”, or financed, by the project\. The analysis does also note, however, that 13% of households had none of their top three priorities satisfied under the project\. This is possibly the result of households having identified priorities that significantly overlap with the types 52 WB, 2019\. Aide Memoire – Implementation Support Mission, Annex 2\. 53 PAD, page 21, footnote 19\. Page | 42 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) of infrastructure widely financed under the National Target Programs (i\.e\., markets, office of commune people’s committee, health clinics, and electricity)\. 5\. The top four priorities identified by households at baseline were inter-village roads (28\.3%), clean water (16\.4%), in-field roads (8\.7%), and irrigation (8\.3%)\. The composition of infrastructure types financed by CHPov followed these same priorities with component 1\.1, financing 1,525 infrastructure subprojects, of which 69\.1% were roads, 9\.8% for clean water, and 5\.9% for irrigation systems\. Given these findings, the indicator target is rated as having been exceeded\. Table 1-1: Analysis of Satisfaction of Development Priorities by Province Quang Quang Kon Dak Dak Overal Nam Ngai Tum Gia Lai Lak Nong l HHs having at least 1 priority was satisfied 96\.6% 94\.7% 84\.6% 81\.4% 84\.6% 84\.6% 87\.0% HHs having 100% priorities were satisfied 57\.0% 46\.4% 15\.9% 11\.9% 12\.4% 22\.8% 25\.1% HHs having none of priorities were satisfied 3\.4% 5\.3% 15\.3% 18\.5% 15\.5% 15\.5% 13\.0% Total 100% 100% 100% 100% 100% 100% 100% * This condition measures those households where one of their top three priorities were ineligible for financing under CHPov\. 6\. RF#3: Percent change in food and non-food consumption of poor households\. This indicator measured the changes in expenditures for food and non-food items\. It was the main tool used to evaluate the impact of the CHPov towards enhanced living standards and, in effect, reducing poverty\. Overall, the rate of per capita consumption of poor beneficiaries in the project communes increased by 48% between 2014 and 2019, 54 which significantly exceeds the proposed target of 10%\. In addition, non-poor households saw only an 8\.3% per capita increase, suggesting that the poverty targeting efforts of the project also had strongly positive results\. Food expenditures of poor households increased by 32% and non-food expenditures by 78% against the baseline\. This positive trend is also reflected in a reduction of food-expenditures as share of total household expenditures from around 57% to 50%, which also suggests improving living standards\. 7\. This change in consumption is linked to an overall increase in household expenditures by 18\.3% over the same period (or 3\.5% per annum)\. These improvements were seen across all groups of project beneficiaries that includes the Kinh/Hoa, EMs indigenous to the Central Highlands (IEMs), and indigenous minorities who have migrated to the Central Highlands (migrant ethnic minorities, MEM)\. The expenditure per capita in all 6 project provinces in 2019 is higher than the expenditure poverty line, reflecting in part an improvement in household living standards\.55 Based on the above the above assessment the indicator target was exceeded\. Component-level Indicators 54 In real terms adjusted to 2019 prices, overall annual per capita consumption of the poor in project areas increased from VND 8\.166 million to VND 12\.142 million\. 55 Although not statistically significant, the impact evaluation found that household expenditures within project communes increased by 2% more than in the non-project communes\. Page | 43 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Component 1: Village and Commune Infrastructure Development 8\. RF#4: Percent change in access of poor households to services, infrastructure and utilities\. This indicator was constructed based on 12 sub-indicators gauging household access to four main service domains concerning education, health, water supply and agricultural services\. The end-line survey of project communes shows significant positive change in access to several services relevant to CHPov areas of infrastructure investments (partly as a result of investments in local roads)\. For instance, there was an overall reduction in time to travel to schools of more than 30% (with larger savings for indigenous EM (IEM) groups and poor); an overall decrease of 26\.3% of time in accessing commune health centers (and more than 30% decrease for IEM and poor households); a nearly 27% reduction in travel time to commune people’s committee; a 70% improvement in access to drinking water for the poor, and a 17\.6% increase in access to irrigation systems for poor households—the latter two being areas of priority project investment\. However, the overall index measure only found a 2\.3% improvement (between project and non-project communes) across all indicators for the poor\. Given an overall project target of 20% increase, the target for this indicator is considered partially achieved\. 9\. RFI#5: Annual planned versus completed infrastructure investments\. This performance measure was not applied as originally envisioned due to peculiarities of the Government’s planning and implementation cycle\. Most importantly, the Government allows for adjustments in plans during the course of the year to reflect changes in approved versus allocated budget, cost variations in individual subprojects, changing community priorities, and as a result of unforeseen circumstances\. Plans are adjusted during the course of the year to align them with actual implementation\. In addition, Government allows implementation from one calendar year to carry over into the next year (up until December 31 of the following year)\. However, over the course of the 5-year implementation phase, the overall average of planned versus completed infrastructure projects was 76\.2%, as shown in the table below\. This level of output is roughly consistent with the overall value of project financing as compared with the original budget, and therefore this target for indicator is assessed as substantially achieved\. 10\. Table 1-3 below indicates the allocation of completed subproject types by provinces\. The main subprojects as a percentage of total were: village and inter-commune roads (70\.5%), drinking water systems (8\.8%), irrigation construction and repair (8\.3%), the construction of community centers (4\.7%) and construction or repair or schools (4\.9%)\. Quality of infrastructure, as measured by satisfaction levels of beneficiaries, improved particularly for water supply and irrigation systems\. However, field surveys by Bank implementation support teams found some quality issues especially with roads, likely leading to the lower rates of satisfaction for this area of investment\. Table 1-2: Total number of infrastructure sub-projects planned and implemented (by Province) Number of Number of Total Number of Number of Total % Sub- Provinces Approved Approved Approved completed completed Completed projects Subprojects 1\.1 Subprojects 3\.1 Subprojects subprojects 1\.1 subprojects 3\.1 Subprojects completed Dak Lak 363 33 396 307 21 328 82\.8% Dak Nong 321 59 380 245 30 275 72\.4% Gia Lai 343 43 386 314 35 349 90\.4% Kon Tum 380 59 439 321 40 361 82\.2% Quang Nam 129 29 158 119 28 147 93\.0% Quang Ngai 423 44 467 219 18 237 50\.7% Total 1,959 267 2,226 1,525 172 1,697 76\.2% Page | 44 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 1-3: Total number of infrastructure sub-projects implemented (by subproject type and Province) Total Sub-project Type Quang Ngai Dak Lak Quang Nam Gia Lai Kon Tum Dak Nong Completed Sub-projects 1\.1 3\.1 1\.1 3\.1 1\.1 3\.1 1\.1 3\.1 1\.1 3\.1 1\.1 3\.1 Road 125 18 281 21 59 23 261 35 157 28 170 19 1,197 School 9 6 12 5 26 2 20 3 83 Irrigation 14 7 10 1 16 29 6 14 8 105 Water Supply 50 25 2 2 61 2 8 150 Community House 14 4 5 12 18 26 79 Other 7 4 3 18 13 2 0 47 Culverts and sluice 5 5 2 17 7 36 gates Total 219 18 307 21 119 28 314 35 321 40 245 30 1,697 11\. RF#6: Percent change in proportion of villagers satisfied with support received from the project\. The end-line survey reports that overall household satisfaction with support in the project area56 increased by 13\.8 percentage points (an improvement of almost 32%)\. Specifically, satisfaction was shown to have increased across five domains: (i) the selection of infrastructure projects (increased from 73% to 84%, or a 15% improvement), (ii) the quality of those projects (from 59% to 65%, 10% improvement), (iii) the quality of local roads (from 45% to 49%, 9% improvement), (iv) local irrigation system (from 29% to 62%, 138% improvement), and (v) with agricultural extension activities (from 12% to 28%, 117% improvement)\. 12\. Although the project succeeded in more than doubling the satisfaction rates for agricultural advisory services, at 28% the actual satisfaction rate in 2019 was still low\. While this suggests some shortcomings in either coverage, quality, or frequency of trainings under the project, given the separate role that the Department of Agriculture and Rural Development plays in providing similar support, this may not be a clear assessment of CHPov\. The second highest improvement in satisfaction, by 138%, was observed for irrigation infrastructure (from 29 to 62%), another important area of project investment\. Lower rates of change in satisfaction were recorded for local road quality, which may reflect either continued unmet demand for roads, or problems encountered by misuse of and damage to project roads by over-weight vehicles\. However, given these overall positive results, and the fact that both irrigation and agricultural extension were important areas of investment by the project, this indicator target is assessed as fully achieved\. 13\. RF#7: Percent increase in participation of women in decision-making on local public investments\. The end-line survey found that the proportion of women taking part in commune/village meetings and expressing their opinions (a more meaningful measure of “participation”) about project selection increased by 4\.8 and 10 percentage points (a 15\.5% and 44\.6% improvement), respectively\. Participation rates also differed amongst women in different groups\. Women from female-headed households seemed to be more active in joining local activities than other women\. The end-line survey also found larger improvements in participation for indigenous Ethnic Minority (IEM) women, as compared with Kinh/Hoa women\. In 2014, female IEM participation was 23\.3% while 27\.3% of Kinh/Hoa women participated\. However, by 2019, the corresponding figures of these two groups were 35\.8% and 33\.4%, implying a 54% 56 Information on satisfaction was collected for all support provided to the communes, and not limited to CHPov efforts\. Page | 45 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) improvement in IEM women’s participation\. In addition, the study found an overall 10 percentage point increase-- from 22\.4% to 32\.4%-- in women expressing an opinion at commune/village meetings, represents an almost 50% improvement over baseline\. The improvement for IEM women was even greater\. Based on this evidence the indicator target is fully achieved\. Component 2: Sustainable livelihoods development 14\. RF#8: Number of livelihoods enhancement groups (LEGs) and market link partnerships (MLPs) established\. No specific target for this measure was established in the PAD or later on given the demand- driven nature of the project\. Under Sub-Component 2\.1 (self-reliance and income generation), a total of 4,337 LEGs supporting 63,561 households were established\. Two types of sub-project activities were supported: (i) food security and nutrition groups (which were 30% of total), and (ii) income diversification groups (70% of total)\. Out of these about 13% of the LEGs received a second round of support\. Field crops, such as rice and maize, constituted 21% of subprojects and dominated the food security groups, while 14% of LEGs were involved in other field crops and vegetables\. The most popular livestock activities (as measured by the number of LEGs), after the project excluded the choice of cattle due to high costs, were raising pigs (23%), goats (21%), and poultry (16%)\. 64 LEGs engaged in more specialized commodities such as sugarcane, green bean, ginger, turmeric, ginseng, avocado, passion fruit, black pepper, bamboo rats, wild ducks, pigeons, rabbits, etc\. The total percentage of female LEG members was 59% and the average number of members per LEG was 15 farmers\. 15\. Under Sub-Component 2\.2 (market linkage initiatives), only 46 LEGs comprising 785 households, were established\. These included groups dealing with the cultivation of pineapple (15), gac (Momordica cochinchinensis) (5), bananas (8) and hybrid maize (4)\. The rest of the market linkage LEGs were engaged in areas such as goat breeding, mulberry cultivation for silkworm raising, and acacia seedlings, among others\. The MTR estimated that LEGs operating under a farmer-agribusinesses partnership experienced an increase of their farm-gate price by some 15-20% and their production had become more efficient due to good practices and innovations brought by the project\. At the same time, key challenges identified were: (i) lack of a more standardized contract farming arrangement, (ii) insufficient understanding of the value chain concept by the Provincial Project Management Unit staff, (iii) insufficient quantities produced by smallholder farmers, and (iv) lack of interested and capable agribusiness partners\. The last issue was likely key in the relatively low numbers of market linkage groups overall\. 16\. Despite challenges faced by Component 2 that include the short life-span of LEGs (only slightly more than 50% of the LEGs were still active at the end of the project) and the low number of market linkage groups, the project managed to establish a large number of LEGs with high rates of participation of women (59%)\. Based on the review of results under this output measure, the ICR assesses the indicator target as being achieved\. 17\. RF#9: Percent change in productive and durable assets of households participating in LEGs\. This composite index indicator was conceived to measure the results of improved livelihoods, which were thought would lead to the purchase of household assets (19 in total were measured57)\. On average, asset ownership improved by 7% between baseline and end-line, while the increase for poor households was 12%\. A revised index that focused more on productive agriculture-related assets shows an overall 9\.3% improvement at the end-line\. In addition, at sub-indicator level, the study reveals significant increases in households owning cattle (24\.5%) and poultry (14\.9%)-- both of which were important for livelihood 57 Some assets in the original index would be considered luxury rather than “productive” goods\. Page | 46 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) diversification and household nutrition—water pumps (15\.3%) and motorbikes (8\.9%)\. However, other productive assets such as gardening and irrigated land, mobile phones and pigs fell short of reaching the proposed target increase of 20%\. Based on these findings the indicator target is assessed as being partially achieved\. 18\. RF#10: Percent change in dietary diversity of poor households\. This indicator was measured by calculating a Dietary Diversity Index (DDI) based on the Household Dietary Diversity Score index developed by USAID\. It was used to understand the change in dietary diversification of poor households as a result of several aspects of project implementation (food security LEGs, access to markets, etc\.)\. The DDI is based on 12 sub-indicators, representing consumption information on one of the 12 main food groups, consumed over the last 12 months\.58 19\. The comparison of data from baseline and end-line survey shows that, with the exception of roots and tubers, the consumption of all food groups increased\. In particular, sharp increases were observed for the proportion of households consuming fruits (23%), meat (26%), eggs (28%), and for sugar and honey (27%)\. Overall, with the exception of migrant ethnic households, the project contributed to a 21% increase in the DDI\. Therefore, this indicator target is assessed as fully achieved\. 20\. In addition, the World Bank’s impact evaluation analysis found that the household dietary diversity score increased by 3\.8 percent between treatment and control communes, which was even more positive among IEM and female headed households\. The change in the household dietary diversity score increased by 6\.5% among households belonging to EMs as compared to those of the Kinh\. Similarly, households headed by women are likely to have a score of about 8\.3% higher than those headed by men\. Component 3: Connective infrastructure development, capacity building and communications 21\. RF#11: Percent change of transport connectivity index\. This indicator measured household travel time to key social infrastructure and destinations such as kindergartens, primary schools, commune health station, market, commune people’s committee, district and provincial centers, as a composite index measure of physical connectivity (Transport Connectivity Index (TCI))\. These times (both for motorized and non-motorized connectivity) where then translated into a 5-point scale to compare changes over time\. Overall, the index showed a 2\.8% improvement in connectivity from the beginning to end of the project, and between project and control comments\.59 However, at sub-indicator levels, statistically significant improvements were seen in connectivity to primary schools (by 9\.7%), to commune health facilities (by 9\.4%) and to local markets (by 6\.8%)\. A separate endl-ine analysis also showed similar improvements with a reduction in travel time to local schools of 3 minutes (or almost 30%) and to local health facilities of 5\.4 minutes (or 26%)\. In comparing these achievements with the RF target of 20% improvement, the review assesses the indicator target as partly achieved\. 22\. RF#12: Number of people trained (and person-days of training provided) by the project\. The project invested a great deal of effort in training and capacity building\. CPO and PPMUs organized 542 capacity building training events for project staff and governmental officers that involved 19,451 participants for a total of 56,961 person-days of training (of which 30% were women)\. In addition, almost 50,000 members of LEGs were provided training in general farming techniques, animal husbandry, disease prevention and 58 The end-line report notes that the use of a 12-month recollection period instead of a 24-hour period is prone to overestimation of the actual DDI of households\. See MDRI, 2020\. Impact Evaluation: CHPov; Executive Summary, p\.15\. 59 This overall connectivity measure was better for poor and indigenous EM households, at 4\.1% and 3\.7% improvement respectively\. Page | 47 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) nutrition\. This training was strongly targeted to women and EM participants with women in excess of 59% of trainees, and 73\.8% EM trainees\.60 It is also noteworthy that the nutrition trainings included 34% men\. With the exception of training related to agriculture services, it is not possible to assess if the provided trainings were considered useful or of good quality by the beneficiaries as post-training evaluations were not carried out\. However, for agriculture extension services, which were measured as part of the impact evaluation, the proportion of satisfied project beneficiaries increased from 12% to 28%\. Based on this range of data relating to training outputs and outcomes, the review concludes that this performance indicator was fully achieved\. Table 1-4: Inclusion of women and of ethnic minorities in training activities Total number of % of female % of ethnic % of participants from Training Topics trainees* participants participants commune and village levels 1\. Agriculture techniques 42,416 60% 77% 98% 2\. Managing LEGs 5,709 51% 52% 84% 3\. Community development 9,036 31% 43% 48% 4\. Nutrition 1,647 66% 67% 89% 5\. Other topics 1,576 39% 63% 14% Total 60,384 54% 69% 86% * Counts duplicate participants (i\.e\., single person participating in more than one training)\. Component 4: Project management 23\. RF#13 Percentage delays in procurement activities as per approved annual procurement plan\. This indicator measures the relative effectiveness of CPO and provincial PMUs in both planning and procurement\. The measure is calculated based on the total number of contracts signed in a given year, divided by the total number of procurement packages planned for in that same year\. Given the newness of the project and the additional requirements for World Bank implementation, it would be expected that the rate of delay would be high to begin with but would improve over time\. An end-target of no more than 5 percent “delay” was proposed in the results framework\. A review of the data from the project shows a steady improvement in procurement performance across all Project Implementation Agencies from the first year of project implementation to the last, as shown in Table 1-5 below\. Given these results the indicator target is fully achieved\. Table 1-5: Analysis of Procurement Delays by Project year (all PIUs combined) 2014 2015 2016 2017 2018 2019 Percentage procurement delay, % (all PIAs) 84\.5 22\.2 18\.7 3\.1 n/a* 1\.3 Source: World Bank (WB) Task Team calculations based on annual project administrative data\. * The workplan and budget for 2018 was a combined 2018-19 plan and therefore the procurement delay was not calculated for the 2018 project year\. 60As compared with the estimated 60% overall EM population in the target districts at the time of project start (per the project’s Social Assessment Report)\. Page | 48  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Sean Bradley Task Team Leader Son Thanh Vo Task Team Leader Steve Jaffee ARD Coordinator Markus Kostner Social Development Coordinator Hoai Van Nguyen Procurement Specialist Cung Van Pham Financial Management Specialist Nghi Quy Nguyen Social Specialist Thuy Cam Duong Social Specialist Khang Van Pham Environment Specialist Lan Thi Thu Nguyen Environment and Forestry Specialist Andrew Beath Evaluation Specialist Ida Christenssen Nutrition and Food Security Specialist (FAO) Takayuki Hagiwara Livelihoods Specialist (FAO) Aidan Gulliver Agriculture Economist (FAO) Ngozi Blessing Obi Malife Program Assistant Tam Thi Do Program Assistant Supervision/ICR Sean Bradley Task Team Leader Nghi Que Nguyen Co-Task Leader Page | 49  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Son Thanh Vo Co-Task Leader Chris Jackson ARD Coordinator Hoai Van Nguyen Procurement Specialist Cung Van Pham Financial Management Specialist Lan Thi Thu Nguyen Environmental Specialist Andrew Beath Evaluation Specialist Kyung In MIS Specialist Martin Henry Lenihan Social Specialist Nga Thuy Thi Nguyen Procurement Team Huong Lan Dao Health and Nutrition Specialist Hoang Tung Engineer Dao Ngoc Nga M&E Specialist Vu Thi Bich Ngoc Statistician/IE Specialist Nguyen Thi Hien Minh Communications Specialist Inna Punda Livelihoods Specialist (FAO) Anton Glaeser ICR contributor (FAO) Anne-Christelle Ott ICR contributor (FAO) Dung Thuy Vu Team Member Tung Hoang Team Member B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY12 22\.900 135,928\.46 FY13 35\.407 257,450\.13 FY14 29\.227 140,234\.45 Total 87\.53 533,613\.04 Page | 50  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Supervision/ICR FY14 8\.838 43,889\.03 FY15 18\.225 99,256\.13 FY16 33\.095 157,881\.17 FY17 28\.800 140,485\.33 FY18 20\.525 118,356\.12 FY19 12\.742 98,865\.85 FY20 18\.000 137,875\.66 Total 140\.23 796,609\.29 Page | 51  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 3\. PROJECT COST BY COMPONENT Table 1: Total Estimated Project Costs (including counterpart funding) at Approval, upon Restructuring, and at Close (US$ million) (see Annex 4, Table 1 for detailed breakdown) Of which Of which Amount at Actual at Actual as Actual as Amount at IDA GoV Project Project Percentage Percentage of Components Approval Financed Financed Restructuring Closing of Approval Restructuring (US$M) (US$M) (US$M) (US$M) (US$M) (%) (%) 1\. Village and Commune Infrastructure 54\.70 52\.40 2\.30 47\.06 40\.94 74\.8 87\.0 Development 2\. Sustainable Livelihoods 35\.20 35\.20 0\.00 31\.50 27\.39 77\.8 87\.0 Development 3\. Connective Infrastructure Development, Capacity 53\.00 51\.40 1\.60 45\.99 40\.52 76\.4 87\.1 Building and Communications 4\. Project Management 16\.50 11\.00 5\.50 16\.64 15\.32 92\.8 92\.1 Total 159\.40 150\.00 9\.40 141\.73 124\.17 77\.9 87\.6 Note: Amounts shown for “Project Restructure” and “Actual at Project Closing” based on Loan data for Credit 53300\. Table 2: IDA Commitments, Cancellation, and final Disbursements (SDR million) IDA Credit 53300 SDR M 1\. Signed Amount 97\.60 2\. Cancelled 11\.50 3\. Disbursed 83\.81 4\. Un-disbursed 2\.29 5\. Percent Disbursed* 97\.34% * Difference between % disbursed and % actual costs relates to SDR-USD exchange rate changes over life of project\. Page | 52  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 4\. EFFICIENCY ANALYSIS General Efficiency Considerations 1\. This annex analyzes the efficiency of the Central Highlands Poverty Reduction Project in Vietnam (P128072), financed by the World Bank as an input to the project’s Implementation Completion and Results Report\. Project efficiency was assessed by i) the actual project costs and duration for realizing project objectives versus the plan; ii) the actual costs per beneficiary and per unit of output iii) the project economic rate of return as computed through an economic and financial analysis, and how these results compare to design estimates\. 2\. To assess the project efficiency, it is important to consider the discussion above regarding the lack of statistical significance between treatment and control communes for several of the key outcome measures (consumption, access, assets, and connectivity) at the aggregate level\. However, also as noted, there is evidence that the control areas were “contaminated” through the allocation of NTP funds for similar types of investments\. Therefore, measures of key project outcomes are drawn from the before and after results found in project communes as documented in the end-line report\.61 3\. The efficiency of project management is assessed based on the original projections compared to actual costs, as a percentage of total project costs\. This assessment of project management costs is also compared to global averages for managing CDD projects\. A comparison of these management costs to those of NTPs was not done, nor were the additional benefits of the environmental, social and fiduciary arrangements installed under the project calculated\. 4\. Overall, the project succeeded in meeting all of its output targets in the given timeframe and with a lower budget than initially envisaged\. The initial IDA credit amounted to US$150 million\. Following SDR-US$ exchange rate losses and a cancellation of SDR 11\.5 million in the final year of implementation, the final value of the World Bank lending to the project was approximately US$118\.4 million, or just over 20% less than the original projected budget\. 5\. The project Economic and Financial Analysis (EFA) at completion finds an economic Net Present Value of VND 1,489 billion, equivalent to US$64\.1 million, and an Economic Internal Rate of Return (EIRR) of 29%, showing positive and substantial returns to investment\. While both infrastructure and LEG investments were modelled, the analysis finds that most project benefits are derived from the community infrastructure investments, consistent with the fact that infrastructure investments accounted for a larger share of the budget\. The project EIRR at completion was higher than the design estimate of 15%\. 6\. Moreover, it is important to note that the project had several benefits that could not be quantified\. These included the increased participation of women in decision making processes, nutritional benefits for the project communities (the one key aggregate outcome measure that did show a statistically significant net positive increase between treatment and control communes) and improvements in the quality of life of the community inhabitants as well as increased capacity and the skills gained from the various trainings provided by the project\. In addition, only two types of infrastructure investments were modelled, so the estimate of benefits are considered conservative\. 7\. However, the EFA at completion relies to a large extent on assumptions or evidence from a relatively small number of cases and data rather than systematic evidence from the project M&E and Management Information System\. Specific data on production or outcomes as a result of infrastructure investments is limited\. For instance, 61 See: The Central Highlands Poverty Reduction Project Endline Report; Mekong Development Research Institute, Hanoi, 2020\. Page | 53  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) while all the LEG investments and part of the infrastructure investments aimed to increase agricultural productivity, the project did not seek to systematically measure these improvements in agricultural productivity\. In addition, even though roads were the main investment of the project, accounting for 43% of total IDA project expenditures, the Results Framework did not collect evidence on the returns from road investments, and the road models are very sensitive to some of these assumptions\. While the demand-driven nature of the project made anticipating which specific areas of production or measures of infrastructure improvements should have been monitored from the project’s beginning, after one or two years adjustments could have been made to the M&E system to start collecting information on the most common types of investments\. 62 While some efforts were made in this direction, including the study carried out on the livelihoods activities, this assessment was insufficient to provide adequate evidence for a robust efficiency analysis\. 8\. In summary, the returns from the project as measured through the EFA are positive, but the evidence on which the EFA is based relies on limited data and assumptions of the benefits of project investments at the outcome level\. The project efficiency is rated as SUBSTANTIAL given that: a) the results are robust enough to more conservative assumptions and b) not all project benefits could be quantified and as such the project benefits are likely to be higher than the more conservative estimates of the sensitivity analysis in practice\. 9\. Project costs and duration\. The project lasted 65 months, as foreseen in the design\. Project costs were lower than foreseen in the design, as the Government requested the cancelation of SDR 11\.5 million in 2019\. By project close, and as a result of exchange rate losses and the noted cancelation, total World Bank financing of the project was worth approximately US$118\.4 million, or 80% of the original estimated financing\. 10\. Project management costs, amounting to 13\.5% of total costs, were above original estimates due primarily to the reduction in overall project investments (in part given that management costs tend to have a substantial fixed element such as technical assistance or systems development, and tend to be front-loaded)\. However, the project’s administrative efficiency is still considered acceptable based on global CDD average project management costs\.63 Indeed, higher management costs would have been expected for CHPov given its complex (multi-sectoral) nature and the challenging context, including geographically isolated areas and marginalized beneficiary groups, in which it operated\. 11\. Costs per beneficiary\. The total number of households (HH) amounted to 141,897 (638,538 beneficiaries) compared to an initial target of 120,000 households (540,472 beneficiaries)\. Because project expenditures were also lower than planned, the cost per household was quite low, at US$880 per household compared to US$1,328 per household at design—which was closer to actual per beneficiary household costs of the Northern Mountain Poverty Reduction Project, P113493, (at US$1,294 per HH)\. While CHPov has significantly lower unit costs for LEGs, it is difficult to conclude if the support was more efficient in the Central Highlands region\. Given the longer time period of implementation under the Northern Mountains project it is possible that the higher unit costs reflect an increased level of follow-up assistance provided to existing groups, thus increasing the per unit costs of support\. It is also possible that with the greater overall coverage of households under Northern Mountains (82% of beneficiary households versus 45% under CHPov) the Northern Mountains project was reaching a greater percentage of the most isolated households that would have cost more to serve\. However, the EFA was not able to further test these hypotheses\. 62 Indeed, such was recommended at the MTR but was rejected by Government for reasons of audit challenges and workload of community facilitators\. 63 Based on analyses done for World Bank Report No: ACS13685 Islamic Republic of Afghanistan; Strategic Directions for the National Solidarity Program, that looked at six large-scale and long-running national CDD programs\. Page | 54  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 1\. Costs by Component and Financier Table 2\. Cost per Household and Beneficiary Unit Planned Actual Beneficiary districts Unit 26 26 Beneficiary communes Unit 130 130 Beneficiary households (HH) Unit 120,000 141,897 Beneficiaries Unit 540,472 638,538 Total cost per HH US$ 1,328 892 Total cost per beneficiary US$ 295 198 IDA cost per HH US$ 1,250 846 IDA cost per beneficiary US$ 278 188 12\. Costs per beneficiary are higher for Component 2 than for Component 1, mostly because Component 1 beneficiaries are considered to include the entire population of villages having at least one infrastructure investment (regardless of type) throughout the project cycles\. Table 3\. Beneficiaries by Component Page | 55  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 13\. Error! Reference source not found\. and 14\. 5 show the scale and costs for community infrastructure projects and district infrastructure projects\. They show that district level infrastructure projects were generally larger but also that they had much higher unit costs compared to community infrastructure\. This is because the types of investments were different\. For instance, roads at district levels tend to be roads designed to support larger/heavier vehicles thus requiring additional inputs\. Table 4\. Scale and Costs of Community Infrastructure Projects Cost per sub- Number of sub- Average scale Cost per unit, Cost per unit, Cost per sub- Community Infrastructure Beneficiary HH Unit project, million projects per sub-project million VND USD project, USD VND Roads 1,032 155,255 km 0\.4 1,506 649 64,803 27,941 Schools 78 13,269 classrooms 1\.3 381 479 16,404 20,610 Irrigation 90 10,883 ha 15\.0 38 573 1,643 24,653 Water supply system 146 10,927 households 74\.8 6 442 254 19,027 Other 16 2,555 1\.0 927 927 39,905 39,905 Table 5\. Scale and Costs of District Infrastructure Projects Cost per sub- Number of sub- Average scale Cost per unit, Cost per unit, Cost per sub- District Infrastructure Beneficiary HH Unit project, million projects per sub-project million VND USD project, USD VND Roads 141 94,893 km 1\.6 2,268 3,557 97,607 153,113 School 5 647 classrooms 5 288 1,383 12,399 59,517 Irrigation 18 2,427 ha 21 126 2,673 5,421 115,043 Water supply 4 445 households 111 22 2,418 935 104,071 15\. Costs per output appear to be high in comparison to the Northern Mountains Poverty Reduction Project, but this might reflect higher infrastructure costs in the Central Highlands or differing technical specifications, rather than an efficiency issue\. \. Discussions with the project engineer suggest that unit costs in Central Highlands were consistent with national standards and the lower costs in Northern Mountains were the result of lower technical standards\. In addition, a comparison of road costs in Lao Cai (in the north) shows comparable unit costs\. It is also noted that the data used to compare road costs are per linear kilometer, when a comparison of per square meter might be more appropriate to better see differences in technical specification\. However, such data was not available at the time of the EFA\. Economic and Financial Analysis Overview of the Methodology and Activities Modelled 16\. This section presents the hypothesis and methodology used to construct the EFA of the CHPov in the context of the ICR\. The objective of the analysis is to estimate the costs and benefits of the project from the perspective of project beneficiaries (financial analysis) and from the perspective of society and the economy (economic analysis), to assess the viability of the project\. 17\. This section will first introduce the methodology of the analysis, including the activity models used to represent project investments and the main assumptions behind these models\. The section will then present the specific parameters and results of the financial analysis, followed by the specific parameters and results of the economic analysis\. 18\. The methodology is a cost-benefit analysis that estimates the costs and benefits of the project and the activities supported by the project\. The data used for the analysis primarily come from the following sources: i) data provided by the Project Management Unit on outputs and costs per output; ii) data collected by an M&E consultant on the outcomes from infrastructure projects, mostly on irrigation; iii) business plans prepared as part of the project; iv) the Rapid Assessment of Livelihood Enhancement Group Outcomes; and v) discussions with Page | 56  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) various people involved in the project\. 19\. The benefits of the project primarily come from: • Component 1: Village and Commune Infrastructure Development; • Component 2: Sustainable Livelihoods Development, with the food security and nutrition and livelihood diversifications Livelihood LEGs sub-projects and the market linkage LEGs sub-projects; • The connective infrastructure in Component 3: Connective Infrastructure Development, Capacity Building and Communications\. 20\. To quantify some of the benefits of the project, activity models were prepared to represent the main investments enabled by the project and their associated benefits\. For each model, a without project (WOP) situation is compared a with project (WP) situation\. In the WOP situation, we consider the situation of beneficiaries prior to the project intervention while in the WP situation we consider the beneficiaries’ investments and activities enabled by project support\. A model is considered profitable if the beneficiaries can derive more income following the project investments\. Because all project activities were for groups, LEGs and communities, each model captures the number of households, as described in Error! Reference source not found\., either based on the average number of households per type of LEG, or of the community\. Table 6\. Summary of Models MODELS WOP WP HH per model Livelihood Enhancement Groups Paddy rice Lower yield, lower inputs Training, higher yield and more inputs 15\.0 Maize Lower yield, lower inputs Training, higher yield and more inputs 15\.0 Poultry Seasonal labour Poultry 15\.0 Pig breeding Seasonal labour Pig breeding 15\.7 Goats Seasonal labour Goat rearing 15\.1 Market Linkage Groups Sub-Projects Pineapple: market linkages Lower yield, lower inputs Training, higher yield and more inputs 46 Community infrastructure Irrigation non-irrigated land Higher yield and more double cropping 121 Roads No road Additional crop land, higher prices 150 District infrastructure District irrigation non-irrigated land Irrigation in place, higher yield and more double cropping 135 District road No road Additional crop land, higher yields and prices 673 21\. The EFA is based on the assumption that the control group of the end-line survey benefitted from additional government investments and cannot be used as a counterfactual for the EFA\. It is also based on the fact that the end-line data does not adequately measure improvements at the activity level, because it does not distinguish beneficiaries for each type of support received\. In other words, while there is end-line data on rice yields, this data includes all the households that received project support, but we do not have the yields for the households that received rice LEGs sub-projects more specifically\. Hence, while the baseline data is used, the end-line data is not used for the purpose of the EFA\. Therefore, other sources of data were used to estimate the improvements due to the project investments\. LEGs and Market Linkage Models 22\. In the project, LEGs were categorized as Food Security and Nutrition LEGs or Livelihood Diversification LEGs for Sub-Component 2\.1 and as Market Linkages LEGs for Sub-Component 2\.2\. Food Security and Nutrition LEGs were more likely to focus on paddy, maize and poultry while Livelihood Diversification LEGs were more likely to invest in pigs, goats and other crops\. Hence, in the models, it is considered that the paddy and maize LEGs are Page | 57  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) undertaken by producers who already grow these crops\. The livestock activities are considered as new activities, and the without project situation is simply seasonal labor, to reflect the additional labor time required for livestock activities\. 23\. LEGs refer to groups of activities while sub-projects refer to project-financed activities for each LEG\. There were a total of 4,902 sub-projects – 4,885 under Sub-Component 2\.1 and seventeen under Sub-Component 2\.2 – and 4,383 LEGs – 4,337 under Sub-Component 2\.1 and 46 under Sub-Component 2\.2 (see Error! Reference source not found\.)\. Of this total of sub-projects, some LEGs received two rounds of support-- 542 Food Security and Nutrition LEGs and 6 Income Diversification LEGs\. Table 7\. LEGs and Sub-Projects 24\. Representative models were built for the most common LEG investments\. These models aim to capture a typical sub-project, which would in practice vary based on the local context, number of beneficiaries and specificities of the project\. The size of the LEG investments, described in units of production as shown in Error! Reference source not found\., are based on project data compiled for the ICR, with some discrepancies, as shown in Error! Reference source not found\. The full costs of investments64 in the representative models are slightly higher than the project data investment costs, 17% higher on average, but this is considered acceptable given that business plans are likely to underestimate beneficiary contributions\. It was not always possible to change the number of units of production in the models, because of lack of information on how costs might vary if units of production increase or decrease\.65 Table 8\. Production Units and Scale of the Models MODELS Unit Size Livelihood Enhancement Groups Paddy rice Hectares 6\.4 Maize Hectares 10\.6 Poultry Chickens 500 Pig breeding Pigs 43 Goats Goats 26 Market Linkage Groups Sub-Projects Pineapple: market linkages Hectares 12 64 Includes all the costs of the sub-projects for the first year, including training and excluding labor costs\. 65 For instance, how the costs of a pig pen or a training would vary if the number of pigs or beneficiaries changes\. Page | 58  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 9\. Average Cost per LEG, VND Average cost per LEG sub-project, VND Cost in the model Project cost Rice 145,612,278 159,292,825 -9% Maize 179,725,696 159,292,825 13% Pig 264,318,311 139,396,454 90% Goat 120,082,515 125,855,685 -5% Poultry 134,212,658 136,057,717 -1% Average, modelled activities 168,790,291 143,979,101 17% 25\. The without-project situation for the rice and maize models are based on the data on annual crops collected in the baseline survey\. The yield reflects the yields observed in the baseline survey, an average of the poor household sample and the full sample\. The budgets for fertilizer and seeds also reflect budgets of annual crops in the baseline survey\. 26\. The with-project situation reflects the business plans, with some adjustments\. In particular, the yields for the rice and maize LEGs are more conservative than the target yields in some of the business plans collected, which included yields of 6 tons/ha for rice and 7 tons/ha for maize\. On average in project provinces, the rice yields reach 5\.4 tons/ha and the maize yields reach 5\.3 tons/ha\.66 Here, the analysis assumes that project beneficiaries go from yields below these averages (as confirms the baseline), showing that the project successfully target poorer households, to yields above these averages, as shows Error! Reference source not found\. Table 10\. Yield Parameters for LEGs Yield parametres for LEGs, Kg/ha WOP, 1 WOP, 2-5 WOP, 6-10 WOP, 1 WP, 2-5 WP, 6-10 Rice 3150 3150 3150 4400 5500 5500 Maize 3200 3200 3200 4800 6000 6000 % increase Rice 40% 75% 75% Maize 50% 88% 88% 27\. For the goat model, the Livestock Sector Investment Policy Toolkit67 was used to model a herd that would keep a more or less constant size, starting with 24 female goats and 2 male goats\. For the pig and poultry models, all animals are assumed to be sold after a few months and no herds are modelled\. The pig model considers that pigs are bought for breeding and that the parents are also eventually sold\. The poultry model considers that chicks are purchased and sold for meat after three months\. 28\. Mortality rates were included in all livestock models\. For pigs and poultry, no data was available and a standard mortality rate of 5% was assumed\. For goats, the mortality rate was considered to be between 6% and 7%, depending on the age of the goat\. The additional impact of the swine fever on pig mortality was modelled in the economic analysis, as will be explained in that section\. Infrastructure Models 29\. Investments for infrastructure are based on data provided on outputs provided by the project and costs per output\. Error! Reference source not found\. summarizes the production units and the scale of the models, based on these data\. Annual maintenance costs are assumed to be 5% of the investment cost and the lifespans are 66 Simple average for all provinces\. 67 See http://www\.fao\.org/3/ca7635en/CA7635EN\.pdf\. Page | 59  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) considered to be ten years\. The benefits are assumed to start the year following the investment, but there are 10 years of benefits after the investment, so the models cover eleven years\. Table 11\. Production Units, Investment Costs and Scale of the Models Community infrastructure Unit Size Cost per Unit, VND Community infrastructure Irrigation Hectares 15\.0 38,164,203 Roads Km 0\.4 1,505,541,146 District infrastructure District irrigation Hectares 21\.2 125,941,487 District road Km 1\.6 2,267,677,413 30\. For the irrigation models, the models are similar for the community irrigation scheme and the district irrigation, and only the size and cost of the investment scheme differ, based on project data\. This does not reflect the fact that the benefits for district irrigation would be different in practice, because the underlying investment is more structural\. 31\. The benefits of the investment are the increase in yields due to better water management and the increase in the surfaces on which producers can grow two crops per season\. The improvements in yields and increased crop surfaces are based on evidence from 13 different irrigation schemes in three provinces where paddy rice was primarily grown\. The data revealed an increase in the planted area, from 91% of the area to 100% for the winter- spring crop and from 27% of the area to 75% for the summer-autumn crop\. For the community irrigation, the model is based on paddy production\. For district irrigation, it is based on both paddy and some pepper production in the summer-autumn crop\. Yields also increased by 25% during the winter-spring crop and 12% for the summer- autumn crop for paddy, and by 40% for pepper\.68 In addition, the irrigation schemes would have increased water conservation and reduced soil erosion, but these benefits were not quantified\. 32\. For the road models, the models are also similar for the community roads and the district roads, and only the size and cost of the investment differ, based on project data\. As for irrigation, the investments would have been more varied in practice, but there was insufficient information to accurately capture the wide range of investments\. As noted above, the evidence on the benefits was only anecdotal\. As a result, the models are based on limited data and assumptions on the benefits that the roads enabled including i) an increase in yields of 10%; ii) an increase in products being sold of 50%, because of the increase in yields and the assumption that less frequent harvests prior to the roads led to below-potential harvested quantities; iii) a decrease in post-harvest losses for transported goods, from 10% to 5% and iv) savings from reduced transport time\. The kilos of product are assumed to be valued at VND 7,000 per kilo, which is higher than the price of rice and maize per kilo, but lower than the price of cash crops such as coffee and cashew nuts\. Financial Analysis Methodology and Assumptions 33\. For the financial analysis, each model compares the costs and benefits of the beneficiaries’ activity with project and without project\. This analysis aims to ensure that project beneficiaries were able to derive benefits from the proposed investments and to sustain the activities\. In this project, the financial analysis was only done 68The evidence from the sites showed that paddy was mostly grown, with alternative crops including pepper and coffee\. Because no data was available on production costs per hectare for pepper, the model assumes a constant production area with and without project\. The production costs are therefore constant and the value of the additional yield of pepper is considered as additional revenue\. The additional production area is therefore considered to be paddy rice\. Page | 60  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) for the LEGs and the market linkages groups, because infrastructure investments are considered to be public investments\. 34\. In the financial analysis, each model was prepared with all the costs, including the training costs for the LEGs and the labor requirements and costs\. Most costs are valued at market price\. The production consumed by households is also valued at market price, and family labor is valued at the opportunity cost of labor, estimated at VND 80,000 per day\. To compute the indicators of profitability for each model, the training costs and labor opportunity costs were excluded\. 35\. A discount rate of 10% was used for the analysis and all the benefits are assumed to start in year 1, together with the investments, because most of the project support for LEGs, training and inputs, would have to take place in the context of the activity\. Results 36\. The WP situations all have positive margins in the second year (after the initial investments), that range from US$63 per household for poultry to US$635 per household for goat rearing\. Returns to labor are also higher than a day of work’s wages, which are about VND 120,000 per day\. 37\. When considering the incremental margins, which compare the WP situation to the WOP situation, all models are profitable with the exception of rice\. According to the baseline survey, most households seemed to already use significant quantities of fertilizer on their rice\. The marginal returns to additional inputs are likely to be low at that point\. Hence, while yields increase as a result of the training and additional costs, the costs increase more, resulting in a lower margin\. For the other models, the Net Present Value (NPV) of the additional margin ranges from US$7,478 per group in the maize model to US$ 31,442 for goat LEGs and US$16,768 for the pineapple market linkage group\. The goats rearing model is particularly profitable because no feeding costs are included, as the households would typically cut and carry the food\. The labor costs of this cut-and carry process are not included in the financial results, which is why the model seems more profitable\. The pineapple market linkage group represents a higher-investment higher-return activity\. The Internal Rates of Return are not particularly meaningful for the LEGs, as the benefits from the model are assumed to start in year 1 together with the investments69, so the initial cash flow is positive or only mildly negative in most models\. Table 12\. Results of the Financial Analysis Margin per Results of the Financial Margin per Return to Return to NPV, '000 HH (yr 2), NPV, USD IRR Analysis HH, USD labour, VND labour, USD VND VND Livelihood Enhancement Groups Paddy rice 2,659,950 114 152,871 7 (275,472) (11,857) NA Maize 5,070,000 218 281,667 12 173,731 7,478 181% Poultry 1,475,109 63 130,040 6 146,616 6,311 NA Pig breeding 3,483,571 150 248,246 11 167,820 7,223 87% Goats 14,764,180 635 275,522 12 730,473 31,442 NA Market Linkage Groups Sub- Projects Pineapple: market linkages 13,727,771 591 440,208 19 389,575 16,768 28% Economic Analysis 69 The investments correspond to inputs and a training, so they would be concomitant with the activity\. Page | 61  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Methodology and Assumptions 38\. The economic analysis compares the situation with-project to the situation without-project, similarly to the financial analysis\. The additional benefits are the benefits attributed to the project\. The analysis is done over a 10- year period with a discount rate of 5%, reflecting the interest rate on medium term Vietnamese bonds\. 39\. In addition to the models of the financial analysis, the infrastructure models were added to the economic analysis\. 40\. Economic prices were computed by removing taxes, subsidies and other transfers\. A shadow exchange rate was computed using the formula below\. All the economic models are based on economic prices\. All the costs are included in the economic models, including training costs and the opportunity cost of labour\. Figure 3 - Computation of the Shadow Exchange Rate Table 13\. Conversion Factors Financial Economic Conversion Conversion Factors price/index price/index factor Import substitute or import 1\.0 1\.0 1\.0 Import substitute or import 1\.0 1\.0 1\.0 Export good 1\.0 1\.0 1\.0 Non-tradable 1\.0 0\.9 0\.9 Labour 120,000 80,000 1 Labour opportunity cost 80,000 80,000 1 FX 23,233 23,603 1 41\. Following the conversion of financial prices into economic prices, the additional benefits of the modelled activities were aggregated in line with the activities of the project\. In the case the Sub-Component 2\.1, the modelled activities only represented about 55% of all the LEGs supported\. Non-modelled activities included cattle and fish\. In the aggregation, the non-modelled LEGs were included and distributed among the modelled LEGs, for a total of 4,337 LEGs, in line with the project output\. The LEGs rather than the Sub-Projects were aggregated, to avoid double counting LEGs that received two rounds of sub-project support\. 42\. For market linkages, the phasing only accounts for twelve models/LEGs, even if the project output is 17\. This was a necessary adjustment to avoid inflating the total investment in Component 2\.2, because the investment in the modelled activity was higher than the average investment for the 17 sub-projects\. 43\. The phasing of activities represents project phasing where data were available\. Where data on the years during which each investment was made was not available, in the case of the market linkage groups and the district infrastructure, the phasing assumes that activities were phased linearly from 2015 to 2019\. Page | 62  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 14\. Phasing of Project Activities PHASING 2014 2015 2016 2017 2018 2019 Total Livelihood Enhancement Groups - 728 1,040 1,072 521 976 4,337 Paddy rice - 53 76 78 38 71 316 Maize - 106 152 156 76 142 633 Poultry - 84 120 124 60 113 502 Pig breeding - 246 351 362 176 330 1,464 Goats - 239 341 351 171 320 1,421 Market Linkage Groups Sub- Projects - 239 341 351 171 320 1,421 Pineapple: market linkages - 3\.0 3\.0 3\.0 3\.0 - 12 Community infrastructure - - - - - - - Irrigation - 87 90 291 408 5 881 Roads - 87 122 466 271 86 1,032 District infrastructure District irrigation - 4\.5 4\.5 4\.5 4\.5 - 18 District road - 35\.3 35\.3 35\.3 35\.3 - 141 44\. To take into consideration the fact that not all LEGs would succeed or be sustainable, a success rate was added\. The success rates are 70% for the LEGs, with the exception of goat rearing, where 50% was used\. This reflects the fact that goat rearing was both very popular and profitable among LEGs that successfully implemented the activity, but also that many households did not manage to sustain the activity and many goats died prematurely\. The success rates for infrastructure are higher, 90%, as they require fewer commitments from beneficiaries\. In the case of rice, it is considered that beneficiaries give up the activity70 after one year because it is not profitable\. Hence, the benefits for that activity are overall negative\. 45\. In addition, for pig breeding, the aggregation shows a decrease of 19% of benefits from 2019 onwards\. This captures the impact of the swine fever, which resulted in a decrease in the pig population of 19% compared to 2018\. 46\. Most project costs were already included as costs in the models (i\.e\.- training costs for LEGs, infrastructure costs, etc\.)\. However, some costs, mostly training and capacity building in Component 3 and project management in Component 4, were not included\. While no data was available on disbursement by activity, these additional costs are estimated to represent at least Sub-components 3\.2, Sub-Components 3\.3 and Component 4, so about 25% of total disbursements\. These costs were added as cost to the final economic analysis\. An additional VND 10 billion, approximately US$430,000, were considered as costs from 2021 to 2023, to account for potential future costs\. 70 This is does not mean that they stop growing rice, but rather that they stop adopting the improvements suggested by the project\. Page | 63  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 15\. Adoption/Success Rates Adoption/success rates 2014 2015 2016 2017 2018 2019 Total LEG Paddy rice 70% 37 53 55 27 50 222 Maize 70% 74 106 109 53 100 444 Poultry 70% 59 84 87 42 79 352 Pig breeding 70% 172 246 253 123 231 1026 Goats 50% 119 170 176 85 160 711 Market Linkage Groups Sub-Projects Pineapple: market linkages 80% 2 2 2 2 0 10 Community infrastructure Irrigation 90% 78 81 262 367 5 794 Roads 90% 78 110 420 244 77 930 District infrastructure District irrigation 90% 4 4 4 4 0 17 Community road 90% 32 32 32 32 0 128 Results 47\. The roads and irrigation models have positive returns, and community roads in fact account for 53% of total project benefits\. Unfortunately, the model is not based on systematic data, and the model is very sensitive to assumptions, and in particular the 50% increase in products harvested and sold at the market\. This is discussed in more detail in the sensitivity analysis\. On the other hand, the models do not capture some benefits of the investments, including increased resilience from floods, water conservation and soil protection for the irrigation infrastructure\. 48\. Most of the benefits, 81%, are derived from the infrastructure projects\. The LEGs and market linkage groups only account for 19% of benefits\. This can be explained by a number of factors that include: i) infrastructures were the largest cost component of the project by far and ii) the lower success rates and sustainability of LEG groups (see for instance the rice models and the swine flu)\. 49\. Using these assumptions, the project is found to have an economic NPV of VND 1,489 billion, equivalent to US$64\.1 million\. The EIRR is 29%\. Error! Reference source not found\. summarizes the economic benefits\. 50\. Because the EFA is so sensitive to assumptions in the road models, a sensitivity analysis was conducted to assess the impact of i) a higher price assumptions for goods sold at the market, of 10,000 VND per kilo and ii) a more limited increase in sales\. The results of the analysis are summarized in Error! Reference source not found\.7\. In all scenarios, the EIRR is above the discount rate of 5%\. In scenario 3, the district roads have negative returns, which impacts the overall project returns\. Table 16\. Sensitivity Analysis 51\. One major assumption in the analysis is that all the roads are considered to be field to market roads, or at the very least to lead to increased yields and sales, while in practice the roads would be more varied\. On the other hand, the community-driven approach implies that the roads would have been assessed as necessary for the Page | 64  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) community, with some kind of benefits\. 52\. The economic and financial analysis at design estimated that the project EIRR were 15%\. The final EIRR is higher than this initial assessment\. Table 17\. Economic Analysis Results Page | 65  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Central Project Coordination Office comments on World Bank ICR Report, (draft version of 2020-08-14) General comments: 1\. This is a good version of the report\. GNTN is rated as Moderately Satisfactory (compared to the Moderately Unsatisfactory in May version)\. 2\. We note the following ratings, which we agree with: a\. Relevance of PDO: Substantial b\. Achievements of PDO: Substantial (outcome 1: Substantial; outcome 2: Substantial; outcome 3: Modest) c\. Efficiency: Substantial 3\. Very good lesson-learned and recommendations (which we endorse): a\. At design: clarification of indicators and sub-indicators in the RF b\. At implementation: MIS, agriculture advisory services c\. At post: sustainability of infrastructure works after the project completion d\. Policy level: programmatic approach/sectoral support vs a single project Detailed comments: • Page 7, Table 3, No\. 5: Results not considered\. Comment: It should be treated similarly as No\. 8 (no\. LEGs formed) • Page 7, Table 3, No\. 5: Partially achieved\. Comment: Definition of “Partially achieved” and “Not achieved” should be added and consistently used\. • Page 8, para #27: Over the course of the 5-year implementation phase, the overall average of planned versus completed infrastructure projects stood at …%\. Comment: 76\.24% (per CPO calculation) • Page 28, Annex 1, RF #5: Not measured\. Recommendation: WB & CPO can provide number of planned sub-projects and number of completed sub-projects as an alternative way of measurement • Page 28, Annex 1, RF #6: YES (overall avg\. 32\.1%)\. Comment: Again, definition for “Yes” and “Partial” should be added and consistently used\. • Page 29, Annex 1, RF #7: 25%\. Comment: Increase percentage Page | 66 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) • Page 29, Annex 1, RF #7: YES\. Comment: Cannot be “Yes” • Page 29, Annex 1, RF #8: YES\. Comment: As a comment above, this is also “no target”, but measured • Page 29, Annex 1, RF #12: 60,384\. Comment: Pls refer to PCR: client days: 56,961 (person days); women = 29\.42%\. • Page 29, Annex 1, RF #12: 2,902\. Comment: Pls refer to PCR: total number of classes organized = 542; Only take into account activities funded by SC 3\.2 • Page 29, Annex 1, RF #13: 0%\. Comment: Pls refer to PCR: delayed/cancelled procurement = 1\.32% • Page 31, para #2: However, the baseline and end-line surveys interpreted this indicator differently and sought to compare changes in development priorities as an indication that priorities have been met\. Comment: It is not clear to the CPO what this statement means\. • Page 33, para 8: the above indicator is not considered to have been achieved\. Comment: This conclusion is different from the No\.4 in RF table\. • Page 33, Table 3: Number of infrastructure sub-projects implemented\. Comment: WB and CPO now can provide this data\. Therefore, the roughly calculated figure is 76\.24% completed vs 100% planned\. Page | 67  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 6\. CHPOV IMPACT EVALUATION SUMMARY71 1\. Per the requirements of the IDA-16 impact evaluation initiative, a rigorous impact evaluation (IE) was developed for CHPov\. The evaluation of the project’s impact uses a difference in difference with matching methodology\. Propensity score matching is used first to select comparison communes within the project provinces and second to generate household weights in the difference in difference regressions to estimate project impacts on outcomes\. The analysis is performed using a panel data set from a baseline survey conducted in 2014/15 and an end line survey conducted at the end of 2019\. Evaluation design 2\. With project intervention areas purposefully selected, the impact evaluation follows a non-randomized clustered evaluation design\. The commune is the treatment unit given that resources went to communes or village level subprojects which benefited all households in the area\. The evaluation treatment group includes all 130 project communes to maximize the statistical power and representativeness of estimates\. We apply statistical matching procedures to select control communes given that a regression discontinuity design is not practical\. 3\. The process of selecting project communes presents district-level and commune-level discontinuities in principle, but a regression discontinuity design is not an appealing evaluation strategy because of a large bandwidth problem\. Applying the district-level discontinuity selects 26 districts that have a higher poverty rate than project communes but have the lowest rate of poverty among the 54 non-CHPov project districts in the six provinces\. Applying the commune-level discontinuity selects five communes that have the highest aggregate selection score among the seven non-project communes in each of the 26 districts\. Identification in regression discontinuity designs requires communities on either side of the threshold to be comparable in all dimensions, except the treatment\. This is unlikely to be satisfied in either case given the proportionately large bandwidths\. Poverty rates in the 26 poorest districts ranged from 43 percent to 86 percent, and those in the 26 poorest in non- project districts ranged from 27 to 43 percent for example\. Narrowing the bandwidth to solve this problem significantly reduces the sample size, external validity, and statistical power\. This makes a regression discontinuity design less attractive compared to statistical matching techniques\. 4\. Instead, the evaluation selects the comparison communes using propensity score matching (PSM)\. This approach approximates randomization through statistical modelling of the probability of a commune being assigned to a program, i\.e\. the propensity score, to identify non-project communes similar to project communes in observable characteristics\. Pairs of treatment and non-treatment communes are matched based on closeness of their propensity score\. A critique of PSM is that its accuracy is limited by the existence of non-program units fundamentally comparable to program units and the ability of the propensity score model to identify them\. Slight misspecifications of the statistical model can result in substantial bias of estimated treatment effects for example (Kang and Schafer, 2007 and Smith and Todd, 2005)\. Checking for balance between treatment and comparison groups in relevant baseline indicators, then adjusting the model to improve balance, and re-match, can guard against such misspecifications but it also can aggravate the reduction of bias in estimated treatment effects if improving balance on some covariates increases bias in others (Hainmueller, 2011 and Imai and Ratkovic, 2013)\. 5\. The evaluation applied the nearest neighbor propensity score matching to select 130 comparison communes\. We estimate the propensity score by running a logit regression model on project and non-project communes in the six CHPov provinces on data from the Rural Agriculture and Fishery Census (RAFC) conducted in 71 This annex is drawn from the World Bank report “Impact Evaluation of the Central Highlands Poverty Reduction Project in Vietnam”\. World Bank\. 2020\. Page | 68  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 2011\. This data clearly shows that treatment communes have a significantly higher share of ethnic minority population, higher incidence of poverty and more remote but less populated than unmatched non-project communes, hence the need to carefully select a comparable set of communes for the evaluation\. In addition to variables factored in project commune selection criteria (i\.e\. poverty rate, ethnic minority population share and no plan for hydropower development in the commune), outcome variables and characteristics expected to affect project outcomes are included along with other geographic data\.72 Primary outcomes 6\. The evaluation focuses on those project results indicators measured based on changes compared to non- project areas as outlined in the project document\. These indicators are: • Proportion of poor villagers whose identified development priorities are satisfied • Percent change in food and non-food consumption of poor households • Percent change in access of poor households to services, infrastructure, and utilities • Percent change in productive and durable assets of households participating in LEGs • Percent change in dietary diversity of poor households\. • Percent change of transport connectivity index\. Data and methods 7\. The evaluation uses panel data from the baseline and end line surveys funded by the project to measure the project results indicators, including those derived from this evaluation\. The baseline survey was conducted between December 2014 and January 2015 before the full roll-out of project activities\. The end line survey was conducted between October and November 2019, just before the project completion date of December 2019, which was also the deadline for completion of all project funded activities, including this survey\. 8\. Data collection consisted of two sets of instruments\. One set is the Household Questionnaires with variants for male and female respondents\. This collected information on household characteristics, education, health, income sources, agricultural production, employment, consumption and households’ assets and production tools\. It also included questions on access to basic public services, satisfaction with local infrastructure, and participation in the decision-making process for selecting infrastructure works\. The other set of instruments was the Individual Local Leader Questionnaires administered to a Commune People’s Committee representative and a village-level representative\. Both gathered the respondents’ general information (such as age, gender, ethnicity, education and position details), access to basic services and amenities (like education, health care, markets, administrative center) in the commune/village and support programs to the commune/village two years prior to the baseline (for the baseline survey) and during 2014-19 (for the end line survey)\. Both the baseline and end line surveys applied the same questionnaires except for some sections where questions not relevant for measuring the outcome indicators were trimmed\. The end line survey also included new questions to capture participation in LEGs\. Sampling strategy 9\. The surveys were implemented in 130 project and 130 matched non-project communes with the sample equally split between them\. A two-stage sampling process was followed to select households\. At the first stage, 780 villages were selected by systematic, equal probability sampling by ordering villages in each commune by their 72 Including population, land area, percent of land allocated to annual and perennial crops and forestry; major and minor road density, major and minor river density, and average distance to commune, district and province center and mean and variances of: elevation; slope; rainfall; temperature; and sunshine hours and the existence of development projects and programs by the government and other donors\. From a long list of potential covariates, the final model was estimated using backward selection logit regressions to keep variables that are statistically significant at the 10% level (e\.g\. Caliendo and Kopeinig, 2008)\. Page | 69  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) village code and systematically selecting three villages in each commune\. Three instead of just one village were selected per commune to reduce the intra-cluster correlation\. A new listing of households in the 780 villages was conducted, gathering information on names of the spouse and head of household, ethnicity of the household head and whether members of the household spoke the Kinh (majority) language\. The listing covered a total of 87,878 households\. Listed households from each commune were first ordered by ethnic grouping codes (for indigenous ethnic minorities, migrant ethnic minorities and Kinh), second by village code and then by household code\. Then a systematic sample of 14 households was selected from the ordered list of households\. To achieve an equal gender split, households were randomly assigned a gender of the respondent to have 7 males and 7 females’ respondents per village, with respondents being either a head-of-household, the spouse of head-of-household or a responsible adult\. 10\. The baseline sample consists of 3,640 households but the end line survey sample only included 2,600 households due to budget limitations\. We randomly selected 10 out of the 14 households per village in the baseline survey for interviewing in the end line survey\. This is better than selecting paired household using propensity score matching for three reasons\. First, 72 percent of the control households would be selected regardless, meaning less gains from matching\. Second, some of the remaining 28 percent control households would serve as replacements due to panel attrition, ruining the pairing and thus reducing the gain from PSM\. Lastly, PSM could have resulted in uneven sample sizes across communes with some of the 130 control communes ending up with too few or no households at all in the sample\. Results 11\. The impact evaluation, based on a difference in difference approach combined with propensity score matching methodology, portrays mixed results on the impact of the project (Table 1)\. Estimates suggest the project improved household dietary diversity by 6\.3 percent relative to the non-project communes among poor households and by 3\.5 percent for all households\. But no impact is detected on the other aggregate primary outcomes of the project namely, productive assets owned, transport connectivity, access to services, infrastructure, and utilities or share of villagers’ investment priorities that were fulfilled\. These outcomes significantly improved in both project and non-project areas, but the gains were not statistically different between the CHPov project and non-project communes\. Table 1: Summary of project impacts on primary outcome indicators Baseline End line Change Project Development Outcomes Value Value relative control group Poor villagers’ development priorities satisfieda - - 1\.1 % Food consumption of poor households (VND ‘000) 3769 6083 4\.1 % Non-food consumption of poor households (VND ‘000) 2831 5415 2\.9% Access of poor households to services, infrastructure and 0\.03 0\.02 0\.03 utilities (index: 0 – 1) Productive and durable assets of households participating in 42\.9 49\.9 -5\.3% Livelihood Enhancement Groups (index: 0 – 100) Dietary diversity of poor households (index: 0 – 1) 6\.7 8\.1 6\.5%** 2\.1 percentage Transport connectivity index (index: 0 – 100) 55\.2 60\.5 points Notes: The satisfaction indicator is defined as the share of villages who expressed preference for a difference development priority between the start and end of the project\. Page | 70  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 12\. Some positive impacts on sub-indicators on access to services and infrastructure are found, as well as reranking of some priorities and improvements in key livelihood outcomes\. Positive impacts of the project are detected on increased accessibility to markets for poor households and accessibility to the commune center and district center for all households in project communes relative to comparison non-project communes\. A re-ranking of some of villagers’ top priorities relative to the control groups is observed, suggesting that some of the villagers’ preferences were at least fulfilled\. The share of villagers citing inter-commune roads as a top priority investment declined by more than 6 percent relative to the control group, as investment in health centers and electricity moved up the priority list\. There was increased community participation in project selection by 4 percent (or a third of the control baseline outcome standard deviation), which could have positively influenced the allocation of investment to different sub-projects\. The difference in difference estimates show that households’ average incomes from primary wage employment increased by 18\.2 percent and total household wage incomes by 7\.7 percent\. This was a result of workers – mostly men - switching to wage jobs as a primary rather than a secondary occupation\. These findings imply that the project strengthened household non-farm participation and livelihood diversification\. 13\. The absence of impact on aggregated primary outcomes is partly attributed to significant investments made under the National Targeted Programs (NTPs) that also benefited control communes\. The amount of infrastructure investments in the CHPov project communes was only 10 percent higher than investments in similar infrastructure in non-project communes (see table 2 below)\. However, the spending patterns of CHPov project and non-project communes were different, with the former investing more in clean water systems and commune roads, which translated into positive impacts on clean water and connectivity to markets and the commune center\. Nutrition interventions, where the dietary diversity indicator shows an impact, is another area the CHPov project devoted more resources through livelihood enhancement groups, than the NTP program in a typical commune\. 14\. While the results on the impact of the project are mixed, there are some notable lessons this evaluation provides\. First, the evaluation demonstrates that the CHPov implementation model significantly increased wage earnings overall, especially from primary wage jobs\. Thus, it could serve as an example for enhancing non-farm wage incomes for households in remote areas\. Second, its model for community participation, while not tremendously successful, was an improvement compared to non-project communes\. This both offers lessons for improvements, while revealing the big challenge that remains regarding improving community participation in community development programs in Vietnam\. Lastly, differences in impacts between project and non-project communes mirror differences in spending on different types of investments implying that positive outcomes can be achieved with more targeted investments\. Thus area-based poverty reduction policies still have a role to play in the development process in Vietnam\. 15\. The end-line survey73 demonstrates that those communes that received project support experienced substantial improvements across the range of key outcome measures as compared to the baseline\. This includes a 48% change in overall consumption of poor households (and 30% increase for food); a 2\.3% change in overall access to services by the poor (and larger specific improvements in access to community health facilities, improved water sources, and agriculture support services); an increase of 2\.8% for the general beneficiary population in the project’s connectivity index (with larger improvements for access to primary schools, commune health facilities, the nearest market and the district center, as well as in general for poor households); a 13\.8% increase in satisfaction levels with project support; a 9\.3% increase in household durable assets; and a 21\.4% increase in dietary diversity\. 73 The Central Highlands Poverty Reduction Project Endline Report; Mekong Development Research Institute, Hanoi, 2020\. Page | 71  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 2\. Comparison of treatment and control communes’ infrastructure projects and total investments received since 2015 The percentage of communes having The total investment that communes Type of project the following project since 2015 received since 2015 (million VND) Treatment Control Difference Treatment Control Difference Inter-village road 86\.8 88\.5 -1\.7 5295\.5 4649\.6 646\.0 (3\.0) (2\.8) (4\.1) (605\.2) (636\.9) (878\.6) Inter-commune road 55\.0 49\.6 5\.4 1946\.2 2154\.3 -208\.0 (4\.4) (4\.4) (6\.2) (497\.3) (713\.6) (869\.8) Inter-farm road 67\.4 55\.0 12\.5** 2409\.0 1440\.0 969\.0** (4\.1) (4\.4) (6\.0) (360\.1) (285\.8) (459\.7) Irrigration works 72\.1 70\.2 1\.9 1183\.3 1960\.9 -777\.6 (4\.0) (4\.0) (5\.6) (195\.8) (449\.3) (490\.2) Market 7\.0 12\.2 -5\.2 125\.6 207\.5 -81\.9 (2\.3) (2\.9) (3\.6) (86\.5) (82\.8) (119\.7) Kindergarten 79\.8 78\.6 1\.2 1207\.2 1009\.7 197\.5 (3\.5) (3\.6) (5\.0) (184\.1) (141\.8) (232\.4) Primary/secondary school 82\.2 71\.0 11\.2** 1980\.0 1705\.0 275\.0 (3\.4) (4\.0) (5\.2) (336\.6) (319\.6) (464\.2) Village cultural house 71\.3 80\.9 -9\.6* 1040\.2 908\.6 131\.6 (4\.0) (3\.4) (5\.3) (125\.1) (107\.2) (164\.8) Commune health's center 51\.2 58\.0 -6\.8 509\.2 854\.2 -345\.0* (4\.4) (4\.3) (6\.2) (93\.2) (155\.1) (180\.9) Clean water system 62\.0 56\.5 5\.5 1370\.6 966\.6 404\.0 (4\.3) (4\.3) (6\.1) (269\.6) (203\.0) (337\.5) Electricity grid 57\.4 56\.5 0\.9 592\.0 839\.3 -247\.2 (4\.4) (4\.3) (6\.2) (184\.8) (303\.1) (355\.0) Commune people's committee 51\.9 50\.4 1\.6 1271\.1 1455\.0 -183\.9 (4\.4) (4\.4) (6\.2) (194\.3) (259\.6) (324\.2) Bridge/Drain 68\.2 61\.9 6\.4 1053\.0 808\.0 245\.0 (4\.1) (4\.3) (5\.9) (211\.0) (173\.5) (273\.2) All projects 19982\.9 18958\.6 1,024\.4 (1618\.0) (1634\.8) (2,300\.1) Robust standard errors in parentheses *** p<0\.01, ** p<0\.05, * p<0\.1 Source: Baseline and Endline data analysis, CHPov Project, MDRI, 2019 Page | 72  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 7\. CHPOV END-LINE SURVEY; KEY DATA TABLES74 Table 1: Project’s Results Framework Summary Table 2014 2019 Change INDICATORS Indicator 2: Proportion of poor villagers whose identified development priorities are satisfied % of poor villagers that identified corresponding infrastructure as one of the top three development priorities Inter-village road (%) 60\.8 44\.4 -16\.4 Clean water works (%) 44\.6 39\.2 -5\.4 In-field road (%) 32\.6 41\.7 9\.1 Irrigation works (%) 29\.0 33\.1 4\.0 Kindergarten (%) 22\.9 15\.2 -7\.7 Village cultural house (%) 20\.7 8\.3 -12\.4 Market (%) 18\.4 9\.6 -8\.8 Inter-commune road (%) 16\.8 20\.2 3\.4 Electricity (%) 16\.2 0\.6 -15\.6 Bridge/Drain (%) 14\.2 10\.5 -3\.7 Commune health center (%) 12\.2 7\.4 -4\.8 Primary/Secondary school (%) 11\.6 11\.2 -0\.4 Indicator 3: Percent change in food and non-food consumption of poor households Total annual expenditure per capita (thousand VND) 8,238\.5 12,191\.7 48\.0% Food consumption (thousand VND/person/year) Holiday food and drink 313\.4 414\.6 32\.3% Daily food and drink 4,118\.9 5,358\.2 30\.1% Non-food consumption (thousand VND/person/year) Daily non-food expenditure 1,396\.6 1,910\.7 36\.8% Annual consumption of other non-food 769\.4 1045 35\.8% Other cost as expenditure 567\.4 1,363\.1 140\.2% Education expenditure 288\.2 692\.2 140\.2% Health expenditure 784\.5 1,407\.9 79\.5% Indicator 4: Percent change in access of poor households to services, infrastructure, and utilities Revised access index 38\.6 39\.5 2\.3% Education (%) Kindergarten within 15-minute walk 80\.6 80\.8 0\.2 Primary school within 30-minute walk 85\.1 82\.1 -3\.0 Secondary school within 30-minute walk 63\.9 65\.0 1\.1 Healthcare (%) Commune health facility within 20-minute drive 66\.7 70\.2 3\.5 Immunizations availed at commune/village health 14\.5 19\.9 5\.4 center in past year Pregnancy check-ups availed at commune/village 4\.9 4\.0 -0\.9 health center in past year Health check-ups availed at commune/village health 45\.7 27\.4 -18\.3 74 The Central Highlands Poverty Reduction Project; Endline Report\. Mekong Development Research Institute\. Hanoi 2020\. Page | 73  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 2014 2019 Change INDICATORS center in past year Household visited commune/village health facilities in 22\.4 33\.2 10\.8 past year for other purposes Water (%) Access to improved water source 49\.9 58\.4 8\.5 Water supply is sufficient (given improved source) 36\.4 40\.4 4\.0 Agriculture (%) % of land irrigated by State-funded irrigation system 18\.7 22\.0 3\.3 % of household received agricultural support within 13\.7 25\.5 11\.8 past year Indicator 6: Percent change in proportion of villagers satisfied with support received from Project Total satisfaction level (%) % of households satisfied with selection of 72\.9 83\.7 10\.7 infrastructure projects % of households satisfied with quality of those 58\.9 64\.9 6\.0 infrastructure projects % of households satisfied with quality of local roads 44\.6 49\.0 4\.4 % of households satisfied with irrigation system in the 29\.4 61\.8 32\.4 village/commune Indicator 9: Percent change in productive and durable assets of households participating in LEGs Revised asset index 51\.4 56\.2 9\.3% Composition % of ohouseholds having motorbike 81\.6 90\.5 8\.9 % of households having water pump 40\.2 55\.5 15\.3 % of households having mobile phone 84\.8 89\.5 4\.7 Land for annual crops (log m2) 6\.7 6\.4 -4\.4% Garden land (log m2) 7\.8 7\.8 0% % of households accessing to irrigated system in 66\.9 70\.4 3\.5 commune % of households raising pig 30\.1 37\.0 6\.9 % of households raising poultry 59\.2 74\.1 14\.9 % of households raising cattle 25\.7 50\.2 24\.5 Indicator 10: Percent change in dietary diversity of poor households Dietary diversity index 0\.6 0\.7 21\.4% Composition (%) Cereals 100\.0 99\.9 -0\.1 Tubers and roots 31\.7 34\.3 2\.6 Vegetable 90\.6 99\.1 8\.5 Fruits 29\.2 55\.3 26\.1 Meat 43\.4 67\.0 23\.6 Fish and seafood 71\.1 77\.7 6\.6 Eggs 39\.1 63\.6 24\.5 Bean and nuts 9\.1 15\.7 6\.6 Milk 47\.6 58\.7 11\.1 Sugar and molasses 38\.9 64\.8 25\.9 Page | 74  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 2014 2019 Change INDICATORS Oils and fat 89\.7 96\.5 6\.8 Other foodstuffs 79\.4 88\.1 8\.7 Indicator 11: Percent change in transport connectivity index Revised transport connectivity index 68\.2 70\.1 2\.8% Accessibility to social infrastructures Kindergarten 3\.1 3\.1 1\.0% Primary school 2\.6 2\.8 9\.7% Commune health facility 2\.5 2\.7 9\.4% Accessibility to key destinations Nearby market 2\.2 2\.4 6\.8% Commune people’s committee 3\.0 3\.1 4\.7% District center 1\.4 1\.5 7\.4% Provincial center 2\.2 2\.0 -9\.6% Page | 75  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 2\. Household participation in local activities (%) Participate in local meeting Express opinion in the meeting Supervise construction work 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 55\.8 72\.1 16\.3 42\.7 46\.7 4\.0 4\.5 35\.9 31\.4 Household head's gender Male 57\.4 73\.7 16\.4 43\.4 48\.2 4\.9 4\.7 37\.1 32\.4 Female 46\.4 63\.3 16\.9 38\.3 37\.2 -1\.1 3\.9 29\.8 25\.9 Household head's ethnic Kinh/Hoa 60\.1 72\.9 12\.8 46\.8 58\.9 12\.1 5\.2 26\.4 21\.2 IEM 55\.7 75\.1 19\.4 36\.6 39\.5 2\.9 4\.3 43\.3 39\.0 MEM 49\.7 61\.6 12\.0 56\.3 54\.4 -1\.9 4\.4 26\.2 21\.8 Poverty status Poor 49\.9 70\.5 20\.6 31\.8 38\.6 6\.8 3\.4 39\.6 36\.2 Non-poor 61\.0 73\.6 12\.6 50\.8 54\.1 3\.3 5\.6 32\.5 26\.9 Table 3\. Women participation in local activities (%) Participate in local meeting Express opinion in the meeting 2014 2019 Change 2014 2019 Change Total 30\.9 35\.7 4\.8 22\.4 32\.4 10\.0 Household head's gender Male 25\.5 30\.1 4\.6 16\.8 26\.6 9\.8 Female 70\.2 71\.6 1\.4 67\.7 80\.4 12\.65 Household head's ethnic Kinh/Hoa 33\.4 36\.3 3\.0 27\.3 33\.4 6\.1 IEM 33\.8 37\.4 3\.6 23\.3 35\.8 12\.45 MEM 17\.2 28\.3 11\.1 13\.4 21\.7 8\.32 Poverty status Poor 35\.1 38\.9 3\.8 21\.7 37\.7 16\.04 Non-poor 27\.8 32\.8 5\.0 22\.7 29\.0 6\.31 Page | 76  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 4\. Satisfaction of households in the project areas (%) Selection of infrastructure projects Quality of those infrastructure projects 2014 2019 Change 2014 2019 Change Total 76\.5 94\.2 17\.7 68\.8 81\.9 13\.1 Household head's gender Male 76\.8 94\.8 18\.0 69\.6 82\.4 12\.8 Female 74\.7 90\.9 16\.2 64\.0 79\.1 15\.1 Household head's ethnic Kinh/Hoa 82\.4 97\.5 15\.1 72\.7 79\.8 7\.1 IEM 73\.7 93\.2 19\.5 67\.6 84\.5 16\.9 MEM 76\.5 92\.9 16\.4 66\.9 76\.8 9\.9 Poverty status Poor 72\.0 92\.5 20\.5 65\.9 82\.6 16\.7 Non-poor 80\.6 95\.9 15\.3 71\.4 81\.3 9\.9 Quality of local roads Irrigation system in the village/commune Agricultural extension activities 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 56\.2 71\.1 14\.9 29\.4 44\.2 14\.8 13\.9 21\.8 8\.0 Household head's gender Male 54\.9 69\.5 14\.7 28\.2 44\.7 16\.5 14\.7 22\.8 8\.1 Female 64\.2 79\.9 15\.7 36\.7 41\.3 4\.6 9\.1 16\.1 7\.1 Household head's ethnic Kinh/Hoa 51\.7 62\.0 10\.3 22\.7 38\.4 15\.7 16\.6 20\.6 4\.0 IEM 65\.2 79\.2 14\.0 36\.3 49\.2 12\.9 14\.7 23\.3 8\.6 MEM 36\.0 58\.7 22\.6 18\.5 36\.7 18\.2 7\.4 18\.8 11\.4 Poverty status Poor 58\.5 75\.8 17\.3 33\.5 48\.1 14\.6 11\.8 22\.5 10\.7 Non-poor 54\.2 66\.7 12\.5 25\.8 40\.5 14\.7 15\.7 21\.1 5\.4 Page | 77  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 5\. Travel time from home to school (minute) Primary Lower secondary Upper secondary 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 10\.5 7\.5 -28\.7% 14\.2 10\.3 -27\.5% 21\.6 14\.8 -31\.8% Household head's gender Male 10\.6 7\.4 -30\.5% 14\.0 10\.1 -28\.2% 21\.5 14\.5 -32\.5% Female 10\.2 8\.5 -17\.2% 14\.9 11\.4 -23\.5% 22\.2 16\.0 -27\.8% Household head's ethnic Kinh/Hoa 9\.3 7\.7 -17\.4% 10\.8 9\.1 -15\.7% 15\.6 12\.6 -19\.4% IEM 10\.6 6\.9 -34\.7% 15\.7 10\.2 -34\.9% 24\.4 14\.8 -39\.3% MEM 12\.2 9\.2 -24\.2% 14\.2 11\.9 -15\.9% 21\.8 17\.5 -19\.5% Poverty status Poor 11\.0 7\.5 -31\.8% 17\.0 11\.3 -33\.8% 26\.0 16\.0 -38\.7% Non-poor 10\.1 7\.5 -25\.5% 11\.6 9\.3 -19\.6% 17\.7 13\.7 -23\.0% Table 6\. Travel time from household to commune health center (minute) 2014 2019 Change Total 20\.6 15\.2 -26\.3% Household head's gender Male 20\.6 15\.0 -27\.2% Female 20\.6 16\.2 -21\.2% Household head's ethnic Kinh/Hoa 16\.3 13\.8 -15\.3% IEM 21\.6 14\.7 -31\.9% MEM 23\.7 18\.5 -22\.0% Poverty status Poor 24\.8 16\.9 -31\.9% Non-poor 16\.9 13\.7 -19\.0% Table 7\. Household perception about quality of in-field roads (%) Page | 78  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Positive responses Very good Good Neutral 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 0\.6 4\.6 4\.0 9\.2 21\.8 12\.6 17\.7 27\.3 9\.6 Household head's gender Male 0\.6 4\.5 3\.8 8\.6 21\.8 13\.2 17\.5 26\.1 8\.6 Female 5\.3 5\.3 12\.5 21\.8 9\.3 18\.9 33\.7 14\.8 Household head's ethnic Kinh/Hoa 0\.8 3\.5 2\.7 14\.4 21\.6 7\.1 17\.4 26\.1 8\.7 IEM 0\.5 6\.3 5\.8 8\.2 22\.9 14\.8 18\.6 25\.8 7\.2 MEM 0\.2 0\.7 0\.5 4\.7 18\.6 13\.9 15\.5 33\.7 18\.2 Poverty status Poor 0\.4 5\.4 5\.1 7\.7 23\.2 15\.5 19\.4 25\.4 6\.1 Non-poor 0\.7 3\.8 3\.1 10\.5 20\.5 10\.0 16\.2 29\.1 12\.9 Negative responses Bad Very bad 2014 2019 Change 2014 2019 Change Total 33\.3 24\.4 -8\.9 39\.3 21\.9 -17\.4 Household head's gender Male 33\.6 24\.7 -8\.9 39\.7 23\.0 -16\.7 Female 31\.5 22\.9 -8\.6 37\.2 16\.4 -20\.7 Household head's ethnic Kinh/Hoa 28\.4 27\.2 -1\.2 39\.0 21\.6 -17\.4 IEM 34\.8 23\.2 -11\.6 37\.9 21\.7 -16\.2 MEM 35\.6 24\.1 -11\.5 44\.0 22\.9 -21\.0 Poverty status Poor 32\.9 24\.1 -8\.8 39\.7 21\.8 -17\.9 Non-poor 33\.7 24\.7 -9\.0 38\.9 22\.1 -16\.9 Table 8\. Household perception about quality of inter-village roads (%) Page | 79  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Positive responses Very good Good Neutral 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 1\.1 7\.4 6\.3 20\.2 37\.3 17\.1 29\.5 32\.7 3\.3 Household head's gender Male 1\.2 7\.5 6\.3 19\.9 37\.4 17\.5 28\.9 32\.6 3\.6 Female 0\.6 7\.0 6\.4 21\.8 36\.7 14\.9 32\.5 33\.6 1\.1 Household head's ethnic Kinh/Hoa 0\.5 3\.6 3\.1 19\.7 33\.9 14\.3 28\.6 32\.3 3\.7 IEM 1\.7 10\.0 8\.4 24\.8 42\.3 17\.5 28\.9 30\.8 1\.9 MEM 0\.4 4\.4 4\.0 7\.0 26\.2 19\.2 32\.3 39\.1 6\.8 Poverty status Poor 0\.9 10\.1 9\.2 22\.2 38\.2 16\.0 29\.9 32\.1 2\.2 Non-poor 1\.3 4\.8 3\.5 18\.3 36\.3 18\.1 29\.1 33\.4 4\.3 Negative responses Bad Very bad 2014 2019 Change 2014 2019 Change Total 30\.4 14\.9 -15\.5 18\.9 7\.8 -11\.1 Household head's gender Male 31\.0 15\.0 -16\.0 19\.0 7\.6 -11\.3 Female 26\.6 14\.2 -12\.4 18\.5 8\.5 -10\.0 Household head's ethnic Kinh/Hoa 29\.5 18\.5 -11\.0 21\.7 11\.7 -10\.1 IEM 28\.9 12\.0 -17\.0 15\.7 4\.8 -10\.9 MEM 36\.0 18\.8 -17\.2 24\.4 11\.5 -12\.8 Poverty status Poor 28\.9 13\.7 -15\.2 18\.1 5\.9 -12\.2 Non-poor 31\.8 16\.0 -15\.8 19\.6 9\.5 -10\.1 Table 9\. Household perception about quality of inter-commune roads (%) Page | 80  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Positive responses Very good Good Neutral 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 2\.6 8\.4 5\.9 37\.2 39\.6 2\.5 30\.1 30\.3 0\.2 Household head's gender Male 2\.7 8\.1 5\.4 36\.0 39\.9 3\.8 30\.1 29\.2 -1\.0 Female 2\.0 10\.4 8\.4 43\.8 38\.4 -5\.3 29\.9 36\.6 6\.8 Household head's ethnic Kinh/Hoa 1\.6 5\.5 3\.9 32\.3 34\.0 1\.7 28\.8 29\.0 0\.2 IEM 3\.7 11\.8 8\.0 44\.8 46\.5 1\.6 28\.7 29\.7 1\.0 MEM 0\.4 2\.3 1\.9 21\.2 26\.4 5\.2 36\.1 33\.9 -2\.1 Poverty status Poor 3\.2 11\.2 8\.1 39\.8 43\.1 3\.3 31\.4 29\.9 -1\.5 Non-poor 2\.0 5\.8 3\.8 34\.8 36\.4 1\.6 29\.0 30\.8 1\.8 Negative responses Bad Very bad 2014 2019 Change 2014 2019 Change Total 21\.3 13\.7 -7\.6 8\.9 7\.9 -1\.0 Household head's gender Male 22\.0 14\.6 -7\.3 9\.2 8\.3 -0\.9 Female 17\.5 8\.9 -8\.6 6\.9 5\.7 -1\.2 Household head's ethnic Kinh/Hoa 26\.0 15\.3 -10\.8 11\.3 16\.3 5\.0 IEM 17\.8 9\.4 -8\.4 5\.0 2\.7 -2\.3 MEM 25\.1 25\.0 -0\.1 17\.2 12\.3 -4\.9 Poverty status Poor 18\.5 10\.3 -8\.3 7\.2 5\.6 -1\.6 Non-poor 23\.8 17\.0 -6\.8 10\.4 10\.1 -0\.4 Page | 81  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 10\. Household perception about quality of inter-district roads (%) Positive responses Very good Good Neutral 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 3\.4 10\.0 6\.6 43\.4 45\.5 2\.1 29\.0 23\.8 -5\.1 Household head's gender Male 3\.4 10\.2 6\.9 42\.3 45\.6 3\.3 29\.0 23\.3 -5\.7 Female 3\.7 8\.8 5\.1 49\.7 44\.7 -5\.1 28\.8 26\.8 -2\.0 Household head's ethnic Kinh/Hoa 2\.5 4\.9 2\.4 36\.5 36\.2 -0\.3 27\.3 24\.9 -2\.4 IEM 4\.4 14\.4 10\.1 51\.8 52\.4 0\.6 26\.8 22\.2 -4\.7 MEM 1\.8 3\.4 1\.6 28\.2 36\.7 8\.5 37\.7 27\.5 -10\.2 Poverty status Poor 3\.8 13\.6 9\.7 45\.5 48\.0 2\.5 31\.7 24\.4 -7\.3 Non-poor 3\.0 6\.7 3\.7 41\.5 43\.0 1\.6 26\.6 23\.3 -3\.2 Negative responses Bad Very bad 2014 2019 Change 2014 2019 Change Total 18\.7 12\.1 -6\.6 5\.5 8\.6 3\.0 Household head's gender Male 19\.5 12\.1 -7\.4 5\.8 8\.8 2\.9 Female 14\.1 12\.4 -1\.8 3\.6 7\.3 3\.7 Household head's ethnic Kinh/Hoa 23\.5 13\.7 -9\.8 10\.3 20\.3 10\.0 IEM 14\.5 8\.8 -5\.7 2\.6 2\.2 -0\.3 MEM 24\.7 20\.4 -4\.4 7\.6 12\.1 4\.5 Poverty status Poor 14\.5 9\.0 -5\.4 4\.5 5\.0 0\.5 Non-poor 22\.5 15\.1 -7\.5 6\.4 11\.9 5\.5 Page | 82  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 11\. Travel time from household to public administrative centers (minute) Commune People's Committee District Center Provincial center 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 20\.4 14\.9 -26\.9% 56\.6 43\.8 -22\.6% 143\.4 100\.7 -29\.8% Household head's gender Male 20\.3 14\.9 -26\.5% 56\.5 44\.2 -21\.7% 143\.1 101\.3 -29\.2% Female 21\.1 15\.0 -28\.9% 57\.5 41\.8 -27\.4% 144\.8 97\.1 -32\.9% Household head's ethnic Kinh/Hoa 15\.6 13\.9 -11\.2% 43\.6 39\.4 -9\.7% 115\.1 100\.6 -12\.6% IEM 21\.2 14\.0 -33\.9% 60\.2 42\.2 -30\.0% 156\.4 94\.7 -39\.5% MEM 24\.9 19\.2 -22\.9% 64\.2 54\.8 -14\.7% 144\.4 119\.2 -17\.5% Poverty status Poor 25\.1 16\.2 -35\.5% 63\.7 43\.6 -31\.6% 156\.8 94\.9 -39\.5% Non-poor 16\.2 13\.8 -15\.2% 50\.3 44\.0 -12\.4% 131\.3 106\.1 -19\.2% Table 12\. Proportion of households having irrigation system in their commune/village (%) 2014 2019 Change Total 63\.1 73\.3 10\.2 Household head's gender Male 62\.4 73\.1 10\.7 Female 67\.2 74\.3 7\.0 Household head's ethnic Kinh/Hoa 64\.5 78\.4 13\.8 IEM 66\.6 76\.1 9\.5 MEM 50\.5 58\.1 7\.5 Poverty status Poor 63\.6 71\.3 7\.7 Non-poor 62\.7 75\.2 12\.6 Page | 83  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 13\. Satisfaction of households on irrigation system (%) Dissatisfied Normal Satisfied 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 40\.3 22\.3 -18\.0 13\.1 16\.7 3\.7 46\.6 61\.0 14\.4 Household head's gender Male 41\.3 23\.1 -18\.2 13\.6 15\.9 2\.3 45\.1 61\.1 15\.9 Female 35\.4 18\.0 -17\.4 10\.1 21\.3 11\.2 54\.6 60\.7 6\.2 Household head's ethnic Kinh/Hoa 42\.6 29\.6 -13\.0 22\.3 21\.3 -1\.0 35\.1 49\.1 13\.9 IEM 35\.0 19\.8 -15\.2 10\.6 14\.6 4\.1 54\.4 65\.6 11\.1 MEM 57\.3 19\.2 -38\.1 6\.2 16\.7 10\.5 36\.5 64\.2 27\.7 Poverty status Poor 37\.9 16\.0 -21\.9 9\.5 16\.2 6\.7 52\.7 67\.8 15\.2 Non-poor 42\.6 28\.1 -14\.5 16\.3 17\.1 0\.9 41\.1 54\.8 13\.7 Table 14\. Average levels of annual per capita consumption by poor households, by gender of household head (thousand VND/person/year) Female-headed households Male-headed households Priorities 2014 2019 Change 2014 2019 Change Holiday Food and Drink 263\.3 332\.3 26\.2% 321\.8 428\.2 33\.1% Daily Food and Drink 4,098\.1 5,155\.5 25\.8% 4,122\.4 5,391\.8 30\.8% Daily Non-Food Expenditure 1,200\.4 1,880\.0 56\.6% 1,429\.3 1,915\.8 34\.0% Annual Consumption of Other Non-Food 753\.2 1,031\.2 36\.9% 772\.1 1,047\.3 35\.6% Other Cost as Expenditure 616\.5 1,458\.5 136\.6% 559\.3 1,347\.4 140\.9% Education Expenditure 302\.2 1,358\.3 349\.5% 285\.9 581\.9 103\.5% Health Expenditure 839\.8 1,698\.0 102\.2% 775\.3 1,359\.9 75\.4% Total Annual Expenditure Per Capita 8,073\.5 12,913\.9 60\.0% 8,266\.0 12,072\.3 46\.0% Observations 348 339 370 379 Note: The expenditure of both baseline and end-line are measured in the 2019 price\. Table 15\. Access to safe drinking water (%) Page | 84  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Safe drinking water Unsafe drinking water 2014 2019 Change 2014 2019 Change Total 65\.4 72\.6 7\.3 34\.7 27\.4 -7\.3 Household head's gender Male 65\.2 71\.5 6\.3 34\.8 28\.5 -6\.3 Female 66\.1 78\.4 12\.3 33\.9 21\.6 -12\.3 Household head's ethnic Kinh/Hoa 88\.6 95\.5 6\.9 11\.4 4\.5 -6\.9 IEM 53\.5 61\.5 8\.0 46\.5 38\.5 -8\.0 MEM 67\.9 75\.8 7\.9 32\.1 24\.2 -7\.9 Poverty status Poor 50\.3 59\.7 9\.5 49\.7 40\.3 -9\.5 Non-poor 78\.8 84\.8 5\.9 21\.2 15\.2 -5\.9 Note: Safe drinking water includes tap water, buying water, hand dug/constructed/drilled with pump wells, and rainwater\. Table 16\. Ownership of domestic assets (%) Motorbike Fridge Washing machine Hot water tank Gas stove 2014 2019 Change 2014 2019 Change 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 85\.7 90\.9 5\.2 22\.7 37\.3 14\.6 6\.6 13\.7 7\.1 4\.5 14\.0 9\.5 49\.7 67\.4 17\.8 Household head's gender Male 87\.0 93\.2 6\.2 22\.6 38\.2 15\.6 6\.8 14\.3 7\.5 4\.7 14\.8 10\.1 48\.8 67\.2 18\.4 Female 78\.4 78\.9 0\.6 23\.6 32\.8 9\.2 5\.5 10\.4 4\.9 3\.3 9\.6 6\.3 54\.5 68\.5 14\.0 Household head's ethnic Kinh/Hoa 97\.2 97\.4 0\.3 58\.9 84\.9 26\.0 21\.4 42\.8 21\.4 13\.7 37\.3 23\.7 93\.5 96\.7 3\.2 IEM 77\.5 86\.9 9\.5 6\.9 14\.3 7\.4 1\.0 2\.0 1\.1 0\.7 3\.6 3\.0 30\.1 50\.2 20\.0 MEM 94\.0 94\.4 0\.3 18\.8 43\.5 24\.7 2\.6 9\.9 7\.3 3\.0 14\.2 11\.2 46\.0 80\.7 34\.7 Poverty status Poor 73\.9 85\.9 12\.0 3\.9 11\.5 7\.6 0\.0 1\.2 1\.2 0\.1 2\.2 2\.1 23\.0 48\.2 25\.2 Non-poor 96\.3 95\.7 -0\.6 39\.6 61\.7 22\.2 12\.5 25\.4 12\.9 8\.4 25\.1 16\.6 73\.5 85\.6 12\.1 Page | 85  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Table 17\. Percentage of labor force working last 12 months (%) Self-employed in farm sector (including Waged and salaried work Self-employed in non-farm sector agriculture, forestry and fishery) 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 40\.9 43\.9 3\.0 80\.6 82\.4 1\.7 5\.6 7\.0 1\.5 Household head's gender Male 49\.2 50\.0 0\.8 83\.2 84\.2 1\.0 5\.3 6\.5 1\.2 Female 31\.9 37\.4 5\.5 77\.9 80\.4 2\.5 5\.8 7\.6 1\.8 Household head's ethnic Kinh/Hoa 40\.4 38\.9 -1\.5 67\.2 68\.6 1\.4 14\.7 21\.9 7\.2 IEM 40\.8 46\.7 5\.9 84\.5 87\.4 2\.9 2\.0 2\.6 0\.6 MEM 42\.0 40\.6 -1\.4 86\.0 82\.1 -3\.9 4\.8 3\.8 -1\.0 Poverty status Poor 41\.4 45\.2 3\.7 85\.1 87\.8 2\.7 1\.6 2\.1 0\.5 Non-poor 40\.5 42\.6 2\.2 76\.4 76\.7 0\.3 9\.3 12\.1 2\.8 Table 18\. Proportion of households participating in agricultural activities (%) Self-employed in agriculture Crop cultivation Annual crop 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 97\.2 97\.6 0\.4 93\.2 92\.7 -0\.5 83\.5 75\.7 -7\.8 Household head's gender Male 97\.4 97\.7 0\.2 93\.6 93\.2 -0\.4 84\.2 75\.7 -8\.5 Female 95\.5 96\.8 1\.4 90\.6 89\.6 -1\.0 79\.5 76\.1 -3\.4 Household head's ethnic Kinh/Hoa 93\.7 96\.4 2\.7 82\.2 85\.0 2\.8 56\.2 49\.7 -6\.5 IEM 98\.2 98\.0 -0\.3 96\.8 96\.3 -0\.6 93\.5 87\.8 -5\.6 MEM 98\.9 97\.9 -1\.0 97\.8 92\.3 -5\.5 92\.5 74\.1 -18\.3 Poverty status Poor 98\.1 98\.5 0\.4 96\.6 96\.2 -0\.4 95\.0 86\.6 -8\.4 Non-poor 96\.3 96\.7 0\.3 90\.2 89\.4 -0\.8 73\.3 65\.5 -7\.8 Page | 86  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Perennial crop Fruit crop Livestock farming 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 40\.0 50\.5 10\.5 26\.8 34\.7 7\.9 72\.3 82\.8 10\.6 Household head's gender Male 41\.4 52\.0 10\.6 26\.8 34\.4 7\.5 73\.4 82\.6 9\.2 Female 32\.2 41\.8 9\.6 26\.3 36\.4 10\.2 65\.8 84\.2 18\.4 Household head's ethnic Kinh/Hoa 52\.6 59\.6 7\.1 28\.5 38\.2 9\.7 72\.2 84\.7 12\.6 IEM 30\.9 42\.9 12\.0 21\.5 33\.1 11\.6 69\.5 80\.4 10\.9 MEM 49\.5 61\.3 11\.8 40\.0 34\.8 -5\.3 80\.5 87\.7 7\.3 Poverty status Poor 28\.3 41\.2 12\.9 24\.0 32\.2 8\.2 69\.2 80\.3 11\.0 Non-poor 50\.5 59\.2 8\.7 29\.3 37\.1 7\.8 75\.0 85\.3 10\.3 Table 19\. Proportion of households raising livestock (%) Porker Cattle Poultry 2014 2019 Change 2014 2019 Change 2014 2019 Change Total 40\.1 35\.5 -4\.6 37\.9 47\.3 9\.4 76\.7 83\.8 7\.1 Household head's gender Male 40\.0 36\.3 -3\.7 37\.5 47\.8 10\.3 77\.1 84\.2 7\.1 Female 40\.9 30\.7 -10\.2 40\.7 44\.5 3\.8 74\.0 81\.4 7\.3 Household head's ethnic Kinh/Hoa 25\.4 26\.1 0\.7 24\.2 25\.4 1\.2 89\.1 90\.5 1\.3 IEM 50\.4 44\.9 -5\.5 50\.0 63\.1 13\.1 65\.3 77\.8 12\.5 MEM 32\.3 21\.3 -11\.0 24\.1 31\.6 7\.5 90\.1 91\.7 1\.6 Poverty status Poor 47\.8 40\.5 -7\.3 43\.5 56\.2 12\.7 67\.8 78\.9 11\.0 Non-poor 33\.7 31\.0 -2\.8 33\.2 39\.3 6\.1 84\.0 88\.1 4\.1 Page | 87 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 8\. KEY PROJECT DOCUMENTS Central Highlands Poverty Reduction Project (CHPov “GNTN”) Key Project Documents, Technical Reports, Monitoring & Evaluation Reports Document Title Year Central Highlands of Viet Nam: Ethnic minority livelihoods, local governance context, April 2012 1 and lesson-learning study\. E Shanks et al\. Vietnam's Central Highlands: Analysis of issues related to ethnic minority labor market 2012 2 participation, WB Poverty reduction in the Central Highlands - Analysis of Ethnic Minority Labor-related June 2012 3 issues, WB Central Highlands Poverty Reduction - Operational Implications of Recent Analytical 2013 4 Work, WB Vietnam's Central Highlands: Ethnic Minority Livelihood Contexts, Strategies, and Past 2013 5 Interventions\. E\. Shanks et al\.2013 6 The Rural Connectivity Index - Final Report\. CAP & WB 2013 2013 7 Consolidated Project Feasibility Study Report July 2013 8 Integrated safeguards data sheet - appraisal stage Sept 2013 9 Environmental & Social Management Framework July 2013 10 Environmental Code of Practice (Source: Google translation from project website) Not known 11 Environmental Guidelines for remaining contracts (AM August 2019) Aug 2019 12 Resettlement Policy Framework (RP1467 v3) Aug 2013 Findings and Arrangements to Enhance Ethnic Minority Participation Indigenous People Sept 2013 13 Plan Vol3 Social Assessment Report (IPP649 v2) - The Central Highlands Poverty Reduction Aug 2013 14 Project 15 Project Appraisal Document (PAD) Nov 2013 16 Financing Agreement April 2014 17 Project Implementation Manual (PIM) (Vietnamese) 2014 18 Baseline Survey Report (Mekong Development Research Institute, MDRI) Sept 2015 19 Project Implementation Manual (PIM) Rev 2015 (Vietnamese) Google Translation 2015 Implementation Support Mission Report Component 2: Sustainable Livelihood\. Ines Nov 2016 20 Punda Page | 88 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) 21 Infrastructure field visit report Gia Lai & Kontum Province (Hoang Tung) 2016 22 GNTN Results Framework – Indicator Formulation and Baseline Values 2016 23 Project Implementation Manual (PIM) 2014 and Review 2017 (Vietnamese) 2017 Quality inspection and evaluation of investment extent and efficiency for completed June 2017 24 infrastructure works of Central Highlands Poverty Reduction Project\. BKG Group, 2017 25 Annual Project Progress Reports (in Vietnamese, a few in English) 2015-2019 2015-2019 26 Beneficiary Assessment Report CHPov (MDRI) April 2017 27 Project Mid-Term Review Report 2014-2017 (MTR) June 2017 28 Infrastructure field visit report Gia Lai Province (Hoang Tung) 2018 29 Infrastructure field visit report Kontum & Quang Ngai Province (Hoang Tung) 2019 Rapid Assessment of Livelihood Enhancement Group Outcomes, 2019\. Dao Ngoc Nga, July 2019 30 Hoang Thu Hang Summary of discussion on lessons learnt from the Project implementation (CF Forum – Aug 2019 31 Hoi An) 32 Restructuring-Paper-VN-Central-Highlands-Poverty-Reduction-Project Oct 2019 33 Endline Survey-Impact Evaluation CHPov (MDRI) Feb 2020 34 Impact Evaluation of the Central Highlands Poverty Reduction Program (WB) May 2020 35 Government Project Completion Report (PCR) (First Draft in Vietnamese) April 2020 World Bank Implementation Status & Results Reports (12 reports) 2014-2019 36 (Source: WB website) 37 Project Aide Memoire (13) 2014-2019 38 Project Mid-term Review Mission Report Aug 2016 39 Selected LEG sub-project proposals 2014-2019 Page | 89 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 9\. LIVELIHOOD ENHANCEMENT GROUP SUCCESS STORIES75 Cow rearing LEGs: (Buon Don and Krong Bong Districts, Dak Lak Province) Each cow-raising LEG had 11 members and each member received 1 cow, materials for the construction of a shed, and relevant technical training\. Despite a small number of cows in these communes, and some difficulties with reproduction, group performance was quite good with a total of 41 calves born in two groups\. At least one LEG member in Cu Pui commune was able to lend out her cow to another household, which later gave birth to two more calves\. Many households have earned between 7 and 12 million Vietnamese Dung (VND) per calf (depending on selling time)\. LEG members indicated that this money was then used to build or improve their homes, or to purchase other farm inputs such as fertilizer or invest in further productive activities (such as coffee, pepper, etc\.)\. The group in Tan Hoa commune (Buon Don district) used cow dung to also generated additional income for households “Some households are using dung to fertilize their own coffee or pepper plants, or else we sell directly as there are buyers coming directly to our shed to buy\. With 2 cows, the household will have about 4-5 cubic meters of dung, which will sell at VND 3\.5 – 4 million\.” Group discussion with cow raising LEGs in Buon Don and Krong Bong Districts, Dak Lak Province 75Source: Rapid Assessment of Livelihood Enhancement Group Outcomes, 2019\. Dao Ngoc Nga, Hoang Thu Hang\. Photos taken from: GNTN Central Project Coordination Office, “5 Years and Miracle Changes, Project Photobook”\. Hanoi\. December 2019\. Page | 90 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Goat Raising LEGs (Kon Thup Commune, Mang Yang District, Gia Lai Province) The goat raising LEG was established in 2017 with 15 members, mainly Nung and Tay migrant ethnic minorities\. The group began with 30 female goats (2 goats per household) and 3 male goats of Bach Thao breed\. By June 2019, the group had around 170 goats—some of which had been sold—and each household had kept 6 to 7 goats each\. When the group started selling goats, the project also introduced them to buyers who now come to the households to purchase the goats\. Currently demand is high and on average each goat sells for between VND 1 and 2 million in off-peak times, and for about VND 3 million at peak time\. Households report all having earned money from the LEG activities\. “The important thing is about caring and observation over our herd, whether we have interest in it\. In the family, the husband often understands more about goats but both wife and husband have to grasp raising techniques\. Our group has seen 3 households to escape from poverty and we cannot be happier about that\.” – shared Mr\. Thai, the group leader (Group discussion with goat raising LEG in Kon Thup Commune) Pig raising (Ba Trang Commune, Ba To District, Quang Ngai Province) Mr\. Pham Van Men, a member of a pig farming LEG is from a poor household\. Before joining the group in 2015, the income of his 3-person households was derived from two “sao” (~1000 square meters) of wet Page | 91 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) rice (cropped once/year), 6 sao of acacia (harvested after 4-5 years) and some chickens and ducks\. The project supported the LEG to purchase the animals, provide training and some additional inputs\. After Mr\. Pham’s pig gave birth to 11 piglets, he applied for a loan from Vietnam Bank for Social Policies to buy another mother pig, thereby scaling up the number of his pig herd\. He quickly became an example for other people in the hamlet to learn from\. With the farming techniques he learned from participating in the LEG, his perception and understanding of farming practices changed, directly resulting in increased income for his household\. His household went from being classified as poor in 2016, with income of around VND 800,000 per person per month, to almost doubling to VND 1,500, 000 per person per month\. He believes that the project has encouraged a new way of farming for people from ethnic minority groups\. Many people have become aware of the benefits of raising pigs in captivity instead of letting them forage freely\. He also believes that the new way of organizing production, rearing techniques, and careful selection of animals are also important factors\. However, he feels that the most valuable thing is how people from ethnic minority groups have started changing their mind-set towards agriculture and are now willing to invest in farming activities, thereby gradually changing their life\. Pineapple farming LEGs (Cu Pui Commune, Krong Bong, Dak Lak Province) The group was established in 2016 with 20 members who are H’Mong people\. The members started growing pineapple since June 2016 with 2 or 3 sao per household and 1,300 plants per sao\. In 2018, the group harvested their first crop with 500 fruits per sao on average, which sold for VND 6,000 – 7,000 per fruit\. Overall, these activities added between VND 6 and 10 million per year to the income of each household\. However, in the second year the LEG members encountered challenges, with lower yields of approximately 70% of the first year, and sour fruit\. Fortunately, the price of pineapples was higher that year-- reaching VND 10,000 per fruit—and therefore income remained steady for the group\. In addition, about half of the group members conducted plant multiplication by themselves and were able to expand their individual growing areas by ½ to 1 sao\. “We are still concerned about growing techniques, how to handle the falling of young fruits, poor fruiting or too sour fruit\. We do not know if it is because of soil quality and we would feel more secure with technical assistance from the Project\. There was Project staff assigned to assist us in the first year only and we don’t know who to ask now\. If we cannot figure out how to handle issues with the crop, we will probably revert to growing cassava, which is what we have done here on this land for years\.” Group discussion with LEG growing pineapple, Cu Te village, Cu Pui Commune, Krong Bong, Dak Lak Province Page | 92 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Gourd farming LEGs (Chư Krey Commune, Kông Chro District; Gia Lai Province) The gourd farming LEG with 18 member households, all from ethnic minority groups, started operating in June 2018\. Being used to crops such as corn and various beans which are relatively easy to grow, LEG members were afraid at first of raising this unfamiliar crop\. CHPov provided training courses on farming techniques, input materials (seeds, fertilizers, etc\.), while LEG members contributed labor, watering systems, and pump\. The Commune Development Board also assisted the group to access online videos of gourd farming and organized field trips to other gourd farms in the vicinity\. LEG members succeeded in shifting from pure subsistence to market-oriented farming, and increasing crop productivity over time, with up to three crops per year, by applying the right techniques and fertilizers\. Group members established a group savings fund to purchase inputs for the next crop, limiting their dependency on traders who came to the village and tended to charge higher prices\. “Thanks for the support from the project for farming techniques and input materials\. After 3 months, we are now able to sell our product and earn a lot of money\. I’m very happy\. Now with all the knowledge of team work, contributing and using team fund, we will continue to plant gourd for the next crops” reported Mr\. Drop (Team leader) when being asked about his thoughts on the achievement of the subproject\. Page | 93 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Mulberry production and silkworm raising (Dak Son Commune, Dak Glong District, Dak Nong Province) Mulberry farmers and silkworm producers in Dak Glong District depended entirely on traders passing through the commune since there was no organized production and marketing in place\. In order to help the project area communes to establish a more market-oriented approach, the Provincial Project Management Unit of Dak Nong promoted the planting of mulberry trees for raising silkworm through a market-linkage approach\. The LEG of the Dak Som Commune was the first to be connected with the Dak Nong Mulberry Company\. The group comprised 15 households with an initial area of 4\.5 hectares\. The LEG included three well-off households who were able catalyze the group and to help the other member households with technical advice and methods of doing business\. Mr\. Nguyen Hieu Thanh, leader of the mulberry planting and raising silkworms group says: “Previously, on this hilly land, people only planted cassava and maize, and the income from these crops was not enough to escape poverty, so when the project supported this promising activity, all households agreed to start working”\. Before project support the average income per household was around VND 5\.4 million per household per month\. After the establishment of the mulberry farm and expansion of production, income increased to an estimated VND 7\.1 million per household per month\. “Currently, silkworm raw material in Dak Nong only meets one-third of the factory's capacity\. Therefore, our company has signed a commitment to buy all the cocoons of the LEG\. At the same time, the company provides tools to ensure quality and quantity of silkworms, offers technical assistance, and provides assistance in mulberry and silkworm pest management\." (Mr\. Do Van Loc, Director of Dak Nong Mulberry Company) Page | 94 The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Rice farming LEGs (Ba To village, Ba To Commune, Quang Ngai Province) “People have seen changes in paddy cultivation\. They now master techniques of sowing\. In the past, they used to soak the seeds and then sow directly but now they will soak, monitor until the sprout cleaves before sowing\. Fertilizer is also being used according to project guidance and farmers are also sharing among themselves when to fertilize for best output\. The paddy fields now look totally different\. In the past, each field plot had its own growing progress and yields, but now all yields are much better\. It is all thanks to CHPov and the comprehensive training provided to the group, by stages of paddy growth and directly in the field so that farmers could quickly understand and remember the techniques\.” Interview with village leader in Mang Lung Village, Ba To Commune, Ba To village, Quang Ngai Province Page | 95  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) ANNEX 10\. CHPOV TIMELINE AND KEY MILESTONES Project Year 2013 2014 2015 2016 2017 2018 2019 2020 Nov Project Appraisal Document 2013 Approval Date Dec 2013 Original Closing Date Dec 2019 April Finance Agreement 5330-VN 2014 Effectiveness Date July 2014 Sept Baseline Report 2015 Bank IE Team defines formulation of indicators and Feb 2016 baseline values Infrastructure Assessment Report (by BKG) Apr 2017 LEGs and Beneficiary Assessment Report (by MDRI) Jun 2017 Mid Term Review Report Jun 2017 Rapid Assessment of Livelihood Enhancement Group Jul 2019 Outcomes Restructuring Paper (Cancellation of SDR 11\.5 million) Oct 2019 Mar End-line survey – impact evaluation (MDRI) 2020 May ISM 1 2014 Page | 96  The World Bank VN - Central Highlands Poverty Reduction Project (CHPov) (P128072) Project Year 2013 2014 2015 2016 2017 2018 2019 2020 ISM 2 Oct 2014 ISM 3 Jan 2015 ISM4 Jul 2015 Mar ISM5 2016 Interim Implementation Support Mission Aug 2016 Nov ISM6 2016 ISM7 Jun 2017 Mar ISM8 2018 ISM9 Oct 2018 ISM10 Feb 2019 ISM11 Aug 2019 Nov ISM12 2019 Nov ICR field mission (3 weeks) Dec 2019 2019 Page | 97

REVIEW

P000110

 Second structural adjustment program Report No: ; Type: Report/Evaluation Memorandum ; Country: Benin; Region: Africa; Sector: Economic Management; Major Sector: Multisector; ProjectID: P000110 Benin: Second Structural Adjustment Program (SAL II, Credit 2283-BEN) The Implementation Completion Report (ICR) for the Republic of Benin Second Structural Adjustment Program (SAL II, Credit 2283-BEN, in the amount of US$55 million equivalent, approved in FY91 and closed in December 1994) was prepared by the Africa Regional office, with Appendix A contributed by the Borrower\. The credit was fully disbursed\. Cofinancing was provided by the Swiss (SwF 15 million) and Dutch (f\. 20 million) Governments, through grant agreements\. SAL II was negotiated in 1990, while SAL I was still under implementation, to be disbursed in three tranches\. It was clear that Benin's reform process, which involved undoing the consequences of two decades of state domination and mismanagement of the economy, would take much longer to complete than possible under one adjustment loan\. The objectives were threefold: raise the rate of economic growth to close to 4 percent by 1993 so as to achieve real per capita income growth; contain inflation to less than 3 percent in order to improve competitiveness; and limit the current account deficit in the balance of payments to the equivalent of 9 percent of GDP by 1993 so as to eliminate all external payments arrears and allow an increase in international reserves\. The action programs to achieve these objectives were, first and foremost, a continuation of the SAL I program: i\.e\., measures to strengthen the budget, restructuring of key ministries including an organized reduction in the size of the civil service, financial sector reform, public enterprise reform including privatization, and improvements in the trade regime and in the incentives' framework for private enterprise\. SAL II also included, in addition, measures to improve the social and educational infrastructure of the country\. Delays experienced in implementation carried the program through 1994, with the third tranche being released in August of that year\. Thus, the program period included the January 1994 devaluation of the CFA franc\. Exchange rate devaluation was, however, not part of the program\. The macro objectives of the program were more than fully met\. Part of this was due to the excellent performance by the cotton sector, the country's most important export, which benefitted from sector policies and programs not part of the SAL\. In fact, while the SAL measures regarding budgetary policy and the trade regime were largely successful, there were important delays and shortcomings in financial sector and public enterprise reform and in improving the climate for private sector investment\. Also, progress towards social infrastructure improvements was limited\. The ICR rates the outcome of SAL II as satisfactory, sustainability as likely and institutional development impact as negligible\. OED agrees with these ratings and rates Bank performance as satisfactory\. The ICR contains two lessons which are especially noteworthy\. First, emphasis needs to be given to promoting ownership of the reform program so as to avoid delays and inaction\. This can be done through public information campaigns and a public debate on reform issues\. Second, firmness on the part of the donors, when a program has gone off track, is crucial\. Recourse to repeated waivers, even when individually justifiable, may cause Government to become complacent about sticking to the reform agenda\. This is a good quality and candid ICR\. An audit is planned, following completion of SAL III (approved in FY95)\.

REVIEW

P002327

 ICRR 10720 Report Number : ICRR10720 ICR Review Operations Evaluation Department 1\. Project Data : Date Posted : 07/21/2000 PROJ ID : P002327 OEDID: OEDID : C1992 Appraisal Actual Project Name : Second Small Rural US$M ) Project Costs (US$M) 26\.1 21\.9 Operations Project Country : Senegal Loan /Credit (US$M) Loan/ US$M ) 16\.1 14\.2 Sector, Major Sect \.: Other Agriculture , US$M ) Cofinancing (US$M) 7\.0 4\.8 Agriculture L/C Number : C1992 FY ) Board Approval (FY) 89 Partners involved : IFAD Closing Date 06/30/1998 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : John R\. Heath Ridley Nelson Ridley Nelson OEDST 2\. Project Objectives and Components a\. Objectives "Encourage local initiative and thereby broaden popular participation in decision -making on rural investments", with a view to which the project would "encourage small groups of producers to constitute themselves into legally-recognized units\.and render these creditworthy in the judgment of the local banking system; create employment in rural areas to help decrease rural -urban migration; and strengthen the existing Senegalese capacity for identification and preparation of small rural projects \. The specific projects to be financed would increase crop, fruit and vegetable production, enhance security of production and raise rural living standards " (ICR)\. b\. Components Consolidation and rehabilitation of 12 of the 28 irrigated rice and vegetable perimeters developed under the first Small Rural Operations Project; Construction, equipment and technical services for (a) 10 rice and vegetable perimeters of 30 hectares each, (b) 4 rice and vegetable perimeters of 20-30 hectares each (for four women's and youth groups ), (c) six perimeters of cereals, banana and citrus fruit, and (d) 2 banana perimeters of 15 hectares each; Individual and collective equipment and technical services for 150 traditional beekeepers; Unidentified subprojects/activities; and Improvement of the project management structure \. c\. Comments on Project Cost, Financing and Dates None 3\. Achievement of Relevant Objectives : Impossible to assess with any accuracy owing to the absence of ex -post and ex-ante economic analysis, and the lack of subproject records \. With respect to the pre-defined perimeters, the actual number of subprojects completed was 27, against the initial estimate of 77; and the number of hectares covered was 636, compared to the target of 1,010 hectares\. 4\. Significant Outcomes /Impacts : The number of beneficiaries was greater than projected at appraisal : 114,000, against 51,000\. The quality of the subprojects improved toward closing, owing to greater beneficiary involvement \. This was made possible by the restructuring of the project and its new implementation and institutional arrangement \. 5\. Significant Shortcomings (including non -compliance with safeguard policies ): Weak performance by the implementing agency led to difficulty in developing a pipeline of subprojects and to low output relative to capacity and overhead costs \. The cost of irrigation works was almost twice as high as that in similar projects in neighboring Mauritania \. Subproject identification and implementation was not always decided on the merits of the subproject, being influenced by politics \. Financial management was weak and the project management unit was unable to account for all the funds used by the project \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Partial Modest Same rating, different lexicon Sustainability : Unlikely Unlikely Bank Performance : Deficient Unsatisfactory Same rating, different lexicon Borrower Perf \.: Deficient Unsatisfactory Same rating, different lexicon Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : (a) Long delays between identifying and implementing subprojects will push up costs and sap beneficiary support \. (b) It is better to cancel projects with major design flaws and weak implementation than to waste time trying to redesign them, or trying to change the approach of implementing agencies \. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : No ex-post economic analysis because, at appraisal /midterm there was no ex-ante estimate of economic rates of return or unit costs\.

REVIEW

P091264

 Document of The World Bank Report No: ICR1756 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-52081 TF-52452) ON A MULTI-DONOR TRUST FUND GRANT IN THE AMOUNT N US$ 183\.9 MILLION TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR A MICROFINANCE FOR POVERTY REDUCTION PROJECT December 26, 2012 Financial and Private Sector Development Afghanistan Country Management Unit South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 26, 2012) Currency Unit = Afghani (AFN) USD 1\.00 = AFN 51\.21 FISCAL YEAR March 21-March 20 ABBREVIATIONS AND ACRONYMS AFN Afghanis AFMIS Afghanistan Financial Management Information System ANDS Afghanistan National Development Strategy ARTF Afghanistan Reconstruction Trust Fund CAR Capital adequacy ratio CGAP Consultative Group to Assist the Poor DFID Department for International Development GoA Government of Afghanistan IDA International Development Association ICR Implementation Completion and Results Report ISR Implementation Status and Results Report MRRD Ministry of Rural Rehabilitation and Development MIS Management Information System MISFA Microfinance Investment Support Facility Afghanistan MoF Ministry of Finance NSP National Solidarity Program PAR Portfolio at risk PDO Project Development Objective ROA Return on assets TTL Task team leader Vice President: Isabel Guerrero Country Director: Robert J\. Saum Sector Manager: Ivan Rossignol Project Team Leader: Henry Bagazonzya ICR Team Leader: Leyla Castillo  ISLAMIC REPUBLIC OF AFGHANISTAN Microfinance for Poverty Reduction Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 10 3\. Assessment of Outcomes \. 24 4\. Assessment of Risk to Development Outcome\. 30 5\. Assessment of Bank and Borrower Performance \. 30 6\. Lessons Learned \. 34 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 36 Annex 1\. Project Costs and Financing \. 37 Annex 2\. Outputs by Component \. 38 Annex 3\. Economic and Financial Analysis \. 40 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 41 Annex 5\. Beneficiary Survey Results \. 42 Annex 6\. Stakeholder Workshop Report and Results\. 43 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 44 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 48 Annex 9\. List of Supporting Documents \. 49 Map of Afghanistan………………………………………………………………\.51  A\. Basic Information (some fields are pre-populated by the system) Country: Afghanistan Project name: ARTF-Microfinance Project ID: P091264 L/C/TF Number(s): TF-52081, TF-52452 ICR Date: Dec 26, 2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: Islamic Republic of Afghanistan Original total commitment: USD 120\.30 M Disbursed amount: USD 168\.94 M Environmental category: B-Partial Assessment Implementing Agencies: Ministry of Finance/MISFA Cofinanciers and Other External Partners: B\. Key Dates (all fields are pre-populated by the system) Process Date Process Original Date Revised/Actual Date(s) Concept review: 03/31/2005 Effectiveness: 06/04/2003 Appraisal: Restructuring(s): n/a Approval: 07/10/2003 Mid-term Review: 05/15/2009 Closing: 09/30/2005 06/30/2010 C\. Ratings Summary (the system automatically displays entries in other relevant sections) C\.1 Performance Rating by ICR Outcome: Moderately satisfactory Risk to Development Outcome: Significant Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Satisfactory Government: Satisfactory Entry: Quality of Implementing Moderately Satisfactory Moderately Satisfactory Supervision: Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C\.2 Quality at Entry and Implementation Performance Indicators (all fields are pre-populated by the system) QAG Assessments Implementation Ratings Rating Rating (if any) Potential Prob\. Project at any time(Yes/No): No Quality at Entry (QEA): None Problem Project at any time(Yes/No): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Moderately Satisfactory D\. Sector and Theme Codes There can be a maximum of five Sector Codes (that has more than zero percent) and five Theme Codes (of which up to two are “Primaryâ€?)\. (the original column is pre-populated by the system—the same as in SAP/AUS) Original Actual Sector Code (as % of total Bank financing) 1\. Micro- and SME finance 100 Original Priority Actual Priority Theme Code (Primary/Secondary) 1\. Other financial and private sector development 100 E\. Bank Staff (some fields are pre-populated by the system) Positions At ICR At Approval Vice President: Isabel Guerrero Praful Patel Country Director: Robert J\. Saum Alastair McKechnie Sector Manager: Ivan Rossignol Simon C\. Bell Project Team Leader: Henry K Bagazonzya Mudassir Khan ICR Team Leader: Leyla Castillo ICR Primary Author: Leyla Castillo F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the project is to (i) provide poor and low income people, particularly women, with access to credit and financial services; and thereby (ii) enable them to: (A) take advantage of business and other income generating opportunities, (B) raise their income levels and develop skills, and (C) meet emergency needs and reduce their vulnerability and build assets\. Revised Project Development Objectives (as approved by original approving authority) The objective of the project is to (i) help the population of the Recipient’s territory to (A) improve their livelihoods, (B) make the transition from dependence on humanitarian assistance to economic independence, and (C) empower them to build on their entrepreneurial spirit and skills; (ii) provide to low-income people, through existing microfinance facilities, a range of financial services such as (A) income-generating and enterprise loans, (B) saving services, and (C) consumer loans; and (iii) establish the foundations of a strong and sustainable microfinance sector\. (a) PDO Indicator(s) Revised Target Original Target Values Actual Values Intermediate Values (as approved by Achieved Baseline Value Outcome Indicator (from approval original at Completion or documents) approving Target Years authority) PDO Indicator 1: Number of active clients of MFIs No baseline at project Value design (YR 2003) (quantitative or 1,000,000 680,000 435,442 Baseline established in Qualitative) 2006: 300,000 Date achieved 12/31/2006 06/30/2010 06/30/2010 05/26/2010 Comments (incl\. % The target was not achieved due to the consolidation and divestiture process in the MFI achievement) sector, which led to the shortfall as of 26-May-2010\. Number/% of Microfinance service providers registered as Afghan companies and PDO Indicator 2: operating under relevant Afghan laws and supervision Value (quantitative or 0/0% 15/100% 16/100% Qualitative) Date achieved 12/31/2006 12/31/ 2009 12/31/2008 Comments (incl\. % Target was achieved successfully\. In 2008, the sector had already 15 MFIs registered as achievement) local limited liability companies, and one additional was in registration process\. PDO Indicator 3: Percent of loan portfolio outstanding that is accounted for by MFPs with OSS>100%\. Value (quantitative or Qualitative) 0% 87% None Date achieved 12/31/2006 06/30/2010 05/26/2010 Comments (incl\. % The target was not achieved by project closing date due to consolidation and the achievement) divestiture process in the sector\. PDO Indicator 4: Percentage of active clients who are women: 60% (target was 65% for June 2010) Value (quantitative or 70% 65% 60% Qualitative) Date achieved 12/31/2006 06/30/2010 05/26/2010 Comments (incl\. % Consolidation and focus on individual lending meant a slight decline in the indicator as achievement) of 26-May-2010\. PDO Indicator 5: Increase in amount and percentage of loan portfolio outstanding relative to base year Value (quantitative or 65 mn 182 mn 168 mn/157% of Qualitative) base Date achieved 12/31/2006 06/30/2010 05/26/2010 Comments (incl\. % Target was not achieved due to the consolidation process in the sector\. By project closing achievement) date, the portfolio outstanding had increased 157% compared to its value of 2006\. (b) Intermediate Outcome Indicator(s) Revised Target Original Target Values Actual Values Intermediate Values (as approved by Achieved Baseline Value Outcome Indicator (from approval original at Completion or documents) approving Target Years authority) Indicator 1: Number / %of MFIs with an OSS (operational self-sufficiency ratio) of more than 100% Value 3 MFIs or 20% of (quantitative or 87% None MFIs Qualitative) Date achieved 12/31/2006 06/30/2010 05/26/2010 Comments (incl\. % Due to the ongoing consolidation process in the sector, by project closing date none of achievement) the MFIs had achieved OSS\. Indicator 2: Number/% of MFPs with PAR 30 less than 5%\. Value (quantitative or 85% 85% 27% Qualitative) Date achieved 12/31/2006 12/31/ 2010 05/26/2010 Comments (incl\. % The target was not achieved as a result of the crisis that affected the sector in 2008\. achievement) Nonetheless, by project closing date, MISFA had started a cleanup process in the portfolio of most MFIs which was showing positive results\. Indicator 3: Number of provinces in which MFPs are providing services Value (quantitative or Qualitative) 21 32 26 Date achieved 12/31/2006 06/30/2010 05/26/2012 Comments (incl\. % Due to security problems, MFIs had to close branches and stop operating in locations achievement) that were considered unsafe\. G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 06/13/2008 Satisfactory Satisfactory 124\.75 2 12/22/2008 Satisfactory Satisfactory 135\.14 3 06/19/2009 Satisfactory Satisfactory 164\.86 Moderately 4 01/20/2010 Satisfactory 164\.86 Satisfactory Moderately Moderately 5 06/25/2010 168\.94 Satisfactory Satisfactory 1\. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e\.g\., PAD/ISR, not evaluative) 1\.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance) 1\. Country and Sector Background: The design of the project and its first phase of implementation were carried out in an environment of great hope and expectations by donors and international development agencies about the reconstruction of conflict- affected Afghanistan\. The project was part of an integrated approach to the reconstruction efforts, with the Bank investing in other areas including education, community development, public works, infrastructure, and reconstruction\. All of these investments aimed at supporting the uplifting of the Afghan population\. 2\. In 2003 there was a dire need to deal with urban and rural poverty in Afghanistan\. War had devastated the country—people had been displaced, trade and commerce had been severely damaged and intermittent clampdowns on opium production and drought conditions had resulted in substantial decline in agricultural production\. Conditions were not conducive for investment: infrastructure facilities were poor; social capital was scarce; politically, the situation was still fragile, with continued outbreaks of fighting between rival factions in some parts of the country; the monetary system was unstable and the banking system virtually non-existent\. 3\. There was a large unmet demand for formal financial services, especially for poor people and microenterprises\. The informal sector was the main source of livelihoods for the majority of people\. There were two main constraints\. First, lack of capital was a key constraint to the growth of micro and small businesses\. Second, since the banking system had collapsed during the war, and there were no large scale NGOs or credit cooperatives providing credit, the majority of the people had to rely on a widespread informal financial system—rural indebtedness was a particularly serious problem in poppy growing areas\. There were no commercial banks in operation and it was clear that it would take some time before they could be established and in a position to serve the vast majority of the population\. Formal, microfinance services were, therefore, considered necessary\. With a total population of 26 million, the potential market was estimated to be at least one million households\. The development of a strong microfinance sector was thought to play a key role in the strategy to improve the livelihoods of poor and low income households in the country, as it would provide financial services that they could use to invest in enterprise activities, meet emergency needs, reduce vulnerability, and build assets\. Among the poor and low income households, there were three groups in the income spectrum with different characteristics, for which it was considered necessary to tailor a microfinance program: (i) the chronically poor—people with very low asset levels, few income earning opportunities, and suffering from food shortages and indebtedness (particularly in the rural areas), (ii) the large number of people who relied on informal sector activities to 1 earn a living—the economically active poor, including vulnerable groups, such as low- income women and demobilized soldiers who needed to find employment to reintegrate into regular life, (iii) and micro and small enterprises, which required capital to develop and grow their businesses\. 4\. The supply of microfinance services was limited\. An identification mission visited Afghanistan in May 2002 to review the scope and possible options for Bank assistance\. At the same time, the Consultative Group to Assist the Group –CGAP– carried out a detailed assessment of the microfinance sector\. Findings of both missions highlighted that while there was great demand for microfinance, existing providers did not have the capacity to meet this demand effectively\. In October 2002, the Bank carried out a preparation/appraisal mission and identified approximately 20 local and foreign NGOs that had or were planning microfinance activities in Afghanistan\. 5\. Microfinance programs were largely unsustainable due to lack of sufficient funding for on-lending purposes, and limited existing capacity to conduct a sustainable microfinance business\. These programs were generally a component of broader humanitarian efforts and not run on principles of self-sufficiency or envisioned as part of the creation of permanent and sustainable financial institutions\. Most NGOs had little knowledge of global best practice; and only a few programs were found to be of reasonable quality\. The NGOs’ total outstanding loan portfolio was of US$1 million and served 12,000 clients, a tiny percentage of the estimated potential demand\. Over half of the existing microfinance outreach was rural\. 6\. All organizations providing microfinance services were invited to submit proposals for financing\. An in-depth assessment was carried out to evaluate their business plans as well as to determine their capacity for delivering financial and technical services to the poor\. 7\. Rationale for Bank assistance: The Bank had extensive global experience in microfinance and had developed ‘best practice’ guidelines\. It had been instrumental in establishing apex institutions that played a key role in scaling-up microfinance in Bangladesh, Pakistan and Bosnia\. The primary function of these institutions was to channel (or ‘wholesale’) funds to retail MFIs, and in some cases was combined with other functions, such as providing technical assistance and training to build the capacity of partner MFIs, and helping develop an appropriate regulatory framework\. 8\. Given the Bank’s global experience and expertise, particularly in conflict affected areas, the Afghan Government and international donors supported its involvement and participation in leading the efforts for developing the microfinance sector in Afghanistan\. 9\. Relevant Context for Project Execution: The project was executed through two recipient-executed trust funds financed by the Afghanistan Reconstruction Trust Fund (ARTF)\. The initial project was established through two initial grant agreements: the ‘Microfinance Fund Project’ (TF052481 of June 4, 2003 for US$1,000,000) and the 2 ‘Microfinance Support for poverty Reduction Project’ (TF052452, July 10, 2003 for US$ 4,000,000)\.1 10\. The second grant agreement 2 of July 10, 2003 was amended ten times during project implementation\. Most of the amendments were introduced to increase the total grant funding for the project (it reached $183\.3 million by project closing), while a few were done to update key aspects of the project\. 11\. At the time of project preparation and during the first part of project implementation (2003-2007) some of the procedures involving project preparation, monitoring and supervision of projects financed by trust funds differed from the guidelines applicable today\. However, IDA procedures for disbursement and procurement were applied to trust fund projects\. At project design –and until 2007– there were no Bank requirements to file Implementation Status and Results Reports (ISRs) for this project3\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 12\. The project development objectives (PDOs) established in the grant agreement ‘Microfinance Fund Project’ (TF052081 - June 4, 2003) were to: (i) Provide poor and low income people, particularly women, with access to credit and financial services; and thereby (ii) Enable them to: a\. Take advantage of business and other income generating opportunities b\. Raise their income levels and develop skills, and c\. Meet emergency needs and reduce their vulnerability and build assets\. Performance indicators to measure PDOs were established in the first grant agreement and remained unmodified for the second agreement, as follows: 1\. Increase in outreach with appropriate geographical coverage and particular emphasis on poverty stricken areas and women\. 2\. Qualitative impact on the more intangible aspects of helping clients rebuild their lives after twenty years of war\. 3\. Improvements in the types and quality of financial products and services offered 1 Two different trust funds were initially setup to manage the funding from different donors\. Later in project implementation, the project managed all funds through a single multidonor trust fund (TF052452)\. 2 See Table 5 in section 1\.7 for a summary of the grants with the respective amendments introduced throughout the life of the project\. 3 Key project information on design, implementation and supervision can be found in the original grant agreements, the corresponding amendment letters, and multiple trust fund grant requests for the ARTF 3  to low-income clients\. 4\. Established systems for microfinance delivery by the microfinance institutions and NGOs (best practices, trained staff, improved services delivery, etc\.)\. 5\. Appointment of a Board of Directors and management of Microfinance Investment Support Facility Afghanistan (MISFA)\. The following match between objectives and indicators was prepared by the Implementation Completion and Results Report (ICR) team to better explain the initially defined performance indicators: Table 1\. Performance Indicators Objective Definition Values in 2003 Increase in outreach with appropriate geographical Outreach coverage and particular emphasis on poverty stricken 12,000 MFI clients areas and women\. Qualitative impact on the more intangible aspects of Livelihood helping clients rebuild their lives after twenty years of Not available war\. Supply of Improvements in the types and quality of financial financial products and services offered to low-income clients\. Not available services Established systems for microfinance delivery by the Sector microfinance institutions and NGOs (best practices, Not available Development trained staff, improved services delivery, etc\.)\. Appointment of a Board of Directors and management MISFA did not exist of MISFA\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 13\. Revised objectives of the project were approved under the Grant Agreement ‘Microfinance Support for Poverty Reduction Project’(TF052452, July 10, 2003), which continued the program of reconstruction activities set forth in the Microfinance Fund Project\. PDOs were to: (i) help the population of the Recipient's territory to a\. improve their livelihoods, b\. make the transition from dependence on humanitarian assistance to economic independence, and c\. empower them to build on their entrepreneurial spirit and skills; (ii) provide to low-income people, through existing microfinance facilities, a range of financial services such as: a\. income generating and enterprise loans, b\. saving services, and c\. consumer loans; and 4  (iii) establish the foundations of a strong and sustainable microfinance sector\. Although the PDOs specified in both trust fund grant agreements are similar or interrelated, it is important to note that only the first agreement (TF052081) established women outreach as a key project development objective\. Women outreach was one of the key indicators monitored throughout the 7\.2 years of project implementation\. 14\. As total funding for the project increased throughout project implementation, new targets were reestablished accordingly (i\.e\. number or microfinance clients, amount of loans disbursed, etc\.)\. Trust fund grant proposals were submitted to the ARTF management committee, including the updated targets to continue to scale up the project\. Changes to the indicators and targets were reflected in the grant funding requests and approved by the ARTF Management Committee\. 15\. In addition to the performance indicators established in both grant agreements (Table 1), a set of more specific and measurable indicators was monitored during project implementation\. These indicators had been identified in early stages of project preparation, and were gradually introduced as the project evolved (See Table 2 and 3)\. During 2004-2006, the indicators presented in the grant proposals included specific targets in terms of client outreach, and performance indicators for the participating MFIs in terms of portfolio quality and operational efficiency\. Although these indicators were monitored regularly, no formal amendment was introduced to the legal grant agreement to change the original indicators\. Table 2\. New Indicators introduced during Project Implementation Revised - March 2004 Revised – Feb\. 2006 Objective/Type of Original Grant Proposal for First Grant Proposal for Indicator (TF52081/TF52452) Amendment Fifth Amendment Increasing number of Increase in outreach with clients over time (originally appropriate geographical 40,000 to 50,000 clients by 5-year goal of Outreach coverage and particular Project end, March 2005; reaching 1 million emphasis on poverty new target 75,000) with households stricken areas and women\. movement towards significant scale\. Qualitative impact on the more intangible aspects of Livelihood helping clients rebuild Not included or mentioned\. their lives after 20 years of war\. Improvements in the types Well-conceived products and lending methodology and quality of financial Supply of Financial that take into account lessons learned from best products and services Services practice and effectively meet the needs of target offered to low-income market\. clients\. Established systems for microfinance delivery by MFIs develop systems to assess impact and get Sector Development the microfinance regular feedback on client satisfaction for improving institutions and NGOs product design and delivery of services\. (best practices, trained 5  staff, improved services delivery, etc\.)\. Appointment of a Board of Not included or mentioned Directors and management of MISFA\. Portfolio Portfolio at risk (PAR) over 30 days < 5% quality/Intermediat Write-offs (average annual portfolio outstanding ) < Not defined 3% e Outcome Indicator Rescheduled loans within active portfolio < 5% Operational Operating expenses are a reasonable percentage of Efficiency/ Not defined loan portfolio, in line with age, portfolio size and Intermediate target client group\. Outcome Indicator 16\. A new results framework was formally introduced in July 2008 with the tenth and last amendment to the grant\. As per project documents, this was done to align the project with the new IDA–financed ‘Expanding Microfinance Outreach and Improving Sustainability Project’ (Grant number H348-AF dated March 10, 2008)\. Baseline values for the project were established for the first time starting in year 2006\. Annual targets were defined for the period 2007-2010 (Table 3)\. The new results framework introduced indicators to measure progress towards operational self-sufficiency achieved by MFIs, registration of MFIs under Afghan laws, women outreach, and increase in total outstanding portfolio\. In addition, intermediate indicators were defined to monitor, profitability (return on assets –ROA), capital adequacy (CAR), and MFI sources of funding different from MISFA, 'afghanization’4 of MFIs, and geographical outreach5\. Table 3\. Revised Performance Indicators introduced to Grant Agreement July 2008 (Tenth Amendment) Baseline Actual Target Target Actual Target Objective/Type of Indicator Dec March Dec Dec Dec 2007 June 2010 2006 2008 2008 2009 1\. Percent of loan portfolio outstanding that is accounted for 51% 50% 52% 70% 85% 87% by MFIs with OSS>100% 2\. Number/% of MFIs registered as separate legal entities (microfinance only) under Afghan law -as corporations, companies, 0/0% 10/67% 14/93% 14/93% 15/100% 15/100% banks, or any other recognized legal form for financial service providers 3\. Number of active clients of 300,000 424,000 436,777 500,000 625,000 680,000 MFIs 4 Defined as the number of MFIs with Afghan board members/directors; top management positions held by Afghans\. 5 Measured by the number of provinces in which MFIs were providing services\. 6 4\. % of active clients who are 70% 68% 65% 65% 65% 65% women 5\. Amount of outstanding loan $103 $108 $130 $175 $182 $65 portfolio and percentage increase million million million million million million over December 2006 amount (158%) (165%) (200%) (270%) (280%) 6\. Number of provinces with active 21 23 23 28 30 32 MFIs Revised Intermediate Outcome Indicators Intermediate Outcomes Indicators 7\. Operationally sustainable MFIs Number /% of MFIs with an adjusted ROA> 3% increasingly capable of sourcing Number/%of MFIs with PAR 30 < 5% funds (commercial debt, Amount of funds on the balance sheets of MFIs from sources other international funds, savings) from than MISFA and their own equity\. the market Number/% of MFIs with a CAR > 12% 8\. Microfinance service providers are Afghan Number/% of MFIs with Afghan board members/directors in corporations/organizations with addition to international experts and owner representatives\. Afghans on their boards and in top management positions % of top management positions held by Afghans 9\. Outreach of financial service Number of active clients doubled within three years provision to poor people by microfinance service providers has doubled and reached most Number of provinces in which MFIs are providing services provinces\. 1\.4 Main Beneficiaries, (original and revised, briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) 17\. The beneficiaries were defined in the grant agreements as (i) the final recipients of the microcredit, and (ii) microfinance institutions intermediating the funds\. More specifically, “beneficiary" was defined as a village or neighborhood community or group (including poor and low income people, particularly women) which meets the eligibility criteria for the Project including: (i) people with very low asset levels and few income earning opportunities; (ii) economically active persons relying on informal sector activities for a living; (iii) micro and small enterprises; and (iv) MFIs 1\.5 Original Components (as approved) Project Components as approved in Grant Agreements A\. Microfinance Fund 7 Establishment and operation of a microfinance fund to provide Sub-Loans and Sub- Grants: (i) to MFIs for the funding of Sub-Projects to be carried out by eligible Beneficiaries; and (ii) for capital support and capacity building\. B\. Capacity Building of Microfinance Fund Providers6 Capacity building of microfinance fund providers (MFIs), including: (i) the strengthening of their governance structure; (ii) the development of their management information and accounting systems; (iii) the standardization of their monitoring and/or reporting requirements; (iv) strengthening portfolio management; and (v) training of staff of the MFIs in the execution of poverty reduction programs\. C\. Implementation Support Provision of implementation support to MRRD through a twining arrangement with a firm to build local capacity and strengthen MISFA as an independent and autonomous institution\. D\. Strengthening Microfinance Institutions 1\. Development of a sustainable microfinance sector, including: (i) the strengthening of the capacity of selected MFIs to deliver credit and other financial services; (ii) assisting such MFIs to move towards operational and financial self- sufficiency; (iii) supporting such MFIs in the planning and carrying out of microfinance programs; and (iv) improving the effectiveness of MFIs to carry out poverty reduction programs, including the making of Grants to Beneficiaries for the carrying out of business and other income-generating projects or activities\. 2\. Strengthening the capacity of the Ministry of Rural and Rehabilitation Development (MRRD) to manage and monitor grant funds\. 3\. The conduct of study tours and training of staff of MRRD, MISFA and MFIs\. E\. Microfinance Investment and Support Facility for MISFA 6 The term microfinance fund provider was used in a broad sense to include: NGO MFIs (including savings and credit groups, and individual lending), community based savings and credit associations or cooperatives, a microfinance bank or other specialized institution\. 8  The establishment of MISFA as an independent and autonomous apex microfinance institution to provide continuity of support to MFIs and ensure long term development and sustainability of the microfinance sector\. 1\.6 Revised Components No revision to original components was introduced\. 1\.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) 18\. The project was originally designed for a two year implementation period from March 2003 through March 2005\. Ultimately, the original closing date was extended by five years, and the project lasted 7\.2 years, ending in June 2010\. 19\. The original funding allocation was US$1 million as per grant agreement dated June 4, 2003, and additional US$4 million was provided through Grant Agreement dated July 10, 2003\. Subsequently, additional donor funding was raised by US$179 million through a total of ten amendments to the second grant agreement of July 10, 2003\. 20\. Amendments to the aggregate value of grant funds and closing dates of the project are provided in Table 4\. Table 4\. Grant Funding Received for Project Implementation Changes in Agreement/ Total Date Additional project closing Comments Amendment Funding date Two different TFs were June 4, 2003 TF-52081 $ 1,000,000 June 30, 2005 setup initially\. Later on, the project continued September 30, July 10, 2003 TF- 52452 $ 4,000,000 implementation under TF- 2005 52452 March 9, Amendments 1-10 were Amendment 1 $ 4,700,000 $ 8,700,000 June 30, 2006 2004 introduced to the TF-52452 July 27, 2004 Amendment 2 $ 8,000,000 $16,000,000 February 23, Amendment 3 $ 4,100,000 $ 20,100,000 2005 July 18, 2005 Amendment 4 $ 20,300,000 $ 40,400,000 February 28, Amendment 5 $ 13,900,000 $ 54,300,000 June 30, 2007 2006 A Project Agreement was signed between the Bank (administrator) and July 7, 2006 Amendment 6 $ 20,000,000 $ 74,300,000 Recipient to establish MISFA as the project implementing agency\. February 13, Amendment 7 $ 12,000,000 $86,300,000 2007 9 July 27, 2007 Amendment 8 $33,000,000 $ 119,300,000 February 5, Amendment 9 $ 14,000,000 $ 133,300,000 2008 July 15, 2008 Amendment 10 $ 50,000,000 $ 183,300,000 June 30, 2010 By the end of grace period October 31, $ -15, in October 2010, the Cancellation $ 168,939,258 2010 360741 undisbursed balance in the ARTF was cancelled\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) 2\.1\.1 Soundness of the Background Analysis 21\. Incorporation of lessons learned: Lessons learned from the development of microfinance in other countries incorporated in the design of this project included: ï‚ The poor and low income segments of the population are willing to borrow for income generation, and to pay financial charges\. ï‚ Institutional development is a prerequisite to sustainable delivery of financial services\. ï‚ An apex microfinance support facility improves sustainability of the sector by providing continued support to MFIs\. ï‚ The governance structure of the apex must be independent and autonomous, including representation of the microfinance sector\. ï‚ Additional best practice guidelines for the development of apex institutions7 included: o Apex must have a clear goal of nurturing the development of sustainable MFIs that achieve good financial and social performance and be accountable for achieving this goal\. o Funding must be based on a realistic assessment of the number of qualified MFIs that can borrow funds\. Provision of technical services is a separate business activity; MFI capacity building needs must be assessed and funded accordingly\. o Funding must be based on precisely defined selection criteria\. The apex should have the authority and capacity to monitor closely MFIs and discontinue funding to those that do not meet performance targets\. o Apex loans and other products must be tailored to the cash-flow patterns and planning needs of MFIs, not pre-set disbursement plans\. 7 Lessons learned and best practices for developing microfinance at the time can be found in CGAP Occasional Paper “Apex Institutions in Microfinanceâ€?, January 2002\. 10  o Management must be of very high quality and possess a blend of microfinance expertise, managerial and financial skills, and integrity\. In addition, the project design had to take into account a number of limitations and challenges: 22\. Developing microfinance in a conflict affected environment\. There were not many examples worldwide on how to jump start a microfinance sector in a conflict affected country\. The case of Bosnia appeared to be the closest to Afghanistan\. Starting the project with a pilot provided an opportunity to test out different models of microfinance\. Once finished, the second phase aimed at scaling up operations\. 23\. Assessing market potential and project targets with limited available data\. The project started preparation in mid-2002, soon after a new Government of Afghanistan was established, following the toppling of the Taliban Government\. In 2002/2003 there was very little reliable information on demographics, levels and incidence of poverty, including geographical distribution and composition of target markets\. Total population at the time was estimated around 26 million people, and the potential of the microfinance market was estimated at around 1 million households\. There were only 12,000 microfinance clients in the country at project start\. Later during implementation, the National Risk and Vulnerability Assessment 2007/2008 determined that from a total population or around 30 million, there were a total of 3\.4 million households in all of Afghanistan\. 24\. Given the long term objective of the project to develop the microfinance sector and due to the ongoing process of fund raising to support project implementation, initial targets for project outreach were determined based on fund availability\. For instance, during the early stages of the project in 2004, the objective was to reach 75,000 microfinance clients by project closing date in March 2005\. Total available funding at the time was US$ 8\.7 million\. It was estimated that in five years, the expansion of the project could reach 300,000-500,000 microfinance clients as additional funding became available\. The estimated growth was rapid, but considered feasible at the time based on international experience\. The sector was growing at rates between 127% and 200% during the first three years\. 25\. By early 2006, total available funding had increased to US$ 54\.3 million\. Consequently, the outreach target was further increased to reach 1 million households in a five year period\. Given the little background and lack of similar experiences worldwide, the feasibility and pace to achieve initial targets were difficult to assess at the time\. Main constraints for the project to grow were attributed to the limited funding available\. Strong emphasis was placed on disbursements and outreach by donors and stakeholders, and MFIs were incentivized to expand rapidly in order to serve as a vehicle for funds placement\.8 8 See “One Step Back from the brink: Donors, Disbursement and Defaultâ€?, by Dale Lampe, in Microbanking Bulletin\. July 2011\. 11  26\. Challenging Security Environment: The project started preparation in a period of increased hope and expectations for reconstruction and future of Afghanistan\. Security risks were recognized and accounted for during preparation, but at the same time great efforts were being made to stabilize conditions in the country\. Two distinct periods in terms of security environment can be identified\. As recorded throughout project documents, and confirmed through field interviews during the ICR mission, security was not an issue or obstacle for project development during its initial phase\. Security started to increasingly worsen since 2007\. 2\.1\.2 Assessment of the Project Design 27\. A two-phase approach was designed, including a transitory, pilot phase expected to last one year, and a second phase that would last four years\. The pilot phase was meant to provide an opportunity to test out different models of microfinance9, and funded an estimated $5 million to provide financial and technical assistance to qualified MFIs for on-lending activities, and to build capacity for the effective delivery of financial services\. The second phase would scale up operations through an independent and autonomous apex\. This phased approach was given preference over setting up a full-fledged facility as it allowed for better addressing the urgent need of providing the poor and low income population with access to financial services\. This will help them carry out their businesses and income generating activities, while allowing time to build local capacity to carry out the scale up phase\. In addition, it was expected that this approach would help the team circumvent the many risks that could delay effective implementation of the project\. 28\. The project started with the pilot phase supporting 5 MFIs (BRAC, Mercy Corps, FINCA, CARE, and CHF) each of which received performance based grants for capital support and capacity building, as well as loans for on-lending\. MISFA was expected to provide continuity of support to MFIs and ensure long term development and sustainability of the microfinance sector\. In setting up MISFA, the project supported and strongly encouraged the application of international best practices\. This was one of the key lessons learned from the development of microfinance in conflict affected areas\. MISFA was envisioned as the funding vehicle (wholesaler) to help channel all donor support through a competent technical agency, rather than disbursing separately to individual MFIs\. It was also expected that MISFA would contribute to streamlining reporting and fundraising procedures for MFIs, allowing them to concentrate on quickly building up retail capacity\. Project Development Objectives 29\. The overarching objective of the project can be summarized in two key objectives: (i) supporting income generating activities of low income population through 9 These included NGO MFIs –both savings and credit groups and individual lending–, community-based savings, credit associations or cooperatives, and micro-finance commercial banks\. 12 the provision of financial services; and (ii) establishing the foundations of a strong and sustainable microfinance sector\. In hindsight, project development objectives and components were complex and overly ambitious when compared with the initial funding and implementation period established in the original agreement\.10Although the project was designed to be implemented in two phases, it was difficult to assess the time required to effectively implement the pilot phase, build capacity, extract initial lessons, and launch the scale-up phase\. Nonetheless, the project’s PDOs, components, and activities, adequately supported the project’s rationale of building up a microfinance sector that could support income generating activities for low income households\. Project Components 30\. The project adequately incorporated lessons learned for institutional capacity building and included specific lines within project components for training and capacity building needs of participating MFIs, government institutions involved in project implementation (MRRD), and MISFA\. 31\. The scope of activities and the targets for each phase were thoroughly developed and documented in the project implementation plan prepared in 2002-2003\. However, in hindsight, the time (2 years) required to effectively establishing MISFA with the support of a qualified international entity (including training of local staff, establishment of accounting and management systems, as well as monitoring and supervisory capacity of MFIs) and the hand-over to local management was initially underestimated\. 32\. Some of the activities envisaged within the different components were interrelated\. For instance, successful completion of the activities geared toward the creation of MISFA under the different components was a pre-requisite for the success of other components of the project\. ï‚ Component A provided for the establishment of the microfinance fund that would provide the resources to help develop a strong capital base for MFIs, while expanding outreach, as well as the necessary resources for onlending to final beneficiaries\. This fund was designed to be managed by MISFA\. ï‚ Components C and E aimed at addressing the creation and capacity building of MISFA to be able to support the development of the microfinance sector in Afghanistan\. The main activity sponsored under Component C was the provision of technical assistance to MRRD by a qualified entity to establish and manage MISFA\. After the initial setup envisaged under Component C, activities under Component E would support the buildup of MISFA as an independent and autonomous entity, responsible for long term support to the microfinance sector\. 10 The project started with US$ 5 million and the initial closing date was March 2005\. 13 ï‚ Components B and D responded to the two-stage approach (pilot phase and scale-up) envisaged for project implementation\. Component B focused on developing initial institutional capacity of MFIs for future scaling up of their business, including their governance structure, management information (MIS) and accounting systems, risk management and other relevant operational requirements\. Component D included the majority of grant funding given to MFIs which covered training and capacity building, aimed at further strengthening capacity of MFIs to ensure their long-term sustainability11\. 33\. With the strong need in the early days to show ability to disburse and implement, good planning and ability to mobilize resources was important\. Therefore, careful attention was given at design stage to the quality of and control over the MFIs: a\. MFIs as retailers were initially to be selected from a pool of institutions providing microfinance services at the local/international level\. b\. Qualifying MFIs would receive performance-based grants for capital support and capacity building as well as loans for on-lending c\. To launch the program, a field appraisal was carried out to assess compliance of MFIs with eligibility criteria: ï‚ Microfinance experience: (i) at least six months existing experience of microcredit or microfinance provision in Afghanistan, or (ii) at least 5 years of experience internationally12\. ï‚ Commitment to sustainability: Experience or well documented business plans to develop a sustainable microfinance service provision over the long-term\. ï‚ Geographic coverage: A mix of organizations that provide good national geographic coverage\. ï‚ Diversity of approaches: A mix of organizations that target a range of client groups and represent different organizational models or delivery mechanisms\. d\. MFIs were required to maintain performance standards to remain eligible for ongoing and future financing\. In the case of non-performance, funds could be recalled and reallocated to better performing institutions\. 11 Activities to be sponsored under this component included (i) contracting technical services out to qualified providers for intensive capacity-building support provided to all participating MFIs; (ii) technical assistance and training in core business areas (i\.e\. lending methodologies, accounting and control systems, design and implementation of MIS; and (iii) technical assistance for institutional strengthening of MISFA to build staff, monitoring mechanisms, and funding instruments\. 12 The applicant had to have a proven track record in building financially sustainable microfinance institutions and a methodology that was adaptable to the Afghan context\. 14 2\.1\.3 Adequacy of government’s commitment 34\. The government was actively involved and committed during the design and preparation of the project\. MISFA began in 2003 as one of the project’s components and was housed under the MRRD\. During the pilot phase, as an interim transition arrangement, MISFA was governed by a steering committee comprised of MRRD and the principal funders and sponsors\. The MRRD was also charged with providing logistical support to MISFA\. 35\. One of the objectives to be accomplished during the pilot phase was “the establishment of MISFA as an independent and autonomous apex microfinance institution to provide continuity of support to MFIs and ensure long term development and sustainability of the sector\.â€? MISFA was finally set up as a private non shareholding company in March 2006 with the Ministry of Finance (MoF) as the sole sponsor\. 2\.1\.4 Assessment of risks 36\. Rapid growth of the sector was envisaged in the original project design and consistent with the experience and lessons learned in other countries\. Nonetheless, as the experience of other countries would also later confirm, a very rapid growth with insufficiently robust systems (notably internal controls) led to a repayment crisis, which in turn affected the viability of several institutions\. This was not unique to Afghanistan, and countries like Pakistan, Bangladesh, India, and Bosnia, among several others, started to experience microfinance crises in 2008\.13 In the case of Afghanistan, this situation was compounded by a worsening security situation\. 37\. General risks related to the weak capacity to implement the project both at MISFA level and MFIs were identified at project design\. Project components adequately reflected these risks, placing significant emphasis on capacity building and institutional development\. The time to build such capacity and complete the transfer of management and operation of these institutions to Afghan nationals in the sector may have been underestimated\. 38\. The lack of skilled Afghan staff, as well as additional challenges posed by staff turnover in MISFA and MFIs was a major constraint during the implementation phase\. These constraints may have been underestimated at project design\. 39\. Notably, in the case of MISFA the situation improved considerably after 2008, with the incorporation of lessons learned from the microfinance crisis into their operation\. A new management team came into MISFA in 2008 and shifted the focus of its operation, strengthening MISFA’s monitoring and supervisory capacity of MFIs, and playing a more active role in the consolidation of the sector as a result of the crisis\. 13 CGAP, 2010\. “Growth and Vulnerabilities in Microfinanceâ€?\. 15 2\.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) 40\. For the implementation period of 2003-2008, based on the impressive growth of MFIs’ outreach, the ARTF project had been rated as Satisfactory\. The case of MISFA was showcased by the Bank and donors as a success story on how to jumpstart a microfinance sector in a conflict affected environment\. In spite of ongoing insurgent activity and insecurity, microfinance was one of the success stories coming out of Afghanistan\. 41\. As a consequence of the remarkable growth experienced in the sector, the good performance in key indicators such as client outreach, percentage of women benefitting from the newly established microfinance services, and expansion of geographical coverage of MFIs, the project managed to raise several rounds of donor funding to scale up operations\. A shortcoming of the unique design of the project was the constant update in main outcome and intermediate indicators, which makes it difficult to evaluate the achievement of project’s outcomes in a consistent manner\. As explained earlier in section 1\.1 (p\.10) this was a trust fund executed project and although IDA procedures applied for procurement and related fiduciary standards, in some instances IDA conditions were relaxed14 \. Some key bank procedures were updated during the implementation of the project\. For instance, amendments to the grant agreement were introduced to reflect the new policies in terms of procurement rules\. In addition, ISRs were introduced to supervise and monitor project results since 2007 Initial Delays in Project Implementation 42\. Due to initial delays for MFIs to receive grant funding and credit line support –in some cases of more than a year–, the overall project schedule was shifted, causing the scale up period to start later than initially planned\. Following IDA rules for procurement and disbursement caused some problems at the project outset as MISFA and MFIs familiarized themselves with the procedures\. In addition, being part of the ARTF meant that expenditures were going through the budget, which in turn meant that the process to authorize and effect disbursement took longer than expected\. In the initial stage, funding proposals needed to have government approval, and all proposals beyond US$ 200,000 required Presidential approval\. These issues were resolved as implementation progressed\. Mid-Term Review15 14 One example of this was the relaxation of the condition of no objection certificates for expenditure below certain thresholds, and the rules regarding the statement of expenditures prior to release of second and subsequent tranches were also relaxed\. For more information on this, see “Aid Effectiveness and Microfinance: Lessons from Afghanistan “by Martin Greeley, March 2005\. 15 A mid-term review to assess the status of the microfinance sector and the role of MISFA in its development was commissioned by the MRRD, MoF, and MISFA donors\. 16 43\. The mid-term review found that with ‘continued support and an enabling environment, there was potential for many MFIs to become financially sustainable’ in the three years following the review\. The role of MISFA to support the sector was considered as highly satisfactory, and justified a clear need for its continuation to channel funds to the MFIs to improve their capacity, outreach and sustainability\. It was also recognized that for MISFA to optimally serve the sector in the future, improved security conditions leading to stability were necessary\. In addition, the review advocated for a clear support through uninterrupted and timely funding from donors and the Government, continued independence to operate following microfinance best practices\. In terms of the development of the microfinance sector, the review found that ‘the deliberate approach to encourage rapid scaling in client outreach’ had been successful in building a microfinance sector in a short period of time\. MISFA’s efforts to move towards commercialization were an example in the South Asia region\. Relevance of Project Components 44\. Indicative of the two-phase approach was the rapid growth experienced in the first three years of the project during the pilot phase\. Most efforts were placed on increasing disbursement levels, mobilizing resources to reach out to most vulnerable segments of the population and heavily affected conflict areas\. This strategy was aligned with project PDOs of supporting income generating activities in Afghanistan, and establishing the foundations of a strong and sustainable microfinance sector\. 45\. Due to the extension of project closing dates, from March 2005 originally to June 2010, some project components and sub-components lost relevance over time\. This was the case of components E and C, which focused on establishing MISFA\. Similarly, the provision of grants for capital support and capacity building of MFIs was designed to fade out as the project transitioned to the scale up phase\. Boom-bust period in the development of the microfinance sector 46\. In describing and understanding the development of the microfinance sector in Afghanistan two periods can be identified: (1) start-up and growth, and (2) consolidation process\. The early years of microfinance in Afghanistan covered the period 2003-2008\. By March of 2008, MFIs had collectively served 450,000 clients in 23 of Afghanistan’s 34 provinces with loans outstanding of more than US$ 106 million\. 70% of the clients were women and 40% of loans were taken in rural areas\. The rate of loan repayments was reported to be 98%\. There was a rapid increase in outreach; the reports from the MFIs indicated progress toward operational self-sustainability and the organizations were replacing international managers with Afghan staff\. 17  Figure 2\. Reported growth of the Afghan microfinance sector 2003-2011 Microfinance Sector 2004â€?2011 140\.00 500,000 450,000 120\.00 US Million $ 400,000 100\.00 350,000 80\.00 300,000 Active 250,000 60\.00 Cli 200,000 40\.00 150,000 100,000 20\.00 50,000 - - 2004 2005 2006 2007 2008 2009 2010* 2011 Portfolio outstanding Number of active clients Source: MISFA and Project documents 47\. A second period in the development of the sector, the consolidation period, can be said to have started in 2008 and continued beyond 2010, after the project closed\. By 2008, the MFIs revealed serious weaknesses in many of the internal reporting systems and the future viability of a number of the institutions came into question\. Due to the deterioration of the conditions in the sector, which were reflected on MFIs client growth, portfolio quality and operating costs, MISFA started a consolidation process of its MFI partners in 2008\. The rapid client outreach had come at the expense of proper due diligence in lending, compliance with internal control processes and internal monitoring of performance, all of which would have required much more time and attention\. These factors, combined with cost inflation and a deteriorating security environment, contributed to a marked slowing of growth and a decline in the portfolio quality of most of the MFIs\. 48\. Revised outcome indicators which were originally on track started to deteriorate and remained below target by project closing date\. Consequently, rating of the ARTF project was downgraded to moderately satisfactory when it closed on June 30, 2010\. It should be noted that a potential consolidation process was accounted for in the project’s initial design\. The project intended to test different microfinance models, which would later lead to unsuccessful models leaving the business, and stronger MFIs taking the lead in the development of the sector\. 49\. The worsening situation in the microfinance sector after the rapid growth of 2003- 2008 was not unique to Afghanistan\. A systemic crisis affected the microfinance sector in a number of countries during the same period\. Similar to Afghanistan, microfinance experienced an unprecedented growth and rapid expansion in several countries during 2004-2008\. At the same time, donors and social investors began to channel larger 18 amounts of funds to MFIs worldwide, generating a significant supply pressure behind the rapid growth\. 16 While financial performance remained solid during the early years, problems with credit repayments started to emerge in 2008\. Insufficiently robust monitoring systems in the MFIs contributed to the crisis, leading to a consolidation process in the sector in different countries\. Development of Institutional Capacity 50\. As project implementation progressed, MISFA’s limited capacity became a constraint to ensure adequate monitoring and supervision of MFI’s activities and their performance towards the agreed business plan\. During the period in which MISFA was being setup and in-house capacity was built, monitoring and evaluation of MFIs was conducted through the hiring of external experts and rating agencies\. These evaluations provided key inputs on the performance of MFIs and monitored the implementation of their business plan, including progress of capacity building activities\. By the end of the initial implementation phase, MISFA was expected to become an autonomous entity in charge of wholesaling funds and providing capacity building support to retail MFIs\. While each individual NGO/MFI would implement its own program (including onlending and capacity building programs), MISFA would take the lead in ensuring overall compliance with the project, including achievement of MFIs 17 business development plans and performance targets\. 51\. However, there was a dire shortage of skilled Afghans that significantly affected project implementation\. This was further aggravated by a high turnover of the staff, which was linked to (i) competing job offers as trained Afghan staff were scarce and in strong demand, and (ii) the security situation\. The high staff turnover both in MISFA and the different MFIs is said to have negatively affected project implementation in a number of ways: (i) lack of knowledge –and implementation– of operational manuals that were developed using international best-practice in microfinance, (ii) lack of knowledge–and implementation– of Bank guidelines and procedures on financial management, procurement and general project implementation which affected compliance or delayed implementation in a number of cases (See section 2\.4), and (iii) delays in process of institutional capacity building by limiting the transfer of know-how to local institutions and Afghan staff\. 52\. Monitoring and supervision shortcomings were addressed by MISFA management later in project implementation\. For instance, MISFA shifted its focus in 2008, identifying three goals to strengthen its role and that of its partner institutions: (a) accountability, (b) transparency, and (d) portfolio quality 18 \. For the first time since project start, MISFA began engaging more directly with the MFI shareholders and holding them accountable for the operations of their MFIs by requiring shareholder equity injections as a pre-condition for further MISFA financial support\. In addition, in 16 CGAP, 2010\. “Growth and Vulnerabilities in Microfinanceâ€?\. 17 By December 2007, MISFA had 16 MFI partners under contract\. 18 MISFA, Draft Strategic Plan, 2010-2015\. 19 2009, MISFA began to focus more attention on direct monitoring and supervision of the MFIs to verify the transparency and accountability of the reporting\. To do so, MISFA had first strengthened its own core functions of finance, monitoring, risk management, and governance to set a clear standard for MFI operations\. Security Issues 53\. Starting 2007, security conditions started to deteriorate and the situation worsened progressively thereafter\. The deteriorating security environment led to previously robust areas of operation either to shrink or to the exit of MFIs from those regions\. This led to a slowdown in overall growth in the sector; branches were closed in a number of regions, preventing onsite visits of MFI staff, and affecting loan collection, and subsequently negatively affecting portfolio quality\. Project outcomes were severely affected in the specific regions\. Cancellation of undisbursed balance 54\. By the end of project implementation, an undisbursed balance of US$15\.360\.741 was cancelled\. This is explained by the consolidation process that started in 2008, which led to a slowdown in the sector’s growth\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design 55\. Although a set of project performance indicators was established with the initial grant agreement, these indicators were vague and did not allow for adequately measuring progress towards achievement of PDOs\. This, however, could be explained by the fact that the project started with relatively little funding (US$5 million), but with the expectation to continue to raise donor funding to scale up the project\. In particular, indicators such as (i) qualitative impact on the more intangible aspects of helping clients rebuild their lives, and (ii) improvements in the type and quality of financial products and services provided, were broadly defined, thus making it difficult to measure\. 56\. As the project evolved, additional indicators were subsequently incorporated and monitored to better define original performance indicators and achievement of PDOs\. A shortcoming is that these indicators were modified several times during project implementation to accommodate scale up of the project, as well as changing conditions in the overall microfinance environment\. 57\. Intermediate outcome indicators were well defined, measurable and attributable to the project\. Intermediate outcome indicators were monitored and reported in terms of number of active clients and women clients; number of loans disbursed; cumulative amount of loans disbursed; the amount of outstanding loans; and the microfinance share of the total sector loan portfolio, and operational sustainability of MFIs\. 20  Implementation 58\. Results and intermediate indicators developed and monitored throughout project implementation were appropriate\. The results framework of the project was refined and improved as the project scaled up\. 59\. The project’s objectives also included (i) providing a range of financial services such as income generating loans, saving services, and consumer loans; and (ii) help the people to improve their livelihoods, raise their income and develop skills, build assets and reduce vulnerability, etc\. Although no indicators were specified to monitor these outcomes during project implementation, an impact assessment conducted in 2009 19 indicated that microfinance activities sponsored under the project had a positive impact on the lives of borrowers and their families, improving their livelihoods\. Utilization 60\. The project started to address the need for impact measurement at the household level later during implementation\. Case studies were carried out to monitor progress and to identify project constraints and shortcomings to be able to adjust interventions in the project\. A baseline survey 20 was conducted in the first quarter of 2007 to document outcomes of the project\. It included a sample of 1015 households and was representative at the national level\. Key findings of the study were the following: ï‚ Before the microfinance sector started functioning in Afghanistan in 2003, 65% of the households did not take any loans\. ï‚ The remaining 35% borrowed from friends, relatives and moneylenders\. Households burdened under consumptive debt would find their asset base eroded to furnish the debt\. ï‚ 23% of the sample reported that their credit needs went unmet before the advent of MFIs ï‚ Loans were taken to finance livestock, small business, self-employment and housing\. ï‚ 81% of loans had been used to either start a new business or expand an existing business\. 2\.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) Financial Management 61\. The project operated under the steadily improving Project Financial Management reforms under implementation by the Government of Afghanistan with the World Bank assistance\. Under these reforms, proper records of grants received and disbursements 19 Source: ARTF Report 20 A summary of the baseline study can be found in the attachment of the ninth amendment to the grant agreement done in April 5, 2008\. 21 through the designated accounts were maintained by the MoF Special Disbursement Unit\. This was initially manual and later migrated to the Afghanistan Financial Management Information System (AFMIS)\. The funds flow to the project was timely\. 62\. Proper records of eligible expenditures for various components and activities were maintained by MISFA\. Internal controls were adequate\. There were periodic internal audits done by MISFA, except for fiscal year 2011, where a single internal audit covering the whole year was planned\. This internal audit report was not available for review at the time the last supervision was done for the project in November 2010 after the project closing\. Regular IUFRs in the agreed format were submitted during the life of the project\. 63\. Annual audited financial statements were submitted regularly though there were delays in the initial four years\. The audit opinion of the Control and Audit Office of Afghanistan was qualified (unclean) for solar years 1383, 1384, and 1387; for all other years up to SY1389 the audit opinion was unqualified (clean)\. All audit observations up to SY1389 were promptly resolved\. The last audit for the project was for SY1389\. 64\. The financial management capacity strengthened during the course of the implementation of the project\. The Bank’s FM unit participated in all supervision missions and provided guidance and support to strengthen the FM arrangements\. The project closed with a ‘Moderately Satisfactory’ FM supervision rating\. Procurement 65\. MISFA –as well as the MFIs – had to follow World Bank procurement guidelines\. Expenditures covered by the project included five different categories: (i) goods, (ii) consultants’ services and audits, (iii) training, (iv) incremental operating costs, and (v) sub-grants and sub-loans\. Procurement of goods and consultants’ services for MISFA and MFIs had to adhere to World Bank guidelines\. 66\. The post procurement review found important deviations during the procurement process: ï‚ There was neither a focal point/procurement expert within MISFA to provide guidance to the MFIs, nor there were procurement experts hired under the MFIs to look after the procurement of goods and hiring consultants\. ï‚ Despite the guidance provided to the MFIs and MISFA they were not able to prepare a proper procurement plan for their goods and consultants to be hired\. ï‚ The Bank provided training to enhance the capacity of the staff assigned for procurement under the MFIs and informed them of the bank guidelines\. However, due to frequent turnover of MISFA and MFIs staff, the training was of little help to the implementing agencies\. 22 67\. The project had to refund $291,125 to the Bank at the end of the project as one MFI failed to comply with Bank procurement guidelines\. The procurement performance under the project was rated as Unsatisfactory\. 2\.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) 68\. Project’s achievements in the expansion and development of the microfinance sector in Afghanistan created a strong momentum for continued support to growing MFIs\. A follow-up project ‘Expanding Microfinance Outreach and Improving Sustainability’ financed by IDA was prepared in 2007\. The objective of the project was to continue to support MISFA by focusing on achieving sustainability of MFIs and helping them achieve operating self-sufficiency\. The project closing date was June 2012\. 69\. Despite the success of the ARTF funded project in setting up the microfinance sector, government authorities, donors, MISFA and MFIs recognize that further development of the sector faces significant challenges to achieve sustainability and increase, or even maintain, current outreach levels\. While the microfinance sector in Afghanistan grew steadily until 2008, the number of borrowers has been decreasing since then, and the speed of loan growth has slowed down\. As noted earlier, this was influenced by the general crisis that affected the microfinance sector worldwide and is not unique to Afghanistan 70\. MISFA, nonetheless has managed to weather the crisis by carrying out difficult reforms in the sector\. In 2012, after a long and arduous exit and consolidation process closely overseen by MISFA, the number of microfinance partners had decreased from 16 separate MFIs to seven\. Two main institutions continued to provide microfinance services outside MISFA: FINCA and IIFC\. Two MFIs are about to exit the sector (BRAC and ASA)\. MISFA’s new strategic priorities, established in the draft business plan for 2013- 2015, focus on three primary areas (i) continuing growth of MISFA as a strong institution; (ii) deepening MISFA’s core business of access to finance; and (iii) expanding development activities that will complement and expand the market for the core work\. 71\. The World Bank intends to continue supporting efforts to increase access to finance in Afghanistan which has one of the lowest access rates in the world\. To do so, the World Bank is considering further support to MISFA –learning from the lessons of close to 10 years of collaboration\. In line with MISFA draft strategic plan, the focus would be on supporting the development of appropriate financial products to the Afghan context\. Despite the microfinance crisis, the achievements in the microfinance sector should not be under-estimated considering the huge challenges faced by Afghanistan\. 23 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) 72\. The project—its objectives, design, and results—remain highly relevant for Afghanistan’s economic development\. The World Bank continues to play an important role in the country with assistance in this area\. Through this project, it supported an innovative approach that scaled-up an initial pilot and provided benefits beyond what was expected when the project started in 2003\. In addition, microfinance continues to play a key role in the developmental strategy for Afghanistan\. The Bank Interim Strategy Note21 (ISN) for Afghanistan for the period 2012-2014 includes the support to ‘access to financial services’ under the pillar for ‘Strengthening the Business Environment’\. The support will build on the lessons learned from the implementation of the ‘ARTF – Microfinance Support for Poverty Reduction Project’ and the ‘IDA –Expanding Microfinance Outreach’ projects\. 3\.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) 73\. At the design stage, significant benefits were expected from the project: (i) facilitation of credit expansion to support income generating activities and available financial products for low income segments; (iii) improvement in institutional and technical capacity of MFIs (iv) building a strong apex institution to channel funding and contribute to sustainability of the microfinance sector\. Although the project achieved part of the initial objectives, there were some shortcomings derived from a longer than expected process to effectively build institutional capacity\. These shortcomings significantly constrained further development of the sector, and contributed to the deterioration of financial soundness indicators of MFIs\. 74\. By project closing date in June 2010, the project had partially achieved its main development objectives of providing support to income generating activities for low income households through the provision of microfinance services, and establishing the foundations of a strong and sustainable microfinance sector\. The project was successful in providing support to low income households through microcredits and in establishing the foundations of a microfinance sector in Afghanistan\. In terms of ensuring sustainability of that sector, the project was affected by the consolidation process that started in 2008, which slowed down the scale up and strengthening process of the microfinance sector as a whole\. 21 IDA and IFC, Interim Strategy Note for Islamic Republic of Afghanistan for the period FY12-FY14\. http://www- wds\.worldbank\.org/external/default/WDSContentServer/WDSP/IB/2012/04/02/000386194_201204020130 35/Rendered/PDF/668620ISN0P1250Official0Use0Only090\.pdf 24 75\. As explained in section 2\.2 (p\. 46), the microfinance sector has gone through two different cycles so far\. Starting 2008, the number of borrowers started to decrease, loan growth slowed down rapidly, arrears and default were rising, and the operations of a number of MFIs began to deteriorate\. By 2008, the sector had already 15 locally registered limited liability companies providing microcredit, one company in registration process, 428,000 clients, 373,000 borrowers and an outstanding loan portfolio of around US$107 million\. 76\. At project closing, the sector had been experiencing a consolidation process initiated by MISFA\. The outstanding loan portfolio in November 2010 was US$123 million, and total outreach was 431,000 microfinance clients, 60% of which were women\. From a total of 16 MFI partners at the project’s peak, 9 MFIs remained in business\. The reduction in the number of MFI cannot be considered as an indicator of the project’s failure or success, as outcomes were measured by client outreach and progress towards sustainability\. Although sustainability of the remaining MFIs in the sector had not yet been ensured, efforts were focused on achieving operational self-sufficiency\. The results of MISFA’s active engagement in merging the operation of 5 failing MFIs to transform them in a sustainable institution (MUTAHID) are yet to be seen\. 77\. In summary, total outreach achieved at project-end was 431,000 clients, compared to the project target of 680,000\. Considering that the project started with only 12,000 microfinance clients, achieving more than 400,000 clients in seven years and in spite of the challenging conditions, can be considered a project success\. In other aspects, however, the project did not manage to achieve key intermediate results indicators\. Overall quality of portfolio (PAR30) was 27% compared to the project target of 5%; number of provinces with MFIs was 26 compared to the project target of 32; and none of the MFIs had achieved operational self-sufficiency\. 78\. Nonetheless, the significant impact that the project had on jumpstarting the microfinance industry in Afghanistan needs to be recognized\. By closing date, the project had already established the foundations of a microfinance sector in the country\. Despite the multiple challenges faced during implementation (See section 2\.2), and the failure of some MFIs, the project showed that microfinance could be developed in a difficult environment such as Afghanistan\. 79\. Evidence of progress towards the project PDO of supporting income generating activities was presented through two studies, which estimated that more than 80% of loans were used to start or expand businesses, and that each borrower generated 1\.5 jobs\. A 2009 impact assessment indicates that microfinance activities have had a positive impact on the lives of female borrowers and their families\. While 70% of microfinance clients are women, the survey also found that 80% of loans were used by men\. Nonetheless, female clients reported to have improved their contribution to business decisions and there was a positive impact on women clients’ participation in the household economic-decision making on food, utilities, health, education, and clothing\. Improvement was also seen in client savings, with 69% of clients saving money, compared to only 34% before taking the loan\. 25 80\. The achievement of PDO is considered as Moderately Satisfactory\. The achievements of the components are discussed below\. 81\. Component A\. Microfinance Fund (US$ 120\.9 million): The project successfully established a microfinance fund to provide loans to MFIs to carry out their operation and to support development in the sector\. As envisaged by the project, MISFA uses the fund for onlending to MFIs\. 82\. Component B\. Capacity Building of Microfinance Fund Providers (US$ 1\.2 million): This component is interrelated with D and had limited success in most of the participating MFIs\. Final performance of this component is difficult to rate, as there were no specific indicators to measure progress of the component\. As mentioned throughout the ICR, the project did account for the implementation (and potential failure) of a variety of approaches and business models in microfinance during the pilot phase of the project\. In other words, the initial funding was intended to test out viable approaches, and then to consolidate funding and support –through mergers and takeovers– to fewer stronger microfinance providers\. 83\. Component C\. Implementation Support (US$ 2\.4 million): This component is interrelated with E and was successfully accomplished early in project implementation with the transformation of MISFA from being a program within the MRRD jurisdiction into an independent institution\. The main achievement of this component and of the project in general, was the creation of a competent and independent apex institution, which is currently fully operational under Afghan laws and with strong local capacity\. The project envisaged from the beginning an independent institution with a strong governance structure, a goal achieved during implementation with the appointment of a strong and independent board of directors\. This has allowed MISFA to implement difficult reforms, such as the consolidation of the sector, which are notably positive given the lack of similar examples of reforms in Afghanistan\. 84\. Component D\. Strengthening Microfinance Institutions (US$ 41\.9 million): This component is closely connected to B, and included most part of the grant funding provided to MFIs to start their business and scale up\. Successful implementation of this component entailed as prerequisite the successful achievement of capacity building of MFIs, including adapting their business models to the Afghan context\. Nonetheless, and apart from some external issues that affected project implementation in general, several MFIs did not manage to develop strong management and monitoring systems to support their operations, which subsequently undermined their financial sustainability\. As mentioned earlier, this was part of a sector-level crisis that also occurred in India, Morocco, and other countries, and not unique to Afghanistan\. 85\. In addition, MFIs suffered from high turnover of staff which affected the impact and continuity of training and capacity building efforts in these institutions –as is common in Afghanistan and other conflict-affected environments with poor security and 26 scarce human resources (in terms of trained and experienced staff, who can be in high demand from other employers)\. Further to this, increasing security issues added to the problem, contributing to high staff turnover in security affected areas\. Due to the shortcomings in building up strong MFIs, this component was only partially successful\. 86\. By project closing date, the number of MFIs supported by MISFA had shrunk from 16 to 9, with the ongoing exit or consolidation of MFIs that were underperforming\. As the consolidation process was accounted for as a potential consequence of the two phase approach, it should not be considered as a failure of the project\. Actual problems should be assessed in terms of the decrease in total number of active clients (project outreach) and on the overall outstanding portfolio\. Furthermore, MISFA’s active role in carrying out reforms to consolidate the sector, implementing lessons learned, should be highlighted as one key achievement in strengthening the microfinance sector in Afghanistan while recovering from the crisis\. 87\. Project intermediate indicators confirmed that all participating MFIs were operating as Afghan companies by project closing date\. However, apart from the First Microfinance Bank (FMFB), none of the MFIs had achieved operational self-sufficiency\. As of July 2012, operational self-sufficiency indicators for MISFA partners were as follows: FMFB (128\.1%); Hope for Life –HFL (73\.3%); Oxus (80\.8%); ASA (27%); and MUTAHID (29\.6%)\. 88\. Component E\. Microfinance Investment and Support Facility for MISFA: This component is closely related to C and was successfully achieved during the implementation of the project\. MISFA has been working successfully on strengthening its capacity and building up new systems to continue to monitor and support the development of the MFI sector in Afghanistan\. 89\. MISFA has played a key and active role in the restructuring of the sector since 2008\. By the end of 2010, MISFA had a net portfolio outstanding of US$ 58\.7 million, and total assets in the amount of US$ 136\.5 million\. MISFA has reported positive financial results since 2007 onwards, and has achieved financial sustainability, being able to sustain its lending activity with the proceeds received from loans repayments\. MISFA’s net operating profit has been increasing consistently from US$ 500,000 in 2007 to US$ 3\.1 million in 2010\. 3\.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e\.g\., unit rate norms, least cost, and comparisons; and Financial Rate of Return) 90\. There were no estimates of economic rate of return, cost effectiveness or net present value at project start\. The unique challenging conditions experienced during project implementation make it difficult to compare this project with alternative scenarios or to establish an economic rate of return\. Further to this, and given that there was no microfinance sector in Afghanistan before project start, it would be arbitrary to establish efficiency estimates for the period 2003-2010\. This cannot be done without considering 27  the long term nature of the process, the challenges of developing a sector from scratch, and the two cycles and systemic issues that impacted the development of the sector in several countries worldwide\. 91\. The question to be asked is whether the Bank, given the benefit of hindsight, would have proceeded with the Microfinance for Poverty Reduction project\. The project supported the emergence of a microfinance sector in Afghanistan that is now –despite the contraction experienced in recent years– in place and on its way to consolidation; catalyzing the expansion of microfinance lending to low income segments in need of funds for consumption and income generating activities\. 92\. The existence of a microfinance sector in Afghanistan, and of an independent and strong apex facility like MISFA, both supported under the project, will continue to generate benefits in the future\. It should be noted that MISFA has been able to fully cover its operating costs from operating revenue from year 2006/2007 onwards\. The project benefits could also be measured through the continued access to finance provided by the existing MFIs to low income segments\. At the time of project closing, there were 9 active MFIs in Afghanistan, serving 431,000 clients, 60% of which were women, and with a total portfolio outstanding of US$123 million\. Lessons learned from the project are expected to help the design and implementation of similar projects in the future\. 3\.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Moderately Satisfactory 93\. The project development objectives were partially achieved\. The relevance of the PDOs was confirmed with the continued participation in the project of 6 MFIs and a microfinance bank beyond project closing date in 2010\. These institutions continued to provide microcredit to low income segments on a mass-market and a commercially- sustainable basis\. 94\. The project merits the “moderately satisfactoryâ€? rating by fulfilling the key objective of kick starting the microfinance sector in Afghanistan\. At the project peak in 2008, there were a total of 443,295 active microfinance clients, 63% of which were women\. The target of the percentage of the loan portfolio outstanding of MFIs with operational self-sufficiency was not met, and stood at 45% by project closing date\. The target was 87%\. Table 5 presents Outcome Indicators as modified in the tenth amendment to the grant agreement carried out in 2008\. Table 5\. Outcome Indicators Actual Values Final Target Baseline Project Outcome Indicators YR1 YR2 YR3 YR4 Dec 2006 Jun Dec 2007 Dec Dec Nov 2010 2008 2009 2010 1\. Percent of loan portfolio 51% 60% 36% 0% 43% 87% 28 outstanding that is accounted for by MFIs with OSS>100%\. 2\. Number / %of MFIs registered as separate legal entities under Afghan law – as 14 / corporations, companies, 0 / 0% 10 / 67% 14 of 15 13/100% 15/100% 100% banks, or any other recognized legal form for financial service providers\. 3\. Number of active clients of 300,000 375,000 443,295 434,839 430,650 680,000 MFIs\. 60% of 4\. % of active clients who are clients 70% 68% 63% 60% 65% of clients women\. 68% of borrowers 5\. Increase in amount and percentage of loan portfolio $90 M $106 M / $101 M / $123M/ $182 M $65 M outstanding relative to base /138% 163% 155% 190% /280% year Source: MISFA and project documents 3\.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development 95\. The project’s impact on poverty was positive as it helped final beneficiaries of microfinance loans gain access to alternative and formal sources of finance\. Beneficiaries with access to micro-loans were able to borrow, increase their livelihoods and generate employment (mostly self-employment) by expanding their production or services\. The inclusion of women as one of key target groups in the project was pointed out by some of the interviewed MFIs to be overly ambitious, given the cultural background and the role of women in Afghanistan\. In spite of these caveats, the latest data collected by independent studies contracted by MISFA showed that an important share of beneficiaries had women as the final recipients of the funds, and their role was more than an intermediary for the household to obtain financing\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) 96\. The project resulted in the creation of a competent and autonomous apex institution, MISFA, which is the lead development institution supporting the development of the microfinance sector in Afghanistan\. Most MFIs interviewed recognized MISFA’s leading role and look for further support from MISFA in the form of access to lines of credit, training and capacity building, as well as more information sharing on the development of the sector in the country\. (c) Other Unintended Outcomes and Impacts (positive or negative) 29  97\. The project’s impact went beyond the original project objective as it catalyzed a revolution in thinking and practice in microfinance operations in Afghanistan to the point that microfinance is now a key element of the national development strategy\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) 98\. The MFI clients interviewed have been supportive of overall project achievements\. They highlighted (i) the access to micro-loans enabled by the project, and (ii) the importance of the initial grant funding made available to support their operation\. Some of the constraints faced during project implementation referred to (i) difficulties in availability of skilled local staff, (ii) slow training and capacity building process, due among others to high staff turnover, and (iii) an unforeseen escalation of security threats that negatively affected operation of some MFIs and caused their exit in several geographical areas\. 4\. Assessment of Risk to Development Outcome Rating: Significant 99\. The risk for development outcome is considered significant\. Risks that achievements could not be maintained are significant mainly due to worsening of the security situation\. Other risks are manageable\. MISFA is currently carrying out a consolidation process of nonperforming MFIs and challenges for these MFIs to achieve operational sustainability are substantial\. Nonetheless, there are a few MFIs (i\.e\. FINCA 22 , OXUS) on track for sustainability as self-reported during ICR mission interviews\. In addition, FMFB, which started to receive funding from MISFA in 2008 for onlending purposes, operates in a commercial and sustainable manner\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Satisfactory 100\. The bank’s performance in ensuring quality at entry is rated as satisfactory based on a cumulative analysis of the Bank’s performance against key selected relevant criteria to the developmental and country context\. The Bank responded in a timely manner to the needs of the country, in particular to address the needs of low income households to have 22 Although FINCA received grant funding in the initial stage of the project, it is no longer a MISFA partner\. 30 access to basic microfinance services, and helping them to improve their livelihoods\. The Bank incorporated lessons learned in implementing lines of credit operations in other countries and took an innovative approach to kick start a microfinance sector from scratch\. Table 6\. Evaluation of Bank’s Quality at Entry Criteria Rating Justification Strategic Relevance Project objectives and components were closely aligned with Satisfactory and Approach country priorities and Bank’s development strategy\. Project scope was ambitious, particularly considering initial grant funding and the envisaged timeframe for implementation (2 years)\. This constraint was later circumvented by extending the life of the project for additional five years\. There was careful planning at design stage to incorporate lessons learned from previous experiences, and a pilot phase was introduced to test the different business models\. Components were adequately designed to address main challenges and gaps Moderately Technical Aspects for development of the sector\. Satisfactory Incentives between project objectives and MFIs could have been better aligned to ensure growth and adequate risk management in the sector\. Some examples include: i) access to MISFA funding being more effectively linked to institutional capacity and performance, ii) more cautious growth in lending, and iii) stronger inputs from MFI international partners (this was a reason that FMFB performed relatively well, given the sustained Aga Khan network support and engagement)\. Poverty, Gender and Social Project focused on poverty and gender impact by adequately Satisfactory Development targeting low income segments and women\. Aspects Compliance with Bank rules and procedures for procurement, and disbursement of funds was ensured through proper provisions in the project grant agreements\. Fiduciary Aspects Satisfactory In addition, training and capacity building for MISFA and MFIs on these issues was incorporated in project design\. Institutional coordination, roles and responsibilities within Policy and government stakeholders and implementing agents were well Institutional Satisfactory established\. Aspects Implementation arrangements were clearly defined and aligned with project objectives through the different components\. Implementation Satisfactory Although the process did take longer than initially expected, Arrangements institutional capacity building of MISFA is considered successful\. Initial monitoring indicators identified were broadly defined and Monitoring and Moderately difficult to measure\. Over time and with the multiple Evaluation Unsatisfactory amendments introduced to the project, indicators were refined Arrangements and updated to better reflect the reality of the project\. 31  However, multiple changes introduced to the project monitoring framework made it difficult to assess progress towards the initial objectives\. A baseline was defined in 2006 which significantly improved the results framework for the project\. One shortcoming in terms of the results framework was the lack of indicators to measure progress towards effective capacity building and institutional development both in MISFA and MFIs\. Risks were identified, and mitigation measures were adopted\. Moderately Nonetheless, the lack of proper monitoring and evaluation Risk Assessment Satisfactory arrangements -with shortcomings identified during implementation- may also suggest that a more stringent risk assessment should have been conducted\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately satisfactory 101\. The project supervision was moderately satisfactory\. The Bank team had a good record of continuity from project design until project closing\. Table 7\. Evaluation of Bank’s Quality of Supervision Criteria Rating Justification The Bank team focused on monitoring and supervising project outreach in terms of number of final beneficiaries of microloans, including the percentage of women with access\. In addition, the Focus on scale up of the original project was the result of significant growth Development Satisfactory in client outreach\. Impact Outreach to excluded regions and towns was prioritized to ensure poverty/development impact beyond relatively better served areas\. Support from financial management and procurement was continuous\. However the lack of capacity encountered in the project implementing agency (MISFA) evidenced gaps that could have been mitigated in a timely manner during implementation\. Supervision of Moderately By project end, findings of misprocurement in statement of Fiduciary Aspects Satisfactory expenditures (corresponding to one contract) of one MFI submitted to the Bank resulted in the return of the amount disbursed (US$291,000)23\. 23 Source: Aide-Memoire (December, 2010)\. The FM review during the mission found that procurement of a consultancy contract under the ARTF did not follow the project procurement procedures for single source selection of consultants; as a result, the contract was deemed as misprocurement and the expenditures of US$ 291,125 incurred under the contract was considered ineligible for financing under the project 32  The Bank team included an adequate mix of experience and skilled staff\. Project was monitored through regular supervision Adequacy of Satisfactory missions and progress was recorded in back to office reports and Supervision Inputs aide-memoires\. The first phase of project implementation did not prepare ISRs as this was not required for the project at the time\. However, regular aide memoires and back to office reports from supervision missions provided key inputs and monitoring of project indicators\. Candor and Quality Moderately During the first phase of growth, project progress was considered of Performance Satisfactory adequate and in line with international experiences at the time\. Reporting The lack of baseline combined with multiple changes in results indicators and project’s total funding increased the complexity of supervision\. Key implementation problems resulted from information management systems in MFIs and MISFA not developing in line with the rapid growth supported by MISFA in the sector\. An ambitious geographical scope added to this problem\. There Moderately Risk Mitigation was a high pressure from donors and the international community Unsatisfactory to expand the geographical coverage, even in high risk areas\. As the security risk worsened, the project should have reconsidered some of the activities such as working in high risks areas\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 102\. The overall Bank performance is rated as moderately satisfactory with a well- designed project to meet the needs of the Recipient’s population, accompanied by regular monitoring and supervision involving the Bank’s management team\. Although measures to address some of the risks and shortcomings that appeared during the supervision period could have strengthened overall project performance, it is important to note that the Bank's actions at the time in terms of design and implementation were in line with international practice in the development of microfinance, and lessons learned from experience with previous post-conflict microfinance support models\. It was not until 2008 –when the microfinance crises started to appear in a number of countries– that some of the flaws associated with the rapid growth and weak monitoring systems in the sector became evident\. 103\. One of the issues that constrained project development towards the end was the lack of sufficient in-house capacity in MISFA to effectively monitor performance of MFIs given their rapid growth in outreach\. The lack of adequate information and management systems at the MFI level exacerbated the situation, and contributed to the late identification and recognition of the major deterioration of portfolio quality in a number of MFIs\. 5\.2 Borrower Performance (a) Government Performance 33 Rating: Satisfactory 104\. The Recipient worked closely with the Bank throughout project preparation and implementation and its performance was rated Satisfactory\. The close collaboration with the Bank demonstrated by the Recipient during implementation was a primary factor in the rapid growth of the project, including raising donor funding\. Another important factor was the commitment and willingness of the government to establish MISFA as an independent institution to strengthen the project’s continuity and sustainability over time\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory MISFA 105\. MISFA provided monitoring and reporting throughout project implementation\. Since project start, and with the involvement of international consultants working on building MISFA’s institutional capacity, MISFA carried out basic monitoring and reporting activities\. As the project matured, MISFA took a more active role to strengthen project monitoring and supervision of MFIs towards project outcomes\. However, due to high turnover of staff and limited capacity, both at MISFA and MFI level, there was a misprocurement finding (related to one consulting contract) which led to returning US$291,125 after the closing date of the project (which 106\. The creation and further strengthening of MISFA as an apex institution was one of the project’s development objectives\. Shortcomings in terms of MISFA’s lack of capacity were accounted for during the design stage\. Therefore, a program of capacity building for MISFA was introduced as well as bringing in strong international partners for local MFIs (i\.e\. BRAC, ASA, Aga Khan)\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 107\. Recipient’s overall performance is rated as moderately satisfactory, based on a combined reading of the ratings received, the demonstrated commitment to achieve project outcomes, and the shortcomings evidenced in some of the procurement and audits findings\. The recipient implemented the project in a challenging environment, especially with little to no institutional and technical capacity at project start, significant challenges in attracting and retaining skills staff and experts, and a progressive deterioration in the implementing environment conditions\. 6\. Lessons Learned (both project-specific and of wide general application) 34 108\. Jump starting a microfinance sector in a conflict affected country requires allowing sufficient time to understand the market and to adjust previously used models to the particular country context\. At project start, it was hoped that that it would be possible to transfer models that had worked in other countries (notably Bangladesh)\. Although that approach worked initially, the experience with the microfinance crises in several countries (e\.g\. Afghanistan, India) have shown the limits of this approach\. Feedback received during the ICR mission suggested that lack of adaptation of external microfinance models and methodologies to the Afghan context, negatively impacted project outcomes\. It is now accepted that the Bangladesh solidarity group model may not be well suited for the Afghan context\. In contrast, the Aga Khan international network did successfully support a microfinance bank, which is currently self-sustainable\. 109\. Building a strong apex institution requires building strong institutional capacity before expanding its portfolio and menu of services\. MISFA’s setup as an independent and autonomous institution was one of the key objectives of the project and the pillar for the further development and strengthening of the microfinance industry in Afghanistan\. In the first phase of the project, and possibly until 2008, MISFA was in the process of building up its own capacity and lacked the infrastructure and human resources to effectively supervise MFIs activities and project performance\. Building on lessons learned from the microfinance crisis, MISFA strengthened its efforts to enhance its institutional capacity and transformed into a competent, sustainable and independent apex institution, which is currently fully operational under Afghan laws\. This allowed MISFA to implement difficult reforms, such as the consolidation of the sector, which are rare for the Afghan context\. 110\. Effective capacity building requires careful monitoring and design, including tailoring the activities to the specific needs of the institutions\. According to MISFA’s own assessment of the project, the design of the capacity building programs proved to be insufficiently effective\. Capacity building consisted largely of study tours, short-term classroom training for MFI staff and the engagement of third party advisors who did not provide customized guidance and mentoring, but focused primarily on creating manuals and procedures which were then not implemented\. Hands-on mentoring and a ‘learning by doing’ approach may have been more effective, although more difficult to measure\. Indicators to monitor progress of capacity building and institutional development should be included in the results framework\. 111\. Effective development of a microfinance sector requires aligning incentives toward responsible risk management\. One important element to start the development of the microfinance sector in Afghanistan was the grant funding made available to eligible MFIs\. Grants were designed to help them build capacity and capital to support their activities\. In addition, loans were given to MFIs to onlend to final beneficiaries\. No requirement was made in terms of the MFIs’ own capital or risks to be shared among project stakeholders in order to access grant funding\. Instead, the grant was allocated based on the MFI’s business plan and the planned outreach\. Meanwhile, very strong disbursement pressure was applied by international donors to expand outreach and 35 mobilize resources to conflict affected areas\. This over-stretched risk management practices which were intended to support a more organic and prudent approach to growth\. 112\. In working with fragile country states, teams need to acknowledge the limits of microcredit compared to alternative interventions\. The project and its funders should have taken into account that microcredit in conflict-affected situations has its limits as an intervention, notwithstanding the significant potential positive impacts\. Grants (i\.e\. matching grants, conditional cash transfers) could have been considered in those regions where there was insufficient institutional capacity or security risks were too high to ensure sustainable lending operations with close monitoring\. 113\. It is critical for the project’s success to ensure the existence of proper information/reporting systems and risk management, as well as monitoring and supervision systems\. The project incorporated significant technical assistance support throughout the different components to build MFI capacity\. From the start, the project provided support to MFIs in implementing such systems with MISFA regularly monitoring the progress of pre-approved business plans\. However, many MFIs did not invest in strengthening their systems, and technical assistance in this area was not sufficiently effective, which led to weak monitoring of their portfolio and financial soundness indicators\. In the case of MISFA’s own monitoring and supervision systems, lack of capacity throughout the early phase of the project was compensated by relying on MFI international partners, rating agencies and auditors to monitor progress in the project\. 114\. Successful project implementation requires a solid governance structure with clearly defined roles and responsibilities\. In MISFA’s evaluation of the project, governance was highlighted as one of the main obstacles faced during project implementation\. Governance in the project suffered at a number of levels with MISFA relying mainly on recognized ‘best practice’ MFIs international partners to provide oversight and good governance\. At the same time, many of the international partners, lacking capacity to oversee their programs in Afghanistan, assumed that MISFA as the apex funding organization was fulfilling this role\. As the roles were not clearly defined, neither party effectively fulfilled the obligation (with the notable exception of FMFB)\. The result was that good governance was not adequately addressed\. 7\. Comments on Issues Raised by Grantee/Implementing Agencies/Donors (a) Grantee/Implementing agencies None (b) Cofinanciers/Donors None (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 36 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) A\. Microfinance Fund NA 120\.90 0\.00 B\. Capacity Building of Microfinance Fund Providers NA 1\.19 0\.00 C\. Implementation Support NA 2\.39 D\. Strengthening Microfinance NA 41\.93 Institutions F\. Microfinance Investment and NA 1\.52 Support Facility for MISFA Total Project Costs 168\.94 Total Financing Required 168\.94 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Afghanistan Reconstruction Trust 120\.30 167\.94 140% Fund 37 Annex 2\. Outputs by Component Table 1\. Key Indicators by Project Closing Date June 2010 MFIs supported by the project 14 Provinces 26 Districts 110 Active Clients 436,109 Active Borrowers 293,405 No\. loans disbursed (cumulative) 1,515,848 Amount of loans disbursed (USD cumulative) 777\.71 million No\. of loans outstanding 293,405 Gross loans outstanding (USD) 118,23 million Women Clients 260,369 Women as % of total clients 60% Women Borrowers 192,663 Women as % of total borrowers 66% Total Staff (incl\. loan officers) 4,047 Source: MISFA Monthly Report Table 2\. Project Cost by Components (US $ Million) June 2007 Dec\. 2007 Dec\.-2008 Dec\. 2009 June 2010 Dec 2010 Component A - Loan Fund 55\.98 66\.39 91\.72 118\.97 120,54 120\.90 Component B - Capacity Building 0\.60 0\.69 1\.15 1\.18 1\.19 1\.19 of MF Providers Component C - Implementation Support (Managing MISFA 2\.39 2\.39 2\.39 2\.39 2\.39 2\.39 through Oversight Consultants) Component D - Strengthening 24\.00 30\.56 36\.97 39\.44 41\.93 41\.93 MFIs Component E - MISFA's Costs 1\.52 1\.52 1\.52 1,52 1\.52 1,52 * Total Project Costs 84\.48 101\.56 133\.74 163\.49 167\.57 167\.94 Source: MISFA */The table does not include the initial US$ 1 million disbursed under TF52081\. Table 3\. Number of MFIs supported by MISFA by year Jun-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 No\. 4 8 15 15 15 16 14 13 MFIs Source: MISFA Table 4\. Number of Active Borrowers1 by partner MFI (June 2004 - March 2011) MFI Jun-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 AFS 3,076 1,907 4,328 6,217 10,312 10,664 7,741 6,003 AMFI 318 293 2,467 3,362 4,811 3,809 2,058 ARMP 4,906 16,594 30,346 28,200 20,033 ASA 53 5,557 11,756 38  BRAC 28,958 70,016 93,776 138,625 140,032 140,180 150,638 154,742 CFA 7,100 10,430 20,380 18,587 11,662 10,264 FINCA 1,632 4,336 12,763 37,973 58,101 33,289 10,697 7,575 FMFB 16,955 18,094 27,906 33,675 42,168 43,439 HFL 1,349 1,569 2,212 3,593 1,927 2,370 MADRAC 886 8,249 15,358 15,452 13,853 780 MOFAD 710 2,501 4,499 9,069 10,722 7,536 963 OXUS 616 5,621 13,406 13,169 8,594 4,922 PARWAZ 3,317 7,138 14,708 7,403 4,995 2,887 SUNDUQ 3,061 3,660 11,025 9,185 WOCCU 84 1,261 1,869 3,009 9,145 12,428 16,432 WWI 1,414 3,442 10,773 14,551 10,319 11,855 7,244 TOTAL 33,984 83,666 170,416 288,425 373,080 339,278 291,709 269,377 Source: MISFA\. 1/ The number of active borrowers is lower than the number of active clients reported by the project, because active clients included clients with savings in addition to the number of clients with active loans\. Table 5\. Portfolio Outstanding by partner MFI -USD Million (June 2004 - March 2011) MFI Jun-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 AFS 0\.2 0\.2 0\.5 0\.9 2\.5 3\.2 2\.8 2\.8 AMFI 0\.1 0\.1 0\.7 1\.2 1\.1 0\.8 0\.3 - ARMP - 2\.6 10\.2 19\.0 18\.8 13\.9 - - ASA - - - - - 0\.0 0\.7 1\.8 BRAC 1\.5 4\.6 9\.5 20\.8 26\.3 24\.8 31\.9 36\.0 CFA - - 0\.9 1\.7 3\.5 3\.2 2\.0 1\.8 FINCA 0\.1 0\.5 1\.6 7\.6 9\.4 4\.4 1\.6 1\.5 FMFB - - 17\.3 17\.8 31\.7 33\.4 42\.7 47\.5 HFL - - 0\.2 0\.2 0\.4 0\.5 0\.4 0\.7 MADRAC - - 0\.1 1\.2 2\.7 2\.4 2\.5 0\.2 MOFAD - 0\.1 0\.2 1\.0 1\.9 1\.9 1\.7 0\.2 OXUS - - 0\.1 0\.8 2\.6 3\.6 2\.5 2\.8 PARWAZ - - 0\.2 0\.7 1\.6 1\.2 0\.7 0\.4 SUNDUQ - - 0\.3 0\.7 1\.7 1\.3 - - WOCCU - 0\.0 0\.5 0\.8 1\.5 4\.6 7\.3 11\.4 WWI - 0\.1 0\.4 1\.3 1\.7 1\.6 2\.1 2\.2 TOTAL 2\.0 8\.3 42\.6 75\.8 107\.3 100\.8 99\.4 109\.3 Source: MISFA 39 Annex 3\. Economic and Financial Analysis N/A 40 Annex 4\. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending/Grant Preparation Supervision/ICR Nazir Ahmad Research Analyst SASFP Muhammad Wali Ahmadzai Financial Management Analyst SARFM Deepal Fernando Senior Procurement Specialist SARPS David C\. Freese Senior Finance Officer CTRFC Asila Wardak Jamal Consultant SASDI Suhail Kassim Private Sector Development Spe SASFP Parwana Wawreena Nasiri Team Assistant SASFP Kenneth O\. Okpara Sr Financial Management Specia SARFM Asta Olesen Senior Social Development Spec SASDS Rubina Geizla Quamber Program Assistant SASHD Stephen F\. Rasmussen Lead Specialist CGP Mohammad Arif Rasuli Sr Environmental Spec\. SASDI Sumriti Singh Team Assistant SASFP Rahimullah Wardak Procurement Specialist SARPS (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 33 133\.91 FY06 15 83\.94 FY07 7 43\.69 FY08 0\.00 Total: 55 261\.54 Supervision/ICR FY05 0\.00 FY06 0\.00 FY07 0\.00 FY08 16\.30 Total: 16\.30 41 Annex 5\. Beneficiary Survey Results N/A 42 Annex 6\. Stakeholder Workshop Report and Results N/A 43 Annex 7\. Summary of Grantee's ICR and/or Comments on Draft ICR Below is a summary of the ICR prepared by MISFA\. Assessment of Outcomes The original project design envisioned five distinct, yet interrelated outcomes four of which remain relevant today\. These outcomes are detailed in the five components of the original project design and remain of high relevance\. These components remain relevant and form the foundation for the establishment of a permanent apex supporting strong and independent developmental financial institutions – mainly MFIs\. Microfinance continues to play a key role in the developmental strategy for Afghanistan and is specifically high- lighted as a developmental priority in the Afghanistan National Development Strategy (ANDS)\. Certain elements are however no longer relevant given the evolution of MISFA and may have been envisioned as temporary and time-bound at inception\. Part C for instance is no longer relevant as MISFA is an independent and autonomous institution and no longer a project under the Ministry of Rural Rehabilitation and Development as of March, 2006\. Part D, components 2 and 3 are also no longer relevant due to MRRD no longer managing the facility and part 3 may have suffered from relevance of design in that study tours and one off trainings did not have sufficient or enduring impact and did not provide a value added proposition\. Hands on mentoring and a “learning by doingâ€? approach would have been more effective, although more difficult to measure\. Parts A, C (no longer of relevance) and E of the original plan have largely been successfully accomplished, although further development of capacity and institutional strengthening continues\. Parts B and D were and remain highly relevant (except for the afore-mentioned components 2 and 3 of Part D) although implementation has been flawed in both approach and execution\. Part B was for the vast majority of MFIs unsuccessful in its implementation\. This reflects poor relevance of design, rather than the relevance of the objective\. Governance suffered at a number of levels with MISFA relying mainly on the recognized “better practiceâ€? international NGO sponsors to provide oversight and good governance\. At the same time, many of the international NGO sponsors, lacking capacity to oversee their programs, assumed that MISFA as the apex funding organization was fulfilling this role\. As the roles were not clearly defined, neither party fulfilled the obligation and the result was that good governance fell into a crack and was not adequately addressed\. This lack of clarity in responsibility was further undermined when MISFA insisted that MFIs “spin offâ€? as independent entities from the parent NGO\. Given that the newly independent MFIs had few or no resources of their own and limited capacity, this approach only exacerbated the governance vacuum\. Poor governance was a primary driver in the demise of most of the MFIs which have been sunset or consolidated into another entity\. 44 The design of the capacity building programs proved to be ineffective as well\. Capacity building consisted largely of study tours, short-term classroom training for MFI staff and the engagement of third party advisors who did not provide customized guidance and mentoring, but focused primarily on creating manuals and procedures which were then not implemented\. The primary weakness was that little to no focus was placed on training and development for line staff or the building of training capacity at the MFIs themselves\. Programs for loan officer and branch manager training were lacking and these staff forms the lynchpin of any successful MFI operation\. Success was largely based on the number of trainings held and not whether they had any impact\. Focus has since changed beginning in 2009/2010 with emphasis on line staff training and the building of training capacity by the remaining MFIs\. Proper accounting, reporting and training methodologies are key components of the 22 performance standards and where MISFA’s Monitoring and Supervision Department finds gaps, concrete capacity building plans are put into place and made a requirement for further funding\. In addition, the core objectives were never prioritized or weighted so that proper emphasis was placed on each of the results framework deliverables\. While sustainability was a focus, the primary emphasis during the period 2003 to 2008 was on outreach and scale\. Proper weighting and emphasis may have improved outcomes\. In addition, the restructuring of MFIs as independent entities (outcome 2 directly undermined this objective) without any investment or “skin in the gameâ€? by shareholders also created a grant dependency mentality rather than any impetus towards sustainability\. In late 2008, when new MISFA management discussed business plans with the MFIs, it was told that “MISFA covers the operating costsâ€? and that revenues were for the MFI and “saved for a rainy dayâ€?\. As stated previously, item (i) was flawed as it was based on short-term classroom instruction and primarily focused at the most senior levels of management\. Item (ii) suffered from a lack of emphasis and (iii) while important also suffered from poor design features\. MISFA relied mainly on outsourcing the business planning and design process, by procuring the services of international firms to create business plans for the MFIs, rather than building their capacity to design and implement them\. MFI leadership and staff often had little understanding of the plans themselves and little buy-in to the process or accountability for the results\. In addition, MISFA only used business plans for funding decisions and did not require annual updates or effectively monitoring results against plan\. Item (iv) suffered from the fact that little emphasis appears to have been placed on the developmental nature or poverty reduction aspects of the MFI activities\. Even today, few staff have a proper understanding of the difference between the social goals of a developmental MFI and those of a for profit money lender\. This was the result of an emphasis of fast and expansive outreach allowing for little capacity building prior to staff being placed in the field and no emphasis in inculcating a proper developmental approach during staff induction\. Overall the objects were and remain relevant, but a number of flaws in the project design and implementation resulted in less than optimal results\. These 45 issues are currently being addressed and significant progress has been made by emphasizing proper plan development at the MFIs, no outsourcing of key functions, staff and community outreach programs as to the developmental nature of microfinance and realistic plans designed to achieve sustainability and requiring investments from the shareholders as well as MISFA to insure accountability\. MISFA monitoring of MFIs From 2003 until early 2006 data collected was primarily in relation to outreach and types of clients, types of loans and geographic coverage\. Very few of the indicators or items that would allow for the assessment of progress towards sustainability were collected or are available in the MISFA archives\. This would have made difficult an accurate assessment as to progress in regard to certain components of B and made assessment in regard to Component D almost impossible\. In 2006, MISFA created a core set of performance indicators and quantitative and qualitative ratios, etc\. These generally followed the indicators recommended by SEEP/CGAP and included a portfolio summary, income statement and balance sheet (now referred to as a statement of financial position per IFRS rules) as well as provincial outreach numbers by district\. This reporting was standardized across all partners and marked a significant improvement in the type of information being collected and the breadth of information gathered\. However, it was also at this time that MISFA decided to minimize on site review and verification\. The justification was that the existing department was ineffective and it was eliminated\. From 2006 to 2008 monitoring and evaluation primarily consisted of passive review of self-reported numbers from the MFIs, meetings with MFI senior management to discuss performance and any anomalies in the reports and external reviews of ratings and capacity assessments conducted by MCRIL, ACCESS, Planet Rate and others\. These external reviews often served as the basis for future funding decisions\. By mid-2008 it was apparent that significant issues were beginning to emerge in regard to MFI performance, delinquency, growth and thereby sustainability\. In late 2008 MISFA reinstated a more robust review and oversight process initially conducting a comprehensive portfolio audit of the vast majority of its partners\. This review found that in a number of cases PAR>30 was grossly understated and in one instance an MFI reporting PAR>30 of 37% actually had a PAR>30 of 87% MISFA then embarked on a process of significant review and verification of all MFI operations and reporting and this led in turn to the creation of a dedicated Monitoring and Supervision team in 2010\. MISFA with the assistance of MEDA and using better practice from SEEP, CGAP and ACCION developed a set of 22 Performance Standards\. MFIs are assessed and graded against these standards, where gaps are identified a plan is developed in conjunction with the MFI and there is a timely follow-up and review to insure that agreed upon actions have been undertaken\. Utilization 46 While sustainability and outreach were considered core pillars of the successful development of microfinance institutions, the primary focus was on outreach during the first five years (2003-2008)\. This was based on two factors\. The first was the “politicalâ€? need at stakeholder levels to demonstrate quick results and impact in order to build and maintain support for microfinance as part of Afghanistan’s development strategy\. The second factor was the thought that the advantages of economies of scale would more than compensate for some of the other factors impacting sustainability and once institutions had reached a certain scale, they could then “go backâ€? and address certain gaps in internal controls and costs\. Funding decisions were made and approved based on the ability of the MFI to disburse funds and attract clients with less focus on whether these funds were at risk at these institutions or whether they would be able to maintain their client bases and portfolios in the long run\. Decisions were driven by annual allocations of funds from the ARTF and the primary motivation was to disburse these funds in order to meet donor and government goals that were based on disbursement amounts rather than developmental impact\. Towards the end of this period, as the five year time-frame for MFIs to reach sustainability was nearing a target that was highly optimistic given the nascent nature of the sector, weak local capacity and insufficient availability of target market data MFIs were encouraged to reach sustainability via growth thereby achieving both desired ends\. Plans and funding proposals were generally developed by external advisors and approved based on other external advisor recommendations\. While the models indicated that sustainability could be reached, generally these models were predicated on extremely high levels of growth, large disbursement to fund the portfolios and increased outreach\. The plans met MISFA, donor and government desires, but given the poor quality of data and lack of independent review by MISFA bore no meaningful connection to the reality on the ground\. In early 2010 MISFA further boosted its capacity to use and analyze available data by creating a monitoring and supervision department which assesses and rates the MISFA MFI partners based on 22 performance standards\. MISFA has dedicated significant funding and effort to building capacity in this department via its own resources and assistance provided from certain donor programs\. This capacity building will insure that MISFA maintains a credible and effective monitoring and evaluation system both now and in the future\. 47 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders None 48 Annex 9\. List of Supporting Documents (In the Portal, each document can be linked to a file in IRIS or attach a new document) 1\. Project Concept Note, [month year] 2\. Project Appraisal Document, [month year] 1\. ARTF Grant Agreement [June 4, 2003] 2\. ARTF Grant Agreement [July 10, 2003] 3\. ARTF amendments to the legal grant agreement [amendments 1-10, dated March 2004-July 2008] 4\. ARTF Project Application documents - Project: ‘Microfinance Support for Poverty Reduction’ [dated 2003, 2005, May 2007, Jan\. 2008, Jul\. 2008]\. 5\. “ARTF at Cross-Roads: History and the Futureâ€?\. Final Report\. [September 2012]\. 6\. CGAP, 2002\. “Apex Institutions in Microfinanceâ€?\. Occasional Paper No\. 6, January 2002\. Available at http://www\.cgap\.org/publications/apex-institutions- microfinance 7\. CGAP, 2010\. “Growth and Vulnerabilities in Microfinanceâ€? in Focus Note No\.61\. 8\. Greely, M\., 2005\. “Aid Effectiveness and Microfinance; Lessons from Afghanistan\. March 2005\. 9\. Greely, M\.; Chatuverdi, M\.; 2007\. “Microfinance in Afghanistan: A Baseline and Initial Impact Study for MISFAâ€?\. Institute for Development Studies, university of Sussex\. 10\. CGAP, 2012\. “A New Look at Microfinance in Apexesâ€? in Focus Note No\. 80\. 11\. Lampe, D\.; 2011\. “One Step Back from the brink: Donors, Disbursement and Defaultâ€? in Microbanking Bulletin, July 2011\. http://www\.themix\.org/publications/microbanking-bulletin/2011/07/MISFA- disbursement-effect-on-Afghanistan-microfinance 12\. MISFA, 2012\. “Microfinance Support for Poverty Reduction Project –MSRPâ€?\. Implementation Completion and Results Report\. 13\. MISFA, 2012\. “Strategic Plan 2013-2015â€?, developed with support from USAID through Financial Access for Investing in the Development of Afghanistan (FAIDA) Project\. 14\. MISFA, 2009\. “Assessing the Demand for Savings Services Among Microfinance Clients in Afghanistanâ€? by Ximena Arteaga\. 15\. MRRD et al, 2006\. “Mid-term Review of the Microfinance Sector and MISFA in Afghanistanâ€?\. October 18, 2006\. Commissioned by MRRD, MoF, and MISFA donors\. 16\. World Bank, 2012\. Interim Strategy Note for Islamic Republic of Afghanistan for the period FY12-FY14â€?\. International Development Association and International Finance Corporation\. March 9, 2012\. 49  60°E 65°E 70°E 75°E To U Z B E K I STA N Dushanbe hob Am uD ar y Murg a TA J I K I STAN To Chardzhev To TAJ IK IS TA N To ˘ Kulob To Shazud Dushanbe To ˘ Qurghonteppa AFGHANISTAN TUR KM E N I S TA N Faisabad h ¯ ¯ JAWZJAN ndz Pya BALKH ¯ KUNDUZ mi r Taloqan ¯ ¯ Pa Kunduz Kondoz ¯ h Sheberghan ¯ Mazar-e ¯ Sharıf ¯ TAKHAR ¯ s BADAKHSHAN Saripul u Tirich Mir (7690 m) To Samangan ¯ Baghlan ¯ K Meymaneh Mary ¯ SAMANGAN ¯N BAGHLA ¯ R YA FA ¯B u ndu z I R d To SH ¯o eQ J Chitral To SAR IP UL SARIP y n 35°N Mashad Mor gh¯ Da ¯ ry a- Bazarak H PAiN ¯ ¯¯ NURISTAN ab ¯ D G H¯ BA IS ¸ ¯ Mahmud-e Raqı ¯¯ ¯ ¯ ¯ Nuristan KAPISA ¯ ¯ ¯ 35°N P ¯ a Qal‘eh-ye Now Bamyan ¯ ¯¯ PARWAN ¯ Asadabad ¯ ¯ r o Charıkar ¯¯ ¯ LAGHMAN KUNAR To p a e ¯ R a n g ¯N ¯ M YA m i s u s ¯ KABUL Mehtarlam ¯ Mardan Chaghcharan ¯ BA KABUL Herat ¯ Har¯ ud ır¯ Jalalabad ¯¯ ¯ PAK IS TAN WA R D A K ¯ Shahr Meydan INDIA ¯ Khyber Pass ¯T LOGAR NANGARHAR HERA GHOR To Peshawar DAY KUNDI Pol-e ‘Alam Nili PAKTIA Ghaznı ¯ Gardız ¯ us d an G H A Z N¯ Ind ISLAMIC He lm I KOWST To Kowst Kohat 0 50 100 150 Kilometers REPUBLIC Sharan ¯h Fa ra ¯ZGAN URU OF IRAN ¯H FA R A ¯ Kowt Tarın 0 50 100 Miles ¯t P A K T¯ ¯ u ¯r Ha Farah ¯ IKA ¯ BUL ZA Qalat ¯ h as Kh¯ ak rn¯ Ta Hamun-e ¯ ¯ Saberı ˛¯ ¯ Lashkar Gah ¯ Arghandab Kandahar ¯ To AFG H ANISTAN Zhob Dasht-I Margo PROVINCE CAPITALS Zaranj NATIONAL CAPITAL N¯ ¯Z IMRO HILMAND ¯R KANDAHA RIVERS Helm To and Quetta MAIN ROADS 30°N Gowd-e RAILROADS Zereh IBRD 33358R1 30°N OCTOBER 2011 This map was produced by the Map Design Unit of The World Bank\. PROVINCE BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any INTERNATIONAL BOUNDARIES 60°E PA KI S TA N 65°E endorsement or acceptance of such boundaries\. 70°E

REVIEW

P010256

 Second vocational training project Report No: ; Type: Report/Evaluation Memorandum ; Country: Sri Lanka; Region: South Asia; Sector: Vocational/Technical Education & Training; Major Sector: Education; ProjectID: P010256 The Sri Lanka Second Vocational Training (SVT) project supported by Credit 1698-CE for US$15 million equivalent was approved in FY86\. The United Nations Development Program cofinanced the project (US$1\.32 million)\. After a one-year extension and cancellation of US$3\.46 million, the credit closed on June 30, 1996\. The Implementation Completion Report (ICR) was prepared by the South Asia Regional Office\. The borrower’s report is included as an Annex but not the cofinancier's\. The operation followed directly the Construction Industry Training project (Credit 1130-CE)\. The aim of SVT was to improve the efficiency of the construction industry by developing a semi-autonomous Institute for Construction Training and Development (ICTAD), training workers and instructors, monitoring and evaluating industry needs, setting trade standards and certifying skilled workers\. Implementation was successful for the institutional development (ID) and physical investment components\. A favorable SDR rate allowed for some additional ID and construction\. The cofinanced technical assistance (TA) was implemented through the International Labor Organization, though with delay and some rigidity\. Subsequently ICTAD took over TA management and worked more flexibly with the International Development Association (IDA) financing\. Good monitoring indicators helped track implementation progress and performance, though cost- efficiency and cost-effectiveness were not quantified\. Outcomes were positive\. ICTAD became the statutory authority to lead industry policy, coordination and training\. Training facilities were built and training targets were exceeded\. Standards for, and linkages with, the industry were improved\. Cost-recovery for training and revenue-generation by ICTAD exceeded expectations, covering 30 percent of operating costs\. Through the successful monitoring and evaluation (M&E) component, the project established that 80 percent of ICTAD-trained workers found jobs compared with 40–65 percent for non- ICTAD programs and that salaries increased after training (though comparisons with non-ICTAD trained workers are needed to validate the project effect)\. Many but not all of the industry studies led to action\. The Operations Evaluation Department (OED) agrees with the ICR ratings though with one qualification\. The project’s outcome is rated as satisfactory, institutional development as substantial and Bank performance as satisfactory\. OED also agrees with the ICR rating of sustainability as likely on the basis of the evidence provided in the ICR\. However, this judgment merits further investigation\. ICTAD's self-financing and the government's contribution do not cover costs and the project's long term survival and effectiveness depend on continued government willingness to subsidize a fairly high share of ICTAD's expenditures on operations and services to the construction industry\. Commitment could weaken if socio-economic factors turn for the worse and ICTAD's cost recovery targets and capability to improve on them remain modest\. The ICR acknowledges 14 lessons\. Three of them appear especially significant for other countries that wish to enhance vocational training capacity\. First, ICTAD and IDA fully incorporated the experience of the predecessor project; second, they established a sound M&E system that helped keep the agency on track; and, third, ICTAD's relative autonomy from government bureaucracy allowed it to develop responsively and relevantly to the industry’s needs and win industry support for better worker training and wages\. OED adds two considerations for the borrower: the importance for project sustainability of monitoring cost-efficiency, as well as cost-recovery; and the significance of providing an implementation period, as in this project, long enough to allow institutional capacities to mature\. The ICR is satisfactory\. An audit is planned\.

REVIEW

P065757

 ICRR 12000 Report Number : ICRR12000 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 03/21/2005 PROJ ID : P065757 Appraisal Actual Project Name : Sustainable Coastal Project Costs 2\.64 2\.42 Tourism Development US$M ) (US$M) Project Country : Morocco Loan/ Loan US$M ) 2\.24 /Credit (US$M) 1\.92 Sector (s): Board: UD - Other industry Cofinancing 0\.40 0\.50 (51%), Central government US$M ) (US$M) administration (49%) L/C Number : L4573 Board Approval 00 FY) (FY) Partners involved : Closing Date 06/30/2003 06/30/2004 Prepared by : Reviewed by : Group Manager : Group : Kris Hallberg Roy Gilbert Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives The project's development objective was to propose, test, and evaluate the institutional framework and contractual procedures for managing public -private partnerships that are best suited for integrated and sustainable development of coastal tourism sites in Morocco \. The project was designed as a Learning and Innovation Loan (LIL)\. b\. Components The project had three components : Preparation of indicative development plans and pre -feasibility studies that would be the basis for Request for Proposal (RFP) packages to prepare investment projects in new coastal tourism development of three sites : Plage Blanche, Haouzia, and Essaouira \. This component was the input for structuring the terms of pilot concessions\. (Appraisal estimate $1\.20 million, actual $1\.53 million) Technical assistance to the Department of Planning and Investment (DAI) of the Ministry of Tourism (MOT) for the management and supervision of three new coastal tourism development sites in Plage Blanche, Mazagan, and Mogador, as well as three additional sites in Saidia and Khmis Sahel (already under preparation by DAI prior to the Project) and Taghazout (already assigned to a foreign investor through direct negotiation prior to the Project)\. (Appraisal estimate $0\.90 million, actual $0\.89 million\.) Technical assistance to implement the new institutional framework for tourism site development \. (Appraisal estimate $0\.24 million, actual $0\.0 million\.) c\. Comments on Project Cost, Financing and Dates Total project costs were $2\.42 million compared with $2\.64 million estimated at appraisal\. Bank financing for the third component was cancelled, due to the increased allocation of the Borrower's own funds for project activities \. The closing date was extended one year, but the ICR does not explain why \. 3\. Achievement of Relevant Objectives: As a LIL, the project performance indicators should have focused on the objectives of proposing, testing, and evaluating -- in other words, on the learning dimension of the operation \. Instead, the ICR mainly provides evidence on the outputs (as opposed to learning outcomes ) of the project\. Some of these outputs were significant : of the three output indicators chosen at appraisal, the first and second were exceeded, and the third was substantially met : Three indicative development plans were financed under the project and approved by the Government \. A total of five RFPs, instead of the orginally planned three, were issued for competitive tendering, and drew the attention of multiple bidders\. Two concession agreements with international consortiums of developers and investors were signed before the closing date\. One was signed one month after project closing and a fourth was signed three months after closing, compared to the one or two expected at appraisal \. The institutional framework for tourism land development was proposed and issued but not endorsed by all stakeholders\. However, the quallity and capacity of the existing public institutions, especially DAI, significantly improved\. 4\. Significant Outcomes/Impacts: According to the ICR: By project closing, DAI had prepared four large land development concessions on about 1500 hectares, which are expected to create about 100,000 direct and indirect jobs\. The project contributed to better management of environmental issues in tourism development, as environmental considerations were introduced into feasibility studies, RFPs, and final agreements with the private sector, setting a precedent for introducing environmental criteria into similar projects in Morocco \. The project improved interagency cooperation in integrated land development projects \. DAI improved its internal structure and management techniques, and has received increased funding from the Government\. The Government maintained its commitment to this approach and proved to be a reliable partner to the private sector\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Although the project was supported by a LIL, it lacked an extensive monitoring and evaluation system which would be expected for this type of instrument \. A 2001 Quality at Entry Assessment raised doubts about whether the operation was truly a LIL, and if it was, what was to be learned and how success should be measured \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory [The ICR's 4-point scale does not allow for a "moderately sat\." rating]\. Although the project achieved some of its development objectives, the ICR does not provide evidence that the learning objectives (proposing, testing, and evaluating the institutional framework and contractual procedures) were achieved\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: LILs can be highly effective if they support a reform -minded public agency and use Bank support to design an innovative implementation framework\. Quality private sector investments will be attracted only if the transactions are well structured and there is a transparent and competitive bidding process \. In order for the private sector to feel confident that the government will deliver on its commitments, support is needed from rear-line public agencies as well as from the front -line negotiating agency\. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: This is a good ICR\. The project was a candidate for an intensive -learning ICR, but this was not done due to lack of interest on the part of the Borrower \. Similarly, the Borrower failed to contribute to the ICR despite repeated requests from Bank staff\.

REVIEW

P077282

Document of The World Bank Report No: ICR0000491 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-71720) ON A LOAN IN THE AMOUNT OF US$25\.26 MILLION TO THE REPUBLIC OF CHILE FOR THE SCIENCE FOR THE KNOWLEDGE ECONOMY PROJECT September 26, 2007 Human Development Sector Argentina, Chile, Paraguay, Uruguay Country Management Unit Latin America and Caribbean Region i  CURRENCY EQUIVALENTS (Exchange Rate Effective 05/25/2007) Currency Unit = Chilean Peso (CLP) 1\.00 CLP = US$0\.0019 US$ 1\.00 = 523\.4 CLP FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CONICYT National Scientific and Technological Investigation Commission (Comisión Nacional de Investigación Científica y Tecnológica) CORFO Production Promotion Corporation (Corporación de Fomento de la Producción) DIVESUP Higher Education Division (División de Educación Superior) TFP Total Factor Productivity FONDAP Advanced Investigation Fund for Priority Areas (Fondo de Investigación Avanzada en Áreas Prioritarias) FONDECYT National Scientific and Technological Development Fund (Fondo Nacional de Desarrollo Científico y Tecnológico) FONDEF Scientific and Technological Development Promotion Fund (Fondo de Fomento a1 Desarrollo Científico y Tecnológico) GDP Gross Domestic Product GoC Government of Chile IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report MECESUP Higher Education Improvement Project (Proyecto de Mejoramiento de Calidad de Educación Superior) MIDEPLAN Planning and Cooperation Ministry (Ministerio de Planificación y Cooperación) MSI Millennium Science Initiative NIS National Innovation System OECD Organization for Economic Cooperation and Development PAD Project Appraisal Document PhD Doctor of Philosophy R&D Research and Development S&T Science and Technology SME Small and Medium Enterprise SOFOFA Manufacturing Promotion Society (Sociedad de Fomento Fabril) STI Science, Technology and Innovation ii  Vice President: Pamela Cox Country Director: Pedro Alba Sector Manager: Eduardo Velez Bustillo Project Team Leader: Kristian Thorn ICR Main Author: Daniela Marotta iii  REPUBLIC OF CHILE Science for the Knowledge Economy Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design\. 6 2\. Key Factors Affecting Implementation and Outcomes \. 10 3\. Assessment of Outcomes\. 13 4\. Assessment of Risk to Development Outcome\. 37 5\. Assessment of Bank and Borrower Performance \. 37 6\. Lessons Learned \. 39 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 41 Annex 1\. Project Costs and Financing\. 42 Annex 2\. Outputs by Component \. 44 Annex 3\. Economic and Financial Analysis\. 61 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 65 Annex 5\. Beneficiary Survey Results\. 66 Annex 6\. Stakeholder Workshop Report and Results\. 67 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 68 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 69 Annex 9\. List of Supporting Documents \. 70 Annex 10\. Key Performance Indicators/Log Frame Matrix\. 71 Annex 11\. Performance Triggers\. 72 MAP iv  A\. Basic Information CL: Science for the Country: Chile Project Name: Knowledge Economy Project Project ID: P077282 L/C/TF Number(s): IBRD-71720 ICR Date: 09/26/2007 ICR Type: Core ICR Lending Instrument: APL Borrower: REPUBLIC OF CHILE Original Total USD 25\.3M Disbursed Amount: USD 25\.3M Commitment: Environmental Category: C Implementing Agencies: CONICYT Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/19/2002 Effectiveness: 11/03/2003 11/03/2003 Appraisal: 03/10/2003 Restructuring(s): Approval: 05/22/2003 Mid-term Review: 01/16/2006 03/13/2006 Closing: 03/31/2007 03/31/2007 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project No Quality at Entry None i  at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 10 10 Tertiary education 90 90 Theme Code (Primary/Secondary) Education for the knowledge economy Primary Primary E\. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Pedro Alba Axel van Trotsenburg Sector Manager: Eduardo Velez Bustillo Marito H\. Garcia Project Team Leader: Kristian Thorn Lauritz B\. Holm-Nielsen ICR Team Leader: Daniela Marotta ICR Primary Author: Daniela Marotta F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project seeks two development objectives, which, in agreement with the Government's strategy, are expected to place Chile on the path to a knowledge-based economy: First, and foremost, the project will support the development of an effective innovation system\. It will do so by establishing a strong and coherent policy framework, promoting high-quality and relevant science and technology activities and by supporting key interfaces in the innovation system, especially between the public and private sector as well as international linkages\. Second, and subordinate to the first goal, the project will improve the stock of human capital in the Chilean science and technology sector, a development objective which is highly complementary to the establishment of an effective innovation system and per se a critical precondition for establishing a ii  competitive knowledge-based economy\. The project development objectives will be pursued through the implementation of three components: (i) Improving Chile's Science, Technology and Innovation System; (ii) Strengthening Chile's Science Base, and (iii) Enhancing Public-Private Linkages\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Annual PhD graduates Value quantitative or 144 230 222 Qualitative) Date achieved 04/03/2003 03/31/2007 07/01/2005 Comments (incl\. % achievement) Indicator 2 : Private sector share of total R&D expenditure Value quantitative or 34\.4% 38% 48\.1% Qualitative) Date achieved 07/01/2003 03/31/2007 12/31/2004 Comments (incl\. % achievement) Indicator 3 : Chilean USPTO patent applications Value quantitative or 33 60 48 Qualitative) Date achieved 04/03/2003 03/31/2007 12/31/2005 Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Number of researchers inserted in industry iii  Value (quantitative 0 60 55 or Qualitative) Date achieved 04/03/2003 03/31/2007 03/31/2007 Comments (incl\. % achievement) Indicator 2 : Number of research consortias Value (quantitative 0 5 8 or Qualitative) Date achieved 04/03/2003 03/31/2007 03/31/2007 Comments (incl\. % achievement) Indicator 3 : Number of PhD scholarships awarded Value (quantitative 0 600 575 or Qualitative) Date achieved 04/03/2003 03/31/2007 03/31/2007 Comments (incl\. % achievement) G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 06/13/2003 Satisfactory Satisfactory 0\.00 2 07/29/2003 Satisfactory Satisfactory 0\.00 3 02/03/2004 Satisfactory Satisfactory 0\.25 4 05/19/2004 Satisfactory Satisfactory 0\.25 5 11/05/2004 Satisfactory Satisfactory 2\.55 6 03/17/2005 Highly Satisfactory Highly Satisfactory 4\.02 7 04/29/2005 Satisfactory Highly Satisfactory 5\.02 8 08/02/2005 Satisfactory Highly Satisfactory 6\.01 9 01/27/2006 Satisfactory Highly Satisfactory 11\.28 10 05/18/2006 Satisfactory Satisfactory 13\.75 11 07/31/2006 Satisfactory Satisfactory 16\.15 12 02/01/2007 Satisfactory Satisfactory 25\.26 H\. Restructuring (if any) Not Applicable iv  I\. Disbursement Profile v  1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal In the decades preceding the design of the Project, Chile witnessed considerable economic growth, mostly due to far-reaching trade liberalization, structural reforms to attract foreign capital and privatization of state-owned companies\. Furthermore, regulatory transparency, political stability and high levels of human capital, contributed to make Chile one of Latin America's most dynamic and promising economies\. However, the Chilean economy, unlike most developed economies, was relying heavily on natural resources, notably mining, fishing, forestry and agriculture\. Copper constituted more than 10 per cent of GDP and more than 40 per cent of export earnings\. Similarly, exports from the fruit sector grew at a rate of 20 per cent annually in the period 1974-1994\. In spite of succeeding in boosting productivity and output of these sectors by adapting and improving foreign technologies, Chile's economy was still in need of further diversification\. Chile's manufacturing value added per capita, for example, although higher than the regional average, was much lower than that of developed countries\. Chile's economy presented a key competitive weakness, which was its relative lack of ability to innovate and adopt technical change\. Chile's policy framework and economic incentives for innovation and human capital formation were still in need of substantial improvement\. There was a need for the country to invest in building advanced human capital, particularly in science and technology, in order to take full advantage of the emerging knowledge economy and achieve a high sustainable growth path\. The strategy of the government of President Lagos (2001-2006) focused on securing sustainable and equitable growth through the adherence to a sound macroeconomic framework, strong public institutions, investments in human capital and social protection\. As a core element, the Government of Chile (GoC) committed itself to improving the quality and relevance of education\. The Government also emphasized the need to stimulate innovation and technological development\. Chile's investments in S&T doubled during the nineties, and the Government expressed its intention to double the country's S&T investments from 0\.5 per cent of GDP to 1\.2 per cent by the year 2006\. It is against this background that the Project, "Science for the Knowledge Economy", was proposed\. It was deemed of critical importance to support the GoC initiatives by securing continuous and adequate flows of investment to the Chilean science base, strengthening the stock of human capital and stimulating the critical interfaces in the innovation system\. According to the Project Appraisal Document (PAD), the Project was designed to contribute to the Country Assistance Strategy (CAS) goal of sustaining overall economic growth and social progress in Chile\. In addition, the Project aimed to support the ongoing modernization of the state by (i) supporting core capacities such as strategic policy formulation and monitoring and evaluation, and (ii) identifying main obstacles to innovation and human capital formation, and (iii) providing capacity building to key government institutions\. Finally, the Project was designed to contribute to the formation of a coherent set of intervention policies and investments that would improve Chile's competitiveness\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The Project was designed to provide for the continuation of the Millennium Science Initiative (MSI), a preceding Bank's pilot operation that aimed at helping to revitalize Chile's Science and Technology system by supporting advanced training of human capital by world class scientists 6  engaged in cutting edge research\. The Project would build on MSI and further strengthen Chile's science base by scaling up funds for research, developing public-private linkages in the national innovative system and enhancing the R&D capacity of companies\. The Project was originally designed as part of a six and a half year Program, which consisted of two phases, and was intended to support Chile's transition to a knowledge-based economy by investing in the innovation system and the stock of human capital\. The instrument chosen for the Program was Adaptable Program Lending\. This Project represents the first phase of the Program (APL1), and was implemented from year 2003 to 2007\. The second phase (APL2), whose implementation was planned for years 2007-2010, was supposed to continue activities to strengthen Chile's science base and scale-up funding for initiatives launched in the first phase\. The APL2 implementation had to follow a positive evaluation of the first phase and the attainment of predefined triggers\. The Project sought to achieve two development objectives, which, in agreement with the Government's strategy, were expected to place Chile on the path to become a knowledge-based economy: First, and foremost, the Project was to support the development of an effective innovation system\. It was to do so by establishing a strong and coherent policy framework, promoting high-quality and relevant science and technology activities and by supporting key interfaces in the innovation system, especially between the public and private sectors, as well as international linkages\. Second, and subordinate to the first goal, the Project aimed to improve the stock of human capital in the Chilean science and technology sector, a development objective which was highly complementary to the establishment of an effective innovation system and per se a critical precondition for establishing a competitive knowledge-based economy\. While targets were not clearly identified in the PAD (at that time it was not required to do so), a number of indicators to assess the long-term impact of the Project were discussed at the time of project design\. These indicators were not expected to fully materialize within the Project implementation, but considerable changes were nevertheless expected at the end of the Project implementation period\. Moreover, a framework based on a causality tree1 was used for selecting indicators at the sub-component, component, sector and national level\. The relationships between these different levels were made in this way explicit so they could be monitored and managed, even though only subsequently defined indicators were identified\. The long-term key performance indicators, as reported in the PAD were: Total Factor Productivity will increase Level of embedded technology and knowledge in current and future products will rise The following key indicators were identified to measure performance: Number of domestic patents will increase Private sector research and development will increase Coordination between different parts of the innovation system will increase Public-private S&T co-financing will increase Number of researchers relative to the size of population will increase 1 The causality tree approach was inspired by Kaplan and Norton's work on the Balanced Scorecard and strategy focused organizations (2001)\. 7  The PAD provided in its Annex 1 and Annex 2(B) a more exhaustive list of possible indicators, while the final baselines and targets for indicators were established subsequently\. Please refer to Annex 10 for more details on baselines and final key outcome/performance indicators and Annex 11 for details on performance triggers\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The Project Development Objectives were not revised\. 1\.4 Main Beneficiaries, The Project sought to have a number of tangible, immediate as well as long-term benefits\. Conducive innovation policies and increased investment in R&D and human capital were expected to facilitate Chile's transition to a knowledge-based economy\. The improved innovative environment and the resulting economic growth would benefit the Chilean society at large, primarily through income and employment generation\. More specifically the immediate beneficiaries were: Private companies benefiting from the improved innovation system and the increase in the stock of advanced human capital\. Private companies participating in cooperative research consortia and the researchers in industry program, enhancing their research capacity and getting access to cutting edge knowledge at a modest cost\. Researchers working together in teams to address large-scale problems\. PhD-scholars and post-doctoral fellows benefiting from the industry insertion program\. Researchers receiving funding for increased interaction with international colleagues\. 1\.5 Original Components To address the key development objectives, this Project included the following three components: (i) Improving Chile's Science, Technology and Innovation System; (ii) Strengthening Chile's Science Base; and (iii) Enhancing Public-Private Linkages\. The total cost of the Project was US$ 50\.26 million while the total amount of the loan was US$ 25\.26 million (the rest was financed by the Borrower)\. Component 1: Improving Chile's Science, Technology and Innovation System (US$ 6\.40 million)\. This component was designed to help Chile develop a coherent policy framework and an enabling environment for innovation\. It was to consolidate and modernize the country's existing instruments and programs in science and technology to achieve higher levels of internal and external efficiency among researchers and their organizations and to nurture a more collaborative research culture among Chilean scientists\. The component consisted of three sub-components: (i) establishment of an independent Advisory Board and support for project management and implementation; (ii) development of a coherent strategy, conducive policies and S&T awareness; and (iii) development of a monitoring and evaluation capacity\. Component 2: Strengthening Chile's Science Base (US$ 19\.50 million)\. This component was designed to strengthen Chile's ability to generate new knowledge by increasing the stock of scientific and technological research personnel, improving the research infrastructure, and enhancing the capacity to access knowledge generated in other countries\. The objectives were to be achieved through three competitive programs: (i) the excellence in science program ­ in line with key activities of the preceding operation supported by the Bank: the Millennium Science 8  Initiative (1999-2002) ­ was designed to offer economic support to group-based research in Chile in order to improve the quality of scientific research and training; (ii) the advanced human capital sub-component supported scholarships to PhD candidates in priority scientific fields; and (iii) the State-of-the-art Equipment for Science and Technology sub-component was designed to support the establishment of a database of major research equipment in Chile and provide competitive grants for acquisition of major equipment\. Component 3: Enhancing Public-Private Linkages (US$ 22\.60 million)\. This component was designed to support activities that would strengthen linkages between the Chilean scientific community, industry and public sector users of research findings and build private sector research capacity\. This was to be achieved through three subcomponents\. Subcomponent 1 was designed to support groups of researchers from universities, government laboratories and private industry or regional development agencies undertaking collaborative research and development, and research training, in areas of importance to industry and the regions of Chile\. The private industry or public sector agencies involved in the consortia were required to support the cooperative activities by making substantial in-kind or cash commitments\. Subcomponent 2 was designed to expand the stock of high-quality research personnel in Chilean industry by awarding scholarships to doctoral students that would undertake a substantial part of their thesis work in industry\. The scholarships were awarded on a competitive basis, were temporary and declining over time, with the company taking an increasing share of the researchers salary\. Finally, subcomponent 3 sought to increase Chile's access to knowledge produced overseas by financing the participation of Chilean researchers in international research projects\. 1\.6 Revised Components The components were not revised 1\.7 Other significant changes During implementation of the Project a number of minor adjustments were introduced\. Amendment to the Loan Agreement: In November 2005, the Bank agreed to increase the Special Account from US $0\.5 to US$2\.5 million\. This was done to enhance flexibility in managing the Project's cash flow requirements, notably the need to timely manage a number of large disbursements for advanced research teams, insertion of post-doctorates in academia and scholarships to doctoral students\. Reallocation of loan proceeds\. There were two re-allocations of the loan proceeds\. The first re- allocation ­ approved by the Bank in August 2005 ­ referred to a transfer of US$1\.46 million from unallocated to Consultants' Services and Training\. The reallocation reflected the need to use the unallocated amount to finance incurred project expenditures\. The second reallocation was requested by the Borrower in a letter dated January 24, 2007 and approved by the Bank on February 6, 2007\. It reallocated US$0\.91 million from Operational Cost to the expenditure category `Grants'\. This change reflected lower than expected operational costs for the Project and a decision by CONICYT to use the funds available to award additional Grants\. Piloting of instruments\. During implementation decisions were made to pilot a number of instruments that were consistent with the PDOs and activities supported by Components 2 and 3 of the Project\. Insertion of advanced human capital in academia\. This activity was piloted under Component 2 of the Project\. It supported the insertion of young researchers into academic institutions by financing part of their salary for a 3 year period\. Funding was restricted to institutions that had a 9  strategic plan, which included: (a) the field of research to be developed and (b) the needed type and number of post-doctorates\. In addition, the selection criteria included the preparation of assessment of the impact of the proposed research on Chile's economic and social development, the national and international standing of the institution in the field of research, and the quality of the senior researcher in charge of coordinating the research\. The decision to pilot this new activity was motivated by the need to enhance the quality of university research and education by increasing the share of staff with an advanced degree\. In addition to the need of upgrading the level of academic staff, it was considered necessary to help create a career path for young researchers, whose employment opportunities were hindered by a low turnover of staff in academic institutions and few opportunities in industry\. Hence, the piloted activity was directly complementary to the Project's support of the insertion of young researchers into industry under Component 3 of the Project\. Support for Patenting\. Under Component 3, the Project launched a new initiative to help provide technical and legal advice, and financial support for patenting inventions with high commercial potential\. Support for the commercialization of research was considered important given the very low number of resident patent applications in Chile and abroad and consequently the below optimum economic return to investment in R&D\. This activity was designed to award competitive grants to intermediaries with documented expertise in patenting and related support services\. The intermediaries would subsequently select a number of concrete projects for support and provide advice and financial support throughout the patenting process\. Implementation arrangements\. In the Project's initial design, it was agreed that the sub- component "Team Grants for Research", under Component 2, would be implemented by CONICYT, building on the lessons learned from similar programs, in particular the Millennium Science Initiative (MSI) in the Ministry of Planning\. Subsequently, in 2004, it was decided to implement 6 team grants for research through MSI and to transfer funds accordingly, in order to expedite the start of operations financed by the Grants and to assure coherence and continuity\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The project's quality at entry is rated satisfactory\. The Project Development Objectives were closely linked to the Government strategy of enhancing Chile's competitiveness and boosting growth through investments in research and innovation\. Further, the Project was closely aligned with the Country Assistance Strategy (CAS) goal of sustaining overall economic growth and social progress in Chile\. The Project was innovative in its strong focus on fostering public-private research linkages and had an adequate balance between support for the Chilean science base (Component 2) and instruments targeted at boosting the private sector's capacity to innovate (Component 3)\. The Project was rightly designed to have a policy impact beyond the implementing agency CONICYT (Component 1)\. For instance, the decision to fund an observatory for STI was an important addition to Chile's governance structure for Science, Technology and Innovation (STI)\. However, complexities in enhancing coordination between various implementing agencies ­ notably through the envisaged independent advisory board for STI ­ were underestimated\. The decision to prepare the Project as an APL with two phases was well founded given the long-term commitment needed to strengthen a national innovation system\. However, the planned duration of 10  the first phase (only 3 years) was too short to fully launch all planned activities and show initial results prior to making decisions concerning the second phase\. Lessons learnt from Bank projects in Chile, notably the Millennium Science Initiative (MSI) (1999-2002) and the Higher Education Improvement Project (MECESUP) (1998-2005) were incorporated into the Project's design\. The MSI illustrated the benefits of investing in high- quality research teams selected through transparent and merit-based processes\. These lessons were reflected in the support for competitively selected, advanced research teams under Component 2 of the Project\. Moreover, the MSI highlighted the need to support the commercialization of research and R&D of direct relevance to the productive sector\. These lessons were incorporated into the design of Component 3, notably the decision to provide support for cooperative research consortia\. The MECESUP Project displayed the need to scale up the production of young researchers in Chile in parallel with increased support for STI\. The MECESUP Project supported the strengthening of doctoral programs, e\.g\. by financing staff development and curricula design\. The Project built on these efforts by significantly scaling up the provision of PhD scholarships in Chile\. The Project design also reflected several policy recommendations from the World Bank (2002) flagship report: "Closing the Gaps in Education and Technology" such as: (i) the high complementarity between human skills and technological development and (ii) the need to increase knowledge diffusion between the public research providers and private enterprises in order to boost private sector R&D\. The critical assumption of a strong and stable macroeconomic environment was justified by the country's strong economic fundamentals and macro economic track record\. Similarly, the assumption of political stability was based on Chile's political performance since the return to democracy\. The main risk was represented by the private sector side, in terms of lack of participation and commitment, and of unarticulated demand for public-private collaboration\. As a mitigating factor, a consultation process with the private sector had been designed\. In particular, consultations were especially instrumental in the design of the Project component that financed consortia\. A two-stage process was followed, with a pre-proposal stage that preceded the formulation of full proposals, in order to facilitate a dialogue with private sector representatives during the process\. In addition, there was a close collaboration with SOFOFA (the Chilean private sector chamber of commerce) in all stages of preparation and design of the Project\. Moreover, several seminars on the topic of public-private research partnerships were held to raise awareness and disseminate information on the instruments designed and implemented under the Project\. 2\.2 Implementation The implementation of the Project was satisfactory\. A Mid-Term review carried out in March 2006 found that the Project was being implemented in a satisfactory manner and showing a number of positive preliminary results\. Most indicators of Project progress or "trigger" indicators ­ defined as a requisite for a second-phase APL ­ were already achieved at the time, and Project outcome and impact indicators showed positive trends\. Nonetheless, the MTR also identified some challenges\. Most of the recommendations had to do with the need to maintain coordination with other implementing agencies, better integrate the project unit within CONICYT and consolidate some of the instruments (e\.g\., the STI observatory) at the national level\. In addition, the activity included in the PAD, "Doctoral Thesis in Industry", was not launched on time and, consequently, it did not start within the time span of the Project\. Together with delays in the transfer of funds for selected cooperative research consortia, this caused a shift in the relative weight between components\. Consequently, the activities launched under Component 2 were financed relatively more with respect to the activities under Component 3\. 11  2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Significant efforts went into detailing the Project's results framework during preparation\. Indicators were identified on the basis of a causality tree approach that articulated how Project activities were expected to translate into overall development outcomes\. In order to highlight the importance of M&E, the preparation team invited a representative from the OECD Directorate for Science, Technology and Industry to interact with key counterparts in CONICYT and provide input to the results framework\. The objective was to facilitate benchmarking of Chile's STI performance with countries that successfully had made the transition into high value-added economies\. Following Project effectiveness, the Bank team organized a two-day M&E workshop in Chile in order to build counterpart capacity to implement the agreed results framework\. The workshop was lead by the Bank's Operations Evaluation Department (now IEG) and provided training to about 40 stakeholders in Chile's STI system\. The implementation of the M&E framework was supported by the establishment of the STI observatory under Component 1 of the Project\. The collection of data was satisfactory in regard to national statistics\. For instance, the observatory was instrumental in improving the quality of information on university research spending and private sector R&D\. However, the project unit was less successful in establishing an information system for tracking results in supported subprojects\. This was due to capacity issues tied to the high number of activities that needed to be launched during the first year of Project implementation\. The importance of complying with the agreed M&E framework was flagged during Bank supervision missions\. 2\.4 Safeguard and Fiduciary Compliance No safeguard policies were triggered by the Project\. Support was provided only to proposals that were considered to be environmentally sound with respect to their societal purpose and operation\. National guidelines for laboratory safety, disposal of environmentally hazardous material, bio- ethics and bio-safety were submitted by CONICYT to the Bank during preparation and were found to be in accordance with international best practice\. The Project is considered to have had a neutral or positive environmental impact\. A Financial Management Assessment (FMA) was prepared before loan effectiveness to assess the capacity within the implementing agency\. It was noted in the assessment that during project preparation and at appraisal "staff assigned to the financial management area of the Project quickly grasped the essentials on the subject, thus anticipating an effective and efficient operation in this regard during project implementation"\. Audit reports were issued every year by the Contraloría General de la República\. All reports rated the Project's financial management performance satisfactory\. Moreover, an independent audit by Ernst Young conducted in March 2005 found the management of the Special Account to be fully satisfactory\. A Procurement Capacity Assessment was prepared in 2003, analyzing the procurement unit within CONICYT\. The unit was found to be "adequately staffed, very competent on procurement in accordance to local procedures and well organized"\. Procurement under component 1 of the Project was managed directly by CONICYT, but procurement in awarded subprojects was the responsibility of each beneficiary institution\. Procurement ex-post reviews were carried out annually and included a review of: (i) the appropriateness of the institutional arrangements; (ii) the procurement plan for the Project, including a timetable for procurement actions anticipated during the subsequent 12 months; (iii) the monitoring system; and (iv) the complete review of records for one in every ten contracts\. All reviews rated the Project's performance in regard to procurement to be satisfactory\. 12  2\.5 Post-completion Operation/Next Phase The Project contributed to building support for investments in STI in Chile and raising awareness on the topic\. Among other things this was reflected in the establishment of a National Innovation Council for Competitiveness in 2006 tasked with developing a national strategy for STI\. The Council presented a first volume of a National Innovation Strategy in January 2007, which was endorsed by President Bachelet shortly thereafter\. The strategy underscores that becoming a knowledge economy means adding value to sectors where Chile has demonstrated comparative advantages while supporting key emerging sectors\. The Project also highlighted the need to increase coordination among implementing agencies supporting STI in Chile\. For this reason,it is expected that activities launched under Component 1 of the Project will be elevated to the Ministry of Economy which is better positioned to ensure coherence and provide orientation to Chile's support system for innovation\. The Project, as previously mentioned, was conceived as a two-stage APL\. Instead of proceeding with APL 2, the Government requested the Bank to support its new, more ambitions policy vision (as described above) under a new stand-alone operation\. The Government continues to implement all of the components of the APL program, either with funding from the new stand-alone operation or with its own resources\. The new operation would support key elements of the national innovation and competitiveness strategies with a strong emphasis on building robust institutional foundations\. In particular, it would: (i) strengthen the Ministry of Economy's capacity to oversee the implementation of STI policies in Chile; (ii) sustain and consolidate investments in group-based research and public-private linkages in CONICYT; and (iii) support technology transfer and technology-based startups through Chile's private sector development agency CORFO (Corporación de Fomento de la Producción)\. The Government regards the Bank as a strategic partner with expertise in the innovation and competitiveness areas, knowledge of a wide range of international experiences such as OECD and Asia, and the capacity to help adapt international practices and instruments to Chile's reality and needs\. Evidence of this partnership is reflected in the Government's request to the Bank for a study (a fee-for service task) on the institutional and governance structure of Chile's support system for STI that would help better understand the country's institutional foundations in the sector\. Drawing on international evidence, the study will develop options for enhancing the effectiveness and coherence of Chile's institutional arrangements for decision making, policy implementation and evaluation in regard to STI\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation At design stage, the Project had, and continues to have today, highly relevant objectives\. The Project continues to be fully aligned with the current priorities of the Chilean Government, and is consistent with the goals set by the joint IBRD-IFC Country Partnership Strategy (CPS) for Chile\. The objective of the CPS, for the period 2007-2010, is to support the Government in its development program and in particular to help realize Chile's long-standing goal of convergence with OECD income levels and living standards by (i) accelerating growth and (ii) increasing equality of opportunity\. The Project is still very current in its objectives, which contributed to Chile's development by supporting technological innovation, a key source of income and employment growth\. The Government of Chile has identified innovation as one of the key areas for its development 13  vision\. As mentioned earlier, in January 2007, the National Innovation Council delivered the first volume of its strategy for enhancing Chile's competitiveness\. Some of the main objectives and lines of action included in the strategy reflect the original objectives of the Project, which was designed to support Chile's transition to a knowledge-based economy by investing in the innovation system and the stock of human capital\. In particular, the lines of action presented by the Council of (i) supporting research applied to technological development or more focused on the needs of the production sectors and (ii) developing innovation activity within firms by promoting linkages between scientific and technological research and the firms were already reflected in the Project through the public-private partnership included in Component 3 and the instruments of research consortia and collaboration between researchers and firms\. Finally, the Project contributed to generating a pro-active culture of innovation, helping innovation to become a key factor for the country's development, as recognized by the innovation strategy\. 3\.2 Achievement of Project Development Objectives The Project began implementation in 2004 and closed in March 2007\. The overall assessment of the Project's achievement of the PDOs is satisfactory\. The Project helped strengthen Chile's policy framework and environment for innovation by consolidating and modernizing existing instruments and programs in science and technology\. Further, it improved Chile's Science Base through its contribution to the creation of a critical mass of STI researchers and qualified university personnel, financing doctoral scholarships and the university insertion program\. Finally, by providing funding to public-private research partnerships, the Project contributed to the creation of a culture of innovation in private enterprises and the provision of a substantial transfer of knowledge through the mobility of highly skilled labor\. However, some limitations arise from the fact that establishing a clear causal connection between the activities implemented under the Project and the achievement of the development objectives requires a longer time frame than the three years of implementation\. Consequently, most of the effects of the Project are likely to reveal themselves well beyond its time span\. This was indeed a reason for part of the difficulties that occurred in identifying indicators in the project design phase and, subsequently in clearly assessing some of the impacts of the Project\. Furthermore, the decision of the team to scale-up the implementation of some of the activities under the components, in particular component 3, contributed to the difficulty of fully evaluating the impact of the Project at the time of the ICR\. For instance, some of the activities are still under implementation (please refer to Table 1 below) and the collection of data and indicators on outcomes is still on going\. In this section, the Project will be assessed against the achievement of the PDOs\. However, for the reasons exposed before, the complexity of this type of projects and the difficulty of establishing a clear causal connection between the activities implemented and the achievement of the objectives in the short/medium run, it was necessary to closely link the successful implementation of the activities to the achievement of the objective per se, otherwise we would have lost an important part of the explanation for the Project's impact\. Table 1 Status of project implementation Amount of the Transferred Proportion of Type of Subprojects Agreements Resources resources (USD) (USD) transferred (%) Component 1: Improving Chile's National Innovation System Studies for Politics & Management in STI 1,706,314 1,706,314 100% 14  Courses for the STI Management Skills 944,792 944,792 100% Awareness Activities & Seminars in STI 2,007,402 1,973,351 98% Technological Awareness Camps 317,399 298,880 94% Component 2: Strengthening Chile's Science Base National Doctorate Scholarships 17,614,626 8,544,921 49% Abroad Doctorate Scholarships 1,955,398 1,261,816 65% Team Grants in Sciences 27,193,271 13,034,393 48% Millennium Nuclei 6,526,168 3,161,682 48% Insertion of Postdoctoral Investigators in the Academy 10,833,196 4,319,252 40% Component 3: Enhancing Public-Private Linkages Regional Consortia of Cooperative Investigation 5,532,710 1,906,908 34% Enterprise Consortia of Technological Investigation 19,783,410 3,433,815 17% International Support to Interchange of Centers of Excellence 252,010 252,010 100% Technological & Science Joint Seminars 402,873 402,873 100% Networks of Collaboration with the European Union 1,089,342 949,490 87% Development of Inter\. Cooperation for Investigation of Excellence 714,987 0 0% Projects of Mobility in Sciences of the Materials 15,140 12,547 83% Insertion of High Human Capital Personnel in the Industry 2,563,394 1,142,535 45% Instruments and Incentives Around the Intellectual Property 3,768,224 2,148,561 57% Total Resources Committed and Transferred 101,661,539 45,695,122 45% Source: CONICYT (2007)\. Note: 45 per cent of the total resources committed were transferred in the following manner: (i) 25\.3 million USD were disbursed through the Project loan; (ii) 20\.3 million USD were transferred by the Chilean government in its regular budget\. The rest of the resources (56 million USD) will be transferred by the Chilean government in its regular budget in the next three years\. Nevertheless, the main achievements of the Project were identified and attributed\. The main Project Development Outcomes are reported below\. 3\.2\.1 The objective of Improving Chile's science, technology and innovation system was achieved\. The Project achieved the above mentioned objective by: (a) contributing to strategy, policies and awareness activities for innovation; and (b) improving the basis for evidence-based decision making on STI\. The Project strengthened the capacity to formulate policy and design STI strategies through the financing of several analytical studies, helped the identification of best practices by launching courses and seminars directed at the scientific and business community, increased STI awareness among high school and university students via technological awareness camps, and helped create knowledge relevant to decision makers in topics directly related to the National Innovation System through studies of STI Policy and Management\. A summary of the initiatives launched under Component 1 is provided in the graph below (Graph 1)\. These activities were supplemented by STI information-gathering activities launched by the Chilean STI Observatory (also known as KAWAX)\. Further details and examples of these activities are provided in Annex 2\. Graph 1 Activities under Component 1 15  60 50 40 30 20 10 0 Technological Courses for STI Studies for Politics and Aw areness Activities Aw areness camps Management Skills Management in STI and Seminars in STI 2004 2005 2006 Source: CONICYT 3\.2\.1a Contributed to Strategy, Policies and Awareness Activities for Innovation Contributed to the development of policies on STI\. The Project supported policy formulation processes through the implementation of nineteen analytical studies which analyzed bottlenecks in the innovation system, investigated the use of technology in natural resource sectors and helped identify best practices in STI management\. The analytical studies contributed to: (i) benchmark science and technology activities in the country; (ii) identify best practice to aid decision-making of different actors in the NIS; and (iii) support the development of STI instruments and national policies and strategies\. For instance, one of the studies identifies and evaluates the economic and social impact of successful projects supported by the Fund for the Promotion of S&T Development (Fondo de Fomento al Desarrollo Científico y Tecnológico ­FONDEF)\. Moreover, the project team worked in collaboration with the Sub-Secretariat of Regional Development and Administration (SUBDERE) to strengthen institutional capacity of regional STI councils (Consejos Regionales de Ciencia y Tecnología ­ CORECYT) to better define, design and implement regional STI initiatives (in 2004 the studies "Diagnosis and Strategy for Region I" and "Diagnosis and Strategy for Region IX" were financed)\. Box 1 below summarizes the field of the studies and their topic\. 16  BOX 1 Completed Studies and Studies in Execution Technological Maps Technological Maps for the Mining Sector (2004) Technological Maps for the Aquaculture Sector (2004) Benchmarking, lessons learned Benchmarking University ­ Private Enterprise Innovation Processes (2004) Definition of strategies, policies, and procedures for legal protection and technology transfer of research results (2005) FONDEF case studies (2005) National and regional STI policy Diagnosis and Strategy for Region I (2004) Diagnosis and Strategy for Region IX (2004) Directory of Researchers and Perspective on Chilean Science (2005) Baseline study for Insertion of Researchers in Industry (2005) Antarctic Strategy (2005) Technology States of the Art (2005) Support to Regions IV and VIII on STI policy strategy (2005-2006 ­ in execution) Diagnosis of scientific and technological infrastructure at the national level (2005-2006 in execution) Regional STI diagnosis (2005-2006 in execution) Monitoring and Evaluation Study on Researchers and Businessmen Perceptions on STI (2005) Comparative study of STI Disciplines in Fondecyt (2005) Support to SICTI on appropriation model (2006 - in execution) Design of Monitoring & Evaluation model for the National Innovation System (2006 ­ in execution) Design of surveys for collecting data on Human Resources in research, for higher education institutions, government and private no-profit institutions Improved skill-set of STI managers: Through Awareness Activities and Seminars in STI and Courses for STI Management Skills directed at the scientific and the business community the Project began a process of improving the skill-set of STI managers, bringing together knowledge of science and technology and of management, a combination of skills still scarce in Chile\. They helped transfer STI methodologies, instruments, best practice, and other STI management know- how, such as on intellectual property rights and on STI monitoring and evaluation\. Thirty-five seminars were performed in 2006 and 20 were selected to be carried out during 2007\. All seminars were characterized by interdisciplinary participation and ample diffusion\. A summary of the diffusion, networking activities and seminar outputs (CDs, books, websites) is reported below in Table 2 for 2006 (data for 2007 seminars not yet available)\. More details are provided in Annex 2 (Table 18)\. 17  Table 2 Awareness Seminars in STI Amount Total National International Other Seminars Granted Networking Diffusion Attendees Seminars by the Activities Activities to the Academia Academia Sectors Outputs Project Seminars Attendees Attendees Attendees (N°) (USD) (N°) (N°) (N°) (N°) (N°) (N°) (N°) 35 2,007,402 79 388 5,261 201 92 375 22 Source: CONICYT (2007) Eighteen STI Management Courses were selected and carried out in 2005 (see Table 3 below and Table 19 in Annex 2 for details)\. The STI management courses have progressively increased the level of self-sustainability\. In fact, 4 of the courses in 2006 evolved into one-year long programs (diplomados) on their own\. The Diploma on Innovation and Technology Management of the University Alberto Hurtado provides a good example of the type of courses that were financed under the Project\. The course combined both conceptual fundamentals with practical applications through seminars, project developments and case studies, allowing students to apply all learned knowledge in actual business situations\. Executives and business men were trained in order to: (i) understand some central aspects of the knowledge society and business competition based on innovation and technology; (ii) lead the creation of companies' technological strategies and align them with competitive strategies; (iii) participate in the creation of culture of innovation within organizations; (iv) understand the technological development processes and then apply their main methodologies and tools; and (v) develop an applied project of technological business\. Using this diploma as a starting point, the university aims to develop a masters program in 2008 and eventually obtain a double degree with one of the foreign universities which demonstrated their interest in supporting the Project\. Table 3 STI Management Courses Amount Total Granted Attendees National International Other Courses by the to the Academia Academia Sectors Project Courses Attendees Attendees Attendees (N°) (USD) (N°) (N°) (N°) (N°) 18 944,792 1,847 34 30 131 Source: CONICYT (2007) Raised STI awareness among Secondary and University Students\. Through "technological camps" (jointly with CONICYT's Explora program), the Project contributed to raising awareness of STI among secondary and university students\. The camps (28 in total) created spaces of interaction between scientists, researchers, entrepreneurs, and students, so that the latter could begin thinking of technological innovative solutions in diverse areas and be encouraged to explore science as a career opportunity\. Participation overall was high and the innovative impact was considerable (please refer to Table 20 in Annex 2 for details)\. Eleven Technological Camps (see Table 4) were conducted during 2005 (after the first and second calls for proposals) and were attended by over 400 secondary schools and universities\. Seventeen new camps in 2007 were financed under the Project\. These were the last camps financed under the Project since it was decided to finance this activity directly through CONICYT's Explora program\. This is a positive outcome, since it will give sustainability to the initiative, by incorporating it in the national STI system\. 18  An example of a Technological Camp is the camp from Universidad de La Frontera in Computer Science and Cybernetics\. The outcome of the project was a prototype that allows the safe movement of disabled people, adapted to regional conditions\. The main achievements of the Camp were to develop scientific, technological, management and entrepreneurship skills in every member of the working group, especially in students\. The students were not only exposed to a high level of technology, but also to management techniques that would help familiarize them with the diffusion of the results of technology\. Table 4 Technological Awareness Camps Amount Diffusion Total Granted Activities Attendees Mass Media Camps by the for Camps to the Appearances Project Preparation Camps (N°) (USD) (N°) (N°) (N°) 11 317,399 154 4\.685 92 Source: CONICYT (2007) 3\.2\.1b Improved Basis for Evidence-Based Decision Making on STI\. The Project strengthened national statistics on university research and improved information on private sector innovation in collaboration with the Ministry of Economy\. This was achieved through the establishment of an Observatory for Science, Technology and Innovation (KAWAX) in CONICYT\. KAWAX designed, integrated, and disseminated relevant information, indicators and studies using international standards and methodologies\. The Project's conceptual framework was instrumental in encouraging the GoC to increase the scale of the Project's M&E activities to include the strengthening of information systems pertaining to the entire S&T sector\. The Government improved capacity for oversight of the S&T sector led to an increased focus on enhancing public-private research linkages and facilitated Chile's participation in OECD's Committee for Scientific and Technological Policy, which is per se a significant achievement and positions Chile next to the most advanced countries in terms of policy in the Science and Technology sector\. Within the Observatory, a fund for "Studies of Science, Technology and Innovation Policy and Management" was launched in 2006 to select, through an open competition, studies that would help to create knowledge relevant for decision makers and firms in topics directly related to STI\. The fund financed 37 studies out of 72 proposals (see Table 5 below for a list of subjects of the studies)\. An example of study financed through this fund is a survey, conducted at a national and international level, of possible use of agricultural species that can be grown in Latin America, with the purpose of generating bioenergy\. The study evaluates the possibility of developing programs of genetic improvement using biotechnology, contributing to position Chile as a potential provider of improved genetic seeds for those countries that could potentially produce total or partial substitutes for fossil fuels\. 19  Table 5 Studies for Policies and Management in STI (2006) Subject Total Cost Studies % Financed by the Project (ISI Thomson) (USD) (Nº) (%) Agricultural Economics and Policy 131,688 2 66,4 Astronomy and Astrophysics 62,237 1 70,4 Business 727,039 10 67,1 Economics 91,402 1 61,3 Educational Research 276,170 4 58,6 Energy and Fuels 82,178 1 53,6 Fisheries 35,402 1 62,8 Forestry 164,959 2 62,3 Geography 103,536 1 54,1 Information Science and Library Science 85,084 1 64,5 Management 63,049 1 59,3 Operations Research and Management Science 517,398 8 66,0 Physics, Multidisciplinary 80,747 1 64,8 Public Administration 67,217 1 68,0 Social Sciences 86,262 1 64,9 Urban Studies 86,542 1 64,6 TOTALS 2,660,910 37 64,1 Source: CONICYT (2007) This component of the Project contributed effectively to build momentum for S&T in Chile, create a culture of innovation and raise awareness around this topic, as well as to change the political vision at an institutional level\. In January 2007, part of the operations under KAWAX were incorporated in the Department of Studies in CONICYT, to connect the observatory to the tasks of the institution in terms of generating indicators and studies\. Other functions of the observatory moved to the Ministry of Economy, where data collection from the private sector will be conducted and analyzed for policy making decisions\. These changes reflect the importance instruments for decision making in the field of STI have reached in the country and the acquired awareness that this type of instrument needs to be anchored in an institution able to provide oversight of Chile's support system for innovation in its entirety\. 3\.2\.2 The objective of Strengthening Chile's Science base was achieved\. One of the most important barriers to innovation in Chile has been the insufficient level of advanced human capital, the lack of a critical mass of scientific and technological research personnel and a low capacity to generate new knowledge through applied research\. The Project tackled these barriers by: (a) helping to increase the production of advanced human capital; and (b) improving the quality of basic and applied research in Chile by consolidating a new culture of research\. It did so by building on earlier human resource achievements of CONICYT, the Millennium Science Initiative (MSI), and the Higher Education Improvement Projects (MECESUP I)\. 3\.2\.2a Increased the production of advanced human capital in Chile\. The Project helped to create a critical mass of STI researchers and renew qualified university personnel through the financing of doctoral scholarships and the university insertion program\. 20  The Project financed an additional 517 doctoral scholarships in accredited domestic graduate programs and awarded 58 scholarships for PhD studies abroad in Britain, France, the United States and New Zealand\. These scholarships were awarded specifically in scientific disciplines (see Graph 5 and Tables 23a and 23b in Annex 2 for details of areas of study)\. This is particularly relevant since Chile had awarded a low number of science and engineering post-graduate degrees in the years prior to the Project(see Graph 6 in Annex 2), which consequently led to a small pool of researchers in these fields\. Chile has a very low number of PhD graduates compared to industrialized countries but also to other countries in Latin America (please refer to Table 6)\. While it is not possible to show actual data comparisons on the number of PhD graduates in the most recent years, it is plausible to assert that the increase in the number of scholarships awarded, due to the Project's contribution, is likely to raise the number of doctoral graduates in Chile\. The number of hard sciences doctoral graduates in the country increased by 30 per cent after the first two years of the Project's implementation (as shown in Graph 6 in Annex 2)\. Table 6 Number of PhD per Million Inhabitants\. Chile and Other Countries Country/Year 1998 1999 2000 2001 2002 2003 2004* Brazil 23 28 30 34 38 44 48 Mexico 7 9 11 11 14 17 19 Chile 6 5 6 6 9 9 15 Australia 175 186 193 196 199 217 237 Finland 331 334 365 346 346 336 356 Ireland 121 126 131 148 132 167 168 New Zealand 107 124 120 125 129 132 153 Source: OECD, Ricyt, World Bank *latest year available Graph 2 shows data for all PhD scholarships, national and international, awarded by CONICYT: the Project awarded roughly 47 per cent of these scholarships since its creation in 2003 reaching up to 68 per cent of total scholarships in 2006, contributing significantly to the overall investment in post graduate qualifications\. Graph 2 Increase of PhD scholarships in Chile financed by CONICYT and by the Project\. 450 400 350 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 PhD Scholarships by the project PhD Scholarships by CONICYT Source: CONICYT 21  3\.2\.2b Improved quality of basic and applied research in Chile\. Chile's science base comprises its scientific and technological research personnel, its research infrastructure, and its capacity to access in a timely fashion the knowledge generated in other countries\. The Project helped to strengthen Chile's science base and to consolidate a culture of high quality research through the formation of research teams and the introduction of built-in incentives to conduct research in priority areas\. Cooperative Research Teams\. The Project contributed to the consolidation of group-based research in Chile, shifting from a system that provided small grants to individuals to one that provides larger grants to research groups working in priority areas\. A total of 34 multidisciplinary research teams were established with support from the Project (Table 7)\. The Research Rings complemented the Millennium Science Initiative (also supported by the Project) and FONDAP initiatives, and expanded the experience gained from these initiatives to other research groups\. Research Rings have been provided with significant funding: approximately US$300,000 per year for three-year projects, which is comparable to the Millennium Nuclei\. Table 7 STI Research Rings (in the first year of execution) Research Total Cost of Cost Financed by Subject Rings the Projects the Project (N) (USD) (USD) Science and Technology Agriculture, multidisciplinary 1 1,205,000 860,000 Biotechnology and applied microbiology 1 1,554,385 860,000 Cell biology 2 3,089,360 1,720,000 Chemistry, applied 1 1,973,480 860,000 Ecology 1 1,614,170 860,000 Engineering, electric and electronic 3 2,916,340 2,580,000 Environmental sciences 1 1,500,285 860,000 Genetics and heredity 1 4,119,045 860,000 Geosciences, multidisciplinary 1 n/a 860,000 Mathematics 3 3,488,085 2,580,000 Medicine, general and internal 2 3,228,340 1,720,000 Medicine, research and experimental 1 1,312,000 860,000 Neurosciences 4 5,234,385 3,440,000 Pharmacology and pharmacy 1 966,855 860,000 Physics 6 9,369,390 5,160,000 Psychiatry 1 1,851,430 860,000 Statistics and probability 1 1,458,170 860,000 Social Sciences Urban studies 1 341,240 213,300 Geriatrics and gerontology 1 385,830 213,315 Antarctic Science Geosciences, multidisciplinary 1 1,077,240 106,655 Source: CONICYT (2007) 22  The Project helped foster the creation of multidisciplinary teams to work on specific projects within three broad thematic areas of research: Science and Technology, Antarctic Sciences, and Social Sciences\. The creation of networks of scientists from different institutions and disciplines was encouraged, reducing isolation of scientists outside the capital city, and offsetting some of the disadvantages of the low number of STI researchers and geographic dispersion\. According to researchers who benefited from these initiatives2, their participation in Research Rings allowed them "to set more ambitious scientific objectives," "to tackle more challenging scientific problems", to perform research "closer to international standards, carrying out better quality experiments" and "to qualitatively improve their relationship with research teams in the North\." Also noteworthy is that Research Rings allowed scientists to pay a salary to doctoral students and hire research assistants to bolster their research teams\. As a result, an important impact was registered in terms of advanced human capital formation, with several PhD students involved in the research teams and post-doctorate researchers collaborating (see Table 8)\. With the implementation of Research Rings, not only did the level and quality of research improve, but networking, dissemination of research results and outreach to society also increased (please refer to Box 2 for selected examples)\. As part of the scientific production, several presentations, at national and international level were performed and articles published in scientific journals (see Table 8 below and Table 22(a) in Annex 2)\. It is worth noting that the results of research teams in terms of publications are more likely to show after the first few years of establishment of the group, since one can expect a time lag between the discovery of a scientific finding and the publication of an article in scientific journals, due to revision and publication procedures\. For more details on indicators for Research Rings please refer to Tables 22(a) and 22(b) in Annex 2\. Table 8 Selected indicators on Scientific Activity and Human Capital Formation for Research Rings (first year of execution)\. ISI PhD Post- Research Group Title Publications students Doc (N°) (N°) (N°) Equations related to lattices 6 n/a n/a Networks in Mathematics and Engineering Sciences n/a n/a n/a Analysis, modelling and optimization in the application of wireless Technologies\. 10 5 2 Dynamics, singularities and geometry of matter out of equilibrium\. n/a n/a n/a Tectonomagmatic control of giant ore deposits in the subduction factory of the high Chilean Andes between 32º-36ºS: a multidisciplinary approach\. 0 3 1 Climate variability in Chile: assessment, interpretation and projections\. 4 0 3 Electrochemical sensor design for sulphite detection and electrochemical measurements of the phenols antioxidant capacity in wines\. 0 3 3 Vitamin C and oxidative stress resistance: Basic studies and biomedical applications in cancer and prevention of cardiovascular diseases\. 0 5 2 Chagas disease: control of virulence and infectivity of Tripanosoma cruzi with products of natural, synthetic and immunologic origin 3 7 1 Scientific ring in microevolution of phytophagous insects: an ecological, physiological and genomic approach\. 12 9 1 Advance studies in cell signalling and gene regulation\. 5 4 1 2 Source: World Bank (2006), "Science for Knowledge Economy" Mid-Term Review\. 23  Centre for sensory neurosciences from signal transduction to the neural code\. 0 11 0 Interaction surfaces in folding and oligomerization of ion channel proteins\. n/a n/a n/a Centre for the analysis of gene function in neural development 0 8 3 Source: CONICYT An example of successful impact of the support for research groups and its contribution to stimulate investment in research is given by the Instituto Antartico Chileno (Chilean Antarctic Institute-INACH)\. The Project contributed to financing a Research Ring in Antarctic Science and brought cohesion in the scientific community by helping to define the Institute through funding of this initiative\. INACH has traditionally been managed by the Ministry of Foreign Affairs, as part of the territorial claim to Antarctica\. In order to improve the quality of research and the integration with the scientific community, the director of the institute requested to be part of the anillos initiative\. Today, the investment in scientific projects in the Antarctic has tripled (being around US$ 2 million) and the Institute has become one of the main institutes that practice and promote science in Chile\. For the first time, in 2007, a multidisciplinary and multi-institutional Antarctic project will have, through various external sources of finance, enough resources on its own to carry on its activities for the whole year, including the salaries for researchers and the expenses for laboratory analysis\. Furthermore, an agreement has been signed between INACH and FONDECYT (the main provider or resources for basic research in Chile) to collaborate on Antarctic research\. 24  BOX 2 Team Grants in Sciences Two projects from Universidad de Valparaíso: the "Interaction Surfaces in Folding and Oligomerization of Ion Channel Proteins" and the "Center for the Analysis of Gene Function in Neural Development" developed a new joint laboratory which attracted around 50 under and postgraduate students from regional universities, which would not have been the case if they had been organized as individual projects\. Analysis, Modeling and Optimization in the Application of Wireless Technologies is a project carried out by Universidad Técnica Federico Santa María in Valparaíso in combination with researchers from the Industrial Engineering Department of Universidad de Santiago\. This project has established an ample network at an international level (Universidad Carlos III-Madrid, Technical University of Varna, Bulgaria, Universidad Politécnica de Cataluña, Spain, Universidad Nacional de Mar del Plata, Argentina, and University of Newcastle, United Kingdom, among others)\. The main outcomes of this project are a patent application and 10 ISI publications in its first year\. The project Climate Variability in Chile: Assessment, Interpretation and Projections has attained major advances in the analysis of the variability of the regional climate regimes\. The collection of data has allowed a comparison between the main events of global climatic changes versus regional changes in Chile leading to conclusions indicating no parallels in some cases\. A reasonable explanation for a number of the variability patterns have been found in oceanographic phenomena: the El Niño Southern oscillation, the Antarctic oscillation and the Interdecade Pacific oscillation (changes in the temperature and salinity characteristics of the South Pacific)\. This project has made a large effort in disseminating these results to the community, in particular through talks especially designed for journalists\. Electrochemical Sensor Design for Sulphite Detection and Electrochemical Measurements of the Phenols Antioxidant Capacity in Wines, is a project whose main aim is to develop an electrochemical sensor able to determine the sulphite concentration in white and red wines, easy to operate and with instant response\. In addition to the determination of sulphite that has an anti microbial effect, the idea is to determine individually all antioxidants\. This project includes Universidad de Santiago as main institution and Universidad de Chile and Viña Tarapacá ex Zavala as associated institutions\. Finally, a key contribution of the Project is the establishment of a fair, open and merit-based selection process for proposals as practice that has been accepted and acknowledged by the research community\. This process is extremely relevant as research funding in Chile has traditionally been allocated based on considerations other than quality and impact\. The selection and evaluation of project proposals under the Project was conducted by a peer review mechanism in conjunction with an international panel of experts\. The last stage in the selection process was performed by an Evaluation Committee, which supplied a final list of selected projects\. In addition to quality, a main criterion for selecting research projects was their potential for contributing to Chilean production processes\. However, it is important to mention that the Project, while contributing to the development of cooperative research teams in the country, did not envisage in its original design an element of long term strategy development as to how to combine support to group research, which is certainly needed in order to gradually integrate into a holistic framework all current initiatives which include, besides the Research Rings, the MSI nuclei and the FONDAP advanced research centers\. Insertion of advanced human capital into universities\. The Project strengthened the research capacity of universities by subsidizing the hiring of young PhD graduates into research 25  institutions to create or strengthen specific research areas\. The Project co-financed the first three years of the researchers' salary, and the research institute subsequently committed to maintaining and financing the researcher as staff for a further three years\. This activity built on the contribution of previous projects financed by the World Bank, including the Higher Education Improvement Projects (MECESUP I and II), and provided continuity\. In total, 148 researchers were funded under the Project in three separate rounds (see Table 9 below and Table 24 in Annex 2 for details)\. This is an important contribution considering that at the time the Project started less than 17 percent of university professors in Chile held a PhD, and only about 24 percent of lecturers conducted research (DESUP 2005)\. In this sense, the Project helped both to upgrade the level of academic staff and to create a career path for young researchers, whose employment opportunities were hindered by a low turnover of academic staff\. Table 9 Insertion of Researchers into Universities: PhD Graduates Funded by the Project First Round Second Round Third Round 2004 2005 2006 Total PhD Graduates inserted 27 52 69 148 Source: CONICYT (2007) For the first round of funding there are some indicators available (see Table 10 below)\. The data show that numerous scientific publications were produced, several national and international presentations were delivered and collaborations were initiated, helping diffusion of knowledge with other institutions, both in Chile and abroad\. This process is very important for improving the quality of research and therefore strengthening the broad capacity to generate new knowledge within the country\. Table 10 Output Indicators for Insertion in Academy (first contest) General Scientific Production Human Capital Formation Diffusion Thesis and Participation Participation Participation in Subject Researchers Scientific International National other in in National International (ISI Thomson) Inserted Publications Presentations Presentations training Postgraduate Collaboration (Nº) (Nº) (Nº) (Nº) Collaboration activities Programs Projects Projects (Nº) (Nº) (Nº) (Nº) Biochemistry and molecular 3 0 6 2 3 19 8 0 biology Business 2 0 0 0 0 2 0 0 Chemistry, multidisciplinary 5 8 7 10 7 7 2 3 Environmental sciences 2 1 2 2 0 7 6 2 Environmental studies 3 3 1 6 4 4 4 1 Neurosciences 6 2 8 12 2 16 3 5 Plant sciences 3 5 3 9 12 16 5 5 Spectrometry 3 0 4 5 1 9 9 0 Source: CONICYT 3\.2\.3 The objective of Enhancing Public-Private and International Research Linkages was achieved\. Although too early to assess the full Project's impact, it can be argued that it had a significant role in strengthening cross-sectoral research collaboration and reducing fragmentation in the NIS\. Most of the progress to date can be attributed to the Cooperative Research Consortia jointly funded by CORFO, FIA and CONICYT\. Evidence suggests that this component strengthened the 26  culture of interaction between industry and research institutes, providing opportunities for technology-based companies to gain access to research capability for production purposes\. Finally, the Project contributed to strengthening the insertion of Chilean STI institutions and companies into domestic and international STI networks\. 3\.2\.3a Extensive use of Public-Public and Public-Private Partnerships Chile's public R&D system has been successful, in the sense that Chile scores higher than other Latin American countries in terms of scientific publications per resident\. Still, the added value of this research remains questionable and has been of limited use to the private sector, directly or indirectly\. Collaborative research consortia piloted under the Science for the Knowledge Economy Project are an example of successful public-private research partnerships that emerged in Chile\. International experience suggests that public-private partnerships are an effective approach to stimulate private R&D, put in place a competitive selection of high quality scientific research, and promote the concentration of resources in research fields of strategic importance for the economy and society\. Furthermore, evidence from a forthcoming study3 of firms' ability to innovate in Chile shows that collaboration between firms and universities has an important impact on outcomes of innovation, such as patenting and product innovation\. In particular, this collaboration appears to increase the probability of patent activity in the firm by 37 per cent and the probability of introducing a new product by 29 per cent (see Table 26 in Annex 3)\. The Consortia are structured into formal joint venture partnerships with clear agreements on the management of intellectual property\. All participants are required to make cash and in-kind contributions\. Firms supplied infrastructure, financial resources, personnel and expertise\. This reveals a new form of interaction between academia and the private sector, as well as a change in research culture among researchers\. The subsidy provided by the Project may reach up to US$ 1 million per year, and the private counterpart is required to cover 37 percent of project costs\. A strategic partnership with the Corporation for the Promotion of Production (CORFO) and the Foundation for Agricultural Innovation (FIA) helped implement the consortia initiative on a larger scale than planned at appraisal\. The Project furthered collaboration among the three agencies (CONICYT, CORFO and FIA), which decided to launch this new instrument through a mutual agreement of collaboration\. In this way, the impact of the Project went beyond what was originally envisaged and nineteen consortia were launched in two different calls, with six of them financed under the Project (Table 12) and the rest financed by the other agencies (Table 11 for details)\. Table 11 Total Consortia Approved and Financed Selected Proposals CONICYT FIA CORFO TOTAL First call- 2004 4 2 4 9* Second call- 2005 2 3 5 10 Source: CONICYT (2007) *= one consortium was co-financed by CONICYT and CORFO The collaboration among CONICYT, CORFO and FIA was valuable and it was an important achievement of the Project\. However, this collaboration weakened with time, because of the lack of a plan that would guarantee its continuation\. Given the importance of this agreement among 3 Marotta, Mark, Blom and Thorn (2007) 27  the institutions and its demonstrated positive impact in strengthening and enlarging the program, an initiative is currently under way that aims to resume this collaboration in order to take full advantage of the complementarities and synergies among these agencies\. Moreover, the need to strengthen collaboration among agencies is one of the main issues addressed by the Chilean national innovation strategy, which recognizes the importance of enhancing cooperation in order to build a more effective innovation system\. Table 12 Consortia Approved and Financed by the Project Amount Total cost Amount Associated Granted transferred Main Firm Call for Disciplines of by the by the Researchers Average proposals Subject (ISI Consortium Project at Thomson) Project 30/03/07 Size (USD) (USD) (USD) (Nº) Type Biotechnological innovation in the Biotechnology 2004 production of new varieties in table and applied 5,555,350 3,113,450 771,600 4 Small grapes and stone microbiology fruit Technological Medicine, 2004 health research consortium\. CITES research and 8,717,910 5,712,380 1\.504\.760 3 Small Chile experimental Development of innovative and competitive technologies for manufacturing of 2004 highly value added Engineering, 9,930,630 4,646,895 0 5 Large products from waste chemical products of Chilean forest, fishing and winemaking industries Aeronautic 2004 technological Aeronautic 8,361,905 5,449,520* 0 4 Large Consortium Technological 2005 Consortium for Offshore Fisheries 2,552,380 1,459,045 0 9 Small Aquaculture in Chile Technological Consortium on Medicine, 2005 applied molecular research and 7,232,380 4,133,335 0 13 Medium and clinical experimental biomedicine\. Source: CONICYT (2007) *=amount co-financed by CONICYT and CORFO The consortia instrument is particularly important in Chile, where one barrier to innovation is the poor functioning of interfaces between science systems among universities and between universities, public research centers and firms\. Universities in Chile tend to be inward-oriented organizations and not geared to solving problems within a business timescale\. Through the consortia, the Project helped to increase the demand for R&D by industry through forging linkages between knowledge producers (i\.e\. university and research institutes) and STI users (i\.e\. firms), as well as providing incentives to build science and technology absorptive capacity within firms\. Particularly noteworthy is the Project's achievement in supporting the 28  creation of strategic alliances that helped to create applied research and marketable products (an example is given in Box 3)\. BOX 3 Collaborative Research Consortia CTE06\. Technological Health Research Consortium\. CITES Chile An interesting case is represented by the consortium CTI Salud (CTI-Health)\. The aim of this program was to position Chile at the cutting edge of biotechnology, in the belief that investment in this area might provide the basis for breaking technological barriers that separate Chile from developed countries\. This consortium is constituted of three universities (Universidad de Concepción, Universidad de La Frontera and Universidad Austral), a research institute (Fundación Leloir) and three firms (pharmaceutical, technological and IT)\. They created a research group that aimed to produce, through "transnational research" (i\.e\. collaboration in research across countries), marketable services for the prevention, diagnosis and treatment of cancer\. This consortium, which was constituted as a private company in 2006, represents a successful example of private-public linkages that has already originated one spin-off\. In addition, the Project established four Regional Cooperative Research Consortia, which helped supporting advanced research linked to regional development, contributing to the competitiveness of the regions, and fostering the creation of small and medium technological enterprises by supporting technological transfer\. For more details on regional consortia, please refer to Box 6 and Tables 25a and 25b in Annex 2\. The public-private partnership in the form of the consortia broke new legal ground in the country and created new and important opportunities\. However, as is the case with new initiatives, they need time to be tuned to the legal and financial framework and this caused delays in the launch of the initiative\. In particular, the formation of corporations, on one hand, requires professional, legal and economic capabilities and associated resources while requiring, on the other hand, time commitment from the consortium representatives to meet the necessary agreements\. For this reason, CONICYT, jointly with CORFO and FIA, organized a workshop in early May 2007 to discuss with the actors involved in the consortia the best management practices, starting from the experience of countries that are more developed in this regard (such as Australia, EU countries, USA, etc)\. The workshop provided support for the start up of the first 19 projects participating in the Technological Consortia Initiative by identifying the best and most successful practices for putting together, starting up and managing international consortia and transfers these practices to Chilean consortia\. In addition, the workshop helped identify coordination and follow- up mechanisms between consortia and agencies to improve their performance and results\. 3\.2\.3b Piloted new approaches to increasing company in-house R&D capacity The Project supported the introduction of highly qualified young scientists and researchers to work in private enterprises that were interested in generating new innovative processes\. In this manner, university-industry linkages were strengthened, enabling the introduction of cutting-edge scientific and technological knowledge by young scientists\. The long term impact of this effort remains to be seen, but evidence from a forthcoming study by the World Bank shows that a high level of skills within the firms significantly influences technology absorption and consequently the ability of Chilean firms to innovate\. 29  The program selected and supported 55 researchers in total, mostly in small enterprises (for details see Graph 8 in Annex 2)\. To date, anecdotal evidence from the completed projects4 shows that 80 per cent of the inserted researchers had been hired by the firm (see Table 13 below for details)\. Although too early to assess the full impact, this result is extremely important and is an important indicator of the relevance of the Project's impact on facilitating the insertion of advanced human capital in companies, enhancing their capacity to use and absorb knowledge\. A specific example of the relevance of this program is represented by the company Roche Chile LTD, which applied in 2004 for the insertion of a researcher with a doctoral degree in Microbiology\. The researcher was inserted to contribute to the development of quantitative and multiplex kits to determine viral agents that affect Chilean salmon production and associated activities\. According to the company, the generated impact of the Project was significant since 35 per cent of 2006 sales were a result of the developed protocols\. Furthermore, it has been estimated that during 2007 the contribution of these results will represent 40 per cent of the sales, which is roughly US$ 1 million per year\. Table 13 Insertion of researchers into industry Year Firm Researcher Contract with the firm at the Closing date for inserted end of the Project the Project 2004 JRI Ingeniería S\.A\. Tecnólogo* yes 12/28/2006 2004 Franmar Ltda\. Tecnólogo no 10/01/2006 2004 Soluciones Integrales de Reducción de Vibraciones S\.A\. Tecnólogo yes 01/31/2007 2004 Productos Roche Ltda\. Phd yes 12/28/2006 2004 Industrias Boetsch Ltda\. Tecnólogo yes 12/30/2005 2005 Klempau y Zilic Ltda\. Tecnólogo yes 01/31/2007 Source: CONICYT *Definition Tecnólogo: University professionals who have experience of at least 3 years in investigation projects, development and innovation, led by an academic, technological or private organization\. Chilean universities have had a limited tradition of stimulating entrepreneurship or linkages with industry\. Most of the researchers have had few incentives to orient their career towards broad- based objectives, which could include training in disciplines such as business and technology management\. The Project had a significant impact, by not only contributing to increase firms' capacity to absorb knowledge but also by creating new career paths for young researchers\. Until recently researchers have traditionally been oriented towards a career in academia or in public research institutions (see Graph 7 in Annex 2)\. However SME development represents the main channel to enhance the country's innovative potential and ability to assimilate and exploit existing knowledge\. Encouraging SME's absorption of advanced human capital is a critical factor to enhance such firms' capacity since Chilean SMEs have had traditionally low capacity in this matter\. The importance of these linkages motivated dialogue between the project team and the other actors involved\. CONICYT has announced its commitment to scale up this initiative through collaboration with SOFOFA, which represents the private sector side\. 3\.2\.3c Supported commercialization of knowledge\. 4To date, only 6 projects have closed\. 30  The Project launched a new initiative to help provide technical and legal advice, and financial support for patenting inventions that have high commercial potential\. Financial resources have been provided through the Project to technology management agencies in charge of identifying the most promising proposals\. This approach has been a way to stimulate commercialization of research in Chile, and raise awareness about the value of intellectual property rights\. This is particularly relevant since in the country even in 2005 only 16 per cent of patent requests were made by an organization or person of Chilean nationality and only seven per cent of the granted patents were granted to a national organization or Chilean person (see Graph 3 for patent applications and patents awarded in Chile and Table 14 for more details)\. Graph 3 Patents in Chile 4000 3500 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 Total patent applications Total patents granted Source: CONICYT The Project supported the entry of one of the innovation proposals in the World's Best Technologies in the US (2006), a contest of world prestige\. The Chilean subproject was awarded the World's Best Technologies 2005 prize for the innovative biological technology applied to the fruit sector\. It was the first time that an agency outside the US had been awarded such a prize\. To date, this initiative is proceeding with patent applications in Chile, Argentina, Peru and the United States\. 31  Table 14 Patents Applied for and Granted to Chilean Firms and Residents Source Total Patent Applications Total Patents Granted 2003 USPTO (1) 27 16 EPO (2) 12 0 JPO (3) 1 0 CHILE DPI (4) 2787 309 2004 USPTO 42 17 EPO 9 2 JPO No data No data CHILE 3353 607 2005 USPTO 48 15 EPO 11 5 JPO No data No data CHILE 3497 637 Others(5) (1) United States Patent and Trademark Office (2) European Patent Office (3) Japan Patent Office (4) Department of Industrial Property (5) Other international 3\.2\.3d Enhanced Chile's access to international knowledge networks The Project contributed to strengthening international research linkages and the insertion of Chilean STI institutions and companies into international networks\. It achieved this objective through: (i) supporting the Diaspora program, which helped to create a network of successful Chilean businessmen abroad; (ii) contributing to finance STI workshops, which generated interaction between researchers and firms around a particular scientific or technological topic of common interest; and (iii) supporting Chilean participation in the 6th European Framework Research Program, which promotes research through trans-national research networks\. Supported the `Diaspora Program' (ChileGlobal) In partnership with Fundación Chile, the Project facilitated the creation of a network of successful Chilean businessmen abroad to promote knowledge-intensive businesses and partnerships, enhance technological transfer, and increase the supply of investment projects\. Some of the main achievements for the activities implemented under Chile Global included: (i) top level professionals from Chile Global participated as project evaluators in the areas of Information and Communication Technology (ICT) (i\.e\. the Innova Program) at CORFO5\. ChileGlobal members also acted as evaluators for CONICYT projects during 2006; (ii) a subsidiary of one of the most important international software producers, Synopsys, was 5 During 2005 seven members participated as evaluators in CORFO\. 32  established in Chile in June 2006 (the Chief Technology Officer of the company is a member of ChileGlobal); and (iii) an Internship Program was developed jointly with CONICYT\. Members of the network already offered to invite PhD and Masters Degree students in Engineering from Chilean Universities to work in their firms for a period between three months to a year\. So far, about eighty influential Chileans abroad are actively engaged in the network\. In addition to supporting trade missions, they are increasingly participating in activities related to mentoring, social responsibility and public policies\. Generated dialogue and interaction between researchers and firms\. The Project carried out workshops to articulate linkages between the scientific research community in Chile and the international research community in thematic areas such as: nanotechnology, biomedicine, biotechnology, energy, information technologies applied to mining and technologies applied to aquaculture\. A total of 15 workshops in STI were funded through the Project, which financed 63 per cent of the total cost of the initiatives\. Further to promoting the creation of interdisciplinary teams in the area of research and development, the workshops also created incentives for technology transfer by helping defining opportunities for transfer technologies to the industries\. A summary of the main outreach activities is provided in Table 15 while a list of the main topics for the workshops is presented below in Graph 4\. Data are available for the first two requests for proposals (concursos)\. An example of activities implemented under the workshops is provided by a project in nanotechnology by the Pontificia Universidad Católica de Chile\. This project helped to identify the economic sectors and industries with potential to incorporate products and processes based on the application of nanotechnology\. In addition, it contributed to the establishment of the necessary fundaments for fostering in a sustainable way the application of nanotechnology to industrial processes, which is considered relevant for long term development of the country\. 33  Graph 4 STI Workshops Nano sciences 13% Biotechnology Medicine 19% 7% Env ironmental sciences 7% Energy and fuel Chemistry 20% 7% Telecommunications Mining Food Science and 7% 13% Technology 7% Source: CONICYT These events were successful in providing incentives and generating interaction among researchers\. However, the Project did not provide funds for subsequent activities that would follow on and build on these events\. The Project did not envisage a more comprehensive approach, which would have added more long term benefits by, for instance, encouraging a mutual exchange of ideas and a joint formulation of proposals among the different actors involved\. In this way the submission of joint proposals for further funding would have been facilitated\. Table 15 Workshops Overview of Indicators* Amount Other Workshops Granted by % Funds from Mass Media Total Chilean International Sectors than the Project the Project Appearances Attendance Academia Academia Academia (N°) (USD) ( %) (N°) (N°) (N°) (N°) (N°) 15 402,873 63 25 1109 226 66 370 Source: CONICYT (2007) *Data are available only up to 2006\. Totals do not take into account the results of workshops held in 2007, that are instead included in the total cost and in the percentage financed by the Project\. Supported Chilean participation in the 6th European Framework Research Program\. The Project helped create linkages between Chilean STI institutions and their global counterparts with a small amount of financing\. The Project provided complementary support to 16 Chilean projects selected by the 6th European Framework Program for Research, Technological Development and Demonstration, which funds and promotes research and fosters the creation of trans-national research networks\. It contributed mainly to: (i) training and contracting of young researchers through financing internships in fields related to the 16 projects; (ii) improving the international relations through an increase in the mobility of the researchers; (iii) financing the Chilean participation in the 34  information system; and (iv) sustaining the diffusion of results in particular in the productive sector\. Each Chilean project has an average time span of three years\. With the Project's support, it has been possible to finance activities that strengthen international linkages and the contribution of research to create new best practices in productive sectors\. Table 16 below reports the main areas of the projects in which Chile participated and the contribution of the Science for the Knowledge Economy Project\. Table 16 Subprojects Financed by the Project participating in the European 6thFramework Program Total cost of Project Total Cost EU Chilean Contribution Institutions Project subjects Financing Participation to Chilean involved Participation (USD) (USD) (USD) (%) (N) Sustainable surface transport 53,093,930 28,675,530 1,025,290 11,6 79 Rational use of Natural Resources 11,484,340 8,691,125 3,150,510 5,9 23 Biodiversity and Ecosystems 18,056,815 3,308,085 687,950 7,8 51 Quality and security of food 34,816,560 24,118,510 1,770,065 8,8 72 Genomic and Biotechnologies applied to health 7,929,215 2,686,635 253,380 3,8 21 Information Technology 16,750,000 13,400,000 1,608,000 8,8 23 New Emerging Science and Technology (NEST) 3,778,891 2,143,985 214,470 21,2 7 Science and Society 1,975,790 1,634,800 172,860 18,8 18 Source: CONICYT (2007) Finally, the Project contributed to designing various instruments to organize and facilitate joint research projects\. This line of activities includes twinning programs between universities, collaboration between research centers, and networks of institutions from developing and developed countries\. These initiatives hold significant promise in providing Chilean scientists with access to a large pool of cutting-edge knowledge at a relative low cost to the project\. 3\.3 Efficiency Cost effectiveness The Project was cost effective\. In particular, the Project made use of a very light administrative structure\. The percentage of operating and administrative costs was 6\.8 per cent of the total cost of the first phase\. This represents a small amount for a project like this, which has a substantial institutional element that normally involves higher costs\. Economic analysis All of the Project's components encouraged innovative activities either directly or indirectly\. The Project provided the basis for researchers and firms to carry out knowledge-generating activities that likely would not have been undertaken at a socially optimal level in the absence of the Project\. By providing financial support to research teams (Subcomponent 2\.1), the Project created the conditions for researchers to pursue opportunities too risky, long-term or uncertain for private financing\. 35  Moreover, the Project increased the stock of advanced human capital for innovation (Subcomponent 2\.2) and facilitated its insertion in private companies (Subcomponent 3\.2)\. Analysis of data from the third Chilean National Survey of Technology Innovation in Firms shows that a high level of skills significantly influences technology absorption and consequently the ability of Chilean firms to innovate in products and processes (see Annex 3 for further detail)\. The Project distinguished itself from past World Bank financing of STI in Chile in that it invested in the strengthening of public-private linkages in the innovation system (Subcomponent 3\.1)\. Data from the aforementioned innovation survey suggest that considerable benefits are associated with increased university-industry collaboration in Chile\. For instance, firm collaboration with universities is estimated to increase the propensity of a private enterprise being involved in patenting by 37 percent\. Finally, government policy in Chile on innovation evolved considerably during the implementation of the Project (subcomponent 1\.2)\. Public investments have increased, there is a stronger focus on strengthening public-private interaction in research and efforts are on-going to improve innovation governance, e\.g\. through the creation of a National Innovation Council for Competitiveness\. Evidence suggests that the Project ­ in conjunction with other Government policies ­ contributed to creating favorable conditions for innovation-driven growth in Chile\. This is indicated by an increase in total factor productivity in Chile of three percent during Project implementation\. 3\.4 Justification of Overall Outcome Rating Rating: The Project's overall outcome, taking into account the considerations presented in sections 3\.2 and 3\.3 above, is satisfactory\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development An additional achievement of the Project in terms of social development outcome is that it succeeded in creating a cultural change in the collaboration between public and private sector in research\. It has stimulated a high level policy debate by introducing for the first time in the country instruments such as consortia that allowed collaboration between research centers and industry, fostering a culture of collaboration and a more open public research environment which places higher priority on the needs of the private sector\. (b) Institutional Change/Strengthening\. Consolidation of competitive selection process\. The Project has contributed to consolidate in the mainstream the process of competitive allocation of resources\. For the selection and evaluation of the proposals the Project designed a peer review mechanism in conjunction with the evaluation of an international panel of experts\. Quality has become the main conventional criteria to allocate funds, in addition to the relevance of the projects, which in this specific case is considered their potential contribution to the Chilean productive process\. Support to group research\. The establishment of Cooperative Research Consortia represents an institutional change in the support to research\. Bringing together researchers from universities, government laboratories and private industry or public-sector agencies, in collaborative arrangements has contributed to create a new culture of collaboration and this has had an impact on the long term view of innovation policy\. (c) Other Unintended Outcomes and Impacts (positive or negative) No unintended outcomes or impacts of the Project were recorded\. 36  3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops There is no specific Beneficiary Survey for this Project\. However, a client survey for Chile was conducted in 2006, which interviewed 132 stakeholders of the Bank in the country, representing national and local government, bilateral or multilateral agencies, private sector organizations, NGOs, the media, members of academia or research institutes, etc\. From the survey, it appeared that the effectiveness ratings for the Bank's role in key development areas such as education are relatively high\. 4\. Assessment of Risk to Development Outcome Rating: Low This risk to development outcome is considered low\. Activities supported under component 1 of the Project will be sustained under the new institutional structure for innovation governance in Chile\. Notably, the National Innovation Council is expected to be a key driver for the formulation and updating of STI policies\. Also, the decision to institutionalize the national observatory for STI (KAWAX) in the Ministry of Economy will provide continuity and potentially enhance the policy impact of the initiative\. Activities launched under component 2 of the Project will be sustained and scaled up by CONICYT\. Efforts are currently ongoing to integrate all support for team-based research (e\.g\. the research rings and the FONDAP centers) is a single department in CONICYT\. This effort is expected to be supported by the follow-on World Bank project currently under preparation\. Moreover, a decision has been made to scale up investments in team-based research through the `basic financing' initiative (financiamiento basal) supported by the Fund for Innovation and Competitiveness (FIC) administrated by the Ministry of Economy\. The National Innovation Council has highlighted investments in advanced human capital as a key pillar of its strategy\. Hence, support for PhD scholarships is likely to be scaled up in the coming years\. Currently being discussed is an idea to focus the tertiary education competitive fund on the strengthening of graduate programs and leave it entirely to CONICYT to finance PhD scholarships using merit- based selection processes\. In regard to component 3, the Project was successful in highlighting the importance of supporting not only each element of the national innovation system but also the linkages between them\. Support for collaborative research is highly likely to be sustained as CONICYT, CORFO and FIA are committed to continue funding technological research consortia\. These agencies recently held a joint meeting to plan for future calls for proposals and discuss ways to enhance collaboration\. In regard to the mobility of advanced human capital, CONICYT is committed to continuing the insertion of young researchers in industry in collaboration with SOFOFA\. An idea to scale up this initiative through the Bank's follow-on project is currently being discussed\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry\. The Bank performance in ensuring quality at entry is considered satisfactory\. The design of the Project assured that the development objectives were clearly presented and the components adequately supported the objectives\. However, even though it is necessary to take into account the difficulty of dealing with a Project of such high complexity, the Bank performance could have been stronger in clearly linking PDOs and outputs from the design phase, in particular 37  differentiating among the Project's impact and the Program's objectives: this was not envisaged in the original Project Appraisal Document, even though efforts were made in this sense during the subsequent phases\. The Project was closely aligned with the goal of the Country Assistance Strategy (CAS) of sustaining overall economic growth and social progress in Chile\. The Project was innovative in its content as was among the first Bank operations seeking to strengthen public-private research linkages and stimulate the insertion of advanced human capital in industry\. The project team placed strong emphasis on M&E in the design phase, e\.g\. by developing a project tailored analytical framework and providing targeted training to key government officials\. Project preparation included extensive consultations and careful attention to lessons learned from the Millennium Science Initiative (1999-2002) supported by the Bank and reforms carried out in other countries\. The result was a project that closely mirrored the Government's strategy of using STI to enhance Chile's global competitiveness and create new market opportunities\. The skill mix and continuity of the team assigned to the preparatory phase were adequate\. Substantial conceptual and technical assistance was provided to the Borrower in designing the Project and ensuring readiness for implementation\. Most importantly, the preparation team included seasoned innovation experts with experience from similar initiatives in Europe and Australia\. (b) Quality of Supervision\. The Bank's performance during supervision is considered satisfactory\. Throughout the Project's implementation, the Bank responded quickly to requests from the Government and collaborated closely with counterparts and key stakeholders\. Supervision missions were carried out every 6 months, including a Mid-Term review in March 2006 and an ICR mission in January 2007\. Each supervision mission discussed progress made with a wide set of stakeholders, assisted CONICYT in addressing key issues and provided technical advice\. All conclusions were recorded in Aide Memoires with clearly formulated next steps\. The Aide Memoires were subsequently used as a monitoring and follow-up mechanism\. The supervision team was composed of a stable mix of Bank specialists and international experts\. The only change in the composition of the team was a change of the task manager in December 2005 as the Task Team Leader (TTL) retired from the Bank\. The new task manager was a member of the preparation and supervision team and hence continuity was ensured on the Bank's part\. During the launch mission of the Project, the Bank team provided training in procurement and financial management to project staff in CONICYT and key beneficiaries\. Moreover, ex-post reviews were carried out annually and an independent procurement review was undertaken in June 2006\. The conclusions from these reviews were communicated to key officials in CONICYT and follow-up actions were supervised by the TTL\. (c) Justification of Rating for Overall Bank Performance The Bank's overall performance is considered satisfactory\. The Project Development Objectives were well aligned with key sector issues and the developed components were innovative\. The Bank performance could have been stronger in the initial phase in adequately linking the PDOs to identified objectives from the design phase, but this was dictated by the necessity to investigate further how to measure complex interactions, such as the ones that determine the impact of some of Project's activities, that go beyond a simple causal relation and that can take a long time to materialize\. Supervision missions were carried out every six months and included an appropriate mix of technical and fiduciary management experts\. Finally, the management of the Project ensured a high level of dialogue and cooperation between the Bank and the Borrower, and reached out to a wider set of agents in Chile's national innovation system\. 38  5\.2 Borrower Performance (a) Government Performance The Government's performance is rated satisfactory\. The Ministries of Finance and Education were committed to key reforms throughout implementation\. The dialogue with the Government was excellent and agreed changes were implemented in a timely manner\. Moreover, the Government gave momentum to the Project, generating wide support for the Project by consulting and involving key stakeholders\. Lastly, the Project was sustained by the new government that was elected in 2006, which confirmed Chile's commitment to enhance its scientific and innovative capacity\. However, uncertainties within the implementing agency emerged when the newly elected Government rethought its innovation strategy, wanting to further the integrated approach across innovation institutions\. (b) Implementing Agency or Agencies Performance The performance of the implementing agency is rated satisfactory\. The Project was well managed\. The project's team was led by a general director and coordinators­ with in-dept technical knowledge ­ were appointed for each sub-component\. Moreover, the team comprised an experienced fiduciary coordinator familiar with Bank procedures\. The professional standards and appropriate skill-mix of project staff were key in ensuring a successful project implementation\. The implementation of the Project was only slightly affected by the change of Government in 2006 and a change of leadership in CONICYT in March 2006, which involved the appointment of a new general director of the Project\. The project team was highly effective in launching activities and managing complex selection processes at international standards\. However, the envisaged balance in spending between component 2 and 3 of the Project was not fully achieved\. This reflected stronger initial experience with support for basic research as well as unexpected delays in the launch of cooperative research consortia and thesis work in industry\. During each supervision mission, the project unit in CONICYT prepared and delivered to the Bank well- documented project implementation progress reports\. Moreover, the unit provided adequate technical assistance and support to subprojects under implementation\. Nonetheless, more emphasis could have been placed on monitoring results achieved in supported sub-projects in accordance with the developed results framework\. The project team undertook a wide range of activities to increase awareness of the Project and build momentum for change\. For instance, the team used innovative communication methods such as radio spots and prepared a complete section with information on the Project which was distributed nationally by the daily newspaper Mercurio in July 2005\. (c) Justification of Rating for Overall Borrower Performance Rating: satisfactory On balance, the borrower performance is rated satisfactory\. The Government was highly committed and added momentum to the Project and the management of the Project was effective\. 6\. Lessons Learned The following lessons learned have been identified: Need to outline the results framework clearly from project design stage The Project was originally designed as part of a wider Program, which consisted of two phases and used an Adaptable Program Lending approach\. The Project represents the first phase of the Program (APL1), while a second phase (APL2) was supposed to follow, given a positive 39  evaluation of the first phase and the attainment of predefined triggers\. A number of indicators to assess the long-term impact of the Project were discussed at the time of project design but only subsequently, when it was clearer which data could be realistically collected and monitored, a list of the main indicators was agreed\. In this way, the result framework was not sufficiently outlined from the initial phase, linking clearly the Project Development Objectives, for the APL1, to specific indicators\. This has made difficult in some cases to clearly identify the full impact of the project at the time of the ICR since a clear causal connection between indicators, activities and PDOs was not always straightforward\. The lesson learned from this Project is to clearly identify from the design stage, whenever possible, a direct link between PDOs and specific indicators, and assure that the PDOs for every stage of the project are separate yet connected to the ultimate objectives of the Program\. Need to strengthen collaboration among agencies For an innovation system to be effective, horizontal integration and collaboration between different institutions within the wider system is essential\. The most effective innovation systems in the world are not characterized by a hierarchical institutional design but by the strength of linkages across various players in the system\. During the early stages of the APL1, CONICYT, CORFO and FIA collaborated in the design and launch of the public-private consortia program ­ a program that contained elements which fell within the mandate of all of these agencies\. Over time, however, this coordination weakened\. CONICYT and CORFO have now developed independent and competing consortia programs, although the core objectives remain largely the same\. Given the complexity of stimulating public-private collaboration and overcoming cultural barriers between research centers and the private sector, it would be more effective if both institutions worked jointly in the development of a shared model for promoting collaborative research between the public and private sector and overseeing its successful implementation\. Having a single "window" in government with a single set of procedures would also avoid confusion to beneficiaries\. There are other areas where collaboration among agencies would be beneficial, e\.g\. insertion of researchers in industry and start up of knowledge-based companies, since both institutions have some knowledge and experience to contribute to this process\. Monitoring and evaluation For a large and decentralized innovation system, M&E is a core activity\. The Project has improved the basis for informed policy making through the establishment of KAWAX, a system for tracking national indicators for science, technology and innovation using international standards and methodologies\. Equally important to the above is building capacity within implementing agencies to monitor and evaluate the impact of their programs in order to continuously improve their design, inform national policies, and promote an efficient allocation of public resources\. Institutionalization of the Project The Project acted as a dynamic innovation center, identifying gaps, incubating new instruments and programs, forging strategic alliances, and spinning-off activities\. This is partly due to its relative operational autonomy from CONICYT, and partly to the ability of the team to create opportunity and experiment with new instruments\. It is important however ­ to ensure sustainability of these efforts ­ to institutionalize some elements of the Project within CONICYT\. Notably, efforts to consolidate research in high-quality research teams and increase Chile's stock of advanced human capital should be closely integrated with FONDECYT, FONDAP and CONICYT's scholarship programs\. 40  Integrating and harmonizing group-based research\. The Millennium Science Initiative in the Ministry of Planning, the FONDAP research centers administered by FONDECYT, and the Research Rings launched under the program have all contributed to the development of group-based research in Chile, shifting from a system that provided small grants to individuals to one that provides larger grants to research groups working in priority areas\. The establishment of these separate programs, however, has led to fragmentation and some overlap in the funding of basic research in Chile raising the need for development of common guidelines and integration of these programs under a single window and administration\. Learning curve The launch of new instruments to promote innovation- particularly programs targeted at the private sector- requires a process of learning and trust building in Chile\. For example, the lengthy time involved in establishing the Collaborative Research Consortia reflects the difficulty of forming a formal partnership between universities and industry\. Also, the program for inserting researchers in industry took time to reach a sufficient scale due to initial skepticism and hesitation on part of the private sector\. After building trust and awareness, there is currently great potential and scope for expansion\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The comments sent by the implementing agency raise two important issues, which have also been discussed in this ICR\. The first issue regards the need to strengthen collaboration between agencies, in order to have the greatest benefit from successful initiatives such as the public- private consortia program, and avoid duplications and dispersion in the implementation\. This point has been also presented in this ICR in section 6 (Lesson Learned), which identifies the needs of strengthening collaboration among agencies and having a single set of procedures in order to avoid confusion among the beneficiaries as extremely relevant for an innovation system to be effective\. The second issue regards the need to plan and execute in a timely manner the M&E procedures, to avoid problems in managing resources and a consequent accumulation of tasks toward the end of the Project, when it is most important to gather data and information\. This issues has been discussed in this report in Section 2\.3 (M&E Design, Implementation and Utilization), where the difficulty faced by the project unit in establishing an information system for tracking results in supported sub-projects has been recognized\. However, this was not as much due to a lack of a proper M&E design as to capacity issues tied to the implementation of activities early in the Project implementation stage\. In Section 6 of this report (Lessons Learned), the importance of building capacity within implementing agencies to monitor and evaluate the impact of their programs in order to continuously improve their design and promote an efficient allocation of public resources is highlighted\. (b) Cofinanciers (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 41  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Components Percentage of (USD millions) Estimate (USD millions) Appraisal 1\. IMPROVING CHILE'S SCIENCE, TECHNOLOGY AND INNOVATION SYSTEM (A) Strategy, Policies and Awareness for Innovation and 6\.39 10\.81 169% Human Capital (B) Increasing the Monitoring and Evaluation Capacity 2\. STRENGTHENING CHILE'S SCIENCE BASE (A) Excellence in Science (B) Advanced Human Capital 19\.51 32\.36 165% (C) State of the Art Equipment for Science and Technology 3\. ENHANCING PUBLIC- PRIVATE LINKAGES (A) Cooperative Research Program 22\.65 8\.76 39% (B) Researchers in Industry (C) International Cooperative Research 4\. UNALLOCATED 1\.43 0\.00 0% Total Baseline Cost 50\.01 51\.93 104% Physical Contingencies 0\.00 0\.00 0\.00 Price Contingencies 0\.00 0\.00 0\.00 Total Project Costs 50\.01 51\.93 Project Preparation Fund 0\.00 0\.00 Front-end fee IBRD 0\.25 0\.25 Total Financing Required 50\.26 52\.18 104% 42  (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower 25\.00 26\.92 108% International Bank for Reconstruction and Development 25\.26 25\.26 100% 43  Annex 2\. Outputs by Component This Annex presents a detailed analysis of the main activities implemented in the time span of the Project\. A glance at the main policy instruments produced in the three years of implementation is presented below in Box 4\. BOX 4 A Glance at PBCT Instruments 2004-2006 Component 1\. Improving Chile's National Innovation System STI Observatory STI Policy Studies STI Management and Policy Courses STI Statistics and Information Systems Diaspora Program: Chile Global STTI Awareness Seminars Technological Camps for Youth Component 2\. Strengthening Chile's Science Base Collaborative Research Rings: Science and Technology, Antarctic and Social Sciences Scholarships for PhD studies in Chile and Abroad Insertion into the Academia Component 3\. Enhancing Public-Private Linkages Collaborative Research Consortia Regional Consortia Insertion of Young Researchers in Industry Support for patenting Complementary Support to Chilean and European Union STI Cooperation International Cooperation in STI Component 1 - Improving Chile's National Innovation System A summary of the initiatives launched under component 1 is provided in the table below (Table17)\. Table 17 Summary Initiatives Component 1 Year of Contest INSTRUMENT 2004 2005 2006 TOTAL Technological Awareness camps 8 3 17 28 Courses for STI Management Skills 18 5 7 30 Studies for Politics and Management in STI 37 37 Awareness Activities and Seminars in STI 55 55 Total 29 15 121 165 Source: CONICYT Sub-component 1\.1 - Oversight, Management and Implementation Establishment of an Independent Advisory Board\. The Project supported the creation of an Independent Advisory Board at the government level\. The Board had, among others, the function 44  of advising on public-private interfaces in order to bring out the innovative potential of the private sector\. The Board was set up in 2003 and included the Ministers of Education, Economy, Agriculture and Mining, three high level representatives of the private sector and three high-level representatives of the scientific community\. The Advisory Board played a useful role in sharing information between Ministries and helped highlight the need to work across sectors on innovation-related initiatives\. However, it did not work properly as a decision-making body\. Sub-component 1\.2 - Strategy, Policies and Awareness for Innovation and Human Capital Formation\. Studies: Nineteen analytical studies were produced on STI-related areas that: (i) benchmark science and technology activities in the country; (ii) identify best practice to aide decision-making of different actors in the NIS; and (iii) support the development of STI instruments and national policies and strategies\. Seminars: There were 35 activities in 2006 and 20 that have been selected for 2007\. A detailed description of the diffusion and networking activity is reported below (Table 18) for 2006 (data for 2007 not yet available)\. Table 18 Awareness Activities and Seminars in STI Total Representatives Representatives Representatives Subject Initiatives attendees Mass media to the national international other sectors appearances initiatives academia academia than academia (ISI Thomson) (N°) (N°) (N°) (N°) (N°) (N°) Agricultural engineering 1 85 3 0 10 10 Biochemical research 1 52 2 0 5 6 methods Business, finance 2 203 1 2 13 41 Chemistry, multidisciplinary 1 n/a 2 0 5 n/a Education and educational 2 738 25 26 25 13 research Education, scientific 4 285 31 5 26 0 disciplines Energy and fuels 8 300 3 2 1 31 Fisheries 1 n/a 2 0 13 0 Food science and technology 4 147 1 1 19 10 Forestry 1 n/a 3 1 19 7 Geochemistry and geophysics 4 161 0 4 21 5 Health care sciences and 1 35 0 5 3 22 services Information systems 1 98 2 1 14 29 Management 32 2,323 49 18 147 185 Medical ethics 6 490 7 2 5 10 Mining and mineral 6 295 9 1 37 14 processing 45  Multidisciplinary sciences 3 49 55 16 6 5 Urban studies 1 n/a 6 8 6 0 Total 79 5,261 201 92 375 388 Source: CONICYT (2007) Courses: Eighteen STI Management Courses were selected and carried out in 2005\. The second call for proposals took place at the end of 2005, where 5 courses were selected, while in 2006 there were 7 projects selected out of 16 proposals\. Table 19 reports a list of courses that have been completed\. Table 19 STI Management Courses GENERAL Amount Total National International Other Granted by Attendees Academia Academia Sectors Call Institution COURSE the Project to the Attendees Attendees Attendees (USD) Courses Strengthening of 1° Universidad de La Frontera regional technology 11,429 42 2 1 10 managers 1° Universidad de Management of Santiago innovation projects 9,524 78 0 2 0 Universidad Seminars for STI 1° Católica del management and 13,333 20 0 1 1 Norte entrepreneurship 1° Universidad Industrial Diego Portales biotechnology 14,286 n/a n/a n/a n/a Universidad Capacities for 1° Católica de innovation research 19,048 54 2 0 13 Temuco and management Biotechnology, 1° Universidad de Talca entrepreneurship and 19,048 41 11 2 11 product development Universidad Innovation: a key 1° Austral de factor for 22,857 210 1 6 16 Chile competitiveness Knowledge 1° Universidad de management and Concepción technological 22,857 14 0 2 1 oversight Angel investment, 1° Universidad innovative projects Adolfo Ibañez and business 23,810 n/a 3 2 0 technology plans 1° Universidad de Cross-border Concepción technology transfer 23,810 93 1 1 3 Neos NEOS international 1° Harnecker seminar 28,571 216 0 3 7 Ltda Management and 1° Universidad de impact of university- Concepción industry linkages in 31,429 70 0 5 2 research 1° Dictuc S\.A\. Innovation Engine 38,095 175 3 1 14 Management and 1° Universidad de Talca innovation in R&D 40,000 n/a n/a n/a n/a for agricultural sector 46  Industry innovation 1° Universidad Adolfo Ibañez and technology 47,619 355 4 1 9 management Universidad First national 1° Técnica conference regarding Federico Santa technology and 47,619 n/a n/a n/a n/a María business Pontificia STI management 1° Universidad Católica de 52,381 350 4 0 12 Chile Technology and 1° Universidad de Santiago Innovation: future 52,381 129 3 3 32 milestones for Chile New Business 2° Universidad Adolfo Ibañez Workshops: Science- 19,048 165 3 2 2 Business Track Universidad Degree in STI 2° Alberto management 56,084 22 2 2 11 Hurtado 2° Universidad de Degree in market- Santiago oriented innovation 56,800 n/a n/a n/a n/a Degree in technology 2° Universidad de Talca management 28,762 12 7 1 1 (Santiago) 2° Universidad de Degree in technology Talca management (Talca) 28,762 11 7 1 1 Source: CONICYT Technological camps: A total of 28 technological camps were financed under the Project: 17 were conducted during 2005\. Table 20 shows some indicators regarding these events\. Table 20 Indicators Technological Camps Amount Total cost Cash or in transferred Initiatives Subject of the kind by the of Total Mass media Call project contributions Project at diffusion attendance appearances 30/12/06 (ISI Thomson) (USD) (%) (%) (N°) (N°) (N°) 1° Engineering, mechanical 13,745 0% 65% 17 645 2 1° Education, scientific disciplines 17,695 0% 64% 13 51 5 1° Ecology 29,130 0% 44% 8 52 4 1° Oceanography 27,851 6% 48% 9 60 6 1° Ecology 20,495 0 65% 30 2,340 17 1° Agriculture, soil science 28,130 35% 47% 32 146 8 1° Astronomy and astrophysics 27,740 0% 48% 10 71 5 1° Agriculture, soil science 20,570 7% 65% 13 1,240 17 2° Robotics 13,540 0% 62% 10 61 4 2° Biotechnology and applied microbiology 27,620 6% 48% 4 na 2 2° Computer science, cybernetics 28,940 0% 46% 8 19 22 Source: CONICYT (2007) 47  Sub-component 1\.3 Monitoring and Evaluation Capacity Established KAWAX, the STI observatory\. The Project supported STI analysis through strengthening and expanding information systems that will help policymakers improve decision- making and M&E capability for STI\. Box 5 lists a number of M&E activities conducted under the auspices of the program\. BOX 5 M&E Activities under the Project Strengthening STI information systems Acquisition of license for ISI (International Science Indicators) Information system for Fondecyt's Management Improvement Program (PMG) in 2004 and 2005 Information system to support the Academy of Sciences Information system for the Project Stanalist project (in collaboration with France) Atlas of Science project (in collaboration with Spain) Collexis project (in collaboration with The Netherlands) Fondecyt's and FONTEC's evaluation systems STI M&E Workshops International M&E workshop (January 2004) Villarica Workshop: International seminar on STI (January 2004) Workshop on indicators and basic design of the STI Observatory (September 2004) Workshop on patenting and support to the patenting contest (March 2005) Second workshop on STI indicators and detailed design of the STI Observatory (January 2006) Design activities Design of surveys for collecting data on human resources in research for Higher Education institutions, Government and private institutions Within the Observatory, a fund for "Studies of Science, Technology and Innovation Policy and Management" was launched in 2006\. The fund financed 37 studies out of 72 proposals (see Table 21 below for a list of subjects of the studies)\. Table 21 Studies for Policies and Managements in STI (2006) Subject Studies (ISI Thomson) (Nº) Agricultural Economics and Policy 2 Astronomy and Astrophysics 1 Business 10 Economics 1 Educational Research 4 Energy and Fuels 1 Fisheries 1 Forestry 2 Geography 1 Information Science and Library Science 1 Management 1 Operations Research and Management Science 8 48  Physics, Multidisciplinary 1 Public Administration 1 Social Sciences 1 Urban Studies 1 TOTALS 37 Source: CONICYT (2007) Information Technology for M&E\. The Project contributed to strengthening the operational capacity of the agency\. Under the Project one of the main deficiencies in the NIS was addressed, which is the lack of mechanisms to incorporate information that allow a national registry of the STI activities to be kept\. Starting from different experiences during implementation, it was decided that this gap would be filled by designing a platform to collect and process data from the different instruments in support of STI\. A sustainable software platform to maintain the 4 main units of information (people, institutions, projects and results) has been developed through the establishment of a mechanism that ensures gathering digital information from the beginning of the process\. Hence, an online submission platform and a lightweight management tool were built\. The management system is not operating yet but all projects were already digitalized (PDF files of projects sections) and indicator's data are currently being generated for the M&E group\. At the same time, a Website that allows users to query this entities information (as well as main indicators) is in phase of development (together with a new institutional website, http://www\.conicyt\.cl/nuevositio/)\. Each entity's key information will be available\. The platform is already installed and operating (http://newtenberg\.conicyt\.cl/) and data entry and automatic procedures will be built during June\. Full data shall be available by the end of July\. Component 2 Strengthening Chile's Science Base\. Sub-component 2\.1 - Excellence in Science Supported the creation of Research Rings (Cooperative Research Teams)\. With support from the Project a total of 34 multidisciplinary research teams were established, in the areas of: (i) Science and Technology; (ii) Antarctic Science and (iii) Social Science\. Within the Science and Technology thematic area, the Project financed 14 research projects (selected from a total of 27 proposals), which have completed their first year of execution\. More research projects (17 in total) are due to start by June 2007\. Within the Antarctic Science thematic area, the Project is financing one Research Ring, from a total of 10 proposals submitted\. The objective of the financing is to support top-quality scientific research projects aligned with the strategic priorities of the Chilean Antarctic Institute (INACH), which the Project helped to define\. Finally, within the Social Science thematic area, two projects were selected out of 16 proposals\. Both projects selected contribute to the design of public policies in Chile\. Tables 22a and 22b below report some indicators for scientific production and human capital formation for the Research Rings financed under the Project, after their first year of execution\. 49  Table 22(a) Indicators on Scientific Production in the first year of execution for S&T Research Rings Scientific production Subject Publications co- Publications co- Institution Research Ring Title ISI International National Publications authored with authored within other centers same center presentations presentations (ISI Thomson) (N°) (%) (%) (N°) (N°) Universidad de Talca Equations related to lattices Mathematics 6 33% 100% 15 6 Universidad de Networks in Mathematics and Engineering Chile Sciences Mathematics n/a n/a n/a n/a n/a Universidad Técnica Federico Analysis, modelling and optimization in the Engineering, electric 10 100% 90% 32 8 Santa María application of wireless Technologies\. and electronic Universidad de Dynamics, singularities and geometry of Physics, Chile matter out of equilibrium\. multidisciplinary n/a n/a n/a n/a n/a Tectonomagmatic control of giant ore deposits Universidad de in the subduction factory of the high Chilean Geosciences, Chile Andes between 32º-36ºS: a multidisciplinary multidisciplinary 0 0% 0% 6 3 approach\. Universidad de Climate variability in Chile: assessment, Environmental Chile interpretation and projections\. sciences 4 25% 50% 7 1 Universidad de Electrochemical sensor design for sulphite Santiago detection and electrochemical measurements Chemistry, applied 0 0% 0% 6 15 of the phenols antioxidant capacity in wines\. Vitamin C and oxidative stress resistance: Universidad de Basic studies and biomedical applications in Medicine, research Concepción cancer and prevention of cardiovascular and experimental 0 0% 0% 4 4 diseases\. Universidad de Chagas disease: control of virulence and Pharmacology and Chile infectivity of Tripanosoma cruzi with products 3 100% 0% 4 3 of natural, synthetic and immunologic origin pharmacy Universidad Scientific ring in microevolution of Genetics and Austral de Chile phytophagous insects: an ecological, 12 33% 100% 11 6 physiological and genomic approach\. heredity Universidad de Advance studies in cell signalling and gene Concepción regulation\. Cell biology 5 60% 100% 0 0 Universidad de Centre for sensory neurosciences from signal Valparaíso transduction to the neural code\. Neurosciences 0 0% 0% 6 3 Universidad de Interaction surfaces in folding and Valparaíso oligomerization of ion channel proteins\. Neurosciences n/a n/a n/a n/a n/a Universidad de Centre for the analysis of gene function in Chile neural development Neurosciences 0 0% 0% 2 4 50  Table 22(b) Indicators on Human Capital Formation in the first year of execution for S&T Research Rings Human Capital Subject Institution Research Ring Title PhD Post- PhD Visiting students Visiting students students Doc Thesis from other centers to other centers (ISI Thomson) (N°) (N°) (N°) (N°) (N°) Universidad de Talca Equations related to lattices Mathematics n/a n/a n/a 15 5 Universidad de Chile Networks in Mathematics and Engineering Sciences Mathematics n/a n/a n/a n/a n/a Universidad Técnica Analysis, modelling and optimization in the application of Engineering, electric Federico Santa María wireless Technologies\. and electronic 5 2 0 0 6 Universidad de Chile Dynamics, singularities and geometry of matter out of Physics, equilibrium\. multidisciplinary n/a n/a n/a n/a n/a Tectonomagmatic control of giant ore deposits in the subduction Universidad de Chile factory of the high Chilean Andes between 32º-36ºS: a Geosciences, 3 1 0 0 0 multidisciplinary approach\. multidisciplinary Universidad de Chile Climate variability in Chile: assessment, interpretation and projections\. Environmental sciences 0 3 0 1 0 Universidad de Electrochemical sensor design for sulphite detection and Santiago electrochemical measurements of the phenols antioxidant Chemistry, applied 3 3 0 2 2 capacity in wines\. Universidad de Vitamin C and oxidative stress resistance: Basic studies and Medicine, research and Concepción biomedical applications in cancer and prevention of 5 2 0 1 0 cardiovascular diseases\. experimental Chagas disease: control of virulence and infectivity of Universidad de Chile Tripanosoma cruzi with products of natural, synthetic and Pharmacology and 7 1 1 0 0 immunologic origin pharmacy Universidad Austral de Scientific ring in microevolution of phytophagous insects: an Chile ecological, physiological and genomic approach\. Genetics and heredity 9 1 0 5 4 Universidad de Concepción Advance studies in cell signalling and gene regulation\. Cell biology 4 1 4 3 0 Universidad de Centre for sensory neurosciences from signal transduction to the Valparaíso neural code\. Neurosciences 11 0 0 3 0 Universidad de Interaction surfaces in folding and oligomerization of ion Valparaíso channel proteins\. Neurosciences n/a n/a n/a n/a n/a Universidad de Chile Centre for the analysis of gene function in neural development Neurosciences 8 3 0 0 4 Source: CONICYT (2007) 51  Sub-component 2\.2-Advanced Human Capital\. Financed doctoral studies in STI related disciplines\. The Project financed 517 national doctoral scholarships, and 58 scholarships for PhD studies abroad in Britain, France, the United States and New Zealand\. These scholarships were awarded specifically in scientific disciplines (see Graph 5) where the number of post graduates in Chile has been historically low (see Graph 6)\. Graph 5 Number of PhD students financed by the Project in Chilean universities (by area of study) 140 120 100 80 60 40 20 0 Agricultural Medicine Natural sciences Engineering and sciences technology 2004 2005 2006 Source: CONICYT Graph 6 PhD in hard sciences in Chile 180 160 140 120 100 80 60 40 20 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Ministry of Education With this contribution, CONICYT was able to almost double the number of scholarships supported per year, in particular in engineering and other S&T related fields (see Tables 23a and 23b below)\. 52  Table 23(a) Number of PhD students financed by the Project in Chilean Universities Scholarships per year Subject TOTAL 2004 2005 2006 Agriculture multidisciplinary 4 12 8 24 Agronomy 2 3 1 6 Astronomy and astrophysics 1 3 4 Biochemistry and molecular biology 31 28 20 79 Biology 9 8 10 27 Biotechnology and applied microbiology 1 3 4 Business 1 1 Chemistry, multidisciplinary 14 15 22 51 Computer science, interdisciplinary applications 1 2 7 10 Ecology 12 13 23 48 Engineering, chemical 4 4 8 16 Engineering, civil 1 1 2 Engineering, electrical and electronic 4 6 17 27 Engineering, multidisciplinary 3 3 3 9 Environmental sciences 9 9 Food science and technology 1 3 4 Forestry 10 6 5 21 Genetics and heredity 4 1 7 12 Geology 6 3 3 12 Materials science, multidisciplinary 2 2 4 Mathematics 3 2 3 8 Mathematics, applied 3 2 5 10 Medicine, general and internal 11 15 15 41 Microbiology 5 4 4 13 Neurosciences 2 5 7 Oceanography 4 6 1 11 Pharmacology and pharmacy 2 5 3 10 Physics, multidisciplinary 7 14 10 31 Social sciences, interdisciplinary 2 2 Statistics and probability 2 3 1 6 Veterinary sciences 2 4 2 8 TOTAL 152 165 200 517 Source: CONICYT 2007 Table 23(b) Number of PhD students financed by the Project in International Universities Scholarships per year Subject TOTAL 2004 2005 2006 Agronomy 1 1 Astronomy and astrophysics 1 1 Biology 1 1 Computer science, artificial intelligence 2 2 Computer science, interdisciplinary applications 1 5 1 7 Engineering, civil 5 5 53  Engineering, multidisciplinary 2 2 11 15 Environmental sciences 1 1 Geosciences, multidisciplinary 1 1 Law 1 1 Mathematics, applied 1 1 Mathematics, interdisciplinary applications 1 1 Medicine, research and experimental 1 1 Multidisciplinary sciences 2 11 13 Physics, condensed matter 1 1 Physics, multidisciplinary 1 3 4 Social sciences, interdisciplinary 2 2 TOTAL 15 17 26 58 Source: CONICYT 2007 Inserted postdoctoral researchers in universities\. The Project contributed to enhance the qualifications of researchers working in Chilean universities by providing time-limited support for the insertion of 148 doctoral graduates in academia\. Out of 31 proposals put forward by 12 institutions, 10 were selected in the first selection round, resulting in 27 researchers being inserted into the winning institutions\. In the second round, out of 35 proposals, 21 proposals were selected, inserting 52 additional researchers in academia while in the 2006 round additional 69 researchers were inserted through 26 winning proposals out of 45\. Table 24 presents details of the scientific areas for approved proposals and research institutes that hired the young researchers\. Table 24 Insertion of Advanced Human Capital in Academia Discipline PhDs Discipline PhDs Discipline PhDs First Round - 2004 27 Second Round - 2005 52 Third Round - 2006 69 Natural Resource Cluster 2 Bioinformatics 8 Chemistry, multidisciplinary 9 Computational Chemistry 5 Genetics 2 Medicine, research and experimental 2 Microscopic Spectrometry 3 Agriculture 3 Nanoscience and nanotechnology 3 Plant Biotechnology 3 Physics 5 Optics 3 Neurochemistry 3 Audio Technologies 2 Education 8 Climate Sciences 2 Medicine and Health 7 Genetics and heredity 2 Neurosciences 3 Natural Resources 5 Veterinary sciences 3 Clinical Biochemistry 3 Chemistry 3 Public administration 2 Sustainable use of Aquatic Resources 3 Biotechnology 5 Polymer science 2 Estocastic Modeling 3 Biology 11 Sciences 2 Ecology 5 Productive Processes 2 Neurosciences 2 Nanosciences 3 Physics 6 Mineralogy & Geometallurgy 2 Economics 3 Computer science, interdisciplinary applications 2 Urban studies 3 Engineering, electrical and electronic 3 Source: CONICYT 2007 54  Sub-component 2\.3 Improvement of Research Infrastructure\. Prepared diagnosis of STI infrastructure\. An inventory of sophisticated S&T equipment was conducted to identify priority needs and finance equipment to be shared among research institutions and newly formed research teams\. Equipment would be further leveraged by interconnecting it to internet II, which is ubiquitous in Chilean universities, allowing for virtual collaborative analyses and experiments in real time\. Delays in the preparation of the database for the acquisition of major equipment meant that it was not possible to undertake the investment in heavy equipment as originally envisaged\. Component 3 Enhancing Public-Private Linkages The Project created opportunities through the research consortia and the insertion of researchers into industry for the participation of private enterprises in the study, design and execution of some of the proposals, increasing in this way their potential for industrial applicability\. Sub component 3\.1 Cooperative Research Cooperative Research Consortia\. In partnership with CORFO and FIA, the Project pioneered the concept of research consortia in Latin America\. Table 25 Cooperative Research Consortia financed by CORFO and FIA\. Call Discipline CORFO FIA 2004 Agriculture Biotechnology and multidisciplinary applied microbiology 2004 Agriculture Agriculture, dairy multidisciplinary and animal science 2004 Forestry 2005 Engineering, Agriculture, dairy geological and animal science 2005 Robotics Agriculture multidisciplinary 2005 Fisheries Agriculture multidisciplinary 2005 Computer sciences, information systems 2005 Veterinary sciences Source: CONICYT The first call for proposals was conducted in 2004\. Nine out of 61 proposals were selected in total: 4 by CONICYT, 2 by FIA and 4 by CORFO (one jointly with CONICYT)\. In the second call for consortia, there were 2 proposals selected by CONICYT, 3 by FIA, and 5 by CORFO\. A summary of the consortia financed by CORFO and FIA is reported in Table 25\. 55  Table 25a Regional Cooperative Research Consortia: overview Total Total amount Cash or in Financing Subject cost of Diffusion Spin-off Type of the sub- granted by kind Initiatives companies from firm project the contributions firms Project* USD (ISI Thomson) USD In terms millions millions (%) (N°) (N°) (%) of sales Food science and technology 4\.6 1\.3 25% 2 1 25% Medium Food science and technology 5\.1 1\.0 28% 5 0 16% Large Mining and mineral processing 5\.4 1\.7 41% 0 0 0% n/a Environmental studies 7\.6 1\.7 19% 13 0 0% n/a Source:CONICYT * The difference between the total cost of the sub-project and the amount financed by the Project is financed by Regional Governments\. The Project also financed four Regional Cooperative Research Consortia, whose main achievements and characteristics are presented in Tables 25a and 25b\. Please refer to Box 6 for an overview of the main objectives of the consortia\. Table 25b Regional Cooperative Research Consortia indicators Main Associate Scientific Publications co- International National PhD Subject researchers researchers Publications authored with presentations presentations students other centers (ISI Thomson) (N°) (N°) (N°) (%) (N°) (N°) (N°) Food science and technology 12 12 0 n/a n/a n/a 1 Food science and technology 4 27 9 100 6 5 1 Mining and mineral processing 17 8 3 0 5 6 4 Environmental studies 6 1 9 n/a n/a n/a 2 Source: CONICYT 56  Box 6 Regional Cooperative Research Consortia Los Lagos Region (2005-2010) The main objective of the Research consortia in Nutrition, Food Technology and Sustainability (Centro de Investigación en Nutrición, Tecnología de Alimentos y Sustentabilidad) is to create state-of-the-art knowledge and cutting-edge technologies to support the sustainable development of animal production at regional and national level\. In its first stage, the Center focuses in the Aquiculture, aiming to become a reference of international prestige\. Aysén Region (2005-2010) Located in the region of Aysén, the geographic scope of the study of the Research center for the Patagonia Ecosystems (Centro de Investigación en Ecosistemas de la Patagonia) will be concentrated preferably in the south of Chile, between Puerto Montt and the south border of Aysén\. The objective of the Center is to develop scientific research of excellence to identify the structure, processes and interactions between fluvial and marine river basins systems (inner sea and the adjacent ocean)\. The analysis will include a study of socioeconomic effects of these processes, including local effects associated to regional productive development and global effects associated to the climatic change\. Antofagasta Region (2006-2011) The Technological Scientific Research Center for Mining (Centro de Investigación Científico Tecnológico para la Minería), based in the II region of Antofagasta, aims to contribute to the project of regional mining cluster by creating a center of technological and scientific research in mining and to sustain the development of the Region of Antofagasta\. Its specific objective is: (i) to create the Center's legal-administrative regulatory framework and to consolidate it with multidisciplinary research groups that aim to be a national reference in areas linked to the mining sector; (ii) to promote the active participation of companies in the technological and scientific development, (iii) to foment university- firm linkages and (iv) to contribute to the formation and incorporation of human resources for Science and Technology development\. Finally, the center aims to support technological transfer to develop and to create micro, small and medium technological enterprises, complementary companies to the mining sector, contributing to the generation of employment in the Region Araucania Region (2005-2010) The Nutritional Genomic Center (Centro de Genomica Nutricional Agroacuicola) allowed for the generation of a high level research platform to improve the competitiveness of agriculture in the IX region and national aquiculture\. The platform in nutritional physiology will allow investigating nutritional quality of vegetal raw material\. In this way, it will produce cultures of greater added value, able to meet the requirements of the market demand, where innovation in science and technology plays a central role\. Sub-component 3\.2-Insertion of Researchers in Industry The Project provided incentives for the intake of doctoral graduates in industry, a process that otherwise occurs very slowly or not occur at all\. Researchers in Chile have been traditionally oriented towards a career in academia or public research institutions until recent years (see Graph 7)\. 57  Graph 7 Researchers in Chile by sectors\. 100% 80% 60% 40% 20% 0% 1999 2000 2001 2002 2003 2004 Government Private Firms Higher Education institutions Non profit private organizations Source: RICYT Thirteen researchers were selected for insertion into industry in the first call for proposals in 2004\. In the second call for proposals in 2005, 19 researchers were selected out of a total of 43 candidates, which shows increased demand for this instrument\. At the end of 2006, a total of 55 researchers were selected and supported under the program, mostly in small firms (see Graph 8)\. Today, only 6 projects have closed and 5 out of the 6 researchers had been contracted by the firm\. Graph 8 Insertion of researchers into industry by firms' size 4% 16% Large Medium Small 80% Source: CONICYT In the Project design there was another instrument, which is the provision of grants for selected STI thesis in industry, as part of this sub-component (see point (i) above)\. The design of this instrument envisaged a subsidy to the enterprise that would cover operation costs and a doctoral student's salary for two years\. The grant would have also covered university tuition for the student\. However, there has been a delay in starting this part of the Project and the design for the first call of applicants was only finalized at the end of 2006 and has not been launched yet\. 58  Sub-component 3\.3 - International Cooperative Research Increased Chile's access to international knowledge networks\. The Project strengthened linkages between Chilean STI institutions and global counterparts\. For instance, through the Project, it was providing support for Chile's collaboration in the European 6th framework program\. The Project supported 16 out of 30 projects (10 projects were financed in the first two calls) in which Chile participated in the European program\. The projects have an average time span of three years\. Moreover, the Project helped incubate the international diaspora network ChileGlobal which connects successful Chilean entrepreneurs abroad with domestic businesses\. At today, about eighty influential Chilean abroad are actively engaged in the network, mainly from the USA and Canada, followed by Europe and Latin America\. Finally, 15 workshops in STI were funded through the Project, which financed 63 per cent of the total cost of the initiatives\. They helped to articulate linkages between the scientific research community in Chile and the international research community in thematic areas such as: nanotechnology, biomedicine, biotechnology, energy, information technologies applied to mining and technologies applied to aquaculture\. Sub-component 3\.4 ­Instruments and Incentives around Intellectual Property\. Two contests were held under this initiative\. The first contest provided the total sum of USD 608,740 with a contribution of 75 per cent from the Project and 25 per cent from the executing agencies\. Eight patenting contests were opened with the goal of supporting the patenting process in Chile and to begin procedures abroad: 24 inventions were selected to be supported, in several economic sectors\. The second contest provided the total sum of USD 3,159,485 (78 per cent contribution from the Project and 22 per cent from counterpart of executing agencies)\. This second initiative planned seven (7) patenting contests, each one of them in two phases, to support the patenting process in Chile and abroad for 69 inventions in several economic sectors\. 59  Graph 9 Patents applications by discipline Patent applications by discipline Biotechnology 6% ITC Aquaculture 5% 8% Manufacturing Agriculture and 6% Food 17% Health 20% Mining 16% Engineering 22% Source: CONICYT In total, there are 93 new inventions that will benefit of the project's support and it is envisaged that by 2010 a high percentage of these can register a patent in Chile and foreign countries\. At today, 70 requests of patents have been submitted (see Graph 9 above for details of the disciplines), of which 26 in Chile (equal to 38 per cent of the total, see Graph 10)\. Graph 10 Patents applications by country Patent applications by country India South America 1% 14% Chile Asia 38% 10% Australia 4% Europe Central America 14% 3% North America 16% Source: CONICYT 60  Annex 3\. Economic and Financial Analysis It was not possible to conduct a full economic analysis of the Project given that benefits will only materialize over time\. This annex focuses on the economic rationale behind the project's support for STI in Chile\. It considers the value of STI for economic growth and analyses the prospective impact of the Project on firm-level innovation\. The analysis draws on data from the third Chilean National Survey of Technology Innovation in Firms\. 1\. Value of science, technology and innovation for economic growth Economic theory emphasizes knowledge ­ as measured by innovation and technological progress ­ as a key driver for increases in Total Factor Productivity (TFP) and economic growth\. Unlike traditional factors of production, knowledge is not subject to diminishing returns\. Hence, the increased creation, use, adoption and flow of knowledge in various forms promise to significantly improve the prospects of sustainable long-term economic growth for developed as well as developing countries\. Since the landmark article by Solow in 1956, the idea that technological progress is the main factor affecting growth ­ more than classical inputs such as labor and capital ­ has become widely accepted\. Solow presented the argument that cross country differences in technology is the main cause of difference in per capita income\. Several empirical studies6 have subsequently tested the importance of TFP in explaining growth gaps between countries\. According to the literature, roughly half of all differences in income and growth is attributable to differences in TFP, generally associated with technological development\. More recently, endogenous models (Romer 1990 and Aghion and Howitt 1992) have shed light on the determinants of TFP growth, linking the TFP growth rate to innovation\. According to this view, individual firms produce technological knowledge which, initially, is private to the firm\. However, knowledge subsequently spills over to the rest of the economy as it can be copied at almost no cost by any number of firms, becoming social knowledge\. With this spillover effect, an aggregate production function which would otherwise have either constant or decreasing returns to scale may exhibit increasing returns to scale allowing sustained long-term growth\. However, as suggested by Cohen and Levinthal (1989 and 1990), utilizing public domain knowledge fruitfully is not without a cost and this cost is minimal only for firms that have accumulated sufficient technological capability (or absorptive capacity) to absorb external knowledge\. A firm's absorptive capacity is determined ­ together with traditional indicators such as R&D or patents ­ by its human capital, defined as the stock of knowledge inside the organization\. This is supported by evidence suggesting that technologies not only increase the demand for human capital skills but also are adopted more extensively in companies with a high share of skilled workers\. In other words, advanced human capital not only improves the possibility of companies engaging in innovation and R&D activities, but the skills of the workers also increase the firms' ability to absorb new knowledge and technologies (De Ferranti 2003)\. 6 See, among others, Hall and Jones (1999), Dollar and Wolf (1997) and Klenow and Rodriguez-Clare (1997)\. 61  Finally, Cohen and Levinthal (1994) recognize the importance of external relationships in the development of absorptive capacity\. Development of close relationships and partnership between firms and knowledge institutions enhances a firm's absorption capacity as such relationships create and strengthen information channels and "thicken" the knowledge flow, e\.g\. by increasing the transfer of tacit knowledge\. 2\. Economic analysis of the Project's interventions at the micro level All components of the Project encouraged innovative activities either directly or indirectly\. The Project provided the basis for researchers and firms to carry out knowledge-generating activities that likely would not have been undertaken at a socially optimal level in the absence of the Project\. This is the case as the generation, commercialization and diffusion of knowledge and technology comes with a number of market failures7\. For instance, given that knowledge is not appropriable, entrepreneurs only have weak incentives to undertake investments that have a small private but a large social return\. In other words, individual investors do not sufficiently reap the benefits of knowledge that spills over to the rest of society\. The Project dealt with these market failures by reducing the costs and risks associated with innovation and collaboration, thereby increasing private returns\. In particular, the Project helped to: Promote excellence in science and technology research\. By providing financial support to research teams (subcomponent 2\.1), the Project created the conditions for researchers to pursue opportunities too risky, long-term or uncertain for private financing\. Researchers could also attain economies of scale not possible without Project support\. Table 26 Marginal effect of human capital and research collaboration on innovation Patents Product Process innovation innovation Firm Characteristics Export active 0\.05 0\.01 0\.16 Firm age (ln age) 0\.05 0\.04 0\.00 Firm size (ln size) 0\.00 -0\.03 0\.05 Collaboration with Universities 0\.37 0\.29 0\.19 Consultants -0\.02 0\.12 0\.16 Suppliers 0\.09 0\.31 0\.35 Other firms 0\.01 -0\.01 0\.09 Absorptive capacity Internal R&D department 0\.08 0\.19 0\.12 Human capital Level of workers' knowledge 0\.07 0\.20 0\.16 Observations 4,570 4,570 4,570 Pseudo-R-square 0\.25 0\.33 0\.37 Note: Bold is denoting significance in a 5 per cent level\. Bold + Italic denotes significance in a 10 per cent level\. Source: Marotta et al (2007) Increase the stock of advanced human capital for innovation\. The Project contributed to creating a critical mass of researchers and renewing qualified university personnel through the financing 7 Market failures in the market for knowledge and technology suggest that there is significant scope for public interventions to align social and private returns\. These market failures include:(i) knowledge is not appropriable; (ii) knowledge and innovation generate significant positive externalities and spillovers; (iii) there are indivisibilities in innovation expenditures; (iv) investments in R&D are long term and risky; (v) the need for collaboration among institutions and firms for innovation diffusion and application; and (vi) tacit knowledge\. 62  of doctoral scholarships (subcomponent 2\.2)\. Moreover, the Project facilitated the insertion of advanced human capital in companies in order to enhance their capacity to use and absorb knowledge (subcomponent 3\.2)\. Analysis of data from the third Chilean National Survey of Technology Innovation in Firms shows that a high level of skills significantly influences technology absorption and consequently the ability of Chilean firms to innovate in products and processes\. The stock of advanced human capital working in industry is associated with increased firm patenting activity and product innovation (see Table 26) 8\. Strengthen university-industry research collaboration\. The Project distinguished itself from past World Bank financing of STI in Chile in that it invested in the strengthening public-private linkages in the innovation system\. Notably, cooperative research consortia (subcomponent 3\.1) were designed to enhance the relevance of pre-competitive university research, facilitate the flow of tacit knowledge between universities and firms, and support the commercialization of research\. Data from the aforementioned innovation survey suggest that considerable benefits are associated with increased university-industry collaboration in Chile\. Firm collaboration with universities is estimated to increase the propensity of a private enterprise being involved in patenting by 37 percent, keeping all other explanatory variables in the model constant\. Collaboration also increases the likelihood of company involvement in product innovation by 29 percent and process innovation by 19 percent (see Table 26)\. Graph 11 Growth in Chilean TFP 135 130 125 120 115 110 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 real data and projections Source: Ministry of Finance (Hacienda), Chile Improve the policy framework for innovation in Chile\. In a wider perspective, innovation reflects the interconnectivity and capacity of all players in Chile's national innovation system and the policy framework within which they operate (subcomponent 1\.2)\. Government policy in Chile on innovation evolved considerably during the implementation of the Project\. Public investments have increased, there is a stronger focus on strengthening public-private interaction in research and efforts are on-going to improve innovation governance, e\.g\. through the creation of a National Innovation Council for Competitiveness\. Evidence suggests that the Project ­ in conjunction with other government policies ­ contributed to creating favorable conditions for 8 "These results are discussed in a forthcoming 2007 World Bank paper titled "The importance of Human Capital and knowledge sharing in fostering firms' innovation: an empirical study of Chile and Colombia\." by Marotta, Mark, Blom and Thorn\. 63  innovation-driven growth in Chile\. As shown in Graph 11, total factor productivity in Chile increased by 3 percent during Project implementation\. 64  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Supervision/ICR Enric Banda Consultant LCSFR Max Brennan Consultant LCSHE Maria Lucy Giraldo Sr Procurement Spec\. LCSPT Esperanza Lasagabaster Sr Financial Economist LCSPF Daniela Marotta Young Professional YPP Kristian Thorn Education Spec\. LCSHE Martha P\. Vargas Program Assistant LCSLU (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY02 0\.00 FY03 15 214\.02 FY04 0\.64 FY05 0\.00 FY06 0\.00 FY07 0\.00 Total: 15 214\.66 Supervision/ICR FY02 0\.00 FY03 0\.00 FY04 7 68\.49 FY05 16 94\.77 FY06 17 104\.41 FY07 13 57\.30 Total: 53 324\.97 65  Annex 5\. Beneficiary Survey Results Not applicable\. 66  Annex 6\. Stakeholder Workshop Report and Results Not applicable 67  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Comments from implementing agency\. Regarding the bi-annual missions of the World Bank, the monitoring of the goals planned for each period and the fruitful discussions related to each instrument and procedure was extraordinary helpful\. On one hand the missions and the expert members that visit every time, force the Chilean team to get back in track whenever deviations from the original objectives occur\. On the other hand, information transfer and suggestions from worldwide experiences allow the Program to generate their own initiatives but using as much lessons learned from similar attempts in other countries\. The close evaluation of what has been done every six months by a group of foreign experts is something not usually experienced in the Chilean public agencies and it certainly helps to keep good practices\. Unfortunately, the official spokesman for the World Bank in Chile was to much dispersed, in particular during 2006\. Partially because of the change in government (national and local), partially due to the unclear reorganization of the STI system, the path to the second phase of the Program has been hard\. What we consider as a success in the linkage between academic research and industry, through the Consortia and other innovative instruments such as Insertion of researchers in industry, has stirred the National STI system\. This should be considered a success indeed, since the target public made the terms and concepts their own and other entities will be probably in charge of similar initiatives\. What is unfortunate is that there has not been enough time to transfer the procedures and expertise to those entities (except to a certain extent when transferring a team member)\. We hope that collaboration will endure among entities as CORFO and CONICYT\. Interestingly the closeness of a working team, and the good understanding with the staff in charge of the Program from the Bank, has translated into a network of relationships among the "clients" of the Program\. The initiatives are well-known by now and, researchers, entrepreneurs, other public agencies and programs interact within the projects of the program ­ for example Consortia participants are able to come up with a project of researchers in academy or industry at the same time, or participants from the "Anillos" are able to participate in patenting contests-\. This idea has become systematized in time with the "coaching" of projects and researchers that has been implemented informally in the case of the "Anillos" and formally in the case of Consortia (by opening exclusive channels of aid to Consortia needs) and of Research in Industry (by having an open window for proposals instead of programmed contests)\. There have been interesting lessons learned, in particular referring to coordination with other programs and in financial and technical monitoring\. These certainly should have been tackled with more energy and promptitude to avoid critical duplication and poorly managed resources that could have been pooled in order to obtain more out of them\. M&E procedures should have been planned and executed earlier in the Program so we would not have to be overwhelmed with the data gathering at the end of the first phase\. 68  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable 69  Annex 9\. List of Supporting Documents World Bank (2003), Chile Science for Knowledge Economy Project\. Project Appraisal Document, No 25324\. World Bank (2006), Uruguay Promoting Innovation to Enhance Competitiveness Project, Project Appraisal Document, No 36600 World Bank (1998), Higher Education Improvement Project\. Project Appraisal Document, No 17887\. World Bank (2005), Higher Education Improvement Project\. Implementation Completion Report, No 34617\. World Bank (2002), Country Assistance Strategy for Chile, report No 23329-CH World Bank (2006), Science for Knowledge Economy, Mid-Term Review World Bank (2004), Chile-New Economy Study, report No 25666 CONICYT, Chile Global Final Report for Fundación Chile, April 2007\. CONICYT (2007), Consorcios Tecnológicos en Chile CONICYT (2007), Programa de Apoyo a la Cooperación Internacional con la Unión Europea El Mercurio (2005), CONICYT Programa Bicentenario de Ciencia y Tecnología Implementation Status Reports (ISRs) Aide Memoires for Chile Science for Knowledge Economy Project Back to the Office Reports for Chile Science for Knowledge Economy Project Relevant project documents and reports IBRD-IFC, Country Partnership Strategy for Chile (2007-2010) Marotta, Mark, Blom and Thorn (2007), "Human capital and University-Industry Linkages' role in Fostering Firm Innovation: an empirical study of Chile and Colombia"\. Forthcoming Holm-Nielsem, Agapitova (2002) "Chile- Science, Technology and Innovation\." LCSHD Paper Series, the World Bank Fuentes, Larrain, Schmidt-Hebbel (2006) "Sources of Growth and Behaviour of TFP in Chile", Cuadernos de Economía vol\. 43, Central Bank of Chile 70  Annex 10\. Key Performance Indicators/Log Frame Matrix\. In this Annex, the main indicators for the Project and the Program, as identified during the Project's life, are presented\. The latest data available are reported in each table as actual data/latest estimates\. Program Objectives-Outcome/Impact Indicators: Indicator/Matrix Baseline Actual/Latest Estimate Publications in ISI per 100,000 Baseline (2002): 16\.9 18\.2 publications (2005) population publications Number of full-time equivalent Baseline (2002): 1\.44 2\.96 (2004) researchers per 1,000 people in the workforce Total R&D expenditures as Baseline (2002): 0\.68% 0\.68% (2004) percentage of GDP by year Perceived importance and extent Baseline (2001): 3\.7 3\.6 (2006) of university/industry research collaboration (1=minimal or non- existent, 7=intensive and ongoing) Share of researchers employed by Baseline (2002): 14\.2% 50\.1% (2004) the private sector Total Factor Productivity growth Baseline (2002): Index 100 Index 105 (2007) Project Objectives PDO Indicators Indicator/Matrix Baseline Target Actual/Latest Estimate Annual number of PhD Baseline (2003): Target (2007): 230 222 (2005) graduates 144 Annual no\. of Chilean Baseline (2003): 33 Target (2007):60 48 applications (2005) USPTO patent applications applications Private sector share of Baseline (2003): Target (2007):38% 48\.1% (2004) R&D expenditures 34\.4% Intermediate Outcome Indicators Indicator/Matrix Baseline Target Actual/Latest Estimate Number of PhD and post- Baseline (2003): 0 Target (2007): 60 (2007):55 doctorates inserted into industry Number of research Baseline (2003): 0 Target (2007): 5 (2007): 8 consortia established Number of PhD Baseline (2003): 0 Target (2007): 600 (2007): 575 scholarships awarded 71  Annex 11\. Performance Triggers The table below provides a status of the APL2 performance triggers as they were presented in the APL1 Project Appraisal Document\. The table shows that all targets have been achieved or surpassed\. The only exception is the insertion of researchers in industry for which the project supported the insertion of 55 rather than the expected 60 researchers\. Performance triggers between Phase I and II Implementation Impact Results 1)Improving Science, Technology and Innovation System Creation of Inter-agency Advisory Board on Innovation in 2004\. Responsibilities Speedy application assumed by National Innovation Establishment of independent processing\. in March 2006\. a) Project Advisory Board\. Low administrative costs Establishment of a small unit in Management Setup of light administrative Transparent, competitive CONICYT managing structure in CONICYT funding with international competitive selection processes, peer review\. e\.g\. with participation of experts from the US National Science Foundation and the National Institute of Health\. b) Strategy, policies and awareness for Innovation and human capital formation Support for 19 analytical studies on STI-related areas, e\.g\. the Development development of STI strategies of coherent Government strategy reviewed\. Improved government for regions I and IX\. strategy strategy proposed\. Design of new policy S&T policy instruments reviewed Proposal for new innovation Conducive policies\. instruments related to patenting\. policies Review of existing STI programs, e\.g\. FONDEF under CONICYT\. Establishment of Observatory in CONICYT which has improved c) Development of Regular collection and national statistics on STI in monitoring and Government personnel trained in publication of S&T particular in regard to private evaluation capacity M&E according to OECD manuals\. indicators of OECD standards\. sector R&D\. Inclusion of Chile as an observer in OECD's Committee on Science and Technology Policy\. 2\. Strengthening Chile's Science Base a) Excellence in Science Cutting-edge research Establishment of 4 centers of Institutions of Selected institutions of excellence performed by world-class excellence in regions II, IX, X excellence awarded grants\. scientists in at least 2 new and XI\. Selected research teams awarded institutions of excellence\. Support for 6 research nuclei Research grants\. At least 5 new highly through the Millennium Science teams skilled research teams Initiative and support for 34 established research teams\. b) Advanced Selected Ph\.D\. students awarded At least 120 awarded Ph\.D\. 517 national and 58 human capital scholarship\. scholarships in high quality international Ph\.D\. scholarships programs\. awarded\. c) Improving the Setup of competitive fund and Instrumentation database as Study on major research 72  research disbursement of grants well as equipment updating equipment completed and infrastructure Development of guidelines for and maintenance program database established\. sharing equipment established\. 3\. Enhancing Public-Private linkages a) Cooperate research Setup and funding of cooperative Cooperative research consortia and teams with co- At least 3 research consortia Establishment of the following consortia financing from private and public established consortia and research teams: 5 Cooperative companies and/or regional co- At least 5 research teams in CONICYT; 9 in CORFO and teams financing established 5 in FIA\. At least 60 researchers b) Researcher Setup of competitive fund and supported under this 55 highly qualified researchers in industry including start-up companies program inserted into industry\. Establishment of 17 research partnerships\. c) International At least 8 successful Matching support for 16 research Setup of competitive fund and international research European 6th framework STI cooperation disbursement of grants partnerships established\. projects\. Carrying out of 15 management / awareness workshops for international cooperation\. 73

REVIEW

P124625

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Report Number: ICRR0022209 1\. Project Data Project ID Project Name P124625 ZW:HSBC Project Country Practice Area(Lead) Zimbabwe Environment, Natural Resources & the Blue Economy L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) TF-17713 30-Jun-2019 5,645,000\.00 Bank Approval Date Closing Date (Actual) 16-May-2014 31-Dec-2019 IBRD/IDA (USD) Grants (USD) Original Commitment 5,645,000\.00 5,645,000\.00 Revised Commitment 5,645,000\.00 5,645,000\.00 Actual 5,645,000\.00 5,645,000\.00 Prepared by Reviewed by ICR Review Coordinator Group Chikako Miwa Maria Vanessa Christopher David Nelson IEGSD (Unit 4) Corlazzoli 2\. Project Objectives and Components DEVOBJ_TBL a\. Objectives The objective of the project, Hwange-Sanyati Biological Corridor Project (P124625), was “to develop land use and resource management capacity of managers and communities in the Hwange-Sanyati Biological Corridor (HSBC)” (PAD, para 32; GEF Grant Agreement, Schedule 1, page 7)\. For the purposes of this ICR Review, the following sub-objectives will be assessed: Page 1 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Sub-objective 1: To develop land-use capacity of managers and communities in the HSBC Sub-objective 2: To develop resource management capacity of managers and communities in the HSBC The “managers” in the objective referred to resource managers in the national agencies responsible for management of natural resources and community areas for indigenous resources (ICR, page 54)\. The “communities” in the objective referred to the communities in the HSBC (PAD, para 33-34)\. b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Will a split evaluation be undertaken? No d\. Components Component 1: Protected area management and community livelihoods (Estimated: US$1\.80 million; Actual: US$1\.26 million, 70 percent of the original estimate) aimed to improve management of the Hwange National Park (HNP) and livelihoods of buffer zone communities in the Tsholotsho district and in the Sidinda wildlife conservancy\. Management of the HNP was intended to be improved by: a) investments for improving management and operations of the park, and b) studies and management measures for improving game water supply and fire management\. Livelihoods of buffer zone communities were intended to be improved by: c) implementing human and wildlife conflict (HWC) measures in Tsholotsho together with rural district councils (RDCs) and communities, and d) restocking wildlife in the Sidinda wildlife conservancy and developing management measures with a new business plan to achieve its long-term sustainability\. Component 2: Improved forest and land management (Estimated: US$3\.24 million; Actual: US$2\.01 million, 62 percent of the original estimate) aimed to improve forest management in the Sikumi and Ngamo Forest Reserves and to design and implement sodic soil gully rehabilitation in Chireya district\. Forest management was intended to be improved by: a) revising forest management plans, including measures to improve communication infrastructure, fire protection efforts in collaboration with neighboring community fire brigades and operationalizing resource-sharing efforts with communities, and b) assessing the readiness of the two forest reserves to implement Reduced Emissions from Deforestation and Forest Degradation (REDD+)\. Sodic soil gully was intended to be rehabilitated by: c) implementing participatory sodic soil gully rehabilitation pilots with communities, RDCs, and Environmental sub-committees (ESCs), and d) producing a sodic soil “Land Restoration Tool Kit” to serve as future guidelines\. Component 3: Corridor Sustainability (Estimated: US$0\.33 million; Actual: US$1\.66 million, 503 percent of the original estimate) aimed to improve coordination between the different actors in the HSBC and facilitate corridor-level sharing of tools and skills by: a) mapping of land use patterns within the biological corridor and technical support to the units within the ministries to develop a strategy for landscape-based approaches for good management of forests and wider landscape in the HSBC, b) developing a communication strategy on the project’s tools and interventions to be shared across the HSBC and with the broader Kavango-Zambezi Transfrontier Conservation Area (KAZA TFCA), and c) supporting transboundary meetings and sharing of practical experiences among stakeholders\. Page 2 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Component 4: Project Coordination (Estimated: US$0\.27 million; Actual: US$0\.71 million, 262 percent of the original estimate) provided oversight of the project, including financial management and audits, procurement, and monitoring and evaluation (M&E)\. The cost of component 4 increased during project implementation due to the increased needs for technical supervision, M&E support, and knowledge sharing (ICR, para 54)\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: At appraisal, the total project cost was estimated to be US$28\.810 million (PAD, para 48)\. At project closing, the total actual cost was US$22\.732 million (ICR, page 2), due to the decrease in actual costs compared to estimates for Component 1 and 2\. Financing: At appraisal, the project was expected to be financed with the grant of US$5\.645 million from the GEF trust fund, in combination with the grant and in-kind contributions of US$23\.165 million in total from the Borrower, the World Wildlife Fund (WWF), unidentified foreign multilateral institutions and foreign private commercial sources, and non-governmental organization (NGO) of borrowing country (PAD, para 48)\. At project closing, the project was financed with the grant of US$5\.645 million from the GEF trust fund and the grant and in-kind contributions of US$17\.087 million from parallel financing (ICR, page 2)\. Of the parallel financing, the Borrower increased its co-financing by 9\.3 percent from the estimate of US$13\.215 million to the actual disbursement of US$14\.18 million (ICR, para 69)\. The Borrower’s contribution was mostly in-kind, given in the form of staff hours, office, equipment, and vehicles\. In addition, the Borrower also financed a food-for-work program in support of project efforts during gabion construction in Chireya\. The envisaged co-financing from the private sector did not fully materialize, only 5\.8 percent of the anticipated, as only one private sector partner became engaged in Sidinda (Ibid)\. Dates: The project was approved on May 16, 2014, and became effective on January 22, 2015\. The Mid- Term Review (MTR) was completed on January 22, 2018\. The project was closed on December 31, 2019, six months after the original closing date of June 30, 2019\. Restructuring: There was one Level 2 restructuring on May 9, 2019, in which the project duration was extended for six months to implement project activities\. 3\. Relevance of Objectives Rationale Country Context\. The economic and political situation in Zimbabwe at the time of project appraisal was relatively stable\. More than 72 percent of the total population and 84 percent of the rural population were poor (ICR, para 1)\. Zimbabwe’s environmental challenges included land degradation, soil erosion, deforestation and forest degradation, loss of biodiversity, and land, air, and water pollution\. Unsustainable land and forest use practices in communal areas accelerated forest and land degradation, which resulted in the forest cover loss of about 20 percent between 1990 and 2010 and the annual cost of 6 percent of gross domestic product (GDP) due to land degradation (Ibid)\. Climate change was exacerbating land Page 3 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) degradation, reducing agricultural productivity, threatening already severe food insecurity, and furthering biodiversity loss\. Sector Context\. The Hwange-Sanyati Biological Corridor (HSBC), with its area of 5\.7 million hectares, covered most of the northwest Zimbabwe, including Hwange National Park (HNP), five forest reserves, and communal land\. The lives of native fauna and rural populations were dependent on the HSBC\. The environmental and natural resource management issues were prominent in the HSBC, in specific, it was challenged by frequent wildfires, groundwater shortages for wildlife, heightened poaching and hunting by communities, and increasing Human Wildlife conflicts (HWC) such as destruction of crops\. Due to the infertile sodic soils and relatively low vegetation density, coupled with improper land use practices, soils in the HSBC were under severe erosions\. The forest and land management tools for the main agencies at national, local, and community levels needed improvements, as the insufficient funding and the lack of coordination among responsible agencies and stakeholders posed challenges (ICR, para 3)\. Relevance to Bank Assistance Strategies\. At appraisal, the project objective contributed to the World Bank’s Interim Strategy Note (ISN) for Zimbabwe (2013-2015), especially the third objective of reducing vulnerabilities, improving resilience, and strengthening human development\. Among the wide range of social development aspects covered by the ISN’s third objective, the portion that the project objective contributed was not the most central one\. At project closing, the project objective was relevant to the Bank’s Zimbabwe Reconstruction Fund (ZIMREF) (2014-2021), which was a key instrument for implementing the ISN\. The project was particularly relevant to ZIMREF’s programmatic window for analytical and advisory work under which capacity of the government to integrate climate change into investment planning in forestry, agriculture, and the water/energy nexus\. Relevance to Government Strategies\. At appraisal, the project objective was designed to contribute to the five-year development plan, Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset, 2013-18), particularly the objective of improving environmental management of natural resources and protection and conservation of biodiversity though the document did not explicitly mention the HSBC\. The project was aligned with the Government’s regional integration agenda as articulated in the Southern African Development Community (SADC) Treaty and the Kavango-Zambezi Transfrontier Conservation Area (KAZA TFCA) Treaty\. At the global level, the project was in line with the Government’s obligations under the United Nations’ conventions such as Framework Convention on Climate Change, the Convention to Combat Desertification’s Land Degradation Neutrality Target Setting program, and the Convention on Biodiversity Aichi targets (3, 5, 7, 8, 9, 10, 12, and 13)\. At project closing, the project objective was in line with Zimbabwe’s Vision 2030, which started in 2018 as the successor to Zim Asset and prioritized developments in the HSBC for tourism, aiming to contribute to inclusive growth\. Attaining these objectives would help the country to achieve the Bank’s twin goals of poverty reduction and shared prosperity by contributing to the sustainable and inclusive growth\. Previous Sector Experience\. The Zimbabwe Agricultural Investment Plan, which had been supported by the World Bank in 2013 stated that a sustainable increase in agriculture production and productivity hinged upon improved management and sustainable use of the natural resources base, through targeted investments in irrigation, forestry and sustainable land management practices\. The Bank was also engaged in Zimbabwe through the multi-donor trust fund for Cooperation in International Waters in Africa and funding from the TerrAfrica Trust Fund to support forestry and land management\. Rating Relevance TBL Page 4 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Rating Substantial 4\. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective To develop land use capacity of managers and communities in the Hwange-Sanyati Biological Corridor (HSBC) Rationale Theory of Change: The project’s first objective, to develop land use capacity, focused on the Chireya district\. This district was an area with one of the HSBC’s most degraded sodic soils\. The land use capacity referred to an ability to demonstrate knowledge of project-developed tools to address sodic soil degradation and gullying (PAD, para 38; ICR, para 6)\. Conducting a participatory integrated assessment of biophysical and socio- economic causes of land degradation, implementing soil rehabilitation pilots with livelihood improvement activities in a participatory manner, and developing a Restoration Tool Kit for the Environmental Management Agency, would provide managers and communities with tools to address sodic soil degradation and gullying\. Key assumption here were that: 1) the lack of tools and skills of managers and communities were drivers of unsustainable land use and resource management (ICR, page 7), and 2) the managers and the communities had sufficient financial and human resources to use the tools and the skills once obtained\. The development of land use capacity of managers and communities would enhance sustainable use of natural resources and increase incomes in communities, leading to behavior change in the public and contributing to improvements in community livelihoods and climate change resilience in the long-term\. Key assumption here was that the improved management of natural resources would increase revenues for the parks, forest reserves and communities by enhancing tourism, sale of forest and animal products, and carbon payments, which were the activities for Objective 2 below\. Outputs: ï‚ Integrated assessment of biophysical and socio-economic drivers of land degradation was conducted (ICR, para 22)\. Through the assessments, such as the study to determine the scope of Ume sub- catchment wide measures to reduce land degradation and the participatory socio-economic study to determine underlying drivers of land degradation, the project identified micro-catchment wide strategies\. The interventions to be implemented was selected through a risk analysis together with agencies and communities considering criteria for sustainability, affordability and livelihood alternatives\. ï‚ Six participatory soil rehabilitation pilots in areas threatened by erosion and gullying were developed and implemented (Response from the TTL/ICR team)\. The soil rehabilitation pilots and technologies implemented across the micro catchment had a visible and measurable effect on improving land degradation threats\. For example, constructing 31 kilometers of dead level contours to increase water infiltration and soil moisture to the arable lands; installing a network of 64 water harvesting tanks in two schools and the Chireya hospital to reverse runoff volume, flow velocity, and erosivity, while also Page 5 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) providing a source of water; and fencing 4 hectares of the gully micro-catchment to protect it from deforestation, overgrazing, trampling, and soil compaction by animals and people (ICR, para 23)\. ï‚ The rehabilitation pilots were complemented by alternative livelihood activities, including: establishing three fenced, solar-powered borehole to irrigate community gardens for enhancing cash incomes for 120 households; establishing a beekeeping program to engage 300 households in the honey value chain instead of destructive practices; building a cement brickmaking facility engaging 60 youth to produce bricks with less fuel wood for the rehabilitation pilots; developing a community driven nursery for vetiver grass and trees (ICR, para 24)\. ï‚ A Restoration Tool Kit for sodic soils was developed to be used by the Environmental Management Agency (EMA) and stakeholders in areas with similar challenges\. The tool kit was developed in consultation with local stakeholders and disseminated the methodologies and the lessons from the pilots in Chireya\. Finalizing and disseminating the tool kit were delayed and completed during the extension period of the project (ICR, para 14)\. The tool kit later began to guide the EMA to rehabilitate degraded ecosystems and reclaim gullies, while being adopted in other areas in the HSBC and Zimbabwe (ICR, para28)\. ï‚ Sustainable land management practices were implemented in 464 hectares of sodic soil area through the land rehabilitation activities undertaken in the Ume sub catchment which included the Chireya ward (93 percent of the target of 500 hectares) (ICR, page 53, 55)\. ï‚ Direct project beneficiaries of 1,740 people in Chireya benefited from restoration pilots, community gardens, brick making machine projects, and beekeeping equipment (ICR, para 45)\. Outcomes: Referring to the theory of change above, the outputs listed above would provide managers and communities with tools to address sodic soil degradation and gullying\. However, the key assumption on the drivers of the unsustainable land use and resource management as the lack of tools and skills (ICR, page 7) would not be in alignment with the lesson that the main constraint to utilize the expertise within government institutions on addressing gully erosion was the lack of resources (ICR, page 59)\. The constraint was not fully addressed by the project\. ï‚ Sustainable land management practices were adopted to the area of 491\.4 hectares as a result of project, slightly missing the target of 500 hectares (98 percent of the target; ICR, page 36)\. The sustainably managed land areas consisted of: 275 hectares protected by dead level contours and minimum tillage in arable lands, 46\.4 hectares protected along the stream bank as a result of the consolidated community gardens, 20 hectares protected from brick molding, and 150 hectares protected by gully catchments (Ibid; No breakdown of the targets was provided)\. ï‚ Gully reclamation activities in the soil rehabilitation pilots were replicated in three separate sites by communities, which utilized skills and materials gained from the original pilots (ICR, para 27)\. In sum, the land use capacity of communities was strengthened by the soil rehabilitation pilots, resulting in the adoption of sustainable land management practices in degraded areas and the replications of gully reclamation activities by communities themselves\. On the other hand, the activities to strengthen the land use capacity of agencies was completed late in the project, unable to present the result of dissemination\. Overall, the achievement of Objective 1 is rated substantial\. Page 6 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Rating Substantial OBJECTIVE 2 Objective To develop resource management capacity of managers and communities in the HSBC Rationale Theory of Change: The second objective aimed to develop capacities of managers and communities to manage natural resources in the corridor in the Hwange National Park, the two forest reserves in Sikumi and Ngamo, and the Sidinda wildlife conservancy\. In theory, completing the following activities would lead to the develop the capacity of wildlife management: upgrading the assets and operational structure for anti- poaching, implementing a groundwater study, conducting a fire ecological assessment to update the Fire Management Plan, and supporting research and implementation of Human Wildlife Conflict mitigation measures in the Tsholotsho district together with the local Rural District Council and communities\. For the Sidinda wildlife conservancy, conducting an ecological study and wildlife restocking based on the study findings would develop capacity for wildlife management\. For the forest reserves in Sikumi and Ngamo, providing equipment and training for anti-poaching, upgrading communication infrastructure for rangers, conducting a study on causes of deforestation and forest degradation, operationalizing community resource- sharing committees, installing equipment for beekeeping and wood processing for sustainable income generating activities, providing remote-sensing equipment and training, and procuring forest inventory equipment, would develop capacity for forest management and Reduced Emissions from Deforestation and Forest Degradation (REDD+) development\. Supporting corridor-wide coordination and communication and dissemination of package tools for up-scaling in corridor would lead to improved coordination on addressing corridor-wide challenges\. The development of resource management capacity of managers and communities would contribute to improvements in biodiversity resources, community livelihoods, and climate change resilience in the long-term\. Key assumptions, in addition to those described for Objective 1 above, included: 1) management skills developed in each selected site would support both capacity strengthening and environmental outcomes at the corridor-level, and 2) economic benefits by tourism or other environmentally sustainable business activities would make communities to refrain from engaging in poaching or unsustainable natural resource consumption in the future\. Outputs: The Hwange National Park (HNP) ï‚ Anti-poaching: The project upgraded the assets and operational structure for park management, including purchasing patrol equipment, improving the digital communication infrastructure, and setting up a very high frequency radio system that covered around 60 percent of the park\. An anti-poaching plan was developed and implemented, which led to implementing over 150 operations in the HNP and its buffer areas in collaboration with law enforcement agencies\. Rangers were trained to use the Spatial Monitoring and Reporting Tool (SMART), which was a new ranger-based wildlife monitoring system\. This allowed the HNP to map problematic areas and have rangers respond to poaching incidents in a timely manner\. Number of poaching incidents was reduced from the baseline of 710 per year to the achievement of 450 per year, not meeting the target of 400 per year (88 percent of the Page 7 of 19 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) target) (ICR, page 37)\. The end of project wildlife aerial survey in HNP to assess population information was not conducted due to failure of Zimbabwe Parks and Wildlife Management Authority (ZIMPARKS) to raise requisite matching funds (ICR, para 14)\. ï‚ Ground water: A ground water study was conducted with co-financing from the TerrAfrica grant and led by the Geology Department of University of Zimbabwe and ZIMPARKS\. Based on the result, eight solar powered boreholes were newly drilled in drought-prone areas, while seven diesel powered boreholes were converted to solar power to reduce operating costs and noises\. ï‚ Fire Management: Based on the fire ecological assessment conducted under the project in coordination among the HNP, the Environmental Management Agency, and the Forestry Commission, the HNP’s Fire Management Plan was revised and implemented by involving communities\. For example, fire guards with a length of 1150 kilometers were graded, and equipment and protective gear were provided to the local community fire brigades\. The HNP started to conduct regulated burning in the pre-fire season jointly with buffer communities, under the project support to develop joint fire management capacity\. The total area burnt in the HNP declined by 90\.04 percent (Target not provided, ICR, para 33)\. ï‚ Human Wildlife Conflict (HWC): HWCs caused by elephants in the HNP was a major concern of neighboring communities\. The project supported research and implementation of HWC mitigation ï‚ measures in the Tsholotsho district together with the local Rural District Council (RDC) and communities\. Construction of gum pole barriers with creosote and use of chili guns benefitted 16,086 community members who reduced loss in crops and time for field guarding against wildlife (ICR, para 34)\. In the pilot site in Tsholotsho Ward 7, the HWC incidents was reduced from the baseline of 100 per year to the achievement of 9 per year, exceeding the target of 30 per year (130 percent of the target) (ICR, page 38)\. Moreover, the RDC covering Tsholotsho Ward 7 proactively extended its efforts beyond the original project design to invite two other wards to learn from the success in the pilot site, which implied an enhancement of community capacity on wildlife management\. The Sidinda wildlife conservancy ï‚ Wildlife Restocking: The ecological study led by Community Areas Management Programme for Indigenous Resources (CAMPFIRE) identified 20,000 hectares in the Sidinda Ward as a potential area for communities to produce wildlife for income generation, and researched its species composition and carrying capacity\. A community-based scout patrol unit was trained and provided with upgraded communication equipment to protect the conservancy\. Based on the ecological study, 100 Buffaloes, 20 Kudus, 19 Waterbucks, and 18 Zebras were relocated to a fenced area of roughly 7,700 hectares (ICR, para 37)\. After the translocation, a severe drought hit the area and reduced forage, which resulted in a loss of approximately 50 buffaloes by project closing (Ibid)\. The translocation spot was selected by the ecological study based on a future plan to expand the area in line with the wildlife’s adaption\. However, insufficient considerations on drought risks cost unplanned project spending on forage and raised a concern on domesticated animals’ loss of competitiveness in the wild\. The significant rains in the following season recovered the vegetation and increased the buffalo population to 85 (Ibid)\. ï‚ Business Plan for the Wildlife Conservancy: To ensure proper functioning and sustainability of the conservancy, a public-private community partnership was established among the RDC, a private safari operator, and the community\. For the same purpose, a business plan for the conservancy was developed, but only finalized in the final year of the project, due to the long procedures including negotiations of institutional relationships, community mobilization and training, and the ecological assessment that would inform the actual identification and demarcation for the conservancy\. The Page 8 of 19 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) delay in finalization of the business plan resulted in an insufficient exploration of income-generating opportunities for the community in the Sidinda conservancy (ICR, para 99)\. ï‚ 48 new members of the Sidinda Environment Sub-committee were trained by the project for capacity building to improve its management and operation (Response from the TTL/ICR team)\. The Forest Reserves in Sikumi and Ngamo ï‚ Forest Management: The equipment and training for anti-poaching and a new radio communication system were provided to the forest reserves\. An inventory study of the invasive and alien species (IAS) in the forests was conducted for the first time to incorporate IAS management strategies in the Management Plan\. The community resource-sharing committees were operationalized to control forest harvests jointly between the reserves and communities\. The community fire brigades were upgraded by providing material and training on fire management to 197 community members\. The beekeeping kits and training were provided to beekeepers and the Forestry Commission officers, which led to the establishment of beekeeping farmer field schools with 100 households registered\. A timber kiln was installed in Lupane, adjacent to Ngamo, to add values to the forest products, create jobs at the sawmill, and increase incentives to support forest conservation\. The annual production of cured timber was estimated at 600 cubic meters (ICR, para 48)\. The kiln was installed close to the end of the project due to delays in finalizing the Environmental and Social Management Plan (ESMP), which limited the opportunity to fully assess its social and economic outcomes\. ï‚ Building capacity for REDD+ development: An initial study to identify the direct and indirect drivers of deforestation and forest degradation in the two forest reserves was conducted\. The equipment and training on forestry measurement and remote sensing were provided to the Forest Commission GIS laboratory in Bulawayo\. The forest inventory equipment was procured for individual forest offices\. The project supported the first government-led REDD+ initiative in Zimbabwe\. The assessments of the readiness of the two forest reserves to implement REDD+ covered issues such as land tenure arrangements, arrangements for benefit sharing with communities, institutional capacity to establish baselines and status of the presence of emission reduction accounting capability\. This enabled the FC to develop a Project Design Document for future REDD+ pilots in Ngamo and Sikumi\. A policy brief to inform the planned development of the national REDD+ Strategy was also developed\. The avoided carbon losses offer significant carbon sequestration value and financial gains to the community for ongoing forest management, if the carbon trade is completed, reinforcing the benefits associated with elevated forest management\. The annual net avoided emissions is estimated to be 238,550 tCO2e (ICR, para 48)\. Corridor-level scaling up of natural resource management tools ï‚ The Northwestern Zimbabwe Symposium was organized in 2017, which invited key stakeholders to share experiences on current initiatives and identify gaps to achieve the corridor’s sustainability (ICR, para 44), as well as to construct building blocks for sustained collaboration (Response from the TTL/ICR team)\. Lessons generated in the project were subsequently scaled up within the corridor; for example, ZIMPARKS introduced the HNP’s SMART to the Chizarira National Park in the KAZA TFCA\. Transboundary collaboration in the KAZA TFCA was also strengthened through participations in KAZA meetings by the government and WWF representatives\. ï‚ A compendium on IAS was developed based on the inventory of the IAS, covering 39 species found in the gazetted forests and the corridor, in order to inform an IAS impact monitoring and develop IAS Page 9 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) management strategies in other parts of the corridor beyond the project (Response from the TTL/ICR team)\. Direct Beneficiaries ï‚ Number of direct project beneficiaries was 20,134, exceeding the target of 20,000 (102 percent of the target), of which the percentage of female beneficiaries was 52 percent, meeting the target of 52 percent (100 percent of the target) (ICR, page 34)\. There were 1,689 community members in the Sidinda Ward that benefitted from wildlife restocking, 400 community members in Ngamo and Sikumi ï‚ that benefited from beekeeping equipment and training, 22 forest rangers and 197 community members in community fire brigades and 16,086 people in Tsholotsho benefiting from HWC mitigation measures\. The direct project beneficiaries from livelihood improvement activities were expected to benefit from the increased food security and income earning opportunities\. Outcomes: ï‚ Management of the Hwange National Park measured by the Management Effectiveness Tracking Tool (METT) was improved from the baseline of 51 to the achievement of 69\.6, meeting the target of 69\.6 (100 percent of the target; ICR, page 35)\. The indicator considered interventions for anti-poaching, sustainable game water management, fire management, and enhanced community participation\. It was one of GEF’s requirements to use METT for projects related to Protected Areas\. ï‚ Carbon sequestration in project forest reserves measured by the normalized difference vegetation index (NDVI) remained stable throughout the project duration, as the baseline of 0 percent in 2015 stayed the same in 2019 (ICR, page 35)\. To measure the carbon sequestration, NDVI values were calculated per year per forest for a total of fifty randomly selected points in two forest reserves\. NDVI values increased from 0\.43 in 2015 to 0\.54 in 2019 for the Ngamo reserve, and 0\.40 in 2015 to 0\.53 in 2019 for the Sikumi reserve which indicated an improvement in the condition and health of the two forest reserves (ICR, para 41, Figure 1)\. ï‚ Additional resources of US$150,000 were secured from the KAZA TFCA Secretariat for fencing the Sidinda wildlife conservancy and for institutional support pertaining to the registration of the Sidinda Community Trust, while US$270,000 was being invested by the private-sector partner, enabling completion of the fencing of the conservancy to reach the initially planned target of the project (Response from the TTL/ICR team)\. The project outputs on wildlife conservation contributed to leveraging these additional resources\. Community Engagement: The Borrower’s project completion report (ICR, Annex 5, page 58) indicated two issues in community engagement in Sidinda\. First, community consultations were not always conducted to ensure active participation of the community\. A section of the community mentioned that facilitators at times told the community what they intended to do without fully capturing the community’s view\. Second, the community public private partnership lacked a platform where the three partners equally interact with each other\. For the management of community scouts in Sidinda and the introduction of the private safari operator to the community, the public (the RDC) acted as an intermediary and no meeting was held between the safari operator and the community\. Though such communication arrangement was due to the delay in capturing and translocating game animals, it created a mistrust and a suspect for under-representation of some ideas from the community\. Page 10 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) In sum, the resource management capacity of managers and communities were developed, which led to the improvement in management effectiveness of the HNP, the stabilization of carbon sequestration in the two forest reserves, and resource mobilization for wildlife management in the conservancy\. The natural resource management tools were scaled up to the corridor-level and beyond, though the environmental and economic outcomes were to be observed in the future\. Overall, the achievement of Objective 2 is rated substantial\. Rating Substantial OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale The achievement of Objective 1 was substantial, due to the improved land use in areas with sodic soil degradation\. The achievement of Objective 2 was substantial, due to the improved natural resource managements in the national park and forest reserves and the leveraged resources for the wildlife conservancy\. Overall, the efficacy is rated substantial\. Overall Efficacy Rating Substantial 5\. Efficiency Economic Analysis: At appraisal, the PAD indicated that calculating an economic rate of return (ERR) in the context of a cost-benefit analysis would not adequately capture the project's value; because, it was difficult to assess outcomes and outputs of the project due to lacks of quantifiable productive functions (PAD, Annex 6, page 70)\. At project closing, the internal rate of return (IRR) was calculated as 37 percent, by using a discount rate of 12 percent, a 100 percent coverage of the total project costs, and the World Bank’s shadow prices (i\.e\. US$40 for carbon and US$550 per cubic meters for timber) (ICR, Annex 4, page 49-51)\. Qualitative assessments of economic and environmental benefits provided by the ICR (para 48), such as the greater efficiency in administration and wildlife management efficacy in HNP, were the achievement of improved efficiency of the sector being supported and not the efficiency of the project\. on this basis, the economic benefits were incorporated in Section 4 above\. Aspects of design and implementation that affected efficiency: There were procurement delays of wildlife fencing in Sidinda and GIS and office equipment for forest inventory for Forestry Commission in Bulawayo in 2015/16, which led to certain delays in project implementation (ICR, para 71, 90)\. According to the June 2016 Procurement Progress Review, the procured equipment was not able to perform the intended function due to deficient specifications submitted by WWF partners (ICR, para 90)\. Hiring of a procurement consultant at WWF Page 11 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) subsequently addressed the procurement delays to complete the project within six-month no-cost extension of the project duration\. In sum, the IRR at project closing was on the higher side while the temporary procurement delays in the first half of the project were addressed to complete the project with an extension\. Overall, the efficiency is rated substantial\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 100\.00 ICR Estimate  37\.00  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The relevance of objective was substantial, as the objective almost fully aligned with the strategies of the government and the Bank’s country assistance\. The efficacy was substantial, due to the achievements of targeted outcomes\. The efficiency was substantial, due to the considerably high IRR at project closing\. Thus, overall, outcome is rated satisfactory\. a\. Outcome Rating Satisfactory 7\. Risk to Development Outcome 1\. Risk to reduced public support for the environment sector: The country’s worsening macroeconomic situation, which was represented by high inflation, currency shortages, and budget and current account deficits, posed the risk that public support for environment agencies could be reduced\. To sustain and advance the activities initiated by the project, continued budgetary and policy supports would be essential for the coordinating government agencies and the local and community structures in the environmental sector\. 2\. Risk to viability and sustainability of community-led activities: At project closing, it was uncertain whether the activities that were implemented late in the project would continue to work (e\.g\. the business plan of the Page 12 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Sidinda community conservancy and the community gardens in Chireya)\. Unreliable perception patterns and prolonged droughts resulted from climate change, as well as an overall reduction in tourism, also posed a risk to the sustainability to the Sidinda wildlife conservancy\. 3\. Risk to utilization of the capacity for REDD+ implementation: Without a commercial agreement for initiating the piloting of REDD+, the capacity on REDD+ built under the project would not be fully capitalized\. Discussions between the government and an interested organization was underway at project closing, requiring sustained and detailed follow-up\. Given the World Bank’s vast experience in such schemes regionally and globally, it could play an important role in continuing to facilitate these discussions\. 8\. Assessment of Bank Performance a\. Quality-at-Entry Strategic relevance and the approach were thoroughly considered to align with the Government’s priorities and the Bank’s assistance strategies\. Considering the Government’s relative inexperience with implementing a project to address natural resource degradations, the project design incorporated lessons learned from other Bank projects in the region, such as the importance of incorporating the inputs of local communities in the actual protected area management (PAD, para 51)\. The Bank also provided the Bank-Executed Technical Assistance (BE TA) with the TerrAfrica Fund and conducted technical analysis with a focus on the groundwater in the Hwange National Park (HNP)\. Financial management was adequately arranged\. Technical issues related to natural resource management were well considered as the Bank’s task team had the appropriate mix of expertise at entry\. On the other hand, climate change effects on the project could have been anticipated given the project matter\. The growing risks associated with climate change were recognized at the design stage but not adequately incorporated into the project design, resulting in the additional costs and the uncertainty in durability of outputs (ICR, para 75)\. On social aspects, the issues related to sharing community benefits from wildlife management could have been better analyzed and addressed during project preparation, as such issues in Sidinda had been previously identified by the Community Areas Management Programme for Indigenous Resources (CAMPFIRE)\. Procurement capacity of WWF Zimbabwe could have been more thoroughly analyzed by the procurement capacity assessment under the Bank's Procurement Risk Management System and strengthened where necessary to prevent potential delays\. Overall, the quality at entry is rated moderately satisfactory\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision Page 13 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) Focus on development impact was well maintained during implementation\. Supervision inputs and processes were adequate with bi-annual support missions, including the mid-term review (MTR) mission in January 2018\. Candor and quality of performance reporting were sufficient\. Fiduciary aspects were regularly supervised and guided by the specialist on financial management and procurement\. The disbursement challenges during implementation were addressed in a timely manner\. According to the Borrower Completion Report, the agencies which implemented project activities were satisfied with the Bank’s performance\. The Bank team ensured transition arrangements for regular operation of supported activities after project closing by facilitating cooperation and experience-sharing among relevant agencies in the country and the region\. The continuity of supervision after the change in the TTL was ensured by sufficient communication between the predecessor and the successor\. As a stand-alone GEF operation, with a restricted supervision budget (Zimbabwe is not eligible for IDA financing), IEG recognizes that, there was a sustained improvement in the quality of supervision, informed by periodical reviews and implementation support missions\. In addition, the World Bank team was dealing with a client not familiar with Bank systems and procedures, which resulted in initial shortcomings related to M&E and proactive engagement by the Bank team enabled accessing Bank Executed Trust Funds to complement and improve project activities\. However, there were modest shortcomings on proactive identification and resolution of issues related to safeguards and M&E, especially in a sector that had high risk of safeguards\. The expertise on safeguards and M&E was not sufficiently available within the team, which caused delays in monitoring the implementation of safeguard frameworks and finalizing missing baselines and the M&E manual until 2016 (ICR, para 73)\. In sum, the quality of supervision was satisfactory\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The objective was clearly specified with two overall project outcomes, which were to develop land use capacity and resource management capacity\. The retroactive theory of change presented in the ICR (Figure 1, page 7) provided an overview of the causal relationships among the activities and the expected outcomes\. The indicators were specific, measurable, relevant, and time-bound, encompassing all outcomes of the project development objective statement\. The Results Framework, however, lacked some of the key baseline data in the early years of implementation, including the Normalized Difference Vegetation Index (NDVI) of forests and the Management Effectiveness Tracking Tool (METT) scores for the forest reserves\. The activities to establish the baseline were formalized in 2016, two years after appraisal\. The design of the M&E methodology lacked adequate cross-verification processes\. No clear Page 14 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) indicator linked to Component 3 was designed, which prevented the project to measure progress of corridor-wide sharing of tools and capacity (ICR, para 77)\. b\. M&E Implementation WWF was responsible for M&E of the project\. In the first year of implementation, the M&E reports were not substantial in terms of data, due to the lack of dedicated staff and manual for M&E of the project in WWF, as well as the unstandardized quality of data provided by other agencies\. The Bank’s M&E support to WWF and other agencies was constrained by the lack of M&E Specialist in the task team\. At the Mid- term Review (MTR), the M&E methodology on cross-verification of data was strengthened by WWF with support from the Bank\. The progress against the GEF Biodiversity goal was reported by using the tracking tools in the middle and end of project\. c\. M&E Utilization The M&E data was not sufficiently used to inform shifts in the implementation direction in the first year of implementation\. After the MTR, with the Bank’s support, WWF improved M&E management and reporting on key aspects of project performance\. This helped improve prioritization of activities and overall management of the project\. At project closing, the M&E data on PDO outcome indicators provided evidence of achievements of project outcomes\. In sum, some shortcomings on M&E design, such as the lack of baseline, cross-verification methodologies, and indicators to measure Component 3, affected the M&E implementation and utilization until these issues were addressed after the MTR\. The key outcomes attributable to the project were measured by the M&E data only at project closing\. Overall, the M&E quality is rated modest\. M&E Quality Rating Modest 10\. Other Issues a\. Safeguards The project was classified into a social and environmental category of B and triggered six safeguard policies, namely, Environmental Assessment (OP 4\.01), Natural Habitats (OP 4\.04), Forests (OP 4\.36), Physical Cultural Resources (OP 4\.11), Indigenous Peoples (OP 4\.10), and Involuntary Resettlement (OP 4\.12)\. The project prepared the required Environmental and Social Management Framework (ESMF), Process Framework (PF), and Indigenous Peoples Planning Framework (IPPF)\. There were delays in monitoring the implementation of safeguard frameworks and only secured after the MTR in early 2018 (ICR, para 82)\. After two dedicated safeguards specialists on environment and social joined the Bank’s task team at the MTR, the capacity of WWF to implement and report on the safeguard frameworks was strengthened by training and instruments on safeguard policies\. For Environmental Assessment (OP 4\.01), Natural Habitats (OP 4\.04), and Forests (OP 4\.36), the project Page 15 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) mitigated potential environmental or social impacts to be generated by the subprojects by screening subproject activities for safeguard implications\. The project involved only one physical structure, the wood drying kiln, for which an adequate Environmental and Social Management Plan (ESMP) was developed\. Project activities were supported by the results of impact assessments such as the Aquifer Study in 2016 and the Ecological Study Report for Wildlife Restocking in Sidinda Ward in 2015\. For Indigenous Peoples (OP 4\.10), the review of the inclusion of Tshwa community members in the Human Wildlife Conflict mitigation activities in Tsholotsho was conducted in 2018 as part of the IPPF (ICR, para 85)\. For Physical Cultural Resources (OP 4\.11), the project tried to comply with the safeguard by establishing chance-find procedures which would have been followed if any issue were found unexpectedly\. For Involuntary Resettlement (OP 4\.12), the PF provided guiding principles for community engagement and benefit sharing, which led to the scheduling of community activities in the forest area with the park rangers and the Forest Commission staff\. No project activities were directly involved in the incident of the deceased poacher by park rangers in the Hwange National Park (HNP) in 2019, which was registered under the Environmental and Social Incident Reporting Tool\. The project complied with all applicable safeguard policies at project closing\. b\. Fiduciary Compliance Financial Management (FM): The project complied with FM procedures during its duration\. FM arrangements were adequate in terms of being capable of recording correctly all transactions and balances, supporting the preparation of regular and reliable financial statements, safeguarding the entity’s assets and its auditing arrangements maintained acceptable to the Bank\. Mid-way through the project cash management for the project started becoming a challenge, due to country-wide liquidity issues\. The issue was successfully addressed by reducing the payments thresholds from US$ 50,000 to $3,000 to allow the project to make direct payments to foreign suppliers\. The project complied with all the FM covenants by submitting reports in a timely manner\. Procurement: Procurement was conducted in line with the World Bank’s guidelines by using the Systematic Tracking of Exchanges in Procurement (STEP) system\. At appraisal, procurement risk was assessed as low by a procurement capacity assessment of WWF Zimbabwe conducted under the Bank's Procurement Risk Management System\. However, challenges in accessing STEP led to procurement delays until 2016, leading to certain delays in protected area management and forest conservation\. More specifically, the Procurement Progress Review (PPR) in June 2016 pointed out challenges in procurement as: (i) deficient specifications submitted by WWF partners; (ii) incomplete asset registers; (iii) lack of a system to record goods issued out to beneficiaries; (iv) inappropriate use of vehicles outside the project; (vi) insufficient record management system for procurement\. These issues were addressed by hiring a local procurement consultant at WWF in 2016 and providing training from the Bank and the Ghana Institute of Management and Public Administration (GIMPA)\. c\. Unintended impacts (Positive or Negative) No unintended impact was mentioned in the ICR\. Page 16 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) d\. Other --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory The quality at entry was moderately satisfactory due to insufficient arrangements on Bank Performance Satisfactory Moderately Satisfactory safeguards, M&E, procurement and the lack of climate change elements in the design\. Some shortcomings on M&E design, such as the lack of baseline, cross-verification methodologies, and indicators to measure Component 3, affected the M&E implementation and Quality of M&E Substantial Modest utilization until these issues were addressed at the MTR\. The key outcomes attributable to the project were measured by the M&E data only at project closing\. Overall, the M&E quality is rated modest\. Quality of ICR --- Substantial 12\. Lessons The following lessons in the ICR stood out as important and relevant to other projects in the natural resource management sector and are presented here with some editing\. 1\. Piloting a land rehabilitation project in a participatory manner, where a common social asset is under threat, can ensure community engagement and lead to sustainable land restoration efforts\. For example, the gully prevention measures and soil rehabilitation around social assets, such as the hospital and schools in Chireya, supported the communities to strengthen their capacities on land use and resource management\. It also generated cohesion among community members for committing to land restoration efforts for the long-term\. This participatory approach could be applicable to other natural resource management projects of the Bank to effectively engage communities in restoration, especially if benefits will only be visible in the long- term for limited beneficiaries\. Page 17 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) 2\. Developing businesses for community conservancies requires supervisions from project initiations and considerations on promoting livelihood opportunities beyond wildlife tourism\. The project was not able to fully explore income-generating opportunities for the community in the Sidinda conservancy due to the delay in building community capacity for finalizing the business plan for the Sidinda conservancy and its limited focus on wildlife management for tourism\. As it required time to build community capacity, projects need to implement such activities early in the project with a clear methodology\. The Sidinda conservancy and similar community conservancies in the country and the region need livelihood opportunities beyond wildlife tourism, to cope with the downward trend of tourism and the external shocks such as the COVID-19 pandemic\. Promoting community-private partnerships is a way to leverage financial and technical resources for promoting income-generating activities which do not fully relied on tourism\. Facilitating market linkages could support the sustainability of expected income streams from the alternative livelihood options\. 3\. Preserving transboundary ecosystems requires a long-term commitment to the region, which can be ensured by a Transfrontier Conservation Area (TFCA) program\. The project confirmed the need for supporting and funding the region in the long-term in order to achieve sustainability of the project interventions in the corridor-level\. The Bank has relevant prior experience to manage pooling resources for a TFCA program from various sources including bilateral donors\. Such a program would align with the Bank’s current national and regional priorities\. 4\. Assessing and managing climate change risks needs to be continuous throughout project implementation\. While the risks of climate change were considered during preparation, the changes in precipitation patterns induced the drought during the project and posed unprecedented technical and financial challenges, such as the insufficient grazing for wildlife in HNP and the difficulties in wildlife restocking in Sidinda\. Incorporating climate risk monitoring as a core part of project supervision, as well as strengthening capacities to mainstream climate change in the sector at national and community levels, would reduce unexpected implementation delays caused by environmental conditions\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR provided a detailed overview of the project\. The narrative supported the ratings and available evidence in general\. It was candid and generally aligned to the project development objective\. At times it was quite lengthy and provided a bit too much background information\. At other times, it relied on anecdotal information to make the case\. There were some data gaps on the achievement of outcomes and outputs, which were later provided by the TTL/ICR team\. The quality of evidence and analysis was aligned to the messages outlined in the ICR\. The project’s theory of change presented in the ICR provided an overview of the causal relationships among activities, outputs, and outcomes\. The ICR’s lessons were clear and based on evidence outlined in the ICR\. Overall, the quality of ICR is rated substantial\. Page 18 of 19  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZW:HSBC Project (P124625) a\. Quality of ICR Rating Substantial Page 19 of 19

REVIEW

P107254

 ICRR 13452 Report Number : ICRR13452 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 01/31/2011 PROJ ID : P107254 Appraisal Actual Project Name : NCO - Integrated US$M ): Project Costs (US$M): 12\.7 0 Early Childhood Development Project Ii Country : Eritrea Loan/ Loan /Credit (US$M ): US$M): 12\.0 0 Sector Board : ED US$M ): Cofinancing (US$M): Sector (s): Pre-primary education (35%) Health (34%) Other social services (17%) Central government administration (14%) Theme (s): Child health (29% - P) Nutrition and food security (29% - P) Education for all (28% - P) Social safety nets (14% - S) L/C Number : CH412 Board Approval Date : 06/26/2008 Partners involved : Closing Date : 08/17/2012 12/16/2008 Evaluator : Panel Reviewer : Group Manager : Group : Alemayehu A\. Ambel George T\. K\. Pitman IEG ICR Review 1 IEGPS1 2\. Project Objectives and Components: a\. Objectives: According to the project appraisal document (PAD) and the Financing Agreement (FA) the objective of the project was "to improve the health, nutrition, and access to pre -school education of Eritrean Children aged six and under in the project villages\." (PAD p\. 9)\. The project was cancelled before it was declared effective \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had three components \. Component 1: Maternal & Child Health and Nutrition (Appraisal Estimate: US$ 4\.3 Million; Actual: Nil) This component aimed to: (i) improve case management and skills of health workers and community health workers (CHW); (ii) improve the nutritional status of children two years and under, and pregnant and nursing mothers; and empower supportive and enabling environment; and (iii) empower communities and care givers to improve family/child health care practices \. The project would finance relevant training for Health Workers, CHWs and growth monitoring program promoters; medicine kits including drugs; and eventual therapeutic feeding \. Component 2: Early Childhood Education and Care (ECEC) ECEC ) (Appraisal: US$ 6\.6 Million; Actual: Nil) This component sought to: (i) consolidate quality in ECEC services in the 350 target villages; (ii) enhance inclusion of orphans and vulnerable children (mainly orphans) through the community based programs; and (iii) pilot grant scheme program of Early Childhood Development (ECD) services at the community level \. The project was to have financed training, pre-school based delivery of preventive services and community grants to income generating schemes\. Component 3: Project Management, Monitoring, Evaluation, Advocacy and Strategic Communication (US$1\.8 Million; Actual: Nil)\. This component aimed to strengthen project management and implementation at various levels in the Ministries of Health and Education \. It also aimed to aimed to implement effective advocacy and strategic communications to increase awareness of parents and caregivers with regard to children's health, nutrition, education and psycho-social development\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The financing agreement (FA) was signed on August 28, 2008\. Ten days later, the Government of Eritrea (GOE) received the Supplemental Letters to the FA for signature \. The GOE sent an immediate reply informing the Bank that it saw no justification in signing the Supplemental Letters \. The Bank's attempts to persuade the Borrower to sign the Supplemental Letters were not successful \. The Grant was withdrawn by the Bank with a letter to the GOE dated December 16, 2008\. The revised closing date is the date of the withdrawal letter written by the Bank to the GOE \. 3\. Relevance of Objectives & Design: Relevance of Objectives (Substantial )\. Integrated early childhood development (IECD) has been and remains a priority area of focus to the Government, the Bank and other development partners (NCO, p\.6)\. The Eritrea IECD-II sought to improve the health and nutrition of young children as well as their access to pre -primary education\. These objectives are consistent with the prevailing Interim Strategy Note \. The project also aimed to sustain the gains obtained from an earlier project (IECD-I) which had also objectives that were consistent with the Government ’s priority on human resource development \. Relevance of Design (Substantial )\. The project identified components in line with the various aspects of the project development objective\. Learning from the lessons of the predecessor project (IECD-I), IECD-II identified simple and measurable outcome indicators with baseline information included in the PAD \. 4\. Achievement of Objectives (Efficacy): The objectives were not achieved as the project was not implemented \. 5\. Efficiency (not applicable to DPLs): Not evaluable as the project was not implemented \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Not applicable\. a\. Outcome Rating : Not Rated 7\. Rationale for Risk to Development Outcome Rating: Not applicable\. a\. Risk to Development Outcome Rating : Non-evaluable 8\. Assessment of Bank Performance: Quality at Entry : The Bank sought a smooth transition from the IECD -I to IECD II and proactively engaged the Government to start preparing the IECD -II project early on during the completion and closing process of IECD -I\. The Bank also incorporated the lessons from IECD -I\. According to the Regional comments, "the project was put together in almost record time -- in just about 3 months from the time the "go ahead" was given by the MD and VPU (through the ROC)\. The sector team mobilized very quickly and worked intensively with the Government to ensure the project was designed to a high standard \." However, this project was never declared effective due to the GOE's refusal to sign the standard Supplemental Letters (SLs)\. The SLs were sent to the Government after the FA was signed when in fact the Bank should have sent the supplemental letters together with the FA \. In any case, agreement on the content of the SLs should have been secured upfront even if the letters themselves were inadvertently sent later\. The refusal by the Government to ultimately sign the SLs resulted from insufficient Government ownership, which the Bank did not sufficiently take on board \. Quality of Supervision : Since the project was not implemented the quality of supervision cannot be rated \. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Not Applicable c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: Government Performance :There was lack of Government ownership and a resulting failure to sign the SLs, even if some Ministries (Health/Education) took an active interest in project preparation \. Implementing Agency Performance : Since the project was not implemented the Implementing Agency Performance cannot be rated\. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Not Applicable c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Design : The monitoring plan included relevant outcome and output indicators \. Baseline information for these indicators was also included in the PAD \. The M&E design of the project clearly identified responsibilities of data collection and monitoring\. Accordingly, the project would resume tracking malnutrition rates in the project areas, while the Ministry of Health would continue monitoring the same nationwide through the Nutrition Surveillance System\. In addition, the Ministry of Education would keep monitoring the pre -primary education indicators\. The project also envisaged an impact evaluation as part of the Africa Impact Evaluation in Education Program in the World Bank (NCO p\. 8)\. Implementation and utilization are not applicable since the project was never implemented \. a\. M&E Quality Rating : Non-evaluable 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts):  Fiduciary and safeguards compliances and unintended impacts cannot be evaluated since the project was never implemented\. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Not Rated Not Rated Risk to Development Non-evaluable Non-evaluable Outcome : Bank Performance : Satisfactory Moderately The Bank did not sufficiently take on Unsatisfactory board the lack of ownership of the Government as a whole\. Borrower Performance : Satisfactory Moderately There was lack of Government Unsatisfactory ownership and a resulting failure to sign the SLs, even if some Ministries (Health/Education) took an active interest in project preparation\. Quality of ICR : Satisfactory NOTES NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The NCO offers no lessons\. IEG would draw the following\. Ensure that all the standard Bank requirements are included in the Financing Agreement Package and that they are explained to the Borrower at negotiations, if required \. This project was cancelled due to the Borrower's refusal to sign the Supplemental Letters that were not included in the Financing Agreement Package\. The Borrower's view was that they did not need both as the FA was adequate \. The Bank should have recognized the problem earlier and implemented a strategy and dialogue to fully understand the Borrower's concerns and assure the Borrower that the Supplemental Letters were an additional requirement for this operation but a standard requirement for all operations \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The quality of the NCO is rated satisfactory \. The NCO is unduly lengthy but does provide a candid summary of the project\. It included the timeline of key events up to the cancellation \. The NCO could have offered lessons on effective negotiation\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P087734

Document of The World Bank Report No: ICR00003577 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-42890 TF-57818) ON AN INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT IN THE AMOUNT OF SDR 82\.5 MILLION (US$124 MILLION EQUIVALENT) AND AN IRAQ TRUST FUND GRANT IN THE AMOUNT OF US$6\.0 MILLION TO THE REPUBLIC OF IRAQ FOR AN EMERGENCY ELECTRICITY RECONSTRUCTION PROJECT May 29, 2016 Energy and Extractives Global Practice Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective as of June 30, 2015) Currency Unit = Iraqi Dinar IQD 1\.00 = US$0\.000862 US$1\.00 = IQD 1,160 FISCAL YEAR January 01 – December 31 ABBREVIATIONS AND ACRONYMS CCGT Combined Cycle Gas Turbine DCS Distributed Control System EERP Emergency Electricity Reconstruction Project ELC ELC Electroconsult S\.p\.A\. EMP Environmental Management Plan ESIA Environment and Social Impact Analysis ESMP Environment and Social Management Plan GoI Government of Iraq HFO Heavy Fuel Oil ICB International Competitive Bidding ICR Implementation Completion and Results Report ITF Iraq Trust Fund LC Letter of Credit M&E Monitoring and Evaluation MoE Ministry of Electricity O&M Operations and Maintenance OFFP Oil for Food Program PDO Project Development Objective PMT Project Management Team TPE Technopromexport Senior Global Practice Director: Anita Marangoly George Practice Manager: Charles Joseph Cormier Project Team Leader: Mohammed Wafaa Al-Ani ICR Team Leader: Mikul Bhatia      REPUBLIC OF IRAQ Emergency Electricity Reconstruction Project CONTENTS Data Sheet A\. Basic Information \. i B\. Key Dates \. i C\. Ratings Summary \. i D\. Sector and Theme Codes \. ii E\. Bank Staff\. ii F\. Results Framework Analysis \. ii G\. Ratings of Project Performance in ISRs \. viii H\. Restructuring (if any) \. ix I\. Disbursement Profile \. ix 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 8 3\. Assessment of Outcomes\. 20 4\. Assessment of Risk to Development Outcome \. 24 5\. Assessment of Bank and Borrower Performance \. 25 6\. Lessons Learned \. 27 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 29 Annex 1\. Project Costs and Financing \. 30 Annex 2\. Outputs by Component \. 31 Annex 3\. Economic and Financial Analysis \. 36 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 39 Annex 5\. Summary of Completion Report by Owner’s Engineer \. 41 Annex 6\. Summary of Borrower’s Comments on Draft ICR\. 46 Annex 7\. List of Supporting Documents \. 47 MAP \. 52      DATA SHEET REPUBLIC OF IRAQ Emergency Electricity Reconstruction Project A\. Basic Information IQ - Emergency Electricity Country: Republic of Iraq Project Name: Reconstruction Project (EERP) Project ID: P087734 L/C/TF Number(s): IDA-42890,TF-57818 ICR Date: 04/03/2016 ICR Type: Core ICR Lending Instrument: ERL Borrower: REPUBLIC OF IRAQ Original Total Commitment: US$124\.00 million Disbursed Amount: US$63\.71 million Revised Amount: US$124\.00 million Environmental Category: A Implementing Agencies: Ministry of Electricity (MoE) Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/27/2005 Effectiveness: 12/17/2007 12/17/2007 08/24/2010 06/28/2012 02/22/2014 Appraisal: — Restructuring(s): — 06/27/2014 10/15/2014 05/26/2015 Approval: 03/29/2007 Midterm Review: 08/30/2013 12/05/2014 Closing: 06/30/2011 06/30/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Unsatisfactory Risk to Development Outcome: High Bank Performance: Unsatisfactory Borrower Performance: Moderately Unsatisfactory i  C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Unsatisfactory Government: Unsatisfactory Moderately Implementing Moderately Quality of Supervision: Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Overall Borrower Moderately Unsatisfactory Performance: Performance: Unsatisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project at Quality at Entry Yes None any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA): DO rating before Moderately Closing/Inactive status: Unsatisfactory D\. Sector and Theme Codes Original Actual Sector Code (as percent of total Bank financing) Central government administration 14 7 Thermal Power Generation 86 93 Theme Code (as percent of total Bank financing) Conflict prevention and post-conflict reconstruction 100 100 E\. Bank Staff Positions At ICR At Approval Vice President: Hafez M\. H\. Ghanem Daniela Gressani Country Director: Ferid Belhaj Joseph P\. Saba Practice Manager/Manager: Charles Joseph Cormier Jonathan D\. Walters Project Team Leader: Mohammed Wafaa Al-Ani Tjaarda P\. Storm Van Leeuwen ICR Team Leader: Mikul Bhatia ICR Primary Author: Mikul Bhatia F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objectives of the project are to (i) alleviate the current power supply shortfall by restoring the base load generation capacity of the Hartha power station units 2 and 3 to 400 MW and (ii) lay the groundwork for improved power system planning and fuel supply by providing the tools and other support necessary to enhance in-house capability to prepare, implement, and operate current and future projects\. ii  Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Actual Value Achieved at Original Target Formally Revised Indicator Baseline Value Completion or Target Values Target Values Years Indicator 1: Restore original capacity of units 2 and 3 to about 400 MW Value (quantitative 0 400 400 0 or qualitative) Date achieved 03/06/2007 12/31/2010 06/30/2015 06/30/2015 This is an original indicator, which was last revised upon restructuring in September Comments 2014\. At close of the project, rehabilitation of both units was incomplete (due to (including % difficulties with the main contractor)\. About 70% completion (76% equipment received achievement) and 30% installation completed)\. Shortfall in electricity supply alleviated—demand/supply gap reduced and Hartha power Indicator 2: station contributing (MW) Value (quantitative 6,000 – 4,000 7,000 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 This is a new indicator added in the June 2014 restructuring to better reflect the project Comments development objective (PDO)\. At the close of the project, Hartha rehabilitation had not (including % been completed, even as average power supply in Iraq is less than eight hours per day achievement) from the grid\. Development of local capacity through consultancy support and regional and overseas Indicator 3: technical training for staff in operations, maintenance, planning, and project management as well as in financial, legal, and general management aspects of power utilities Value No program Implementation (quantitative – – available is complete\. or qualitative) Date achieved 03/06/2007 12/31/2011 – – This indicator was dropped in the June 2014 restructuring and replaced with 5 separate Comments indicators on (1) improved safeguards management, (2) technical and contractual (including % documentation, (3) project planning, (4) standard safeguards approach, and (5) project achievement) and contract management\. Capacity building – improvement of environmental and social safeguards management Indicator 4: during ongoing operations (Yes/No) Value quantitative or No – Yes Yes qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to reflect specific capacity- (including % building measures\. Operations management at Hartha strengthened by adoption of an achievement) Environmental Management Plan (EMP)\. Also disseminated to other project sites\. Capacity development – improved technical and contractual documentation adopted and Indicator 5: being used as standard for generation and transmission projects (Yes/No) iii  Value quantitative or No – Yes Yes qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This is a new indicator added in the June 2014 restructuring to reflect specific capacity- (including % building measures\. Improved standardized technical specifications, procurement, and achievement) contract documentation are now available for large generation and transmission projects\. Indicator 6: Capacity development – project planning software being utilized (Percentage) Value quantitative or 0 – 100 100 qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 This is a new indicator added in the June 2014 restructuring to reflect specific capacity- Comments building measures\. Training has been provided\. Project planning software and improved (including % technical and contractual documentation have been accepted and are now being used by achievement) the MoE\. Environmental and Social Management Approach adopted and under implementation for Indicator 7: the EERP and disseminated to other projects within the MoE management (Percentage) Value quantitative or 0 – 100 95 qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 This is a new indicator added in the June 2014 restructuring\. Training is delivered and the Comments EMP is being implemented at Hartha\. The EMP implementation is still under way as (including % Hartha rehabilitation works are not completed yet\. Hartha EMP shared with other achievement) projects\. Capacity building—training in project management and contract management delivered Indicator 8: and project and contract management practice on the Hartha project improved (Percentage) Value quantitative or 0 – 100 85 qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 This is a new indicator added in the June 2014 restructuring\. The World Bank workshop Comments was held\. On-the-job training was given\. Significant improvement observed in the (including % capacity of the project management team (PMT) to hold contractor accountable for achievement) responsibilities\. However, further improvements in the PMT capacity are needed\. (b) Intermediate Outcome Indicator(s) Actual Value Achieved at Original Target Formally Revised Indicator Baseline Value Completion or Target Values Target Values Years Hartha power station units 2 and 3 are completed and operational with a capacity of 400 Indicator 1: MW (Text) Rehabilitation Value complete\. Units 2 Units 2 and 3 not (quantitative and 3 producing – – operational\. or qualitative) about 200 MW each\. iv  Date achieved 03/06/2007 12/31/2010 – – Comments This indicator was deleted in the May 2012 restructuring and replaced with new (including % indicators, which reflect greater detail on rehabilitation works related to the boilers, achievement) turbines, and final commissioning of units 2 and 3 of Hartha power station, respectively\. Indicator 2: Qualified contractor appointed and rehabilitation works completed (Text) Value Contractor appointed Contractor appointed and No contractor (quantitative – and rehabilitation rehabilitation works under appointed or qualitative) works completed\. implementation\. Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the May 2012 restructuring to better reflect works related to (including % the rehabilitation of Hartha power station\. Contractors were appointed in October 2010\. achievement) Rehabilitation works not completed at the end of the project\. Indicator 3: Unit 2 boiler erection (Percentage) Value (quantitative 0 – 100 80 or qualitative) Date achieved 03/06/2007 – 30/06/2015 30/06/2015 Comments This indicator was added in the May 2012 restructuring to better reflect works related to (including % rehabilitation of boiler of unit 2 of Hartha power station\. achievement) Indicator 4: Unit 3 boiler erection (Percentage) Value (quantitative 0 – 100 40 or qualitative) Date achieved 03/06/2007 – 30/06/2015 30/06/2015 Comments This indicator was added in the May 2012 restructuring to better reflect works related to (including % rehabilitation of boiler of unit 3 of Hartha power station\. achievement) Indicator 5: Unit 2 turbine erection (Percentage) Value (quantitative 0 – 100 – or qualitative) Date achieved 03/06/2007 – 30/06/2014 – This indicator was added in the May 2012 restructuring to better reflect works related to Comments rehabilitation of turbine of unit 2 of Hartha power station\. This indicator was deleted in (including % the June 2014 restructuring when a more detailed approach to tracking of rehabilitation achievement) works was adopted\. Indicator 6: Unit 3 turbine erection (Percentage) Value (quantitative 0 – 100 – or qualitative) Date achieved 03/06/2007 – 30/06/2014 – This indicator was added in the May 2012 restructuring to better reflect works related to Comments rehabilitation of turbine of unit 3 of Hartha power station\. This indicator was deleted in (including % the June 2014 restructuring when a more detailed approach to tracking of rehabilitation achievement) works was adopted\. Indicator 7: Commissioning unit 2 (Percentage) Value 0 – 100 – v  (quantitative or qualitative) Date achieved 03/06/2007 – 30/06/2014 – This indicator was added in the May 2012 restructuring to better reflect works related to Comments rehabilitation of unit 2 of Hartha power station\. This indicator was deleted in the June (including % 2014 restructuring when a more detailed approach to tracking of rehabilitation works was achievement) adopted\. Indicator 8: Commissioning unit 3 (Percentage) Value (quantitative 0 – 100 – or qualitative) Date achieved 03/06/2007 – 30/06/2014 – This indicator was added in the May 2012 restructuring to better reflect works related to Comments rehabilitation of unit 3 of Hartha power station\. This indicator was deleted in the June (including % 2014 restructuring when a more detailed approach to tracking of rehabilitation works was achievement) adopted\. Indicator 9: Supply of goods and equipment completion rate (Percentage) Value (quantitative 0 – 100 76 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in supply of (including % goods and equipment for the rehabilitation of Hartha power station units 2 and 3\. An achievement) estimated 92% of the goods have been manufactured but only 76% supplied and invoiced\. Indicator 10: Refurbishment works completion rate (Percentage) Value (quantitative 0 – 100 30 or qualitative) Date achieved 03/06/2007 – 09/30/2014 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in works (including % related to rehabilitation of Hartha power station units 2 and 3\. achievement) Indicator 11: Procurement and installation of DCS (Percentage) Value Procurement: 80; (quantitative 0 – 100 Installation: 0 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 This indicator was added in the June 2014 restructuring to assess progress in works Comments related to installation of a Distributed Control System (DCS) for Hartha power station (including % units 2 and 3\. All hardware has been received, but software is not received yet\. achievement) Installation of DCS also not done\. Indicator 12: Erection, testing, and commissioning of mechanical works for two units (Percentage) Value (quantitative 0 – 100 87 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in works (including % related to completion of mechanical works for Hartha power station units 2 and 3\. vi  achievement) Indicator 13: Civil works completion rate (Percentage) Value (quantitative 0 – 100 30 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in civil works (including % related to Hartha power station units 2 and 3\. achievement) Indicator 14: Electrical system installation completion rate (Percentage) Value (quantitative 0 – 100 10\.5 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in electrical (including % system installation related to Hartha power station units 2 and 3\. achievement) Indicator 15: Fuel oil tanks erection (Percentage) Value (quantitative 0 – 100 92 or qualitative) Date achieved 03/06/2007 – 06/30/2015 06/30/2015 Comments This indicator was added in the June 2014 restructuring to assess progress in works (including % related to fuel tanks for Hartha power station units 2 and 3\. achievement) Consulting contracts to provide support in project planning, documentation, Indicator 16: implementation, and operations (Percentage) Value (quantitative 0 – 100 100 or qualitative) Date achieved 08/01/2011 – 06/30/2015 06/30/2015 Comments This indicator was added in the May 2012 restructuring to reflect specific tasks under the (including % technical assistance component\. Consulting support provided through five individual achievement) consultants is now complete\. Indicator 17: Supervision consultant hired and supervision activities undertaken (Percentage) Value (quantitative 0 – 100 100 or qualitative) Date achieved 01/01/2010 – 06/30/2015 06/30/2015 This indicator was added in the May 2012 restructuring to reflect on specific task under Comments the technical assistance component\. Consultancy contract was extended to match the (including % extension of the main contract\. Consultants submitted a final Monthly Progress Report achievement) (No\. 33) up to June 2015\. Development of local capacity at the Hartha power station in operations, maintenance, Indicator 18: and project management Value No program Implementation (quantitative – – available complete or qualitative) vii  Date achieved 03/06/2007 12/31/2010 – – This 'intermediate outcome' indicator was deleted in May 2012 and replaced in June 2014 Comments with three new 'outcome indicators' to reflect capacity building for (a) safeguards (including % management, (b) Standard Safeguards Approach, and (c) project and contract achievement) management\. Development of in-house capacity to implement the MoE’s Power Master Plan Indicator 19: comprising the preparation of feasibility studies, environment impact assessments, and bid documents for high-priority projects\. Value October 2006 Agreed number (quantitative Power Master Plan of studies – – or qualitative) is available\. completed Date achieved 03/06/2007 12/31/2011 – – Comments This 'intermediate outcome' indicator was deleted in May 2012 and replaced in June 2014 (including % with two new 'outcome indicators' to reflect capacity building for (a) improved technical achievement) and contractual documentation and (b) project planning software\. Development of in-house capacity for power system planning and staffing resulting in an Indicator 20: updated Power Master Plan Value An updated Limited staff (quantitative Power Master – – training provided or qualitative) Plan Date achieved 03/06/2007 12/31/2009 – – Comments This ‘intermediate outcome’ indicator was discontinued after the restructuring in May (including % 2012\. The project did not take up capacity building on power system planning\. achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. IP Disbursements Archived DO (US$ millions) 1 04/16/2007 Satisfactory Satisfactory 0\.00 2 10/16/2007 Moderately Unsatisfactory Moderately Unsatisfactory 0\.00 3 01/07/2008 Moderately Satisfactory Moderately Satisfactory 0\.00 4 07/03/2008 Moderately Satisfactory Moderately Satisfactory 0\.00 5 12/03/2008 Unsatisfactory Unsatisfactory 0\.00 6 06/18/2009 Unsatisfactory Moderately Unsatisfactory 0\.00 7 12/11/2009 Unsatisfactory Moderately Unsatisfactory 0\.00 8 04/27/2010 Moderately Unsatisfactory Moderately Unsatisfactory 6\.39 9 09/23/2010 Moderately Unsatisfactory Moderately Unsatisfactory 6\.68 10 01/03/2011 Moderately Unsatisfactory Moderately Unsatisfactory 6\.68 11 11/06/2011 Moderately Unsatisfactory Moderately Unsatisfactory 6\.70 12 06/13/2012 Moderately Unsatisfactory Moderately Unsatisfactory 7\.52 13 12/24/2012 Moderately Unsatisfactory Moderately Unsatisfactory 18\.20 14 08/28/2013 Moderately Unsatisfactory Moderately Unsatisfactory 35\.61 15 03/03/2014 Moderately Satisfactory Moderately Unsatisfactory 42\.23 16 09/24/2014 Moderately Satisfactory Moderately Unsatisfactory 58\.82 17 06/02/2015 Moderately Unsatisfactory Moderately Unsatisfactory 62\.17 viii  H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Approved Reason for Restructuring & Key Restructuring Date(s) PDO Changes Made DO IP in US$, Change millions Closing date for Credit No\. 42890-IQ changed from June 30, 2011 to June 30, 2014; 08/24/2010 N MU MU 6\.68 Closing date for Trust Fund Grant No\. TF057818-IQ changed from June 30, 2010 to June 30, 2013\. Reallocation of funds across categories; 06/28/2012 N MU MU 7\.52 Modifications to the results indicators\. 02/22/2014 N MU MU 38\.53 Reallocation of funds across categories\. Closing date for Credit No\. 42890-IQ changed from June 30, 2014 to 06/27/2014 N MS MU 58\.27 September 30, 2014; Modifications to the results indicators\. Closing Date for Credit No\.42890-IQ 10/15/2014 N MS MU 58\.99 changed from Sep 30, 2014 to June 30\.2015\. 5/26/2015 N MS MU 62\.17 Reallocation of funds across categories\. I\. Disbursement Profile ix  1\. Project Context, Development Objectives and Design 1\. The Iraq: Emergency Electricity Reconstruction Project (EERP) (P087734) was aimed at alleviating power supply shortfalls by rehabilitating the Hartha power station units 2 and 3 to 400 MW and laying the groundwork for improved power system planning and fuel supply by providing tools and other support necessary to enhance in-house capability to prepare, implement, and operate current and future projects\. Funded through an IDA Credit of US$124 million (IDA- 42890) and an Iraq Trust Fund (ITF) Grant of US$6 million (TF-57818), the project was approved on March 29, 2007, and became effective on December 17, 2007\. The original closing date, June 30, 2011, was extended thrice – first to June 30, 2014; then to September 30, 2014; and finally, to June 30, 2015 – to accommodate delays in the rehabilitation of the Hartha power station units 2 and 3\. 2\. The project was implemented in a fragile and conflict country context, which posed significant issues of security (and consequential low bidder interest), weak project management capacity, and different overriding priorities of the government in the face of war and political instability\. The project supported the rehabilitation of the Hartha power station units 2 and 3, which had been earlier initiated under the Oil for Food Program (OFFP), and the equipment for an estimated US$120 million had been already delivered to the site\. The main contract for the remaining supply of goods and equipment as well as execution of rehabilitation works faced significant difficulties during procurement, contract finalization, and implementation\. The contract became effective only in October 2010\. It faced significant delays during implementation and remained incomplete at the close of the World Bank project on June 30, 2015\. The project also supported technical assistance for capacity building in the areas of improved project planning, project and contract management, technical and contractual documentation, and safeguards management at Hartha as well as in other projects of the Ministry of Electricity (MoE)\. The technical assistance component was substantially completed at the close of the Bank project\. 1\.1 Context at Appraisal Country Background 3\. Access to essential basic services was crippled\. Large oil reserves and abundant natural and human resources enabled Iraq to attain the status of a middle-income country in the 1970s\. Income per capita rose to over US$3,600 in the early 1980s\. However, by the turn of the century, Iraq’s human development indicators were among the lowest in the region\. Per capita income dropped to about US$770–1,020 by 2001\. The 2005 income per capita of US$1,200 was about one-third of what the Iraqis enjoyed 25 years earlier\. Most Iraqis had limited access to essential basic services, including electricity, water supply, sanitation, and refuse collection\. Electricity supply, upon which many other essential services rely, remained unreliable\. A combination of wars, sanctions, looting, and vandalism had severely affected the entire power system infrastructure in Iraq\. During the 1991 Gulf War and the subsequent Gulf War, the electricity system suffered severe damage—several transmission lines were put out of service, substations were damaged, and power generation equipment was the most severely affected\. 4\. Reconstruction efforts were hampered by security concerns\. The reconstruction of Iraq was hampered by a number of hurdles, including government bureaucracy, corruption, and security 1  concerns\. More than three years after the Iraq war, the Iraqi people still complained of lack of electricity\. Many projects of the MoE funded by the Iraq Relief and Reconstruction Fund were still incomplete due to a number of factors including project delays, cost overruns due to increased security cost, and constant risk of insurgent attacks, which diverted reconstruction resources to pay for security\. Sector Background 5\. Significant power shortages caused frequent load shedding\. In 1990, before the Gulf War, the total installed generating capacity was 9,295 MW with a peak demand of about 5,100 MW\. Approximately 87 percent of the population had access to electricity\. After the Gulf War and subsequently, the Iraq war, the electricity sector was severely damaged\. In 2006, the available generating capacity was in the range of 3,600 to 4,500 MW, against a peak demand of 9,600 MW during summer\. Only about 80 percent of the population had grid electricity connection, and the reliability of supply was poor\. As a result, power supply remained unreliable with frequent load shedding and unplanned power outages\. 6\. Sector had been restructured and de-corporatized\. Iraq separated the electricity sector from the Ministry of Industry, and the Commission of Electricity was established on June 21, 1999\. In 2003, the MoE was created to replace the Commission of Electricity\. The MoE was made responsible for both policymaking and electricity supply throughout the country\. The operational functions (power generation, transmission, and load dispatch and distribution), which were autonomous corporatized entities earlier, were reorganized into 18 geographically based directorates within the MoE\. 7\. New Master Plan to address sector challenges had been prepared\. In November 2006, the MoE presented a new Master Plan for the sector for the years 2006–2015\. The new Master Plan was aimed at (a) expansion of the power generation capacity to cover incremental power demand, (b) efficient maintenance and effective rehabilitation of generation facilities, (c) expansion of transmission and distribution systems, (d) transmission interconnections with neighboring countries, (e) providing best possible service to consumers, (f) developing human resources, and (g) increasing per capita consumption from 1,100 kWh per year to 3,700 kWh per year by 2009\. Key Issues in the Electricity Sector 8\. Deteriorated power and fuel infrastructure\. Many existing power generation units needed refurbishment or even replacement\. Some new generating units (mainly gas turbines) were installed, but these often could not be operated because of fuel supply problems\. The transmission and distribution networks had suffered substantial damage during war and conflicts\. As a result, some networks were heavily loaded and were subject to repeated interruptions in addition to load shedding due to the lack of available generating capacity\. Natural gas—which is the most efficient fuel type for most generation plants in Iraq—was often not readily available, and there were concerns about the security gas pipelines\. 9\. Weakened capacity\. The Iraqi staff working in the power sector had good skills in operation, repair, and maintenance\. This enabled continued operation of power plants despite 2  shortage of standard spare parts and incomplete commissioning by contractors who had to evacuate when war broke out\. However, there was a need to expose the staff to the latest technological developments and best practices in operation, maintenance, planning, design, and contract management to ensure efficient and sustainable operation of the power system\. 10\. Uncertainty in availability of funds and cumbersome bureaucratic procedures\. Uncertainty in availability of funds from budgetary allocations and donor funding, as well as cumbersome bureaucratic procedures had been important factors in infructuous rehabilitation efforts till date\. Available funding from all sources was unlikely to be sufficient to fully implement the needs-based electricity sector Master Plan\. An additional issue was the need to improve planning, project preparation, procurement, project management, and implementation\. The Master Plan could also be further optimized to reduce the shortfall in financing\. 11\. Inadequate tariffs, low cost recovery, and increased cost of doing business\. Prices of petroleum products, fuel, and electricity did not reflect production costs or international market prices\. Although billing for electricity had been partially reinstated, collection remained difficult because of the prevailing security situation\. This problem was further exacerbated by the high cost of doing business due to high security costs\. In the long term, adjustment of electricity prices to improve cost recovery and ensure rational economic investment choices was a key element in improving the financial viability of the electricity sector\. 12\. Institutional structure, regulatory reform, and corporatization\. The prevailing centralized structure of the MoE was seen as being inadequate for the future of Iraq’s electricity sector\. Possible reforms could start with reverting to the autonomous arrangements that were in place in 1999\. However, modernization of the prevalent Legal and Regulatory Framework was also required in view of the decision by the MoE to open the electricity sector to private investment\. The Bank was providing assistance in formulating sound electricity policy and a clear Regulatory Framework for creating a favorable investment climate\. This assistance was being provided through the Public Private Infrastructure Advisory Facility\. Rationale for Bank Assistance 13\. In response to the tremendous need to rehabilitate and restore basic infrastructure facilities and services throughout Iraq, initial donor support was primarily directed to financing priority investments in the power and water sectors, as well as to improving key social services\. Despite the relatively large resources channeled by the United States and Japan for the reconstruction and rehabilitation of the electricity sector, the power supply in 2006 met only about 50 percent of the demand\. 14\. The project was consistent with the Bank’s Interim Strategy Note for Iraq, which was prepared in consultation with the government of Iraq (GoI) and submitted to the Bank’s Board of Directors in September 2005\. The Interim Strategy Note, guided by Iraq’s National Development Strategy of July 2005, emphasized the need for rapid rehabilitation of critical infrastructure services and institutional support as prerequisites for long-term sustainable recovery\. 15\. The GoI selected the Hartha power plant based on a Rapid Result Approach\. The combination of rehabilitation and technical assistance was expected to ensure an increase in 3  generation capacity and stabilization of the national grid\. The project was expected to have the potential to add urgently needed capacity in a relatively short period and at an economical cost because (a) most of the equipment had already been procured under the OFFP, (b) technical expertise was available on-site, and (c) the security conditions had been relatively stable in the southern region\. The Bank’s experience with infrastructure reconstruction projects and institution building in conflict zones was expected to help in completing the project successfully\. 16\. In addition, the Bank’s experience in capacity building and project preparation was expected to help ensure effective future rehabilitation and sustainable performance of the plants\. Assistance to improve planning, project preparation, and implementation, including fuel supply, was to be provided as part of this project\. The Bank was also to provide advisory services through other economic and sector work that would assist in reforming the sector to ensure commercial operation and sustainable development\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 17\. PDO\. The objectives of the project were to (i) alleviate the current power supply shortfall by restoring the base load generation capacity of the Hartha power station units 2 and 3 to 400 MW; and (ii) lay the groundwork for improved power system planning and fuel supply by providing the tools and other support necessary to enhance in-house capability to prepare, implement, and operate current and future projects\. 18\. Key indicators were as follows: ï‚ Restore original capacity of units 2 and 3 of the Hartha power station to about 400 MW ï‚ Development of local capacity through consultancy support and regional and overseas technical training for staff in operations, maintenance, planning, and project management as well as in financial, legal, and general management aspects of power utilities 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 19\. Revised PDO\. The PDO for the project was not revised\. 20\. Revised key indicators\. The key indicators were revised through restructurings in May 2012, June 2014, and finally, in September 2014 to reflect the revised timelines, progress on specific rehabilitation works, as well as specific capacity-building activities\. These changes to the key indicators were ‘corrective’ in revising target dates to reflect delays in project implementation due to contractual difficulties and in better reflecting the specific capacity-building activities\. Changes introduced in June 2014 in particular, enabled better tracking of specific activities in the rehabilitation of units 2 and 3 of the Hartha power plant\. These changes did not materially alter the project or the results framework but only served to refine the indicators\. 4   21\. The final set of key indicators (PDO level indicators) were as follows: Table 1\. PDO Level Indicators Original Revised Indicator Baseline Comment Target Target Restore original capacity of units 2 0 400 400 Original and 3 to about 400 MW (Megawatt) (June 06, 2007) (December 31, 2010) (June 30, 2015) Original target date was revised to reflect delays in implementation\. Shortfall in electricity supply 6,000 – 4,000 Added alleviated—demand/supply gap (June 06, 2007) (June 30, 2015) New indicator was added reduced and Hartha power station in June 2014 to better contributing (Megawatt) reflect the PDO\. Development of local capacity No program Implementation of an – Dropped through consultancy support and available\. agreed capacity- This original indicator regional and overseas technical (June 06, 2007) building program was replaced with five training for staff in operations, complete new indicators in June maintenance, planning, and project (December 31, 2014 to better reflect the management as well as in financial, 2011) specific capacity- legal, and general management building activities\. aspects of power utilities\. Capacity building—improvement of No – Yes Added environmental and social safeguards These five new indicators management during ongoing replaced the original operations (Yes/No) indicator on capacity Capacity development—improved No – Yes building\. The new technical and contractual indicators reflect specific documentation adopted and being capacity-building used as standard for generation and activities separately\. transmission projects (Yes/No) Capacity development—project 0 – 100 planning software being utilized (Percentage) Environment and Social 0 – 100 Management Approach adopted and under implementation for the EERP, and disseminated to other projects within the MoE management (Percentage) Capacity building—training in 0 – 100 project management and contact management delivered and project and contract management practice on the Hartha project improved (Percentage) 22\. Reasons/justification\. The revised key indicators are only a refinement of the original indicators\. The original indicator for capacity building did not reflect the details on the specific aspects, which have been included in the revised indicators\. 5  1\.4 Main Beneficiaries 23\. The direct beneficiary of the project is the MoE of the GoI, which will benefit from augmentation of power generation capacity at Hartha power station, as well as institutional capacity to plan, prepare, procure, implement, operate, and maintain projects\. Indirect beneficiaries include all consumers of electricity as the project will provide 400 MW of additional power generation in Iraq\. These consumers include households, commercial establishments, industries, agriculture, public service institutions (such as schools, health centers, and so on), and government offices\. 24\. The main beneficiaries of the project remained unchanged during the course of the project\. 1\.5 Original Components (as approved) Component 1: Rehabilitation of Hartha Power Station Units 2 and 3 (US$144 million) 25\. Subcomponent 1\.1\. Hartha power plant (800 MW), which is located at the Shatt Al-Arab River, about 33 km from Basra and 25 km from the Iranian border, was commissioned in 1979\. Units 1 and 4 have been running most of the time since then, but units 2 and 3 have been mostly out of operation since the first Gulf War\. Rehabilitation of units 2 and 3 was initiated with assistance under the OFFP and equipment for an estimated US$120 million has been delivered to the site\. The proposed project will consist of completing supply of materials, rehabilitation, and commissioning of units 2 and 3 of the Hartha power plant to restore to, as close as possible, their original capacity of 400 MW and thereby, ensure an additional operational life of 20 years\. The tender document will take account of the equipment and materials already supplied under the OFFP\. The main components comprise the boilers, condensers, turbines, governors, generators, transformers, and control equipment\. The bidders will be encouraged to form joint ventures with local contractors, which will reduce the project cost and create local employment\. Most equipment will be replaced rather than repaired\. 26\. Subcomponent 1\.2\. Support in bid evaluation, construction supervision, and further support to the MoE up to the end of the defects liability period\. 27\. Subcomponent 1\.3\. Implementation of the agreed recommendations of the Environmental and Social Management Plan (ESMP)\. 28\. Subcomponent 1\.4\. Incremental operational cost of the project management team (PMT) such as office equipment, travel, and per diem but excluding salaries of the Iraqi PMT staff\. Component 2: Support Services (US$6 million) 29\. Subcomponent 2\.1\. Consultancy support and training to the Iraqi MoE staff in the preparation of least cost reconstruction and expansion plans, feasibility studies, and advisory services for future projects, including projects related to securing fuel supply and reducing gas flaring\. Priority will be given to assisting the MoE with completing a Feasibility Study and related consulting services for the Mansuria project (development of a gas field and the construction of a 2x123 MW simple cycle plant with possible expansion to a combined cycle project) and other possible oil and gas field developments, in close cooperation with the Ministry of Oil\. Support for 6  least cost planning will complement the development of planning tools already provided or to be provided through alternative financing\. Such tools will include software and measuring instruments for all stages of power system planning\. 30\. Subcomponent 2\.2\. Regional and overseas training for staff in the technical areas of operations, maintenance, planning, environment, and general project management as well as in financial, legal, and general management aspects of power utilities\. 31\. Subcomponent 2\.3\. Independent audits for the project\. 32\. Subcomponent 2\.4\. Office equipment for the PMT in Baghdad and at Hartha such as office equipment and operational costs for travel and per diem but excluding salaries and benefits of the Iraqi PMT staff\. 33\. Subcomponent 2\.5\. Miscellaneous short-term consulting services that may be required for the Hartha project, such as an independent review of project implementation and other advisory services for the power sector that may be required by the MoE\. 1\.6 Revised Components 34\. The project components have not been revised\. 1\.7 Other Significant Changes 35\. There were no significant changes in design, scope, scale, or implementation arrangements of the project\. However, the project was restructured on six occasions\. The closing date for the IDA Credit was extended on three occasions, from the original date of June 30, 2011 to June 30 2014, then to September 30, 2014, and finally, to June 30, 2015\. Alongside, the closing date for the ITF grant was extended from September 30, 2010 to June 30, 2013\. Further details of the six restructurings are provided in the table\. Table 2\. Project Restructurings Reallocation of Funds Restructuring Date Extension of Closing Date Revision of Indicators Across Categories July 16, 2010 Closing date for IDA Credit – – First Restructuring extended from June 30, 2011 to June 30, 2014, to match the duration of the main Hartha rehabilitation contract\. May 29, 2012 – Reallocation to provide Indicators revised to reflect Second funds for consultancy details on works related to Restructuring activities in view of ITF boilers, turbines, and final grant funds having been commissioning of units 2 fully committed and 3, respectively\. February 22, 2014 – Reallocation to provide – Third Restructuring funds for consultancy activities and price adjustments in main Hartha contract 7  June 27, 2014 Closing date for IDA Credit – A more detailed approach Fourth Restructuring extended from June 30, 2014 to adopted to reflect specific September 30, 2014, in capacity building measures anticipation of a further extension and to track specific contingent on agreement between rehabilitation works\. the GoI and TPE on outstanding variation orders\. September 30, 2014 Closing date for IDA Credit – Targets for indicators revised Fifth Restructuring extended from September 30, in line with the extension of 2014 to June 30, 2015, project closing date\. subsequent to signing of final agreement between the GoI and TPE for additional goods, equipment, and works\. May 19, 2015 – Reallocation to provide – Sixth Restructuring funds for external auditor and owner’s engineer Note: TPE = Technopromexport 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry (a) Soundness of Background Analysis 36\. Urgent need to fix critical power infrastructure correctly identified, but Rapid Results Approach was over-optimistic\. The background analysis correctly identified the need to rehabilitate Iraq’s critical power infrastructure\. The decision to support generation rehabilitation as against transmission and distribution rehabilitation remained open till a very late stage in project preparation\. The GoI’s decision to avail Bank support for Hartha rehabilitation based on a Rapid Results Approach was driven by the fact that a large part of the equipment had already been procured and received under the OFFP\. Therefore, it was assumed that works could be executed quickly—especially as the security environment in the south was also relatively stable\. This premise seems to have overrated the Rapid Results Approach by ignoring possible issues with the adequacy of technical design of these components, the condition of these components after years of lying around, the ability of a wide cross-section of bidders to use them, as well as the constraints imposed on design flexibilities for bidders\. A detailed study of the design and condition of components already procured under the OFFP and a thorough examination of merits/demerits of taking up an incomplete rehabilitation effort may have pointed to other approaches\. 37\. Many lessons from earlier projects were reflected\. The project design drew upon several lessons from earlier projects in fragile and conflict countries\. Only one investment contract was funded by the Bank project to keep the project structure simple with limited number of components and a small number of contracts\. Procurement was initiated early on and proposals under International Competitive Bidding (ICB) had already been invited by the time of submission to the Board of Directors\. Supervision travel was to be optimized in the face of a difficult security situation, including by conducting missions in Jordan and Lebanon\. A PMT was put in place and capacity-building measures were incorporated into the project design\. All of these measures were derived from the lessons learned from earlier experiences\. 8  (b) Assessment of the Project Design 38\. Project selection was influenced by past decisions\. With regard to technical design, there were multiple options to consider\. The augmentation of generation availability could be achieved through either the rehabilitation of Hartha units 2 and 3 or setting up a new Combined Cycle Gas Turbine (CCGT) plant of a similar capacity\. A third option would have been to add the gas turbine stage to units 2 and 3 subsequently and convert them into CCGT plants, thus delivering nearly double the electricity\. Another related consideration was the approaching end of designed life of units 1 and 4—which would need to be replaced at a later stage\. However, the decision to rehabilitate Hartha units 2 and 3 to the original design (or incrementally better) specifications had been taken by the GoI much earlier and equipment worth US$120 million had been procured under the OFFP\. Thus, adequate assessment of the option to rehabilitate Hartha in relation to other options to augment power supply was not done\. 39\. Economic analysis overlooked the complexities inherent in rehabilitation projects\. The economic analysis in the project appraisal document compares the rehabilitation project with installing a new 390 MW CCGT\. The analysis shows that the average cost of electricity from the rehabilitation project would be marginally lower than that from a new CCGT (both being operated using heavy fuel oil [HFO])—US$0\.0492 per kWh versus US$0\.0507 per kWh\. However, the analysis does not reflect the complexities inherent in a rehabilitation project compared to a green- field CCGT project\. Such complexities usually arise from additional scope of works that may be discovered upon opening the machines, longer than anticipated time in rehabilitation even under normal political and security conditions, and the need to reverse engineer and retrofit parts to match the design of the original unit\. These inherent risks were not reflected in the economic analysis, upon which the decision to rehabilitate the unit may have been questionable\. 40\. Complex nature of project and contract design at entry\. The MoE had already received a very large set of goods and equipment under the OFFP and the contractor had to takeover and use this existing equipment supply\. This large volume of equipment (potentially covering several football fields) had been lying around for several years and posed issues of compatibility as well as usability of parts\. As a result, a turnkey contract where the contractor could take the entire responsibility for design, procurement, and implementation of works was not an option\. This also limited the number of bidders and was a constant source of dispute with the contractor during implementation\. The implementation risk arising from this complexity was not understood well enough at the design stage\. Given the difficult country context, a better appreciation of the contractual complexity may have pushed the Bank team toward other project design options (such as a green-field plant, a different power plant, or a different contracting structure)\. (c) Adequacy of Government’s Commitment 41\. Significant time lapse in parliamentary ratification and budgetary allocations\. Although the project’s financing plan had been proposed by the Bank as early as November 2005 and it included cofinancing by the GoI, there was a significant time lapse in the budgetary allocation of US$20 million by the GoI\.1 Ratification of the IDA Credit Agreement by the                                                              1 These funds were eventually contributed by the GoI toward the advance payment to the main Hartha rehabilitation contractor in March 2010\. 9  parliament and obtaining the legal opinion also took nearly eight months\. However, these delays were symptomatic of competing demands on resources from more compelling security and political concerns, as well as bureaucratic delays, rather than a lack of ownership of the project by the GoI\. Subsequently, the government’s high commitment to the project is again reflected when it stepped forward to shoulder nearly US$19 million toward security costs of the main contractor for rehabilitation of the Hartha power station units 2 and 3\. (d) Assessment of Risks 42\. Identification of project risks and mitigation measures\. Many key risks faced by the project were already anticipated at the project preparation stage, and suitable mitigation measures were identified\. Many of these risks were observed during the procurement and implementation of contracts and despite mitigation measures taken, resulted in substantial delays\. A summary of the key risks identified ex ante, the mitigation steps planned, and the experience during project implementation are presented below: Table 3\. Risks and Mitigation Measures Assessment during Preparation Effectiveness of Mitigation Measures Key Risks Rating Mitigation Plan Inability of High Use of local Bank conducted missions at Beirut (5), Basra (1), international Bank consultants Baghdad (4), and Amman (3)\. Consultants were hired staff to supervise contracted to assist by the MoE as owner’s engineers\. Bimonthly the project in the in supervision coordination meetings between the owner, owner’s field through physical engineer, contractor, and the Bank were organized to inspection of address any outstanding issues\. The owner’s engineer projects conducted more than 32 coordination meetings and 11 factory tests/inspections\. They provided periodic reports on the project progress\. Supervision for the project is seen to be adequate\. Lack of experience High Training and support Bank procurement specialists provided close support in using the Bank’s will be provided to to the client, especially in the course of difficult Procurement the PMT on Bank’s negotiations with the single bidder, which required Guidelines and Procurement review and ‘no-objection’ to multiple versions of draft sound international Guidelines, bidding contract\. Procurement training was given to the PMT procurement document staff\. However, some of the contractual difficulties are practices preparation, and bid attributable to lack of clarity in the contract on the evaluation\. contractor’s scope of responsibility\. Hence, contact management risk was only partially mitigated\. Counterpart High Ensuring that the There was a significant time lapse in budgetary financing and the counterpart funds are allocation of counterpart funds of US$20 million by possibility of delay allocated in the the GoI\. These funds were eventually contributed by in budget allocations related years budgets the GoI toward the advance payment to the main thus affecting project Hartha rehabilitation contractor in March 2010\. implementation Hence, the risk was only partially mitigated\. 10   Assessment during Preparation Effectiveness of Mitigation Measures Key Risks Rating Mitigation Plan Possibility of high High Price and physical The original main contract (US$133\.69 million) prices due to security contingencies have already cost beyond the planned contingencies conditions in Iraq been provided in the (US$110 million base cost and US$22 million cost estimates\. contingencies)\. Two subsequent amendments added US$2\.20 million and US$35\.13 million, respectively\. This excludes price adjustment, which is yet to be negotiated between the GoI and the contractor\. In addition, the GoI also funded the security contract, which amounted to about US$19 million\. The risk of high prices was correctly identified but adequate contingency provisions were not made in the project\. Security conditions High A clause in the Although security conditions deteriorated due to the deteriorate, making bidding document arrival of ISIS, their influence largely did not reach the access by requests the areas around Hartha\. contractors/suppliers methodology for to sites and accessing the site for supervision difficult\. installation, testing, and commissioning\. 43\. Fuel availability assessment indicated the use of HFO and crude oil over the medium term\. A fueling appraisal study was conducted to assess the availability of HFO, crude oil, and natural gas over the life of the project\. Scenarios that examined the continued availability of HFO, priorities of the GoI for use of available natural gas for various uses, and the possibility of using crude oil were prepared\. The GoI indicated that it was unlikely that natural gas would be made available for Hartha units 2 and 3 as CCGT plants would be accorded a higher priority to the scarce resource\. The study also recommended considering conversion of these units to CCGTs in the future by adding gas turbines and using the waste heat to run the boilers\. Despite these studies, no concrete steps are in evidence for conversion of these units into CCGTs in the future or for arranging natural gas to ensure power generation at the lowest cost and minimal environmental impact\. This remained an important risk for economically efficient future operation of the plant\. 2\.2 Implementation (a) Implementation of Hartha Power Station Rehabilitation 44\. The contract for rehabilitation of units 2 and 3 of Hartha power station was signed with Technopromexport (TPE) of Russia in April 2009—over two years after the bidding process was started\. However, the contract became effective only in October 2010\. The period of the contract ran to June 20, 2014\. In July 2010, the closing date of the Bank project was extended from June 30, 2011 to June 30, 2014, to match the period of the contract\. Subsequently, with further delays in implementation of the TPE contract, the closing date of the Bank project was extended to September 2014 and then, to June 30, 2015\. 45\. A security contract amounting to US$19 million was added to the project in November 2009\. The main contract for supply and installation of plant and equipment for rehabilitation of 11  units 2 and 3 was supplemented with two new contracts with the same firm for supply of additional equipment and materials, together amounting to US$37 million\. The first of these new contracts— for supply of spare parts for boilers (US$2 million)—was signed in August 2011, while the second—for additional equipment and services (US$35 million)—was signed in September 2014\. Thus, the overall cost of the project increased by US$56 million\. However, the additional funding requirements were shouldered entirely by the GoI and the Bank funding remained unaffected\. 46\. The activities related to rehabilitation of Hartha power station units 2 and 3 encompassed the supply of goods and equipment as well as installation services\. At the close of the Bank project, the supply of goods and equipment has been completed to the extent of an estimated 76 percent\. However, installation services are lagging far behind\. Only an estimated 30 percent of the installation works have been completed\. On an aggregated basis, about 70 percent of the activities (including equipment supply and installation services) have been completed\.2 With the closing of the Bank project, the contractor has withdrawn its personnel form the site and the rehabilitation works have practically stopped\. The issues that affected the timely implementation of the Hartha rehabilitation work are described in the following paragraphs\. Difficulties emanating from the design of the project 47\. Rehabilitation of units 2 and 3 of Hartha power station first began in 1999 when the MoE placed orders under the OFFP for supply of missing and damaged equipment worth nearly US$120 million\. However, the rehabilitation work had to be stopped because of the second Gulf War\. The Bank-funded project was designed to resume and complete the rehabilitation works originally started under the OFFP by using available components and equipment\. This may have restricted bid participation to only those bidders who were familiar with the underlying design and technology of the components already supplied under the OFFP\. Once the bid selection was completed, the mandate to use these components also added complexities to the contract design, which was vulnerable to disputes and loss of accountability\. Challenges emanating from a fragile and conflict country context 48\. The fragile and conflict country context in Iraq constrained effective participation from bidders, contractors, subcontractors, and consultants and also imposed higher security costs\. This is evidenced by the following instances among others: (a) Limited participation by bidders due to the prevailing security environment in Iraq\. Although six firms expressed interest in the main contract for rehabilitation of Hartha units 2 and 3 at the expression of interest stage under a prequalification process, only one of them could prequalify\. Subsequently, proposals were invited under an open ICB process but again, only one proposal was found to be responsive, even though six firms purchased the bid documents and two submitted proposals\. (b) Difficulty in finding suitable consultants\. Implementation of works under the Hartha rehabilitation contract could be started only after undertaking public                                                              2 Estimates of work completion are based on Monthly Progress Report for July 2015 by the owner’s engineer (ELC Electroconsult S\.p\.A [ELC])\. Summary of works completed, under way at close of the Bank project, and those still to be done is provided in annex 2\. 12   consultation and disclosure of the Environment and Social Impact Analysis (ESIA)\. However, the ESIA consultants faced difficulty in finding cost-effective local consultants for carrying out air quality and noise measurements and hence, the completion of the ESIA was delayed\. (c) Additional expense for security\. The sole qualified bidder demanded extra compensation for security expenses\. After protracted negotiations, the GoI agreed to bear the additional amount outside of the main contract\. This additional expense reached an estimated US$19 million up to October 2015\. Difficulties in finalizing and managing the main contract for Hartha rehabilitation (a) Protracted negotiations with the sole qualified bidder\. The contract with TPE for rehabilitation of units 2 and 3 of the Hartha power plant was ready for signing as early as December 2007 but was signed only in April 2009 and became effective in October 2010\. The sole remaining bidder (TPE) held protracted negotiations with the MoE, seeking increase in contract value to compensate for exchange rate variations and a provisional sum to cover unforeseen items and future price adjustments\. Because of continued negotiations, the draft contract agreement had to be revised across multiple iterations\. The Bank procurement team (including the regional procurement manager and Operational Procurement Review Committee) monitored the situation closely, providing guidance and ‘no-objection’ certifications on multiple iterations of the draft contract\. During the period between 2008 and 2009, the Bank team and management considered cancelling the IDA credit at least twice due to lack of progress\. The contract was eventually signed in April 2009 when the MoE was considering the option of cancelling the negotiations and initiating a fresh ICB process and had obtained the Bank’s ‘no-objection’ for the same\. (b) Delay in contract effectiveness\. The contract with TPE was signed in April 2009 but became effective only in October 2010\. There were differences over performance guarantees\. Security arrangements could be resolved only by end 2009 through the signing of two addendums to the contract\. Advance payments to the contractors were not completed till March 2010\. The contractor was not agreeable to making the contract effective till the Bank’s Special Commitment was extended for the duration of the whole contract\. The contract finally became effective in October 2010 when all these issues were resolved\. (c) Wasted efforts in assembling turbine spare parts\. The MoE signed a separate contract with Franco Tosi Mecchanica S\.p\.A\. of Italy for supply of turbine parts, which were to be provided to the main contractor (TPE) for the rehabilitation of units 2 and 3\. These parts were to be replicated through reverse engineering\. Some parts remained stuck for several months at the customs at Basrah due to loss of shipment documentation\. TPE started reassembling the turbines using the original parts instead of these unavailable new parts\. However, the parts manufactured by Franco Tosi were not fully compatible with the original ones made by Mitsubishi\. When the incompatibility was discovered, this caused dispute over compensation for TPE’s wasted efforts\. 13  Factors generally under the control of the GoI (a) Bureaucratic delays\. The project faced some delays in decision-making processes and official actions at the GoI, such as the following: (i) Delay in recruitment of consultants for pre-award services\. The process of consultant selection was started in October 2006, but the final award of consultancy contract could be made only in August 2007,3 even though the bids for the main contract had been received in April 2007\. With this delay in selection of consultants, validity of bids for the main contract required an extension\. However, of the two bidders, one declined to extend the bid validity, and only one bidder remained in the race\. (ii) Difficulties in obtaining visas for TPE staff constrained such staff from moving to the site\. This delayed mobilization by TPE\. Appropriate visas (six-month multiple entry) were not being provided to the contractor or the consultant on time or for an adequate period\. TPE and ELC were requested to send a consolidated list of visa requirements to the MoE for urgent follow-up\. This problem persisted at least till May 2012\. (iii) Letter of Credit (LC) amendment\. During 2011–2012, the contractor requested an amendment to the LC under which goods and equipment would be supplied to the project\. Although an amendment was processed by the MoE, in conjunction with the Trade Bank of Iraq, this was not processed correctly\. A correct amendment to the LC was required to add Egypt and Syria to the list of countries from which goods and equipment could be supplied\. (b) Weak project and contract management capacity within the MoE\. Poor project management capacity within the MoE, especially during the early part of implementation, resulted in direct obstruction and interference with subcontractors, causing delays in works and execution of subcontract packages\. The MoE also did not fully appreciate the role of the owner’s engineer (ELC) and initially did not rely on its advise\. Intensive supervision and intervention by the Bank team was undertaken to address this situation\. Individual consultants were appointed under the capacity- building component of the project to strengthen the PMT on project and contract management aspects\. (b) Implementation of Capacity Building and Implementation Support Components 49\. The ITF component of the project closed on June 30, 2013\. This component was designed to provide the PMT and the MoE with support services for the preparation and supervision of the rehabilitation contract and other capacity-building activities\. The following assistance was provided under this component: ï‚ Pre-award support consultancy\. The contract for pre-award support consultancy (for support in bid evaluation of the main contract) was awarded in August 2007 to                                                              3 Parsons Brickerhoff International Inc\. of United Arab Emirates was selected as the consultant\. 14   Parsons Brinkerhoff\. This consultancy work was completed successfully with the selection of TPE as the main contractor for the rehabilitation of Hartha power station\. ï‚ Supervision of Hartha rehabilitation contract\. The consultancy for construction supervision (owner’s engineer) was awarded to ELC of Italy\. The IDA-funded project was initially funded from the ITF grant, but later it was extended beyond the closing date of the ITF Grant\. Therefore, the contract with ELC was funded with the IDA Credit after the closing of the ITF Grant\. The consultants provided regular supervision reports to the MoE—the last such report (Monthly Progress Report No\. 33) being submitted in June 2015 at the close of the Bank project\. Although the rehabilitation of Hartha units 2 and 3 has not yet been completed, the consultancy contract for construction supervision has now been closed\. ï‚ Environmental and Social Management Plan\. The consultancy contract for implementation of the ESMP was awarded to Dome International\. Trainings on various aspects of the ESMP were delivered and the plan was implemented in the course of the rehabilitation of Hartha power station\. The Hartha Environmental Management Plan (EMP) has been shared with other projects and interest in more widespread development of sound environmental and social practices was reported\. ï‚ Individual technical specialists\. Five individual technical specialists were contracted under the ITF component to provide support and capacity development to the MoE in the areas of generation, transmission, and distribution sector project development\. These specialists provided support in the development of technical specifications and bid documentation for consulting firms, contractors, and other service providers required for implementing the ministry’s Master Plan\. The MoE reported that these specialists provided invaluable assistance in improving the quality of bid and contract documentation being used by the MoE and in the management of ongoing contracts\. These contracts were closed on June 30, 2013\. ï‚ Independent audits\. These audits were regularly carried out for the project\. The contract for independent auditors was initially funded from the ITF Grant\. With the extension of the project closing date, the audit contract was also extended for three years from 2012 to 2014 and was funded from the IDA component of the project from June 30, 2013 onwards\. (c) Project at Risk Status and Actions Taken 50\. The project has faced significant challenges throughout and actions were taken to remedy situations as they arose\. Owing to delays and implementation challenges, the project was restructured on six occasions\. The closing date for the IDA Credit was extended on three occasions and the closing date for the ITF Grant was extended once\. The project timeline can be divided into three periods based on the nature of risks encountered and the approach taken by the Bank to resolve them: 51\. Period-1 – Before signing of the main rehabilitation contract: The sole bidder for the main rehabilitation contract held protracted negotiations with the MoE, seeking increase in 15  contract value to compensate for exchange rate variations and a provisional sum to cover unforeseen items and future price adjustments\. In the face of persistent delays in concluding contract negotiations, the client seriously considered the possibility of cancelling the contract negotiations process\. However, each of the outstanding issues was meticulously resolved\. Because of continued negotiations, the draft contract agreement had to be revised across multiple iterations\. The Bank procurement team (including the regional procurement manager and Operational Procurement Review Committee) monitored the situation closely, providing guidance and ‘no- objections’ on each occasions\. The contract was eventually signed in April 2009 and became effective in October 2010\. The Bank team again worked closely with the client to resolve each of the outstanding issues affecting contact effectiveness\. 52\. Period-2 – Between 2011 and 2014: After the main contract became effective in 2010, implementation difficulties persisted, even as some momentum was gained\. The project closing date was extended from June 2011 to June 2014\. However, when granting this extension, the outstanding contractual issues were not resolved\. This was an important lost opportunity\. As a result many of the implementation difficulties persisted and momentum was lost again\. 53\. Options considered at the time of project restructuring in June 2012\. The project remained in ‘problem project’ status for the most part and options for alleviating this status were explored each time the project was put up for restructuring\. Some of the key options that were considered in June 2012 were the following: (a) Suspension or cancelation of the IDA Credit\. The Bank had entered into a Special Commitment for US$86 million to underwrite supply of goods and equipment to the project\. Any suspension or cancellation would not apply to funds that are subject to the Special Commitment, and only the balance funds could have been cancelled\. The Bank could be released from this Special Commitment (to be able to realistically consider cancellation or suspension) only at the closing date of the project or upon termination of the MoE’s contract with TPE\. However, there were no clear grounds for termination of the TPE contract because part of the blame for delays was attributable to the contractor as well as to the MoE\. (b) Curtailment of project scope (level-1 restructuring)\. With a single main contract (for Hartha rehabilitation), the project could not have undergone a level-1 restructuring (change in PDOs or the scope of the project)\. The Bank team considered revision of the PDOs to reflect possible completion of works on unit 2 (200 MW of capacity commissioned) and the supply of equipment as well as partial completion of works for unit 3\. However, regardless of the change on the PDO, this restructuring would not have alleviated the situation in any way, nor resulted in part cancellation of available funds\. (c) Intensified supervision\. Given the difficulties in suspension or cancellation of the project, the Bank team adopted a combination of intensified supervision and intervention with senior Iraqi officials as the approach for regaining momentum in project implementation\. This included efforts to address specific roadblocks as well as extend the closing date to allow more implementation time\. 16  54\. The Bank project team and Bank management concluded that option-c was the only feasible way-ahead\. During the project restructuring in June 2012, IDA Credit funds were reallocated to consulting services to cover the higher-than-expected costs of environment management consultancy\. For the trust fund component, additional funds were allocated to consulting services that covered support for planning and implementation of power system expansion, feasibility study for conversion of Single Cycle Gas Turbine plants into CCGT plants, and the contract for the supervision consultant for the Hartha rehabilitation contract\. The Monitoring and Evaluation (M&E) Framework was modified to better align with the revised tenure of the project and also to correspond to the changes in consulting services mentioned above\. 55\. Period-3 – Beyond 2014: Since the contractual disputes between GoI and the contractor were the bane of proper implementation of works, Bank encouraged them to find approaches for resolving the contractual disputes\. Based on tangible progress in resolving contractual difficulties, with GoI and the main contractor signing a supplementary contract for additional works in 2014, the Bank again provided an extension of the project closing date\. However, GoI was unable to provide the required funds and the implementation work remained slow\. Thus, another opportunity to achieve implementation completion of the rehabilitation works was lost due to difficult financial position of the Government, and its unwillingness to consider the additional works as a variation order within the allowed 15% variation under the Bank funded contract\. 56\. Funds allocations across categories were again revised in February 2014 and May 2015, primarily to cover the costs of supervision consultants for the Hartha rehabilitation\. The Monitoring and Results Framework was again revised in June 2014 to better reflect the capacity- building activities under the project\. 2\.3 Monitoring and Evaluation Design, Implementation, and Utilization Rating: Substantial 57\. M&E design\. The design of the Results Framework was initially kept simple and was not fully reflective of the detailed aspects of the project\. However, the M&E design was revised in May 2012, June 2014, and September 2014 to reflect more detailed indicators on implementation of rehabilitation as well as various capacity-building activities\. 58\. M&E implementation\. Implementation of the M&E was initially slow as there were delays in selection of the main rehabilitation contractor and finalization and effectiveness of contract\. Subsequently, M&E was implemented based on data provided by the MoE to reflect the progress achieved in various components\. 59\. M&E utilization\. The Results Framework was used particularly well during the last few years to assess the progress in project implementation using data provided by the owner’s engineer and served as a very useful tool in assessing the status of implementation progress as well as approaches for expediting further implementation\. 2\.4 Safeguard and Fiduciary Compliance Safeguard Compliance 17  60\. The project involves fossil fuel combustion in a power plant, and therefore, it required a comprehensive assessment of environmental impacts—particularly with regard to emissions and air quality in the surrounding areas\. With the introduction of more efficient technologies, the rehabilitated units were expected to produce less emissions than the original design, while displacing distributed generation from diesel which has a higher negative environmental impact\. Although the plant was designed to use natural gas as the primary fuel, use of HFO and crude oil was likely in the face of constrained natural gas availability and the priority for its use to run gas turbines\. The project was categorized as safeguards category ‘A’\. 61\. Rapid assessment of atmospheric dispersion of stack emissions\. As a first step, a Rapid Risk Assessment of potential exposure from stack emissions was conducted\. Emissions were simulated for a complete meteorological year considering various scenarios (before/after rehabilitation; type of fuel used such as crude oil, HFO, and natural gas; and emission control measures) to assess potential near-field exposure to sulphur dioxide and particulate matter at short/near-field distances or within plant vicinity (up to 1\.5 km) and at far field or long distances reaching the Kuwaiti and Iranian borders\. A Fueling Appraisal Note was prepared to bring out the availability of different fuels going forward\. 62\. The Rapid Risk Assessment provided a basis for further simulation and sensitivity analysis for particulate matter and sulphur dioxide as well as other indicators of concern, whereby, site- specific data, stack emission characterization, background air quality monitoring, and meteorological conditions were obtained to better define potential exposure and ascertain simulated results\. 63\. Delay in preparation of the ESIA\. The ESIA was originally funded from the Professional Human Resource Development grant and was due by April 2007\. Indeed, implementation of works for the rehabilitation project could only be commenced after the ESIA had been disclosed and public consultations held\. However, the ESIA consultants faced difficulty in finding cost-effective local consultants for carrying out air quality and noise measurements\. The final draft of the ESIA could only be completed by December 2009\. 64\. Implementation of the ESMP\. The environmental and social management plan for rehabilitation as well as subsequent operation of Hartha power station was prepared as a part of the ESIA\. The consultancy contract for implementation and supervision of the ESMP was awarded in July 2012 to a consultant who conducted the environmental audit, based on which the rehabilitation contractor committed to address the following issues of noncompliance in December 2013: (a) preparation of a Waste Management Plan; (b) dust suppression on a daily basis; (c) use of personal protective equipment; (d) enforcing no-smoking policy; and (e) preparing a Traffic Route Plan\. Quarterly reports from the consultant were used to monitor compliance on the ESMP by the contractor and to address issues such as those mentioned above\. Trainings on various aspects of the ESMP were delivered and the plan was applied in the course of the rehabilitation of Hartha power station\. However, the implementation of the EMP will be completed only with the completion of the rehabilitation works\. The Hartha EMP has been shared with other projects at MoE and interest in more widespread development of sound environmental and social practices was reported\. 18  65\. Social safeguards\. The project did not involve any direct adverse social impacts and there was no requirement for land acquisition\. Financial Management 66\. The project comprised an IDA Credit for US$124 million and an ITF Grant for US$6 million\. Financial management and disbursement arrangements for the project were adequate, including a qualified financial officer, smooth funds flow without major interruptions, and sound internal controls\. The Interim Unaudited Financial Reports were regularly submitted to the Bank\. The audited reports with audited financial statements were submitted to the Bank on time\. Disbursement categories were reallocated on three occasions during the project to better reflect the funding needs across categories\. The project experienced low disbursement rates throughout due to slow physical progress of equipment supply and implementation works on the ground\. Procurement 67\. Lack of an independent market study\. The main contract for rehabilitation of units 2 and 3 of Hartha power station was mainly to complete the work started under the oil for food program where $120 million were supplied to the site in 1999\. The approach to go for open pre-qualification that resulted in one qualified applicant then ICB process resulted again in only one qualified contractor\. The procurement decision to go for open competition and turnkey contract was not based on an independent market study\. Given the complexity of the contract and country’s situation, the project could have prevented the protracted and lengthy procurement and negotiation process by carrying out a market study and soliciting information from potential suppliers\. The market study could have helped in determining the interest and availability of suppliers/contractor, their technical capability and financial capacity, and recommend a procurement/contracting strategy\. 68\. Advance actions in anticipation of difficulties\. Given the difficult security situation in Iraq, challenges in the procurement process were already anticipated during the project preparation stage\. The GoI engaged consultants early on for preparing bid documents for the main Hartha rehabilitation contract, and the draft bid documents were substantially completed by December 2005\. Given the lack of familiarity of the MoE staff with Bank procurement procedures, a firm of consultants was hired to assist with pre-contract award services\. Despite these efforts, the project faced significant procurement and contract management difficulties\. 69\. Difficulties in bidding, effectiveness, and management of the main contract\. Despite efforts at early initiation of procurement, significant difficulties were encountered in the bid process, negotiation with single bidder, and contract effectiveness\. The procurement process was initiated in August 2006 with the request for prequalification of bidders, but the main contract became effective only in October 2010\. The key challenges faced during the bidding, contract finalization, contract effectiveness, and contract management are discussed in section 2\.2\. 70\. Persistent efforts by the client and the Bank\. The project demonstrates persistent efforts at addressing what seems to be an uninterrupted volley of procurement challenges, encompassing difficult bidding process, contract negotiations, delays in effectiveness, and a trying contract management\. 19  2\.5 Post-completion Operation/Next Phase 71\. Completion of remaining works of unit 2 and 3 rehabilitation at Hartha\. With only about 30 percent of installation works completed and about 76 percent of equipment received, the rehabilitation works for units 2 and 3 of Hartha power station are yet far from commissioning despite eight years of implementation\. If all outstanding contractual issues are resolved, adequate funding is made available, and if concerted efforts are put by the contractor, subcontractors, owner’s engineer, and the MoE, the rehabilitation works for at least one unit can be completed within about a year\. However, contractual issues have proven difficult to resolve despite persistent efforts by the World Bank team over the last several years\. Therefore, these pre-conditions to success are difficult to achieve in the prevailing situation and the rehabilitation works may take much longer, or may not be completed at all\. Under these circumstances, the World Bank has decided to cut-down losses and close the project\. With the closing of the Bank project, the contractor has withdrawn from the site, and meanwhile, the owner’s engineer has completed its contract\. 72\. Options for completing the remaining works: With a sunk cost of over US$200 million already expended (across funding from the Bank, GoI, and OFFP), a further funding requirement of nearly US$100 million, and continued difficulties with the main contractor, the approach for completion of works needs to be revisited\. Meanwhile, the GoI is contemplating a greater role for independent power producers in augmenting generation capacity in Iraq\. Therefore, options going forward include: (a) termination of contract and completion of the balance works by a new contractor under a new funding arrangement; and (b) a 20-year concession to a private sector firm (through a competitive bidding process) to complete the balance rehabilitation works and maintain and operate all four units, including an option/obligation to add new capacity (possibly through CCGT technology)\. However, each of these options would require significant additional preparatory work to structure the new arrangements\. Also, baggage of past contractual disputes, half-completed technical works (with associated difficulties in pinning responsibility), and the difficult security situation in Iraq, would make it extremely difficult to find suitable contractors or concessionaires to take up this project\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Overall rating: Modest 73\. The relevance of objectives is rated High\. The project is expected to augment power generation by 400 MW through rehabilitation of units 2 and 3 of Hartha power station\. The objectives of the project remain relevant as the country continues to reel under power supply deficit of more than 5,000 MW even in 2015\. 74\. The project is consistent with Country Partnership Strategy\. The Performance and Learning Review (PLR) of the Country Partnership Strategy for Iraq from May 2015 mentions that increasing electricity production remains a priority for the government, which has invested significantly in new generation capacity\. The Performance and Learning Review also mentions the rehabilitation of Hartha power station as contributing toward the milestone of 920 MW of 20  increased generation capacity in power plants supported by the World Bank Group (including from rehabilitation of power plants at Dokan and Derbandikhan)\. 75\. The project is consistent with the INES\. The Iraq National Energy Strategy 2013–2030 (INES) lays down a target of augmenting generation capacity by as much as 22 GW by 2016\. It highlights the severe deficiency in power supply from the grid as follows: “The absence of reliable power supply from the grid has led to the widespread installation of private diesel generators, whose constant operation imposes high generation costs, creates noise, pollutes the air, and emits large quantities of carbon into the atmosphere\. It is estimated that the total cost to the Iraqi economy attributable to power shortages exceeds US$40 billion annually\.” 76\. The project is consistent with the bank’s twin goals\. The project objectives also remain consistent with the Bank’s twin goals of poverty elimination and shared prosperity\. Therefore, the relevance of the project objectives is rated High\. 77\. The relevance of design is rated Poor\. The project was designed to rehabilitate 400 MW capacity in an existing power plant by using available infrastructure as well as equipment already procured and delivered under the OFFP\. Under this project design, the main contractor was constrained to build on existing technical design and use the available equipment brought more than a decade earlier (as well as turbine components procured separately from a different firm), leading to inherent difficulties in contract design and management, as well as project implementation\. This also entails a higher risk in smooth O&M of the facility once the works are completed as performance guarantees may not fully cover the infrastructure and equipment available before the contract or delivered by other firms\. 78\. The project was restructured on six occasions to reflect changes in timelines, allocations across categories (mainly to support the technical assistance activities), and the results indicators, even as the basic design approach remained unchanged\. At the close of the Bank project, the question remains whether the current design approach will be effective in taking the rehabilitation works to completion\. In view of the continued concerns with the project design and contractual arrangements, the relevance is rated as Modest\. 79\. The relevance of implementation is rated Modest\. At the close of the Bank project, the continued relevance of implementation depends on early resolution of contractual difficulties, as well as the relative merit of rehabilitation in relation to investments in green-field capacity by the public or private sector\. At this stage, the resolution of contractual difficulties seems difficult\. Although the urgent need for increasing power availability is still there, green-field capacity expansion projects entail lower implementation risk than the rehabilitation of Hartha power plant\. Therefore, the continued relevance of implementation us rated Modest\. 3\.2 Achievement of Project Development Objectives Overall rating: Negligible PDO-1: Alleviate the current power supply shortfall by restoring the base load generation capacity of the Hartha power station units 2 and 3 to 400 MW Rating: Negligible 21  80\. This project objective has not been achieved as the rehabilitation works at Hartha have not yet been completed\. Supply of goods has been completed to the extent of an estimated 76 percent as of June 30, 2015 (at the close of Bank project)\. However, installation services are lagging behind\. An estimated 30 percent of the installation works have been completed\. On an aggregated basis, about 70 percent of the activities (including equipment supply and installation services) have been completed\. The remaining works may yet require funding of an estimated US$98\.97 million\. Activities on unit 2 are in an advanced state and when upon resumption of works, the unit may be commissioned in about 6-8 months with concerted efforts\. PDO-2: Lay the groundwork for improved power system planning and fuel supply by providing the tools and other support necessary to enhance in-house capability to prepare, implement, and operate current and future projects\. Rating: Modest 81\. The capacity-building activities under the project have been largely completed\. The enhanced capacity in project and contract management as well as safeguards management at the PMT were observed by the Bank team during the latter part of the project\. However, some of the technical assistance activities originally envisaged were not taken up\. This includes a study to assess the feasibility of applying CCGT technology to Hartha power station and another activity that aimed at strengthening the planning process at the MoE\. 3\.3 Efficiency Overall Rating: Negligible 82\. The cost of rehabilitation of Hartha units 2 and 3 escalated from an original estimate of US$132 million to the latest estimate of US$171\.02 million at project closing\. Implementation has been delayed by nearly eight years\. A revised economic analysis based on latest cost estimates and revised schedule of implementation of works is presented in annex 3\. The summary results are as follows: Table 4\. Cost of Power Generation from the Project Average Generation Cost (US Cents / kWh) Case-1 Hartha Units 2 and 3 (400MW) Ex-Ante Assessment at appraisal\. 4\.91 Case-2 Hartha Units 2 and 3 (400MW) Ex-Post Assessment at closing\. 16\.03 Case-3 Hartha Units 2 and 3 (400MW) Ex-Post Assessment (10% Lower 16\.63 Capacity, 10% Higher Maintenance and 10% Poorer Heat Rate) Case-4 Frame 9F CCGT with HFO 5\.07 Case-5 Frame 9F CCGT with NG 4\.76 Note: HFO – Heavy Fuel Oil; NG – Natural Gas\. 83\. The original economic assessment at the time of project preparation estimated the cost of generation from rehabilitation of Hartha units 2 and 3 at 4\.91 US cents per kWh, which was lower than that from an equivalent green-field CCGT plant at 5\.07 US cents per kWh\. 22  84\. At the close of the Bank project, due to significant implementation delays, the benefits from the project have not been available to the country for close to a decade\. As a result, the country has had to rely more and more on local diesel based generation, which is much more expensive\. Taking into account, the cost of this back-up power, the economic cost of generation from the project is now found to be US cents 16\.03 per kWh\. While the rehabilitation works are still incomplete, this calculation assumes the contractual difficulties would be sorted out and works completed by 2018\. It is likely that even when completed, the rehabilitated units may not achieve the targeted technical parameters (such as capacity and heat rate) may not be achieved\. This is reflected in Case-3\. Also, the alternative of CCGT could have benefitted from the availability of natural gas, whereas the single cycle units at Hartha are unlikely to receive natural gas supplies from the government, which is prioritizing the natural gas supply for CCGTs\. 85\. In summary, the rehabilitation project has lost its competitive edge over a green-field CCGT power plant due to delays and cost escalation, and the economic efficiency of the project is negligible\. 3\.4 Justification of Overall Outcome Rating Rating: Unsatisfactory 86\. Justification\. The project remains highly relevant to the Iraq context\. However, project implementation could not be completed even in a span of eight years\. Thus, the developmental objectives have not been met and overall outcome rating is Unsatisfactory due to shortcomings in the achievement of project objectives, efficiency, and relevance in a challenging fragile and conflict-affected context, which diminished the opportunity to achieve the desired results within the project implementation period of eight years\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 87\. The project is expected to augment power generation by 400 MW through rehabilitation of units 2 and 3 of Hartha power station\. Although access to electricity in Iraq is almost universal (98 percent), households receive an average of 14\.6 hours of electricity per day in 2015, of which, only 7\.6 hours per day is from the public network\. Only 3 percent of households in Baghdad and around a tenth of households in the center and the south of Iraq receive power for more than 12 hours per day from the grid\. The absence of reliable power supply from the grid has led to the widespread installation of private diesel generators\. Reduced consumption of diesel for distributed power generation will benefit households as well as the broader economy and the fiscal balance of the country, which is reeling under a heavy diesel subsidy burden\. 88\. Power cuts sparked massive public protests during the summer of 2015 (and in earlier years)\. Increased availability of electricity will provide an impetus not only to economic as well as social development, but will also contribute to improvement in political and security environment by alleviating an important grievance of the citizens\. 23  (b) Institutional Change/Strengthening 89\. The project contributed to development of institutional capacities in the areas of electricity master plan, safeguards practices, O&M practices at power plants, and preparation of new projects\. 90\. Five individual technical specialists were contracted under the ITF component to provide support and capacity development to the MoE in the areas of generation, transmission, and distribution sector project development\. These specialists provided support in the development of technical specifications and bid documentation for consulting firms, contractors, and other service providers required for implementing of the ministry’s master plan\. The MoE reported that these specialists provided invaluable assistance in improving the quality of bid and contract documentation being used by the MoE and in the management of ongoing contracts\. These contracts were closed on June 30, 2013\. 91\. Because of these trainings and technical assistance support, project planning software and improved technical and contractual documentation is now being used by the MoE\. The EMP for the Hartha plant is being implemented on an ongoing basis\. The Hartha EMP has been shared with other projects and interest in more widespread development of sound environmental and social practice has been reported\. A workshop on project and contract management was conducted in view of persistent problems with the Hartha rehabilitation contract\. Standard technical specifications and procurement and contract documentation have been developed under the project and will be used for large generation and transmission projects\. The capacities at the PMT have also significantly improved over the course of the project—particularly over the last three years of the project\. (c) Other Unintended Outcomes and Impacts (positive or negative) 92\. No unintended outcomes of the project could be identified\. 4\. Assessment of Risk to Development Outcome Overall Rating: High 93\. Implementation completion risk remains High\. Due to noncompletion of rehabilitation works of Hartha power station units 2 and 3 under Component 1 of the project, the major outcomes expected from the project have not been realized\. Thus, the foremost risk to development outcome is the completion risk and subsequently the risk of inadequate O&M of the power station\. The rehabilitation works can be completed within one year if concerted effort is put by the contractor, subcontractors, and the MoE\. However, an estimated US$100 million is still needed to complete the remaining works, and the government has not been able to allocate budgetary resources due to a severe fiscal constraint\. In the absence of clear availability of funds, the main contractor has withdrawn bulk of its staff from the project site\. Thus, completion risk exhibits a high probability as well as a high impact on the developmental outcomes\. 94\. Operation and Maintenance Risk is Moderate\. With regard to the O&M of the facility for regular generation of electricity over the 20-year long expected life of the assets, the MoE staff have exhibited the technical capacity for plant operation in the past, and indeed the same staff are operating units 1 and 4 of the Hartha power station\. Also, economically efficient and environmentally sustainable use of the generation assets is premised on the availability of natural 24  gas\. Gas availability is expected to improve over the medium term with the government’s efforts at gas-flaring reduction and gas-to-power conversion (supported by the Bank under the Development Policy Financing project)\. Till that happens, the additional power generation capacity at Hartha power station will be run using expensive HFO only\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Unsatisfactory 95\. Bank performance in ensuring quality at entry is rated as Unsatisfactory\. The selection of rehabilitation of units 2 and 3 of Hartha power station for augmenting power availability was premised on a Rapid Results Approach that anticipated urgent implementation using equipment and components that had already been procured under the OFFP and delivered\. However, the selection of Hartha rehabilitation in relation to other options for augmenting generation capacity underestimated the risks and complexities inherent in rehabilitation projects\. Detailed technical studies (such as residual life assessment or rehabilitation design study) were conducted at the time of project preparation and appraisal\. The PAD did not account for surprises, technical complexities and challenges of engineering design of a rehab project specially in a conflict country context\. While the economic analysis at appraisal indicates that costs of power from rehabilitation will be marginally lower than a green-field CCGT plant, it does not reflect the much higher completion risk inherent in rehabilitation projects\. The requirement of using components already procured under the OFFP is likely to have deterred bidders who were not familiar with this technical design or were unsure of their condition and quality\. The mandate to use these components also led to a complex contract design, which was vulnerable to disputes and loss of accountability\. Thus, the project design was inherently flawed and quality at entry was inadequate\. (b) Quality of Supervision Rating: Moderately Unsatisfactory 96\. Despite a difficult security environment, the Bank team managed close supervision throughout the course of the project and assisted the client in resolving some difficult issues\. These issues encompassed limited bidder interest in procurement, prolonged negotiations with a single bidder, contractual difficulties during implementation, and so on\. At least at three points during the project life, the decision to cancel the project seemed imminent, yet the Bank team supported the client in resolving the issues and the project continued\. The project was restructured on six occasions and closing date was extended thrice in anticipation of implementation progress\. However, the basic project design flaws and contractual difficulties continued to plague implementation, and the Bank team was unable to rectify them during supervision\. 97\. The main rehabilitation contract could not be made effective for a long time\. With the resolution of the contract effectiveness issues in July 2010, the Bank agreed to extend the project closing date from June 2011 to June 2014\. Significant momentum was build in project implementation at that stage\. However, by June 2012, it was becoming increasingly clear that the project would not be completed successfully, and the Bank team wanted to close the project\. 25  However, the special commitment provided by the Bank to contractor prevented the Bank from closing the project, and the only feasible course of action was to assist the client in resolving the outstanding issues\. Subsequently, based on tangible progress in resolving contractual difficulties with GoI and the main contractor signing a supplementary contract for additional works in 2014, the Bank again provided an extension of the project closing date\. However, GoI was unable to provide the required funds and the implementation work remained slow and could not be completed by the project closing date\. (c) Justification of Rating for Overall Bank Performance Rating: Unsatisfactory 98\. Preparation and supervision of this project were challenging owing to the fragile country situation which, on the one hand, reduced avenues for close engagement with the clients (due to travel restrictions, missions were often organized in neighboring countries), while on the other, imposed greater demands on the need for preparation and supervision (weak governance coupled with limited interest from contractors and consultants)\. 5\.2 Borrower Performance (a) Government Performance (MoE) Rating: Moderately Unsatisfactory 99\. The project faced some delays in decision-making processes and official actions by GoI\. Delays were experienced in securing ratification of the IDA credit agreement by the Parliament and budgetary allocation for the co-financing commitment by GoI\. The contractors and consultants reported significant difficulties in obtaining visas on account of the time taken as well as the duration of the visas\. These delays were symptomatic of competing demands on resources and attention from more compelling security and political concerns\. On the positive side, the GoI stepped forward to resolve the impasse over high security costs by offering to shoulder the cost of security arrangements for the main rehabilitation contractor\. (b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory 100\. The project had to be implemented in an unstable political and security environment, which imposed difficulties for the contractors, consultants, and the MoE\. Poor project management capacity within the MoE, especially during the early part of implementation, resulted in direct obstruction and interference with subcontractors, causing delays in works and execution of subcontract packages\. The MoE also did not fully appreciate the role of the owner’s engineer (ELC) and initially did not rely on its advise\. Intensive supervision and intervention by the Bank team was undertaken to address this situation\. Individual consultants were appointed under the capacity-building component of the project to strengthen the PMT on project and contract management aspects\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory 101\. In view of the shortfalls in performance by GoI as well as MoE as explained above, the overall borrower performance is rated as Moderately Satisfactory\. 26  6\. Lessons Learned 102\. Although the rehabilitation of Hartha power station could not be completed by the closing of the Bank project, the challenges addressed in the course of implementation provide important learning for future projects in fragile and conflict countries\. (a) Keep project design simple\. Large infrastructure projects in fragile state environments may often require going for ‘simpler’ new-build (green-fields) projects than rehabilitation or partial reconstruction works\. The EERP faced the complexity of taking over partially completed works and partially completed supply of equipment, providing a lump sum price to complete a package of works that had not progressed for over five years\. (b) Through Upfront Technical Studies are Important\. Lack of detailed technical assessments for reconstruction and rehabilitation projects in fragile and post-conflict countries can lead to significant implementation difficulties\. This is particularly important for emergency operations that tend to side-step thorough technical studies to save time during preparation but may end-up with delays due to inadequate technical preparation\. Also, good technical studies can reduce risks for the bidders potentially leading to greater participation as well as lower costs\. (c) Recognize capacity constraints\. Fragile and conflict countries usually have significant capacity constraints as well as overwhelming demands on the government, including fiscal pressures, conflict concerns, and political stability concerns\. These capacity constraints can be addressed by greater Bank engagement in the procurement process and project implementation through handholding, supported by appropriate training of the PMT and hiring consultants\. (d) Maintain proactive communications and meet regularly with client as well as contractors and consultants\. Regular communications and meetings are essential to ensure that issues affecting progress are quickly identified and resolved\. Extend relationships to include owner’s engineers and contractors\. Direct informal contact with contractors and owner’s engineers/consultants (with appropriate sensitivity to procurement, contractual, and other fiduciary risk) can facilitate early identification and resolution of issues affecting implementation progress\. (e) Turnkey contract versus ‘goods and works’ contract\. This project was prepared as a ‘goods and works’ contract where the rehabilitation requirements were assessed ex ante and separate contractors were appointed for different requirements, with TPE as the main contractor\. Some parts had already been procured under an earlier funding under the OFFP\. Turbine spare parts were ordered from Franco Tosi—to be manufactured through reverse engineering and replication\. Under this arrangement, the owner (MoE) and the contractor (TPE) had constant conflicts over responsibilities for delays, scope of work, cost escalations, and various contractual provisions\. A turnkey contract may have shifted many of the project risks to the contractor, possibly resulting in higher price discovery but a higher probability of project completion\. 27  (f) Early procurement and contract signing can reduce financing difficulties\. This project faced significant difficulties in procurement, contract signing, and effectiveness\. Many of these difficulties were linked to mismatch between available and required funding, absence of an identified funding source for security costs, mismatch between durations of funding and contract, and delay in budgetary allocations\. Many of these difficulties could have been avoided if the procurement process had been completed and the contract awarded (or ready for award and signing) ahead of the Board approval to the project\. (g) Special Commitment can prevent early project closing despite visible indications of implementation failure\. The use of special commitments from the World Bank to provide comfort to the contractor should incorporate provisions for withdrawal of the World Bank from the project in face of visible indications of implementation failure\. At the same time, such provisions should be structured to provide adequate protection to the contractor to cover costs that have already been incurred\. (h) Allocate separate funds for security costs\. In case of projects in conflict countries, a separate allocation should be made for security costs for contractors as well as consultants\. In the case of the main Hartha rehabilitation contract, the GoI funded a separate contract for providing security to TPE, amounting to nearly US$19 million\. This amounts to a security premium of nearly 17–18 percent on the base cost\. A separate assessment of security needs can be done during the project design phase and funds allocated\. (i) Ex ante arrangements for security may relieve bidder anxiety\. There was a limited interest in the bid process for the project\. At a later stage in the process, bidder anxiety about security arrangements (and costs) were apparent\. Ex ante arrangements for security may relieve bidder anxiety and foster greater bidder participation\. (j) Allocate significantly higher price and physical contingencies\. The price premium for projects in conflict countries may be significantly higher than in nonconflict countries\. Therefore, cost estimates must reflect recent local prices for similar projects\. This project had kept physical and price contingencies at 20 percent\. However, the bid price discovery was already higher than the physical and price contingency margins, leaving no scope for any further price increase (due to delays and inflation) or increase in scope of work (due to unforeseen works)\. Anticipate higher cost of living for the expats and even capable local staff who may be employed by the contractors (beyond the security premium)\. Currency fluctuations can also add to the need for price contingencies\. (k) Anticipate difficulties in movement of men and materials in and out of the country\. In conflict countries, procedures for obtaining visas and for moving materials through customs are usually less streamlined and may involve delays\. In the Hartha rehabilitation, the contractors and consultants reported significant difficulties in the time taken to obtain visas as well as in the duration of stay allowed\. An ex ante assessment of likely difficulties in this regard and arrangements for securing quick and longer-term visas should be discussed during project preparation\. Language 28   barriers and need for translators and interpreters is another important facet of engaging with multiple contractors and consultants from different countries\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 103\. The MoE of GoI in its comments on the ICR has pointed to contractual as well as operational difficulties with the main contractor for the project\. The delay in start of implementation work by the contractor even after contract effectiveness, lack of a detailed implementation schedule, frequent change of site manager, and a greater focus on equipment supply rather than installation works – all these observations reflect difficulties in contract management\. The comments also bring-out inadequate delegation of authority on financial and technical matters to the site manager and consequential delays in decision-making across the contractor’s teams at site and at headquarters\. These observations also reiterate the difficulties in contract management, which may have arisen due to inadequate professionalism of the contractor as well as low contract management capacity at MoE – especially in face of a difficult contractor\. The MoE comments have confirmed the Bank’s observation that the project remains attractive for contributing 400MW of additional power to Iraq, provided it can be completed within a short time without any further cost escalations\. (b) Cofinanciers Not applicable\. (c) Other partners and stakeholders Not applicable\. 29  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$, millions equivalent) Appraisal Estimate Actual/Latest (US$, millions) % of Components Estimate Without With Appraisal (US$, millions)  Contingencies Contingencies Component 1: ï‚ Rehabilitation of Hartha Power Station 110\.00 132\.00 171\.02* 129\.6 Units 2 and 3 ï‚ Engineering services 6\.00 7\.00 7\.00 100\.0 ï‚ Partial implementation of environmental 4\.00 5\.00 5\.00 100\.0 mitigation measures and PMT support Component 2: Support Services 5\.00 6\.00 4\.60 76\.7 Total Baseline Cost 125\.00 150\.00 187\.62 – Physical and Price Contingencies 25\.00 – – – Total Project Costs 150\.00 150\.00 187\.62 125\.1 Project Preparation Fund 0\.00 0\.00 0\.00 – Front-end fee IBRD 0\.00 0\.00 0\.00 – Total Financing Required 150\.00 150\.00 187\.62 125\.1 Note: The original contract value was US$133\.69 million\. Two subsequent amendments added US$2\.195 million and US$35\.13 million, respectively\. This does not include price adjustment, which is yet to be negotiated between the GoI and the contractor\. This also excludes nearly US$19 million provided by the GoI toward the security costs for contractors\. (b) Financing Appraisal Estimate Actual/Latest Estimate Percentage of Source of Funds (US$, millions) (US$, millions) Appraisal IDA 124\.00 63\.71 51\.4 World Bank ITF 6\.00 4\.60 76\.7 GoI 20\.00 20\.34 101\.7 Total Financing Availed 150\.00 88\.65 59\.1 Total Financing Required 150\.00 187\.62 123\.5 Financing Gap at Project Closing – 98\.97 – Note: The project would require an estimated US$98\.97 million in financing for completion\. This does not include price adjustment, which is yet to be negotiated between the GoI and the contractor\. (c) Balance of Works and Financing Needs (as indicated by the client) Actual Remaining Work Time Cost Estimate Sl\. No\. Task Progress (%) (%) Needed (US$, millions) 1 Mechanical 50 50 25 2 Electrical 25 75 15 3 DCS – 100 18 months 10 4 Common System 25 75 for all items 20 5 Civil 40 60 10 6 Unforeseen – – 20 Total 100 Note: DCS = Distributed Control System\. 30  Annex 2\. Outputs by Component 1\. The EERP was primarily aimed at restoration of capacity of units 2 and 3 at the Hartha power plant to improve the MoE capacity to plan and develop new power projects\. A large part of project activities remain incomplete at the close of the project due to a fragile country environment and contractual difficulties\. This annex describes the progress achieved under different components of the project\. Component 1: Rehabilitation of Hartha Power Station Units 2 and 3 2\. Subcomponent 1\.1: Rehabilitation of Hartha Power Station Units 2 and 3\. The activities related to rehabilitation of Hartha power station units 2 and 3 encompass supply of equipment and installation services\. Supply of goods has been completed to the extent of an estimated 92 percent whereas invoices have been raised for 76 percent of the amount as of June 30, 2015 (close of Bank project)\. Thus, bulk of the supply of goods has been completed\. However, installation services are lagging behind\. An estimated 30 percent of the installation works have been completed, whereas about 22 percent have been invoiced\. On an aggregated basis, about 77 percent of the activities (including equipment supply and installation services) have been completed, whereas about 63 percent have been invoiced\. 3\. A summary of the progress achieved and remaining works is presented in Table 2\.1\. Table 2\.1\. Progress Achieved and Remaining Works Completed Underway To be Done Boiler 2 Structure, boiler Gas/air path, auxiliary steam Hydraulic test, insulation, drum, heating system, water/steam instrumentation, fire-fighting surfaces, piping, connections, fuel circuits, system, soot blowing system, headers, burners, and electric system, make-up sampling system, boiler electrical switchyard\. system, drainage and blow lift, commissioning, and covers and down system, and chemical finishing frames treatment system Boiler 3 Structure Boiler drum, heating Piping, headers, auxiliary steam surfaces, gas/air path, and system, water/steam connections, burners hydraulic test, insulation, fuel circuits, electric system, instrumentation, fire-fighting system, make-up system, soot blowing system, drainage and blow down system, chemical treatment system, sampling system, boiler electrical lift, commissioning, and covers and finishing frames Turbine – Civil works, crane – house Turbine 2 Turbine Drainage system Crossover, insulation, electric and rehabilitation, control systems, H2 gas and oil reassembling, inlet generator sealing system, and valves, condenser, testing (ready) condensate pumps, turbine auxiliaries, 31   Completed Underway To be Done feedwater heaters, and feedwater pumps Turbine 3 Inlet valves, Turbine rehabilitation Crossover, insulation, condensate condenser, turbine (incompatibility between pumps, electric and control systems, auxiliaries Mitsubishi and Franco Tosi drainage system, H2 gas and oil parts, work to be done on generator sealing system, feedwater most pumps and valves, heaters, and testing generator stator and rotor, some pipelines connections, some turbine parts, deaerator, lube oil and main oil tank system and some supports and hangers); Reassembling and feedwater pumps Cooling water Circulating water Water gates (leakages from Bonna pipes intake pumps units 1 and 4), and gantry crane Fuel tanks Tank C erection, tank Tank D coating, piping tank Hydraulic test tank C D erection, tank C C, piping tank D coating, hydraulic testing of tank C Evaporation Erection, hydraulic – – basin test Water – Civil works, equipment Piping, electric system, I&C, testing pretreatment erection building Water – Civil works Equipment erection, piping, electric treatment system, I&C, testing plan Reverse – Civil works, equipment Piping, electric system, I&C, testing osmosis erection Main chiller – Civil works Equipment erection (compressors building available at site), piping, electric system, I&C, testing DCS – Hardware installation Software installation, testing Note: I&C = Instrumentation and control; DCS = Distributed Control System\. 32   Figure 2\.1\. Work Progress of the Rehabilitation of Units 2 and 3 of Hartha Power station Source: Monthly Progress Report from ELC (July 2015)\. 4\. Subcomponent 1\.2: Support in bid evaluation, construction supervision, and further support to the MoE up to the end of the defects liability period\. ï‚ Pre-award support consultancy\. The contract for pre-award support consultancy (for support in bid evaluation of main contract) was awarded in August 2007 to Parsons Brinkerhoff\. This consultancy work was completed successfully with the selection of TPE as the main contractor for the rehabilitation of Hartha power station\. ï‚ Supervision of Hartha rehabilitation contract\. The consultancy for construction supervision (owner’s engineer) was awarded to ELC of Italy\. The IDA-funded project was initially funded from the ITF grant, but later it was extended beyond the closing date of the ITF grant\. Therefore, the contract with ELC was funded with the IDA Credit after the closing of the ITF Grant\. The consultants provided regular supervision reports to the MoE—the last such report (Monthly Progress Report No\. 33) being submitted in June 2015 at the close of the Bank project\. Although the rehabilitation of Hartha units 2 and 3 has not yet been completed, the consultancy contract for construction supervision has now been closed\. ï‚ Support up to end of defects liability period\. The implementation of Hartha rehabilitation has not progressed sufficiently to allow the opportunity for further support to the MoE up to the end of the defects liability period\. 33  5\. Subcomponent 1\.3: Implementation of the agreed recommendations of the Environmental and Social Management Plan\. The consultancy contract for implementation and supervision of the ESMP was awarded to Dome International\. The organization conducted an environmental audit based on which TPE committed to address the following issues of noncompliance: (a) preparation of a Waste Management Plan; (b) dust suppression on a daily basis; (c) use of personal protective equipment; (d) enforcing no-smoking policy; and (e) preparing a Traffic Route Plan\. Quarterly reports from Dome were used to monitor compliance on the ESMP by TPE and to address issues such as those mentioned already\. Trainings on various aspects of the ESMP were delivered and the plan was implemented in course of the rehabilitation of Hartha power station\. The Hartha EMP has been shared with other projects and interest in more widespread development of enhanced environmental and social practices was reported by MoE\. 6\. Subcomponent 1\.4: Incremental operational cost of the PMT such as office equipment, travel, and per diem but excluding salaries of Iraqi PMT staff\. This component was broadly fully implemented\. Component 2: Support Services (US$6 million) 7\. The ITF component of the project closed on June 30, 2013\. This component was designed to provide the PMT and the MoE with support services for the preparation and supervision of the rehabilitation contract and other capacity-building activities\. The following assistance was provided under this component\. 8\. Subcomponent 2\.1: Consultancy support and training to the Iraqi MoE staff in the preparation of least cost reconstruction and expansion plans, feasibility studies, and advisory services for future projects, including projects related to securing fuel supply and reducing gas flaring\. 9\. Five individual technical specialists were contracted under the ITF component to provide support and capacity development to the MoE in the areas of generation, transmission, and distribution sector project development\. These specialists provided support in the development of technical specifications and bid documentation for consulting firms, contractors, and other service providers required for implementing of the ministry’s Master Plan\. The MoE reported that these specialists provided invaluable assistance in improving the quality of bid and contract documentation being used by the MoE and in the management of ongoing contracts\. These contracts were closed on June 30, 2013\. 10\. Project planning software and improved technical and contractual documentation were accepted and are now being used by the MoE\. 11\. The Bank conducted a workshop on project and contract management while on-the-job training on the project and contract management was also provided\. This enabled significant improvement in the functioning of the PMT in understanding its contractual responsibilities and executing them, as well as in holding the contractor accountable for its responsibilities\. 12\. Subcomponent 2\.2: Regional and overseas training for staff in the technical areas of operations, maintenance, planning, environment, and general project management, as well as in financial, legal, and general management aspects of power utilities\. 34  13\. See individual technical specialists under Subcomponent 2\.1 in this annex\. 14\. Subcomponent 2\.3: Independent audits for the project\. Independent audits were regularly carried out for the project\. The contract for independent auditors was initially funded from the ITF grant\. With the extension of the project closing date, the audit contract was also extended for three years from 2012 to 2014 and was funded from the IDA component of the project from June 30, 2013 onwards\. 15\. Subcomponent 2\.4: Office equipment for the PMT in Baghdad and at Hartha such as office equipment and operational costs such as travel and per diem but excluding salaries and benefits of Iraqi PMT staff\. This component was broadly fully implemented\. 16\. Subcomponent 2\.5: Miscellaneous short-term consulting services that may be required for the Hartha project such as an independent review of project implementation, as well as other advisory services for the power sector that may be required by the MoE\. See individual technical specialists under Subcomponent 2\.1 in this annex\. \. 35  Annex 3\. Economic Analysis The economic analysis at the project preparation stage demonstrated that under the conditions of timely and within-budget rehabilitation of the Hartha units 2 and 3, the project offered a cheaper option for augmenting power availability than a green-field combined cycle gas turbine power plant of a similar size\. The economic analysis did not reflect the greater difficulties inherent in implanting rehabilitation projects as against green-field projects\. However, at the close of the Bank project: 1\. The implementation of rehabilitation is still not completed despite delays, 2\. There is a significant cost-overrun, 3\. There is uncertainty about whether the targeted capacity would be actually achieved, 4\. There is uncertainty about whether the performance parameters of the rehabilitated units – especially with regard to heat rate – would be actually achieved, 5\. It is likely that the rehabilitated units may require higher maintenance than the green-field units, 6\. The availability of natural gas remains unlikely in view of prioritizing the supply of natural gas to combined cycle units\. Although there are significant contractual difficulties that need to be addressed before the rehabilitation works can be completed, for the purpose of this economic analysis, it is assumed that the rehabilitated units would start generation by 2018\. To assess the economic efficiency of the project, five different cases are examined: 1\. Case-1: The actual rehabilitation project, assuming that it can be completed by 2018 and it would achieve the desired technical performance parameters\. 2\. Case-2: The originally envisaged rehabilitation of units 2 and 3, which assumed that the works will be completed within three years and generation would start in the second year\. All technical parameters are assumed to be achieved\. 3\. Case-3: The actual rehabilitation project, assuming that it can be completed by 2018\. However, it is assumed that the desired technical performance parameters are not achieved\. While capacity achieved is lower by 10%, the heat rate is poorer by 10% and the maintenance shutdown requirements are greater by 10%\. 4\. Case-4: A new 428MW CCGT is deployed, which generates the same amount of electricity as the rehabilitated units 2 and 3 at Hartha (Case-2)\. The plant new plant is assumed to run on HFO\. 5\. Case-5: A new 428MW CCGT is deployed, which generates the same amount of electricity as the rehabilitated units 2 and 3 at Hartha (Case-2)\. The plant new plant is assumed to run on Natural Gas\. Other important assumptions used in the analysis are as follows: 6\. The cost of the project was originally estimated as US$132 million, and the actual costs have escalated to US$171 million\. This does not include price adjustment, which is still being negotiated between the GoI and the contractor\. 36   Table 3\.1: Economic Efficiency of Rehabilitation of Units 2 and 3 of Hartha Power Station Adjus ted   Pl a nned   O&M‐ Cos t  of  Pri va te   Pri ce  of   Ca pa ci ty Ma i ntena nce Forced   Hea t  Ra te O&M‐ Va ri a bl e Fi xed Di es el   Fuel Di s count  (MW) (weeks   per a nnum) Outa ges MBTU/kWh US$/kWh US$/kW Genera ti on   $/MMBTU Ra te Fra me   9F  CCGT (390MW) 428 10 10% 7800 0\.004 5 (USD/kWh) HFO 3\.7 Ha rtha  Uni ts  2,  3 (400MW) 400 7 10% 10400 0\.004 5 0\.2 NG 3\.3 12% Yea r 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 NPV Hartha  Units 2  and  3 (400MW)  Ex ‐ Ante  Assessment Ca pex 39 78 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Genera ti on   from  Project 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 18031 Fuel   Cos t 0 53 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 O&M ‐ Va ri a bl e 0 5 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 O&M ‐ Fi xed 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Tota l   Cos t  from  Project 39 138 131 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 118 $886 Pri va te  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Cos t of  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $0 Us c/kWh 4\.91 Hartha  Units 2  and  3 (400MW)  Ex ‐ Post  Assessment Ca pex 0 0 0 27 0 11 17 24 23 12 20 38 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Genera ti on   from  Project 0 0 0 0 0 0 0 0 0 0 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 4995 Fuel   Cos t 0 0 0 0 0 0 0 0 0 0 0 53 105 105 105 105 105 105 105 105 105 105 105 105 105 105 O&M ‐ Va ri a bl e 0 0 0 0 0 0 0 0 0 0 0 5 11 11 11 11 11 11 11 11 11 11 11 11 11 11 O&M ‐ Fi xed 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Tota l   Cos t  from  Project 0 0 0 27 0 11 17 24 23 12 20 98 118 118 118 118 118 118 118 118 118 118 118 118 118 118 $283 Pri va te  Di es el  Genera ti on 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 1365 0 0 0 0 0 0 0 0 0 0 0 0 0 0 13036 Cos t of  Di es el  Genera ti on 0 273 546 546 546 546 546 546 546 546 546 273 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $2,607 Us c/kWh 16\.03 Hartha  Units 2  and  3 (400MW)  Ex ‐ Post  Assessment (10% Lower Capacity,  10%  Higher  Maintenance  and  10%  Poorer Heat Rate) Ca pex 0 0 0 27 0 11 17 24 23 12 20 38 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Genera ti on   from  Project 0 0 0 0 0 0 0 0 0 0 0 1210 2419 2419 2419 2419 2419 2419 2419 2419 2419 2419 2419 2419 2419 2419 4426 Fuel   Cos t 0 0 0 0 0 0 0 0 0 0 0 51 102 102 102 102 102 102 102 102 102 102 102 102 102 102 O&M ‐ Va ri a bl e 0 0 0 0 0 0 0 0 0 0 0 5 11 11 11 11 11 11 11 11 11 11 11 11 11 11 O&M ‐ Fi xed 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Tota l   Cos t  from  Project 0 0 0 27 0 11 17 24 23 12 20 97 115 115 115 115 115 115 115 115 115 115 115 115 115 115 $278 Pri va te  Di es el  Genera ti on 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 1521 311 311 311 311 311 311 311 311 311 311 311 311 311 311 13605 Cos t of  Di es el  Genera ti on 0 273 546 546 546 546 546 546 546 546 546 304 62 62 62 62 62 62 62 62 62 62 62 62 62 62 $2,721 Us c/kWh 16\.63 37   Adjus ted   Pl a nned   O&M‐ Cos t of  Pri va te   Pri ce  of   Ca pa ci ty Ma i ntena nce Forced   O&M‐Va ri a bl e Hea t Ra te Fi xed Di es el   Fuel Di s count  (MW) (weeks  per a nnum) Outa ges MBTU/kWh US$/kWh US$/kW Genera ti on   $/MMBTU Ra te Fra me  9F  CCGT (390MW) 428 10 10% 7800 0\.004 5 (USD/kWh) HFO 3\.7 Ha rtha  Uni ts  2, 3 (400MW) 400 7 10% 10400 0\.004 5 0\.2 NG 3\.3 12% Yea r 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 NPV Frame 9F  CCGT with HFO Ca pex 115 135 135 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Genera ti on  by Project 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 18028 Fuel  Cos t 0 39 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 79 O&M ‐  Va ri a bl e 0 5 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 O&M ‐  Fi xed 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Tota l  Genera ti on  Cos t 115 182 226 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 92 $913 Pri va te  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 Cos t of  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $1 Us c/kWh 5\.07 Frame 9F  CCGT with NG Ca pex 115 135 135 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Genera ti on  by Project 0 1365 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 2730 $18,028 Fuel  Cos t 0 35 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 O&M ‐  Va ri a bl e 0 5 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 O&M ‐  Fi xed 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Tota l  Genera ti on  Cos t 115 177 218 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 $857 Pri va te  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 Cos t of  Di es el  Genera ti on 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $1 Us c/kWh 4\.76 Summary results: Average Generation Cost (US Cents / kWh) Case-1 Hartha Units 2 and 3 (400MW) Ex-Ante Assessment 4\.91 Case-2 Hartha Units 2 and 3 (400MW) Ex-Post Assessment 16\.03 Case-3 Hartha Units 2 and 3 (400MW) Ex-Post Assessment (10% Lower Capacity, 10% Higher Maintenance and 10% Poorer Heat Rate) 16\.63 Case-4 Frame 9F CCGT with HFO 5\.07 Case-5 Frame 9F CCGT with NG 4\.76 38  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility Lending A\. Amir Al-Khafaji Lead Operations Specialist PA9SS – Reynold Duncan Operations Adviser SACPK – Karim Jacques Sehnaoui Junior Professional Associate MNSIF–HIS – Imelda F\. Sevilla Resource Management Analyst BPSGR – Tjaarda P\. Storm Van Leeuwen Adviser AFTG1–HIS – Supervision/ICR Hayat Taleb Al-Harazi Program Officer MNARS – A\. Amir Al-Khafaji Lead Operations Specialist PA9SS – Nazaneen Ismail Ali Senior Procurement Specialist GGODR – Soran Hama Tahir Ali Operations Officer GTIDR – Armando Ribeiro Araujo Consultant GGODR – Husam Mohamed Beides Program Leader MNC02 – Reynold Duncan Operations Adviser SACPK – Mona El-Chami Senior Financial Management Specialist GGODR – Mutasem El-Fadel HQ Consultant ST GEN05 – Sepehr Fotovat Ahmadi Senior Procurement Specialist GGODR – Fowzia Hassan Energy Specialist GEEDR – Nafie Mohammed Mofid Water Supply Specialist GWADR – Simon Stolp Lead Energy Specialist GEEDR – Mohammed Wafaa Al-Ani Operations Officer GEEDR TTL ICR TTL and Mikul Bhatia Senior Energy Specialist GEEDR Author Note: ICR = Implementation Completion and Results Report; TTL = Task Team Leader\. (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of Staff US$, thousands (including travel Weeks and consultant costs) Lending FY2005 15\.22 60,389\.55 FY2006 26\.66 98,726\.10 FY2007 26\.80 115,691\.85 Total: 68\.68 274,807\.50 Supervision/ICR FY2007 0\.60 3,835\.20 FY2008 15\.07 65,996\.95 39   Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of Staff US$, thousands (including travel Weeks and consultant costs) FY2009 11\.28 48,522\.13 FY2010 22\.93 99,004\.66 FY2011 21\.97 90,449\.49 FY2012 28\.63 98,430\.48 FY2013 33\.14 134,241\.88 FY2014 13\.17 52,313\.38 FY2015 13\.24 21,783\.69 FY2016 8\.91 29,367\.28 Total: 168\.94 643,945\.14 40  Annex 5\. Summary of Completion Report by Owner’s Engineer Background 1\. Hartha power station is located on the bank of the Shat Al-Arab River, approximately 33 km north of the city of Basra and about 25 km from the Iranian border\. The station consists of 4x200 MW units fueled with natural gas, HFO, or crude oil\. Construction began in the 1970s and the station was commissioned in 1979\. The station was designed, manufactured, and constructed by the Japanese Company Mitsubishi Heavy Industries\. During the Gulf War in 1991, all four units suffered serious damage\. Following repairs, unit 1 recommenced operation in 1996 and unit 4 in 1993; they have basically continued to run until the present day\. On the contrary, units 2 and 3 have not been operating since 1991\. Some of the equipment on units 2 and 3 has been used to maintain operation of the other two units\. 2\. To rehabilitate units 2 and 3, the MoE placed orders in 1999 and 2000 under the OFFP for the supply of the missing and damaged equipment\. The ministry planned to implement the work in-house with some supervision from suppliers\. A substantial amount of the equipment ordered for the rehabilitation was delivered\. The work commenced but stopped soon because of the second Gulf War\. An estimated 25 percent has been implemented\. In 2005, the MoE decided to recommence the rehabilitation project for units 2 and 3\. 3\. In March 2007, the Bank approved a project to restore the base load generating capacity of units 2 and 3 of Hartha power station to 400 MW\. Results Achieved 4\. Although the rehabilitation of units 2 and 3 has not yet been completed, the consultant is inclined to express a positive judgment of the investment\. The starting conditions were really challenging—most of materials were supplied in 1999; erection works were started by the MoE shortly after; and then in 2003, the second Gulf War stopped all activities, so material and works remained abandoned for years\. Once the new contract with TPE could restart, rehabilitation works, security constraints, and bureaucracy heavily interfered with smooth progress of the project\. 5\. Despite that, the costs of the project remained substantially under control\. Moreover, the erection of almost all material available at site since 1999 or 2003 has been practically completed\. Boiler 2 is ready for the hydraulic test\. Steel structures of boiler 3, as well as its heating surfaces, are assembled\. Heavy works requiring considerable experience and significant coordination skills have been carried out\. At this stage, the MoE may decide to take over the role of ‘main contractor,’ either taking care directly of some works or awarding limited contracts for specific works\. This is not recommended but technically feasible; the achievement of this result represents a partial success of the project\. 6\. In the last days of June 2015, the employer seemed inclined to extend the contract till the end of 2015, with the hope that rehabilitation may be completed within that date at a cost which is substantially the same as that envisaged since 2007\. This would be a further confirmation that all past efforts were not in vain\. Reasons which Impeded the Full Success of the Project (a) Lack of Adequate Planning and Management by the Contractor 41  7\. No Program of Performance document has been attached to the contract\. The first one, including only 79 generic macro-items, was submitted in July 2011 and became the reference Program of Performance for calculating the price adjustment\. 8\. After repeated requests from the employer and the consultant in all monthly meetings and a consultant’s journey to Moscow, from 2013, TPE started submitting some detailed work schedules; however, in most cases they were unrealistic and obsolete even at the time of the submission\. Only in the second half of 2014, a more detailed and reliable work schedule has been submitted but limited to single units\. 9\. These are reasons for this situation: ï‚ The employer rejected all plans, envisaging a completion date beyond the contractual one\. Therefore, when the compliance with the contractual deadline became unrealistic, it became practically impossible for TPE to prepare a reliable schedule\. ï‚ TPE planners were based in Moscow\. They used to visit the site occasionally, but it was very difficult for them to take note of the actual needs and difficulties of the site team\. Consequently, all their plans were superseded shortly after their preparation\. ï‚ The local TPE staff, especially in the first period, seemed unfamiliar with common software for planning\. Neither Primavera nor Microsoft Project were available at site\. The attempts to prepare a Program of Performance were always done using Microsoft Excel, without any correlation between activities\. ï‚ Price breakdowns have been prepared (and approved by the employer) very late, so that they could not be used as a reference for the definition of the items in the Program of Performance, which could not be weighted\. Therefore, it has been practically impossible to accurately determine the actual work progress and monitor delays during work execution\. 10\. Only in the second half of 2014, TPE appointed a planner at site and some improvement was observed\. However, it was too late to recover full control of the erection activities, especially when subcontractors stopped their activities while waiting for payment\. 11\. TPE has considerable experience in designing and building thermal power plants\. Single experts involved in the project, especially at site, have been showing good skills and experience\. However, it seemed that TPE was completely unable to organize a collaborative working team\. Too often, designers and managers in Moscow appeared unaware of technical problems and difficulties encountered at site, so their reaction was slow and often inadequate\. Once again, the improvement observed in the last months arrived too late\. (b) Cash Flow Difficulties 12\. Starting from November 2013, the contractor declared having great difficulties in managing the cash flow\. Actually, TPE’s financial offer probably overestimated the equipment value and underestimated the cost of erection\. Possibly, the contractor’s plan was to exploit this ‘unbalance’ to improve their cash flow\. Instead, the contractor appeared unable to exploit this advantage\. Moreover, at a certain time it seemed that the contractor decided to renegotiate the equipment supply subcontracts, without obtaining better conditions\. So, the contractor found himself short of resources to complete the project\. The situation became so critical that even the 42  contract extension with additional resources were no longer sufficient to compensate the initial management errors\. 13\. The situation was further complicated by some bureaucratic issues, which caused delays in opening or extending the LC\. Consequently, some payments could not be released for several months\. (c) Poor Performance of Subcontractors 14\. The poor performance of subcontractors, observed especially in 2013 and 2014, is deemed to derive from two main reasons: weak supervision, which allowed poor quality work and the attempt of TPE to renegotiate some payments and financial conditions, which provoked reaction from some subcontractors and resulted in halting their activities\. Most works restarted only in May 2015\. 15\. To reduce the impact of this issue, it is suggested that the MoE should support and help TPE in supervising subcontractors’ activities and help them in preventing deviations and errors\. At the same time, the MoE should focus its attention on important aspects, without creating obstacles for minor matters\. (d) Management of Subcontracts 16\. In some cases, the subcontractors could not carry out or complete their work because they did not receive adequate information\. For instance, in the case of Siemens, they have not received all the required data concerning common systems yet, so that they could not complete the Distributed Control System (DCS) software in compliance with the employer’s requirements\. In this situation, there is also the suspicion that subcontractors may exploit this confusion to their advantage, taking more time than needed for any action\. 17\. To overcome this impasse, the MoE tried to provide Siemens with at least some of the required information\. Nevertheless, the MoE could not replace TPE in covering its coordination and designer role\. (e) Distance between Designers and Site Engineers 18\. The immediate consequence of the lack of coordination of the contractor’s teams was the fact that the designer could not react promptly to any issue arising at site\. Unless completely solvable by the site team, deviations or technical problems caused huge delays due to the time required to transfer the issue from the site to the designer\. The issue of the piles (calculation of bearing capacities, acceptance of deviations, and definition of remedies) is a clear example of this difficulty\. 19\. In general, the consultant had the feeling that TPE Moscow wanted to manage and control any circulation of data and information, without having the capability to address them properly\. Only in the last month, the TPE site manager was entrusted with more power to take independent decisions without waiting for responses from Moscow\. (f) Insufficient Presence of TPE Staff 20\. Very often the site team of the contractor showed sufficient skills to overcome technical challenges arising at site\. However, due to the insufficient number of TPE staff, they were probably 43  overloaded with work and could not perform careful supervision of ongoing activities\. This may be one of the reasons for several deviations and incompliances observed during erection\. In the last month, other specialists arrived from Russia; however, the increased presence of Russian experts at site has not achieved expected values yet\. (g) Turbine Spare Parts 21\. The employer delivered to Franco Tosi a number of turbine parts for reverse engineering and replication\. However, the parts manufactured by Franco Tosi are not fully compatible with the original ones made by Mitsubishi\. This would not have been a problem if a homogeneous set of parts was used to reassemble the turbine\. Instead, the parts from Franco Tosi remained stuck for several months at the customs in Basrah because some original shipping documents were lost\. Therefore, TPE started the reassembling using part of the original pieces\. When the incompatibility was encountered, TPE stopped the work and claimed for extra work\. The discussion is still ongoing and the subcontractor is asking for extra payment as a condition to resume works\. (h) Cooling Water System 22\. Works on the water intake are ongoing with some difficulties due to a large leakage through valves interconnecting the pipelines to the units under rehabilitation and in operation\. To overcome the main obstacles, TPE requested for the collaboration of the MoE\. The contract clearly states that TPE’s scope of work includes the rehabilitation of the water intake and the cooling water circuit in the turbine building\. It does not state anything about the pipelines from the water intake to the turbine, which are damaged\. It is not clear whether the contractor could assess the damage at the time of inspection before preparing the offer; therefore, discussion concerning the responsibility of the rehabilitation has not been finalized yet\. 23\. In any case, a solution for the rehabilitation has been proposed by TPE\. In principle, the MoE accepted it, asking for some more details\. At the end of June 2015, the matter was not finalized yet\. (i) Distributed Control System 24\. Siemens developed a DCS, which does not allow fully automatic operation\. This does not comply with the contract specifications\. However, the development of new software will take several months; therefore, the consultant advised accepting the installation of the DCS as it is, applying an economic compensation for the incompliance\. 25\. Several months ago, Siemens expressed their availability to start with the installation of the DCS, provided that they received a certificate stating that the working area is free of asbestos\. The employer requested such a certificate from the University of Basrah and the Ministry of Environment\. This has not yet been submitted\. At the same time, TPE expressed their readiness to perform Siemens’ scope of works under online supervision by Siemens to accelerate the work progress\. Owner’s Engineer’s Recommendations 26\. Considering that the employer is going to decide (or has already decided) to extend the contract with TPE till the end of 2015, we would like to leave some recommendations, aimed to 44  exploit these remaining months of erection in the best possible way\. It is known that the employer cannot intervene in the contractor’s organization, which is currently one of the major causes of the bad performance\. Similarly, the employer cannot solve the financial issues of the contractor unless the whole contract is renegotiated\. 27\. Nevertheless, the consultant deems that the employer may support the contractor’s efforts mainly in the following four ways: ï‚ Focus comments and remarks on critical aspects which may jeopardize the plant performance, reliability, operability, maintainability, and duration, allowing the contractor choosing the most convenient solutions ï‚ Improve attention in the supervision of works to prevent faults and deviations\. ï‚ Document approvals should be released quickly\. In general, the employer should provide the contractor with quick replies and approvals to his inquiries\. Too many aspects in the hands of the MoE still need a solution\. In particular, the issue of the turbine spare parts from Franco Tosi requires an urgent solution\. ï‚ Pay specific attention to invoices, price breakdowns, check requests, and so on, and promptly advise in case of errors and discrepancies which would cause delays in the process\. 45  Annex 6\. Summary of Borrower’s Comments on Draft ICR \Through our experience and our observations with the performance of the main contractor, we note the following points which led to the delays in completion of the project: ï‚ Lack of seriousness of the main contractor in implementation of the works\. The installation works of two boilers for units 2 and 3 were delayed directly because of time taken in contract finalization and effectiveness\. Although the contract became effective on October 13, 2010, and the contractor began installation works in the second half of 2011 at a slow pace regardless of the time already lost\. The main contractor did not provide clear time schedule in the beginning\. Even later, the time schedule submitted was poor and not detailed, despite MoE requesting repeatedly for such a schedule\. ï‚ Frequent change of site managers over short periods of time (as many as 6 site managers during the project), caused confusion in close monitoring because proper handing over procedures from one manager to the next were not followed\. ï‚ The main contractor did not take advantage of the available subcontractors, and did not manage them in order to achieve the highest achievement which shows that the administration did not have a clear vision in project management\. ï‚ The main contractor focused on the supplying of materials because it represented 75% of the total amount of the contract and neglected the implementation work which is the main objective of the project\. ï‚ The site manager for the main contractor did not have much financial or administrative powers\. Most of the powers were with senior managements in Moscow\. This implied that the site managers and staff did not have the ability to develop appropriate and quick solutions to the problems that were observed on the site and it took a long period of time (6 – 9 months) to resolve any issue\. This shows the lack of coordination between the senior management (Moscow) and location administration of the project, where we noticed through correspondence there is a large gap between them in the follow–up to the work site where we have noticed recently when attending to the site project authorized director with authority that lead to percentage of work performance good in a short period\. ï‚ It is noted that the contract for the main contractor funded by the World Bank omits some of the things that caused the difference in interpretations between the parties and were one of the reasons delaying the achievement where we think the contract should be (Turnkey Job) a clear features and details does not need interpretations of each party separately\. ï‚ We believe in economic terms that the project, if completed in exactly time would be a gain to us to get 400 MW at a cost not to exceed 300 million dollar, since that the current percentage of the project completion is 70%, despite problems we have listed\. 46  Annex 7\. List of Supporting Documents 1\. Aide Memoire - Appraisal Mission, November 2005 (Beirut) 2\. Hartha Power Plant Fueling Appraisal Note, February 2006 3\. Rapid Assessment of Atmospheric Dispersion of Stack Emissions, February 2006 4\. Aide Memoire - Follow-up Appraisal Mission, September 2006 (Amman) 5\. Aide Memoire - Implementation Support Mission, December 2007 (Amman) 6\. Aide Memoire - Implementation Support Mission, June 2008 (Amman) 7\. Restructuring Paper, July 2010 8\. Aide Memoire - Implementation Support Mission, October 2010 (Beirut) 9\. Aide Memoire - Implementation Support Mission, February 2011 (Baghdad) 10\. Aide Memoire - Implementation Support Mission, October 2011 (Baghdad) 11\. Aide Memoire - Implementation Support Mission, April 2012 (Beirut) 12\. Restructuring Paper, May 2012 13\. Aide Memoire - Implementation Support Mission, June 2012 (Basrah) 14\. Aide Memoire - Implementation Support Mission, March 2013 (Beirut) 15\. Aide Memoire - Implementation Support Mission, December 2013 (Beirut) 16\. Restructuring Paper, February 2014 17\. Aide Memoire - Implementation Support Mission, March 2014 (Baghdad) 18\. Restructuring Paper, June 2014 19\. Restructuring Paper, September 2014 20\. Monthly Progress Report No\. 31 by ELC, December 2014 21\. Aide Memoire - Implementation Support Mission, February 2015 (Bahgdad) 22\. Restructuring Paper, May 2015 23\. Monthly Progress Repot No\. 33 by ELC, July 2015 (Final Report as of June 2015) 47  Annex 8\. Photographs of Hartha Rehabilitation Project (April 2015) Unit 2\. Metal structure, furnace walls, tube bundles, and external piping are already installed\. Insulation was still missing\. The red and blue sheets cover working areas around the burners and air ducts\. A small truck is parked between two foundations of the boiler auxiliaries (fans, regenerative heat exchanger, and so on)\. The problem of pile bearing capacity caused a delay in the works in this area\. The tower crane in front of unit 3\. Unit 2 is partially visible on the right\. A large part of the metal structure of boiler 3 was completed\. The roof was still missing\. Furnace sidewalls were already in place\. However, works were focused on unit 2; therefore, very few workers are visible around unit 3\. 48   Piping in the lowest part of boiler 2\. Pipe assembling and welding was not completed\. Despite that, very few workers were present in the area\. Emission stacks\. Stacks of the four units, taken from the evaporation basin area\. Far on the right- hand side, the water treatment area is visible\. Emission from stack of unit 4 was abnormal, probably due to a transient condition\. The owner’s engineer reported that unit 4 had to be extensively rehabilitated\. Works were planned to start after completion of units 2 and 3\. 49   Units 2 and 3\. A view of units 2 (on the right) and 3 (on the left)\. Tube bundles in front of the stack are to be installed in unit 3\. The pipe trestle passing between the stacks is new, erected in place of the trestle that has been removed because of interference with the new structures\. Water treatment area\. The metal building on the left is the chemical storage area\. In front of it, two tanks have to be erected\. The stairs are for climbing such tanks\. On the right, a foundation of a column of the pipe trestle has just been completed\. In the background is the water treatment building\. Inside the water treatment building\. Civil works are not completed yet\. Roof covers only half of the building\. The metal building and structures in the background are the chemical storage area\. At the time of the visit, works were stopped due to payment delays\. The quality of the completed works was found acceptable, as reported by the owner’s engineer\. 50   See description for the previous picture\. In the front is the water pretreatment building\. On the right, the water treatment building is the nearest, then there is the chemical storage area and the reverse osmosis building\. All works were stopped at the time of the visit in April 2015\. This picture shows the water pretreatment building with the four units in the background\. Only unit 1 is in operation\. The yellow metal structures close to the building and on the left will allow climbing on top of 2+2 tanks, which have not been installed yet\. This is one of the buildings of the water treatment system (pretreatment, reverse osmosis, and wastewater treatment)\. They were still empty boxes\. 51   IBRD 35243 IRAQ EMERGENCY ELECTRICITY RECONSTRUCTION PROJECT PROJECT FACILITY POWER PLANTS: SELECTED CITIES AND TOWNS NATIONAL CONTROL CENTER DIESEL GOVERNORATE CAPITALS MAJOR TRANSFORMER STATIONS GAS TURBINE NATIONAL CAPITAL TRANSMISSION LINES: THERMAL RIVERS 400 kV HYDRO-ELECTRIC INTERNATIONAL BOUNDARIES 132 kV 40°E 42°E 44°E 46°E 48°E TU R K EY Cizre - - Zakhu 0 50 100 150 Kilometers - DAHUK Tig - ris R\. Dahuk 'Aqrah 0 50 100 Miles Ayn Zalah - - Rayat Regulating Dam Mosul -Shaqlawa - Sinjar Tall Khalakh ARBIL - Arbil Afar 36°N Euphr ates - Al Bahamdan Dokan 36°N R\. N I N AW Á Dam Al Qayyarah Dibs IPC 1 As - - ISLA MI C Mullah Abdallah Sulaymaniyah Ash Sharqat - - - REPUBLI C S Y RIAN IPC 2 AT Kirkuk SULAYMANIYAH AS Arbat Tazah ARA B - TA'MIM Derbandikhan Salam Pirak O F IRAN Ajaji - Dam Bayji RE P\. - Tikrit Uzaym Qusaybah Dam (u\.c\.) Abu Kamal Rawah - SALAH AD - Al Qa'im Khanaqin Tharthar DIN- Samarra' Samarra - - Jalanda Lake 34°N Barrage 34°N - Mukarayin Al Hadithah Hamrin - - Al Arbar - - (u\.c\.) - Ba'qubah 'Akashat Hit - - - Ar Ramadi Habbaniyah DIYALÁ Ramadi Barrage - - BAGHDAD Habbaniyah Dawrah Ar Rutbah Lake Rasheed Control Center BAGHDAD - South Salman Pak Baurah AL ANBAR JORDAN As Suwayrah Razzaza - Al Aziziyah Trebil WA S I T Lake Al Musayyib - Hindiyah An Numaniyah - Karbala BABIL Babil - Al Kut Ali al Gharbi - Al Hillah KARBALA' - - - Ad Diwaniyah Al Hayy 32°N Tig sR 32°N ri Nukhayb An Najaf Al Fajr - Al 'Amarah \. - - AL QADISIYAH Ar Rifa’i - ph MAYSANQalat Salih Eu ra tes R\. Al 'Uzayr AN NAJAF As Samawah - - - DHI QAR - - Al Qurnah Hartha Power An Nasiriyah Station Al Basrah - As Salman Abadan AL Rumayla Az Zubayr AL MUTHANNÁ BASRAH 30°N 30°N Safwan Umm Qasr Al Faw IRAQ KUWA IT S A UDI A RA BIA This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. 28°N 40°E 42°E 44°E 46°E 48°E JANUARY 2007

REVIEW

P008400

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20631 IMPLEMENTATION COMPLETION REPORT (CPL-37400; SCL-3740A; SCPM-3740S; COFN-03280) ONA LOAN IN THE AMOUNT OF US$ 38\.4 MILLION EQUIVALENT TO THE REPUBLIC OF ESTONIA FOR A DISTRICT HEATING REHABILITATION PROJECT JUNE 23, 2000 Energy Sector Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their I official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective February 1, 2000) Currency Unit = Estonian Kroon (EEK) 15\.94 EEK = US$ 1\.00 US$ 1 = 0\.06 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS CAS = Country Assistance Strategy CHP = Combined-Heat-and-Power CO = Carbon Monoxide C02 = Carbon Dioxide DH = District Heating EBRD = European Bank for Reconstruction and Development EIB = European Investment Bank ERR = Economnic Rate of Return EU = European Union FRR = Financial Rate of Return FSU = Former Soviet Union G24 = Group of 24 HOB = Heat-only-Boiler ICB = International Competitive BiRdding MW = Megawatt NEAP = National Environmental Aclion Plan NCB = National Competitive Bidding NGO = Nongovernmental Organizalion NOx = Nitride Oxides PIU = Project Implementation Unit S02 = Sulphur Dioxide Vice President: Mr\. Johannes F\. Linn Country Manager/Director: Mr\. Basil G\. Kavalsky Sector Manager/Director: Mr\. Henk Busz Task Team Leader/Task Manager: Ms\. Carolyn Gochenour  FOR OFFICIAL USE ONLY ESTONIA DISTRICT HEATING REHABILITATION PROJECT IMPLEMENTATION COMPLETION REPORT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 7 5\. Major Factors Affecting Implementation and Outcome 20 6\. Sustainability 23 7\. Bank and Borrower Performance 25 8\. Lessons Learned 29 9\. Partner Comments 32 10\. Additional Information 33 Annex 1\. Key Performance Indicators/Log Frame Matrix 34 Annex 2\. Project Costs and Financing 37 Annex 3\. Economic Costs and Benefits 39 Annex 4\. Bank Inputs 43 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 45 Annex 6\. Ratings of Bank and Borrower Performance 46 Annex 7\. List of Supporting Documents 47 Map No\. IBRD 28038 - Map of Estonia This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: P008400 Project Name: District Heating Rehabilitation Project Team Leader: Carolyn Gochenour TL Unit: ECSEG ICR Tvpe: Core ICR Report Date: June 23\. 2000 1\. Project Data Name: District Heating Rehabilitation Project L/C/TF Number: CPL-37400; SCL-3740A; SCPM-3740S; COFN-03280 CounttlyDepartment: ESTONIA Region: Europe and Central Asia Region Sector/subsector: PY - Other Power & Energy Conversion KEY DATES Original Revised/Actual PCD: 01/15/93 Effective: 10/31/94 10/31/94 Appraisal: 01/27/94 MTR: 05/29/96 05129/96 Approval: 05/26/94 Closing: 12/31/99 12/31/99 BorrowerlImplernenting Agency: Republic of Estonia/Ministry of Economy, Eesti Energia, Tallinn, Tartu and Parnu Municipalities Other Partniers: European Investment Bank, Governments of Sweden, Finland and Denmark STAFF Current At Appraisal Vice President: Johannes F\. Linn Wilfred Thalwitz Countty Manager: Basil G\. Kavalsky Basil G\. Kavalsky Sector Manager: Henk Busz Dominique Lallement Team Leader at ICR: Carolyn Gochenour Carolyn Gochenour ICR Primary Author: J\. Christian Duvigneau 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainabilitv: L Institutional Development Impact: H Bank Performance: S Borrower Perfor mance: S QAG (if available) ICR Quality, at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Project's objectives were to: (a) reduce fuel costs and import requirements through efficiency improvements and by increasing the use of indigenous fuels in heat production, in compatibility with environmental and nature protection principles; (b) bring about energy efficiency and economy in major district heating (DH) systems through rehabilitation and introduction of modem technologies and equipment; (c) improve environmental conditions in affected areas by improving the efficiency of fuel use, facilitating the conversion or replacement of boilers from the use of heavy fuel oil and coal to peat and wood fuels, reducing wastage of water in DH systems, and promoting the environmentally sound use of peat and wood as DH fuels; and (d) support the strengthening and restructuring of DH institutions, facilitate their eventual privatization, and help develop the energy sector through consultancy and advisory services, training and provision of equipment and software\. The project's objectives were clearly defined and in line with the Government's energy sector policy and strategy which had been prepared during project preparation and in close cooperation with the Bank\. Indeed, various energy sector studies, executed in preparation of the Project, were helpful to chart the course for energy sector reform and restructuring\. The Government's Statement of Energy Policy and Strategy, in line with the Government's overall economic reform program of market liberalization and increasing participation of the private sector, suggested that significant structural reform as well as investments were needed in the sector\. The Policy Statement also emphasized that the Government would retain, at least in the medium term, full ownership of certain key facilities (oil shale and oil-shale based electricity generation) considered strategic, and which might only be privatized later\. The emphasis on rehabilitation/modernization of existing facilities and diversification of the primary fuel base to reduce the need for costly imports of fuel oil, coal and gas, logically singled out the lheating sector as the highest priority focus for support by international donors, as the power sector was based on locally-mined oil shale\. The supply of oil and gas from Russia had been interrupted in the early 1990's at occasions, and the heating supply during the cold winter of 1992/93 was unsatisfactory as a resull:\. Thus, the Government had a strong interest to increase security of supply by diversifying more into alternative, local fuels\. This further explains the strong focus of the Project on DH\. A Country Assistance Strategy (CAS) (Report 1 3539-EE), prepared almost sirnultaneously with the project appraisal, also emphasized the Government's priority with regard to energy sector restructuring\. It further underlined the need for institutional reform, decentralization of certain energy sector functions to municipalities and their eventual privatization, in line with the Government's energy sector policy and strategy\. The Project further responded to the more general CAS objective of "ensuring that infrastructure services are efficient and facilitate a supply response\." In 1993, the Government decided to transfer ownership of DH facilities and related obligations and responsibilities to the municipalities\. Inexperienced municipalities had difficulties to operate their DH systems efficiently\. The Project, with its institutional - 2 -  and investment components, therefore was designed to help the major cities of Estonia as well as smaller communities to familiarize themselves with the economics and operations of DH systems and to improve efficiency and environmental compliance\. Last but not least, the project's objectives emphasized the need for environmental sustainability of the DH sector, again in line with the Government's sector strategy and the CAS objectives\. Thus, the Project was designed to assist the municipalities and facility operators to address the major air pollution issues which were imminent in the inherited systems, and to provide the needed investrnents for reducing air pollution to below acceptable limits under the emerging environmental legislation of the country\. The National Environmental Action Plan (NEAP) and the Environmental Policy Statement of Estonia, issued in 1997, and having already in mind the intended European Union (EU) accession, emphasized among its 10 key priorities the reduction of negative environmental effects from the energy sector and the improvement in air quality, which were among the key objectives of the Project\. 3\.2 Revised Objective: The original project objectives were maintained throughout project implementation\. 3\.3 Original Components: The Project comprised: (a) one component of small boiler conversions and replacements in small municipalities throughout Estonia (Part A), (b) three DH rehabilitation components (in Tallinn (Part Bi), Tartu (Part B2), and Pamu (Part B3)), (c) improvement of an existing combined-heat-and-power (CHP) plant at Iru/Tallinn (Part C), and one institutional support program for project agencies, providing consulting and advisory services, training and equipment and software for these institutions (Part D)\. The original investment allocation was as follows: Small Boiler Conversion/Replacement Program: US$ 12\.8 million; Tallinn DH Rehabilitation: US$ 22\.5 million; Tartu DH Rehabilitation US$14\.3 million; Parnu DH Rehabilitation: US$5\.0 million; Iru CHP Plant Improvement: US$ 5\.8 million; and Institutional Support Program: US$ 4\.1 million, yielding a total project cost of US$ 64\.5 million\. Of this amount, the World Bank was to finance US$ 38\.4 million, allocating its funds to support components A, BI, B2, C and D\. The remaining investment requirements were to be financed by the European Investment Bank (EIB) (US$ 4\.4 million equivalent) for component B3 and additions to BI; the Swedish Government (BITS, later changed to Sida) (US$ 10 million) to co-finance components (A and B2); other donors (US$ 3\.8 million) for component (D); and the project agencies (US$ 7\.9 million) for the remaining portions of their respective components\. Interest during construction and incremental working capital requirements were also to be provided by the project agencies\. The investments under the Project complemented already ongoing investments funded with support from EBRD, G24, bilateral agencies (e\.g\. Government of Denmark, Swedish NUTEK) and local sources\. A policy component, which would have acted like a sector adjustment loan (see the Poland Heat Supply Restructuring Project, for an example), was not included and was probably not necessary, as the size of Estonia and the importance of the District Heating Rehabilitation Project gave the Bank's supervision staff regular access to the Government during the entire duration of project preparation and implementation\. Government sector policy in the DH sector had become largely sound as a result of project preparation and intensive discussion of Government policies and strategy during that period\. The Energy Policy and Strategy Statement of the Government was largely adhered to during project implementation\. Moreover, '3 -  the institutional support component included technical assistance for developing a legal and regulatory framework for the energy sector\. The sound preparatory work of the Government supported through technical assistance during the project period culminated in a new, market-oriented legal framework for the energy sector in 1997 and approved by Parliament in 1998\. The EU, in its efforts to support Estonia in reaching the requirements under the acquis communautaire, also provided technical support and some funding to help bring about the energy reformns\. Moreover, the EU assisted in helping the country move in line with EU environmental directives and regulations\. 3\.4 Revised Components: No major revision of project components was undertaken\. However, within the small boiler conversion/replacement component, the emphasis on conversions was reduced\. The size of the boiler replacement component was maintained, whereas the size of the boiler conversion was scaled down to about 25% of the original estimate\. The main reasons for this change was: (a) large efforts were made to convert boilers not only by the World Bank and Sida but also with funds from the EU, Swedish NUTEK, EBRD, and others, which created a competition with the best projects going first; (b) in many cases, the sizes of existing oil-fired boilers were simply 1oo large when heat demand decreased, so the efficiency of a boiler after conversion would not be adequate; (c) the costs of conversions turned out almost as high as replacements in most cases; (d) in some sub-projects, municipalities went ahead with own financing; and (e) in some cases, the source of fuel could not be ascertained, the commitment of the municipality was insufficient or the overall project was not feasible\. In the case of the Iru CHP Plant component, during implementation the smoke stack of the plant started to deteriorate and needed replacement because of the low capacity utilization and intermittent use of the boilers in Iru which caused the surphur in the flue gases to condense on the inner surface of the mantle of the stack\. Funding in the amount of US$ 2\.9 million for this additional item was obtained from the Bank Loan through reallocation of funds from the small boiler conversion program, which was scaled down, and the Tallinn component, since EIB was providing additional funding for Tallinn (amendment of November 5, 1996)\. In the case of the Tallinn DH rehabilitation component, a separate Project Agreement between the newly established joint-stock company AS Tallinna Soojus, formned by merging the network and distribution companies, and the Bank was signed on November 25, 1998, to allow complet:ion of that sub-component directly with the new company\. In the case of the Pamu DH rehabilitation component, two boilers, originally envisaged for conversion, were completely replaced, as a result of bid prices for conversion and replacement not differing significantly\. 3\.5 Quality at Entry: There was no quality-at-entry-review undertaken for this Project, which had been prepared in 1993\. However, the Project could build on a number of energy sector and sound feasibility studies of the individual project components funded by bilateral sources (Denmark, Finland, Sweden) and undertaken under the guidance of World Bank staff\. Moreover, there were a number of investment projects under early implementation in Estonia at the time of appraisal funded with support of EBRD and other multilateral and bilateral sources, early lessons of which were taken into account\. Last but not least, the Project benefited significantly from the experience made during implementation of earlier DH projects in the Eastem and - 4 -  Central Asia Region, and notably the major Heat Supply Restructuring Project in Poland (Project Number P008576)\. In particular, early lessons of implementation, time requirements, organizational arrangements and unit costs for network rehabilitation could be applied in this Project\. At the time of project preparation and appraisal, the DH sector in Estonia, like in many other former centrally-planned economies, was characterized by high inefficiencies in its systems layouts and operations, high costs, with primary energy inputs (other than oil shale), i\.e\., gas and fuel-oil, rapidly moving towards world market pricing, and with high levels of water losses, as well as air pollution\. In the Soviet period, heat tariffs had been extremely low\. When fuel inputs (mostly gas and oil, but also some coal) started to be sold at world market prices in the early 1990's, the Estonian Government made valiant efforts to raise tariffs to recover rising costs\. But consumers, whose incomes did not rise at the same pace, had increasing difficulties to pay and, in extreme circumstances, ceased to pay altogether, which increased receivables of the DH companies significantly\. This, compounded by the fact that further needed increases of heat tariffs started to meet political opposition, led to a deteriorating financial situation of some DH companies\. For a while, only industrial customer tariffs were increased, which led to increasing cross-subsidization of residential customers and caused some industries to abandon the DH system, producing heat from altemative sources\. Thus, remedial action was only possible through major rehabilitation, while simultaneously assisting the municipalities to help raise tariffs to cost recovering levels for all customers of modernized facilities\. In this context, special measures for social assistance had been put in place already in Estonia prior to the Project to provide assistance to heat customers near or below the poverty level\. Small Boiler Conversion/Replacement Component: This component was prepared by Estonian agencies with the assistance of Danish consultants\. It was designed to address the problem of many small municipalities, which had highly polluting oil- or coal-fired boiler facilities that were too inefficient under the new market-oriented economy\. The use of local fuels, such as peat, wood, wood chips, bark and saw dust, had been shown to reduce operating costs of the converted or rebuilt facilities significantly\. At the time of appraisal, many communities had submitted sound proposals for conversion to local fuels, or even complete replacement, of existing boilers\. An assessment of the feasibility of many of these projects showed interestingly high returns\. The quality of entry of this components is considered therefore as "Satisfactory\." Tallinn, Tartu and Parnu District Heat Rehabilitation Components: Based on their respective feasibility studies, sound investment components forecast the rapid improvement of perfortnance after implementation\. The studies were carried out by internationally-renowned consultants and formed a good basis for appraisal\. However, in all studies, demand forecasts were overly-optimistic in their assumptions that demand for heat would grow again from the low point of the 1992/93 winter\. The studies failed to consider the impact of growing tariffs on demand\. The Bank team, in close cooperation with the project agencies, revised these optimistic growth scenarios significantly downwards\. On the other hand, assumnptions regarding estimated implementation time and costs, as well as projected efficiency gains and environmental performance were largely realistic\. The familiarity of the Bank team with ongoing investments in the country's DH sector and similar projects elsewhere further facilitated appraisal and allowed for some correction of the studies' short-comings\. The quality of entry of these components is rated "Satisfactory\." Iru CHP Plant Improvement Component: This was a plant which had been built during the period 1978-89, but was not being utilized at its full capacity as it could not compete with the lower-cost, oil shale power plants in Northeast Estonia, due to lags in adjusting oil shale prices to full cost recovery levels\. However, it was expected that the utilization of Iru would increase in the near future and that it would be a lower cost source of heat for Tallinn than the existing heat-only-boilers (HOBs)\. The project preparation -5-  efforts included a study of altemative plant improvements designed to improve plant efficiency, using different scenarios of fuel, heat and electricity costs\. The selected altemative focused mainly on improvements of the heat-only equipment, as domestic and export demand for electricity over the next 5-7 years was expected to be met from production from the power stations in Northeast Estonia\. The selected altemative was realistic and fit into the focus of the Project\. The quality of entry of this component is considered "Highly Satisfactory\." Institutional Support Component: This component was designed to provide training in project management, efficiency improvements and environmental management as well as consulting services for effective DH management and operations systems, including financial management, company restructuring as well as procurement and disbursement\. It also included a component for the development of a legal and regulatory framework needed under the market based, privately-oriented sector\. The component, together with project investments, would help to prepare the DH companies for privatization through improvement of assets, operations and management systems\. Funding for the component was to come largely from bilateral sources, including the EU, Denmark, Finland, Sweden and the DH companies' own funds\. The quality of entry of this component is considered "Satisfactory\." -6 -  4\. Achievement of Objective and Outputs 4\.1 Outcome/achievem7ent of objective: The overall achievements of the project objectives are judged to be "Satisfactory" and better\. The Project has substantially met the original objectives to: (a) reduce fuel costs and import requirements; (b) increase energy efficiency; (c) improve environmental conditions in affected areas; and (d) restructure and strengthen the DH companies, to facilitate their eventual privatization\. Reduction in Fuel Costs and Import Requirements: This Project has made excellent progress in the reduction of fuel costs during the period of implementation, which is highly likely to be sustained over the life of the investments\. Fuel substitution (biomass and peat for oil and gas) in order to reduce fuel costs and increase security of heat supplies was one of the key objectives of the small boiler component, as well as the Tartu and Pamu DH rehabilitation components\. During 1999, the savings from use of local fuels instead of imported fuels were calculated at about EEK 20 million (over US$ 1\.4 million) for the small boiler program\. This number is likely to be significantly higher in 2000 at about EEK 25 million (over US$ 1\.7 million), as 1999 had unusually low oil prices\. If the Tartu DH system were operated as originally designed with the peat and wood-fired boilers used as base load, the fuel cost savings of over EEK 10 million (US$ 0\.7 million) in 1999 could be increased to about EEK 20 million (US$ 1\.4 million) or more, as the converted boilers are being utilized at only about one half of their intended capacity\. In Parnu, fuel cost savings of over EEK 4 million (US$ 0\.3 million) achieved in 1997 will be achievable again in 2000 under the presently prevailing oil prices\. These savings have had a direct impact on the balance of payments situation of the country\. The share of local, renewable energy in Estonia's heating sector is reported to have increased from 3\.5% in 1993 to 11% in 1998\. The Project has greatly contributed to this development\. Reduction of fuel costs further resulted from energy efficiency improvements discussed below\. These reductions also have had a direct impact on the balance of payments situation and are estimated to have even exceeded the savings from fuel substitution\. Energy Efficiency Increases: The Project has made efficiency gains in the areas of heat production, transmission, distribution and consumption\. In the production process, the specific fuel consumption has been reduced by an estimated 5% to 10%, on average\. The renovation of the transmission and distribution networks and installation of variable speed pumps has led to significant energy savings, again estimated in the order of up to 10% heat and pumping losses\. Very dramatic reductions in water losses have also been achieved through the switch from direct to indirect domestic hot water connections, amounting to a decrease of over 85% in Tallinn, of almost 90% in Tartu and over 90% in Parnu\. The heat consumption in buildings equipped with renovated substations has been estimated to have been reduced by about 24%, on average\. Environmental Improvements: This Project has been remarkable in reducing local air pollution, as well as emissions of greenhouse gases (CO2) harmful in the context of climate change\. The following table illustrates the reductions of emissions during the project implementation period: - 7 -  Emissions Reduction 1993-1999 U\. n iL T $02 N d _ 7C0 C " Iru CHP t -1,432 -686 -10 1'2,012 n\.a\. n\.a\. Tallinn DH System t 3,501 297 11 5C9,250 n\.a\. n\.a\. Tartu DH System t n\.a\. n\.a\. n\.a\. 12,352 n\.a\. n\.a\. of which Ropka Boiler t 34 99 16 n\.a\. 463 53 of which Luunja Boiler t 286 187 15 n\.a\. 1,461 1,815 Parnu DH System t 24 -31 257 n\.a\. 1,209 7 Small Boilers t 696 134 2 46,393 n\.a\. n\.a\. Total t 3,108 -1 291 580,007 3,133 1,875 Total without Iru CHP t 4,540 685 301 567,995 3,133 1,875 The "negative reductions," i\.e\., increases of emissions at the Iru CHP Plant are due to the fact that the plant has produced about 3\.5 times as much electricity in 1999 at 460 GWh as cornpared to the level of 108 GWh of 1993\. However, CO2 reduction at Iru CHP is positive, as the plant switched essentially from almost exclusive oil-firing in 1993 to a large proportion of gas-firing (45% in 1 999)\. While the emissions from Iru have increased in Tallinn, the increased electricity production from gas at Lru has reduced the need for an equivalent amount of electricity production from the heavily polluting oil shale-fired condensing plants in Northeast Estonia\. The very positive performance in the Tallinn DH System is due to two effects: (a) heat production from the various boiler houses was reduced by about 20%, as generally demand declined in the city; and (b) the DH company also substituted gas for oil (gas representing almost 10% in 1993 increased to over 70% in 1999)\. In 2000, the performance will further improve when Iru CHP Plant will provide a greater share of heat produced in CHP-mode to the DH system, due to the completion during 1999 of the connection of the central and eastem DH networks\. In the Tartu and Pamu DH systems, the positive performance, with significant reductions, is largely due to the switch from oil and/or gas to peat and wood products (chips, bark, saw dusit)\. However, in Tartu, the performance could be significantly better if the boilers converted under the Project to peat and wood-firing were operated as base-load boilers and the old gas-fired boilers were operated as peak-load boilers\. In such case, CO, reductions could be increased to an estimated 33,000 tons (as compared to the 12,000 tons achieved in 1999)\. Certainly, the emissions' reductions have meant a major improvement already\. In the small boiler component, performance has been estimated for the 36 completed projects and is significant, in particular with regard to CO2 reductions\. The savings are likely to be considerably larger, as these projects have served as models which have by now been copied in many other small municipalities and villages\. Overall, the savings illustrate the significant improvement of the local environment as well as the contributions to mitigation of climate change\. Restructuring of the District Heating Companies: Tallinn DH Company Restructuring: The restructuring of the two DH companies in the Tallinn involved their merger into one company, which took place as originally planned\. On April 17, 1996, Tallinna Soojusvork, previously owned by Eesti Energia and including the DH networks and large boiler houses, was merged with Linnasoojus, owned by the Municipality and including the distribution networks and - 8 -  small boiler houses, to become Joint-Stock Corporation AS Tallinna Soojus\. The new company is wholly owned by Tallinn Municipality, in line with the Government's objectives for decentralizing DH activities to local authorities\. The company has, with its own funds, undertaken improvements to its management and operations systems and reorganized its internal structure to one more consumer-oriented, in line with the new market economy\. The merger has contributed to improving system efficiency, by allowing the better optimization of daily operations and investments and by the elimination of duplication of functions and personnel\. Iru CHP Plant: While an explicit plan for restructuring Iru CHP Plant was not included under the Project, various discussions and studies were undertaken as to whether Iru should remain with Eesti Energia or be merged with AS Tallinna Soojus\. In the end, it was decided to retain Iru as part of the Eesti Energia, which was developing its plan for demonopolization and possible privatization\. Up-to-now, Iru CHP Plant has remained as a cost center of Eesti Energia but is planned to be established as a separate daughter company (profit center) in the near future\. Establishment of Iru as a separate profit center would allow for more transparency in its operations and pricing\. Parnu DH Company Restructuring: The DH Company was transferred to municipal ownership in October 1992\. Under the Project, technical assistance and training has been provided for improvements in company management procedures and accounting systems\. The company has improved efficiency by reducing its personnel from about 160 persons in 1994 to about 100 in 1999\. The company has been particularly active in marketing and has obtained 40 new customers which has allowed heat demand to remain relatively stable during the project period\. Part of Pamu's success in gaining new customers is due to the fact that gas networks have not been extended to the city\. During 1999, a part of the Pamu DH system, which had been spun off from the main company AS Pamu Soojus already in 1992, was successfully privatized through a 100% sale to a Swedish investor\. Pamu City Council has recently decided to privatize AS Pamu Soojus and has retained an investment bank to advise in the privatization\. The privatization is expected to be completed during 2000\. Tartu DH Company Restructuring: In Tartu, as per discussions between the City, the Govermment and the Bank, the restructuring of the DH companies was initiated prior to project start-up\. In 1994, the entire network was consolidated under ME Tartu Soojus, a 100%-municipality owned company, which would handle all customer relations, including contracts tariffs, metering and billing, and in 1995, all contracts with customers had been reviewed by city legal staff and legal advisors\. Heat was produced in six separate production plants, of which five were fully-owned by the city and one partly-owned\. The consolidation of networks was undertaken to facilitate flexibility in heat purchases and to allow Tartu to levy a uniform tariff for retail heat sales in the city\. Consulting services were provided under the Project for a new management information and accounting system, which was linked to a new Chart of Accounts and a written Accounting Manual prepared by the Tartu management with local Coopers & Lybrand Staff\. Later in 1997, this organization was changed, and three enterprises were created: (a) AS Tartu Keskkatlamaja, including Ropka system, Turu central boiler house and Turu-Luunja network (later became Turu-Luunja-Ropka network); (b) AS Tamme Soojus, including the separate, small Tuglase, Aardla and Tulbi boiler houses with associated networks; and (c) AS Anne Soojus, including Luunja boiler house and Luunja Village and greenhouses network\. AS Anne Soojus was a major producer of bulk heat for the Turu-Luunja network, the main network of the city\. This organization led to difficulties to optimize the heat production, as the gas-fired Turu boilers were competing with the local-fuel Luunja boilers for base load\. Under the current arrangements, with different owners of the heat sources in the Turu-Luunja-Ropka network and with dispatch controlled by Tartu Keskkatlamaja (one of the competitors to the local fuel boilers), it is unlikely that an optimal operation of the system can be achieved\. The City of Tartu decided to combine the DH assets in the Turu-Luunja-Ropka network for privatization under one owner as the best -9-  way to optimize the operation of the system\. The Bank team supported this decision\. Since then, AS Tamme Soojus has been sold in 1999 to a French investor\. Of the shares of AS Anne Soojus, 50% are municipal-owned, 30% are owned by Luunja County, and 20% were owned by Tartu Joujaam, a private enterprise\. During 1999, these 20% of shares were sold to a Finnish DH company\. The remaining parts of the DH system operated by AS Tartu Keskkatlamaja, comprising the main network, the Turu and Ropka boiler houses, and AS Anne Soojus are \.to be privatized to a single investor in summer 2000\. Outright privatization has become an ultimate target of the Government and the project municipalities during the end of the project period\. The restructuring and institutional support provided under the Project have been helpful in preparing the DH companies for privatization\. Both in Tartu and in Pamu, as mentioned above, parts of the DH systems have already been privatized and further privatization of these systems is scheduled for 2000\. Tallinn is also preparing the way toward system privatization\. 4\.2 Outputs by components: Component A: Small Boiler Conversionl/Replacement (Estimated Cost at Appraisal: US$ 12\.8 million; Actual Cost: US$ 7\.4 million) The small boiler program assisted small municipalities and villages throughouat Estonia to improve the economics and security of their DH systems by helping them to convert or replace obsolete existing boilers, to allow firing of lower cost local peat- or wood-based fuels rather than expensive imported fuels (mainly oil and coal)\. Thus, the program was designed to complement the DH rehabilitation program for the three largest Estonian cities (Tallinn, Tartu, Parnu)\. The program envisaged to include funding for about 70 boilers with an aggregate capacity of 145 MW, drawing from the large pool of about 1,500 boilers throughout the country\. Participation would focus on publicly-owned (municipal/state) rather than privately-owned boilers\. About 60% of the funding was earmarked for boiler conversion, with boiler sizes up to about 10 MW, and the remaining 40% for replacement of boilers (with a capacity of 0\.5 to 3 MW)\. Municipalities had to show a strong commitment to their projects and had to submit firm plans regarding supply and costs of local fuels\. The component was organized almost like a credit-line for small boiler conversion/replacement, with the State Energy Department of the Ministry of Economy acting to obtain consulting services for the evaluation of the feasibility studies needed for an assessment of projects, and the Ministry of Finance providing for loan funds from the Project to be made available\. Danish technical assistance was supporting the Ministry of Economy in its decision-making process and helped prepare technical specifications and tender documents for procurement according to World Bank guidelines\. The component was advertised throughout Estonia, and municipalities were encouraged to submit project proposals\. In October 1993, a first batch of 40 proposals was received and 34 projects were selected for detailed feasibility studies\. By June 1994, 15 of the initial batch of projects were approved in Estonia and were endorsed by the World Bank in July 1994 for proceeding towards implementation\. In the meantime, another batch of over 30 projects had been submitted by other municipalities\. By mid-1995, almost 100 projects had already been registered, with feasibility studies completed or in hand, estimated to cost a total of over EEK 150 million (US$ 12\.5 million), with almost 30 having been found feasible and about 15 being implemented or prepared for implementation, amounting to EEK 17 million (US$1\.4 million)\. Thus, the process had a good start\. In the cases of the less economic small boiler projects, had grants been available to help "monetize" resulting CO2 reductions and local pollution reduction, some further projects might have - 10 -  become economically viable as well\. Procurement for the Sida and Bank-funded component was handled centrally\. Initially, bidders complained about the costs of preparing detailed tenders, which turned out rather high, particularly in the case of boiler conversions\. Thus, many projects originally designed as boiler conversions were subsequently changed to boiler replacements\. The heavy procurement procedures were reported to add significantly to the costs of relatively small components\. Not surprising, some municipalities, with their positive feasibility study in hand, decided to obtain local financing on their own rather than to wait for the subsequent process\. The procurement procedure was therefore simplified in consultation with the Bank The issue was also addressed by the team of the Ministry of Economy, by engaging in visits to the project sites prior to committing to the feasibility studies\. It was also found early during implementation that many municipalities were already carrying out boiler conversions on their own, and that there was a much larger scope for boiler replacement than originally thought\. In late 1995 and early 1996 the Bank agreed to the request of the Ministry of Economy to reduce the size of the conversion part of the component, as they felt the progress with regard to boiler conversion was too slow and, in any case, economically questionable\. The component for boiler replacements was, however, left at its original level and proceeded well\. By end-1999, the component had supported implementation of 11 projects for conversion of boilers with a cost of US$ 1\.8 million and 25 projects for replacement of boilers with a cost of $ 5\.6 million\. By the conclusion of the loan, the 36 projects had been completed successfully and were operational\. The municipalities involved have greatly appreciated the investments, which have been very beneficial in terms of cost reductions and environmental improvements\. Moreover, the increase of fuel oil prices in late 1999/early 2000 has significantly improved the economics of the small boiler conversion/replacement projects\. Today, the component is considered better than "Satisfactory\." Component B: District Heating Rehabilitation in Tallinn, Tartu and Parnu The DH rehabilitation component comprised sub-components in Tallinn, Tartu and Pamu, the three largest cities in Estonia\. The components were designed to "enhance network life, improve systems operation, produce savings in the use of fuels and improve environmental performance\." This was to be achieved by: (a) boiler conversion or replacement (partly), (b) replacement or modernization of substations, including heat meters, (c) replacement of obsolete parts of the network, including installation of preinsulated pipes, modem valves, variable speed pumps and pressure and flow control systems, (d) improvement of the water treatment systems, as well as (e) technical assistance to design system improvements and supervise their implementation\. Generally, implementation of the sub-components and resulting outputs were satisfactory, with some mixed performance\. Component BI: Tallinn DH Rehabilitation (Estimated Cost at Appraisal: US$ 22\.5 million; Actual Cost: US$ 20\.4 million) The Tallinn DH system comprised three major networks with five large boiler houses and the Iru CHP Plant, belonging to Eesti Energia, the national power company\. At the time of appraisal, the system consisted of 12 hot-water boilers, with a capacity of 100 MW and 4 steam boilers, with a capacity of 8 tons each, basically gas- or fuel-oil fired, three large, separate networks comprising 444 km of pipes and 50 km of local heat networks, substations and water treatment systems\. -11 -  The key objectives of the component were fuel cost reductions through improved energy efficiency to be achieved by: (a) installation of boiler controls and 02 analyzers, (b) improvements in consumer installations through introduction of modem large and small substations, including heat meters, variable speed pumps, as well as controls; (c) connection of the eastem and central networks to allow for Iru CHP Plant to flexibly supply the central network with heat as well; (d) rehabilitation and replacement of corroded pipelines, improvement of ventilation and drainage of ducts, and improvement of water treatment; and (e) reduction of water leakages through replacement of corroded pipelines\. Concomitant reduction of air emissions to meet environmental standards were also among the key objecitives\. The completion of this component was achieved in December 1999\. The substation improvement was the largest investment component estimated to cost almost US$ 14 million, equivalent to about 60% of the total cost of the component\. Due to the lower cost of substations than estimated at appraisal, it was possible to implement a larger number of substations and also to extend them to other parts of the city than originally planned\. This sub-component was successfully completed during 1998 and has greatly contributed to improved efficiency of the system, to reduction of water losses and to savings at the building level through more accurate control of heat\. The component for boiler controls and the network improvements of about 10 km (out of a total network of 490 1cm) further helped to improve system efficiency\. The water consumption of 160\.9 m3/h in 1990/91 had been reduced to a level of about 100 m3/h at the time of appraisal, largely due to the declining demand for heat, but also through early systems improvements funded by the company and EBRD\. Due to the investmnents under the Project, and notably the change of the system to a partially closed system, and also due to network repairs and pipe replacements, make-up water requirements were reduced further to a level of 14\.2 m3/h in 1998/99\. Thus, water consumption has declined to less than 1 'i% since appraisal, and even less than 9% since 1990/91\. The connection of the eastern and central networks now allows the DH company a much greater flexibility to either purchase heat from Iru CHP Plant or to produce it in its own boilers Prior to completion of the network connection, bulk heat was purchased from Iru to serve the eastem ne&work at a higher bulk tariff than the DH Company's own heat production costs\. After completion, bulk heat can be purchased not only for the eastem network but also for the central network serving the city center\. The bulk heat tariff for the incremental purchases from Iru to serve the central network has been lowered by 13% for 2000\. Given the improvements in the central control of the system and also in the management information system, the company can now better optimize its operations\. Given the efficiency improvements, reduction of water losses and environmental improvements, overall the component is judged "Highly Satisfactory\." The component has been considered an excellent demonstration project which has been visited by many DH companies from Russia, Ukraine, Lithuania, Bulgaria and other countries\. Component B2: Tartu DH Rehabilitation (Estimated Cost at Appraisal: US$ 14\.3 million; Actual Cost: US$ 13\.7 million) The Tartu DH system in 1993 comprised one major network and five smaller network islands, with six large boiler houses with a total capacity of 500 MW, fired by oil or gas (among them Turu, Luunja and Ropka Boiler Houses, covering 82% of total capacity)\. In addition, there were 27 small boiler houses fired by coal, oil and/or gas, DH networks comprising about 85 km of pipes, substations and water treatment - 12 -  systems\. This project component included: (a) installation of new or rebuilt substations, regulators and heat meters; (b) modernization of the network through installation of new pipe and a pipeline connection between Ropka and the main DH network, Turu-Luunja; (c) improvements to water treatment facilities at several boiler plants; and (d) conversion from gas or oil-firing to local fuels (peat or wood) of five boilers (two at Luunja and three at Ropka) to achieve almost 50% of fuel substitution in the system\. Funding for earlier rehabilitation of substations was provided from EBRD\. The investment components were essentially completed by May 1998, with the exception of the pipeline connection\. The installation of substations had to await the completion of the first batch of 228 substations funded under an EBRD loan\. Originally 640 substations were to be replaced\. By end-1999, 564 substations were completed, including the 228 funded by EBRD, 202 funded by Sida, 96 funded by consumers and 38 funded by the DH Company, with 44 substations remaining to be rebuilt in the Ropka area\. These remaining substations in the Ropka area should be rebuilt in order to allow the full utilization of the connection pipeline between Ropka and Turu/Luunja networks\. Modernization of the network was achieved through: (a) installation of 6\.6 km of modem preinsulated pipe, including joints, fitting and valves, and 0\.6 km of steel pipe, insulated during installation, representing about 92% of the appraisal estimate of 7\.8 km of pipes; and (b) installation of about 3 km of additional new pipes funded by Tartu DH Company\. It is estimated that the life of the network has been extended by about 10 years as compared to the pre-project status, in part due to the modernization and in part due to the improved water quality\. Water losses have been reduced significantly due to the project investments\. Due to the investments to introduce indirect domestic hot water utilization in areas where domestic hot water had previously been taken directly from the DH networks, completed in July 1996, make-up water requirements for this reason were reduced from 560,000 m3 in 1992 to zero in 1997 and thereafter\. Due to the savings resulting from further investments in network leaks, a further reduction of make-up water was achieved from 740,000 m3 in 1992 to 134,000 m3 in 1999\. Thus, total water consumption has declined by almost 90% between 1992 and 1999\. Moreover, investments in water treatment facilities at several boiler houses has further helped to extend the life of the network through reduction of corrosion\. The boiler conversion component originally foresaw conversion of five boilers in the Luunja and Ropka boiler plant, but was reduced to four boilers with roughly the same capacity, essentially due to high bid prices\. The contracts for the conversions were already concluded in September 1994 (i\.e\., four months after Board presentation) and were basically completed in autumn 1995 with satisfactory performance tests run in late 1995 and early 1996\. The conversions, complete with solid fuel storage and handling systems, installation of fluidized bed technology (requiring a "de-rating" of boilers from 40 MW to 18 MW capacity), and related ash-removal and cooling systems, allowed to bum sod peat or milled peat, wood chips, saw dust or bark in the converted facilities\. This, together with use of wood or peat-based fuel use in some of the smaller boilers of Tartu, helped replace the equivalent of about 27 million m3 of gas or 24,000 tons of oil, leading to savings at present prices of about US$ 0\.75 million per year\. Of the total fuel input of 530 GWh in Tartu during 1999, 48% has been in the form of peat and wood-based fuels, thereby meeting the appraisal estimate, which envisaged slightly less than 50% of total fuel input in the form of local fuels, as compared with zero peat and wood fuel use in 1993\. Initially peat represented about half the local fuel consumption during 1996 and 1997 but by 1999 it represented only about 20% with wood-based fuels representing the larger - 13-  portion\. Unfortunately, the local fuel boilers are now being utilized at only about 50-60% of their available capacity and could still contribute to a greater extent to fuel cost and environmental savings\. The converted boilers and indeed the entire Tartu DH system faced a serious threat during late 1995 and 1996 when Tartu Gas started an offensive to maintain its gas market\. Municipal decision makers and City Council were led to believe that the conversions were not feasible and sustainable and that the project's viability has been "rigged" to "appear economic\." At the same time, DH consumers were being lured to disconnect from DH and utilize gas in individual boilers\. As the City Council believed that the economics of the boiler conversions were below expectations, "no investments in further DH rehabilitation would be permitted, until updated economic calculations demonstrated the viability of the investments\." Indeed, the Bank staff were accused of deliberately providing a misleading, overly-optimistic assessment of economic viability, and a full assessment was requested, which was provided during a May 1996 mid-term review\. The renewed demonstration of the soundness of the Tartu investments coupled with a change in the City administration after 1996 Fall elections allowed continued implementation of the component, although now with a significant delay\. The pipeline connection that was to allow the lower cost base-load heat from Ropka to replace heat produced in the old gas-fired Turu boilers was dropped\. The City decided later in 1998 to undertake, with its own funds, that connection, which was not completed until October 1999\. Today, all concerned officials in the central and local govemment as well as in the Tartu DH companies agree that the project investments are economically sound and well justified, but that present operating conditions are not adequate for sustainability, as the different parties have not yet agreed on a sound course of action\. The solution would include: (a) acknowledging that the old gas-fired Turu boiler house should be operated as a peak load installation and the converted boilers as base load; (b) improving the heat tariff policies to allow for more transparent pricing through the separation of production, transmission and distribution and introduction of two-tier tariffs with fixed and variable componDnts; and (c) improving the financial and operational information to allow for decisions to be based on rational criteria\. Overall the Tartu District Heating Rehabilitation Component is judged "Satisfactory" in its final outcome, but was considered "Unsatisfactory" during several years\. As an example of the seriousness of the matter at the time, the Estonian Parliament pronounced in 1997 that the city of Trtu behaved irresponsibly, suggesting that its assets were not used effectively\. Component B3: Parnu DHRehabilitation (Estimated Cost: US$ 5 million at Appraisal; Actual Cost: US$ 5\.5 million) The Pamu System consisted of 9 larger and 14 small boilers and 40 kmn of network\. The investment component comprised: (a) conversion from fuel-oil firing to local fuels (peat or wood) of two boilers to achieve almost 60% of energy substitution in the system and fuel cost reductions, (b) installation of substations, regulators and heat meters; (c) modernization of the network through installation of modern preinsulated pipe, variable speed pumps and complete monitoring and control system; and (d) improvement of water treatment facilities at several boiler plants\. Funding for earlier rehabilitation of substations was provided by EBRD\. The investments were completed largely in 1997\. The conversion of two boilers originally envisaged in the feasibility study and appraisal report was abandoned in favor of complete boiler replacement\. The fact that the offered cost of replacing the boilers was about the same as the estimated cost for conversion allowed the City to decide in favor of new boilers\. The cost of the conversions was high because they were technically more difficult in the confines of the limited space of the existing boiler house\. The new boilers have a capacity of 7\.5 MW each and were - 14 -  commissioned in March and April/May 1996, respectively\. The boilers have been in continuous operation ever since\. Through the predominant use of wood, wood chips, peat and peat briquettes, the oil consumption by Pamu DH company has come down continuously from 100% in 1992 to about 51% in 1997, then has crept up to 57% in 1999\. This is above the proposed target which foresaw an oil use of about 42% by 1999\. The key reasons for a lower than forecast peat and wood utilization were the relatively low oil prices in 1998 and 1999 and some difficulties of Parnu DH company to secure the needed quantities of peat and wood on a regular and sustained basis\. However, the difficulties in securing local fuels have now been resolved, as there is keen competition in the local fuels market\. As oil prices have strongly recovered since the latter part of 1999, the DH Company now plans to further increase the use of wood and peat-based fuels and to expand the storage facility constructed under the Project by another 1,200 m3 of new capacity\. Estimated savings of the fuel substitution in 1999 amounted to about EEK 2\.1 million (US$ 0\.15 million), but had already been as high as about EEK 4\.3 million (US$ 0\.31 million) in 1997\. The DH Company has also invested in the shutdown of small boilers and connection of these areas to the DH network, with only 7 small boiler houses remaining in 1997\. The installation of substations was successfully implemented with a total of 222 new units installed and equipped with new controls and heat meters as compared to 200 originally planned\. All units were connected to a new central monitoring and control system\. Compared to the original simplified design, more components were installed, on average, per substation than originally envisaged\. By 1999, the DH system comprised 293 substations (all modernized), with 45 funded by EBRD, 222 by EIB and the rest by owners\. The centralized management of these substations allows an optimal running of the network and quick adaptation to temperature changes\. Modernization of the network: Under the project, about 4\.5 km were rebuilt by using preinsulated pipes, including a river crossing\. This represents only 11% of the total network but is critical to its continued life\. It is estimated that this investment, together with the installation of over 150 network ball valves and network variable speed pumps, has reduced maintenance in the network, decreased heat and water losses, as well as extended the network's life by 10 years\. Water losses have been reduced significantly due to the investments\. Due to the savings resulting from network modernization and substation renovation as well as from introduction of indirect domestic hot water utilization, make-up water was reduced from about 8-10 m3/hour in 1991 to about 0\.5 m3/hour in 1999, i\.e\., by over 90%\. Thus, total water consumption has declined to a level of about 400 m3/month\. Moreover, investment in water treatment facilities at several boiler houses has further helped to extend the life of the network through reduction of corrosion\. The selected water treatment investments included reverse osmosis technology, for which the river water was not pure enough and therefore required pretreatment of the water, which was not originally envisaged\. Whereas the investment was completed in 1996, the contractual dispute over the incompatibility of the equipment with the available water supply has been ongoing\. In 2000, with the help of a Danish grant, equivalent to about US$ 1 million, the water component is to be completed with the installation of the water pretreatment equipment\. Overall the Pamu District Heating Rehabilitation Component is judged "Highly Satisfactory\." The company referred to it as an "Optimal Project Scope" at the time of appraisal\. The company has plans to build a renewable energy resource-based CHP plant to further improve efficiency\. - 15 -  Component C: Improvement of Iru/lallinn CHP Plant (Estimated Cost at Appraisal: US $ 5 million; Actual Cost: US$ 8\.7 million) The key objective of the Iru CHP Plant component was to improve its performance and efficiency\. The partial renovation of Iru CHP Plant consisted of: (a) renovation of an air preheater of the CHP blocks; (b) rehabilitation of instrumentation and control systems of boilers; (c) installation of modem water treatment equipment and provision of side stream filters of the DH water; and (d) supply ancd installation of variable speed pumps\. A gas pipeline to the plant had been completed in 1993, and the plant was able to benefit from increased flexibility in fuel use\. During implementation, it was recognized that the stack would require replacement, which was added to the project scope\. The new stack has contributed to improvement of environmental conditions\. Moreover, due to the improved draught of the new stack, a flue gas exhauster was no longer needed, resulting in power savings for the plant operations\. The addition of stack is the main reason why the component cost increased\. The component was completed and operational by end-1997\. The benefits from the implementation of the component are an improved reliability of the installed equipment, better efficiency of process control and automation, and savings obtained through a the decrease in maintenance costs and reduction of specific fuel consumption for heat and power production\. The plant has also improved efficiency through reduction of personnel from 270 persons in 1993 to 230 presently\. A project component rating of "Satisfactory" was maintained throughout the supervision of the project, but the final outcome should be judged "Highly Satisfactory\." Iru CHP Plant was partizularly pleased with the renovation of the air preheater of block 2 under the Project and has subsequently used its own resources to undertake a similar renovation at the other block\. Eesti Energia also expressed satisfaction with the leaming which the international procurement process introduced under the project\. Such a process is now routinely used by Eesti Energia\. Component D: Institutional Support Program for Project Agencies (Estimated Cost at Appraisal: US$ 3\.6 million; Actual Cost: USS 3\.9 million) The Institutional Support Program was designed to provide assistance to government ministries, municipalities, project DH companies and Iru CHP Plant, in the form of studies, implementation support, formal and on-the-job training, as well as technical assistance in procurement, project supervision and monitoring\. The Estonian State Energy Department, reporting to the Ministry of Economy, received support in procurement and disbursement services, in developing feasibility studies for small boiler projects, and assistance in developing the legal and regulatory framework\. The I)H companies received substantial training, both on-the-job and through study tours of foreign DH companies\. The municipalities received assistance in restructuring their DH operations and support in implementing recommendations for effective management and operations of the systems\. This has greatly contributed to strengthening the companies operationally and financially and has helped to prepare them for privatization\. This component is judged "Satisfactory" or better\. 4\.3 Net Present Value/Econonmic rate of return: The Project has had significant economic benefits in all its components\. The key benefits have been reduced fuel costs and import requirements, improved efficiency in DH systems and improvement of environmental conditions in the affected areas\. The economic rates of return (ERRs) at appraisal did not consider environmental benefits\. Thus, the weighted ERR for the Project amounted to 24\.4% at appraisal as compared to 22\.5% today, the difference being largely due to the relative deterioration of the terms of trade - 16-  between oil and renewables\. However, when one considers environmental benefits, the weighted average ERR increases to 58\.5%\. The assumptions underlying the ERRs of project components as well as the weighted average ERRs for the total project, with and without environmental benefits, are elaborated in Annex 3\. Table 1: Summary Economic Rates of Return 0C----- :A ICDI Without With environmental environmental benefits benefits Small boiler conversion 29\.2% 10\.5% 20\.5% Small boiler replacement 9\.8% 31\.2% 45\.6% Tallinn DH rehabilitation 22\.8% 24\.0% Tartu DH rehabilitation 28\.5% 27\.9% 101\.3% Pamu DH rehabilitation 27\.8% 12\.1% 87\.4% Iru power plant 18\.1% 16\.7% improvement Weighted ERR 24\.4% 22\.5% 58\.5% Note: The environmental benefits have been estimated based on international cost emission benchmarks\. The project components have contributed to reducing energy imports thereby improving Estonia's trade balance\. Through this Project and other efforts, the share of indigenous wood, wood chips and waste, and peat has increased from 3\.5% in 1003 to 11% in 1998 of Estonia's primary energy resources\. Establishment of a market for wood fuel is having a positive impact on the economic situation and development of the Estonian forestry sector\. Use of wood fuels in heating is an important market for wood and other tree biomass which is not required by the forestry industry, thereby improving the economy in the forestry sector\. Also, the small boiler program has contributed to the development of Estonian manufacturers of energy equipment and installation companies\. Some of these companies are competing for and winning contracts under other similar DH rehabilitation projects in neighboring countries of the region\. The Project has further contributed to the creation of permanent jobs in rural areas related to the harvesting, transport and disposal of local fuels\. It has been estimated that the local fuel harvesting and transport business has created 200 jobs supporting Tartu's local fuel consumption\. When the jobs created for Pamu and other small municipalities are considered, a significant number of jobs have been created overall under the Project\. 4\.4 Financial rate of rettrn: A FRR calculation for this Project was not made at the time of appraisal; therefore an FRR was not calculated at completion\. - 17 -  Financial Performance of DH Companies: The financial performance of DII companies generally improved during the project period, with all companies showing profits on operalions by the end of the Project, with the exception of several of the Tartu DH companies\. As a result, all DH companies are repaying the loans from the World Bank, Sweden and EIB according to schedule, with the exception of Tartu where only a part of the World Bank loan has been repaid to the Ministry of Einance which has been repaying the loan out of its reserve funds\. If the privatization of the DH system in Tartu is successful, the proceeds from the privatization are expected to be utilized to repay all loans in full, including the overdue amounts\. Loan Repayment Performance of Small Boiler Projects: The loan repayment performance of the 36 completed small boiler projects is relatively good, with 21 projects paid in full and on schedule as of end-June 1999, with the balance of 15 projects experiencing some delays\. Three of the 15 projects (Muhu, Vonnu and Vana Antsla) are judged as problematic due mainly to the economic difficulties in these areas\. The Ministry of Finance has been following up on repayments and it is expected that some cities will reschedule their loan repayments\. Payment performance has been related to the general economic situation or budgetary problems and is not related to the performance of the small boiler projects\. Hleat Tariffs: Heat tariffs increased during the early years of project implementation but have remained relatively stable during the latter years due largely to the efficiency gains achieved under the Project\. In Tallinn, heat tariffs have not increased since July 1998 and have been EEK 349/MWh for both household and industrial consumers\. Similarly, in Tartu, heat tariffs have not increased for the past three years and have been EEK 334/MWh for consumers without substation improvements and EEK 354/MWh for consumers with substation improvements\. Furthernore, in Parnu, heat tariffs are now currently EEK 370/MWh for consumers without substation improvements and EEK 380/MWh for consumers with substation improvements\. In all cities, cross-subsidies have been reduced, with industrial consumers paying the same tariffs as residential consumers\. Of the 41 heating systems which are members of the Estonian District Heating Association where tariffs range from about EEK 250/MWh to EEK 430/MWh, Tartu's heat tariff has been ranked in the top 10 lowest heat tariffs in Estonia\. Considering that the top 5 lowest tariffs are in heating systems based on oil shale-produced heat, Tartu's performance is judged very good\. Talilhin and Pamu's performance in stabilizing heat tariffs is also judged very good\. 4\.5 Institutional development impact: The Project has had a major impact on the DH sector throughout Estonia\. Under the DH rehabilitation component, the three major cities (Tallinn, Tartu and Pamu) received substantial iinvestment support and technical assistance to help improve the competitiveness of their district heating enterprises with alternative heat sources and to improve their operations, management and financial situation\. This has helped the cities and their enterprises to prepare for privatization, which is already well underway\. In the case of Tallinn, the Iru CHP Plant improvement component helped to achieve more efficient heat and power production\. Eesti Energy, the owner of Iru CHP Plant is also planning to introduce a profit center approach towards the Inr CHP plant to be able to have transparent financial data and allow for optimal utilization of the plant\. Under the small boiler conversion and replacement component, over one hundred cities received substantial teclnical assistance to prepare feasibility studies for project preparation and assessment\. Whereas only 36 projects were executed under the Project, many other municipalities have been enabled by this action to attract funding to implement their projects as well\. For the Government, this Project also has demonstrated the need for improved sector regulation\. The Energy Law of June 29, 1999 reflected these lessons and introduced a regulatory framework in line with the EU acquis comrnunautaire\. Regulatory responsibilitv was transferred from the municipalities to an Energy Market Inspectorate by the Energy - 18 -  Law\. The institutional development component has been instrumental in bringing about these achievements by providing sector studies, assisting in implementation as well as by helping to improve the management procedures and information systems in many of the companies\. In this regard, the Project could be judged "Highly Satisfactory\." - 19-  5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or imiplementing agency:' Foreign Energy Supply: Shortly after renewed independence of Estonia in 1991, the imports of gas and oil from Russia in the winter of 1992/93 were curtailed or delayed a number of times\. This caused much concern among the new Government and the population of Estonia and led to a strategy of energy resource diversification\. Indeed, the strategy to rely more on indigenous resources, such as peat and wood, was reinforced at the time and led to the idea of conversion/replacement of DH boilers to accommodate these local fuels, which became a core objective of the Project\. As this was, at the same time, a strategy which would help improve the economics of DH systems, reduce local pollution and even contribute to reducing greenhouse gas emissions, the Bank was keen to support this strategy, and was therefore also able to attract other donors to participate in the funding of the Project and related technical assistance (EIB, BITS/Sida, EU, Danish and other bilateral support)\. The policy of utilization of local fuels and diversification of fuel supplies continues today as a priority of the Government\. International Energy Prices: Estonia made great efforts immediately after its renewed independence, to bring energy prices, particularly those of imported fuels (oil, gas, coal), to international levels in the domestic market\. This initially had a serious impact on the heating sector, where prices had been extremely low previously, and inefficiencies and waste had been rampant\. As this affected the majority of the population, the country implemented social support schemes very early on\. This helped dampen the effect of the international prices on the poor consumers and reduced the danger of rapidly accumulating arrears, which would have translated into huge receivables and possible eventual bankruptcy of the newly municipal-owned companies\. Nevertheless, passing through international fuel prices into DH tariffs also exposed the country to the gyrations of international fuel supply and demand\. Thus, the huge drop in oil prices in 1998/99 had a significant impact on the operations of heat producers who had switched to local fuels\. While many DH companies increased the use of oil during this period, one DH company, namely Pamu, significantly increased the use of oil again in non-replaced boilers at the expense of local fuels\. The reversal of the international prices in late 1999, however, has already caused a switch back to the cheaper local fuels\. 5\.2 Factors generally sutbject to governnment control: Regulation of Heat Tariffs: The Govemment had already in 1992 moved to passing the costs of primary energy imports (gas, oil, coal), which had reached prices near world market levels, through to customers in the form of heat tariff increases\. In recognition of the resulting very high proportion of famnilies' incomes to be spent on heating only, the Govemment also provided for a social support schenne, which supported the very poor and vulnerable groups in meeting their energy bills\. However, in 1994, it became apparent to the municipalities, now in charge of pricing, that further increases would be necessary\. The Project acknowledged that there was a risk of heat tariff increases not being implemented, and moreover, because of political and social considerations, tariffs covering residential heat might be kept too low and cross-subsidized by higher than justified industrial tariffs\. Cross-subsidization of heat tariffs turned out to be the case in all major cities but had particularly severe consequences in Tartu which lost many industrial customers as a result, further precipitating the decline in demand\. - 20 -  Ensuring Fair Competition: There were clear indications during project implementation that the well organized, gas supply company was not going to stand by idly watching its market share erode due to conversion from gas to local or other fuels\. Indeed, in Tallinn and especially in Tartu (Pamu is not connected to the gas supply), aggressive marketing schemes were put into place to attract customers away from DH\. These proposals involved low-cost financing of gas connections and needed heating installations, as well as offers for low-cost gas supply contracts during a period of two years\. In addition, during a substantial part of the project period, gas prices were not differentiated for large and small consumers or based on the actual costs of supply, which led to unfair competition of individual gas boilers with DH\. During most of the project implementation period, a country-wide regulatory framework was not in place, but rather regulation of DH was the responsibility of municipalities\. It would have been in the interest of municipalities to develop heat master plans, designating areas of the municipalities in which either DH or gas would be maintained/developed, in order to protect the assets from being undermined by predatory pricing practices, but this did not take place\. Towards the end of the Project during 1999, a new country-wide regulator, the Energy Market Inspectorate, was established in accordance with the Energy Law\. Certain officials have claimed that the Energy Market Inspectorate has not required DH enterprises to separate the costs of heat production, transmission and distribution to allow for greater transparency in tariff setting\. Separation of such costs would be expected to more clearly demonstrate the benefits of utilizing the full capacity of Tartu's Luunja and Ropka boilers based on local fuels\. A two-tier tariff which would make the fixed and variable costs transparent, and which was being advocated by the Bank staff, would further help to clear the situation, thereby allowing to find a viable solution for the overall system operation\. It is recommended that the Energy Market Inspectorate be more proactive in deciding on how the competition between DH and gas should be regulated in Estonia, so that a long-term optimum can be achieved\. 5\.3 Factors generally siubject to implementing agency control: System Development and Operation: The problems in Tartu illustrate the need for the owners, i\.e\., municipalities, of DH systems to base their judgments on clear information about economic and financial performance, so that requirements for system development can be evaluated and justified and operations can be optimized over the entire system\. The intense and emotional dispute which arose in Tartu over the use of local fuels in competition with gas led to a distortion of rational economics\. The belated network connection in Tartu now clearly shows that this investment was an important prerogative for the competitive operation of the system\. Basing judgments on economic information would help to demonstrate that the gas-fired boiler in Tartu should be run according to its best economic benefits, i\.e\. as a peak-load boiler which can be easily switched on and off as the outside temperature in winter would require, and not as the base-load boiler, since base load from boilers run on cheaper wood and peat fuels helps to reduce operating costs\. A rational approach to systems operations would also lead to a reduction of personnel at the gas-fired boiler house and to introduction of an automatic call on the boiler depending on the changing heat demand of the system, which is now possible as a result of the project investments, with all the substations continuously monitoring demand and centralizing the informnation at the central controls\. Ensuring Sufficient Local Fuel Supplies: At the time of project appraisal, there was a risk that the level of local fuel supplies might not be sufficient to operate the boilers on a sustained basis\. Whereas the consultant studies had indicated sufficient stands of forests and regular harvesting for sustainable supply of wood products, as well as sufficient peat supplies over periods far exceeding the project life, locally at a - 21 -  given municipality, the supply might not be adequate\. In order to minimize this risk, prior to project commencement, municipalities which planned to convert their boilers to use local fuels would be required to enter into contracts for supply of at least 60% of the local fuel requirements for two years\. Indeed, under the small boiler conversion/replacement program, some communities were not able, initially, to provide such contractual arrangements\. In those communities and large cities where two-year supply contracts were executed, this has proved to be a useful risk-reducing arrangement, as it has helped to build the market for local fuels, assuring suppliers and DH companies alike that the required investments on both sides would be utilized as planned\. As a result, the market for the local fuels started to develop rather rapidly, with satisfactory regulatory arrangements by the forestry and environmental authorities to assure sustainable and envir6nmentally acceptable exploitation arrangements for wood and peat\. Very soon, keen competition came about and prices have remained relatively stable for these fuels, almost in line with the relatively stable prices for gas\. Even for the relatively large cities of Tartu and Parnu, the supply of peat and wood has stabilized and is considered sustainable over the future life of the Project\. In several markets of local fuels, waste products, formnerly representing an environmental problem have been turned into a steady stream of competitive fuel supply (e\.g\. saw-dust, bark)\. 5\.4 Costs andfinancing: The total cost of the project was estimated at EEK 870\.7 million, equivalent to US$ 64\.5 million, at appraisal\. A loan of US$38\.4 million from the World Bank would cover 60% of the project costs, with the balance to be covered by a loan from Sweden in the amount of US$ 10\.0 million, a loan from the EIB in the amount of US$ 4\.4 million (ECU 5 million), grants from donors in the amoant of US$ 3\.8 million equivalent, and contributions from the participating project agencies in the amount of US$ 7\.9 million\. The cost estimates and financing plan as estimated at appraisal and at project completion are included in Annex 2 "Project Costs and Financing\." In the end, the final project cost and sources of financing differed only slightly from the original estimates\. The final project cost was US$ 59\.8 rmillion or about 7% less than the original estimate\. The key factors which had an impact on the costs a,s estimated at appraisal included the following: (a) the cost of consumer substation rehabilitation and heat meters proved to be considerably less expensive due to competitive bidding and the large quantities per package (US$ 10\.9 million as compared to the estimate of US$ 17\.7 million); (b) the size of the small boiler conversion/replacement program was significantly reduced (from US$ 12\.8 million to US$ 7\.4 million) due to reductions in the scope of the conversion program; and (c) the savings realized were utilized to finance the construction of a new stack at Iru CHP Plant and additional quantities of DH equipment included in the project description\. The key factors which resulted in differences in the final financing plan as compared to the original plan included the following: (a) the requirements for both the Bank and Swedish loans were reduced when the small boiler conversion program was scaled down; (b) the requirement for the Swedish loan was further reduced when the then Tartu city management decided to stop further investments in the DH system; and (c) EIB provided additional financing in the amount of about US$ 2\.2 million for substation and heat metering investments under the Tallinn DH rehabilitation component which had been foreseen to be financed by the Bank\. As a result, US$ 2\.08 million equivalent of the Bank loan will be canceled shortly, with USS 36\.32 million equivalent disbursed\. Similarly, US$ 3\.38 million of the Swedish loan was canceled, with US$ 6\.62 million disbursed\. - 22 -  6\. Sustainability 6\.1 Rationale for sustainabilitv r-ating: A continuous supply of local fuels, such as saw dust, bark, wood and wood chips as well as peat, is essential for the sustainability of the project components involving conversion to these fuels (Tartu, Pamu, small boilers in other municipalities)\. Adequate regulations in forestry management and by environmental authorities regulating peat extraction help to assure the required supplies of local fuels\. Indeed, the growth of identified peat resources exceeds the growth of peat use\. Similarly, the growing market in wood-based fuels has identified many sources previously considered as waste\. Thus, there is further scope for local fuel-substitution, and a number of investors are currently considering to introduce small CHP installations based on renewable energy resources to further improve energy efficiency, while helping to reduce greenhouse gas emissions and thereby helping to mitigate against climate change\. Furthermore, the investments under the Project led to efficiency gains and cost savings which improved the financial viability of DH companies and improved their attractiveness for privatization, which is now underway\. Improved efficiency and lowered costs have also led to the improved competitiveness of DH companies viz-a-viz alternative heating options (individual gas heating, oil heating), making them more attractive targets for privatization\. Moreover, improvement of DH systems has helped to improve environmental performance, which in turn has assisted companies to meet environmental standards\. This is not only important in the local context for improved living conditions but once again increases the chances for privatization\. In addition, consultant support, training and technical assistance for management system improvements helped DH companies to improve management, technical operations and general housekeeping, allowing companies to further reduce costs as a result of improvements in system optimization\. The improved management systems have allowed a better understanding of companies' strengths and weakness\. In turn, managers have started to address the weaknesses and build on their strengths\. Privatization of the DH companies is already under way\. With a proper regulatory regime in place and the municipalities in process of withdrawing from ownership of the DH systems, the ground is being prepared for a competitive development of the heat market including newly-privatized DH companies as well as companies offering alternative heating options\. Regarding the special case of Tartu, if the political and emotional problems in the Tartu DH system are overcome, Tartu could perform well and reap the full benefits from the project components, which would help to make the DH system and companies sustainable\. It is hoped that introduction of the proposed measures as well as the ongoing privatization will eventually lead to this situation\. Apart from the Tartu case, the Project would have been rated "Highly Satisfactory\." However, given the still pending problems in Tartu, which are expected to be overcome shortly, the project's sustainability is rated "Satisfactory\." - 23 -  6\.2 Transition arrangenment to reguilar operations: One can consider the corporatized companies to represent "regular operations," provided a sound regulatory framework, including a strong regulatory agency is in place\. An important step in this direction was the early commercialization of DH companies and their transfer to municipal ownership in 1993\. Corporatization and selected restructuring of DH companies took place during project implementation\. A more advanced step, privatization, is already under way or being considered for DH companies in the larger cities\. Iru CHP Plant is expected to remain under the ownership of Eesti Energia but is planned to be established as a separate daughter company (i\.e\. profit center) in the near future, allowing for a more transparent operation\. Whereas there is scope for further improvement of the Energy Market Inspectorate, as the case of Tartu illustrates, the fact that this independent agency can be called upon to address outstanding issues is a major improvement to the prior situation of regulation by the municipalities which is subject to local politics\. Two-tier DH tariffs distinguishing between fixed and variable costs remains to be introduced to improve transparency of pricing in the sector\. The improvements to the "enabling environment," i\.e\., the development of a new legal framework for energy, including DH, the setting-up of a regulatory framework and agency for the sector, in parallel with project implementation and in part supported by it, have been milestones during the transition\. After the sustained functioning of such a system for a number of years, Estonia may consider moving to a self-regulating system for DH, with oversight by public service commissions representing consumer interests, as is the case in a number of Scandinavian countries\. -24 -  7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank team was well equipped with early experiences from the implementation of the DH project in Poland and with a number of professional feasibility studies on the Estonian energy and heating sector\. The comprehensive focus of the Bank team on the DH sector throughout Estonia was considered helpful by the central Government and municipalities alike as it allowed for addressing issues of the institutional, legal, regulatory and tariff-setting nature, as well as specific issues of municipalities, while affording a "learning from each other" mode throughout the country\. The insistence of the Bank team to scale down overly-optimistic demand forecasts of the consultants was helpful and took into account the efficiency improvements on the supply side expected to result from the project investments\. However, even the reduction of demand forecasts was not sufficient to capture the subsequently evolving reality of further declining demand due to: (a) efficiency improvements on the demand side (which became possible and necessary due to installations of meters under the project and rising energy tariffs), and (b) the decline in the number of industrial customers due to a misguided policy of cross-subsidization at the expense of industrial customers\. The Bank team had warned about this latter development, advocating instead a two-tier tariff and elimination of cross-subsidies\. Another aspect which had not been foreseen in the demand forecasts, to the extent necessary, was the aggressive fight of the competing gas supplier to maintain or recapture market share as well as the lack of marketing efforts of DH companies to maintain or increase their share of customers, especially in Tartu, until the latter stages of project implementation\. The Bank team was particularly effective in making needed arrangements to transfer knowledge to the sector with regard to developing a sector strategy, setting up a legal and regulatory framework, developing management systems, technical and technology improvements, and procurement arrangements\. 7\.2 Supervision: General: The fact that the Bank team did not change significantly over time and continued to be managed by the same task manager was very beneficial for the Project and its implementation\. The Estonian side expressed its particular appreciation for the continued guidance by the competent and able task manager\. Moreover, the Bank's Tallinn Branch Office was very helpful to support the dialogue, arrange for missions and meetings and ably follow-up on specific issues\. Implementation Support: The Project was closely supervised from Washington and during two supervision missions per year, on average, totaling 11 missions over the life of the Project\. These missions addressed performance to-date and outstanding issues as well as planning for next steps\. The missions made it a special point to meet with representatives of the central Government (Ministries of Finance and Economy), with Mayors and City Council representatives as well as management and staff of DH companies\. Concise and comprehensive mission reports about progress performance, issues encountered and further planning were a hallmark of this Project\. - 25 -  Guidance Regarding Energy Sector Strategy, Legal and Regulatory Framework: The Bank team was supportive in the development of a sound sector strategy and legal and regulatory framework which would help the sector to develop under a decentralized market-oriented environment\. This was achieved by provision of technical assistance early in the Project as well as through an ongoing dialogue about issues and problems encountered during supprvision missions\. The experiences in other former centrally planned economies were readily shared allowing Estonia to make "educated" decisions\. Guidance Regarding Tariff Policies: Bank staff were not very successful in convincing municipalities and DH companies to refrain from cross-subsidizing residential customers through inflated industrial tariffs\. This had to be appreciated by the negative experience of losing significant numbers of industrial customers, before this misguided policy was abolished\. The Bank team was also not able to convince the municipalities and DH companies to introduce two-tier tariff systems\. This may, however, materialize after privatization\. Invitation to Share Knowledge With Other Countries: From the beginning, the Project was led by the motto: "leaming from each other\." This motto was even expanded across the borders of Estonia\. Thus, the Bank team invited delegations from other countries (e\.g\. Poland) to make presentations about their experience in DH restructuring and modernization\. Similarly, Estonian specialists were sent for training to other countries such as Denmark, Sweden and Finland to learn about the state-of-the-art systems and technology\. The Bank team also arranged for Estonian managers and experts to make presentations about their own lessons learned to groups of visitors from other countries contemp[ating undertaking DH rehabilitation projects (e\.g\. Bulgaria, Lithuania and Ukraine)\. The Estonian counterparts met recently expressed their sincere appreciation for these efforts\. Mid-term review: As a result of the accusations during 1996 by the then Mayor of Tartu concerning the economics of the Tartu component, the Bank team used the mid-term review of the Project to reassess the economic and financial merits of the Tartu DH rehabilitation component\. This was done with the help of independent Bank staff and others, participating in the mission and all discussions\. The resulting report demonstrated the soundness of the project concept, scope and implementation to-date, especially regarding the conversion of four boilers to use of local fuels\. During a recent visit, the Estonian counterparts at all levels confirmed that this mission had cleared the confusion resulting from a fight of two opposing parties\. They termed the mission report of June 1996 as "very professional and objective" and were particularly appreciative of the fact that the Bank had remained a rational and objective advisor in spite of the gravity of the accusations\. Whereas the situation started to be partially remedied only about a year later, and is still not fully resolved, the consistency of the Bank's position and the soundness of advice was recognized by all parties involved\. 7\.3 Overall Bank performance: In the light of above experiences, the performance of the Bank team is rated as better than "Satisfactory\." Borrower 7\.4 Preparation: General: The DH sector of Estonia, during Soviet times had been administered centrally out of Moscow (Ministry of Energy)\. After re-independence there was an eagemess to decentralize DH systems to the municipal level\. Moreover, the winter of 1992/93 had brought hardships to the population as a result of delayed or interrupted shipments of oil and gas from Russia\. Thus, a decentralized sector which would - 26 -  diversify into use of local fuels such as peat, wood and wood wastes was considered essential towards the sustained well-being of the population\. This explains the eagerness and drive of local officials to proceed quickly with a comprehensive DH project which would help address the facets of institutional arrangements, legal and regulatory underpinnings, technical investments, fuel substitution and improvements of operations\. Project Preparation Performance: The strong motivation at all levels of Estonian counterparts helped to set common goals for the Project and its components, fostered a tight timetable and a quick and effective preparation\. As a result, the most complex and difficult procurement item (large boiler conversions) already led to contract signatures a few months after Bank Loan signature and even before Bank Loan effectiveness\. The motto of "leaming from each other" was all pervasive and the Estonian counterparts went out of their way to provide information, "swallow" difficult lessons (e\.g\. the Bank's procurement rules were considered, at least initially, as complex and difficult, but their application was seen as a long-term advantage) and to promote accepted agendas\. 7\.5 Government implementation performance: General: Sharing experiences continued throughout project implementation, with excellent cooperation provided by all parties involved (apart from the temporary Tartu issues)\. Implementation proceeded according to established timetables for most of the components, and the majority of project investments had already been completed by end-1997\. Thereafter, the learning curve with the new equipment was steep, and the Estonian counterparts were keen to learn from consulting services provided as well\. On the other hand, the process of developing a sound legal and regulatory framework was protracted in the newly-established democracy and only led to a progressive law and independent regulatory authority during 1999\. Implementation: The Ministry of Finance administered the on-lending of the Bank, Sida and EIB loans and also supervised the implementation of the small boiler component, in close cooperation with the Ministry of Economy which managed a small Project Implementation Unit (PIU) supported by international consultants\. Within the small boiler component, ultimate beneficiaries sometimes considered that procurement was too cumbersome and slow, being handled centrally out of Tallinn\. Some project agencies even stated that a direct relationship between the Bank and the DH company would have been preferable (as was the case in the Poland DH Project)\. Whereas the Bank normally also prefers a direct relationship with the Borrower, considering the size of the project components and particularly that of the small boiler component, this would not have been practical from the Bank's point of view\. When the option to convert the Bank's currency pool Loan to a single currency loan in Deutsch Marks (DEM) was provided, many sub-borrowers considered that the Ministry of Finance was not sufficiently helpful to convert all sub-loans to DEM-denominated loans in order to minimize foreign exchange risk\. In the case of the political turmoil of Tartu during 1996, the Government had a particularly difficult task\. Even Parliament became involved and in 1997 reprimanded the City that it was not utilizing its assets in economic ways\. Not surprisingly, even today, some City officials feel that the Government was not sufficiently supportive of the Tartu component\. On the other hand, the Government has consistently acted as a facilitator for the smooth implementation of the Project\. - 27 -  7\.6 ImplementingAgency: The PIU for the small boiler program did a good job to coordinate the original preparatory work, evaluate projects and provide assistance to the individual municipalities\. Thus, in spite of the grumbling of a few, the majority of participating municipalities was satisfied with the support received\. The Tallinn and Pamu DH Companies, and the management of the Iru CIP Plant, were keen and eager to implement their respective project components and managed them well\. Their cooperation in all respects was outstanding\. All enterprises were highly motivated, and this combined with the support they received from the respective municipalities and consultants, as well as Eesti Energia in the case of Iru CHP Plant, led to smooth project implementation\. The Tartu component, on the other hand, is an example of a project component beinlg held up, delayed and benefits diminished, when a fight over local fuels made decision makers lose sight of the overall benefits of the Project\. Thus, at times, the performance of the Tartu City authorities and the DH companies' management was unsatisfactory\. The situation has much improved by now, but further improvements are still required for the investments and the DH system to develop their full economic potential\. 7\.7 Overall Borrower performance: In the light of above experiences, the performance of the Borrower and project agencies is rated as better than "Satisfactory"\. - 28 -  8\. Lessons Learned General: The Estonia District Heating Rehabilitation Project has been a large and complex project with many different components\. It was demand-driven throughout Estonia, i\.e\. the Estonian Government, Eesti Energia, municipalities and DH companies wanted and supported the Project\. Thus, it showed a strong level of ownership by the Borrower and project beneficiaries\. Moreover, it came at the right time, addressing high priority issues shortly after re-independence\. Nevertheless, apart from the normal implementation difficulties and problems encountered in any such complex project, there were a number of valuable lessons\. These concern: (a) demand forecasts; (b) tariff policies; and (c) competition with gas\. In addition, there a a number of further lessons which are highlighted below\. Demand Forecasts: Like many of the first projects of the early 1990's in the DH sectors of former centrally planned economies, the demand forecasts of this Project were overly-optimistic\. This has been a common problem in other public utility sectors as well, for example, in water supply and waste water treatment projects\. In the case of DH, it was anticipated that consumers would want a "normal" level of indoor heating (1 8-200C) if it were available, because DH was being rationed due to the inability to secure or pay for necessary fuel supplies, and thus demand was projected to grow\. However, the projected demand growth did not materialize\. Demand for DH remained, at best, stable in Parnu but declined further in Tallinn and Tartu\. The introduction of cost covering tariffs, combined with the possibility to measure and regulate consumption at the building level, led to a reaction among customers to save energy instead\. Subsequent investments into insulation and energy efficiency measures further depressed demand\. In addition, a number of industrial consumers disconnected from DH due to uncompetitive tariffs\. However, even with the unforeseen decline in demand which affected the economics of the project components to some extent and the financial position of DH companies, there were still major benefits resulting from the investments and the DH tariffs that have had to be charged have remained competitive\. Future DH projects should scrutinize demand projections and the factors which affect demand very carefully\. In cities where DH is facing unfair competition from alternative heating options, consideration should be given to specifying areas where DH is the required heating option until the factors leading to the unfair competition are removed, in order to preserve DH demand\. Cross-subsidies should be removed or reduced as early as possible in order to improve DH competitiveness and thereby maintain existing large industrial consumers\. Greater efforts to identify new DH consumers should also be undertaken\. The project design should consider how small, isolated heating systems can be connected to the larger, more efficient DH system as well as whether parts of the DH system are uneconomic and should be closed down to allow for alternative heating options\. Demand forecast analysis should also consider the results of social assessments which help to forecast consumers' reactions and responses to possible tariff increases and the ability to measure and regulate heat consumption\. Tariff Policies: Appropriate tariff policies play an important role in maintaining DH consumers and thus the viability of DH systems\. It has been shown through this Project, as well as elsewhere, that establishing DH tariffs above costs for one group of customers, such as industries, in order to cross-subsidize another group, such as residents, will lead to the loss of the customers from the group paying higher than the competitive tariffs\. As the DH system is capital intensive and thus has relatively high fixed costs, a decline in demand increases the portion of fixed costs which the remaining customers have to carry and can lead to its loss in competitiveness\. Two-tier tariff policies allow for the transparent pricing of DH based on fixed and variable costs and thus allow DH companies to charge for actual costs of supply, rather than tariffs -29 -  based on estimates of costs made at the beginning of the heating season which may be either too high or too low\. Therefore, two-tier tariffs are beneficial to both DH producers and consumers\. Also, gas prices, if not properly differentiated to reflect the actual costs of supply to the various categories of consumers, such as large and small consumers, can also result in unfair competition with DH\. Therefore, transparency of tariffs and maintaining competitiveness with other heat providers should be a prime goal of DH tariff policy\. Competition With Gas: When designing DH projects, it is highly important to properly assess risks associated with the potential for competition from gas, or other alternatives, to DH\. It is unfortunate that the competing gas company in Tartu managed to convince the then Mayor in 1996 about the attractiveness of gas and the "erroneous project concept to use local fuels\." The problem is still not fully solved, and the loss to the consumers has been substantial\. This development has had an impact not only on the project investments which have been delayed but also has affected consumers' attitudes towards DH\. As a result of the controversy, the decline in demand, as compared to the growth projections, was most pronounced in the case of Tartu\. The political risk of an administration change which would "disown" a project is difficult to mitigate against\. A course of action and particular remedies which the City and the DH companies can take to improve the situation have been elaborated and are now being considered and pursued, including privatization of the DH system, but some of the losses, such as the lost consumers, niay never be regained\. Other lessons: Project "ownership" by the Borrower and project beneficiaries is key to the successful implementation of a Project\. The positive experience with the project agencies involved in Tallinn, Pamu and Iru CHP Plant as well as in the small boiler program illustrates the point, and Tartu shows what can happen if the situation changes\. The beneficial impact resulting from the continuity of a competent Bank team working consistently on project preparation and implementation should be recognized\. Even during the difficult mid-term review of the Tartu component, the Bank's insistence on an open-minded rational assessment by independent Bank staff and consultants helped to demonstrate the merits of the Project and the credibility of the Bank team once more\. When the Bank's Procurement Guidelines are considered to be difficult and cumbersome, it is important to take corrective action as quickly as possible\. Complaints arose in the use of the Bank's suggested and newly-evolving bidding documents for the Supply and Installation of Plant that were to be utilized for the small boiler conversion/replacement projects and that were generally very small in nature, each less than US$ 1 million in value\. As a result of the early unsuccessful attempts to utilize the sample bidding document, the Bank agreed and assisted the Ministry of Economy to develop a simpliified bidding document more appropriate for smaller projects\. After simplification, the bidding process for small boiler projects proceeded smoothly\. Other project agencies genuinely appreciated the experience they gained fi-om a competitive procurement process and from use of the Bank's procedures and documents in particular\. The result was that project agencies have abandoned their less effective earlier procuremrent practices in favor of competitive bidding\. Addressing the sector strategy and legal, regulatory and institutional issues was a major success of this Project and demonstrates the benefits of a comprehensive and holistic approach to the Bank's project lending\. During project implementation, work proceeded on all these fronts so that now the sector is ready for "normal operations" and privatization\. - 30 -  The motto of "learning from each other" is worthwhile in such a comprehensive project and extremely effective\. Going beyond national boundaries has played an important role in helping the Estonian counterparts to absorb knowledge and to pass on the results of their learning experience as well\. - 31 -  9\. Partner Comments (a) Borrower/implementing agency: General: During a recent mission, representatives of central and local Government and the DH companies were provided with copies of key parts of the draft ICR, as well as a list of specific questions about their project components, objectives, scope, implementation performance and results achieved\. They have provided verbal and written feedback which has been incorporated into the final ICR\. The written comments are available on electronic file\. Some specific comments deserve explicit recognition as follows: Regarding the use of local, renewable energy resources, a representative of the Ministry of Economy emphasized that the increasing use of wood-based fuels is beneficial not only with regard to the DH companies' financial performance but also with regard to the global environment\. The CO2 emissions are considered at zero level for wood-based fuels\. Thus, the development away from peat and towards a greater use of wood-based fuels which could be observed in Tartu is a very desirable development\. The management of both Tartu as well as Parnu DH companies emphasized that, prior to 1995, the market for renewables was practically non-existent\. In addition, the use of wood waste (bark, saw dust) has further helped to stabilize the prices for wood-based fuels\. Thus, a new industry has developed and is bound to stay\. Regarding lessons learned, the Tartu DH Company has written: "We got a lot of experience in several fields (technical, economic, environmental); we got much good and useful inforrnation and knowledge about new and modem technologies from several other companies, several institutionis and several people (experts)\. And the DH system gained more trust on the side of the consumers\." This has also been emphasized by Tallinn and Parnu DH companies as well\. The Tartu DH Company further emphasized: "The price of part of the loan has become quite high: (in 1994 the US$ was at EEK 12, in March 2000 it is at EEK 17)\. We asked the Government to transfer (convert) the loan to Deutsch Marks, but did not get a reaction\." Converting the Bank's Loan to Deutsch Marks was possible under the Bank policy for loan products which was introduced during project implementation\. Regarding the performance of the Government, the City and the Bank, the Tartu DH Company has written: "The Government did not perform at all\., The city performed quite normally, sometimes better, sometimes worse\. The Bank performed very correctly, civilized, and with understanding to our problems\. It was a very good cooperation\. Lot's of thanks to the task manager\." The Iru CHP Plant management has written: 'The Iru rehabilitation was definitely right in its objectives, project scope, as well as right for the interests of the Tallinn District Heating Company\. The Project objectives were achieved and the technical level was good\." Similar statements were made by all companies visited (Tallinn, Tartu and Pamu DH companies and a small boiler plant converted to wood-based fuel use (Adavere))\. - 32 -  (b) Cofinanciers: The Project had two major co-financiers providing investment funding and a number of smaller contributions from the EU and bilateral sources to provide technical assistance and institutional support within and outside the immediate project scope, but in any case related to the Project\. The EIB co-financed one entire component, namely the Parnu DH rehabilitation and contributed to the Tallinn DH rehabilitation component\. EIB completed the Parnu component during 1998 with a project completion report which is on file in the Bank\. Sida funded a considerable portion of the small boiler program and the Tartu component\. Sida has prepared the following comments: "Sida has very much appreciated the cooperation with the World Bank in this Project, and the possibility to plan and later review its components together with the World Bank in well organized joint missions\. The management of the Project from the World Bank's side has been highly professional, and Sida gained much experience from this cooperation\. As a matter of fact, this Project, being a pilot lending operation for Sida, has contributed to the development of a new Sida strategy for energy assistance in Eastem Europe, emphasizing rehabilitation of existing assets and energy efficiency improvements\." (c) Other partners (NGOs/private sector): 10\. Additional Information Additional information is in the Project Files and in the Annexes to this Report\. - 33 -   Annex 1\. Key Performance Indicators/Log Frame Matrix SMALL BOILER CONVERSION/REPLACEMENT PROGRAM: Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 \.'\.'- -T-*w' -'\.4W T - T's Project Completion Degree: Capacity of Projects completed during the period (MW): Conversions 4\.8 4\.7 0 3\.5 0\.8 3\.5 0 0 0 Replacements 6\.1 6\.1 2\.65 2\.8 1\.7 0\.6 5\.85 8\.6 2\.95 Performance: Heat produced using Domestic fuels (GWh): Conversions 1\.2 1\.2 6\.1 11\.7 13\.6 15\.4 14\.6 22\.1 22\.1 Replacements 1\.8 1\.8 20\.6 20\.7 23\.2 23\.5 36\.5 35\.6 46\.6 Value of saved fossil fuels (EEK million/Period: Conversions 0\.22 0\.22 1\.11 2\.12 2\.56 2\.80 3\.45 4\.01 4\.01 Replacements 0\.33 0\.33 3\.75 3\.76 4\.36 4\.28 8\.61 6\.48 8\.47 Net savings in fuel costs (EEK million/period): Conversions 0\.12 0\.12 0\.59 1\.12 1\.37 1\.48 2\.37 2\.12 2\.12 Replacements 0\.18 0\.18 2\.09 2\.10 2\.34 2\.38 5\.91 3\.61 4\.72 Reduction of emissions (tons/period) S02 16\.6 16\.6 148 180 204 216 285 294 351 C02 1,080 1,080 9,958 11,65 13,248 14,02 18,521 19,081 22,870 NOx 2\.6 2\.6 22\.8 6 31\.5 4 43\.7 42 49 \.__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 28 33 \. j - 34 -  TARTU DH REHABILITATION PROGRAM: Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 Prjct Completion Degree___ % fsubstation completed 5 1 5 90 40 100 70 100 100 100 100 %of heat meters, completed 5 115 90 140 100 70 100 100 100 100 % of remaining items completed 30 30 50 55 100 80 100 100 100 100 % of boiler conversions 90 100 100 100 100 100 100 100 100 100 completed Performance: Luunja boiler conversions: Heat production (GWhyear) 34 203 140 228 154 228 145 228 127 228 Local fuel price (EEK/MWh) 45 48 50 53 56 57 64 62 79 66 Gas price (EEK/MWh)* 145 140 125 142 141 146 131 150 153 155 Performance: Ropka boiler conversions: Heat production (GWh/year) 47 83 60 83 63 120 60 120 55 120 Local fuel price (EEK/MWh) 76 73-80 81 80-87 86 86-95 85 92-103 85 97-110 Gas price (EEK/MWh) 144 140 122 142 142 146 131 150 111 155 Make-up water added to the 2000 2400 893 800 550 600 622 500 367 500 DH system (tons/day) _ _ _ IRU POWER PLANT IMPROVEMENT PROGRAM: Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 Seasonal overall plant 87 85 87\.5 85 87\.5 85 87\.5 85 87\.5 85 efficiency (%/6) _ ______ CHP #2 plant efficiency - - - 81 82\.5 81 82\.5 81 82\.5 81 after renovation of air preheater (%) ______ Make up water quality Below Below Meets Meets Meets Meets Meets Meets Meets Meets I Standard Standard Standard Standard Standard Standard Standartd Standard Standard Standsrd Circulating water chemical Below Below Below Meets Below Meets Meets Meets Meets Meets analysis Standard Standard Standard Standard Standard Standard Standartl Standard Standard Standard - 35 -  TALLINN DH REHABILITATION PROGRAM: Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 | = \. - \. \. r ,,\.-'\.'\.-''' Project Completion Degree: % of substation completed 5 15 85 85 90 100 100 100 100 100 % of heat meters 5 15 85 85 90 100 95 100 100 100 completed % of remaining items 0 0 50 50 95 100 95 100 100 100 completed Performance: Kadaka seasonal overall 86\.2 85 N/A 88 87\.5 88 87\.5 88 88 88 plant efficiency (%) _ Make-up water added to 830 830 658 210 320 170 225 150 150 150 the DH system (1,000) tons/year) Circulation water Below Below Below Below Below Meets Meets Meets Meets Meets chemical analysis Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard - 36 -  Annex 2\. Project Costs and Financing Proect Cost b Cor onent (in US$ million e uivalent) Small Boiler Conversion and Replacement 9\.78 7\.37 75 District Heat Rehabilitation Program 32\.32 39\.65 110 Iru Power Plant Improvement 4\.71 8\.87 188 Design and Supervision (Note) 3\.57 Institutional Support Program 3\.16 3\.87 122 Total Baseline Cost 53\.54 59\.76 Physical Contingencies 5\.35 Price Contingencies 5\.61 Total Project Costs 64\.50 59\.76 Total Financing Required 64\.50 59\.76 Note: The actual design and supervision costs are included in the costs of the District Heating Rehabilitation Project Actual/Latest Estimate\. Project Costs by Procurement Arrangements Appraisal Estimate) (US$ million equivalent) 1\. Works 13\.40 0\.00 6\.14 7\.58 27\.12 (12\.50) (0\.00) (4\.45) (0\.00) (16\.95) 2\. Goods 20\.03 0\.00 1\.42 15\.93 37\.38 (20\.03) (0\.00) (1\.42) (0\.00) (21\.45) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Bank Guidelines 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) Total 33\.43 0\.00 7\.56 23\.51 64\.50 (32\.53) (0\.00) (5\.87) (0\.00) (38\.40) -37 -  Project Costs by Procurement Arrangements (ActualiLatest Estimate) (US$ million eguivalentl Procurement Method' Expenditur Catego Ice NCO r I\.,F\. Total Cost 1\. Works 21\.25 2\.91 3\.69 6\.98 34\.83 (15\.41) (2\.47) (3\.12) (0\.00) (21\.00) 2\. Goods 13\.95 0\.00 2\.88 4\.24 21\.07 (13\.31) (0\.00) (2\.01) (0\.00) (15\.32) 3\. Services 0\.00 0\.00 0\.00 3\.87 3\.87 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Bank Guidelines 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) 0\.00) Total 35\.20 2\.91 6\.57 15\.09 59\.77 7_ (28\.72) (2\.47) (5\.13) (0\.00) (36\.32) Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. ' Includes civil works and goods to be procured through limited international bidding, international shopping and national shopping\. Project Financing by Com onent (in US$ million e_ui_lent) Percentage ef ApprisOA Appris4 lstite Actua ,test rE5suat ___ \. _ \. \. ~~Bask clovt 6\. CO\. Bank GiW Small Boiler Conversion/ 7\.90 0\.78 3\.20 5\.86 0\.29 1\.21 74\.2 37\.2 37\.8 Replacement Program District Heating 25\.30 2\.76 11\.20 22\.82 3\.90 12\.92 90\.2 141\.3 115\.4 Rehabilitation Program Iru CHP Plant 5\.20 0\.52 7\.64 1\.23 146\.9 236\.5 0\.0 Improvement Design and Supervision 3\.84 0\.0 0\.0 0\.0 Institutional Support 3\.80 3\.87 0\.0 0\.0 101\.8 Program Total 38\.40 7\.90 18\.20 36\.32 5\.43 18\.01 94\.6 68\.7 99\.0 Note: Govt\. rcfers to the contributions from project agencies\. - 38-  Annex 3: Economic Costs and Benefits Economic Re-Evaluation The Project has had significant economic benefits in all its components\. The key benefits have been reduced fuel costs and import requirements, improved efficiency in DH systems and improvement of environmental conditions in the affected areas\. The economic rates of return (ERRs) at appraisal did not consider environmental benefits\. Thus, the weighted ERR for the Project amounted to 24\.4% at appraisal as compared to 22\.5% today, the difference being largely due to the relative deterioration of the terms of trade between oil and renewables\. However, when one considers environmental benefits, the weighted average ERR increases to 58\.5%\. Table 1: Summary Economic Rates of Return Small boi ler7 conversion _29\.2% 10\.5% 20\.5% Small boiler replacement 9\.8% 31\.2% 45\.6% Tallinn DH rehabilitation 22\.8% 24\.0% Tartu DH rehabilitation 28\.5% 27\.9% 101\.3% Pamu DH rehabilitation 27\.8% 12\.1% 87\.4% Iru CHP Plant improvement 18\.1% 16\.7% Weighted ERR 24\.4% 22\.5% 58\.5% Note: The environmental benefits have been based on international cost emission benchmarks\. Sustainability is a strong economic feature of this Project\. The increased efficiency, the use of lower cost indigenous fuels as compared to imported fuels, and the environmental benefits provide a high likelihood that its major benefits will be sustained over the life of the project components\. Boiler Conversions The Small Boiler Conversion Program followed in general the planned time implementation schedule but was reduced in scope\. Changes in the relative prices between oil and renewables reduced the project's expected returns\. At appraisal, the ERR for this component was estimated at 29\.2%, while presently the ERR is re-evaluated at 10\.5%\. The key expected benefits were fuel cost savings\. However, expectations regarding oil prices became more conservative immediately after 1995, following weak international oil price trends\. Weak oil prices up to 1999 were mainly due to excess supply conditions of oil in world markets, the Asian economic crisis and several mild winters in Europe\. Mazut, the main fossil fuel used in Estonian DH plants, is a heavy fuel oil with high - 39 -  sulfur content\. Mazut has been constantly cheap, with prices, especially in summertime, ranging below 1,000 EEK (about US$ 65-70) per ton\. On the other hand, prices for renewables have been relatively constant after 1995, reducing the relative price differences (see Table 2 below)\. Table 2: Fuel Prices (US$/MWh) Oil 11\.4 10\.4 9\.1 9\.3 8\.1 10\.6 9\.0 8\.0 7\.6 7\.3 7\.0 Peat and Wood 7\.0 5\.8 5\.0 5\.3 5\.2 5\.7 5\.4 5\.2 5\.2 5\.2 5\.2 Difference 4\.4 4\.6 4\.1 4\.0 2\.9 4\.9 3\.6 2\.8 2\.4 2\.1 1\.8 Sources: Pamu Soojus Ltd\., International Energy Agency and World Bank Forecasts, April 2000\. A significant benefit which was not considered in the original calculation of the ERR was the reduction in the emissions of harmful gases\. When one considers these figures and the environmental fees levied in Estonia, the ERR is slightly raised to 11\.3%\. However, if one uses international cost emission benchmarks, such as those used in Poland and the rest of Europe, instead of the conservative environmental fees, the ERR is raised to 20\.5%\. Boiler Replacements The Small Boiler Replacement Program has also followed the original time implementation schedule but with an increased scope\. As with the conversion program, the key expected benefits were fuel cost savings\. However, the deterioration of the relative prices between oil and renewables were more than compensated by a decline in investment costs per unit\. At appraisal, the ERR was estimated at 9\.8%, while presently the ERR is re-evaluated at 31\.2%\. As with the conversion program, environmental benefits were not considered in the original estimate of the ERR\. Once these benefits are included, the ERR increases to 32\.2%\. However, if one uses international cost emission benchmarks instead of the environmental fees, the ERR is raised to 45\.6%\. The Small Boiler Conversion and Replacement Program has contributed to the development of Estonian manufacturers of energy equipment, as well as significantly developed local Estonian installation companies\. According to local experts, the quality of the equipment and services has increased significantly since the program commenced\. The program has also increased the demand for wood waste and peat, contributing to the development of a market for domestic fuels as well as to the improvement of forestry sector by demanding wood of little, if any, industrial value\. -40 -  Tallinn DH Rehabilitation The works under this project component were generally completed on time and cost\. Economic benefits refer to: (a) reductions in heat demand from better regulation and controls in substations; (b) heat cost reductions from Iru CHP Plant due to installation of Laagna heat exchanger and pumping station; (c) less heat and water losses; (d) lower fuel and electricity requirements; (e) less maintenance and repair works; (f) savings in water treatment costs, and (g) improvements in reliability of heat supply\. The changes in oil prices affected the project's returns but were compensated by higher estimation of other benefits\. At appraisal, the ERR was estimated at 22\.8%, while presently the ERR is re-evaluaited at 24\.0%\. Tartu DH Rehabilitation The appraisal estimate of the ERR for this component was 29%\. Although a separate estimate was not calculated for the boiler house at Luunja, a Bank team estimated it at mid-tern in 1996 to be 27%\. The key benefits were the savings form the conversion of various base-load boilers to use the lower-cost indigenous fuels, including improved boiler efficiency from the improvement in combustion controls\. Other benefits were: (a) reductions in heat demand from better regulation and controls in the substations; (b) savings in operating and maintenance costs after improvements of the water treatment system and longer lifetime; and (c) reduction of heat and water losses in the network through the replacement of sections of the pipeline, at times which are under groundwater level, and through ventilalion of concrete culverts\. Presently, although the expected savings in fuel costs have been lower than expected, the component continues to remain attractive with an ERR of 27\.9%\. The benefit value of the reduction of harmful emissions to the atmosphere was not considered at appraisal in the estimate of the ERR\. When this environmental benefits are considered, the ERR is raised to 30\.6%\. However, if one uses intemational cost emission figures instead of the conservative environmental fees, the ERR is raised to 101\.3%\. The original estimated ERR assumed optimal operation of the boiler houses to take advantage of the lower cost indigenous fuels, but this has not been the case\. The boiler houses at Luunja and Ropka have not been operated at full capacity\. Thus, if the use of the wood and peat boilers were increased up to their full level of capacity utilization, there would be additional savings to the project\. When these additional savings are considered, the ERR is further raised to 41\.7% without enviromnental benefits and 111\.0% with environmental benefits based on international cost emission benchmarks\. Parnu DH Rehabilitation The appraisal estimate of the ERR for the Pamu DH rehabilitation component was in the range of 28%\. The economic benefits for this component are comparable to Tartu's and largely based on fuel costs savings as a result of the conversion of various base-load boilers to use the local fuels\. Presently, although the expected savings in fuel costs have been lower than expected, the component continues to remain attractive with an ERR of 12\.1 %\. As with Tartu, the environmental benefits from the reduction of harmful gases were not considered in the original calculation of the ERR\. Once these benefits are taken into account, the ERR is raised to 22\.7%\. However, if one uses international cost emission figures instead of the conservative environmental fees for Estonia, the ERR is raised to 87\.4%\. -41 -  Iru Improvements The appraisal estimate of the ERR for Iru Power Plant was 18%\. Benefits included: (a) fuel cost savings; (b) operating and maintenance savings; (c) lower costs of chemicals and other inputs from the introduction of a modem water treatment system; and (d) extended lifetime\. Costs and benefits were considered over the average life of the investments of 15 years\. On this basis, the ERR for the Iru Power Plant is re-evaluated presently at 16\.7%\. -42 -  Annex 4\. Bank Inputs (a) Missions: S of Pro ectC cle ~~No\. ofp Pesn adSeci*lt Performac Rating (g\.2Ecooitst\. 7Implementation Development NMohtj/oz Count Scialtyi PObgress Objective Identiflcation/Preparation 05/92 1 Financial Analyst I Engineer 11/92 I Financial Analyst 3 Engineers I Economist 11/93 2 Financial Analysts 3 Engineers 2 Economists Appraisal/Negotiation 11/93 2 Financial Analysts 3 Engineers 2 Economist 01/94 1 Financial Analyst 2 Financial Analyst 2 Economist Supervision 07/94 1 Financial Analyst S S 09/94 1 Financial Analyst S S 3 Economists 2 Engineers 11/94 1 Financial Analyst S S I Economist 05/95 1 Financial Analyst S S 2 Economist 09195 1 Financial Analyst S S 2 Economists 02/96 1 Financial Analyst S S I Economist I Engineer 11/96 1 Financial Analyst S S I Engineer 06/97 1 Financial Analyst S S I Engineer 11/97 1 Financial Analyst S S I Engineer 05/98 1 Financial Analyst S S I Engineer 05/99 1 Financial Analyst S S I Engineer ICR 01/2000 1 Financial Analyst S S I Engineer -43 -  (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks s ( DW Identification/Preparation Appraisal/Negotiation NA 234,000 (incL\. Identification) Supervision NA 390,000 ICR NA 45,000 Total NA 669,000 Note: Costs for Identification/Preparation and Appraisal/Negotiation are presented together\. The SAP R/3 system provides a consolidated cost for Project Preparation\. - 44 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies 0 H * SU 0 M 0 N 0 iVA OSector Policies * H OSUOM O N O NA N Physical * H OSUOM O N O NA F Financial O H * SU O M O N O NA F Institutional Development * H O SU O M 0 N 0 NA F Environmental * H O SU O M 0 N 0 NVA Social El Poverty Reduction O Gender O Other (Please specify) O Private sector development O H * SU O M O N O iA O Public sector management O H * SU O M O N O PA O Other (Please specify) -45 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating F Lending OHS OS OU OHU F Supervision O HS * S OU OHU M Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating X Preparation O HS O S O U O HU X Government implementation performance 0 HS 0 S 0 U 0 HU F Implementation agency performance 0 HS 0 S 0 U 0 HU ? Overall OHS OS O u O HU -46 -  Annex 7\. List of Supporting Documents 1\. Semi-Annual Progress Reports 2\. Perfonnance Indicators 3\. Annual Audit Reports 4\. Economic Re-evaluation - 47 -  MAP SECTION   Fl ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~27- T l E S T O N IA \. Tallinn \. ---~ MAIN ROADS L PORTS aaftcIic ESTONIA(- AI0ORT B" i3 t f f c ¢$ 0 ESTONIA RUSSIAN JRAILROADS tAIRPORTS FED\. - - COUNTY BOUNDARIES 0 TOWNS AND VILLAGES o _i INTERNATIONAL e COUNTY SEATS - J < > BOUNDARIES * NATIONAL CAPITAL t LATVIA S \. \ */ ^ >-- 270 ¢aSFS W > D ~~~~~~~~Gulf of Finland LITHUANIA L RUSSIAN K FE-_D\. I tX5 BELARUS -t6 POLAND R train GULF~~~~~~~~~~~~~~~~~Ker 5 ~~~~~~~~~~~~~~~'\. m\. 'K : J ola S Pskov 7; 000 0 i / POLVA<MA UMA K! VALIRAMAA \. \. \. \. S °oru * To P sPkv 20 ~40 60VCJO 8 10 OiaLOMETERS V \.To Riga \ (' (rR A T?o Pskov ,F I I*\. I' The boundaries, colors, denominations _ t I\. I I a -\. nd ony other informotian shown on 1<,r>N >, -0 10 20 30 40) 50 60MES this map do not imply,poanthepormt of 'AT V"'A - \.-t \.E jag~~~~~~~~~~~~~~~~~a -< \. \. * on the legal status of any territory, or _, To Riga %r-1r So X \. ' 240 \. such boundaries\.To Riga To G u oox \: \. \. turesaa\.

REVIEW

P101590

 ICRR 14035 Report Number : ICRR14035 IEG ICR Review Independent Evaluation Group 1\. Project Data : Date Posted : 02/04/2013 Country : Peru Is this Review for a Programmatic Series? Yes No How many operations were planned for the 4 series? How many were approved? 4 Series ID : S116214 First Project ID : P101335 Appraisal Actual Project Name : Fiscal Management US$M ): Project Costs (US$M): 200 200 And Competitiveness Development Policy Loan L/C Number : L7419 Loan/ US$M): Loan /Credit (US$M): 200 200 Sector Board : Economic Policy US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 12/19/2006 Closing Date : 12/31/2007 12/31/2007 Sector (s): Central government administration (62%); General industry and trade sector (23%); Sub-national government administration (15%) Theme (s): Managing for development results (29% - P); Public expenditure; financial management and procurement (29% - P); Export development and competitiveness (14% - S); Tax policy and administration (14% - S); Debt management and fiscal sustainability (14% - S) Second Project ID :P101590 Appraisal Actual Project Name : Second Programmatic Project Costs (US$M): US$M ): 370 700 Fiscal Mgmt And Competitiveness Development Policy Loan L/C Number : L7588 Loan/ Loan US$M): /Credit (US$M ): 370 700 Sector Board : Economic Policy US$M): Cofinancing (US$M ): Board Approval Date : 08/05/2008 Cofinancers : Closing Date : 08/05/2011 01/16/2015 Sector (s): Central government administration (56%), General finance sector (22%), General industry and trade sector (22%) Theme (s): Public expenditure, financial management and procurement (29% - P), Managing for development results (29% - P), Tax policy and administration (14% - S), Regulation and competition policy (14% - S), Export development and competitiveness (14% - S) Third Project ID :P106720 Appraisal Actual Project Name : Third Programmatic Project Costs (US$M): US$M ): 150 150 Fiscal Management & Comp\. Dpl L/C Number : Loan/ Loan US$M): /Credit (US$M ): 150 150 Sector Board : Economic Policy US$M): Cofinancing (US$M ): Board Approval Date : 12/18/2008 Cofinancers : Closing Date : 01/13/2013 01/13/2013 Sector (s): General public administration sector (50%), Other social services (13%), Micro- and SME finance (13%), Capital markets (12%), Other domestic and international trade (12%)  Theme (s): Public expenditure, financial management and procurement (50%), Trade facilitation and market access (13%), Macroeconomic management (13% - P), Social risk mitigation (12%), Tax policy and administration (12%) Fourth Project ID :P116214 Appraisal Actual Project Name : Fourth Programmatic US$M ): Project Costs (US$M): 100 100 Fiscal Managment Development Policy Loan L/C Number : Loan/ Loan US$M): /Credit (US$M ): 100 100 Sector Board : Economic Policy US$M): Cofinancing (US$M ): Board Approval Date : 08/26/2010 Cofinancers : Closing Date : 12/31/2011 12/31/2011 Sector (s): Central government administration (67%), Other domestic and international trade (17%), Capital markets (16%) Theme (s): Public expenditure, financial management and procurement (50% - P), Trade facilitation and market access (17%), Regulation and competition policy (17%), Tax policy and administration (16%) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : Ismail Dalla Michael R\. Lav Navin Girishankar IEGPS2 2\. Project Objectives and Components: a\. Objectives: The objectives of the programmatic Fiscal Management and Competitiveness Development Policy Loan series (FMCDPL) are (i) improving the efficiency and quality of fiscal policy and public expenditures (PDO1), and (ii) strengthening country competitiveness (PDO2)\. Delineated in Annex 2 of the Program Document (Report Nu\.37948-PE) and the Letter of Development Policy (dated November 6, 2006), these objectives are also evident in the policy matrix for each DPL of the series as well as each development policy letter, which is a part of PD of each operation in the series \. As such, these two PDOs provide the basis for this IEG review \. b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: The series supported the following policy areas relating to each of the PDOs : Policy Areas relating to PDO 1: Improving the Efficiency and Quality of Fiscal Policy and Public Expenditures Increase the Sustainability and Transparency of Fiscal Policy Make the Tax System more Neutral and Stable Strengthen Budget Reporting and Planning Increase Equity in the Inter-governmental Transfers Improve the efficiency and Impact of Public Spending Policy Areas relating to PDO 2: Strengthening Country Competitiveness Expand and Deepen International Trade Make Public Sector Processes more Transparent, Accessible and Agile Promote Sustainable Financial Deepening d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:  FMCDPL1 was approved in December 2006 in the amount of US$200 million), became effective on August 7, 2007 and disbursed in full on August 7, 2007\. The loan was closed on December 31, 2007\. FMCDPL 2 was approved on August 5, 2008 in the amount of $370 million with a Deferred Draw Down Option (DDO)\. The loan became effective on December 12, 2008\. As of June 30, 2012, $220 million was disbursed with the undisbursed amount of $150 million\. On December 18, 2008, the Bank approved a supplemental DDO loan of US$ 330 million as a part of FMCDPL 2\. The closing date of the loan has been extended from August 5, 2011 to January 16, 2015 to enable Peru to have access to the remaining DDO balance of $ 480 million\. FMCDPL3 was approved on November 12, 2009 in the amount of US$150 million, became effective on December 18, 2009 and disbursed in full on December 29, 2009\. The closing date of the loan is January 31, 2013\. FMCDPL4 was approved on August 26, 2010, became effective on October 15, 2010 and was disbursed on November 12, 2010\. The loan was closed on December 31, 2011 as planned\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. High \. The dual objectives of the FMCDPL series were highly relevant to country priorities and the Bank's 2007-11 Country Partnership Strategy (CPS) (Report No\. 37913-PE, December, 2006), By 2006, Peru was making a political transition to a democratic society and had already established a track record of macroeconomic stability and growth \. To address the remaining challenges, the Government's program sought to generate increased growth along with "a more equitable distribution of the fruits of growth " through improved fiscal management and a more competitive private sector (PD for DPL1, p\. 6)\. The CPS supported the Government ’s strategy and rested on three pillars : (i) Economic Growth; (ii) Social Development; and (iii) Modernization of the State\. The FMCDPL series and two other related DPLs on social inclusion and environmental issues formed the core of the Bank's country program response to the countries priorities (ICR, p\. 2)\. The series' objectives continue to be relevant to Peru's priorities, including a continued emphasis on securing the social fundamentals of sustainable development inter alia through a more efficient and effective public sector (ICR, p\. 16)\. Furthermore, the Government's current stated views are that growth will need to be increasingly driven by higher productivity over the medium term \. Key pillars to ensure high growth include : (i) enhancing competitiveness by boosting human capital and infrastructure and maintaining labor market flexibility; (ii) improving the business climate to foster investment and innovation (including enhancing formality); and (iii) further developing the local capital markets to facilitate investment and better allocate savings (IMF, Article 4 consultation, Feb 2012)\. b\. Relevance of Design: High\. High \. Several factors point to the strengths of design \. First, the series of four operations remained focused on two PDOs -- fiscal management and competitiveness -- while allowing flexibility in terms of how various policy areas and supportive measures would be undertaken \. This flexible approach allowed the Bank and Government to form a realistic view of the time and effort required to undertake deep reforms\. Accordingly, what emerged was a well -sequenced reform program, noted below : The FMCDPL1 focused on measures that were under government control and achievable in short period \. Reducing the debt/GDP ratio and increasing tax as a percentage of GDP were the two key indicators \. Since Peru was experiencing rapid economic growth and tax base was being broadened, these goals were relatively easy to accomplish\. The FMCDPL2 capitalized on this early success and continued to focus on fiscal management and first stage reforms on competitiveness\. More development indicators were included under the FMCDPL 2 to enable the Bank to better measure performance \.  The FMCDPL 3 and 4 supported more or less the same reforms \.The tariff reform was introduced and slowly expanded under the FMCDPL 3 and 4\. Tariff reform was adopted to increase the competitiveness of exports \. Several Free Trade Agreements (FTAs) were pursued\. To improve the investment climate, several key measures were introduced to simplify and streamline business registration and the issuance of licenses \. Deepening of financial markets was gradually addressed to increase access to finance for micro, small and medium enterprises (MSMEs)\. FMCPDL 4 included issuance of a new regulation on securitization by the National Stock and Business Supervisory Commission designed to facilitate an increase in lending for housing \. The existence of the two IMF programs (both precautionary) during the period also provided a supporting macroeconomic framework to carry out necessary reforms \. Outcome indicators were fine tuned to reflect reality on the ground \. Second, the design of FMCDPL series was systematically grounded in a considerable program of analytical work undertaken prior to the preparation of the first operation \. A continuous program of Analytic and Advisory Activities (AAAs) supported the subsequent operations \. The programmatic approach to AAA (for example, through a series of policy notes, and through TA and other joint missions from the Fund ) ensured that the DPLs were underpinned by a robust policy dialogue \. For instance, the Fund carried out several technical assistance missions to support the central bank in improving the supervisory framework for financial markets \. A joint Bank-IMF FSAP update was carried out in 2011\. Third, an additional unique feature of the series was the use of a DDO to support FMCDPL 2\. In addition to this $370 million DDO, the Bank provided a supplemental loan of $ 330 million to the FMCDPL2 in the form of a DDO to enable the government to ride out the global crisis \. Fourth and finally, the design of the program was included a comprehensive monitoring and evaluation (M&E) system (see section 10) that facilitated evaluation of these operations \. Overall, the program was well designed and carried out in close consultation with the Government and other major international financial institutions (IMF and Inter-American Development Bank) 4\. Achievement of Objectives (Efficacy): PDO1 PDO 1: Improving the Efficiency and Quality of Fiscal Policy and Public Expenditures The major objective of the government in this area was to maintain sound fiscal policy and improve public sector efficiency\. The government had set clear targets related to this objective, which are reflected in the development objectives of the FMCDPL series\. Policy areas to achieve the above goals included improving public debt management, strengthening fiscal rules, improving the efficiency of budgetary accounting; implementing efficient, performance-based budgeting; and increasing transparency and agility in public processes, including procurement and e-government\. Making the tax system more neutral and stable was another important goal \. IEG's assessment of achievements is as follows : high \. A key success factor was a strong legal framework for fiscal Overall, the efficacy of PDO1 is assessed as high\. prudence\. The existing 1999 Fiscal Responsibility and Transparency Law (FRTL) set two limits: (i) the fiscal deficit is not to exceed one percent of GDP, and (ii) the growth of current expenditures of the central government is not to exceed 3 percent p\.a\. in real terms\. Article 5 of the law states, however, that in cases of national emergency or international crisis the legislature can, at the request of the executive, grant exceptions to the fiscal rules for a period of up to 3 years\. In response to the 2008 crisis, the Government proposed further legislation—which the Congress approved — to increase the limit on the fiscal deficit to 2 percent of GDP in both 2009 and 2010\. In addition, the limit on the real growth of current expenditures by the central government was also temporarily increased to 10 percent in 2009 and 8 percent in 2010\. The law also stipulates that :(i) the government should borrow only for investment and not for recurrent expenditure, and (ii) that public debt to GDP should decline; (iii) the government should maintain fiscal prudence, while improving the quality of public expenditure\. The FRTL has been useful in maintaining a prudent fiscal policy and has served Peru well \. The above policy framework enabled tangible results -- often exceeding targets -- in the following key areas\. 1\.Increase the Sustainability and Transparency of Fiscal Policy High ) (High) The fiscal balance of the consolidated public sector was to remains less than -1 percent of GDP by 2011\. The baseline number for 2005 was -0\.3 percent of GDP\. The actual number at the end of 2011 was a surplus of 1\.9 percent \.  Growth in current expenditure (wages, goods and services ) growth was to be maintained at a prudent level and within the Fiscal rules limits\. The baseline number was a growth rate of 8\.9 percent in 2005\. The actual number in 2011 was a growth rate of 3 percent \. The stock of public debt/GDP in 2005 was 37\.7 percent\. The target was to reduce this to 18% of GDP by 2011 if no adverse external shocks or 32 percent if some external shocks occurred \. The actual number at the end of 2011 was 24\.1 percent -- a figure achieved during a highly volatile international economic environment \. The government was also expected to reduce the foreign currency public debt to at most 60 percent of the total outstanding debt by the end of 2011 from 83\.3 percent in 2005\. The actual number was 52\.6 percent in 2011\. In addition, Peru effected a change in the currency composition of government debt \. The government was also successful in developing domestic bond market and slowly lengthening the maturity of its debt, and thereby reducing dependence on foreign debt \. Policy measures taken to develop domestic pension funds have also paid off well as they became major investors in government bonds \. 2\. Make the Tax System more Neutral and Stable (Substantial ) The target for tax revenue of the central government was an increase from the baseline of 13\.6 percent of GDP in 2005 to 16 percent by the end of 2011\. The actual number was 15\.5% at the end of 2011\. Tax revenue fluctuated between 14-16 percent of GDP during 2007 and 2011, which was relatively low in comparison to countries in similar stage of development \. Over half of tax revenue was from value added tax, while personal income tax was only 1\.2 percent of GDP, about half the collection in other Latin American countries\. Progress on eliminating tax exemptions was limited \. Even though some exemptions to certain regions were eliminated, new ones were added \. Decrees were subsequently passed to limit further exemptions (ICR)\. High ) 3\. Strengthen Budget Reporting and Planning (High) Achievements included the finalization of the new budget classification system in line with international standards, simplification of procedures for international trade, and \. A key feature of the planning reforms included the progressive introduction of Results Based Budgeting, inter alia through four executive evaluations of public sector programs, and through the introduction of a multi -annual budget\. Improvements in fiscal transparency have been noted \. The Ministry of Finance website provides real time fiscal figures both at central and regional levels \. It launched an e-government agenda that covered public procurement and tax\. Furthermore, the Government successfully introduced the Treasury Single Account which has facilitated financial management and allows a more efficient administration of public cash balances \. In addition to attempting the consolidation of numerous government bank accounts into 500 accounts was launched\. 4\. Increase Equity in the Inter -governmental Transfers (Modest ) The Government established special funds to increase transfers to poor regions that have no extractive natural resources, in part as a measure to offset the increased value of transfers to regions and municipalities producing oil and minerals during a commodity price boom (ICR, p\. 10)\. Specifically, the government established compensating funds that favor local governments that receive little or no transfers \. The criteria for allocation of funds to municipalities was modified to better address basic needs \. 5\. Improve the Efficiency and Impact of Public Spending High ) (High) The adoption and roll-out of a Results-Based Budget helped shift the focus of the Peruvian budget from inputs to outputs and outcomes (ICR, p\. 9)\. The impact on the Government's health and nutrition programs were significant: RBB ensured that regional allocations were more closely tied to real needs \. As noted above, regional allocations -- which bore little relationship to needs in 2008 -- were re-prioritized towards regions with the highest levels of chronic malnutrition \. As a result, the number of children under 2 years of age covered by the vaccination program increased by 254 percent, while the number of children under 3 years of age covered by the program for children’s growth and development increased by 432 percent (ICR, para 28)\. These results indicate greater allocative efficiency and impact, although more evidence on operational and output efficiencies could have been provided \. PDO2 PDO 2: Strengthening Country Competitiveness The Government's main objective was to strengthen its competitiveness vis -a-vis other middle-income countries\. Corresponding policy areas supported under the FMCDPL series included tariff reforms, free trade agreements, investment in human capital, simplification of cumbersome business regulations, and improvement in supply chains\. In addition, efforts were made to make public sector processes more transparent and accessible to private sector and deepening of financial sector \. Achievements are noted below: Overall, substantial progress in strengthening Peru's competitiveness in comparison to neighboring countries \. For instance, in 2006, the World Economic Forum ranked Peru 86th in its Competitiveness Index , compared to a 26th place for Chile\. However, as a result of these reforms, and by 2012, the WEF ranking for Peru had improved to 62nd, compared to 33rd for Chile and 48th for Brazil\. Similarly, the 2013 Doing Business report ranked Peru 43rd compared with 37th for Chile and 48th for Mexico\. While relative country rankings should be analyzed with care, they do show relative progress and are indicative of progress on actionable indicators, discussed below: 1\. Expand and Deepen International Trade (Substantial ) Substantial progress was made in opening up the economy and reducing barriers to entry and exit inter alia through the signing of free trade agreements with major trading partners \. Furthermore, the average tariff rate was reduced from 10% in 2005 to 3\.2% in 2011\. A free trade agreement with Canada was concluded in 2007\. Implementation of a one-stop shop for 90 percent of controlled merchandise was completed in 2008\. 2\. Make Public Sector Processes more Transparent, Accessible and Agile (Substantial ) One of the objectives was to make public sector processes more transparent, accessible and agile by improving government procurement\. The target was to have 90% of central government agencies publish and purchase goods and services thro ugh SEACE, a central procurement system \. The baseline number in 2005 was 68 percent\. The actual number in 2011 was 91\.7 percent\. The target for local government of 90 percent was also exceeded by 2011\. Despite these achievements, the ICR notes progress was slowed by a "lack of strategic vision" for e-government on part of public sector institutions (ICR, p\. 15)\. 3\. Promote Sustainable Financial Deepening (Modest ) Financial market deepening was also attempted but on a very modest scale \. In this connection, the program series made the recommendation to increase access to credit by the private sector especially to Micro, Small and Medium Enterprises (MSMEs)\. However, the series made very little attempt to address broader financial sector issues presumably as they were addressed by IMF \. The Central Bank of Peru passed regulations to enable financial institutions to increase their lending to MSMEs and the National Stock and Business Supervisory Commission issued new regulations to facilitate securitization \. The key target in the financial sector was to increase credit to MSMEs from 8\.5 percent of total credit in 2005\. This target was achieved and the actual number in 2011 was 17\.7 percent\. These are important steps in the right direction \. However, Peru’s financial sector is comparatively small, with uneven development across subsectors \. It is also characterized by large, complex, and systemically important financial institutions \. The largest segments are banks and pension funds with assets amounting to 40 and 20 percent of GDP respectively\. --- Overall, IEG assesses the efficacy of the operation as substantial \. The program series included 39 development indicators under this policy \. Twenty nine were fully achieved, six were partially achieved and four were not achieved (para 47 of ICR)\. Major reforms in the areas of fiscal management especially debt management led to significant improvements on the quality and efficiency of public spending, and to a lesser extent, investment climate reforms lead to improvements in competitiveness \. International rating agencies have also taken note by upgrading Peru to investment grade \. A summary of indicators by PDO is provided below : Partially Not Indicators by PDO Achieved Achieved Achieved PDO1\. Fiscal Management: 16 3 2 76\.2% 14\.3% 9\.5% PDO2\. Competitiveness: 13 3 2 72\.2% 16\.7% 11\.1% Overall 29 6 4 74\.4% 15\.4% 10\.3% Sources: Program documents and IEG calculation  2007 -2011) Macroeconomic Developments in Peru (2007- 2011 ) Peru's economic performance over the period of implementation was characterized by high growth rates, low inflation, macroeconomic stability, reduction of external debt and poverty, and significant advances in social and development indicators\. These successes resulted directly from a sound macroeconomic framework, prudent fiscal policies, and a stable political environment, and importantly, a commodity price boom \. In fact, high prices for commodities, which account for 70% of Peru's exports, explain much of Peru's high level of growth during the 2001-2007\. At the same time, sound economic fundamentals and prudent fiscal policy helped create the fiscal space to weather the 2008 global financial crisis\. Rapid growth during the 2001-2007 period, and subsequently over the 2009-2011 period, also helped Peru reduce poverty rates from 48\.5 percent in 2004 to 27\.8 percent in 2011 (ICR, para 61)\. It also benefited from an IMF program, which provided a sound macroeconomic framework for the FMCDPL series\. The Bank worked closely with the IMF at all stages \. The dialogue has concentrated on the macroeconomic background, setting of triggers, and risks, and estimation of fiscal implications of the World Bank’s operations\. Peru - Key Macroeconomic Indicators (2007-2013) (Percentage) 2007 2008 2009 2010 2011 2012 2013(P) GDP growth ra te 8\.9 9\.8 0\.9 7 5\.5 5\.5 5\.5 Growth of real domes ti c dema nd 11\.9 12\.1 -2\.9 8\.6 7\.8 5\.9 6 Infl ati on rate (CPI) 1\.8 5\.8 2\.9 1\.4 2\.1 2 1\.9 Non-fi na nci a l publ i c s ector ba l a nce/GDP 3\.3 2 -1\.9 -1\.5 -0\.9 -0\.4 0\.1 Publ i c Debt/GDP 29\.7 24 26\.7 24\.3 22\.9 21\.8 20\.4 Tra de ba l a nce/GDP 7\.7 2\.4 4\.6 4\.3 2\.6 2\.2 2 Current a ccount/GDP 1\.4 -3\.3 0\.2 -0\.7 -2\.3 -2\.5 -2\.6 Net i nternati onal res erves (US$ Bi l l l i on) 28\.6 32\.2 33\.1 37\.6 42 45\.2 48\.7 Sources: IMF and Banco Central del Peru 5\. Efficiency (not applicable to DPLs): 6\. Outcome: IEG rates the overall outcome of the FMCDPL series as satisfactory in line the IEG/OPCS Harmonized Criteria\. The relevance of objectives and design -- both based on strongly owned, homegrown reforms -- were both high\. Achievement of the first PDO relating to improvement quality and efficiency of fiscal policy and public expenditures was as high based on successful aggregate fiscal policy actions, tax reform, budgeting reforms, intergovernmental fiscal relations, and improved prioritization and impact of spending, particularly in the area of health and nutrition\. The efficacy of the second PDO was substantial due to increased openness and to a lesser extent public procurement and financial deepening \. While still a work-in-progress, Peru's competitiveness has improved according to various ranked indices \. High economic growth over the last decade (in part due to favorable commodity prices) has led to increased income and reduced poverty \. Peru's sovereign rating now carries an investment grade and it has graduated from the IMF program \. These achievements were realized even in a difficult international economic climate \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Since the programmatic series essentially supported the policy areas that had full government ownership, the risk to development outcome is moderate \. The main uncertainty about the commitment to reform agenda of the new government that came to power in 2011\. The new government has thus far embraced the reform program and is implementing the second-generation reform programs to improve Peru ’s global competitiveness\. The continuation of the strong fiscal management and growth -oriented development strategy should ensure  macroeconomic stability\. However, Peru remains exposed to the global economic volatility due to its high dependence on commodity exports (copper)\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The programmatic series was well conceived from the beginning and supported by a sound analytical framework covering key areas of the reform program \. The Bank worked closely with the Government and supported the reform program through a sustained response in the context of the 2007-11 CPS\. Although initially the reform program was not very ambitious, it was well grounded in country realities and homegrown \. The focus of the program was sharpened during the FMCDPL 2 and the reform effort became more ambitious\. Peru was high performing and sophisticated borrower -- a fact that the Bank team understood and supported through its lending and AAA work \. The willingness of the Bank to be flexible by providing additional financial commitment through the supplemental DDO was also justified \. The reform program was well phased and closely monitored through a comprehensive M&E \. The program built in flexibility to consult with client and handle unexpected global events and domestic challenges \. The Bank’s performance at entry was satisfactory \. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: Most supervision efforts were combined seamlessly and effectively with preparation of subsequent operations in the series\. Since the PDOs of the series remain largely the same throughout the period, this approach was appropriate\. Two ISRs were prepared for FMCDPL1, seven ISRs for FMCDPL2, three ISRs for FMCDPL3, and two for FMCDPL4\. Each of these tracked progress on four or five key indicators on an approximately 6-monthly basis\. Issues identified in the very first ISR were addressed in a timely fashion \. The existence of a comprehensive M&E framework operated by the Government also helped facilitate Bank supervision and Bank-country dialogue on key issues \. IEG rates the quality of supervision as satisfactory \. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: There was a broad ownership of the reform program in Peru \. The government was fully commitment to its reform program which the Bank supported and financed during the life of the programmatic series \. The government was the driving force behind the success of the program \. There was also continuity in the government reform program despite frequent changes in the key ministry (Ministry of Finance) which coordinated implementation of the reform program \. The government remained committed to the reform program and calibrated its program as needed in response to domestic and international environment \. IEG rates government performance as satisfactory \. Government Performance Rating : Satisfactory b\. Implementing Agency Performance: Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: A major strength of the programmatic series is its Monitoring and Evaluation (M&E) system\. The M&E system was well designed and included 39 key indicators that are used to monitor the achievement of the project objectives\. These indicators reflect broad scope of the program and were fine -tune as needed\. The Sectoral Loans Coordination Unit (Unidad de Coordinacion de Pre'stamos Sectoriales -UCPS) in the MEF is in charge of M&E and responsible for collecting the appropriate data to follow the proposed indicators from the key government agencies\. The baseline data were clearly defined and based on official data collected from the key government agencies (BCRP, SUNAT, PCM and MINCETUR and the central bank )\. Data from these institutions are highly reliable and disseminate data on a regular interval \. The M&E system is functioning well and information is available on timely basis \. In addition, the Bank monitors actions and reviews implementation progress using various sources published by independent institutions b\. M&E Implementation: Implementation was extensive and robust \. The M&E system has been successfully developed during the first operation and fine-tune during the second operations \. New development indicators were added to monitor performance of the policy areas as issues were identified overtime \. c\. M&E Utilization: The M&E system established under the first two operations of the series was used in designing the subsequent operations\. The existing of a vibrant M&E system enabled the Bank team to have better understanding of complex cross-sector reforms, such as the implementation of the results -based budgeting\. The M&E system is also utilized by other donors in designing their programs for Peru \. M&E Quality Rating : High 11\. Other Issues a\. Safeguards: b\. Fiduciary Compliance: No fiduciary compliance issue was highlighted in the ICR \. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory  Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons were identified by IEG's review and the ICR : Sweeping and sustained reforms (such as Peru's) require strong borrower ownership, a well -defined strategy, a highly consultative approach with country stakeholders, and a response donor consortium \. Close coordination with international actors helped the Government to implement its comprehensive reform programs over several years \. Sustaining fiscal and related public sector management reforms can be challenging \. They place a premium on a 'building blocks' approach (for example, ensure aggregate fiscal policies are in place before undertaking expenditure re-prioritization)\. At the same time, it is important to be flexible in launching various reform initiatives when public institutions demonstrate a readiness to undertake and internalize institutional changes\. An important lesson from Peru’s experience is the need to design flexibility into the program in order to respond to new challenges over the course of reform implementation \. Peru was successful in adjusting to the changes in global financial markets while remaining faithful to the objectives of its reform program \. The Bank acted as a responsible partner and provided both financial resources and technical advice as needed to enable government to carry on its reform program \. The use of the deferred drawdown option (DDO) can be helpful in managing the uncertainties for a volatile global environment\. It enables countries to have additional insurance to weather the global financial crisis as the availability of financing from the World Bank increase market confidence and access \. It also provides a stamp of approval of good housekeeping \. 14\. Assessment Recommended? Yes No Why? Peru is an exemplary case of Bank support for sustained public finance and investment climate reforms in a middle-income country context\. Of particular interest is the design and sequencing of fiscal and public finance reforms as well as the development of a unique and effective M&E framework for a programmatic DPL series \. There are also potentially important lessons for countries implementing result based budgeting systems \. 15\. Comments on Quality of ICR: The ICR is comprehensive, candid, internally consistent, and well -written\. It highlighted results that are  supported by facts\. The existence of a robust M&E and a highly cooperative client made it easier to carry out evaluation of the reform program\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P106641

Document of The World Bank Report No: ICR00001250 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD 7493 - 7645) ON A LOAN IN THE AMOUNT OF US$ 75 MILLION AND A LOAN IN THE AMOUNT OF US$ 100 MILLION TO THE REPUBLIC OF PANAMA FOR A SERIES OF PROGRAMMATIC LOANS FOR COMPETITIVENESS AND PUBLIC FINANCIAL MANAGEMENT ­ LOANS I AND II March 24, 2010 Finance and Private Sector Development Central America Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective March 9, 2010) Currency Unit = Panamanian Balboa (B$) B$ 1\.00 = US$ 1\.00 US$ 1\.00 = B$ 1\.00 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS CAAT Computer Assisted Auditing Techniques CFAPAR Country Financial Accountability and Procurement Assessment Plan CGR General Comptroller's Office CPS Country Partnership Strategy CNCYT National Commission of Science and Technology CICYT Science, Technology and Innovation Inter-ministerial Commission CSS Social Security Institute DGI Dirección General de Ingresos DPL Development Policy Loans EMBI Emerging Markets Bond Index GNI Gross National Income GOP Government of Panama GDP Gross Domestic Product IADB Inter-American Development Bank ICR Implementation Completion Report IMF International Monetary Fund INADEH National Training and Capacity-building Institute ISR Interim Status Report LAC Latin American and Caribbean Region LSMS Living Standards Measurement Study M&E Monitoring and Evaluation MEDUCA Ministry of Education MEF Ministry of Economy and Finance MTEF Medium-Term Expenditure Framework NFPS Non-Financial Public Sector OECD Organization for Economic Co-Operation and Development PAD Program Appraisal Document PCA Panama Canal Authorities PDO Program Development Objectives PER Public Expenditure Review PEFA Public Expenditure and Financial Accountability QAG Quality Assurance Group R&D Research & Development RUC Taxpayer's Unique Registry 2 SENACYT National Secretary for Science, Technology and Innovation SIAFPA National Integrated Financial System SPIG Presidential Secretariat of Government Innovation TA Technical Assistance TPA Trade Promotion Agreement (Panama-US) WB World Bank Vice President: Pamela Cox Country Director: Laura Frigenti Sector Manager: Lily Chu Project Team Leader: Mike Goldberg ICR Team Leader: Ilka Funke 3  Panama Series of Programmatic Loans for Competitiveness and Public Financial Management (Loans I and II) CONTENTS 1\. Program Context, Development Objectives and Design \. 5 2\. Key Factors Affecting Implementation and Outcomes \. 11 3\. Assessment of Outcomes \. 17 4\. Assessment of Risk to Development Outcome \. 30 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) \. 30 6\. Lessons Learned (both operation-specific and of wide general application) \. 32 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 33 Annex 1\. Bank Lending and Implementation Support/Supervision Processes\. 34 Annex 2\. Beneficiary Survey Results (if any) \. 36 Annex 3\. Stakeholder Workshop Report and Results (if any) \. 37 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 38 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders \. 39 Annex 6\. List of Supporting Documents \. 40 4 A\. Basic Information Program 1 First Competitiveness Country Panama Program Name and Public Financial Management DPL Program ID P105710 L/C/TF Number(s) IBRD-74930 ICR Date 03/31/2010 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower PANAMA Original Total USD 75\.0M Disbursed Amount USD 75\.0M Commitment Implementing Agencies Ministry of Economy and Finance Cofinanciers and Other External Partners Program 2 Competitiveness and Country Panama Program Name Public Financial Management DPL 2 Program ID P106641 L/C/TF Number(s) IBRD-76450 ICR Date 03/31/2010 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower PANAMA Original Total USD 100\.0M Disbursed Amount USD 100\.0M Commitment Implementing Agencies Ministry Of Economy and Finance Cofinanciers and Other External Partners B\. Key Dates First Competitiveness and Public Financial Management DPL - P105710 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/04/2007 Effectiveness: 04/10/2008 Appraisal: 10/02/2007 Restructuring(s): Approval: 11/29/2007 Mid-term Review: Closing: 06/30/2008 06/30/2008 i Competitiveness and Public Financial Management DPL 2 - P106641 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/01/2008 Effectiveness: 04/01/2009 04/01/2009 Appraisal: 11/06/2008 Restructuring(s): Approval: 12/16/2008 Mid-term Review: Closing: 12/31/2009 12/31/2009 C\. Ratings Summary C\.1 Performance Rating by ICR First Competitiveness and Public Financial Management DPL - P105710 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory Competitiveness and Public Financial Management DPL 2 - P106641 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) First Competitiveness and Public Financial Management DPL - P105710 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance Competitiveness and Public Financial Management DPL 2 - P106641 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance ii C\.3 Quality at Entry and Implementation Performance Indicators First Competitiveness and Public Financial Management DPL - P105710 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status Competitiveness and Public Financial Management DPL 2 - P106641 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Highly Satisfactory Closing/Inactive status D\. Sector and Theme Codes First Competitiveness and Public Financial Management DPL - P105710 Original Actual Sector Code (as % of total Bank financing) Central government administration 50 50 General industry and trade sector 50 50 Theme Code (as % of total Bank financing) Improving labor markets 14 14 Other financial and private sector development 14 14 Public expenditure, financial management and 29 29 procurement Regulation and competition policy 29 29 Tax policy and administration 14 14 iii Competitiveness and Public Financial Management DPL 2 - P106641 Original Actual Sector Code (as % of total Bank financing) Central government administration 50 50 General industry and trade sector 50 50 Theme Code (as % of total Bank financing) Debt management and fiscal sustainability 12 12 Education for the knowledge economy 25 25 Public expenditure, financial management and 38 38 procurement Regulation and competition policy 12 12 Trade facilitation and market access 13 13 E\. Bank Staff First Competitiveness and Public Financial Management DPL - P105710 Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Laura Frigenti Jane Armitage Sector Manager: Lily L\. Chu Lily L\. Chu Task Team Leader: Michael J\. Goldberg Pablo Fajnzylber ICR Team Leader: Michael J\. Goldberg ICR Primary Author: Ilka Funke Ruben Dario Gomez Competitiveness and Public Financial Management DPL 2 - P106641 Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Laura Frigenti Laura Frigenti Sector Manager: Lily L\. Chu Lily L\. Chu Task Team Leader: Michael J\. Goldberg Aquiles A\. Almansi ICR Team Leader: Michael J\. Goldberg ICR Primary Author: Ilka Funke Ruben Dario Gomez iv F\. Results Framework Analysis Program Development Objectives (from Program Document) The DPL program supports staged progress towards medium-term program outcomes related to two CPS objectives: promoting broadbased economic growth by means o f measures designed to enhance Panama#s competitiveness, and establishing modern public financial management systems and institutions\. Revised Program Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) First Competitiveness and Public Financial Management DPL - P105710 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Reduced bureaucratic red tape \. as illustrated by: 1\. online transactions in Indicator 1 : PanamaTramita; 2\. DB indicator for time to sta rt a business; and (iii) 3\. DB indictor for time for exporting Value 1\. 75 (in 2007) 1\. 200 1\. 81* (quantitative or 2\. 19 2\. 5 2\. 13 Qualitative) 3\. 16 3\. 12 3\. 9 Date achieved 12/31/2006 12/31/2008 08/31/2008 *GOP focused on consolidating or eliminating administrative processes\. Comments Consequently, the government reduced the digitalizati on target to 90 on-line (incl\. % transactions by end of 2009\. Overall, 241 transactions consolidated/eliminated achievement) by Aug 2008\. Improved worker training policies as indicated by: 1\. workers trained; 2\. offer Indicator 2 : of certification programs 1\. 182,723 private Value 1\. 200,000 1\. 42,000 sector workers (quantitative or 2\. Available for 9 2\. 0 2\. available for 23 Qualitative) occupations ocupations Date achieved 12/31/2006 12/31/2008 12/31/2007 Comments (incl\. % achievement) v  Increased investments in innovation as measured by: 1\. R&D expenditures per Indicator 3 : population (excluding the Smithsonian Institu te); 2\. full time researchers; 3\. share of R&D personnel with master or PhD\. 1\. $6\.79 2\. At least 115 new Value 1\. $11\.76* 1\. $20 researchers were (quantitative or 2\. 312 2\. 410 incorporated after Qualitative) 3\. 23\.5% 3\. 33\.3% 2005 3\. New data not yet available** Date achieved 12/31/2005 12/31/2008 08/31/2008 * Baseline data provided at appraisal included the Smithsonian Institute\. Comments Without the later, the actual investment per capit a was $5\.57 in 2005\. (incl\. % ** Scholarship program benefited 177 PhDs and 108 Master Students, of achievement) which 54 have already returned to PA\. Improved: 1\. debt sustainability (debt to GDP); 2\. tax administration Indicator 4 : (PEFA/DB indicators); 3\. debt management\. 1\. 54% of GDP 1\. 65\.9% of GDP 1\. 46% of GDP in 2a\. C 2a\. PEFA No\. 14: D+ 2007 2b\. less than 560 Value 2b\. DB paying tax 2a\. On trajectory to hours (quantitative or indicator: 560 hours be met*\. 3\. Approved Qualitative) 3\. Lack of formal 2b\. 482 hours strategy and strategy and fragmented 3\. On trajectory to consolidated syste m\. be met\.** system\. Date achieved 12/31/2004 12/31/2008 08/31/2008 * Will be met through introduction of a new tax audit program** Underlying Comments scenario analysis underway, and expected that new debt management strategy (incl\. % will be issued\. Transfer of debt service responsibility from GR to MEF about achievement) to finish\. vi  Improved: 1\. fiscal information (PEFA indicators); 2\. mgmt\. of payment Indicator 5 : arrears (% of outstanding accruals); 3\. efficiency of controls (reduction of average expenditure processing times within CGR); 4\. audits (use of CAATs) 2\. changed to No of days needed to 1\. All PEFA process indicators are on 1\. PEFA indicator 1\. payments to trajectory to be met No\. 6: C, No\. 6: B providers, 2\. 71 days (average Value No 12: D+ No\. 12: C from 175 in for 2007) (quantitative or No 25: D+ No\. 25: C 2004 to at 3\. 97% of Qualitative) 2\. 13\.1% 2\. 10% most 90 days documents 3\. not available 3\. reduction 3\. At least processed within 15 4\. None 4\. 5 90% of doc da ys (April 2008) uments are 4\. 9 processed by the CGR under 15 days\. Date achieved 12/31/2004 12/31/2008 12/31/2007 08/31/2008 Comments (incl\. % achievement) Improved public procurement by: 1\. participation of enterprises (registered Indicator 6 : bidders); 2\. availability of standard documents; 3\. reduction in average unit cost of key items\. 1\. over 11,000 1\. 10,000 (June 2008) 2\. Documents 2\. dropped available Value 1\. 0 (2005) 3\. 36% savings in 3\. at least 10% (quantitative or 2\. 0 2\. dropped computer reduction in until Qualitative) 3\. no reduction equipment cost of key items purchases, 14% in against market office supplies and prices 13% in veh icles\. Date achieved 12/31/2004 12/31/2008 12/31/2007 08/31/2008 Comments (incl\. % achievement) vii  Competitiveness and Public Financial Management DPL 2 - P106641 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Reduced bureaucratic red tape \. as illustrated by: 1\. online transactions in Indicator 1 : PanamaTramita; 2\. DB indicator for time to sta rt a business; and (iii) 3\. DB indicator for time for exporting Value 1\. 75 (in 2007) 1\. 200 1\. 90* (quantitative or 2\. 19 2\. 5 2\. 13** Qualitative) 3\. 16 3\. 12 3\. 9 Date achieved 12/31/2006 12/31/2008 06/30/2009 * 90 e-transactions available, involving 145 different agencies (04/09)\. Comments Webpage registered over 1 million visitors since 20 08\. (incl\. % ** According to authorities, it takes less than one day most types of business to achievement) register\. Improved worker training policies as indicated by: 1\. workers trained; 2\. offer Indicator 2 : of certification programs 1\. 211,000 participants from Value 1\. 200,000 1\. 42,000 private sector (quantitative or 2\. Available for 9 2\. 0 workers in 2008 Qualitative) occupations 2\. available for 30 ocupations* Date achieved 12/31/2006 12/31/2008 04/30/2009 * 153 external training providers were accredited\. Focus of the training Comments programs shifted since 2004, with trainings in area of commerce and services (incl\. % now representing over 80% of courses and number of participants, compared to achievement) slightly over 50% in 2004\. Increased investments in innovation as measured by: 1\. R&D expenditures per Indicator 3 : population (excluding the Smithsonian Institu te); 2\. full time researchers; 3\. share of R&D personnel with master or PhD\. 1\. $7\.8 (2008) Value 1\. $11\.76 1\. $20 2\. Over 410* (quantitative or 2\. 312 2\. 410 3\. New data not yet Qualitative) 3\. 23\.5% 3\. 33\.3% available** Date achieved 12/31/2005 12/31/2008 06/30/2009 *No official data available, but 115 full-time researchers recruited due to 183 Comments new R&D projects\. Target of 410 full tim e researchers thus likely met\. (incl\. % **285 Panamanians have benefit from scholarships\. 54 returned to the country achievement) and work in S&T act ivities viii  Improved: 1\. debt sustainability (debt to GDP); 2\. tax administration Indicator 4 : (PEFA/DB indicators); 3\. debt management\. 1\. 54% of GDP 1\. 65\.9% of GDP 2a\. C 2a\. PEFA No\. 14: D+ 1\. 37\.6% of GDP 2b\. less than 560 Value 2b\. DB paying tax (end-2008) hours (quantitative or indicator: 560 hours 2a\. C 3\. Approved Qualitative) 3\. Lack of formal 2b\. 482 hours** strategy and strategy and fragmented 3\. Met consolidated syste m\. system\. Date achieved 12/31/2004 12/31/2008 06/30/2009 * Since 2007, DGI adopted a new tax audit strategy and created a Massive Comments Audit Unit (incl\. % ** indicators also measures time neede d for all other contributions paid by an achievement) average medium sized enterprise, including waste collection tax, and social contributions\. Improved: 1\. fiscal information (PEFA indicators); 2\. mgmt\. of payment Indicator 5 : arrears (% of outstanding accruals); 3\. efficiency of controls (reduction of average expenditure processing times within CGR); 4\. audits (use of CAATs) 2\. changed to No of days 1a\. unchanged at needed to C* process 1b\. improved to 1\. PEFA indicator 1\. payments to C** a, No\. 6: C, No\. 6: B providers, 1c\. Unchanged at Value b, No 12: D+ No\. 12: C from 175 in D+*** (quantitative or c, No 25: D+ No\. 25: C 2004 to at 2\. 51 days (average Qualitative) 2\. 13\.1% 2\. 10% most 90 days for 2008) 3\. not available 3\. reduction 3\. At least 3\. 97% of 4\. None 4\. 5 90% of doc documents processe uments are d within 15 days processed by (April 2008)**** the CGR under 4\. 20 (Dec\. 2008) 15 days Date achieved 12/31/2004 12/31/2008 12/31/2008 06/30/2009 Comments (incl\. % achievement) ix  Improved public procurement by: 1\. participation of enterprises (registered Indicator 6 : bidders); 2\. availability of standard documents; 3\. reduction in average unit cost of key items\. 1\. 10,000 1\. over 13,000 2\. Documents (April 2009) available 2\. dropped Value 1\. 0 (2005) 3\. at least 10% 3\. Since 2007, (quantitative or 2\. 0 2\. dropped reduction in unti reported savings of Qualitative) 3\. no reduction cost of key items $100,000 due to against market framework prices contracts* Date achieved 12/31/2004 12/31/2008 12/31/2008 06/30/2009 Comments (incl\. % * i\.e\. the government is likely to save around $ 5 million with use of a fuel card achievement) (b) Intermediate Outcome Indicator(s) First Competitiveness and Public Financial Management DPL - P105710 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Key next steps in the Government's program (details in PD) Value Key next Key next steps (quantitative or steps not taken Qualitative) taken yet Date achieved 09/30/2007 09/30/2008 Comments (incl\. % achievement) Competitiveness and Public Financial Management DPL 2 - P106641 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : \. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) x G\. Ratings of Program Performance in ISRs First Competitiveness and Public Financial Management DPL - P105710 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 03/11/2008 Satisfactory Satisfactory 0\.00 Competitiveness and Public Financial Management DPL 2 - P106641 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 01/29/2009 Highly Satisfactory Highly Satisfactory 0\.00 H\. Restructuring (if any) xi 1\. Program Context, Development Objectives and Design 1\.1 Context at Appraisal: a\. Macro-economic situation at appraisal Panama's macro-economic performance prior to loan approval was robust\. In the three years preceding loan approval, economic growth averaged 7\.5 percent annually, inflation stayed around 2 percent, and unemployment dropped from 11\.4 percent in 2003, when the country emerged from a recession, to 6\.8 percent in 2006\. Facilitated by Panama's open trade and investment regime, economic growth was mostly led by a recovery of exports of goods and services, with little spillover into the agriculture and industrial sectors\. The latter two stagnated behind protective barriers and regulatory rigidities\. Growth also gained traction through the government's project to expand the Panama Canal1 and the negotiation of a new free trade agreement with the United States2\. It was expected that growth would continue at similar rates over the next few years\. After a previous deterioration of fiscal balances in 2003/04 due to a weakening in the finances of the central government and in the accounts of the social security institute, fiscal stabilization became a key priority of the new government\. The Torrijos government, elected in 2004, followed a path of strict fiscal discipline, which it achieved through measures aimed at increasing the tax revenue, as well as a consolidation of fiscal expenditure\. Tax revenues increased from a low of 21\.2 percent of GDP in 2004 to 25\.3 percent in 2006, as a result of tax reforms passed in 2005, more effective tax collection efforts as well as stronger economic growth\. On the other hand, public expenditures (excluding the Panama Canal Authorities) were curtailed, and dropped from 26 percent of GDP in 2004 to 24\.8 percent in 2006\. A pension reform was approved in June 2005 with World Bank support\. The reform was expected to contain future deficits of the Social Security Institute (CSS) that had been predicted over the medium term in the absence of reform\. As a result of the reform measures, key fiscal ratios improved in the last three years prior to loan approval\. The overall fiscal deficit dropped from 4\.9 percent of GDP in 2004 to 2\.6 percent in 2005, and turned into a surplus in 2006\. The primary fiscal balances exhibited surpluses of respectively 1\.8 and 4\.9 percent of GDP in 2005/6 (see table 1)\. The positive fiscal results led to a reduction in the public debt, which dropped from a peak of 66 percent of GDP in 2004 to under 58 percent of GDP in 2006\. Assuming a continuation of prudent macro-economic policies, both WB and IMF suggested that the debt levels would fall further\. 1 A study commissioned by the Panama Canal Authority estimated that the Canal expansion would raise economic growth by roughly one percentage point per year over the next 25 years\. 2 The Panama-U\.S\. Trade Promotion Agreement (TPA) was signed in Washington on June 28th of 2007, but was still pending US Congress ratification at the approval of the DPL I\. 5  Table 1: Panama Medium-Term Macroeconomic Framework (in percent of GDP, unless noted otherwise) 2003 2004 2005 2006 2007 2008 2009 2010 ----------------------Actual--------------- ---------------Projection------------------ GDP growth rate (percent) 4\.2 7\.5 6\.9 8\.1 8\.5 8\.8 7\.9 7\.1 Inflation rate (percent, average) 1\.4 0\.5 2\.9 2\.5 3\.7 3\.6 3\.8 3\.9 Gross Domestic Fixed 17\.1 16\.6 16\.8 18\.4 22\.1 24\.3 26\.8 28\.6 Investment Gross National Savings 20\.2 16\.7 18\.8 17\.5 18\.0 19\.1 19\.2 19\.1 Open Unemployment (percent) 11\.4 9\.7 8\.1 6\.8 n/a n/a n/a n/a Key Nonfinancial Public Sector Indicators Revenues (excluding PCA) 22\.3 21\.1 22\.3 25\.3 25\.6 24\.6 24\.5 24\.3 Expenditure (excluding PCA) 27\.0 26\.0 24\.9 24\.8 25\.1 24\.9 24\.9 24\.6 Overall Balance, excl\. PCA -4\.7 -4\.9 -2\.6 0\.5 0\.5 -0\.2 -0\.4 -0\.3 Primary Balance, excl\. PCA -0\.3 -0\.7 1\.8 4\.9 4\.7 3\.5 3\.2 2\.7 External Sector Indicators and Public Debt Merchandise Exports (fob)* 7\.7 8\.1 8\.3 8\.6 8\.1 7\.7 7\.4 7\.2 Merchandise Imports (fob)* 19\.0 19\.6 20\.5 21\.7 23\.1 24\.7 27\.4 29\.7 Current Account Balance -3\.9 -7\.5 -5\.0 -2\.2 -5\.4 -6\.6 -8\.8 -10\.6 Total Public Debt (excl\. PCA) 63\.0 66\.0 62\.2 57\.7 51\.7 46\.3 41\.9 38\.0 External Public Sector Debt 50\.3 50\.9 49\.0 45\.5 41\.7 38\.8 38\.3 39\.7 *Excludes the Colón Free Zone Source: IMF and WB calculations\. b\. Core issues in competitiveness and public financial management prior to loan approval With regard to private sector development, the core issue was to foster economic growth through broadening the economic base\. Dynamic and internationally-competitive service sectors coexisted with largely protected and mostly domestically-oriented agricultural and manufacturing sectors with low productivity\. Panama thus faced not only the challenge of sustaining high rates of economic growth, but also of ensuring that growth became more broad- based\. These issues became more pressing given the pending trade agreement with the US, which was expected to expose hitherto protected sectors to international competition\. Regarding the business enabling environment, available surveys and indicators pointed to significant shortcomings\. The general indicators measuring a country's competitiveness pointed to issues in the areas of (i) labor regulations and the lack of well-trained human capital, (ii) deficiencies in the area of innovation, as well as (iii) governance issues3\. With regard to labor market regulations, non-salary labor costs as well as firing costs were below regional averages, 3 See i\.e\. the Global Competitiveness Report 2006 of the World Economic Forum\. The Doing Business Indicators in 2006 pointed to a solid performance in the areas of starting a business, licensing, trading across borders and registering property, where Panama ranked close to OECD averages\. Enterprise surveys carried out in 2006 confirmed shortcomings in the regulatory environment, as well as rule of law and infrastructure\. 6 and working hours more flexible, but those areas were overshadowed by high minimum wages in relation to the average value added per worker, as well as restrictive firing regulations were more than double the regional average (with a Doing Business 2009 rating of 172nd in the world)\. Additionally, shortcomings persisted in the average skill level of the labor force, despite high levels of school attendance\. As concerns innovation, Panama lagged behind its peers in the use of technology4, as well as research and development expenditures\. Overall, less than 5 percent of the population had a computer (compared to 11 and 12 percent for the LAC region and upper middle income countries), and only 22 percent reported using the internet (compared to 26 percent for LAC and upper middle income countries)\. Research and development expenditures were a mere 0\.38 percent of GDP in 2002, compared to 0\.57 percent for LAC and 2\.5 percent for OECD countries\. Finally, the high level of informality5 as well as inefficiencies in government bureaucracy and regulatory quality6 were perceived to be key issues\. In the area of public financial management, a variety of deficiencies were highlighted in prior analytical work, namely the PER and CFAPAR\. Social expenditures were comparatively high at 17 percent of GDP, but these expenditures did not translate into higher social indicators\. The latter continued to be similar or below neighboring countries\. This pointed to inefficiencies in strategic planning, resource allocation and monitoring of government expenditures\. Shortcomings were also highlighted in the area of fiscal transparency\. Fiscal information was not sufficiently available to the public, which in part stemmed from deficiencies in public sector accounting and the production of financial statements\. Furthermore, in the absence of forward-looking planning, deficits were repeatedly financed via payment arrears to suppliers, which placed a burden on the private sector\. Transactional controls for expenditures were burdensome and slow, and resulted in additional payment delays\. Finally, while the overall procurement system was deemed to be satisfactory, the government embarked on a reform program to modernize practices and reap potential fiscal savings through more transparent and easier processes\. It was expected that enhancements in the procurement system would facilitate channeling World Bank and other donor funds through the national system, which in turn would again help increasing the in-country capacity\. c\. Alignment of the DPL program with government and Bank strategies The proposed series of DPLs was based on the government's program for increased and sustained economic growth\. In 2005, the government launched its national program, the "Strategic Vision of Economic and Employment Development Toward 2009", which included reform measures aiming at (i) reducing poverty and income inequality, (ii) foster economic growth and employment, (iii) reform public finance, (iv) develop human capital, and (v) reform and modernize the state\. The government program was developed with strong stakeholder participation\. Selected economic and sector work from various donors, amongst them the Bank, helped further refine the reform process\. Overall, there was broad ownership of the reforms\. 4 See World Bank "ICT - at a glance" 5 Informality was estimated to range around 50% of the workforce in the Poverty Assessment done by the WB in 2000\. 6 See chart 2 on page 27 7 The two DPLs aimed at promoting broad-based growth, and supported public financial management and private sector reforms measures under (ii), (iii), (iv) and (v) of the government program\. The triggers and pace of the reforms were closely aligned with the government's own program, and were also informed by earlier analytical studies in the area of the investment climate and public expenditure management7, as well as a Country Financial Accountability and Procurement Assessment Report done jointly with the IADB in 2006\. QAG assigned high marks to the analytical work conducted by the Bank, and its impact on the dialogue with the government\. The series of DPLs formed an integral and important part of the Country Partnership Strategy\. The Bank supported the government's reform programs through a variety of development policy loans as well as investment lending\. In the area of fiscal reforms, a Public Finance and Institutional Development Policy Loan was approved in FY07, and supported the government reform measures in the area of restoring fiscal sustainability and enhancing fiscal management\. The two DPLs under review followed up on the reform agenda from the first DPL in the area of Public Financial Management, but also included reforms to enhance the country's overall competitiveness\. Additionally, technical assistance for public financial management reforms was provided through a TA operation which was approved in FY 02 and which is still ongoing\. The CPS also foresaw other relevant technical assistance, namely support through DEC for the national statistics system, debt management support through the Bank's treasury department, and support for education reform and M&E system under a separate investment loan\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved): The interrelated development objectives of the DPL program were to promote broad-based growth through the enhancement of private sector competitiveness and to consolidate fiscal sustainability and public sector transparency and efficiency through the modernization of public financial management systems\. To track program outcomes, the two DPLs provided a detailed matrix of indicators (see table 2)\. The indicators were slightly changed during implementation and approved by the Board upon presentation of the second DPL, in order to reflect changes in the triggers and to clarify individual indicators (see also 1\.6\. and Annex 1)\. Section F upfront provides in-depth information on the actual status of the individual indicators\. 7 The Investment Climate and the PER were presented to the government in 2006 and 2007, but were not published upon request of the government\. 8  Table 2: Expected Program Outcomes and Indicators Medium term CPS outcomes to which the DPL directly contributes Indicative Outcome Indicators (by end 2008) I\. Competitiveness Reduced time to comply with Increased coverage of the Panama Trámita internet portal (200 government regulations\. on-line transactions made available by end 2008, up from 75 in June 2007)\. Reduced costs of Doing Business in Panama as measured by the WB through end 2008 (time needed to start a business reduced from 19 to 5 days , time for exporting reduced from 16 to 12 days)\. Expanded worker training programs Increase in the yearly number of workers that complete training adapted to emerging labor market needs\. courses funded by INADEH, from 42,000 in 2006 to 200,000 in 2008\. Training programs for certifying labor competencies offered by accredited providers for at least 9 occupations from the sectors of hotels and tourism, construction, manufacturing and agro-industry\. Increased investments in R&D and Increase in Panama's per capita R&D from $11\.8 in 2005 to innovation\. $20 in 2008 (excluding the Smithsonian Institution)\. Increase number of full time researchers in Panama, from 312 in 2005 to 410 in 2008 (excluding Smithsonian Institution)\. Increase in the share of R&D personnel with master or PhD\. degrees, from 23\.5percent in 2005 to 33\.3percent in 2008 (excluding the Smithsonian Institution)\. II\. Public Financial Management Improved debt sustainability\. Total consolidated NFPS debt reduced to 54 percent of GDP or less\. 8 Enhanced performance of tax Progress in PEFA indicator No\. 14\. administration resulting from improved Reduction in Doing Business sub-indicators for the time spent filing, audit and collection procedures\. filing and paying taxes\. Improved capacity to manage debt\. Formal debt management strategy and a consolidated system for public debt management in the MEF\. Public availability of medium-term Progress in PEFA indicators Nos\. 6, 12, or 25\. fiscal framework and fiscal information, closer to international standards\. Reduced payment arrears\. Outstanding accruals do not surpass 10percent of central government expenditures\. Increased efficiency of internal controls\. Decreases in CGR's average processing times for expenditure operations\. Improved capacity to conduct audits\. Use of CAATs in at least five audit engagements\. Improved participation of enterprises in Increments in registered bidders in PanamaCompra\. public procurement\. Improved public procurement Issuance of standard documents\. management with a view of reducing transaction costs\. Increased savings in publicly procured Reduction in average unit cost of key items\. goods and services\. 8 This is a Government target that is supported by the actions recognized under the DPL series\. Evidently, there are other macroeconomic factors that will influence the decline of the debt-to-GDP ratio, as well as some risks discussed in Section VI (Part F)\. 9 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification: Not applicable 1\.4 Original Policy Areas Supported by the Program (as approved): The two DPLs supported the government reform program in the areas of fostering broad-based growth, reforming public finance, developing human capital, and reforming and modernizing the state\. In particular, the proposed policy loans supported reform actions in two major areas: (i) enhancement of competitiveness through red tape reduction, improved training policies and increased investments in innovation; and (ii) modernization of public financial management through enhancements in revenue and debt management, fiscal transparency and governance, and public procurement\. A list of triggers and their implementation is presented under 2\.1\. 1\.5 Revised Policy Areas (if applicable): Not applicable\. 1\.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations): The two DPLs were implemented within the expected timeframe, and with only limited changes\. Under the competitiveness component, the trigger to modernize 22 training facilities was dropped\. While the training facilities were revamped and re-equipped, it was determined that this type of conditionality was more in line with an investment operation, not budget support\. Under procurement, the trigger to issue standard documents for public sector entities subject to Law No 22 was eliminated due to the complexity of the task, and a lack of time to finalize implementation\. Instead, the issuance of framework contracts was added as a trigger9\. The change in triggers was acceptable, since the two DPLs aimed at supporting the overall reform program of the government instead of specific conditionalities, and the government was on track in implementing its program\. The key performance indicators were adjusted to reflect changes in triggers, or to further specify the indicators\. The indicator for Panama Tramita was refined to add "consolidating or eliminating of procedures", and the indicator for outstanding accrual was substituted by "time needed to process payment"\. Additionally, a benchmark for number of bidders in PanamaCompra was included\. Finally, the indicator to issue standard documents was dropped with view to the eliminated trigger, and a benchmark for the expected reduction in average unit cost under the framework costs was added 9 The project appraisal document of the second DPL states that "The adoption of framework contracts is a de facto standardization process, as goods are procured from a predetermined list using a standard purchase order, leading to a higher level of transparency whilst at the same time removing discretionality from the purchasing process\. The new prior action is deemed by the GOP and the Bank team to exceed the impact of the original trigger because, as explained earlier, framework contracts significantly generate both price and transaction cost savings, while standard bidding documents are mostly concerned with the latter (para 75, page 29)\. 10  With regard to funding, the overall envelope under the second DPL was increased by USD 25 million upon request of the government\. As the international financial and economic crisis intensified in 2008, revenues dropped and funding on the international capital markets became increasingly scarce and expensive10, the government approached the Bank regarding a possible augmentation of the funding envelop under the second DPL in the size of USD 100 million\. Given the good progress made on the overall reform package, the World Bank agreed to top up the initially foreseen USD 75 million for the second DPL to USD 100 million without additional conditionalities, and to accelerate another DPL foreseen for FY10 to FY09, including a top-up from USD 50 million to USD 80 million\. The latter was approved by the Board in March 200911\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance (supported by a table derived from a policy matrix): As shown in table 3, the government's program, as described in the policy matrix of the two DPLs under review, remained on track\. All the action triggers were a condition for Board approval, and thus met prior to Board presentation of the respective loans\. 2\.2 Major Factors Affecting Implementation: The Torrijos Government elected in 2004 enjoyed a strong political mandate and profited from a majority in the Legislative Assembly\. This strong position facilitated the tackling of more difficult reforms, such as in tax administration and the implementation of e-government\. Furthermore, the reform process profited from "reform champions" in selected positions, such as the SPIG, SENACYT and INADEH, and also benefited from direct support of the President\. With regard to the digitalization progress, the complexity of the task and the vast number of entities involved in the process slowed down implementation\. The institutional capacity in the agencies continues to vary significantly as far as their readiness for the introduction of e- government is concerned\. In the absence of a detailed strategic plan and training programs to help create a level playing field between the various agencies and pace the reform process, progress was slower than anticipated\. A slowdown in the economy as well as the upcoming elections also had an impact on project implementation towards the end of the DPL cycle\. In the second half of 2008, the turmoil on the international financial markets and the unfavorable developments in the area of international trade led to a reduction of economic growth rates and put pressure on the budget\. Together with the national election in June 2009, this diverted to some degree the government's attention away from the reform progress and slowed implementation of the remaining reforms\. 10 Based on the IMF Regional Economic Outlook for the Western Hemisphere (2009), spreads for median sovereign yields of Latin American bonds included in JPMorgan's EMBIG index jumped from 5\.6 percent to 10 percent in the last quarter of 2008 following the Lehman Brothers collapse, and remained high since then (p\. 39)\. 11 The latest DPL "Protecting the Poor under global uncertainty" was approved on March 23, 2009\. 11  Table 3: Triggers for the First and Second Competitiveness and Public Financial Management DPLs and their implementation Actions Completed for Prior Actions for Actual outcomes Objectives First C&PFM DPL Second C&PFM DPL (by April 2009) I\. Promote broad-based growth by enhancing private sector competitiveness 1\. Increase Simplification of government Beginning the implementation Fully met\. Panama Trámita now provides the link to 90 business procedures by means of: of a new system to allow for on- government transactions, and makes additional information on competitiveness by line completion of export and required procedures and documents in other areas available\. reducing a) The addition, by June 16, import procedures ("Ventanilla The legal framework for most agencies has been put in place to transaction costs 2007, of 75 on-line Government Unica Digitalizada")\. Action allow for full digitalization of individual processes, but transactions to the Panama Indicator: The design of a digital operational manuals are missing in many instances, and the Tramita internet portal (launched "Ventanilla Unica" has been underlying procedures have not yet been entirely harmonized in May 2006); and completed\. within agencies\. b) Approval and implementation Implementation of legal and of Law 5 (January 2007), which Fully met\. Panama Emprende allows for a one-stop registration regulatory reforms to govern facilitates rapid on-line business process over the internet for most enterprises (with the the use of electronic signatures\. registration through the Panama exception of i\.e\. restaurants, banks, insurances)\. The underlying Action Indicator: The Electronic Emprende internet portal\. procedures have been streamlined and previous requirements to Signature Law has been approved\. contact various government agencies eliminated\. According to the Ministry of Commerce and Industry, the time needed to get a license dropped from 30 days prior to introduction of Panama Emprende to 20 minutes, and fees dropped between 12-25%, depending on the license\. Formally met\. A draft strategy for the design of the Ventanilla Unica has been delivered in December, and was accepted by the government\. However, in the meantime, a new project called PanaMarket has emerged with IADB funding, which aims to be a one-stop digital window for all activities pertaining to investors, exporters and importers\. Actual digitalization of the Ventanilla Unica has been put on hold, until a more comprehensive new strategy has been developed for PanaMarket\. Fully met\. The Electronic Signature Law (Ley 51 de 2008) was approved on July 22, 2008\. Regulations for its application have recently been presented to the Cabinet Council (Consejo de Gabinete), and are expected to be approved by June 2009\. 12  Actions Completed for Prior Actions for Actual outcomes Objectives First C&PFM DPL Second C&PFM DPL (by April 2009) 2\. Improve labor Implementation of Decree Law 8 Issuance of labor competency Fully met\. The Decree Law 8 assigned a leadership role to productivity by of February 2006 as illustrated standards for at least nine key INADEH for developing and implementing national training upgrading workers' by: occupations\. Action Indicator: policies\. As can be seen in the table of key performance skills a) the provision of training Competency standards for at least 9 indicators, INADEH has been very active in the last years to courses to more than 145,000 key occupations have been approved\. develop new and better targeted courses, increase outreach, and workers during the first eight evaluate and accredit private training providers\. Based on months of 2007 (in comparison interviews in the country, there seems to be general agreement with 42,000 workers in 2006); that INADEH has played an important role in bridging the b) the completion of external educational gap in the country, and providing enterprises with preliminary evaluations of 105 the required skill mix in workers\. It should be noted that private training providers by INADEHs budget for investments was curtailed in half for September 2007; 2009, thus basically halving also its overall budget\. This raises c) the signing of a cooperation questions on the sustainability of the outreach effort\. agreement with the Ministry of Partially met\. While there seems to be general agreement in the Education to better articulate country that a clear strategy in the area of education is missing Panama's training and formal in Panama, the signing of the cooperation agreement with the educational systems\. Ministry of Education has led to some cooperation in the area of usage and rehabilitation of secondary technical education centers\. Furthermore, INADEH is working closely with universities to allow for recognition of its evening courses for university degrees, and to enhance its course program to better fill perceived gaps\. 3\. Increase business Increased funding for promoting Implementation of a National Fully met\. Between 2004 and March 2009, SENACYT productivity by innovation through: Research System aimed at supported 364 R&D projects with a total amount of USD 14 fostering a) matching grant programs strengthening the country's million\. The peer review process for the matching grant innovation managed by the National principal research centers and at program is mostly done by foreigner consultants, and the results Secretariat for Science, Technology and increasing the number and the made publicly available\. Under the enterprise innovation facility, Innovation (SENACYT), which in quality of researchers in it supported investments in universities, research institutes, 2007 financed enterprise Panama\. Action indicator: a laboratories and private enterprises\. innovation and R&D projects National Research System law totaling $3\.8 M, compared to creating a National Research System Fully met\. Since 2005, the scholarship program managed by $1\.2 M in 2006, $0\.7 M in 2005 has been approved and regulated\. SENACYT and IFARHU together has had a cumulative budget and $0\.18 M in 2004 of 24 million USD\. ("Innovacion Empresarial" and "Investigacion y Desarrollo" Fully met\. Since its law was changed in December 2005, 13  Actions Completed for Prior Actions for Actual outcomes Objectives First C&PFM DPL Second C&PFM DPL (by April 2009) programs, including "clusters"); SENACYT is a public private partnership\. This provides b) increased budget for graduate SENACYT with the option to seek additional sources of scholarship programs managed funding, and also increased its independence\. jointly by SENACYT and the Human Resources Institute (IFARHU), from $0\.3 M\. in 2005 to $3\.1 M\. in 2006 and $4\.6M\. in 2007 ("Programa Nacional de Investigadores" and "Excelencia Profesional" programs)\. II\. Consolidate fiscal sustainability, transparency and efficiency through modernized public financial management systems 1\. Consolidate fiscal As part of its Modernization Implementation by the MEF of Fully met\. All tax forms are now submitted electronically\. The reform through Program, the DGI adopted a scenario analysis for measuring number of individuals and enterprises that file taxes has improved revenue new tax audit strategy and cost and risk of financing increased by 12-14 percent between 2005 and 2007 due to and debt policy and improved the systems to strategies, as support to the measures taken by the DGI to enhance compliance\. DGI management facilitate taxpayer compliance, as development of a debt adopted a new tax audit strategy, which focuses on sectoral evidenced by the year-on-year management strategy\. Action audits of legal entities\. The sectors are determined by a increase in on-line filing of Indicator: a scenario analysis for sophisticated computer model, and the audits aim to enhance income tax declarations\. measuring cost and risk of financing overall compliance within the respective sector through a more strategies has been implemented\. massive effort\. The strategy has already shown good results, as evident by growth rates in the tax volumes of legal entities of around 30% since 2005\. Fully met\. The strategy was developed, and a first scenario to assess the impact of a lengthening of the maturities was tested with Bank support\. However, there is limited capacity in the debt management unit, and no further scenario analysis has been undertaken since 2008\. Further technical assistance will be needed 2\. Enhance fiscal The Government improved Strengthened fiscal transparency Partially met\. The responsibilities over the financial management transparency and financial management and planning norms through of government accounts have been transferred to the MEF\. Fully financial governance, as evidenced by the passage of the revised Fiscal met\. The SIGUEME tracking system has allowed to identify management transfer of responsibility over Responsibility Law\. Action bottlenecks in the area of approval of payment requests, and led governance consolidated financial statements Indicator: the Fiscal Responsibility to remedial measures to reduce the processing time needed\. from the CGR to the MEF\. Law has been approved\. However, the system is not compatible with some of the other 14  Actions Completed for Prior Actions for Actual outcomes Objectives First C&PFM DPL Second C&PFM DPL (by April 2009) Modernized audit function systems used in the payment process, which leads to duplication The CGR improved of work between the individual agencies\. through the use of computer- management of control assisted audit techniques in transactions, particularly Fully met\. The fiscal responsibility law was developed with WB financial audits of at least five payments, as evidenced by the and IMF input and became effective in January 2009\. Except in entities\. Action Indicators: launch and implementation of well defined cases, the law mandates that the deficit of the non- Computer-assisted audit techniques the SIGUEME tracking system\. financial public sector does not to exceed 1% of GDP in any (CAATs) have been used in given year\. Additionally, the lay also provides for increased fiscal financial audits of at least five transparency, through i\.e\. clearer definitions of the composition entities\. of fiscal accounts, the preparation of publication of a medium- term fiscal framework, and the development of sectoral strategies\. Formally met\. Computer-assisted audit techniques were applied in audits in 2008, but the techniques proofed to be too cumbersome given the established procedures and techniques used for the audits\. With WB support under the TA project, a consultancy firm will be hired to develop and refine computer assisted audit programs for application in audits\. 3\. Improve The Government consolidated New action: DGCP issues at least Fully met\. All bidding notices under 50,000 USD as well as the expenditure the procurement framework with six framework contracts results are published in PanamaCompra, and the winning bid is efficiency and the issuance of Regulations to the determined based on the lowest electronic bid received\. This transparency Procurement Law, resulting inter increased the transparency in the selection process, although through public alia in full publication in the actual contract processing continues to be done via paper- procurement PanamaCompra of procurement trail\. The government has already hired a consultant firm to reform notices by all central government develop the second stage of the project\. It is expected that the and several decentralized entities\. full digitalization of the procurement process will be achieved within 2009\. The development of PanamaCompra has been crucial to give autonomy to a central public buying agency, and to install a separate complaint resolution mechanism\. Fully met\. So far, 21 framework contract were negotiated, including renegotiated contracts\. Further framework contracts are currently in the works, i\.e\. for banking services to allow for electronic payments under digitalized processes\. 15 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The matrix of policy actions and expected outcomes provided clear and measurable performance indicators for each individual subcomponent, but mostly focused on outputs\. The provided indicators were well aligned with the actual triggers, and baseline and expected target values were specified for most indicators\. However, the indicators measured in many instances mostly expected outputs, and not impact / outcomes\. For example, one of the indicators measured the availability of on-line transactions on Panama Trámita, but there is no target included to assess actual usage of those on-line transactions, as well as cost and time reduction achieved through the elimination of procedures\. With regard to INADEH, the indicators measure the number of participants instead of individuals trained, and little information is available to measure the actual results of the training (i\.e\. the number of people that achieved a certain level of proficiency, found a new job, were certified etc)\. On the public financial management side, the actual usage of CAAT in audits does not necessarily reflect an improved capacity to conduct audits, as will be discussed later\. Finally, a change in tax administration, audit and collection procedures should be expected to translate into increased compliance by legal and natural persons, which could have been tracked\. Nonetheless, some more meaningful outcome indicators could have been included and the Bank could have pushed for the collection of relevant impact information\. Shortcomings in the monitoring and evaluation system of the DPL are by and large the consequence of deficiencies in the national statistical system and the lack of a monitoring and evaluation culture in the country\. As it was difficult to design outcome indicators in the subject areas given the lack of available data and the short timeframe of implementation, the Bank used easily available data as indicators for the DPLs, but supported the development of M&E systems through respective TA operations\. The Bank detailed in its Country Partnership Strategy in 2007 its support to help advance the monitoring and evaluation system in Panama\. The strategy foresaw a general grant to the Controller's office for improved national statistics, as well as M&E support through various TA loans, amongst them the Public Policy TA Loan and a TA provided by the Bank's Treasury Department\. 2\.4 Expected Next Phase/Follow-up Operation (if any): On the Bank side, some follow-up in the area of public financial management will be provided through the ongoing Public Policy Reform Technical Assistance Loan, and non-lending fiduciary technical assistance\. One area of focus is the procurement system, where a detailed road map has recently been approved with bank support, and support will be provided for its implementation\. Furthermore, technical assistance is ongoing to further the General Comptroller's Office control and audit models, and to help implement the Fiscal Responsibility Law through enhanced results-based budgeting, institutional capacity building and public investment planning\. Selected 16 support will likely also be provided by the IMF12 and other donors\. On the private sector development side, there is currently no direct follow-up planned\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy): The supported reform areas continue to be relevant for Panama\. As discussed above, the reforms in the area of competitiveness and public financial management were in line with various relevant analytical assessments13\. They continue to be relevant today, and both the new government and the latest progress report of the Bank's Country Partnership Strategy highlight continued support for individual reform areas\. The timing of the loans was well aligned with budgetary requirements and, upon request of the government, stayed within the election cycle\. As described in the PAD of the first operation, the two sets of objectives were mutually reinforcing\. The PAD states (p\.2) that "public financial management systems that contribute to fiscal discipline, operational efficiency and strategic allocation of resources are critical elements of public sector effectiveness, which in turn can positively influence the country's enabling environment for private sector development\. Moreover, both are critical for achieving progress toward the GOP's overarching objective of increasing and sustaining broad-based economic growth in Panama, which would in turn contribute to continued fiscal stability"\. Regarding the design, the two DPLs involved a number of agencies that were in charge of implementing the reforms\. While this is necessary given the nature of the reforms involved, the number and variety of agencies nevertheless introduced an element of complexity into the policy loans and the dialogue with the counterparts\. 3\.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by the operation and outcomes): The overarching objectives of the series of DPLs, namely to promote broad-based growth through the enhancement of private sector competitiveness and to consolidate fiscal sustainability and public sector transparency and efficiency through the modernization of public financial management systems, were achieved\. As can be seen in Section F upfront, progress towards the medium-term outcome indicators has been steady, and at completion the vast majority of indicators have been met, with the remaining expected to be met shortly due to the implemented reforms\. Furthermore, all the reforms were implemented, as reflected in the above matrix of triggers\. The following two subsections provide detailed information on the two areas of reforms and progress made towards enhancements in competitiveness and fiscal sustainability\. 12 The IMF has recently opened a regional technical assistance center for Central America, which will provide ­ amongst other areas, support to individual countries in the area of tax and customs policy and administration, public debt markets, and support for the development of MTEFs and sound public financial management systems\. 13 As discussed above, those were for example the unpublished Investment Climate Report (2006), the Doing Business Indicators, the Kaufman and Kraay indicators and the Global Competitiveness Report of the World Economic Forum, as well as an unpublished PER and the CFAPAR, published in 2007\. 17 Overall, the macro-economic situation continued to be sound during project implementation14\. Growth rates reached 9\.2 percent in 2008, after an average real growth of 8\.8 percent between 2004 and 2007\. The strong growth was the result of continuous external and domestic demand, which only lately dropped off due to the global economic recession and a slow-down of domestic demand\. Similar to other countries, inflation rose in the last two years to double-digit figures due to higher food and commodity prices as well as a surge in internal demand, but declined again in the second half of 2008, reaching 3\.7 percent year on year in March 2009\. The current account deficit increased to 12\.4 percent of GDP in 2008, up from 7\.3 percent in 2007, due to higher oil prices in combination with increased domestic demand and the expansion of the Canal\. It was mostly financed by foreign direct investment (10\.4 percent of GDP in 2008)\. Unemployment further dropped, reaching 5\.6 percent at the end of 2008\. 3\.2\.1 Reforms to foster competitiveness (satisfactory) Under this component, the fundamental objective of the DPLs was to promote broad-based growth by enhancing private sector competitiveness\. Such competitiveness enhancement was to be achieved by reducing business transaction costs, improving labor productivity by upgrading workers' skills, and increasing business productivity by fostering innovation\. Medium-term outcomes and indicators have been met, as summarized in the tables presented at the beginning of the document (Section F, Results Framework)\. Furthermore, as can be seen in Chart 1, the fundamental objective of this component has been achieved, implying a satisfactory outcome rating\. As confirmed by competitiveness indicators for Panama, the country made good progress towards enhancing its competitiveness ranking worldwide, but corruption continues to pose a problem\. In the area of government's effectiveness, Panama made measureable progress in reducing bureaucratic hurdles and facilitating procedures\. Panama's ranking in the World Economic Forum's Competitiveness Report improved during the last few years by 2 ranks overall, and around 6 ranks if based on the sample of countries used in 2006\. While Panama continues to show shortcomings on the institutional side and on health and education indicators (rank 70 and 64 respectively), the positive overall ranking is based on good infrastructure and solid macro-economic performance15\. The supported reforms have yet to translate into a reduction of corruption\. Based on the 2008 Global Corruption Barometer from Transparency International, 64 percent of the surveyed population considered the government's measures to fight corruption as ineffective ­ amongst the worst results for LAC countries\. Correspondingly, most of the corruption indices have not changed, or further deteriorated16\. 14 See also the latest Public Information Notice from the IMF regarding the conclusion of its Article IV consultation on July 1, 2009 15 The compiled Doing Business indicator for Panama is only available for the last two years, and shows a slight deterioration in Panama's ranking, despite reform progress in selected areas\. The deteriorated ranking is likely the result of measurable reform measures undertaken in other countries\. 16 Yet, when looking at the actual reported incidence of having paid bribes, only a limited number of people ever had to\. 18 a\. Increase business competitiveness by reducing transaction costs\. The reduction of transaction costs for doing business has been built upon simplifying and/or eliminating existing processes, and digitalizing as many processes as possible\. Both actions are conducive to a reduction in processing time and therefore to an overall reduction in costs\. SPIG has been instrumental in the strategic planning, design, and development of the GOP's efforts to simplify and digitalize processes\. However, execution responsibilities are assigned to different ministries, which led to differences in progress due to various levels of e- readiness in the respective ministries\. It has not been easy to manage the cultural change needed to migrate from a rather bureaucratic paper-based environment to simplified digitalized processes in a short period of time\. Furthermore, the GOP's reform program was very ambitious in scope, which although well intentioned, ended building up complexity to the overall project\. PanamaEmprende has become an effective one-stop virtual site for the registration and licensing of most businesses in Panama\. Law 5 from January 2007 established the concept where people wishing to start a new business in Panama may do it in a simple way, with the sole obligation of informing the State that they are starting a new operation\. This requirement is met through the Operation Notice, which now is the only step required for starting most commercial, industrial or service activity in the country17\. The Operation Notice automatically triggers other registrations, such as the Taxpayer's Unique Registry (RUC) and the Registry of New Businesses before the relevant municipality\. Fees can be paid electronically with no need to go through different institutions\. The public may access the system, and anyone can obtain information on the companies doing business\. Another important achievement of PanamaEmprende has been enhanced transparency\. Being a digital "one-stop window", the risk of irregular payments or undue delays in the process has been eliminated\. PanamaEmprende also allows for increased tax/revenue collections by facilitating the formalization of economic activity in the country\. Progress towards establishing a digitalized Ventanilla Unica was made, but implementation stalled\. The Ventanilla Unica was meant to become the on-line tool for all export-import processes, and a strategic design for the digitalization of the processes was finalized in December 2008\. However, in the meantime, the government determined that a different e-portal should be launched, which would encompass both export-import as well as investment processes\. This new portal, Panamarket, is currently in the design stage, and implementation of the Ventanilla Unica was put on hold\. Two other relevant projects in the area of export / import were digitalized: AMP for the registration of cargo ships, and SDMC to control commercial goods movements in the Colon Free Trade Zone and facilitate interaction between traders, banks, and customs\. 17 It should be noted that there are a few exceptions to this rule\. Specifically regulated activities (i\.e\. banking, insurance, liquor sales, security services, etc\.) will still need to go first to their regulatory bodies before completing the Operation Notice\. But even in these cases, the ICR mission was informed in the field that the processes have been shortened and simplified considerably\. 19 Chart 1: Evolution of key indicators for private sector development in Panama 20 Finally, progress was made towards digitalizing government transactions within the Panama Trámita portal\. This portal is mostly geared to individuals, and progress has been made towards the digitalization of transactions related to the processing of passports, identity cards, government issued certificates, and similar activities\. These transactions require the participation of a wide array of government agencies, the establishment of clear procedures, and the harmonization of systems\. This coordination has proved to be a significant challenge, thus slowing down the pace of implementation\. Nevertheless, as of April 2009, 90 different transactions have been completely digitalized\. Additionally, the portal provides information on the documentation requirements for other processes that are not yet fully digitalized\. The latter has enhances transparency in the system\. This "technological road" chosen to enhancing business competitiveness has not been free of difficulties\. While the strategy was put in place, it was not translated into a comprehensive Action Plan ("execution roadmap")\. The latter is a very important tool for the coordination, monitoring, control and evaluation of progresses being made, particularly given the complexity of reforms supported in the area of digitalization\. It is the coordination of execution efforts what precisely has shown certain weaknesses\. b\. Improvement of labor productivity by upgrading workers' skills\. INADEH's performance has extended beyond the required actions, as it increased its outreach to social groups and geographic areas that had not been served before\. Given the significant shortfalls in Panama's educational system, INADEH plays a key role in the country to enhance the level of education and improve labor productivity\. The institute has been focusing on: a) building a training offer to serve the new labor demand generated by the economic growth sustained by Panama in the last few years, b) working closely with universities in order to facilitate the access and/or recognition of INADEH trained workers/students into tertiary level education, c) building a fruitful mutually beneficial interaction with Private Sector entities and developing recognized certification norms for selective occupations in high demand, and d) reaching ­ in an exceptional effort ­ indigenous communities and other less privileged social groups (single parents and jobless youth) to include them in its programs and tailoring their courses for the benefit of these communities\. Through its various activities, INADEH has achieved significant impact in the last few years\. As described in the Annex, INADEH's 400 training programs involved over 200,000 participants in the last year alone\. Furthermore, INADEH successfully trained instructors for evening courses provided by the Ministry of Education (MEDUCA)\. Additionally, INADEH entered into an agreement with the universities to allow that courses offered by INADEH are acknowledged\. As a result, topography students at INADEH may now claim credits towards their acceptance at the University of Panama in order to further their education\. A similar situation has benefited INADEH's students of general and auto mechanics, who can now continue to develop their technical knowledge and skills at the Technological University of Panama\. Finally, INADEH is reaching to foreign entities for the certification of technical labor 21 competencies, and is working on an agreement with Electricity Workers Unions in Washington DC, United States, to this effect\. Lately, INADEH has also ventured into virtual training to facilitate access to training\. It trained 150 tutors and instructors to staff its 96 virtual training centers, 53 of which are already fully operational\. These units ­ distributed all over the country ­ are equipped with 17 personal computers each, and provide access to on-line training to students who do not have home access to the Internet\. As can be seen in table 4 below, a significant post-2006 increase in the overall number of courses and beneficiaries is noticeable, as well as the inclusion of more indigenous communities in INADEH's programs during the last 2 years\. Table 4: INADEH Courses: Evolution of years and regions Y 2006 Y 2007 (1) Y 2008 (2) Y 2009 (3) COURSES GRADUATES COURSES GRADUATES COURSES GRADUATES COURSES GRADUATES PROVINCES TOTAL 2,683 42,021 9,439 191,723 11,023 211,230 3,520 50,827 BOCAS DEL TORO 142 2,377 463 8,407 405 6,466 107 1,493 COCL 190 3,124 540 13,109 492 8,167 166 2,447 COLîN 229 3,712 672 11,956 347 5,764 200 2,653 CHIRIQUê 285 4,415 1,215 24,035 1,850 30,179 424 5,812 DARIN (4) 46 740 151 2,182 124 1,735 36 457 HERRERA 119 1,709 404 7,938 389 5,919 109 1,519 LOS SANTOS 127 1,923 350 6,976 313 4,875 148 2,153 PANAMç 1,124 17,887 4,744 100,396 6,122 134,084 1,904 25,328 VERAGUAS 398 5,780 832 14,111 701 9,921 292 3,844 KUNA YALA (5) 23 354 68 1,170 80 1,332 6 21 COMARCA EMBERA (5) 357 80 1,051 13 135 COMARCA NGOBE (5) 1,086 120 1,737 33 407 VIRTUAL 82 4,558 (1) Preliminary data as of 31 Dec 2007 INADEH (2) Preliminary data as of 31 Dec 2008 COURSES ­ GRADUATES (3) Preliminary data as of 31 Dec 2009 STATISTICS PER PROVINCE (4) High level of indigenous population Sourcr; Database CEZANNE (5) Indigenous communities c\. Increase business productivity by fostering innovation A Strategic National Plan for the Development of Science, Technology and Innovations has been launched\. It encompasses the cooperation and interaction of the CNCYT (National Commission of Science and Technology), the CICYT (Science, Technology, and Innovation Inter-ministerial Commission), SENACYT (National Secretary for Science, Technology and Innovation), and 13 Sector Commissions representing public, private, academic, and social sectors\. The whole system operates on the principles on "integration" (coordinated action) and "transversalidad" (meaning the incorporation of components of science, technology, and innovation across the board in all of its activities)\. It also encourages a closer interaction and better understanding between the scientific community and the public and private sectors\. 22 A significant step forward to fostering innovation was the approval of Law 56 in December 2007\. The Law established the National Research System in Panama, governed by a National Directive Council formed by 3 representatives of the GOP at ministerial level (Presidency, Education, and Science, Technology and Innovation) and 4 representatives of research centers, scientific organizations, universities, and private sector\. Within this framework, SENACYT plays a key role in fostering innovation through the use of science and technology\. Its mission is to "convert" science and technology in tools to achieve sustainable development for Panama\. SENACYT was created in 1997 and was given administrative autonomy by Law 50 in December 2005\. At present ­ through a formal arrangement ­ PNUD provides administrative support to SENACYT, improving the level of transparency and effectiveness in its financial management\. All SENACYT's activities, projects, and programs are in compliance with the guidelines established by the Strategic National Plan for the Development of Science, Technology, and Innovation\. The lengthy process for the production of statistics in Panama creates difficulties that are very noticeable in the particular case of SENACYT\. It takes a significant amount of time for final year-end statistics to become available\. According to the nature of the statistics, certain entities are responsible for the development of the indicators, and SENACYT deals with Science and Technology related ones\. The process of capturing information is done during the first semester after the year-end, and under normal circumstances, the compilation, tabulation and analysis of the captured data takes an additional 6 months\. This means that the final data usually becomes available with a delay of between 13 and 18 months after the data date (i\.e\. 2005 data is made available during first half of 2007)\. As from 2006 SENACYT identified the need to enhance the level of analysis of the captured data, which added delays in the final output\. As a consequence of the above, it was only possible to obtain official 2005 data, preliminary 2006 data, and as from 2007 all data is according to goals/objectives as informed by SENACYT\. Although no doubts are raised regarding the authenticity of the information provided, it has not been possible to verify such data with reliable final statistics, giving grounds to some concerns regarding the accuracy of the information and/or the likelihood of eventual adjustments in the final figures\. Budget execution improved during 2007 and 2008, reaching an average of 93 percent\. Investment represented 85 percent of the total budget and operating expenses remained stable at around 15 percent\. This performance is significantly better than during the period 2004-2006, where budget execution averaged 77 percent, with investment representing 57 percent and operating expenses 43 percent of available budgetary resources\. Over 60 percent of the funds allocated to the financing of R&D projects during the period 2004-09 have been to the bio- science and agri-business sectors\. Additionally ­ during the same period - there have been 181 projects related to innovation and the promotion of science and technology financed for an amount of $5\.8mm\. All together, this adds to a total of projects financed for $14\.4mm\. 3\.2\.2\. Reforms to enhance the efficiency of Public Financial Management (satisfactory) Under the Public Financial management component of the loan, the focus was on sustaining fiscal discipline, increasing the impact of public spending, and enhancing government efficiency\. 23 This was to be achieved through modernization of public financial management systems for revenue, debt, fiscal reporting, and public procurement\. It was expected that those reforms would also supporting the environment for investment and business development\. As can be seen in Table 3, all the triggers were met, and solid progress has been made with regard to the key performance indicators\. Reform progress under this reform component is thus rated satisfactory\. Confirmed by the IMF Article IV surveillance mission18, public financial management continued to be sound\. The nonfinancial public sector balance remained positive during the last three years, despite a large increase in public investment to 7 percent of GDP in 2008, and additional social expenditures in the range of 1 percent of GDP to compensate for higher costs of living\. This positive development was possible due to a favorable external environment, as well as fiscal reforms implemented in the earlier years, which led to higher revenues\. Furthermore, the government managed to contain current spending, mostly through a reduction of the share of wages, social security deficits and pensions, but also due to lower overall interest payments\. The government's debt level continued to drop, and reached 38 percent of GDP in 2008 based on latest IMF data\. Given this positive development, which is also reflected in its EMBI spread (see Chart 2), Panama was one of the few Latin American countries that were able to tap the international capital markets in 200919\. The project supported reforms played an important role in achieving this overall satisfactory outcome\. The increased fiscal revenue is in part due to reforms in tax administration, which were supported under the DPL program\. Two areas of administrative reforms were tackled\. On the one hand, the Dirección General de Ingresos (DGI) developed monthly audit strategies, which focus on sectoral audits of legal entities to enhance overall compliance within the respective sector through a more massive effort\. The sectors to be audited are determined by a sophisticated computer model, which "detects" outliers and also matches the various data provided from other sources to provide information on potential inconsistencies\. The new strategy has proven to be an efficient way of using the scarce human resources available in the DGI\. Growth rates for direct taxes paid by legal entities ranged on average around 60 percent between 2004 and 2008, and the number of legal entities filing taxes increased by 14 percent during 2005 and 2007\. On the other hand, DGI fostered digitalization of tax filings to enhance its institutional efficiency\. Mandated by law, all direct taxes now are being submitted electronically, either in the form of disks, or via on-line transfers (see Chart 2)\. This requirement has put some additional strain on the taxpayer, in particular given the low computer penetration and internet access of the population, but helped bring down internal processing times and costs\. Further reforms might be warranted in the area of tax reimbursements, which continue to be cumbersome, both for the DGI and the taxpayer\. A Social and Fiscal Responsibility Law was enacted in June 2008, with technical support from both the IMF and the World Bank\. The law stipulates that the fiscal deficit should not 18 The mission took place in March 2009\. 19 Early 2009 saw some resumption of external issuances by a few of the higher-rated sovereigns in the region: Brazil, Colombia, Mexico, Panama, and Peru were all able to tap global capital markets\. Panama successfully placed USD 323 million in bonds on the international bond markets in March 2009\. 24 fall under 1 percent of GDP20, unless economic growth drops below 1 percent, and that the total public debt should stay below 40 percent of GDP from 2015 on21\. Additionally, the law includes provisions to enhance the fiscal accounts, and to increase fiscal transparency through provisions of periodic compliance reports and increased public access to the medium-term fiscal framework\. There seems to be consensus in the empirical literature that strong fiscal institutions and clear budget rules are in general associated with lower deficits and funding costs22, and the law ­ if implemented - can thus be expected to have a positive impact on public financial management\. The law became effective in January 2009, and it is expected that Panama will be able to meet this year's fiscal deficit target despite the slowdown in growth\. However, in order not to replicate the experience with the former fiscal responsibility law23, it is important that Panama continues to make further progress in strengthening its fiscal institutions\. This includes reinforcing budget planning, execution and reporting, and strengthening accounting, statistical and transparency standards\. Furthermore, guidelines should be elaborated that detail the procedures to be adhered to in case of a rapid deterioration in economic growth\. It should also be noted that the law does not specify sanctions for non-adherence, and the institutional responsibilities are not clearly determined\. Thus, implementation of the law hinges currently on reputational incentives\. Progress was also made in the area of public debt management, but further capacity building is needed, and the government needs to focus on developing the domestic debt market\. With World Bank technical support, the Government developed an analytical tool for debt management as well as guidance for its application\. The tool helped the government better understand the available data, and assess costs and risks associated with individual strategies\. In part as a result of enhancements in debt management, the government extended the average debt maturities, and was able to lower the costs of borrowing\. Furthermore, the government reacted proactively to a drying up of the international capital markets in the fall of 2008, and sought additional financing from donors to secure the expected financing need for 2009\. The overall risk rating of the government has remained favorable (see EMBI evolution in Chart 2)\. However, it should be noted that the new debt management model was only used once to assess cost-benefits of extending the overall debt maturities, but since then has not been applied due to limited internal capacity\. Sustained efforts will be needed to reap the full benefit out of the tool, including a further refinement of the model and the preparation of a medium-term debt management strategy as well as further capacity building\. Additionally, the government needs to focus on developing the local debt market, which is of particular relevance given the size and importance of the banking system in the country\. With regard to enhancing the functioning of the audit office, several reforms were implemented, albeit with mixed results\. Supported by the IADB, the government is introducing a National Integrated Financial Management System (SIAFPA), which should enhance transparency and accuracy in budget planning and execution\. The General 20 Excluding the Panama Canal Authority 21 This includes debt held by the Social Security Administration, but excludes the Fiduciary Fund ­ a trust that was established in the 90s to invest privatization proceeds\. 22 For a discussion, see "Promoting fiscal discipline", Chapter 5 on Fiscal Responsibility Laws, IMF 2007, 23 The Law was approved in 2002 but never really implemented in the absence of clear sanction mechanisms and deficiencies in accountability\. 25 Comptroller's Office (CGR) introduced a reporting tool to track the processing time for payment verification, which allowed identifying and removing bottlenecks in internal processes\. As a result, over 97 percent of all payments are now being verifying within 15 days after reception (with the majority being approved within 2-3 days), compared to 67 percent in 2006\. This led to a significant reduction in payment times, as shown in Chart 2, and contributed to an enhanced, overall government efficiency\. However, the computer software used by the CGR for the tracking of payments is not compatible with the one used for the remaining payment process\. This leads to a duplication of data entry and reduces the potential benefits of computerization\. As regards the CGR's audit function, the introduction of computer added audit tools was not successful\. In the absence of a more radical change in culture and "the way of doing business", most of the audits are still based on an assessment of manually created Excel spreadsheets, and the actual application of CAAT technique has remained limited over time\. The government is currently seeking support from an external consultant for analyzing needed reforms to modernize and computerize audits\. Reforms were initiated to enhance the procurement function in the government, and Panama is now one of the few countries in the world in which Bank procurement is done through the national system\. The thrust of the reform progress has been on the implementation of PanamaCompra, which has emerged as the on-line platform for government purchases with the exception of the Panama Canal Authority (PCA), the Social Security Administration and ­ until a further roll-out has been implemented ­ the municipalities\. PanamaCompra so far only covers the publication of information on government procurement needs, but plans are advance to include the on-line bidding in the near future\. The government is now solely using PanamaCompra for the publication of upcoming purchases and tenders, and in April 2009, over 13,000 bidders were formally registered in PanamaCompra to receive the information\. Since its introduction in December 2006, more than 200,000 contracts for a total amount of around 2\.5 billion UDS were made publicly available through PanamaCompra (May 2009)24\. In order to increase transparency and minimize petty corruption, it would desirable to prioritize the implementation of the on-line bidding process\. Finally, the DPL program also supported the development and implementation of framework contracts\. Experience in other countries suggests that these types of contracts can significantly reduce the individual costs of small scale purchases through a lowering of price and procedural costs\. Furthermore, framework contracts can increase the transparency of procurement processes and eliminate potential for petty corruption\. In Panama, 21 annual framework contracts were negotiated since 200725, and savings in the range of US$ 100 million have been reaped so far based on information from the authorities, including i\.e\. a 5 million savings for fuel purchases\. 24 Based on a recent management report of the GDCP, more than 8,219 public contracts were minor purchases whose value did not exceed $30 thousand, 6,928 direct purchases, 281 bids for best value, 3,293 public tenders and 31,677 purchase orders through the Electronic Products and Services Catalog PanamaCompra 25 Including renegotiated contracts 26 Chart 2: Evolution of key indicators for public financial management performance in Panama 27 The procurement reforms are generating a cultural change in the way both the GOP and suppliers do business\. Procurement processes in Panama continue to be characterized by a multitude of different processes and requirements in individual agencies\. To streamline processes, the government of Panama created the Dirección General de Contrataciones Publicas in July 2008, which is in charge of modernizing and coordinating the procurement process for the public sector\. As a milestone, it published a Strategic Plan for public sector procurement in February 2009, which was developed with World Bank support\. The strategy is publicly available26, provides a clear road map of reforms needed to foster the digitalization of the government's procurement processes, coordinates the implementation and harmonization in various agencies, and also provides monitoring tools to measure actual progress\. The existence of a detailed strategy and road map will likely facilitate the full roll-out of the platform, and facilitate the standardization of bidding documents\. 3\.3 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs): Rating: satisfactory Based on the significant achievements made in the area of tax administration, procurement reforms, internal audit function of the government, fiscal responsibility legislation as well as vocational training, the provision of technology services and the introduction of e-government processes for doing business, the overall outcome for each of the DPLs is rated to have been satisfactory\. The Government's reform program lead to an overall enhancement of Panama's competitiveness, as measured by available international indicators such as the Global Competitiveness Report of the WEF and the Doing Business Reports, and is also reflected in the favorable evolution of key fiscal indicators\. 3\.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above): (a) Poverty Impacts, Gender Aspects, and Social Development While the two DPLs did not have a direct impact on poverty reduction, the reforms did support the economic development in the country, and have likely contributed to the overall favorable developments in the area of poverty\. The training programs administered by INADEH provided training to semi-skilled and unskilled workers, thus enhancing their profile on the job market\. Close to two-thirds of the people attending trainings in the first quarter of 2009 were women\. Additionally, INADEH reached out to indigenous communities, and rural areas, which were previously not covered\. Furthermore, the increased transparency of government procedures and the required documentation as well as the reduction in costs is likely to have a larger cost reduction impact on SMEs than on larger domestic firms, which usually can handle those processes more efficiently due to scale\. 26 http://www\.panamacompra\.gob\.pa/panamacompra/AcercaDGCP/DGCP-PlanEstrategicoCompras2009\.pdf 28 The measured incidence of poverty dropped in the last few years, but continues to be high for an upper middle income country\. Based on the latest LSMS Survey conducted in Panama in 2008, poverty fell in the last few years from 37\.3 percent in 1997 and 36\.8 percent in 2003 to 32\.4 percent of the population in 2008\. Poverty continues to be most prevalent in rural and indigenous communities, but the reported incidence has declined significantly in those areas\. The capital-intensive services sector and highly skilled laborers in the two main cities, Panama City and Colon, were the main beneficiaries of the solid economic growth, while lower-skilled laborers, as well as the rural population saw only a minor improvement in economic opportunity\. Although GNI per capita based on the Atlas method increased from USD 3,740 in 2000 to USD 4,940 in 2006, poverty continued to be pervasive in certain pockets of the population, as reflected in a GINI coefficient of 56,1 percent for 2007\. Based on the latest available figure available at appraisal, 37 percent of the population lived below the national poverty line in 2003, and 17 percent in extreme poverty\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer- term capacity and institutional development): The reforms supported under the two DPLs had a major impact on institutional strengthening: With regard to training, INADEH emerged as a key provider of vocational training, and has made various efforts to further the education agenda in Panama\. Progress in the area of e- government has helped make individual government processes more transparent and also led to some reduction of administrative hurdles, particularly in the area of starting a business\. However, the majority of e-government reforms is still at an early stage and need to be advanced significantly in order to reap the full benefits of streamlining of procedures and digitalizing processes\. In the area of public financial management, the introduction of PanamaCompra laid the foundation for comprehensive procurement reforms, and it is expected that the full implementation of the electronic procurement platform will lead to a complete revamping of the institutional processes\. The institutional capacity in other government institutions, amongst them the tax authority DGI, the debt management office, as well as the Comptroller Office (CGR) have increased, which led to a reduction in costs and more efficient government processes\. (c) Other Unintended Outcomes and Impacts (positive and negative): Not applicable 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes): Not applicable 29 4\. Assessment of Risk to Development Outcome Rating: moderate While the new government is committed to further the reform processes supported under the DPLs, and to continue prudent fiscal management, risks to the sustainability of the reforms cannot be ruled out at the current stage, leading to a moderate risk rating: The transition to the new government is likely to slow down reform implementation\. During the ICR mission, it became already apparent that a larger number of staff in individual government agencies is in transition, which will likely lead to a loss of institutional capacity, and can potentially proof to be disruptive to on-going programs\. At the current stage, it cannot be precluded that individual reform areas, which have shown to be more cumbersome like Panama Tramita, will continue on the same scale\. Medium-term economic risks could also affect the sustainability of some of the reforms\. The impact of the global financial and economic crisis has already started to translate into lower economic growth in Panama, a decline in exports, as well as a reduction in Canal traffic\. While the expectation is that the country will not fall into a recession, a significant reduction in economic growth in combination with lower fiscal revenues could potentially impact the adherence to the Fiscal Responsibility Law, and also slow further reforms through a reduction of budgetary envelops\. Finally, it should be noted, that the funds for INADEH were cut in half during last year due to an overall tighter budget, as well as a shift in expenditures during the national elections\. While INADEH as an institution has build up significantly its institutional capacity, its legal framework does not permit it to solicit money from the private sector, neither in the form of training fees, nor through other contributions\. Although the new President has made public his support and appreciation for the work being done by INADEH, an increase in its budgetary resources will be needed to be able to maintain the achieved capacity, and to further its outreach\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase): Rating: Satisfactory As discussed above, the program supported under the two DPLs was relevant, and well designed\. The reform program was fully aligned with the government's own priorities and reform strategies, and the Bank delivered relevant analytical work in both areas of reforms to support reform implementation and share international experience\. The task team members of 30 the core analytical work were also involved in the preparation of the two loans, which helped continuity in the dialogue\. The analytical work was deemed helpful by the government\.27 Shortcomings in the M&E framework are mostly the result of a lack of available information in the country\. The Bank was aware of those shortcomings and discussed the lack of available impact indicators in internal meetings\. As mentioned above, the decision was taken to use available information, and support M&E enhancements through investment lending and non-lending technical assistance in selected areas\. (b) Quality of Supervision (including M&E arrangements): Rating: Satisfactory During the project completion mission, the government expressed appreciation for the Bank's support for the on-going reform process, and the targeted and timely technical assistance provided in the area of public financial management reforms\. Throughout implementation, the Bank maintained a close dialogue on public financial management reforms with the government, and Bank budget was made available to provide selected technical assistance to the government\. The task team leader and the core team of the DPL were also involved in the technical assistance operations, which allowed for continuity and a more in-depth dialogue\. In the area of competitiveness, the on-going dialogue was made difficult by high staff turnover\. The task team leader changed three times during project implementation, as a result of staff rotation to new departments within the Bank\. Additionally, the team composition also changed for similar reasons\. There are however no indications that this staff turnover negatively impacted the quality of the supervision, and supervision inputs and processes were adequate for a DPL\. The government and main counterparts were overall satisfied with the dialogue on the private sector components\. The Task Team made an effort to enhance and further detail the available indicators during supervision, which translated into some refinements of the indicators\. (c) Justification of Rating for Overall Bank Performance: Rating: Satisfactory The Bank's performance is rated as satisfactory\. The reform program was based on prior analytical work, were relevant and the loan conditionalities were well aligned with the government's own reform program\. During supervision, the Bank provided targeted support in selected reform areas upon request of the government\. 5\.2 Borrower Performance (a) Government Performance: 27 According to the Country Partnership Strategy (p\. 18), the government "praised the responsiveness of the Bank to the administration's development strategy and the contribution of analytical and technical assistance from the Bank (p\. 16, para 27\.) 31 Rating: Satisfactory The government put forward a very ambitious reform agenda, which aimed at modernizing the state and facilitating private sector growth\. The reforms were broadly discussed, translated into clear political strategies, and were based on analytical findings in the respective areas\. Additionally, "reform champions" were in place in key agencies to coordinate and push the respective agenda\. The agencies under reform were put in charge of the actual implementation, which is considered best practice for Latin America\. While the government had the needed political mandate to put forward this reform agenda, it did not translate well defined political strategies into concrete action plans and performance targets to trace implementation\. This is not unusual in Latin America, but led to inefficiencies in reform implementation\. The ambitious reforms in the area of e-government likely underestimated the level of institutional capacity needed to implement a broad and far- reaching revamping of administrative procedures, and the needed coordination and capacity building efforts to bridge differences in e-readiness between the various agencies\. These shortcomings have lately been addressed in selected reform areas, such as in procurement, where a detailed road map of actions has been elaborated\. While progress on the overall reform program has been achieved and has been impressive in some areas, progress in other areas such as Panama Tramita and the Ventanilla Unica was slow and entailed some inefficiencies\. Many of the started reforms are not yet completed and so far only bear limited fruits\. Finalization will depend on the new government's support for a continuation of the reform program, which appears to be given\. Continuation and provided funding for the reform progress have overall been good, with the exception of the budgetary allocation for INADEH in 2009\. Given those minor shortcomings, the ICR opts to rate Borrower performance as satisfactory, despite the many achievements which could otherwise argue for a highly satisfactory rating\. 6\. Lessons Learned (both operation-specific and of wide general application) The ICR concurs in general with the lessons learned from prior DPLs in Panama mentioned in the Project Appraisal Document for the new Development Policy Loan "Protecting the Poor under Global Uncertainty28\. Additionally, some lessons of general applicability can be drawn from the two Competitiveness and Public Financial Management DPLs: Strategic plans need to be translated into clear action plans, which include monitorable output indicators to track progress\. Governments might be reluctant to invest the needed time to develop such action plans, particularly given the short time-frame that most governments in the Latin American region face due to election laws\. However, experience has repeatedly shown that the lack of coordination and prioritization leads to inefficiencies in implementation, and slows down reform implementation\. 28 p\. 26 32  Several government agencies expressed regret of not having invested more time and energy into developing a solid monitoring and evaluation framework\. In the absence of such information, there is only limited evidence to argue for sustained funding and support, which makes agencies more vulnerable to political shifts\. Additionally, the government loses an opportunity to "market" achieved results, and use the data to convince other stakeholders and involved agencies of the need for reform\. Available BB funds can provide the needed flexibility to react to government request, and maintain a close dialogue with the government on selected areas of interest\. While funding through a technical assistance loan was available to help implement some of the reforms, those funds usually are not flexible enough to cover "quick turnaround" analysis, and ongoing knowledge building support\. The provision of additional Bank budget funds did allow several Bank experts to maintain a close contact with the government and to provide targeted short-term support\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies: None\. (b) Cofinanciers: None (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society): None 33  ANNEXES Annex 1\. Bank Lending and Implementation Support/Supervision Processes29 (a) Task Team members Task Team Members for Task Team Members for P105710 P106641 Diomedes Berroa Aquiles Almansi Pablo Fajnzylber Pablo Fajnzylber Enrique Fanta Enrique Fanta\. Ulrich Lächler Ruben Gomez\. L Daniel Lederman Lars Moller Miguel Navarro Helena Ramos Nelson Shack Manuel Vargas Luis Tineo Josio N \. Veiga Malta Alexandria Valerio Antonio Velandia Manuel Vargas Todd Crawford Antonio Velandia Ulrich Lachler Todd Crawford Humberto Lopez David Gould Alberto Leyton Jessica Poppele Esperanza Lasagabaster Alberto Leyton MickyAnanth Shahid Yusuf (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage US$ Thousands No\. of Staff Weeks (including travel and consultant costs) P105710 Lending FY08 11\.53 80,224 FY09 298 TOTAL: 11\.53 80,522 Supervision/ICR FY08 4\.20 26,997 TOTAL 4\.20 26,997 29 For programmatic DPL, Annex 1 will have multiple entries, as applicable, to include relevant data on each individual operation in a programmatic series\. 34  Staff Time and Cost (Bank Budget Only) Stage US$ Thousands No\. of Staff Weeks (including travel and consultant costs) P106641 Lending FY08 3\.03 39,520 FY09 10\.48 88,635 TOTAL: 13\.51 128,155 Supervision/ICR FY09 2\.7 30,444 FY10 1\.7 11,145 TOTAL 4\.4 41,589 35  Annex 2\. Beneficiary Survey Results (if any) Not applicable 36  Annex 3\. Stakeholder Workshop Report and Results (if any) Not applicable\. 37  Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR The Government of Panama's Ministry of Economy and Finance received the document on September 9, 2009\. Due to a change in government in July, 2009, there were initially delays in reviewing the document\. On March 1, 2010, Subdirector of Public Finance Dario Espinosa of the Ministry of Economy and Finance confirmed that the government has no comments on the document\. 38  Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable 39  Annex 6\. List of Supporting Documents International Monetary Fund (2009), Article IV Staff report Inter-American Development Bank / World Bank (2006), Country Financial Accountability and Procurement Assessment Report (CFAPAR) World Bank (2000 and 2008), Poverty Assessment / LSMS Survey World Bank (2006), Public Expenditure Review World Bank (2007), Enterprise Survey and Investment Climate Assessment World Bank (2007), Country Partnership Strategy World Bank (2009), ICT at a glance World Bank (2009) Doing Business Report 2010 and earlier years World Economic Forum (2009), Global Competitiveness Report 2009 and earlier years 40

REVIEW

P094311

Document of The World Bank Report No: ICR00003657 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-75120 TF-95516 TF-95965) ON A LOAN IN THE AMOUNT OF US$ 120\.0 MILLION A GRANT FROM THE SWISS STATE SECRETARIAT FOR ECONOMIC AFFAIRS (SECO) IN THE AMOUNT OF US$ 9\.0 MILLION AND A GRANT FROM THE JAPAN SOCIAL DEVELOPMENT FUND (JSDF) IN THE AMOUNT OF US$ 2\.9 MILLION TO THE ARAB REPUBLIC OF EGYPT FOR THE INTEGRATED SANITATION & SEWERAGE INFRASTRUCTURE PROJECT (ISSIP 1) AND THE SUPPORT FOR THE INTEGRATED SANITATION PROGRAM IN EGYPT SECO TRUST FUND JUNE 30, 2016 Water Global Practice Egypt Country Management Unit Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 2016) Currency Unit = Egyptian Pound (LE) LE 1\.00 = US$ 0\.11 US$ 1\.00 = LE 8\.88 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS ABR Anaerobic Baffled Reactor BOD Biological oxygen demand CAS Country Assistance Strategy CDA Community Development Association CDCB Community Development and Capacity Building Consultant COD Chemical oxygen demand DALY Disability-Adjusted Life Year DO Dissolved Oxygen EMMSF Environmental and Social Management and Monitoring Framework ESIA Environmental and Social Impact Assessment ESW Economic Sector Work EWRA Water Regulatory Agency FM Financial Management FOFEA Federal Office of Foreign Economic Affairs GDP Gross Domestic Product GIZ German Society for International Cooperation GOE Government of Egypt GTZ German Technical Cooperation Agency HCWW Holding Company for Water and Wastewater IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results reports IIIMP Integrated Irrigation and Management Project IRR Internal Rate of Return ISR Implementation Status and Results ISSIP Integrated Sanitation and Sewerage Infrastructure Project JSDF Japan Social Development Fund LE Egyptian Pound MENA Middle East North Africa MHUUC Ministry of Housing, Utilities and Urban Communities MOHP Ministry of Health and Population MOHUUD Ministry of Housing, Utilities and Urban Development MOIC Ministry of International Cooperation MOIC Ministry of International Cooperation MOLD Ministry of State for Environmental Affairs, and the Ministry of Local Development MWRI Ministry of Water Resources and Irrigation NGO Non-governmental Organization NOPWASD National Organization for Potable Water and Sanitary Drainage NPV Net Present Value O&M Operation and maintenance OP Operational Policy PAD Project appraisal document PDO Project Development Objectives PDO Project Development Objective PforR Program for Results PIU Project Implementation Unit PMC Project Management Consultant QEA Quality at Entry QSA Quality of Supervision RPF Resettlement Policy Framework RSU Rural Sanitation Unit SBR Sequencing Batch Reactor SECO Swiss State Secretariat for Economic Affairs TA Technical Assistance TTL Task Team Leader USD US Dollar WSCs Water and Sanitation Company WSP Water and Sanitation Program Global Practice Director: Jennifer Sara Country Director: Asad Alam Steven Schonberger: Practice Manager Project Team Leader: Yogita Mumssen ICR Team Leader: John Ikeda  ARAB REPUBLIC OF EGYPT INTEGRATED SANITATION & SEWERAGE INFRASTRUCTURE PROJECT (ISSIP 1) CONTENTS Data Sheet A\. Basic Information………………………………………………………………\.i B\. Key Dates\.………………………………………………………………………\.i C\. Ratings Summary…………………………………………………………………i D\. Sector and Theme Codes…………………………………………………………ii E\. Bank Staff…………………………………………………………………………ii F\. Results Framework Analysis……………………………………………………\.iii G\. Ratings of Project Performance in ISRs…………………………………………\.v H\. Restructuring ……………………………………………………………………\.vi I\. Disbursement Graph………………………………………………………………vi 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes \. 14 4\. Assessment of Risk to Development Outcome\. 22 5\. Assessment of Bank and Borrower Performance \. 23 6\. Lessons Learned \. 26 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 28 Annex 1\. Project Costs and Financing \. 31 Annex 2\. Outputs by Component \. 32 Annex 3\. Economic and Financial Analysis \. 37 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 40 Annex 5\. Beneficiary Survey Results \. 41 Annex 6\. Stakeholder Workshop Report and Results\. 44 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 45 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 60 Annex 9\. List of Supporting Documents \. 63 Annex 10\. Benchmarking ISSIP 1 Disbursements ……………………………………64 Annex 11\. Analysis of Trust-Funded Activities ……………………………………65 MAP No…………………………………………………………………IBRD 33785R A\. Basic Information Integrated Sanitation& Country: Arab Republic of Egypt Project Name: Sewerage Infrastructure Project IBRD-75120, Project ID: P094311, P119805 L/C/TF Number(s): TF-95516, TF-95965 ICR Date: 04/19/2016 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: EGYPT Original Total USD 120\.00M Disbursed Amount: USD 98\.41M Commitment: Revised Amount: USD 120\.00M Environmental Category: B Implementing Agencies: National Organization for Potable Water and Sanitary Drainage Holding Company for Water and Wastewater Cofinanciers and Other External Partners: Swiss State Secretariat for Economic Affairs (SECO) Japan Social Development Fund (JSDF) B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/30/2005 Effectiveness: 01/22/2009 07/05/2012 Appraisal: 12/14/2007 Restructuring(s): 09/30/2014 06/23/2015 Approval: 03/20/2008 Mid-term Review: 02/12/2012 02/12/2012 Closing: 06/30/2014 12/31/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Unsatisfactory Borrower Performance: Moderately Unsatisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Unsatisfactory Government: Unsatisfactory -i-  Moderately Implementing Moderately Quality of Supervision: Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Overall Borrower Moderately Unsatisfactory Performance: Performance: Unsatisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Unsatisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sanitation 65 65 Wastewater Collection and Transportation 30 30 Wastewater Treatment and Disposal 5 5 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 17 17 Pollution management and environmental health 33 33 Rural services and infrastructure 33 33 Water resource management 17 17 E\. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Daniela Gressani Country Director: Asad Alam Emmanuel Mbi Practice Steven N\. Schonberger Inger Andersen Manager/Manager: Project Team Leader: Yogita Mumssen Ayat Soliman ICR Team Leader: Jonathan Kano Ikeda ICR Primary Author: Jonathan Kano Ikeda Bernard Pieter De RU Regassa Ensermu Namara -ii- F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The main objective of the project is to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the resident communities and (ii) the water quality in the selected drainage basins within the served areas\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Actual Value Values (from Formally Revised Achieved at Indicator Baseline Value approval Target Values Completion or documents) Target Years Indicator 1 : Number of households connected to centralized systems Value quantitative or 0 69,000 13,300 Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 19% of target achieved\. Measures number of households with legal connections to (incl\. % sewerage achievement) Indicator 2 : Number of households connected to decentralized systems Value quantitative or 0 6,500 0 Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 0% of target achieved\. No decentralized systems (small-scale, innovative wastewater (incl\. % treatment plants) were operational by December 2015 achievement) Indicator 3 : Reduction in pollution load entering water bodies (tons of BOD per annum) Value quantitative or 0 985\.5 539 Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 55% of target achieved\. Not estimated through direct measurement of receiving water (incl\. % bodies\. Calculated based on number of households connected\. Note that original target achievement) in restructuring paper was calculated incorrectly as 12 tons per annum People provided with "improved sanitation facilities" under the project (core sector Indicator 4 : indicator) Value quantitative or 0 379,500 66,500 Qualitative) -iii- Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 19% of target achieved\. Calculated based on the assumption of five people per (incl\. % household used in the PAD achievement) (b) Intermediate Outcome Indicator(s) Actual Value Original Target Formally Revised Achieved at Indicator Baseline Value Values (from Target Values Completion or Target approval documents) Years Indicator 1 : Number of contracts signed Value (quantitative 0 133 60 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 45% of target achieved\. The number of contracts (works and consultancy) signed by (incl\. % the different stakeholders (HCWW, NOPWASD and WSCs) under the umbrella of the achievement) project\. Indicator 2 : Number of new wastewater treatment plants operational\. Value (quantitative 0 4 2 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments (incl\. % 50% of target achieved\. achievement) Indicator 3 : Number of decentralized systems operational\. Value (quantitative 0 30 0 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments (incl\. % 0% of target achieved\. No decentralized systems were operational by December 2015\. achievement) Indicator 4 : Number of kilometers of collection networks constructed\. Value (quantitative 0 140 440 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 -iv- Comments 314% of target achieved\. The total length of all networks (gravity and house connection) (incl\. % constructed (installed and approved) under ISSIP 1 project including sewage collection achievement) networks (main lines and branches)\. Number of decentralized systems with at least 70% of households contributing to Indicator 5 : O&M costs\. Value (quantitative 0 25 0 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments (incl\. % 0% of target achieved\. No decentralized systems were operational by December 2015\. achievement) Indicator 6 : Number of staff trained for at least one week\. Value (quantitative 0 25 130 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments 520% of target achieved\. The number of employees from RSUs (WSCs) & NOPWASD (incl\. % & HCWW who received a training for at least five days in different aspects (technical, achievement) contractual , financial, social)\. Indicator 7 : WSCs with a functioning local result-based monitoring and evaluation system Value (quantitative 0 3 3 or Qualitative) Date achieved 07/01/2012 12/31/2015 12/31/2015 Comments (incl\. % 100% of target achieved\. achievement) G\. Ratings of Project Performance in ISRs Actual Disbursements No\. Date ISR Archived DO IP (USD millions) 1 09/18/2008 Satisfactory Satisfactory 0\.00 2 12/09/2008 Satisfactory Satisfactory 0\.00 3 04/13/2009 Satisfactory Moderately Satisfactory 0\.00 4 12/22/2009 Moderately Satisfactory Moderately Satisfactory 7\.00 5 04/05/2010 Moderately Satisfactory Moderately Satisfactory 7\.00 6 11/21/2010 Moderately Satisfactory Moderately Satisfactory 7\.49 7 06/15/2011 Moderately Satisfactory Moderately Satisfactory 7\.91 8 12/24/2011 Moderately Satisfactory Moderately Satisfactory 9\.68 Moderately Moderately 9 04/14/2012 12\.54 Unsatisfactory Unsatisfactory Moderately Moderately 10 09/09/2012 14\.23 Unsatisfactory Unsatisfactory -v-  Moderately Moderately 11 07/07/2013 22\.00 Unsatisfactory Unsatisfactory Moderately Moderately 12 12/28/2013 24\.61 Unsatisfactory Unsatisfactory Moderately Moderately 13 06/16/2014 27\.43 Unsatisfactory Unsatisfactory Moderately Moderately 14 12/19/2014 33\.74 Unsatisfactory Unsatisfactory Moderately 15 03/10/2015 Moderately Satisfactory 36\.75 Unsatisfactory Moderately 16 08/31/2015 Moderately Satisfactory 62\.79 Unsatisfactory Moderately 17 12/18/2015 Unsatisfactory 77\.15 Unsatisfactory H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Key Approved PDO Restructuring Date(s) Changes Made Change DO IP in USD millions Corrective, adjust components and 07/05/2012 MU MU 12\.84 extend end date Corrective, increase Bank financing 09/30/2014 MU MU 28\.39 percentage 06/23/2015 N MU MS 52\.30 Minor changes to indicators I\. Disbursement Profile -vi- 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. At the time of appraisal, the Government of Egypt (GOE) had made rapid progress in meeting the Millennium Development Goals for access to water and sanitation\. However, due to increasing population density in rural areas and the challenges of high groundwater levels in the Delta, the traditional septic systems typically used by households in much of rural Egypt were no longer sufficient\. As a result, untreated sewerage increasingly flooded streets, becoming a serious threat to public health\. This was aggravated by the unregulated private evacuation of septic tanks which often resulted in untreated sludge being dumped into irrigation drainage canals\. This also impacted plans for the downstream reuse of water from drainage basins, a key component in Egypt’s water resources strategy\. Due to these challenges and the high population density in rural Egypt, there was an increasing need to move to network systems\. 2\. Responsibility for the water sector cut across several ministries and other government organizations: ï‚ Ministry of Housing, Utilities and Urban Development (MOHUUD), provides water supply and sanitation services to municipalities and industry\. ï‚ National Organization for Potable Water and Sanitary Drainage (NOPWASD) is under MOHUUD and is responsible for planning, designing, and overseeing construction of water and waste water systems\. NOPWASD has an independent annual budget that comprises all investments in potable water and wastewater at the national level, excluding Cairo and Alexandria\. ï‚ Holding Company for Water and Wastewater (HCWW) is owned by MOHUUD and was created to reduce the recurrent fiscal burden on the government, while improving efficiency and sustainability of operation and maintenance (O&M) services\. Together with NOPWASD, HCWW was the implementing agency for ISSIP 1, with NOPWASD taking primary responsibility for construction of new works\. ï‚ Water and Sanitation Companies (WSCs) are governorate-level subsidiaries of HCWW\. The WSCs are responsible for the ongoing O&M of works constructed under ISSIP 1\. ï‚ Egyptian Water Regulatory Agency (EWRA), responsible for monitoring and regulating sector performance and setting benchmarks to improve the efficiency and quality of service delivery to reach international standards\. ï‚ Ministry of Water Resources and Irrigation (MWRI) is in charge of development, distribution and management of water resources, and development and O&M of associated waterworks\. The Ministry is also responsible for collection and disposal of agricultural drainage water, monitoring and assessment of water quality of the various water sources, and protecting coastal lakes and the shoreline\. ï‚ Other Ministries\. Other ministries also have auxiliary responsibilities for the irrigation and drainage systems, including the Ministry of Health and Population -1-  (MOHP), the Ministry of State for Environmental Affairs, and the Ministry of Local Development (MOLD)\. 3\. Facing increasing water resource limitations, the GOE announced plans to address rural sanitation more systematically\. MOHUUD embarked on an ambitious reform agenda, including the following key elements: ï‚ Integrated water resources management: Coordination between MWRI and MOHUUD had been limited\. However, the issuance of the National Water Resources Plan (2004) and the Integrated Water Resources Management Action Plan (2005) under MWRI signaled a shift to a more holistic view of the water sector\. Both plans emphasized the urgent need to address water quality and rural sanitation\. ï‚ National program for village sanitation: In 2007, GOE made rural sanitation a national priority and announced an allocation of LE 20 billion over a five-year period\. This represented a 120% increase in annual investment funding to the sector with a focus on rural areas\. The goal of the program was to increase sewerage coverage from 4% to about 40% in 5 years\. ï‚ Utility improvement and regulation: At the time of appraisal, Egypt’s water utilities faced serious financial challenges, due to a lack of managerial and financial autonomy, limited incentives to improve performance, and continued overstaffing\. Cost recovery was among the lowest in the region, and by 2003 the country’s water utilities had deficits of over US$ 1\.3 billion\. In 2004, two presidential decrees attempted to reform the structure of the sector, establishing HCWW and EWRA\. At appraisal, sector performance had gradually improved, with 3 out of the 16 subsidiary WSCs achieving profitability\. 4\. Relevance to the Country Assistance Strategy (CAS)\. ISSIP 1 was consistent with the overall GOE objective to reconcile economic development with environmental and social sustainability through better public services for all, especially the poor\. The project was also aligned with one of the country’s three CAS (2005) pillars -- enhancing the provision of public services\. The project design was intended to support GOE efforts to advance overall sector reform through the use of integrated water resource management, greater decentralization of managerial responsibility in the water sector, and a greater role for the private sector in service provision\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 5\. The objective of the project was to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the beneficiary communities; and (ii) the water quality in the selected drainage basins within the served areas\. -2- 6\. Performance indicators selected to measure the achievement of the development objective were: ï‚ % increase in coverage and no\. of households connected ï‚ % of target population expressing satisfaction with local environmental conditions associated with improved wastewater management\. (local ponding, canal water quality, etc\.)\. ï‚ % households practicing improved hygiene behavior as measured through qualitative research\. ï‚ Ambient fecal coliform, and biological oxygen demand (BOD) measurements, plus site and user-specific dissolved oxygen (DO) and ammonia measurements, compared with national standards, in canals and drains around affected communities\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 7\. The PDO was not revised\. However, the four PDO indicators in the project appraisal document (PAD) were dropped in favor of new indicators that aligned with the ISSIP 2 project, which was approved in 2011\. These new indicators tracked households connected to sewer networks, both traditional “centralized” wastewater treatment plants as well as “decentralized” systems that used smaller-scale alternative technologies\. A third indicator linked indirectly to water quality improvements\. While the original PDO indicators did not include baseline values or targets for the PDO indicators1, the revised indicators included target values\. ï‚ Number of households connected to centralized systems ï‚ Number of households connected to decentralized systems ï‚ Reduction in pollution load entering water bodies (tons of BOD per annum) 1\.4 Main Beneficiaries 8\. The project area included approximately 1\.3 million individuals, which included portions of Gharbiya, Kafr el-Sheikh, and Beheira governorates\. These individuals were to benefit either directly, through household sewerage connections, or indirectly, through improved water quality in their communities\. 1 The ISSIP 1 PAD states that baselines and targets would be set during a baseline study to be conducted after effectiveness\. However, this study was never conducted\. The annex to the PAD included several intermediate indicators with targets for end-of-project, including 97,638 additional working wastewater connections, 120 decentralized systems, and 90% of new treatment plants meeting water quality standards\. In subsequent ISRs, the target of 97,638 additional working wastewater connection was adopted as the end-of-project target for the PDO indicator, “% increase in coverage and no\. of households connected”\. -3- 9\. In addition, technical assistance (TA) and support for the development of a comprehensive water quality monitoring system through the project was expected to benefit the WSCs, HCWW, MOHUUD, MWRI, and other stakeholders in the water sector\. 1\.5 Original Components 10\. ISSIP 1 was jointly implemented by NOPWASD and HCWW, and included the following three components, with the first component focused on the construction of large- scale centralized systems using traditional technologies and smaller decentralized sanitation systems using alternative technologies\. The decentralized systems were intended for more dispersed rural communities where the cost of traditional infrastructure would have been prohibitively expensive\. Construction under Component 1 was divided into two phases – the first phase included only centralized systems, while the second phase included both centralized and decentralized systems\. Components 2 and 3 included technical assistance for water quality monitoring and institutional development\. In line with GOE policy at the time, these components could not be financed through IBRD lending\. Instead, the project team sought grant funding from the German Technical Cooperation Agency (GTZ) and Netherlands Development Cooperation\. (See Annex 2 for further detail)\. 11\. Component 1: Provision of sanitation systems within selected drainage sub- basins (total cost $ 181 million) - This component intended to plan, design and construct sanitation systems for a total of 14 clusters in the selected priority areas within the Governorates of Beheira, Gharbeya, and Kafr el-Sheikh in the Delta\. By supporting the effective and sanitary management of wastewater, Component 1 was expected to contribute to improved environmental conditions and water quality in the targeted communities\. The component included three sub- components: ï‚ Construction of centralized sanitation systems: Development or expansion of systems to serve an estimated 222 large villages, including the construction of wastewater treatment plants and a collection network\. ï‚ Construction of decentralized sanitation systems: Development of systems to serve an estimated 120 smaller villages\. These systems consisted of shallow sewers and anaerobic baffled reactors, relying on delegated community management for ongoing operations and maintenance (O&M) through a network of Community Development Associations (CDA) ï‚ GTZ pilot decentralized systems: Extension of a pilot program implemented in Kafr el-Sheikh in 20 villages\. This model used a natural treatment technology and a delegated community management approach\. 12\. Component 2: Establishment of a local result-based monitoring and evaluation system (total cost $ 1\.1 million) - This component included the establishment of a results- based monitoring system within the HCWW to link improvements in sanitation coverage with anticipated environmental and water quality impacts\. The component included support for expertise in designing the system, identification of monitoring sites, data collection and analysis, results review, finalization, and communication\. The component -4- was intended to support improved water quality by developing the capacity of national and local agencies to monitor water quality and use data to inform decision-making\. 13\. Component 3: Institutional development and capacity building (total cost $ 19\.5 million) - This component was intended to promote institutional development within the national and local agencies responsible for sanitation\. Support was to include: ï‚ Project management support for technical, procurement, social and financial issues ï‚ Capacity building for contract management at the HCWW and the three WSCs\. ï‚ Training on the technical and social aspects of sanitation service delivery for the CDAs\. ï‚ Implementation of the Environmental and Social Management and Monitoring Framework (EMMSF)\. 1\.6 Revised Components 14\. The description of the components was not changed in the legal agreement\. However, during a corrective restructuring finalized in July 2012 the scope of each component was modified due to significant delays in project startup\. Additionally, Components 2 and 3 were seriously impacted when anticipated grant funding from Netherlands Development Cooperation and GTZ did not materialize, due to a shift in funding priorities at both agencies\. The revised components were eventually funded by SECO and JSDF\. 15\. Component 1: Provision of Sanitation Systems within Selected Drainage Sub- Basins\. Due to cost escalations, the number of villages to be served by centralized systems was reduced from 222 to 106\. The number of villages to be served by decentralized systems was reduced from 120 to 30\. The GTZ pilot decentralized systems were dropped entirely due to the high cost and lack of funding from GTZ\. 16\. Component 2: Establishment of a local results-based monitoring and evaluation system\. Due to the lack of grant funding, the monitoring and evaluation activities under this component were scaled back significantly\. 17\. Component 3: Institutional Development and Capacity Building\. Due to the lack of anticipated levels of grant funding, the scope of work for this component was reduced significantly\. Studies planned under the component, including water quality modeling, identification of solid waste sources, and septage management were dropped\. 1\.7 Other significant changes 18\. In addition to the changes to the components and PDO indicators, significant changes included: 19\. Extension of closing date to December 31, 2015\. ISSIP 1 was initially scheduled to close on June 30, 2014\. During the restructuring finalized in July 2012, the project was -5- extended by 18 months, due to delays in the first several years of implementation\. At the time of restructuring, most of the first phase of centralized systems were expected to be completed by early 2014\. However, none of the second phase of works had begun construction, and could not have been completed by June 30, 2014\. 20\. Frontloading of IBRD financing\. By 2014, due to continued performance issues the World Bank proposed cancelling both ISSIP 1 and ISSIP 2\. Instead, both projects were restructured, following the agreement of GOE to adjust the institutional arrangements under ISSIP 2 and commit to financing any contracts not completed by the closing date of ISSIP 1\. In a second restructuring finalized in September 2014, IBRD financing was frontloaded, so that all project expenses incurred were reimbursed fully through loan funds\. Initially, IBRD disbursements covered only 67% of project expenses, with counterpart funding covering the remaining portion\. This was done on the understanding that once IBRD funds were exhausted, outstanding project expenses would be covered through counterpart funding\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 21\. Background analysis and alternatives\. Following initial discussions in 2005, a significant amount of background analysis was conducted, including a comprehensive feasibility study and water quality modeling exercise, as well as a study tour to Brazil to review decentralized sanitation systems\. There were multiple technical missions, focused on identifying optimal locations for the project, in addition to evaluating alternative approaches\. The team considered adding a solid waste management component to the project, but rejected this due to the increased institutional complexity that would have resulted\. Additionally, subsidies for household connections were considered, but rejected primarily due to lack of funds\. It became evident during implementation that the high cost of connecting to the sewerage networks was a key barrier for many households\. 22\. Project design\. ISSIP 1 was a complex, ambitious project\. One of the goals of ISSIP 1 was to improve water quality in the Nile Delta, which would increase the viability of reusing wastewater for irrigation\. Achieving this would require coordination between multiple ministries and agencies at national and local levels, close integration with the IBRD-funded Integrated Irrigation Improvement and Management Project (IIIMP), and hygiene promotion and behavior change in local communities to ensure ongoing usage and maintenance\. However, project documents also referenced numerous other objectives, including the development of a national water quality monitoring system, testing of innovative wastewater treatment technologies (including two separate types of decentralized systems), and leveraging the project as the first phase of a nationwide rural sanitation program\. 23\. Components 2 and 3 were critical to achieving these objectives\. The sophisticated monitoring and evaluation system to be established under Component 2 was needed to attribute improvements in downstream water quality to the project\. Beyond tracking -6- project’s results, the monitoring and evaluation system was also intended to serve as a national platform for coordinating efforts to improve water quality\. Component 3 was designed to address serious capacity constraints within the WSCs, in addition to working with local communities to build buy-in for the sub-projects and provide technical and managerial training to the CDAs responsible for operating and maintaining the decentralized infrastructure\. Only Component 1 was funded through IBRD resources, with components 2 and 3 to be financed through trust funds\. However, financial commitments were not received prior to effectiveness, and when the Dutch and German donors withdrew, these two components were significantly delayed\. 24\. Finally, instead of focusing on universal coverage within a specific geographic area, the project design included a cluster-based approach\. Due to the focus on water quality, the clusters were organized around watersheds, rather than administrative divisions\. Communities were then selected based on the ease of connecting to the planned or existing wastewater treatment plants\. This approach meant that some households would be excluded from service, even though they lived close to households that would receive access, and could potentially be impacted by the construction\. This was exacerbated by the use of high-pressure force mains, which required significant disruption during construction but did not permit the impacted households to connect, since the wastewater flowing through the pipes was under high pressure\. Objections from households impacted by force mains slowed construction for several networks, delaying their completion\. 25\. The PAD references support for onsite sanitation for households near the clusters that could not be feasibly connected to either a centralized or decentralized system\. However, there were no onsite sanitation activities during implementation\. Additionally, minimal consultation was carried out under ISSIP 1 until a firm was hired late in the project for this purpose\. Community consultation is an important first step in an effective sanitation project – due to the large externalities of household sanitation, special effort is needed to raise awareness of the village-level benefits of improved sanitation\. The cluster approach proposed would have required even more consultation than usual with local communities to build buy-in\. 26 Government commitment\. The GOE demonstrated strong commitment to the project in the initial stages of project design\. The rural sanitation strategy was a high-profile government initiative with broad support\. The proposed counterpart funding of 33% also indicated the GOE’s level of commitment, along with the original intentions to use the project as a large-scale pilot prior to a nationwide expansion\. 27\. However, later aide memoires commented on numerous delays in identifying a firm to carry out the feasibility study, in addition to other delays that extended project design\. Implementation arrangements discussed during project design did not include NOPWASD, to reduce complexity and encourage the development of the three WSCs\. During negotiations, NOPWASD was added to the project as the main implementing agency at the request of GOE, claiming that government policy would not allow HCWW to take financial responsibility for the loan\. Because of the late timing, NOPWASD staff -7- did not have sufficient understanding or buy-in on many aspects of the project, particularly the decentralized sanitation systems\. 28\. Project readiness\. The PAD stated that draft bidding documents for the first phase clusters were under preparation and would be reviewed prior to effectiveness\. However, these documents were not finalized until April 2009, delaying the bidding process\. These delays were due in large part to disagreements between the World Bank, NOPWASD and HCWW on the bidding approach – whether to use a more stringent detailed design process, or to encourage innovation and potential cost savings through a preliminary design approach, which would require a higher level of local contractor capacity\. NOPWASD was not familiar with the preliminary design approach, and had not been involved in the initial planning discussions between HCWW and the World Bank\. Ultimately, these inter-agency disagreements delayed the development of bidding documents, impacting project readiness\. 29\. Staffing for the project began during project preparation, and the project implementation unit (PIU) was fully staffed soon after effectiveness\. However, subsequent supervision reports noted that the PIU lacked a sufficient number of trained engineers, slowing procurement\. Given the scale of the project and inexperience with World Bank procedures, a project management consultant was critical to supporting the implementing agencies on technical, financial, procurement and M&E activities\. Due to the lack of grant funds and delays in preparing the terms of reference, the request for proposals was not issued until 2010, following new funding support from SECO\. Although the issue was highlighted in multiple supervision missions, the project management consultant did not actually begin work until July 2011 due to lack of experience in World Bank procedures for hiring consultants\. 30\. Risk and mitigation measures\. The appraisal document identified most of the key risks to implementation, including: potential delays in tariff restructuring, external sources of pollution impacting outcomes, low capacity, lack of coordination between government agencies, higher than necessary treatment levels, resistance from communities, and delays in counterpart and donor funding\. 31\. There were three additional risks that emerged during implementation that were not anticipated during project design\. Despite assertions from communities that land would be made available for the construction sites, due to the high population density in the Nile Delta, land acquisition was a significant challenge, delaying construction for many of the sub-projects\. This was exacerbated by the limited community consultation that was carried out in the initial years of the project\. Additionally, ISSIP 1 was the first World Bank loan for sanitation in Egypt\. As the implementing agencies had no prior experience managing a World Bank project, these organizations faced a steep learning curve in complying with World Bank policies and processes\. Without efforts to mitigate this risk, ISSIP 1 experienced serious delays in implementation, particularly in procurement\. Finally, although the appraisal documents identified high connection fees as a potential barrier for poor households, it was not flagged as a risk\. During implementation, many households refused to connect to the completed sewerage networks due to the high cost, jeopardizing project outcomes\. In Beheira Governorate, for example, the initial household connection -8- fee was LE 1,000, nearly half the average monthly income for a rural household\. When this was reduced to LE 250, payable over time in installments, the number of connections quickly increased\. 32\. While appraisal documents correctly identified most of the risks to successful implementation, few of the proposed activities to mitigate these risks were carried out during ISSIP 1: Risk Identified in PAD Proposed Mitigation Strategy Status at End of Project Potential delays in tariff Work with HCWW and Tariffs still at levels insufficient for restructuring affect financial MOHUUD to restructure tariffs cost recovery, now being addressed sustainability by end of project through new World Bank project\. External sources of Guide planning with rigorous No water quality modeling pollution into drains affect water quality modeling completed due to lack of donor project outcomes funding\. Low capacity of WSCs to Staff WSC rural sanitation units Limited capacity building for RSUs manage rural sanitation (RSUs) with skilled staff, through SECO grant for centralized projects supported by external TA systems starting in 2011 and JSDF grant for decentralized systems starting in 2014\. New $3\.5 million World Bank TA focused on WSC capacity building\. Lack of coordination Use steering committee for Steering committee met irregularly, between national agencies coordination and guidance generally perceived as ineffective\. limits scalability of project Higher than necessary Water quality modeling used to No water quality modeling treatment levels increase verify ambient water quality completed due to lack of donor costs and complexity funding, all systems required to comply with stringent regulations\. Resistance from Build capacity of CDAs and Significant resistance from communities and engage in community communities at beginning of unwillingness to pay for mobilization project\. Capacity building and services community mobilization funded through JSDF grant for decentralized systems started in 2014\. Delays in counterpart and Commitments finalized by Original donors withdrew, seriously donor funding negotiations impacting implementation of components 2 and 3 until new funding was provided by JSDF and SECO\. Restructuring backloaded counterpart funding – unclear whether it will be secured by GOE to complete ongoing works\. 2\.2 Implementation 33\. ISSIP 1 was effective on January 22, 2009\. The first phase of construction began in mid- 2011, over two years after effectiveness\. At this point, less than 7% of IBRD funds had been disbursed\. Consultants funded through SECO and JSDF to address Components 2 and 3 began working in 2011 and 2013, respectively\. The second phase of construction -9- began in early 2015, several months after the original end date of the loan, which was extended to December 31, 2015\. At the original end date, less than a quarter of the IBRD funds had been disbursed\. Assuming the GOE provides sufficient counterpart funding, all sub-projects are projected to be completed by late 2016\. 34\. Although ISSIP 1 was significantly delayed for several years, following the restructuring in July 2012, the pace of construction increased dramatically\. At time of loan closing, many of the sub-projects had been constructed, and were in the process of being tested and handed over to the WSCs\. However, this rapid increase may have impacted the quality of the works constructed – during field visits, the ICR team noted major issues in some of the sub-projects\. Several factors influenced the delays in implementation: 35\. 2011 and 2013 Revolutions\. While this was a period of significant uncertainty, delays with ISSIP 1 predated the country’s political challenges – the project was effective two years prior to the start of the 2011 revolution\. An analysis of similar IBRD projects (see Annex 9) that started during the same time period indicates that, although disbursements overall slowed modestly, none of the other projects saw similar delays\. While the revolutions may have contributed to delays in ISSIP 1, this was mainly due to secondary factors exacerbated by the revolutions – community resistance and challenges with land acquisition, which were compounded by the lack of consultation with local communities\. 36\. Community Resistance\. Following the January 25th Revolution, many communities felt empowered to more freely express their demands from the government\. Due to the clustering approach, access to sewerage was unevenly distributed\. In addition, due to the lack of funding for Component 3, some communities were not sufficiently consulted prior to the beginning of construction\. Combined with the uneven access, this drove many villages to push back against construction, physically blocking equipment in some cases\. The revolutions also further complicated the difficult issue of land acquisition\. 37\. Land Acquisition\. The Nile Delta is densely populated and land ownership is sometimes unclear, making acquisition a challenging task\. Further exacerbating this issue, multiple ministries required consultation and signoff prior to finalizing acquisition\. For example, the Ministry of Health and Population required that all treatment plant sites be at least 500 meters from the nearest settlement\. Due to the high population density, finding sites that met this criteria proved extremely difficult – particularly for the smaller decentralized treatment systems which needed to be located close to the communities served\. Negotiating exceptions to this requirement and others proved time-consuming\. 38\. Bidding Documents and Procurement\. The addition of NOPWASD as implementing agency during negotiations resulted in a significant increase in the complexity of project coordination and processes for preparing bids\. HCWW and NOPWASD did not agree on the approach to bidding\. Significant delays in design and procurement document reviews also hampered the tendering process, in addition to unfamiliarity with World Bank procurement processes\. The bidding documents for the first phase of construction were finalized several months after effectiveness\. A conceptual -10- design approach was chosen – basic specifications were provided, with the goal of encouraging contractors to propose more effective treatment technologies and efficient construction methods to reduce costs\. Due to the way the requirements were specified, in addition to low contractor capacity, the bids were much higher than the costs estimated in the feasibility study\. The contracts were rebid, but most were still not awarded\. For the third round of bidding, the works were divided up into 17 smaller contracts to encourage more bidders to participate\. As a result, smaller, less capable contractors were awarded the contracts and transaction costs increased significantly\. 39\. Contractor Capacity\. Once construction began, many of the selected contractors (particularly the state-owned companies) lacked sufficient capacity to effectively manage the works, especially in treatment plants using new technologies, resulting in delays\. Additionally, the process for reviewing and paying invoices initially involved three different agencies – delaying payment by several months\. These delays had serious impacts on the cash reserves of many of the smaller contractors, forcing them to stop work until they were paid and had sufficient cash on hand to continue construction\. 40\. Steering Committee\. Although a steering committee chaired by NOPWASD was intended to support inter-agency coordination and address challenges like land acquisition, it met irregularly and was generally ineffective in addressing delays in implementation\. Meetings focused on detailed implementation issues, rather than higher-level strategy\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 41\. Design\. The PAD proposed an ambitious M&E system that was designed to capture the downstream impacts of wastewater treatment on water quality\. Component 2 was to include TA support for expertise in designing the system, identification of monitoring sites, data collection and analysis, results review, finalization, and communication of findings\. Due to lack of grant funding, there was no work done in developing the M&E system\. 42\. During restructuring, the PDO indicators were revised, and a basic M&E system was designed to track the number of households connected\. Rather than directly measuring treatment plant effluent, water quality monitoring in the selected drains was calculated based on the estimated reduction per person in the effluent pollution loads entering the water bodies, multiplied by the number of connections\. However, BOD reduction calculated from the number of household connections is not a suitable indicator for the water quality of the receiving water body\. The water quality is affected by multiple factors\. An accurate indication of water quality requires measurements for BOD, chemical oxygen demand (COD), nitrogen, phosphates, and chlorines in the receiving water body\. 43\. Implementation\. Due to the delays in project implementation, the M&E system was also delayed\. No baseline or targets were established for the PDO indicators, and no results were tracked until the M&E indicators were redefined in July 2012\. Following restructuring, the consultants funded through SECO and JSDF developed a more comprehensive monitoring system that tracked and reported on results on a regular basis\. -11- 44\. Utilization\. Once established, the M&E system was primarily used for project management of the works, since the primary focus of the reporting was on disbursements and construction progress\. Once treatment plants are completed and households connected, the M&E system is unlikely to be able to monitor progress on the broader objectives of improved environmental conditions and water quality\. In addition, monitoring the number of households connected was complicated due to a number of unauthorized household connections made without permits, as well as debates over whether to track households “ready to connect,” (households with a pipe near their house) rather than the number of households actually connected to sewerage\. 2\.4 Safeguard and Fiduciary Compliance 45\. No major environmental or social issues were observed during implementation\. The PIU was initially unfamiliar with how to implement safeguards policies, requiring multiple follow-ups from supervision missions\. 46\. Environmental Management\. ISSIP 1 was classified as a Category B project, due to the potential for significant environmental impact on the immediate area around project sites, triggering Operational Policy (OP) 4\.01, Environmental Assessment\. Due to the nature of the project design both environmental and social assessments followed a framework approach\. 47\. During implementation, project staff responsible for environmental management lacked the appropriate training, resulting in significant delays for the Environmental and Social Impact Assessment (ESIA), postponing the first phase of construction\. Although the midterm review emphasized the importance of bringing in a full-time expert to address these issues, an environmental specialist was not hired until late 2013\. The ESIA for the second phase of construction was also delayed, and was not completed until the end of 2014\. 48\. Social Safeguards\. The possibility of resettlement during land acquisition for construction of the treatment plants triggered OP 4\.12, Involuntary Resettlement\. A Resettlement Policy Framework (RPF) establishing overall resettlement objectives and principles was prepared, including criteria for the screening of subprojects, guidelines for mitigation and compensation, implementation arrangements for the RPF, and a capacity assessment\. 49\. During the implementation, the PIU initially struggled to apply social safeguards\. Numerous supervision missions highlighted the need to pay closer attention to potential resettlement issues\. Despite this, a social safeguards specialist was not hired until late 2013\. No specific resettlement action plans were developed during the project, as land acquired under ISSIP 1 was donated by the beneficiary communities or purchased through willing buyer willing seller process\. 50\. Procurement\. Due to NOPWASD’s and HCWW’s unfamiliarity with World Bank guidelines, combined with the complex institutional arrangements for ISSIP 1, -12- procurement was a critical bottleneck to implementation\. Over the first several years of the project, procurement was significantly delayed due to a lack of clear responsibilities, disagreements over bidding approaches, processing delays and overlapping audit systems\. The use of pre-qualification (against World Bank recommendations) also significantly delayed procurement\. Following efforts to simplify procurement procedures and eliminate redundant approvals and reviews, an independent procurement review in 2012 found procurement processes to be satisfactory\. After the review, project staff were more proactive in responding to procurement issues and the quality of procurement documents improved significantly\. 51\. Financial management (FM)\. Most reports were submitted on time, and GOE was in compliance with all fiduciary covenants\. There was a delay of over a year in launching a computerized accounting and financial management system, which was necessary to streamline processes and improve data quality\. As a result, the PIU was unable to provide bidding documents in a timely manner until the system was in place in July 2013\. A subsequent FM review noted that institutional arrangements for ISSIP 1 slowed disbursements, due to an excessively lengthy payments approval and processing cycle\. 2\.5 Post-completion Operation/Next Phase 52\. Construction of the remaining works is scheduled for completion by late 2016, along with the remaining household connections\. At the current rate of progress, this is an achievable goal, although it is contingent on the obligation of sufficient funding from the Ministry of Finance\. Discussions are ongoing to secure funding for the current and upcoming GOE fiscal years, although NOPWASD is confident that it has sufficient liquidity to pre-finance the remaining works\. The depreciation of the Egyptian Pound will likely make locally-procured materials and labor more cost-effective in USD terms, potentially reducing the need for the levels of counterpart funding originally envisaged\. In addition, sufficient managerial resources will be needed to complete the remaining works, as the project management consultants supporting implementation were funded through a grant from SECO, which closed in December 2015\. 53\. Ongoing sustainability of the treatment plants and sewerage networks remains a concern\. Tariffs are not sufficient to cover costs for wastewater treatment services, although the World Bank-funded Sustainable Rural Sanitation Services Program for Results (PforR) is providing policy support to GOE for comprehensive tariff reform\. Additionally, there is limited capacity on the ground to maintain the infrastructure\. There has not been a comprehensive training and capacity building program for the WSCs, which have only recently taken on the responsibility for wastewater collection and treatment\. Although the JSDF-funded consultancy has made significant inroads in organizing the CDAs to manage the decentralized treatment systems, none of these systems had been completed by the end of the consultancy, making it impossible to provide effective technical training on operations and maintenance of the systems – seriously jeopardizing their future viability\. -13- 54\. Recommended performance indicators\. HCWW and the WSCs should regularly track the technical and financial performance of the centralized and decentralized systems in order to effectively leverage these investments\. Specific indicators could include: ï‚ Basic treatment plant functions, including volume of water entering the plant and volume of water discharged\. ï‚ Operating ratios for the WSCs, as well as the individual CDAs responsible for decentralized systems\. ï‚ Customer satisfaction\. 55\. World Bank follow-up actions\. Several key bottlenecks during the implementation of ISSIP 1 are now being addressed by ISSIP 2 and the PforR\. The World Bank should continue to support these policy reform efforts\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 56\. Relevance of Objectives: Substantial: The objectives of ISSIP 1 -- to sustainably expand access to sanitation and improve water quality -- were highly relevant to the priorities of GOE\. The 2006-2009 CAS included two specific outcomes related to improved access and quality of delivery of public services (including sanitation), as well as improved water resource management\. ISSIP 1 was also intended to be the initial step in a broader national program for rural sanitation\. Following the revolution in 2011, an interim CAS was prepared, which continued to emphasize service delivery and water quality\. The project remains relevant under the newly-developed Country Partnership Framework for 2015-2019, which includes a focus on higher quality and greater access for rural sanitation service delivery 57\. Relevance of Original Design: Modest: ISSIP 1 was an innovative and ambitious project, aligned with GOE’s broader goals of rural sanitation and water quality, and the original design included several positive elements: ï‚ Strong background analysis\. The project team invested significant amounts of time in analysis that informed design\. ï‚ Innovative technology and approaches\. Egyptian law required expensive urban solutions for rural areas\. The project team attempted to use an evidence-based approach using water quality modeling to demonstrate that new technologies could meet these requirements at lower cost\. ï‚ Identification of key risks and mitigation measures\. The team correctly identified many of the key project risks and appropriate mitigation measures\. 58\. However, the design of the project was insufficient to achieve the objectives of ISSIP 1, for several reasons: -14-  ï‚ Challenges in connecting households\. Due to the high connection fees, many households did not initially connect to the sewerage networks\. Without connections, these households would continue using cesspits or discharging raw sewage directly into the drains, eliminating any potential results achieved under the project\. ï‚ Complex implementation arrangements\. Responsibility was split across multiple implementing agencies, resulting in a lack of project ownership and overlapping processes, delaying implementation\. ï‚ Dependence on external trust funds\. Although institutional development was central to the success of ISSIP 1, comprising two of the three components, due to GOE policy these activities were entirely funded through external grant funds\. This severely impacted the project when the initial donors withdrew\. ï‚ No evidence of links to water quality improvements\. Without the water quality monitoring system in place, attribution of any improvements in water quality is not possible\. Even if it were in place, linking water quality outcomes to project activities is methodologically complex\. ï‚ Lack of sustainability\. Although sustainability of the results is explicitly mentioned in the PDO, none of the PDO indicators measure sustainability\. 59\. Relevance of Restructured Design: MODEST Although the PDO was not revised during restructuring, the focus on water quality was tacitly dropped\. The water quality monitoring system was removed from the components, and the PDO indicators were revised to focus exclusively on the number of household connections (as well as an estimate for BOD derived from the number of connections)\. By focusing exclusively on expanding access to sewerage, the relevance of the restructured design actually improved compared with the original design, as it freed project staff to focus on completing the works and connecting households to the networks\. However, the construction of the final works in 2016 and their continued sustainability remain a concern\. 3\.2 Achievement of Project Development Objectives 60\. The main objective of the project was to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the resident communities; and (ii) the water quality in the selected drainage basins within the served areas\. Neither areas of improvement included efforts to track the sustainability of results\. PDO Efficacy Rating, Improvement in Sanitation and Environmental Conditions for the Resident Communities: Pre-Restructuring: Negligible; Post-Restructuring: Modest\. 61\. To achieve improvements in the sanitation and environmental conditions for resident communities, ISSIP 1 was designed to expand access to sewerage for rural households, ultimately reducing unsanitary disposal of wastewater\. The PDO indicators established at restructuring measured only household connections, not ongoing usage of sewerage, which would be required to achieve the improvements sought\. Additionally, the PDO indicators do not define or monitor sanitation and environmental conditions\. -15- 62\. In order to connect households to sewerage, networks, treatment plants and other infrastructure must first be constructed\. The pace of construction increased significantly after restructuring, however much of the infrastructure has not been completed as of the closing date of the loan\. At the close of the loan on December 31, 2015, US$ 98 million of the total IBRD funds approved had been disbursed\. Progress towards the PDO indicators was modest\. In total, 13,300 households were connected to the sewerage network, less than 20% of the target set during restructuring and well below the intermediate indicator target of 97,638 households set in the PAD\. No households were connected to decentralized sanitation systems, and slightly more than half of the target for the reduction of BOD load was achieved\. 63\. Phase I comprised 19 wastewater collections systems, one new wastewater treatment plant and one treatment plant extension\. At the closing date of the loan, nine projects in Phase 1 have been completed and 13,300 new house connections have been established\. The average cost under the first phase was US$ 1,834 per person based on the number of connections on December 31, 2015\. However using the expected number of connections in 2050 the average cost drops to US$ 705 per person\. 64\. Construction of centralized systems under Phase 2 included two new wastewater treatment plants and 58 network systems, including 48 networks that will be connected to six existing operating plants and one treatment plant that is currently under rehabilitation\. At the closing date of the loan no projects in Phase 2 have been completed and no new house connections have been established\. 65\. Decentralized sanitation systems were included under the second phase, with construction starting in May 2015\. The PAD estimated that 120 villages would be served under this sub-component, although this was scaled back to 30 villages during restructuring\. At the closing date of the loan no decentralized systems have been completed and no new house connections have been established\. The 14 decentralized sanitation projects are currently under construction and scheduled to be completed by late 2016\. 66\. Prior to restructuring, this element of the PDO included indicators on customer satisfaction and changes in hygiene behaviors, in addition to number of connections\. No efforts were made to track these indicators, and no progress was made towards the number of connections, so this element of the PDO is rated as Negligible prior to restructuring\. Following restructuring, some limited progress was made in connecting households to works constructed in Phase 1, resulting in a rating of Modest\. PDO Efficacy Rating, Improvement in Water Quality in Selected Drainage Basins within the Served Areas: Pre-Restructuring: Negligible; Post-Restructuring: Negligible\. 67\. By improving the use of sewerage by households, ISSIP 1 was intended to improve water quality by reducing improper handling and treatment of wastewater\. However, a comprehensive results-based M&E system for tracking water quality was not established due to the loss of the expected funding of US$ 1\.1 million from Netherlands Development Cooperation\. Following restructuring, water quality modeling in the selected drains was done through the calculation of the reduction in the effluent pollution loads entering the water bodies -16- (instead of physical samples) and taking the BOD reduction as the indicating element\. Effective water quality measurement requires monitoring of BOD, COD, nitrogen, phosphates, and chlorines in the receiving water body\. Therefore, any improvements in water quality cannot be directly attributed to project activities using this approach\. 68\. Prior to restructuring, no efforts were made to track progress towards the PDO indicators for water quality\. Following restructuring, some progress was achieved towards the revised PDO indicator\. However, the revised indicator does not adequately track water quality as outlined in the PAD, therefore this element of the PDO is rated as Negligible both before and after restructuring\. Institutional Development and Sustainability 69\. Institutional development and capacity building was to be financed by Netherlands Development Cooperation (US$15\.5 million) and GTZ (US$4 million)\. As this funding did not materialize, the scope of this component was reduced during restructuring, and was then implemented by the SECO-funded project management consultant and the JSDF- funded community development consultant\. 70\. The task to develop and promote the institutional capacity of local institutions and communities was only partially achieved through 38 trainings and exchange meetings organized by the consultant\. Capacity building on financial, organizational, social, and technical aspects for the RSUs and CDAs could not be completed as none of the 14 decentralized sanitation systems had been constructed by the end date of the loan\. However, 13 CDAs have been established, and 28 CDA members have received some training, in addition to 130 WSC staff\. Continued support will be critical for the sustainable operation and maintenance of these decentralized systems by the local communities\. Additional funding to support the completion of the capacity building activities is being sought\. 3\.3 Efficiency Project Efficiency Rating: Negligible 71\. The cost per connection observed is extremely high\. Based on estimates made during project design the total cost per capita was estimated at US$ 146\. At close of the loan, the final cost per capita is estimated at US$ 705, assuming all systems eventually reach their full operating capacity\. At present, the cost per capita for the 13,300 households connected is US$ 1,834 (See Annex 3: Economic and Financial Analysis for more detail)\. For comparison, the estimated average for rural MENA is US$ 108/capita\. Cost overruns were due to: ï‚ Specification of costly conventional designs, based on the rigid application of engineering standards for urban sewers in a rural environment\. ï‚ High groundwater table in the Delta requiring costly dewatering in the deep trenches for placing pipes in the sewerage networks\. ï‚ Flat terrain in the Delta requiring construction of many pumping stations\. -17-  ï‚ Crisscrossing irrigation canals obstructing extension of networks (expensive deep trenches were required to cross under the irrigation canals)\. ï‚ Long delays in construction\. ï‚ Less qualified contractors supervised by weak construction supervision consultants recruited by NOPWASD, which did not provide sufficient oversight\. 72\. An ex-post economic analysis was carried out using a methodology similar to the one used at the appraisal stage\. To account for the large discrepancy between the outcomes achieved on the first and second phases of the project, the ICR economic analysis considered two scenarios: • Scenario 1\. Total disbursements reported as of December 31, 2015 (both Phase 1 and Phase 2 of construction) were used to estimate the cost of the project, with benefits estimated for 13,300 households\. • Scenario 2\. Includes only the costs incurred in the construction of Phase 1 systems, as all households currently being served under the project are connected to works constructed during the first phase\. 73\. Compared with the internal rate of return (IRR) estimated during appraisal of 10- 17%, the ex-post economic analysis determined an IRR of 1\.0% for Scenario 1 and 9\.6% for Scenario 2\. Assuming a 10% discount rate as applied at appraisal stage, the net present value (NPV) is negative for both scenarios\. Using the 6% discount rate recently suggested by the World Bank Sustainable Development Practice Group, Scenario 1 is still highly negative, while Scenario 2 has a modest positive NPV\. The results reflect the effect of delays in the project implementation and the level of achievement in development outcome relative to resources committed so far\. The large gaps in economic benefits observed under the two scenarios underscore the need for GOE to continue efforts to complete the second phase of construction and ensure households can connect\. 3\.4 Justification of Overall Outcome Rating Original Outcome Rating: Highly Unsatisfactory Restructured Outcome Rating: Unsatisfactory Overall Outcome Rating: Unsatisfactory 74\. While the objective of ISSIP 1 was (and continues to be) highly relevant to the broader development priorities of GOE, the design of the project was insufficient to achieve the objective\. Prior to restructuring, the project achieved essentially nothing, and some of the original outcome indicators were subsequently dropped\. ISSIP 1 was able to achieve some modest gains following restructuring with enhanced focus on expanding access to sewerage, but the results as of the end of the loan are still far below the targets, and the IRR is well below the level anticipated in the PAD\. Because of this, the outcome ratings for the project before restructuring is Highly Unsatisfactory, and the rating post- restructuring is Unsatisfactory\. Weighting the two ratings by the amount of funds disbursed at restructuring (see table below), the overall outcome rating is Unsatisfactory\. -18-  Pre-Restructuring Post-Restructuring Overall Rating HU (1) U (2) % Disbursed 12% 88% Weighted Value 0\.12 1\.76 Final Rating U (0\.12+1\.76) 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 75\. The project was not specifically targeted at poor households\. On average, rural incomes in the three governorates within the project area were higher than many other governorates\.2 Any specific impact on poor households would be realized at some point in the future, as some of the works are still under construction and many households have not yet connected\. 76\. If the works are completed as planned, poor households are likely to benefit through reduced expenditures on cesspit emptying\. In some of the villages that are already connected, there was initial evidence of housing values improving due to access to sewerage\. Additionally, in these villages cesspits and drains were less likely to overflow, improving quality of life and reducing costs to repair houses and roads\. If individuals practice good hygiene and sanitation behaviors, there is the possibility of reduced incidences of disease, which could translate to cost savings through lower medical expenses and fewer lost work days\. Finally, if the project ultimately results in better water quality in the drainage canals, poorer farmers are likely to be the primary beneficiaries\. In rural Egypt, wealthier farmers typically use wells or dedicated irrigation canals, leaving only the heavily polluted water in drainage canals for poorer farmers\. 77\. There is a risk of negative poverty impacts under ISSIP 1 if the remaining works are not constructed, households are not connected, or the works are not adequately maintained\. 78\. Gender\. There is some evidence of positive gender impacts, particularly in communities where decentralized systems are being built\. Women were actively engaged as CDA members and consulted during the construction process\. A beneficiary survey conducted in 2015, found women surveyed had the same level of satisfaction as men about the information they obtained on the decentralized systems and the way they were consulted in the course of the project\. The women surveyed report they were actively engaged during the construction process\. 36% of respondents reported a problem to the CDA or WSC during construction in the decentralized communities using the official complaint process\. The number of complaints filed were equally divided between men and women\. 2 Out of 23 governorates with rural populations, Kafr El-Sheik had the 7th highest rural household income, Gharbeya had the 8th highest, and Beheira ranked 11th\. (2009 HIECS survey) -19- 79\. Social development\. ISSIP 1 included activities related to hygiene promotion\. 76% of survey respondents recall receiving hygiene messages during the last three months from different sources, including directly from the project but also from community health workers and CDAs\. 61% of respondents were aware that washing hands with soap and water will prevent diarrhea\. (b) Institutional Change/Strengthening 80\. Although delays in securing funding and selecting firms for components 2 and 3 limited the time and resources available for institutional development, consultancies funded by SECO and JSDF made some contributions at the national and local levels\. Institutional and capacity outcomes include: ï‚ 130 staff trained for at least week under the project ï‚ 60 contracts signed ï‚ 13 CDAs active in beneficiary communities in decentralized projects ï‚ 27 community-level campaigns and workshops conducted in decentralized projects ï‚ 28 CDA members trained in technical, financial, and management aspects 81\. All indicators met or exceeded their targets except for the number of signed agreements for decentralized systems (14 agreements to be in place by December 2015) and number of CDAs active in beneficiary communities (14 CDAs)\. 82\. The terms of reference for the project management consultant included biweekly formal training sessions for RSU, NOPWASD, and HCWW staff, in addition to other training and capacity building activities\. Although some on-the-job training was provided for RSU staff, a special mid-term review jointly agreed upon with the World Bank and implemented by SECO found that the project management consultant did not sufficiently focus on capacity building activities\. At the recommendation of the mid-review, training and capacity building activities under this contract were halted\. 83\. The JSDF-funded consultancy was responsible for building the capacity of CDAs to effectively manage the decentralized systems\. Findings from a recent beneficiary survey indicate that this work helped in raising awareness of the need for improved sanitation, and was generally effective in organizing and training the CDAs\. However, these CDAs will responsible for managing a small treatment plant, network, and pumping stations with substantial electrical and mechanical equipment including pumps, switch gear, and generators\. Although they will receive initial support from the WSCs, this is a very challenging task for the CDA, and requires significant amounts of training on safety and technical issues\. This training cannot be provided until the decentralized systems are completed, and must be delivered by the WSCs as the JSDF-funded consultancy has ended\. -20- (c) Other Unintended Outcomes and Impacts 84\. Rural sanitation is a challenging sector\. Across the globe, many donors and governments have struggled for decades to effectively support cost-effective, sustainable rural sanitation\. Due to factors both inside and outside the control of project staff and the World Bank, ISSIP 1 has yet to achieve its objectives of improved sanitation and water quality\. However, the project has made important steps in laying the groundwork for a national program on rural sanitation, and the lessons learned during the implementation of ISSIP 1 can inform current and future work in the sector\. ï‚ Need for community consultation highlighted\. By engaging with communities earlier in the project, several problems could have been avoided, including the delays in land acquisition, villages blocking construction, and unwillingness to pay connection fees\. ï‚ Technologies and approaches tested\. The project tested numerous technologies for both centralized and decentralized wastewater treatment, in addition to various approaches to constructing and managing systems\. While not all of these innovations were successful, the experience has provided valuable lessons for what works within the Egyptian context\. ï‚ Policy challenges identified\. Many of the key policy challenges faced by the project were identified in the PAD\. Policy change is a long-term process, and many of these issues (such as tariff reform and wastewater treatment requirements) are now being addressed under the PforR\. ï‚ Institutional issues highlighted\. Sanitation is the responsibility of many government agencies in Egypt, with often overlapping mandates\. Low capacity, particularly at the local levels, is also a serious constraint to effective service delivery\. ISSIP 1 began to address these issues and highlighted the need for institutional development and a clearer, government-wide approach to rural sanitation\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 85\. Although not specifically conducted for the ICR, a survey of beneficiaries was conducted at the end of 2015\. The Annual Social Participatory Survey 2015 includes information on beneficiaries’ satisfaction with both centralized and decentralized systems, with a primary focus on communities with decentralized systems\. (See Annex 5 for more detail) 86\. Decentralized Systems\. As no decentralized systems had been completed at the time of the survey, environmental conditions are still unsatisfying in decentralized villages with only 18% of the respondents satisfied with environmental conditions in their communities\. The CDAs were strongly involved in construction supervision, and were perceived as a legitimate link between the communities and the WSCs\. The main issues during construction centered around the quality of cement, issues with the inspection chambers, damage to roads and buildings, and the diameter of pipes used, although 82% reported that they were satisfied with the quality of the construction\. -21- 87\. 84% of the respondents are aware of the future monthly fees for sanitation, which will be collected by the CDA\. 81% of the respondents considered the amount of the fee acceptable\. In most of the focus groups, community members were aware of the fees that would be charged in the future\. Respondents noted that their current expenses to empty their cesspits were higher than the monthly fee\. Unserved households were a significant issue – nearly 10% of households in some of the communities surveyed were excluded\. Most of these houses were either too expensive to connect, had been constructed illegally, or were outside the project area\. 88\. Centralized systems\. A subset of 7 systems was surveyed\. In the communities selected, 69% of households were already connected and 6% were in the process of being connected\. 89% of the households connected are satisfied with the level of service they receive\. Billing remains an issue\. Only 35% of respondents knew that they would have a sanitation surcharge on their water bills, and 50% of respondents said the connection fee was too high\. In the surveys, 63% of interviewees reported they were satisfied with the consultation process before and during construction\. However, other anecdotal data contradicts these figures -- informal discussions in some villages indicated significant dissatisfaction with the quality and speed of construction\. 4\. Assessment of Risk to Development Outcome Rating: Significant 89\. There is a significant risk to the sustainability of the development outcomes that have been achieved (and are expected to be achieved once the remaining works are constructed)\. There are risks specific to the project, as well as risks within the rural sanitation sector and the broader country context that could also impact the development outcomes\. 90\. Project-specific risk\. At the closing date of the loan, several of the second phase sub-projects had not been completed\. In some villages where works have been constructed, significant numbers of households have yet to connect\. Additionally, the decentralized treatment systems will require several months of ongoing support and training to CDAs to ensure they are able to effectively manage and maintain the treatment plants and networks\. Addressing these issues will require that sufficient counterpart funding is allocated by the Ministry of Finance\. Although discussions are ongoing, to date no funds have been allocated\. In addition, quality issues were identified in some of the works constructed, particularly in the first phase of construction\. Several of these issues are serious enough to jeopardize the long-term viability of the works\. 91\. Sector-related risk\. Policy and capacity issues continue to constrain the development of the rural sanitation sector in Egypt\. Current tariff levels do not cover costs, and the WSCs will require further support to effectively manage wastewater services\. The ongoing PforR is supporting efforts to address these challenges, and the GOE remains committed to the rural sanitation agenda, but if these issues are not addressed within the near future the sustainability of ISSIP 1 outcomes will continue to be at risk\. -22- 92\. Country risk\. Potential political and macroeconomic risks could also affect the sustainability of the development outcomes, although these are less likely have significant impact\. Further political tensions could delay construction of the remaining works\. In addition, inflationary pressure or a weaker Egyptian pound could make the remaining works more expensive\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Unsatisfactory 93\. Project identification and appraisal was informed by robust background analysis, including multiple technical missions\. The design was ambitious, and closely aligned with the priorities of the GOE\. ISSIP 1 included several innovative new approaches to wastewater treatment, and included significant support for institutional development, with the goal of triggering change in the sector – which it has now achieved through the two follow-on projects\. The appraisal document identified most of the key risks to implementation, although the team did not anticipate the challenges in land acquisition, objections from local communities, limited implementation capacity on the part of NOPWASD and HCWW, and the unwillingness of poor households to pay large connection fees\. 94\. Although some elements of the project design were of high quality, several decisions during appraisal and negotiations contributed to the implementation issues observed: ï‚ Overly complex design and focus on water quality\. With multiple goals, numerous stakeholders, and a menu of new technologies and approaches, the project attempted to achieve too much in a challenging context with a first-time borrower\. In addition, ISSIP 1 was framed as an initiative to improve water quality, which was largely outside the control of the project\. ï‚ Dependence of project success on external donor funds\. Although institutional issues were highlighted in the PAD, which included two entire components on capacity building, these components were entirely grant funded, although the funds were not allocated by the donors prior to approval\. Although GOE policy required that technical assistance be funded by grants, firm written commitments should have been obtained prior to presenting the project to the Board of Directors\. ï‚ Lack of clarity in institutional arrangements\. At negotiations NOPWASD was added as the lead implementing agency at the request of the GOE\. During this time period other donors were scaling back their collaboration with NOPWASD\. Despite this, the World Bank agreed to go forward with the proposed institutional arrangements\. Adding the agency during negotiations resulted in unclear and -23-  overlapping responsibilities, negatively impacted procurement readiness, and significantly delayed the first several years of implementation\. (b) Quality of Supervision Rating: Moderately Unsatisfactory 95\. Numerous supervision missions were conducted, with support to ISSIP 1 continuing even during a period of significant political upheaval\. Following restructuring, significant support was provided for safeguards and procurement\. In addition, following the closeout of the loan the team identified opportunities for continued support under the PforR\. However, though the pace of implementation improved dramatically after restructuring, there were several issues during the initial years of supervision that contributed to the level of outcomes achieved: ï‚ TTL handover soon after effectiveness\. The TTL during project design transitioned away from ISSIP 1 less than a year after effectiveness\. Transferring oversight for a complex project at this stage creates the risk of significant delays if insufficient time is invested in handover\. ï‚ Lack of coordination with IIIMP\. Although IIIMP was intended to complement ISSIP 1, there was negligible coordination between the two projects, which negatively impacted the objective to improve water quality\. ï‚ Lack of proactivity in project management\. Supervision, particularly in the initial years of the project, did not adequately anticipate and react to emerging issues in implementation\. The 2011 revolution provided an opportunity to restructure and streamline the project\. However, restructuring was not finalized until July 2012, and did not address many of the key bottlenecks\. In addition, given the substantial changes to the project, the PDO should have been revised during restructuring\. Issues related to implementation arrangements and procurement processes were not effectively addressed early in the project, contributing to implementation delays\. ï‚ Lack of candor\. Despite disbursement delays and concerns within the World Bank around implementation arrangements, the project was rated as Satisfactory or Moderately Satisfactory until April 2012\. ï‚ Backloading of counterpart funding during loan period\. During restructuring, IBRD financing was frontloaded, so that all project expenses incurred were reimbursed fully through loan funds\. This was done on the understanding that once IBRD funds were exhausted, outstanding project expenses would be covered through counterpart funding, including works that were not completed by the loan closing date\. Although this resulted in a faster disbursement rate, it is still unclear whether the GOE will provide the counterpart funding in a timely manner\. ï‚ Decision to proceed with ISSIP 2\. Two years into the implementation of ISSIP 1, the decision was made to launch ISSIP 2 due to strong demand from the GOE, despite the fact that ISSIP 1 had yet to achieve any results\. As of December 2015, ISSIP 2 is rated moderately unsatisfactory\. The project may have seen stronger results if effectiveness had been delayed until the approach had been more fully tested under ISSIP 1\. Additionally, requiring a single PIU to manage both projects -24-  simultaneously taxed the capacity of the implementing agencies – an issue not addressed until ISSIP 2 was restructured\. (c) Justification of Rating for Overall Bank Performance Rating: Unsatisfactory 96\. Quality at entry was Unsatisfactory, and quality of supervision was Moderately Unsatisfactory\. Taking the lower of the two ratings, the overall rating for Bank performance is Unsatisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory 97\. The GOE demonstrated strong commitment to the project in the initial stages of project design\. The rural sanitation strategy was a high-profile government initiative with broad support\. However, adding NOPWASD during negotiations resulted in complex, overlapping institutional arrangements\. As a result, there was a lack of clear accountability during implementation, which was not effectively addressed by MOHUUD or the Ministry of International Cooperation (MOIC)\. In addition, the unwillingness to borrow for the technical assistance activities under components 2 and 3 impacted the success of the project when the initial donors withdrew\. Finally, although additional counterpart funding from the GOE will be required to complete the outstanding works and ensure that households connect to the networks, these resources have not yet been allocated\. (b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory 98\. Jointly responsible for implementation, NOPWASD and HCWW did not effectively coordinate activities, resulting in cumbersome, overlapping processes and substantial delays in procurement and compliance with social and environmental safeguards\. While the steering committee was intended to address coordination between the two agencies, MOHUUD and other ministries, it was not used effectively\. 99\. A mid-term review of the project management consultant’s performance in November 2013 found performance to be unsatisfactory\. The review noted that a strong focus on the engineering aspects of the project overshadowed efforts to build capacity within local institutions\. It also highlighted the overlap in responsibilities and lack of coordination between the two consultancies\. -25- 100\. Following the restructuring, greater clarity on responsibilities and streamlined procurement resulted in a significantly faster rate of disbursement, although there are concerns over the quality of some of the works constructed\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory 101\. Both the government and implementing agencies were rated moderately unsatisfactory, resulting in an overall rating of moderately unsatisfactory\. 6\. Lessons Learned 102\. ISSIP 1 faced significant challenges during implementation and has not achieved the planned outcomes\. However, when viewed as the first step in a broader long-term program that includes ISSIP 2 and the PforR, the project has played an important role in advancing the rural sanitation sector in Egypt\. ï‚ Complex project design jeopardizes project outcomes\. ISSIP 1 addressed rural sanitation as both a means to improved water quality and an objective in its own right\. Additionally, the project design included multiple innovations, and required high levels of coordination across government agencies and funding from multiple stakeholders\. A borrower unfamiliar with World Bank procedures working in a challenging sector is unlikely to be able to effectively carry out such a complex project\. A simpler project design adapted to the prevailing context would have had a greater likelihood of success\. ï‚ Unclear institutional arrangements are difficult to address after appraisal\. In addition to splitting responsibilities between NOPWASD and HCWW, several other government entities were also involved in the implementation of ISSIP 1\. In addition, there were two parallel consultancies with overlapping terms of reference\. As a result, processes were slow and cumbersome, and there was no clear ownership over the project\. In particular, procurement was a significant challenge, with multi-year delays on some bids\. While the steering committee was intended to address these issues, it was not able to do so\. The initial ambiguity in institutional arrangements was only partially addressed by the closeout of the loan, although this could have been rectified much more easily during project design\. ï‚ Institutional development, policy reform, and technical assistance are critical for infrastructure projects and require stable funding\. Infrastructure alone is necessary but insufficient to expand access to water and sanitation\. The Water Global Practice has shifted from “fixing the pipes” to “fixing the institutions that fix the pipes,” and ISSIP 1 provides additional evidence that infrastructure cannot be leveraged effectively outside of a supportive policy framework and institutional environment\. Although the PAD identified critical capacity and policy constraints, funding issues and delays in launching Components 2 and 3 pushed TA to the final years of the project\. Given the long time frame required for policy reform and capacity building, this TA would have been significantly more effective if it began -26-  well before construction started\. Had the TA been funded through the IBRD loan or a global trust fund, this may have been avoided\. The PforR, which includes a complementary TA funded by the Water Global Practice’s Water and Sanitation Program (WSP), provides an example for how this issue could be addressed\. The Water Global Practice is currently establishing a global trust fund for institutional development, knowledge, and innovation, which could support future TA more effectively and with less disruption to implementation\. ï‚ Innovations must be adapted to the local context\. During project design, the team sought to transfer experience with small-scale wastewater treatment technologies from Brazil to Egypt\. While there was initial interest from HCWW in the decentralized systems proposed, NOPWASD did not have the same level of buy- in, and Egyptian regulations made the systems significantly more complex and expensive than the systems used in Brazil\. ï‚ Land acquisition can significantly delay implementation\. Difficulties in identifying ownership, negotiating land prices, and navigating clearances from multiple ministries resulted in long delays in land acquisition\. This challenge is not unique to Egypt\. A recent analysis by the Sustainable Development Practice Group has found that land acquisition is a common bottleneck across infrastructure projects\. Addressing land acquisition prior to effectiveness could have reduced the risk of implementation delays\. In addition, the PforR is supporting the development of standard operating procedures for land acquisition, which is included as a disbursement-linked indicator\. ï‚ Effective procurement requires an understanding of contractor capacity\. Many of the contractors eligible to bid on the sub-projects lacked the financial resources and technical ability to effectively carry out the complex technologies specified in the bidding documents\. This resulted in multiple rounds of bidding, major cost overruns, and delays in beginning construction\. Moreover, awarding two or three contracts to the same small contractors constrained their financial capacity to complete the respective contracts, which resulted in significant delay in completion of their contracts\. Prequalification introduced to exclude low-capacity contractors for Phase II schemes resulted in bid prices significantly higher than the cost estimate, leading to rebidding, which significantly delayed the procurement process\. ï‚ The high cost of connections is a barrier for poor households\. Infrastructure is irrelevant if it is not used\. For many households in the project areas the cost of a household connection was not affordable, so they opted not to connect to the sewer networks when they were completed\. Once the WSCs reduced the cost of connections and provided installment plans to spread the cost of the connection fee over time there was a significant spike in the number of households connected\. ï‚ Early involvement of communities can reduce future delays\. Until the JSDF- funded consultant began work, there was minimal outreach to communities impacted by the project\. Several CDAs noted that the maps used by contractors were outdated and inaccurate, resulting in damage to existing infrastructure and construction delays\. Had communities been engaged during the design process this could potentially have been avoided\. Additionally, more community consultation could have helped build greater support for the project, which was initially opposed by some villages\. -27-  ï‚ Handover soon after effectiveness affects quality of supervision\. The TTL during project design transitioned away from ISSIP 1 less than one year after effectiveness\. For complex projects, this presents a significant risk that institutional memory will be lost and can create opportunities for miscommunication with borrowers\. ï‚ Local, empowered World Bank staff are needed to lead complex projects with institutional reform elements\. Despite the institutional reforms required to achieve the project goals, until the end of the project when a Cairo-based co-TTL was added, all TTLs were based in Washington, DC\. Under the PforR, both the overall task team and the WSP sectoral support program leadership are based in Cairo, which allows for much more frequent and sustained client engagement\. ï‚ Clear timelines support effective implementation\. Throughout the length of the project, supervision missions established multiple deadlines to address safeguards, procurement, FM, and other implementation issues\. Few of these deadlines were met\. However, once a clear timeline for project closeout was established, the pace of implementation increased rapidly\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 103\. The rural sanitation sector continues to be an important part of the World Bank’s Country Partnership Framework with GOE, and the ICR team agrees that the new approach supported by the Rural Sanitation Services PforR represents a substantial commitment to reorganizing the sector\. 104\. The ICR team acknowledges the impressive efforts to finalize construction during the final years of the project\. However, the ICR can only assess the results achieved during the period between loan effectiveness and loan closing (even if the project itself continues after loan closing with other sources of funding)\. The ICR team anticipates that most of the works can be finalized if sufficient counterpart funding is made available\. It is important to note that the construction of works are a necessary intermediate step in achieving the PDO, but that actually achieving the PDO indicators requires households to connect to the networks\. In parts of the project area where the works have not yet been completed, this is not possible\. However, in other areas households have not yet connected to the completed works, for reasons outlined in the ICR\. 105\. While some of the delays in implementation were outside the direct control of the implementing agencies, it remains the position of the ICR team that there were several missed opportunities for both GOE and the World Bank to address these issues in a more proactive manner\. In regard to the comment on delays in providing No Objections, it remains the position of the ICR team that much of the delay was due to the ambiguous institutional arrangements, as well as the decision to use pre-qualification during procurement\. Finally, in regards to the frequent changes in TTLs, the number of TTLs assigned to ISSIP 1 is in line with averages across the World Bank\. However, as noted in the Lessons Learned section, the ICR team agrees that proper handover and locally-based, empowered TTLs are critical to the success of complex projects such as ISSIP 1\. This is -28- especially important with implementing agencies that are working with the World Bank for the first time\. (b) Cofinanciers 106\. In response to SECO’s concern regarding the sudden rise in connections, it should be noted that the focus of the project during construction was on preparing households to be “ready to connect” (i\.e\. a connection up to the inspection chamber leading to the house exists, but the household has not connected and formally registered)\. In the final months of ISSIP 1, there was a much stronger emphasis on encouraging households to connect\. This can be done relatively rapidly, leading to a surge in connections\. As many of these households were connected close to the close of the loan, data does not yet exist to determine whether these connections continue to be working properly\. 107\. In regards to SECO’s comments on the impact of ISSIP 1, the ICR team would like to clarify that the population mentioned in the PAD represents the 1\.16 million people living within the project areas\. It was expected during project design that the overall population would benefit indirectly due to improved water quality\. Due to the issues with Component 2 and changes to the project during restructuring, it was not possible for the ICR team to assess the extent of indirect impact on the broader population\. The direct beneficiaries specified in the PAD includes the 97,638 households with working wastewater connections specified in the intermediate indicators in the PAD\. Using the estimate of five people per household from the PAD, if ISSIP 1 had achieved its objectives approximately 488,000 individuals would have directly benefitted, reaching the target stated in the PAD of 40% sewerage coverage in the project area\. 108\. Regarding the timing of grant funding, it remains the position of the ICR team that the change in donor support had a significant impact on the results achieved by the project\. The grant funding described in the PAD was instrumental to achieving Components 2 and 3, in particular the strong emphasis on water quality\. When donor funding did not materialize, many of the major concepts of the project required revision\. Although SECO funding was made available as of December 2009, delays in bidding meant that the consultant did not begin work until 2011\. This seriously impacted the procurement process, since neither NOPWASD nor HCWW were familiar with World Bank policies and procedures\. Had funding from the original donors been available a consultant could have been selected and brought on board at effectiveness\. 109\. Regarding the lack of collaboration with the Egyptian-Swiss Research on Innovations in Sustainable Sanitation Project, the ICR team agrees this was a missed opportunity\. 110\. Regarding the timing of the end of SECO’s funding commitment, there is not a World Bank requirement that grant funding close at the same time as the corresponding loan\. Note that Annex 7: Summary of Borrower's ICR and/or Comments on Draft ICR represents the opinions of GOE, and cannot be revised by the World Bank\. -29- (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) Not applicable -30- Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) Component 1: Provision of sanitation systems within 172\.40 140\.25 81% selected drainage sub-basins Component 2: Establishment of a local results-based 1\.03 0\.50 49% monitoring and evaluation system Component 3: Institutional development and capacity 18\.53 8\.5 46% building Total Baseline Cost 191\.96 Price and Physical Contingencies (5%) 9\.60 Total Project Costs 201\.56* 149\.17** 74% (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage Source of Funds (USD Cofinancing (USD of Appraisal millions) millions) Borrower 61\.00 16\.20 27% Switzerland, Govt\. of (Except for Parallel 9\.00 6\.62 74% FOFEA)*** International Bank for 120\.00 98\.41 82% Reconstruction and Development JAPAN: Gov\. of (excl\. Ministry Parallel 2\.91 2\.38 82% of Finance - PHRD Grants)*** Total 192\.91 123\.61 64% *Total project cost at appraisal does not match total financing cost at appraisal due to changes in cofinancing from bilateral donors\. **Includes costs incurred but not yet invoiced\. To be funded through borrower cofinancing\. ***At appraisal, financing included US$ 4\.0 million from GTZ and US$ 16\.5 million from Netherlands Development Cooperation\. Switzerland and Japan were added post-appraisal\. -31- Annex 2\. Outputs by Component The project comprised three components: Component 1: Provision of sanitation systems within selected drainage sub-basins This component aims to plan, design and construct sanitation systems for a total of 14 clusters in the selected priority area within the two command areas of Mahmoudeya and Meet Yazid, falling within the Governorates of Beheira, Gharbiya and Kafr El Sheikh in the Delta\. The component will be divided into three sub- components: Centralized sanitation systems Construction of centralized sanitation systems includes the construction of complete sanitation systems for about 106 villages from 222 originally estimated villages at appraisal (>1,500) within 9 clusters\. This sub-component was estimated to cost $153 million, with Bank loan funds contributing to $112 million, and was implemented in two phases\. Phase I comprises of 19 wastewater collections systems, 1 new WWTP and 1 WWTP extension\. The expected outcome for phase I is 15,038 new household connections\. At the closing date of the loan 9 projects in Phase1 are completed and 86003 new house connections are established (12\.5 % of total program target)\. Final cost for Phase 1 at the project closing date is US$ 43\.4 million; this is in line with the original estimate of US$ 54\.5 million\. The difference is in the amount of beneficiaries, estimated was 193854 people to be connected at the end of the project and 373625 in 2040\. The current number of people connected during phase 1 is 70428 at the end of project and 164686 in 2050\. Cluster Gharbiya Kafr El Sheikh Beheira sub-project Networks Nimrit Ek Basal networks Sidi Ghazi Networks WWTP WWTP 4 Progress 100% 100% 94\.2% 100% 93\.1% November 2015 Note: Household connections are not part of the progress reported Phase II comprises of 2 new WWTPs and 58 network systems, including 48 networks that will be connected to 6 existing operating WWTPs and 1 WWTP under rehabilitation\. The expected outcome for phase II is 48,035 new household connections\. At the closing date of the loan no projects in Phase2 have been completed and no new house connections are established\. 3 Report on result frame work and monitoring August 2015 4 Monthly report November 2015 -32-  Cluster Gharbiya Kafr El Sheikh Beheira sub-project networks Al shaheedy Network Arymon Networks average WWTP WWTP average 5 Progress December 65% 50% 75% 75% 43% 2015 Note: Household connections are not part of the progress reported Project implementation For the projects in phase 2 there is a discrepancy between the progress in disbursements and the physical progress in the field, this can in part be explained because for several projects the mechanical and electrical equipment has been purchased upfront\. The equipment is stored in several warehouses awaiting the final installation\. This is an extra project risk, when the civil works are not completed the in installation will not take place and these investments are lost\. During the field visits several centralized system where visited, although not applicable for all the works seen in general the quality of the civil works was poor, the concrete was of very poor quality\. For example not enough covering of the steel reinforcement bars, corrosion already visible on steel construction parts (on a site that was only completed 3 month earlier) and equipment buildings with leaking roof structures\. The selected mechanical and electrical equipment is in general of well-known brands and of good quality\. Putting this expensive equipment like the air blowers in a building with a roof already leaking water on the equipment is a waste of money and will not lead to a sustainable operation\. More of a concern for Phase 1 is the high cost of the sewerage collection systems that are being implemented under ISSIP1, which amount to an average of US$616 (see table for cost per connection) per person in 2015, due to: ï‚ Costly conventional designs according to the rigid application of the engineering standards for urban sewers in rural environment\. ï‚ Long delay in construction\. ï‚ Less qualified contractors supervised by weak construction supervision consultants recruited by NOPWASD, which is not closely monitoring their activities\. 5 Monthly report November 2015 -33- Technology used The visited newly constructed Wastewater treatment plants are using a Sequencing Batch Reactor (SBR) technology\. This is an activated sludge process designed to operate under non-steady state conditions\. An SBR operates in a true batch mode with aeration and sludge settlement both occurring in the same tank\. The major differences between SBR and conventional continuous-flow, activated sludge system is that the SBR tank carries out the functions of equalization aeration and sedimentation in one tank by using a time sequence\. A SBR system helps in the treatment of variable flows with limited operator interaction, small floor space, and good removal efficiency but requires a more sophisticated control system\. The Water and Wastewater Companies will benefit from more training and guidance in the operation of these systems\. Decentralized sanitation systems Construction and rehabilitation of decentralized sanitation system in the PAD estimated to serve 120 villages/ hamlets, located outside the centralized sewerage networks\. However, in view of the slow progress, the coverage was scaled down from the 120 villages envisaged in the PAD to 30 villages\. The piloting of the GIZ model of 20 decentralized systems was dropped due to the high cost and lack of funding from GTZ/ GIZ\. The commitment for the O&M, and training activities under support and supervision by GIZ was also terminated\. At the closing date of the loan no decentralized projects have been completed and no new house connections are established\. Cluster Gharbiya Kafr El Sheikh Beheira sub-project Decentralised systems Decentralised systems Decentralised systems 3 average progress 50% 97% 60% Note: Household connections are not part of the progress reported Project implementation The 14 decentralized sanitation projects are currently under construction\. The selected management system for these projects is “Delegated Community Management”\. This means that the ownership of all systems will be with the WSCs\. These should hand-over the responsibility for the day-to-day management that will be delegated to Community Development Associations (CDA)\. The WSCs shall be responsible for supervision and technical support\. -34- The Community Development and Capacity Building Consultant (CDCB) was the consultant supporting the Project Implementation Unit of the HCWW to implement these decentralized projects in ISSIP-1\. CDCB started its work on November 1st, 2013\. The current contract ended on December 31st, 2015\. The consultancy was financed through the World Bank by the Japan Social Development Fund (JSDF)\. With the support contract closed there is still work required to achieve JSDF objectives\. ï‚ Objective 1, Develop and promote the institutional capacity of local institutions and communities, was only partially achieved through 38 trainings and exchange meetings organized by the CDCB consultant\. ï‚ The capacity building on financial, organizational, social and technical aspects for RSUs and CDAs could not be finalized as none of the 14 decentralized sanitation schemes was finally constructed by 31st of December 2015\. Without the completion of these objectives the sustainable operation and maintenance of these decentralized systems by the local communities will be impossible\. Technology used A decentralized system is more than just the relative simple ABR (Anaerobic Baffled Reactor) wastewater treatment; it also includes a small network and a pumping station, almost like a mini cluster\. The operation and maintenance of this system is the responsibility of the local community and delegated to the CDA (Community Development Association)\. The combination of an ABR, network and pumping station with substantial electrical and mechanical equipment like pumps, switch gear and a generator set is a very challenging task for community to take on\. Not only technical, but working with electrical equipment and heavy pumps requires also training to work safely\. No training has been given to these communities yet, without this training the sustainable operation of these decentralized systems is impossible\. Component 2: Establishment of a local result-based monitoring and evaluation system: This component had to establish a results-based monitoring system within the Holding Company for Water and Wastewater (HCWW) that links the improvements in sanitation coverage with anticipated environmental and water quality impacts\. The component was to include technical assistance (TA) support for expertise in designing the system, identification of monitoring sites, data collection and analysis, results review, finalization, and communication\. -35- However as the expected funding of $1\.1 million from Netherlands Development Cooperation did not materialize, this component was changed during restructuring to focus on: (a) sanitation and environmental conditions for the resident communities; (b) water quality in the selected drainage basins within the served areas; (c) overall project monitoring and reporting; and (d) participatory environmental and social monitoring\. Water Quality Monitoring in the selected drains was done through the calculation of the reduction in the effluent pollution loads entering the water bodies and taking the BOD as the indicating element\. BOD reduction calculated from the number of Household connections is not a suitable indicator for the water quality of the receiving water body\. The water quality is not only determined by the BOD load from the waste water but also from industrial pollution and run off water, measurement of BOD, COD, nitrogen, phosphates and chlorines in the receiving water body will give a true indication of the water quality\. If the oxygen demand in the water body, after the reduction in BOD by connecting households to the treatment plant, is still higher than the receiving water body can handle, fish and aquatic insects still die when the oxygen is depleted and there will be no visible water quality improvement\. Component 3: Institutional development and capacity building: This component aims to promote institutional development within the national and local public institutions responsible for sanitation implementation to enhance their capacity to plan, design, construct and operate the rural sanitation investments, monitor outputs and outcomes, as well as promote hygiene practices and social mobilization\. Through grant donor co-financing, technical assistance will be provided to each of the implementing agencies (HCWW, NOPWASD and the three WSC’s)\. This component was to be financed by Netherlands Development Cooperation (US$15\.5 million) and GIZ (US$4 million)\. However, this funding did not materialize\. Instead, the two major institutional development and capacity building initiatives are being carried out by SECO-financed PM-TA consultancy and the JSDF-financed community development consultancy\. While the PM-TA consultancy contract was awarded in July 2011 and is now under implementation, the JSDF consultancy was only awarded November 1st, 2013 due to delay in procurement process in HCWW\. With the contract awarded the CDCB consultant (Community Development Capacity Building) was able to undertake activities for all parts of the projects, except the range of activities which can only be delivered after the infrastructure is operational such as on-the- job training\. -36- Annex 3\. Economic and Financial Analysis Background The project had very slow progress in implementation, and was restructured to extend the closing date from June 2014 to December 2015 and reduce the scope of some components of the project\. Even at the new official closing date of December 31, 2015, minimal progress has been made in achieving the PDO indicators\. The outcomes achieved did not correspond to the total resources committed at the time of official project closing\. The project has disbursed about 70% of the resources, while the actual number of households connected to decentralized and centralized systems is only 18% (i\.e\.,13,300 households) of the total target of 75,648 households (PDO Outcome Indicators 1 and 2) \. The achievement of the third PDO outcome indicator, reductions in pollution loads entering water bodies inside the project areas was also sub-optimal\. Methodology The Cost Benefit Analysis approach applied at the time of appraisal is based on water quality modelling work conducted during project design, which assessed project impact on the in-stream water quality within the drainage system\. Willingness-to-pay surveys were also conducted in the project villages\. The benefit assessment was based on monetizing the dose-response function from sewage pollution as follows: • Mortality and morbidity losses in response to increased Fecal Coliform (using the Medication Cost method or the Disability-Adjusted Life Year [DALY] method); • Crop-production losses in response to closing the drainage-reuse plants due to sewage pollution; and • Fishery-production losses in response to increased dissolved oxygen in northern lakes\. The current analysis uses a similar methodological approach and corresponding key assumptions, updating the analysis based on the actual costs and benefits realized\. Key assumptions At Project Appraisal At ICR Investment Cost (US$/Capita) US$ 146 US$ 705 Household Size 5 5 Investment cost build-up 3 years: (0\.3,0\.4 and 0\.3) Actual disbursement Replacement of electro-mechanical Every 10 years at 20% of Every 10 years at 20% of initial parts initial investment cost investment cost O&M cost (LE/household /Month) 10 10 Life of the project in years 31 31 Benefits build-up Starts year following Based on actual implementation completion of construction at ratios 0\.2,0\.4,0\.6,0\.8,1 Exchange rate (LE/USD) 5\.5 (2008) 8\.88 (2015) Discount Rate (%) 10% 6% (based on revised World Bank guidelines) and 10% Connection Fee (LE/Household) N/A 1,000 -37- The costs and benefits were adjusted for inflation using the Consumer Price Index estimated for Egypt during 2008 to 2015\. Thus, the reported NPV and IRR are based on 2015 constant prices\. After prolonged delays, the project began disbursing at an accelerated rate\. In the final year, the project disbursed about double the amount disbursed during the preceding six years\. Despite the aggressive disbursement drive, there is little to show in terms of actual household connections and in-stream pollution reduction, which are the core outcome indicators\. However, the number of household connections is increasing within Phase 1 works, and the number is expected to increase further when Phase 2 construction is completed later in 2016\. For this reason, cost benefit analysis was done for two scenarios defined on project phasing, level of PDO achievement, and level of disbursement\. Scenario 1 presents the analysis of all costs associated with the project for both Phases 1 and 2 and the benefits generated by the results achieved under Phase 1\. Scenario 2 assesses only Phase 1 costs, while using the same estimates for benefits under Scenario 1\. This scenario simulates successful project completion according to the work- plan while accounting for cost overruns\. Costs The average cost per capita for total Phase 1 investment is US$ 705 at full design capacity of about 173,000 people\. The corresponding unit capital cost estimate at design capacity at appraisal was US$146\. For comparison, the estimated average for rural MENA is $108/capita\. The O&M costs are typically considered to be in the range of 5-10% of capital costs\. In the appraisal stage economic analysis, the O&M cost was assumed to be about 10 LE per household per month\. The unit capital cost is even higher if only the current beneficiary households are considered (See Annex 2)\. When considering the current actual connections (13,3000 households) and the total financial resources disbursed as of December 31, 2015, the unit capital cost is about US$ 1,834 per capita under Scenario 1 and US$ 658 per capita under Scenario 2\. Benefits The absence of proper wastewater collection and treatment results in significant environmental sanitation problems in rural areas of the Nile Delta\. These problems impact life expectancy and morbidity of the population, causes health costs for treatment and care, reduce the possibility reuse for irrigation, influence the costs of drinking water supply, and have an adverse effect on fisheries\. In addition, families are forced to incur regular costs for cesspit emptying\. At the appraisal stage, these benefits were quantified and valued in economic terms for each sub-sector\. -38- Other unquantified benefits may include reduction in mosquitoes and flies (and related reductions in the need for spraying insecticides), removal of stench, and appreciation of property values\. Benefits (Estimate from PAD) LE/HH/Month Reduction in mortality and morbidity 31\.67 Reduction in health costs 32\.28 Drainage water reuse 13\.5 Reduction in drinking water treatment costs 0\.1 Increased fisheries production 3\.38 Reduction in private costs 50\.0 Total 130\.93 Results of Economic Analysis The results of the ICR and appraisal stage cost benefit analyses are summarized below\. The results of Scenario 1 cost benefit analysis, which considers the total financial resources disbursed as at the official closing date, is very poor\. Due to the accelerated disbursement drive during the last months of project closing (mainly for Phase 2 activities), significant sunk cost is created\. The marginal cost of converting the sunk costs locked into stored electro-mechanical equipment and pumps into service delivery could be less than the marginal benefits\. The NPV for Scenario 2 is negative and its associated IRR is slightly lower than the appraisal stage results, mainly due to differences in unit capital cost assumption and project implementation delays\. However, at 6% discount rate assumption (the new bank guideline) scenario 2 registers positive net benefits\. Scenarios Indicators Values Scenario 1 Net Present Value 10% Discount Rate: US$ 80\.5 million (negative) 6% Discount Rate: US$ 71\.9 million (negative Internal Rate of Return 0\.93% Scenario 2 Net Present Value 10% Discount Rate: US$ 2\.1 million (negative) 6% Discount Rate: US$ 27\.7 million (positive) Internal Rate of Return 9\.52% At appraisal Net Present Value Not Available Internal Rate of Return 10% - 17% -39-  Annex 4\. Bank Lending and Implementtion Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Shakeb Afsah Consultant DECRG Adel F\. Bichara Consultant MNSWA - HIS Zakia B\. Chummun Language Program Assistant GWADR Hani Abdel-Kader El Sadani Salem Sr Water Resources Engr\. MNSWA - HIS Marwa El-Mossalamany E T Temporary MNC03 Maged Mahmoud Hamed Regional Safeguards Adviser OPSOR Maiada Mahmoud Abdel Fatt Kassem Finance Officer WFALA Klaus Dieter Neder HQ Consultant ST GWADR Knut Opsal Lead Social Development Specia GSURR Ayat Soliman Practice Manager GSURR Wendy E\. Wakeman Lead Social Development Specia MNSSU - HIS Supervision/ICR Mohamed Yahia Ahmed Said Abd El Sr Financial Management Specia GGODR Karim Alexander E\. Bakalian Practice Manager GWADR Adel F\. Bichara Consultant MNSWA - HIS Zakia B\. Chummun Language Program Assistant GWADR Ben de Ru Consultant ICR Manal Mohamed Eid Consultant MNSWA - HIS Akram Abd El-Aziz Hussein El-Shorbagi Sr Financial Management Specia GGODR Wael Ahmed Elshabrawy Financial Management Analyst GGODR Mariana T\. Felicio Social Development Specialist GSURR Maged Mahmoud Hamed Regional Safeguards Adviser OPSOR John Ikeda Water & Sanitation Specialist GWASP ICR Claire Kfouri Sr Water & Sanitation Spec\. GWADR Enas Shaaban Mahmoud Program Assistant MNCEG Mohammed Youssef Mehany Operations Analyst MNSWA - HIS Mikael Sehul Mengesha Senior Procurement Specialist MNAPC - HIS Regassa Namara Sr Water Resources Economist GWA01 ICR Ayat Soliman Practice Manager GSURR Wendy E\. Wakeman Lead Social Development Specia MNSSU - HIS (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 44\.75 FY06 56\.47 FY07 187\.86 FY08 169\.09 Total: 458\.17 Supervision/ICR Total: 0\.00 -40- Annex 5\. Beneficiary Survey Results Although not specifically conducted for the ICR, a survey of beneficiaries was conducted at the end of 2015\. The Annual Social Participatory Survey 2015 includes information on beneficiaries’ satisfaction with both centralized and decentralized systems, with a primary focus on communities with decentralized systems\. The survey follows up on a previous study conducted in April 2015\. Scope and Focus The Annual Review covered 30 decentralized villages and 7 centralized villages previously identified during the June 2015 Semi-Annual Review, based on indicators such as the number of inhabitants, geography, and local NGO participation\. Several sets of questions were prepared to conduct the group discussions, the households’ surveys, and the key informant interviews\. The purpose was to assess the project’s achievement and stakeholders’ satisfaction from different perspectives and at different levels of implementation (village, governorate and project management)\. The review focused in particular on the following topics: ï‚ Satisfaction of target group with the (unfinished) sanitation infrastructure; ï‚ Satisfaction of households with the planning and construction process as well as with information dissemination and complaint response\. ï‚ Satisfaction with services provided by centralized sanitation services in the 7 selected communities (costs for O&M, connection fees; reason for households not yet connected, clogging, smell, O&M quality etc\.)\. ï‚ Hygiene promotion and awareness\. ï‚ Voice and accountability\. ï‚ Training and capacity building delivered\. Methodology The methodology combined quantitative and qualitative approaches through household surveys, Focus Group Discussions, Key Informant Interviews, transect walks in the communities and visits of infrastructures and construction sites\. 200 household surveys were conducted in the 37 villages in November 2015: 99 surveys in 30 decentralized sanitation communities and 101 surveys in 7 centralized communities\. The villages chosen are the same villages in which surveys were already conducted in the framework of the semi-annual project monitoring in April 2015 for centralized sanitation and in the framework of the baseline study for decentralized sanitation\. The number of respondents in each project was calculated in relation to the population\. The probability sampling method used is mainly simple random sampling, where households are chosen from the population at random, with every household having an equal chance of selection\. The field staff was asked to conduct the survey in the same -41- conditions, in the same seven villages and if possible with the same households as the semi- annual monitoring of the project conducted in April 2015 but this was rendered difficult because the teams of surveyors were not the same (except in Kafr El Sheikh) and household surveys conducted previously were anonymous\. In total 14 focus groups, 7 with women and 7 with men, were conducted in November 2015 to further probe data collected through the surveys and to provide grassroots information about communities’ understanding, satisfaction, knowledge and capacity to sustain the project in the longer term\. The discussions gathered participants from 19 communities and were conducted in the three governorates: 8 in Kafr El Sheik, 4 in Beheira and 2 in Gharbiya\. In all, 176 persons participated in the group discussions\. Of the respondents, 47% were women\. Key Findings Satisfaction with environmental conditions\. As no decentralized systems had been completed at the time of the survey, environmental conditions are still unsatisfying in decentralized villages with only 18% of the respondents satisfied with environmental conditions in their communities\. In many communities (for example in Kom An Nuss and Izbah Al Sanawafi), respondents reported that the environmental conditions were significantly worsened during the implementation of the construction as ongoing works damaged the roads, and in some cases the existing informal sewerage networks and water pipes\. Satisfaction with construction process for decentralized systems\. The CDAs were strongly involved in construction supervision, and were perceived as a legitimate link between the communities and the WSCs\. Contractors in some cases reported being overmanaged, with the communities becoming too involved in the technical aspects of construction\. They reported that the CDAs helped to provide a focal point for interacting with the community\. The main issues during construction centered around the quality of cement, issues with the inspection chambers, damage to roads and buildings, and the diameter of pipes used, although 82% reported that they were satisfied with the quality of the construction\. Hygiene Promotion\. 76% of the respondents recall receiving hygiene messages during the last three months from different sources, including directly from the project but also from community health workers and CDAs\. 61% of respondents in the focus groups were aware that washing hands with soap and water will prevent diarrhea\. Satisfaction with costs\. The household survey shows that 84% of the respondents are aware of the future monthly fees for sanitation, which will be collected by the CDA\. 81% of the respondents considered the amount of the fee acceptable\. In most of the focus groups, community members were aware of the fees that would be charged in the future\. Respondents noted that their current expenses to empty their cesspits were higher the monthly fee\. Unserved households were a significant issue – nearly 10% of households in -42- some of the communities surveyed were excluded\. Most of these houses were either too expensive to connect, had been constructed illegally, or were outside the project area\. Gender\. Women surveyed were equally satisfied about the information they obtained and the way they were consulted in the course of the project\. Results of the household surveys show that women were actively engaged during the construction process\. 36% of respondents reported a problem to the CDA or the water company during construction in the decentralized communities using the official complaint process\. The number of complaints filed were equally divided between men and women\. Centralized systems\. A subset of 7 systems was surveyed\. In the communities selected, 69% of households were already connected and 6% were in the process of being connected\. 89% of the households connected are satisfied with the level of service they receive\. Billing remains an issue\. Only 35% of respondents knew that they would have a sanitation surcharge on their water bills, and 50% of respondents said the connection fee was too high\. In the surveys, 63% of interviewees reported they were satisfied with the consultation process before and during construction\. However, other anecdotal data contradicts these figures -- informal discussions in some villages indicated significant dissatisfaction with the quality and speed of construction\. -43- Annex 6\. Stakeholder Workshop Report and Results Not applicable -44- Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Comments on Draft ICR With reference to the draft ICR received on May 22, 2016, we would like to highlight the following important notes: ï‚ The above-mentioned project considered a top priority for the Government of Egypt given the significant importance of the Project’s developmental objective; to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the resident communities; and (ii) the water quality in the selected drainage basins within the served areas\. ï‚ The said project faced many challenges and force majeure which resulted in delays in implementation, including: o delay in signing the SECO grant agreement which had led to a delay in tendering the PM-TA consultant contract; o retendering of phases I and II schemes, since received bids were much higher than the estimates; o disturbances as a consequence of the January 2011 revolution, such as local objections by unserved communities taking advantage of the political instability o delay in Bank’s No Objections for some contracts and to Bank’s response for Government’s requests for restructuring and amending the loan agreement ( eg\. On July 8, 2014 the GOE requested the Bank to consider increasing the Bank’s financing contribution for civil works from 66\.7 % to 100 %, this procedure took over 3 months and the amendment letter was sent by the Bank on October 15, 2016 ), o frequent changes in Task Team Leaders, as four TTLs were assigned to this project with improper handover process\. ï‚ It’s important to highlight the good progress achieved compared to the bottlenecks and force majeure faced the implementation, such progress was reflected in the number of contracts that have been tendered and awarded, in addition disbursements picked up significantly to reach US$ 96\.78 million, as opposed to US$ 38\.1 million in March 2015, and expected to increase during the grace period to exceed US$100 million to cover all works accomplished prior to the closing date\. ï‚ Finally, it is worth mentioning that, substantial corrective measures have been taken by the GOE to reorganize the entire sector, which are reflected in the ongoing Rural Sanitation P4R\. -45- Additional Comments, NOPWASD In principal the ICR report reflected most of the ISSIP 1 facts, events and findings, however, NOPWASD has the following general comments: ï‚ As it well known that the ISSIP 1 project faced too many problems at the beginning and after August, 2014, it returned back to the right track\. The project stakeholders in particular NOPWASD and HCWW spent significant efforts to push the project progress and disbursement\. The WB former TTL was very cooperative contrary to the current TTL\. The former TTL during his last supervisory mission promised to provide the project an extension after achieving the disbursement value of US$ 55 million before June, 2015 which was successfully achieved\. The WB decision not extend the loan closing date was not justifiable to GOE and in particular NOPWASD after this great progress and disbursement\. ï‚ The ICR team rated the performance as unsatisfactory\. This rate depends on the merely comparison between the PDOs and the results achieved\. However NOPWASD is rating the project as satisfactory from the progress and results achieved comparing with the bottlenecks and force majeure faced the project\. Additional Comments, HCWW: ï‚ Many facts are in comparison to the PfR project, which still in the planning or designing phase\. It worth to be mentioned that presenting and flattering this project in such a report (target is to evaluate ISSIP-1, not to present advantages of Payments for Results (PfR) , is showing that this report is prepared mainly to satisfy some internal Bank arrangements, which is not in accordance to the transparency required for such an ICR evaluation mission\. ï‚ As reported, earlier that HCWW is not accepting the negative rating of the project in particular as the latest "Implementation Status & Results Report" for ISSIP1 published on WB website because of the negative reputation, which cannot be accepted due to specific circumstances and bottlenecks beyond the control of the stakeholders\. Since this report contains misleading information and discrepancies with the previously issued reports\. In addition, is not mirroring the tremendous efforts of stakeholders made in particular during the last two years\. ï‚ Despite efforts done during last year, which was the most significant, outstanding and productive period during the entire project life in terms of project implementation progress and the disbursement rates\. This breakthrough is documented in all WB and project related reports (please refer to all WB Aide- Memoires since September 2014)\. This success has not been appreciated so far by the WB staff, which is mostly criticizing instead of motivating the stakeholders concerned\. Moreover, the "Progress towards achievement of PDO" rating was also -46-  unjustifiably and unreasonably downgraded from "Moderately Unsatisfactory" to "Unsatisfactory" without providing any interpretation of the criteria adopted to justify such conclusion\. You may accept that it doesn't make any sense to get a higher project rating in the past when the project progress was low and now downgrading this rating after achieving the desired project targets such as the significant increase of financial and disbursement progress\. ï‚ It is noteworthy to mention that during the reporting period in March 2015, the total loan disbursement was amounting to US$ 37\.05 million\. Since that time the disbursement rate has unprecedentedly increased till December 31, 2015 to more than US$ 83 million, bearing in mind that disbursement will continue to increase during the grace period for all works accomplished prior to the Loan Closing Date and is scheduled since long time to exceed the benchmark of US$ 100 million\. ï‚ At the end of the loan closing date, the 21 phase 1 contracts amounting to EGP 325 million serving 170,000 beneficiaries have been completed as scheduled prior to the loan closing date, and the 29 phase 2 contracts amounting to EGP 920 million serving 455,000 beneficiaries have reached a progress of more than 50%\. Most of the decentralized projects are under completion as scheduled during the coming three months\. The finalization of the centralized projects is now on track and according to schedule\. ï‚ Again, we do not understand why this positive development has not been reflected in the current rating\. If the WB is measuring the project progress in relation to the PDO indicators, we would like to know the targets to be achieved to receive a satisfactory rating\. ï‚ Another critical issue is that the WB needs to differentiate between the "Loan Closing Date" and "Project Completion Date" when evaluating the 'Achievement of PDO'\. It seems that the WB is wrongly using the term of 'Project Closing' instead of "Loan closing" which cannot be used due to the WB's unjustified decision to close the project then evaluating the achievement of "Development Objective" for an uncompleted project\. ï‚ Nevertheless the PIU/HCWW has set clear targets in the "Updated Results Framework" as per the "loan closing date" (December 31st, 2015) and other targets for the "project completion" (by the end of 2016 as per the planned time schedule)\. The final report has to be prepared containing the final actual values for the indicators as per December 31st, 2015 (December data collection round)\. Such values are the final values to be taken into consideration as per loan closing date\. -47-  ï‚ Taking the aforementioned facts and findings into account, it seems that the WB is just trying to defend their unilateral one-sided decision for the non-extension of the loan closing date\. ï‚ It is hard to believe that such approach is motivating the key-stakeholders to implement the huge bulk of sanitation projects on schedule that the Egyptian Government plans to implement during the coming years\. ï‚ The ISSIP1 as first sanitation project has to be seen as a pilot project and a lot of correcting measures have been done to reorganize the entire sector\. At present, even the dual headed project management organization is working satisfactory\. Summary of Borrower ICR Background Project Context: At project inception, the Government of Egypt (GOE) has taken several measures to safeguard the quantity and quality of water in the country\. To this end, it has spent about LE 18 billion on wastewater management projects over the past two decades\. Operation and maintenance (O&M) costs for the water supply and sanitation sector alone constitute 4% of GOE total recurrent budget\. Yet water quality in the country continues to degrade, impacting health, agricultural competitiveness and the quality of life\. This degradation also frustrates Government plans for downstream reuse of drainage water, a key component in Egypt's water resources strategy\. Damage costs from poor water quality are estimated at 1\.8% of national GDP\. Moreover, previous Government programs on sanitation have been planned and implemented in isolation, often leading to expensive, geographically fragmented infrastructure projects with limited improvement to the ecosystem\. Much of the organic pollution load reaching the country's water bodies in the Nile Delta comes from rural areas, where 57% of the people live\. The present national system for water supply and sanitation has a strong urban bias, while rural areas suffer from weak or non-existent institutional structures for sustainable service delivery and operation, particularly sanitation\. Recent improvements in drinking water supplies to the rural areas did not include facilities to safely dispose of the consequent increases in wastewater flows\. Statistics on high levels of sanitation coverage mask many inefficiencies and problems in the system\. For example, existing household toilets cannot cope with the increased wastewater flows\. In addition, many areas in Egypt have high water tables, which render many types of conventional low-cost, on-site sanitation technologies inappropriate\. The result is spillage of wastewater into streets, irrigation drains, and even into nearby canals\. Facing increasing water resource limitations and the economic costs from water resource degradation and health impacts, the GOE recognizes the need to address rural sanitation issues in a broader institutional and planning context\. Over the past three years, the -48- Ministry of Housing, Utilities and Urban Communities has embarked on an ambitious reform agenda\. In the context of improving and developing the sanitation services to the Egyptian people, the Government of Egypt (GOE) has signed the Loan agreement No\. 7512 with the International Bank for Reconstruction and Development (IBRD) with an amount of US$ 120 million to carry out the Integrated Sanitation and Sewerage Infrastructure Project (ISSIP1) in three governorates (Al-Gharbiya – Al-Beheira - Kafr El-Sheikh) and the Loan Agreement effective date was on December 3, 2008\. The project is being supported by a grant from the Swiss Government to provide Programme Management and Technical Assistance (PM-TA) to support to the implementing agencies\. In addition, the JSDF is financing the support for the social development consultant for the decentralized systems\. The ISSIP1 is coordinated with the IIIMP project also financed by the World Bank\. The Bank has been at the forefront of the policy dialogue to address the rural sanitation agenda within the IWRM context, emerging from its decades of engagement with GOE in water resources management\. A number of sector studies conducted in the past two years, including a the IWRM Action Plan and Water PER, as well as a dedicated Economic Sector Work (ESW) on rural sanitation, have shed the light on the weaknesses in the existing financial and service delivery models\. An approach has been developed that linked, for the first time in the Egyptian context, access to investment in rural sanitation to quantifiable water quality (and health) improvements in a given hydraulic basin\. This project has been designed in close conjunction to the IIIMP project of the Bank, serving the same geographic area, to pioneer a cross-sectoral implementation model that capitalizes on institutional and donor coordination efforts across the board\. The opportunity is also ripe based on the GOE reform signals in the water supply and sanitation sector, to expand the long-term collaboration with other donor partners towards a reform vision across the sanitation sector and to create an investment platform to support it\. Project Objective: The objective of the project is to provide the target people in the two command areas of Mahmudiyah and Meet Yazid governorates with improved sanitation at high quality and to improve the water quality in the 940km canals and 1,300km drains in the two areas improving the environmental conditions and minimizing the health risk for the population\. The Mahmudiyah and Meet Yazid canals are served with water from the river Nile mostly used for drinking water and irrigation of the mostly agricultural type of land\. The drains are serving as recipients for the contaminated infiltration water, wastewater from WWTPs and septage from the traditional cesspits (Bayaras)\. The main objective of the project was to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the resident communities and (ii) the water quality in the selected drainage basins within the served areas\. The development objective outcome will be measured by the following indicators: 1) Improved access to sustainable sanitation services (% increase in coverage and no\. of households connected)\. 2) Improvement in environmental and hygiene conditions in villages (beneficiary satisfaction surveys, reduced sewage ponding, hygiene evaluation procedures)\. -49- 3) reduction in pollution loads of the receiving water bodies (ambient fecal coliform and BOD/ DO)\. Project Area: The project area can be characterized as mostly flat agricultural land\. Rainfall is low and ranges between 50 in the south of Gharbiya to 100mm or more in the north of Kafr El-Sheikh and Beheira\. Villages in the area tend more and more changing from rural to urban character\. During recent years buildings were rising from one to three stories and more\. The following Figure shows the recent aerial photo of the Delta with the two command areas and the topographical their topographical elevations\. Figure 0\.1-1: The Project Area Main Beneficiaries: The project's primary target group consisted of the households selected in the three Governorates covered by the project\. In addition to directly and indirectly benefiting individuals and households, the project would help improve the capacity of national and local public institutions responsible for sanitation implementation to plan, design, construct and operate the rural sanitation investments, monitor outputs and outcomes, as well as promote hygiene practices and social mobilization\. Sanitation Systems: Before piped water supply was provided, water consumption was in general about 10 l/person/day\. For such small water consumptions the amount of wastewater was very little and was discharged into cesspits called “Bayara” from where the wastewater infiltrates to the subsoil\. For such conditions the traditional systems works properly and does not need frequent emptying of the remaining sludge\. Conditions for such high wastewater production are however extremely difficult due to high groundwater table of less than one (1) m\. With the high increase in water consumption up to more than 100l/person/day leading to water flushed sanitation, the Bayaras have tended to overflow and households need to empty wastewater (rather than sludge) as often as several times a month now at extremely high cost\. The consequence hereof is ponding wastewater leading together with the mostly illegal discharge of untreated wastewater and/or septage into the nearest drains to strong health hazards for the population\. The following photos show the -50- construction of a traditional Bayara consisting mostly of clay bricks and the illegal discharge of septage on one of the drains in the project area\. Figure 0\.1-2: Existing Bayara and Illegal Disposal of Septage This situation was leading to the construction of rudimentary wastewater collection systems by the villagers prior the Egyptian Government started to implement designed wastewater collection and treatment systems\. The design was done through so-called wastewater clusters\. Each cluster is centered around one existing or new WWTP located at an optimal central location to serve sub-basins which are primarily defined around secondary drains\. The effluents of the WWTPs are discharging into the drains from where water is used for unlimited irrigation\. Taking these urgent needs into account, a feasibility study was conducted in 2005 defining the scope of the ISSIP1 and its priorities\. The following Figures show the clusters as defined for the two command areas with the locations of existing and new wastewater treatment plants\. The abbreviations KD stand for Kafr Al-Dawar, AH for Abu Hommos, MH for Mahmudiyah, KSH for Kafr El Sheikh and GH for Gharbiya\. Figure 0\.1-3: The Clusters served under the Project -51- ISSIP1 Components and Implementation Agencies The project comprises three components, namely: (i) Component 1: Provision of sanitation systems within the selected drainage sub- basins This component aims to plan, design and construct sanitation systems for a total of 14 clusters in the project area\. Phase 1 projects are now under finalization\. The planning and design stages of phase 2 projects are almost over\. All the projects are either under construction or under commissioning\. (ii) Component 2: Establishment of a local result-based monitoring and evaluation system This component will establish a result-based monitoring and evaluation system within the HCWW that links the improvements in sanitation coverage with anticipated environmental and water quality impacts\. PMC and CDCB have assigned M&E specialist for creating the framework and collecting the results’ (iii) Component 3: Institutional development and capacity building: This component aims to promote institutional development within the national and local public institutions responsible for sanitation implementation\. Status of the Project as per Loan Closing Date Decision taken for the Loan Closing: The World Bank decided to close the project as per scheduled loan closing date although the works of the phase 2 projects have not been finalized and the Ministry of International Cooperation (MOIC), and the Ministry of Housing, Utilities and Urban Communities (MHUUC), the Holding Company for Water and Wastewater (HCWW), and the National Organization or Potable Water and Sanitary Drainage (NOPWASD) asked the Bank to extend the project for another year due to the delays and bottlenecks to be solved during project implementation for reasons beyond the control of the major local stakeholders\. Also the Governors of Gharbiya, Beheira and Kafr El-Sheikh as well as the Chairmen and representatives of the Water and Sanitation Companies (WSCs) of the aforementioned companies as well as the representatives of the local communities supported this request for extension\. Details and reasons for this decision are set forth in the Aide Memoir of the supervisory mission of the WB from November 11-19, 2015\. Taking the common efforts of the stakeholders on the ground since the start of implementation of the phase 2 projects under the supervision and the management of the Project Management Consultant PMC, the WB decided because of the delays experienced over the past eight years of the project, it is obvious that the project cannot meet its development objectives indicators nor the majority of intermediate indicators as set forth -52- in the Project Appraisal Document by project closing\. The PMC prepared a Project Closure Case Study presenting the reasons for the delays which were mostly beyond the control of the stakeholders as well as a Risks Analysis Report summarizing the negative effects deriving out of not granting the required extension\. During the last World Bank mission, the stakeholders expressed concerns regarding the timeliness of expected Government counterpart co-financing which has to include any undisbursed contractual commitments by the loan closing\. Due to timely provision of the additional funds, there is a high risk of potential delays in work flow and technical support to be provided on the ground\. The PMC also highlighted the importance of resolving the issue of the equipment needed for the operation and maintenance of the decentralized schemes so that the works can be completed and correctly operated after loan closing\. The present report is summarizing the status of the project and progress achieved during implementation, reports on challenges encountered and provides the steps to be taken regarding transition to project continuation after the closing of the Bank loan on December 31, 2015\. Such proposals however depend on the timely provision of the required funds to complete the construction of the works contracts\. Summary Data and Results achieved: The following table summarizes the Project Summary Data for the World Bank Loan: It is important to note that the project is implemented in 2 phases\. The phase 1 was designed and tendered and contracts had been awarded and some works started prior to the start of services of the PM/TA Consultant in July 2011\. The implementation of the phase 1 projects were delayed for various reasons, however with common efforts all projects are almost finished now and their disbursement reached 98 %\. Therefore, it is recommended to evaluate the phase 1 and phase 2 projects separately\. Table 0\.3-1: Project Summary Data for the World Bank Loan IBRD Loan US$ 120 million Approval Date March 20, 2008 Loan signing date May 15, 2008 Effectiveness Date January 22, 2009 Closing Date December 31, 2015 Disbursement 71\.15% Environmental Category B Project development To contribute to the sustainable improvement in: (I) sanitation and Objective (PDO) environmental conditions for the resident communities and (II) the water quality in the selected drainage basins within the served areas\. Taking this fact at the date of the loan closing, evaluation of the projects is focusing on the more critical and uncompleted phase 2 projects\. The following table presents the technical progress (physical activities) for phase 2 projects for the centralized and the decentralized schemes and their status at December 31, 2015\. It is noteworthy that since the conclusion of the tripartite agreement as proposed by the PMC the results achieved improved -53- significantly, in particular during the second half of the year 2015\. The following Table summarizes the status of the works in the 3 Governorates and demonstrates the significant progress over the last year after introduction of the tripartite agreement\. Table 0\.3-2: Work Progress Phase 2 Projects Status as per December 31, 2015 Centralized Decentralized Governorate Schemes Physical Schemes Physical Progress % Progress % Gharbiya 55 23 Beheira 28 40 Kafr El-Sheikh 55 75 As aforementioned the results could have been much better if the stakeholders in particular the NOPWASD would have accepted the change of responsibilities and approach as keeping its core responsibilities such as design approval and bidding documents proposed at an earlier stage\. Finally, the decision of the Minister MHUUC approved the changed administrative concept\. Afterwards the entire processes had been accelerated and also the suffering disbursement procedures improved leading to remarkable positive movement during the last months prior to the loan closing\. It is noteworthy that compared to the original planning and estimates of 2008 the results still fall far short of the original estimates of 2008 and even of those per the project's restructuring in 2012 however based on administrative arrangements as set forth in the PAD and the Financing agreement\. Consequently, the project was successful after the rearrangement of the administrative procedures\. After loan closing date, the risk that the project implementation may again fail is high\. The HCWW is trying prior to the loan closing to convince other donors assisting to finalize the projects with additional funds in order to fill the gap of the unused parts of the World Bank loan\. It cannot be understood by the stakeholders that the World Bank closes a project which is now back on track\. The initial delay almost had its origin in the unstable political situation of the country\. Project Development Objectives\. The target value for the phase 2 or the PDO indicators at the close of the Bank Project on December 31, 2015 is 69,000 households to be connected to centralized systems, and 6,500 households to be connected to decentralized systems, for a total of 377,500 individual beneficiaries at 5 persons per household\. As of December 31, 2015, the total number of households reached through centralized systems was 15,471 households legally connected\. The number of households connected to decentralized systems as well as individual beneficiaries reached is zero to date, although the works made a remarkable progress and reached 45 % as physical progress and 58 % for the disbursement\. It is noteworthy that the completion of the decentralized projects and the 2 new WWTPs under construction are of priority due to the sensitive treatment processes which need still PMC support\. ln terms of environmental impact demonstrated through the PDO indicator of BOD pollution Load removed by treatment plants under the project the target for December 31, 2015 is 986 tons/year\. This figure corresponds to about 5,000 m3/d currently received at Nimrit EI Basl, Sidi Ghazi and Lidia WWTP from villages provided with sewerage -54- networks by the project\. The 985\.5 ton/year removal have been reached after connecting EI Garadate PS before 31 December 2015\. Previous indicators were higher as they counted each village separately\. Table 0\.3-3: Key Indicators realized under the Project Target Value Target Value Loan Projects Closing Date PDO Indicators Actual completion Date (December 31, (December 31, 2015) 2016) Number of households connected to 15,471 21,000 69,000 centralized systems Number of households connected to 0 3,500 6,500 decentralized systems Reduction in pollution load entering water 547\.5 985\.5 3,438\.6 bodies (tons/year) Number of new WWTP operational 2 completed 2 in 2 4 progress Number of decentralized WWT systems 0, but all operational under 7 13 construction Number of decentralized systems with HH 0 0 11 contributing to at least 70% of O&M costs Collection networks constructed 418 Km 319\.3 Km 783\.7 Km Number of staff (HCWW, NOPWASD, 100 126 162 RSUs) trained for at least one week Number of contracts signed 60 60 60 Household connections: During the World Bank Mission the monitoring and evaluation (M&E) indictors were discussed intensively and they should focus on actual connections that reach the households and not the household connection on the street ending at the inspection chamber, to appropriately account for actual service delivery\. The numbers included in this Final report are only those connections going all the way to the household\. Due to the fact that household connections according to the contracts as approved by the World Bank are counted up to the connection chambers\. Loan Closing: During the last Supervision meeting with the World Bank in November, the imminent loan closing on December 31, 2015 was extensively discussed\. It has been stated and reported to the PMC that HCWW Chairman requested the World Bank to take note that the HCWW was greatly disappointed that an extension to the loan had not been granted to the Bank, and wanted to express his disagreement with this decision\. The Cairo- based representative from SECO, reconfirmed that SECO would not be granting an extension to their previously planned closing date of December 31, 2015\. She explained that SECO management had made the decision to close the grant at the same time as the Bank's loan closing\. At the same time that SECO management had made clear that its participation in ISSIP 1 would need to end SECO plans to stay very much engaged in the water and sanitation sector in Egypt\. The fact that in particular the successful finalization of the pilot component introducing novel technologies in Egypt had been interrupted -55- although required funds are still available at loan closing had a negative echo and is not motivating the stakeholders\. Realizing the remaining works without qualified guidance and supervision allowing the further use of technologies and to finalize the project under the umbrella of a parallel program may be doubted\. The main concerns regarding the Bank loan and SECO grant closing as planned on December 31, 2015, centered on the uncertainty regarding availability and timing of government Counterpart funding\. The amount of funding estimated to be required from Government after December 31, 2015 reached at the loan closing date about US$ 34\.7 Million as unused part of the loan and US$ 44\.8 million for the locally financed part noting the standard four month grace preload for recording and invoicing\. Project stakeholders, in particular the HCWW and the NOPWASD and the PMC expressed concern that Government counterpart funding had not been appropriately earmarked in the budget for FY 2015/16, and were concerned about a break in the flow of works, which could result in serious delays on the ground for completion of works and delivery of services to households\. The consequence hereof is providing the counterpart funding through MHUUC and to MOIC to ensure continuity of project after loan closing\. This includes also the agreed original counterpart funding (originally US$ 61million given US$ 16\.2 million has been disbursed in addition to undisbursed commitments related to the Bank loan closing on time US$ 34\.7 million\. Concerns with regards to supervision and management support were also voiced to the mission, given the closing of the SECO grant funding the PMC\. The World Bank mission stressed the importance of both the HCWW and NOPWASD collaboration with regards to technical progress for construction as well as implementation beyond the IBRO loan closing date\. The mission raised the issue to MHUUC that NOPWASO should ensure timely disbursements and financial flows to contractors\. Also the issue to regarding O&M equipment and in particular the purchase of sludge removal trucks for decentralized units, which has been explained in details to the mission that a Ministerial-level exception for vehicles could be made for special vehicles such as sludge hauling and medical devices\. The HCWW and MHUUC took note\. The mission also raised with MHUUC the importance of ensuring continuity of the RSUs after Bank loan closing as the project continues under Government financing\. The current status closing the loan without finalizing the construction of the schemes is according to the stakeholders unsatisfactory\. The SECO Grant: As aforementioned, the SECO grant closes also together with the World Bank\. At the end of the closing as per December 31, 2015 75 % of the grant will be disbursed\. The following figure shows the accumulated disbursement over the contract period of the PMC up to December 31, 2015\. During the meetings with the stakeholders and even throughout the recent site visits, there was demonstrable citizen concern regarding the supervision of WWTPs and the decentralized Schemes after December 31, 2015\.The weakness of the CSCs is well-known and MHUUC can only do to strengthen this commitment and collaboration between the entities concerned, however this would need a tight cooperation between the HCWW and the NOPWASD\. The PMC as major communicator between the parties will be missing and it is a matter of fact that the -56- organizations are understaffed to handle the remaining works and activities alone without the support they had in the past\. The major risk remains with the completion of both new WWTPs at Arymon and Ash-Shahidy and the 13 new WWTPs of the Decentralized systems\. For the starting up of these novel technologies started as a pilot program of the World Bank the presence of the PMC would be highly recommended avoiding the collapsing of the new systems\. Also community participation can only be committed between the CDAs and WSCs after completed systems otherwise liabilities will be taken only by the contractors\. The JSDF grant: The JSDF grant closes together with the Bank loan, on December 31, 2015\. About 97\.1% of the grant is expected to be disbursed by that date\. The Bank team is working to find additional Bank-executed sources to support decentralized schemes in terms of training, capacity building that may be used in 2016\. The TTL requested that the implementing agency and 1ts CDCB consultants prepare short terms of references for the remaining work required as well as a work plan and budget which the Bank can use as it attempts to secure additional resources\. Financial Management: The project is considered to be slow disbursing and as of the date of this implementation Support Mission, the project disbursed US$ about 85 million which represents about 71% of the total loan amount in in almost 7 years of implementation\. It is noteworthy that the initial delays due missing support from the PM/TA and the political turmoil in the country cannot be weighted and should have been correctly taken into consideration\. However, disbursements have picked up significantly since the signature of the tripartite agreement between the NOPWASD, the HCWW and the PMC over the past 12 months\. Procurement: During the entire period multiple requests for NO had to be done\. Taking the high number of construction contracts into account, it is to be noted that also significant delays were caused by the World Bank due to late provision of Nos\. This fact had been earmarked to the different missions of the Bank and asking for smoothening of the procedures\. The latest Procurement Plan is included in the annex\. The dates mentioned depend however on the timely provision of the funds to finalize the works\. The situation after loan closing to continue under World Bank rules and guidelines for completely locally financed works is leading to resistance at the level of the key stakeholders of the project\. Environment: During the project period documentation about the environmental training sessions conducted by the PIU on ESIA/ESMP measures and self-monitoring requirements in the last two years had been submitted to the World Bank\. Also the PIU prepared a report about the visits done to construction sites according to a checklist that includes environmental measures that should be taken\. There were improvements related to handling dewatering waste and avoiding open burning but still some violations are recorded\. The most severe environmental damage is the illegal discharge of about 70,000 m³/d of septage into the canals and drains within the project area\. It is contradictory to the PDO that works for about 790,000 beneficiaries have been completed but at the same time about 1\.3 million population equivalents PE are illegally discharged into the same recipients\. The WSCs have to be forced to stop this practice and to allow among other -57- measures to make use of the free treatment capacity of the existing WWTPs in the area\. Although due to intensive supervision and training courses held there is an improvement in safety measures taken at construction sites, more upgrading is required to meet the EHS standards\. Social: During the project implementation, the importance of handling communities' objections through diligent and transparent sharing of Information and that the approach followed should be clearly stated and documented in the progress report had been developed by the PMC in cooperation with the CDCB\. On the decentralized schemes, the CDAs are still having pending commitment issues from the communities as part of the communities' land donation\. Taking the loan closing date into consideration the pending finalization of agreements between the CDAs and the WSCs until the finalization of the works is a severe bottleneck\. Agreements cannot be signed without prior correct handing over of the works and projects will have been done\. ln particular, in CDAs in Kafr EI Sheikh Governorate, discussion on the jobs for operation and maintenance already started with the communities, however they cannot be finalized due to suddenly stopped activities\. The importance of employing a transparent mechanisms to handle the land and the jobs issues\. It is to be doubted that the understaffed PIU can assure to work closely with the CDAs\. Missing technical parts for O&M and CDCB are needed to support the RSU to start exploring workable, innovative and practical solutions to ensure that the CDAs with good level of capacity are transferring and sharing their experience with other CDAs after the project closing date\. Summary and Conclusions: All stakeholders are taking the loan closing by December 31, 2015 as an unfortunate decision taken by the World Bank and the SECO leading to risks not to complete the contracts properly and not achieving the PDO as set forth in the appraisal report\. ln particular, the concerns brought forward by several Stakeholders regarding the timeliness and availability of Government counterpart funding - both the remaining US$ 44\.8 million of originally demarcated Government funding for the project not yet disbursed, as well as the remaining contractual commitments of about US$ 34\.7 not disbursed by IBRD loan closing\. The HCWW also highlighted the need for appropriate supervision consultant support, given the SECO decision to close the grant on time on December 31, 2015\. The stakeholders requested the World Bank to explore executed technical assistance support for capacity building in particular related to decentralized schemes (13 newly developed schemes) and the finalization of the 2 new WWTPs of Arymon and Ash Shahidy\. About 690,000 people of the Nile Delta benefit from the project up to the target year 2050 under the assumption that works of the phase 2 projects will be completed\. It took about 6 years to complete the 21 phase 1 projects, even considering about 2 years of time losses of force majeure\. Due to extremely weak design done before the assignment of the PM/TA, cost of about US$ 49 million are too high serving 170,000 beneficiaries\. Based on the results of various studies and surveys in particular the sludge disposal study, villagers appreciate the proposed centralized and decentralized schemes as under construction and are keen giving up the current practice of desludging their traditional Bayaras, polluting the 937 km of drains and 1,338 km of canals of the Meet Yazid and Mahmudiyah command -58- areas through illegal dumping leading to severe health risks and extremely high cost which are a high burden for the population living in the Delta in particular for the poor families\. It is noteworthy that the water of the drains and canals used for irrigation in agriculture in the project area\. For the currently unserved villages a daily septage quantity of about 70,000 m³ needing about 17,500 trips per day considering common trailer tank size of 4 m³\. Through the project, every family is saving between LE 600 to 1,200 per year which is an important amount of their incomes\. It will certainly take some time to continue with the construction of further centralized and/or decentralized new projects\. It is needed to replace the traditional Bayaras and to replace them by watertight septic tanks\. This is of utmost importance due to the expected steady raise of the groundwater table in the Delta\. The sludge collected from Bayaras and/or septic tanks needs to be treated in the existing WWTPs which have still free capacities\. The authorities need to be forced to allow the proper treatment of the collected septage in the existing or extended WWTPs after pre- treatment as now under construction at the phase 2 WWTPs (Arymon and Ash Shahidy)\. -59- Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders SECO: We appreciate this detailed review of ISSIP 1 presenting also different lessons learned, in particular that the permanent presence of World Bank staff responsible in leading new complex projects is already effective in Egypt\. We find however that the following important points and difference of views and corrections should be added to this report as well: The Midterm Review (MTR) of the Project Management Consultant in 2013 was a joint mandate from the Bank and SECO, not only a SECO initiative, and its conclusions are barely mentioned\. The midterm evaluation of the performance of the PM-TA consultant was foreseen in their TOR to be held 23 months after the signing of the contract or by the start of Phase 2, whichever was sooner\. It was therefore not an initiative from SECO\. Some of the key conclusions of this MTR were lessons learned also for the Bank regarding the procurement for the Project Management Consultant and the steering of the project (Chapter 5 of the MTR)\. The MTR also proposed a set of restructuring measures (Chapter 6) that were adopted by all stakeholders at the time, but many were not or only partly implemented\. The sudden rise of number of connections to centralized sanitation systems is not explained\. During the last month of the project the number of connections more than doubled\. It moved from 6’101 in November 2015 to 13’300 households in December 2015\. Earlier jump in the number of connections (e\.g\. cluster GH-2 from 2’950 until September to 5’077 in October 2015) were also not explained\. All these new, many and not originally foreseen connections took place within the same long-established Phase 1 sub-projects and contracts\. We would be pleased if the Bank could add an explanation in the ICR as to how such a sudden rise happened and, since major quality issues were reported in some sub- projects, if an estimate of the amount of connections properly working could be given\. The likelihood of inefficient use of funds is not addressed\. Even if all the sudden new connections are effective, the average CAPEX of USD 2’300 6 per inhabitant remains extremely high\. The international benchmark is reported in the MTR at USD 170 – 770 (page A7 -1)\. We would appreciate if the Bank could clarify the discrepancy of estimations as compared with the much lower figure of unit capital cost of USD 705 per capita (Annex 3) and the discrepancy with the international benchmark\. 6 This figure of USD/cap 2’300 was estimated using USD 16\.2 + 96\.78 m disbursed (Annex 1) and 13’300 households\. The Social Consultant AHT reported to count with 3\.7 persons per households (oral information from the Consultant, 3\.5 – 4 according to their Monitoring & Evaluation Report), i\.e\. 49’210 persons connected\. This figure however contradicts the Bank reporting USD/cap 705 in Annex 3, paragraph Costs\. -60- The impact of ISSIP 1, despite large investments, is negligible\. Only about 4 % of the population targeted in the PAD (1\.16 m) was reached although more than 60% of the investment budget has been disbursed\. These connected people represent only a 0\.4% increase of sewerage connections for the population in the benefitting Governorates, whereas ISSIP was supposed to pilot the National program for village sanitation aiming at increase the sewerage coverage from 4% to about 40% in 5 years\. We would appreciate that the ICR presents clearly the enormous difference of beneficiaries and realistic future investments perspectives as it seems unlikely that donors can have any significant effect for the population of Egypt in the sanitation field at this high level of costs\. The PDO indicators were very limited and did not monitor any quality or sustainability aspects of the investments\. Since the Results Framework of the PAD was not monitoring quality and sustainability (i\.e\. wastewater treatment quality and financial sustainability), an improved Results Framework was agreed in 2009 between the Bank and SECO and included in the TOR and Contract of the Project Management Consultant\. This Results Framework was however never applied until the Social Consultant AHT finally used most of it (called in this report M&E system)\. We would appreciate that the Results Framework used by the Social Consultant AHT is annexed to this report\. The absence of other donors had in our opinion a more limited impact on delays of ISSIP, as suggested in this report\. SECO provided in 2009 the necessary contribution for the main Consultant of ISSIP under Component 3 of ISSIP, which should originally have come from the Netherlands\. At the time, the remaining Netherlands contribution was only planned to finance mainly supervision consultants and the M&E component\. This M&E system was finally mostly a Results Framework used by the Social Consultant AHT close to the one that was already agreed with the Bank in 2009\. The GIZ contribution was only focused on the decentralized component that never materialized\. Moreover, SECO financed also two further elements of Component 3: the pilot performance-based O&M contracting (with USD 1\.2 m) and training (with USD 1 m)\. These components were never tendered, even after simplification of the scope of the mandates after the restructuring in 2013\. These funds will therefore be returned to SECO and the failure of tendering these two mandates is currently completely missing in this report\. It is a missed opportunity that the expertise and outcomes available from the parallel project Egyptian-Swiss Research on Innovations in Sustainable Sanitation (ESRISS) were barely used\. ESRISS provided skills and many useful results, reports and recommendations in the field of decentralized sanitation technologies and implementation, but these results were not much used by the Project Management Consultant\. SECO did not “decide” not to extend its commitment to ISSIP beyond 2015\. Although our “decision” is presented in a very detailed manner (i\.e\. Annex 7 – Loan closing), it was never a real choice to remain engaged in a complex and unsuccessful project without the presence of the Bank\. SECO always communicated that its commitment will not go beyond the Bank’s\. -61- For future co-financing opportunities of infrastructure projects we would in particular appreciate: i) a better preparation of the PAD; ii) if possible a more continuous responsibility for the project from the Bank side (this project has known 4 TTLs and 3 Country Directors); iii) a closer monitoring a) with the TTL based in-country instead of Washington DC for such complex projects and b) with a Results Framework reporting on quality and sustainability of the investments; iv) a better procurement process for the selection of the key implementation Consultant and v) a better yearly reporting from the Bank to SECO\. The quality improved in the course of time but some reports were missing (2011 and 2015) and the details on expenditure made from SECO grant were only given in the two last reports\. -62- Annex 9\. List of Supporting Documents - Aide Memoires, Back-to-Office Reports, Implementation Status Reports - Annual Social Participatory Survey 2015 - Completion and Results Report, Project Management Consultancy - Country Assistance Strategy, 2006-2009 - Feasibility Study and Preliminary Design - PAD - Report on Results Framework and Monitoring, February 2016 - Restructuring Papers - Special Midterm Review of Project Management Consultant, November 2013 -63- Annex 10: Benchmarking ISSIP 1 Disbursements To assess the relative impact of the 2011 and 2013 revolutions on ISSIP 1 disbursements, an analysis was carried out against an average of peer benchmarks from the World Bank’s portfolio of IBRD loans in Egypt\. The benchmark projects had effectiveness dates within one year of ISSIP 1 and included: ï‚ Natural Gas Connections Project (US$ 75m) ï‚ Ain Sokhna Power Project (US$ 600m) ï‚ Cairo Airport Development Project (US$ 280m) ï‚ Enhancing Access to Finance for Small and Medium Enterprise (US$ 300m) -64- Annex 11: Analysis of Trust-Funded Activities SECO Grant The main development objective of the Swiss Trust Fund was to finance technical assistance for the institutional development and capacity building of the national and local public institutions responsible for sanitation implementation under ISSIP 1\. Proceeds from the SECO grant were used to finance the Project Management and Technical Assistance Consultant (PMC) under the project\. The responsibilities of the parties for the project management were defined in the Tripartite Agreement between HCWW, NOPWASD and the PMC\. This contract was signed on October 14, 2014\. The PMC was fully responsible for core project management tasks, divided into the following major activities: 1\. Overall project management of the Phase 2 projects, 2\. Supervision and control of the consultants supervising contractors in each Governorate in a way to guarantee that each contract is carried out according to the planned timetable as specified for the contracts, 3\. Staff a team experienced, qualified and competent in all fields to guarantee the quality of services, 4\. Full support to the project stakeholders and implementing agencies supporting capacity building for capital investment implementation on the basis of an on-the- job-training as set forth in the main agreement, 5\. Finalization of the implementation of ongoing Phase 1 projects\. 6\. Concrete engineering tasks (finalization of design and procurement) 7\. Implementation of investment measures of Phase 2\. The performance was reported on a monthly basis within the regular reports or via correspondence with NOPWASD and HCWW\. The progress achieved by the PMC is closely linked to construction implementation\. The performance of the PMC can be determined from the construction progress indicated in Annex 2\. A special midterm review jointly agreed upon with the World Bank and implemented by SECO found that activities funded under the grant were Unsatisfactory\. The review noted that the engineering tasks were emphasized over capacity building for local institutions\. The review also noted that limited cooperation between stakeholders impacted the effectiveness of SECO-funded activities\. An adapted version of the indicators recommended during the special mid-term review follows: -65- -66- -67- -68- -69- -70- -71- -72- -73- -74- -75- Per the administration agreement between SECO and the World Bank, eight outcome indicators were defined for SECO-funded activities\. These indicators and results achieved as of the closing date of the loan follow: Outcome Indicator Result 1\. Success implementation of ISSIP Phase 1 and 2 by ISSIP 1 has been rated Unsatisfactory, with borrower HCWW, its three subsidiary WSCs of Beheira, Kaf El performance ranked as Moderately Unsatisfactory Sheikh and Mahmoudeya, and NOPWASD 2\. ISSIP Phase 2 planning, design of wastewater The pace of planning and procurement under Phase 2 treatment plants and networks, and bidding documents increased compared to Phase 1 successfully prepared in a timely manner 3\. Successful design and execution of two Public-Private The pilot O&M performance contracts were designed Partnership pilot O&M performance contracts but not carried out 4\. Staff working in all the implementing agencies fully Although some on-the-job training was provided for RSU trained and their capacity built staff, a special mid-term review jointly agreed upon with the World Bank and implemented by SECO found that the project management consultant did not sufficiently focus on capacity building activities\. At the recommendation of the mid-review, training and capacity building activities under this contract were halted\. It remains unclear whether WSC staff have the capacity to effectively maintain the infrastructure developed under the project\. As no decentralized systems were finalized prior to the close of the loan, it was not possible to train WSC staff or CDAs on their proper management and maintenance\. 5\. Project Implementation Manual reviewed and updated The Project Implementation Manual was reviewed semi- annually and updated as needed, with the final updates provided in October 2015\. 6\. Robust project reporting system set up and made Following the restructuring of ISSIP 1, a project operational reporting system was developed, with regular reports prepared\. 7\. Quarterly, semi-annual, and annual progress reports Reports were presented on schedule\. reflecting the full range of project activities prepared and submitted on schedule\. 8\. Successful coordination between the different A special mid-term review of the project management consultants funded by other sources and working on consultant’s performance in November 2013 highlighted the ISSIP project\. the overlap in responsibilities and lack of coordination between the two consultancies\. Following the restructuring, greater clarity emerged regarding the division of responsibilities for the consultants working on ISSIP 1\. JSDF Grant The main development objective of the Japan Social Development Fund (JSDF) was to pilot community management and accountability systems in rural sanitation service delivery\. Trust funds were used to finance the Social Development Consultant\. The start of the consultant’s assignment was delayed for about two years\. This is the major reason why the decentralized projects were delayed\. The objectives of the JSDF grant were: 1\. Develop and promote the institutional capacity of local institutions and communities 2\. Develop accountability mechanisms between local authorities and beneficiary communities -76-  3\. Proactively engage with the implementing agency (HCWW), utilities (WSCs), local governments, civil society groups and communities who are directly responsible for sanitation implementation to enhance their capacity to plan, design, construct, operate and maintain the investments\. 4\. Sensitize communities of the benefits of rural sanitation infrastructure that are implemented by the project and adopt improved hygiene practices\. 5\. Enhance community awareness, empowerment and voice, particularly of the small and hamlet villages in the Delta, characterized with high poverty incidence and poor environmental conditions\. Main achievements of the JSDF-supported activities: ï‚ Demand Responsiveness Approach applied with 68 communities in three governorates; 30 villages were selected\. ï‚ Community Development Strategy developed; community resolutions obtained\. ï‚ Communities contributed money for purchase of lands for WWTPs and pumping stations\. ï‚ Ongoing capacity building program for new eleven existing CDAs; Rural Sanitation Committees in all 14 projects established\. ï‚ Community involvement and consultation meetings attended by almost 2,000 inhabitants, informing communities about the projects and agreeing their role\. ï‚ Hygiene Communication and Promotion Strategy prepared with participation of all stakeholders\. Hygiene Promotion Events conducted from June to November 2015\. ï‚ Finalization of ISSIP 1 M&E system in cooperation with PIU; ï‚ All projects with 30 selected villages awarded; construction of sanitation schemes started between by April 2015 to serve 31,164 inhabitants\. Three projects achieved a construction status of about 90%\. Objectives 2 to 5 of the JSDF grant were fully achieved\. Objective 1 (Develop and promote the institutional capacity of local institutions and communities) was partially achieved through 38 trainings and exchange meetings organized by the consultant\. The capacity building on financial, organizational, social and technical aspects for RSUs and CDAs could not be finalized as none of the 14 decentralized sanitation schemes was finally constructed by December 2015\. A full list of expected deliverables and outputs achieved follows: -77-  Due Date Deliverables/Outputs (as per revised Status by December 31, 2015 (as per adjusted ToR) Work Schedule) A: Support for delegated community management of decentralized sanitation systems 1 Community development strategy May-2014 The CDCB Community Development Strategy (CDS) was developed in a covering goals, activities, fund participatory approach from September 2014 to April 2015 involving all allocations and mechanisms for main ISSIP-1 stakeholders\. After several presentations and discussions, it participation\. An implementation was delivered in May 2015\. It contains resolutions for the 30 plan should be prepared for decentralized villages and a detailed implementation plan\. rolling out the pilots in the 30 decentralized systems\. Resolutions from the targeted villages represented by the village community to record their participation in the project 2 14 Memorandum of Agreements Sept-2014 - By October 31, all 14 Provisional Agreements were signed between signed between community Nov-2015 RSUs, Village Units and CDAs\. As construction of all 14 decentralized groups/ CDAs and WSCs Rural projects will not be finished before the end of 2015, there was no chance Sanitation Units (RSUs) when the to prepare CDAs for the successful management of the sanitation O&M of constructed small scale systems\. In this case, WSCs will assume responsibility for the sanitation systems are taken over management of all systems\. Consequently, no Final Agreements will be by the community group / CDAs signed between the three originally foreseen partners\. In the case that a or when handed over to them comprehensive capacity building program on organizational, financial and operation & maintenance issues is provided after loan closing date, a final agreement should be prepared and signed after finalization of the capacity building and after knowing the Standard Operation Procedures, the sludge management procedures and having other important information on M&E requirements\. 3 4 thematic trainings to each of the Sept-2014, The two first trainings were held as planned in 2014\. The third training WSC’s RSUs to be delivered Dec-2014, on “Legal Framework and Supervision Responsibilities” was held in covering topics of (i) demand June-2015, Cairo on September 30 and October 1 with active participation of all responsiveness, (ii) decentralized Sept-2015 three WSCs/RSUs\. technology applied; (iii) small system operation and system maintenance, and (iv) legal framework and supervision responsibilities\. The fourth training (focusing on financial and managerial aspects as well as on operation & maintenance of decentralized systems) should be held after some of the systems started operation, probably in February 2016\. 4 6 trainings to CDAs (approx\. 5 March-2015, Informal capacity building for CDAs started in October 2014\. The CDAs in a group) covering Apr-2015, planned six trainings were planned when construction of most technical, financial and June-2015, decentralized projects is finished and basic documents like designs, managerial aspects (min10 person July-2015, Standard Operation Procedures and Sludge Management Study were sent / CDA) Sept-2015, Oct- to CDCB\. Without extension of CDCB contract and no proper training to 2015 CDAs, WSCs should assume the responsibility of managing all decentralized sanitation systems\. Negotiations on a new contract for CDCB with World Bank and other potential donors are still ongoing\. In case of such a new contract, CDCB would be ready to start training as soon as the first decentralized systems are handed over to CDAs and basic technical information was made available\. 5 Community outreach team to be March-2014 Outreach teams for all batch 1 and batch 2 projects were built\. A detailed set up for a group of 2-3 villages list of all outreach teams was submitted to ISSIP 1 stakeholders\. In October 2015, CDCB gave an updated table of all contact details to PIU\. 6 Each community to be reached at Jan-2014 - Dec- Until end of December 2015, around 440 informal meetings with batch 1 least two times at the beginning 2015 and batch 2 communities were organized by CDCB\. Most of them were of implementation, during related to the land donation process, as CDCB was asked by PIU and implementation and post World Bank to support this complex task\. Joint Community Information construction\. These visits to be Meetings (CIM) for all batch 1 and batch 2 projects were successfully annexed in the progress reports held from November 2014 to February 2015 in cooperation with RSUs and PMC\. Pre-Construction Meetings with participation from RSUs, PMC, Construction Supervision Consultants, constructors and about 1\.050 community members for all 14 decentralized projects were held from May to October 2015\. During-construction Meetings were held for 9 projects in September and October 2015, with participation of about 220 community members\. As the construction of none of the 14 decentralized projects will be finished before the end of 2015, After- construction Meetings can only be held (by RSUs) in 2016\. B: Capacity Building for social mobilization, hygiene education and communication in rural sanitation\. 7 Scalable Communication and May-2014 Three trainings for related stakeholders to present and discuss the hygiene promotion strategy to be Communication and Hygiene Promotion strategy were conducted from -78-  formulated that can be adopted at February to April 2015\. Based on more than 21 meetings with different the national level\. Community stakeholders, the Hygiene Communication and Promotion Strategy was participation strategy to be finalized in October 2015 and submitted to PIU\. It contains a detailed developed incorporating the role workplan for all kind of events for different target groups\. CDCB of community and methods of provided TA and on-job training to local community groups during engaging community in rural developing their action plans as part of the deliverable\. From November sanitation 30 to December 15, three trainings for secondary target groups on hygiene promotion were conducted in Beheira, Gharbiya and Kafr El Sheikh\. 8 12 formal / on-the-job training Oct-2014 - Nov CDCB conducted a training needs assessment to define the thematic sessions for 36 RSU staff (4 per -2015 areas of all 12 trainings and implemented the two first trainings in 2014\. year for each of 3 RSUs for duration of project) on merging social and participatory aspects with technical implementation, incl\. the formulation of joint field work programs CDCB recognized the need of providing all RSUs, other members from WWCs and other stakeholders about basics on decentralized sanitation systems\. By 31st of December 2015, all 12 planned trainings had been implemented (for details, see annex 6 of this report)\. 9 Focus group meetings in all the March-2014 14 Focus group discussions for all Batch 1 and batch 2 decentralized decentralized sanitation villages projects in Gharbiya, Beheira and Kafr El Sheikh governorates were to be undertaken conducted as follows between October 2014 and March 2015: • Kafr El Sheikh October 1, 2014: Project 1 with 3 communities\. • Gharbiya October 16, 2014: Project 2 and 3 with a total of 8 communities\. • Beheira October 19, 2014: Project 4 and 5 with a total of 7 communities\. • Beheira December 9, 2014, Project 6 (Kom An Nuss), Project 14 on March 31• Kafr El Sheikh January 19 – 21; Projects 7 – 12, • Kafr El Sheikh March 25: Project 13• Beheira March 31: Project 14A complete report was submitted as deliverable in July 2015, together with the proposed Public Disclosure System\. 10 Production of communication and Sept-2014 The process of developing outreach materials for hygiene promotion and outreach materials (written and awareness raising was initiated in May 2015\. By 31st of December 2015, visual) covering hygiene aspects, a range of hygiene communication material with flyers, posters, t-shirts, about the project, public health mugs, aprons and a “snake & ladder” game was developed, produced and benefits, community roles and distributed\. Annex 4 gives an overview on the distribution of the responsibilities, feedback material\. Until the end of 2015, CDCB had conducted 27 events on mechanisms and sustainability hygiene promotion, attended by 1\.064 men, 292 women and 133 students (56 males, and 67 females) in Beheira, Gharbiya and Kafr El Sheikh governorates\. These events were conducted between June to December 2015\. In addition to the material mentioned above, several banners were produced\. C: Participatory Local Results-based Monitoring and Evaluation and Public Disclosure System 11 Baseline Assessment report Not determined The Baseline Assessment Report was submitted as deliverable in May 2015\. 12 Survey methodology and agreed Not determined The survey methodology for the baseline assessment was developed in survey instrument May 2014 and attached to CDCB May 2014 report\. 13 4 Regional stakeholder annual July-2014, The first annual stakeholder workshop with participants from PIU and all workshops organized involving March -2015 three RSUs was held in Cairo on May 31 and June 1, 2015, with key stakeholders\. (2 per year) participants from PIU, NOPWASD and the three RSUs\. The second annual stakeholder workshop presenting the main results of the Participatory Annual Social Survey 2015 (covering January 1 to October 31, 2015, was held on 9th December 2015 in Cairo\. It was attended by the directory of HCWW, PIU and representatives of all three WSCs\. 14 2 Annual social participatory Oct-2014, Oct - The first Annual social participatory survey was conducted in January surveys conducted covering the 2015 2015 and the report was submitted in March 2015\. The second Annual target villages (1 per year)\. Social Participatory Survey was conducted from November 2 to 26 in three governorates, covering all 30 decentralized and 7 selected centralized villages\. The results were presented in the Regional Stakeholder Workshop on December 9, 2015, in Cairo\. The final report will be submitted in January 2016\. 15 One National Dissemination Dec-2015 Planned for December 2015 as in the original work schedule\. The workshops to disseminate lessons proposed date is December 20\. If the contract of CDCB Consultant learned\. should be extended to 2016, the National Dissemination Workshop will be rescheduled in order to allow incorporating the experiences with the operational sanitation schemes\. 16 20 community and stakeholder May-2014, Four exchange workshops with ISSI-1 stakeholder were held until exchange and monitoring and June-2014, Jan- December 2015\. Five M&E workshops for representatives of all 14 evaluation workshops 2015, Feb- decentralized projects were held between August and December 2015\. In (approximately 120 participants)\. 2015, Aug- September 2015, CDCB conducted two community exchange visits\. The -79-  2015, Sept- first was held in Koleia project (GIZ community-led management) with 2015 representatives from all Kafr El Sheikh decentralized villages\. The second community exchange workshop was held in Kobry El Zawya, the most advanced of all decentralized projects, with representatives from all decentralized villages in Beheira\. For October and November 2015, CDCB had planned and prepared two other community exchange meetings\. These had to be cancelled due to other priorities of HCWW- PIU\. An exchange meeting with Gharbiya Governor and the new Chairman of Gharbiya WSC, planned for December 2015, could not be realized due to time restrictions of the stakeholders\. Six exchange workshops on “Best practices in managing decentralized sanitation systems” had been foreseen after completing the construction of the new decentralized sanitation systems\. As no system was completed by the end of 2015, these workshops could not be implemented\. 17 Disclosure boards set up in May-2015 The activity was started in March 2015, two months earlier than project villages (min\. dimensions originally planned\. By the end of October 2015, boards were developed, 1m*2m) (min\. 50 boards / printed and set up in all 30 decentralized villages\. village) 18 Complaint redressal hotline set up Oct-2015 The activity started with discussions with WSCs in April 2015, six in HCWW months earlier than originally planned\. By the start of construction, all three RSUs had defined persons to respond to complaints from CDAs\. In August 2015, CDCB developed and introduced a scheme to follow up the complaints received by CDAs and RSUs\. The standard redressal hotline #125 will only be used after construction when operation of the decentralized sanitation systems started\. CDCB will work closely with the persons related to complaints in the three WSCs to guarantee an appropriate complaint handling\. 19 8 user training carried out July-2015 - All eight Public Disclosure User Trainings were conducted as planned Oct-2015 between September and December 2015\. Progress Reports 20 17 Monthly progress reports Dec-2013 - All monthly reports were delivered as planned\. Nov-2015 21 4 Quarterly progress reports Feb-2014, Aug- All quarterly reports were delivered as planned\. 2014, Feb- 2015, Aug- 2015 22 2 Six-Monthly progress reports May-2014, Delivered as planned\. May-2015 23 2 Annual reports Nov-2014, Dec- Delivered as planned\. 2015 -80- MAP Project Area -81- Project Area in Mit Yazid -82- Project Area in Mahmoudia -83-

REVIEW

P040497

 ICRR 10220 Report Number : ICRR10220 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3911 Project ID : P040497 Project Name : Financial Sector Restructuring Loan (FSRL) Country : Mexico Sector : Other Finance L/C Number : L3911 Partners involved : Inter-American Development Bank Prepared by : David Greene (consultant), OEDCR Reviewed by : Roger Robinson Group Manager : Rene Vandendries, Acting Manager Date Posted : 08/26/1998 2\. Project Objectives, Financing, Costs and Components : The FSRL of 1995 was part of an international effort, referred to as "The Mexican Rescue Package, " designed to bolster confidence in the Mexican financial system \. The Bank loan of US$ 1000 million, was part of a multilateral financial package including assistance from the IDB, IMF and the US Government \. The overriding objective of the operation was to restore the solvency of and confidence in the banking system \. Specifically, the FSRL supported actions to (a) improve discipline and manage systemic risks in the provision of liquidity by the central bank and in lending by development banks, (b) determine the health of the banking system, (c) restructure troubled banks, (d) reform accounting standards, prudential regulation, and supervision, (e) facilitate corporate work-outs and debt restructuring, (f) remove obstacles to secured lending and (g) formulate regulations for brokerage houses and a revised scheme of deposit protection \. The loan was disbursed in two equal tranches : the first on effectiveness and the second, nine months later, on the completion of audits of problem banks, examination of all major banks, implementation of accounting standards, and completion of studies for improvements in the legal /regulatory framework\. The Financial Sector Technical Assistance Loan, approved in early 1995 was restructured to provide technical support in areas of immediate need \. 3\. Achievement of Relevant Objectives : The FSRL has helped improve accounting standards, prudential regulations and supervision \. It also helped the National Banking Commission establish procedures to improve the internal controls of banks \. Accounting and regulation of financial groups has improved \. When fully implemented, the accounting standards, prudential regulation and supervision should improve the performance of the banking system \. 4\. Significant Achievements : Actions taken by the government succeeded in restoring a degree of stability and confidence in the banking system and averted a deep financial crisis with international ramifications \. Surviving banks are less vulnerable than they were in 1995\. 5\. Significant Shortcomings : Project objectives were overly ambitious and their achievement was incomplete \. Restoration of the soundness of the banking system was slower than expected because the problems of the banks had been underestimated \. According to the ICR, the issues of adequacy of bank capital, restructuring of banks, accounting standards and quality of information, and prudential regulation and supervision, have not yet been fully resolved \. A comprehensive strategy still has to be developed for dealing with the US$ 42 billion in assets in government hands created by interventions and assistance to banks \. The banking system remains heavily burdened by non -performing and low earning assets and reserves for loan losses are still inadequate \. Capital adequacy remains a concern, but accounting under the old rules makes estimating capital deficiency speculative \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory  Institutional Dev \.: Partial Modest Sustainability : Uncertain Uncertain Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Unsatisfactory 7\. Lessons of Broad Applicability : Emergency or relief programs are not good vehicles for pursuing institutional or legislative reforms \. This is especially true when, as in this case, the Banks financial contribution is a relatively small part of a large package \. Unless there is a single reform package on which all partners have agreed, concerns of major partners will dominate \. The pressure for disbursement in emergency situations also weakens the Bank's leverage in enforcing policy conditions\. The nine-month period foreseen between effectiveness and disbursement of the final tranche was not a reasonable time span for accomplishment of the project's reform agenda \. Country counterparts also tend to pay more attention to short term concerns (in this case keeping the banking system from collapsing )\. 8\. Audit Recommended? Yes No Why? It would be useful to assess the current state of Mexico's financial system \. 9\. Comments on Quality of ICR : The ICR is unsatisfactory\. While the coverage is detailed, the ICR contains none of the standard tables required for an ICR\. The ICR does not explicitly review the accomplishment of tranche release conditions and it would have been useful to have included a copy of the second tranche release memorandum \.

REVIEW

P116215

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Report Number : ICRR0021973 1\. Project Data Country Practice Area(Lead) Uruguay Macroeconomics, Trade and Investment Programmatic DPL Planned Operations: 2 Approved Operations: 2 Operation ID Operation Name P116215 UY 1st Prog PubSect Comptitiv&Soc I DPL L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IBRD-79530 31-Dec-2011 100,000,000\.00 Bank Approval Date Closing Date (Actual) 14-Oct-2010 31-Dec-2011 IBRD/IDA (USD) Co-financing (USD) Original Commitment 100,000,000\.00 0\.00 Revised Commitment 100,000,000\.00 0\.00 Actual 100,000,000\.00 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Hjalte S\. A\. Sederlof Clay Wescott Malathi S\. Jayawickrama IEGEC (Unit 1) PHPROJECTDATATBL Operation ID Operation Name P123242 UY 2nd Prog PubSct, Comp&Soc DPL/DDO ( P123242 ) Page 1 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IBRD-79530,IBRD-80940 25-Jun-2015 0\.00 Bank Approval Date Closing Date (Actual) 25-Oct-2011 25-Jun-2018 IBRD/IDA (USD) Co-financing (USD) Original Commitment 260,000,000\.00 0\.00 Revised Commitment 0\.00 0\.00 Actual 0\.00 0\.00 2\. Program Objectives and Policy Areas a\. Objectives The Programmatic Public Sector Competitiveness and Social Inclusion Development Policy Loans consisted of two DPLs\. The development objective (PDO) for the first operation (PSCSI-1) was: (i) Strengthening public sector administration; (ii) Improving competitiveness through measures seeking to facilitate trade, strengthen the business environment and develop financial markets; (iii) Improving social inclusion through measures seeking to enhance the equity and efficiency of health, education and social protection systems (Program Document (PD): p\. iv)\. The second operation, PSCSI-2 had the same objective (PD: p\. iv)\. b\. Pillars/Policy Areas The three policy areas supported by the PSCSI series were: Policy area 1: improving public sector management by increasing public sector transparency, flexibility, and agility; and by implementing performance-based budgeting\. Policy area 2: improving competitiveness by expanding trade through trade facilitation efforts and customs reform; strengthening the business climate; and supporting financial market development\. Policy area 3: improving social inclusion by strengthening the social protection systems; expanding coverage and improving efficiency of the health care system; and improving equity and quality of the education system\. Page 2 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) c\. Comments on Program Cost, Financing, and Dates Program costs, financing and dates\. The commitment under PSCSI-1 was US$100 million, and under PSCSI-2 it was US$260 million with a deferred drawdown option\. PSCSI-1 was approved on October 14, 2010, became effective on February 8, 2011, and disbursed immediately after effectiveness\. PSCI-2 was approved on October 25, 2011 and became effective on December 9, 2011\. Its original closing date, June 25, 2015, was postponed to June 25, 2018, at which time it closed undisbursed (see Section 3b)\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives The PDO (and project design) drew on Uruguay’s experience during the global crisis and lessons the government drew from it – the need to strengthen fiscal and financial policy, and labor and social policies, in case of a potential recurrence\. The different parts of the PDO reinforced each other\. For example, enhanced public administration and results-based budgeting had been identified as a key enablers for improving government efficiency, and in turn reducing the cost of doing business (PSCSI-1 PD: p\. 26)\. Despite a generally solid macroeconomic framework, the crisis years 2008-2010 had left the country with a sizeable public debt largely denominated in foreign currency\. The PSCI loans provided a backstop against potential destabilizing shocks – the first loan was immediately drawn down to mitigate the urgent need for financing, while the second loan was deferred, serving as a guardrail against future shocks\. At the same time, the loans served to promote the implementation of the government’s reform program to improve public sector management, competitiveness and social inclusion and gradually achieve higher and sustainable rates of growth\. The series also was a cornerstone of the Country Partnership Strategy at the time the series was developed\. A new Country Partnership Framework (CPF) was introduced in December 2015 covering the period FY16-FY20 and the series remains relevant under that CPF\. While broadening the scope of Bank interventions – for instance drawing attention to natural resource management as a key to growth and sustainability – it also maintained the focus on promoting a prudent fiscal stance while rebuilding fiscal space over the medium term by raising spending efficiency in the provision of public goods; and on further fostering private sector development – two key elements of the government’s reform program\. Rating Substantial Page 3 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) b\. Relevance of Design The results chain as described in the Policy Reform Matrix was straightforward, laying down prerequisites (prior actions) for launching activities that gradually could achieve the PDO\. Supported measures were prioritized based on extensive analytical work by the Bank, and by government programs\. While the prior actions (as well as the triggers supporting the release of PSCSI-2) were plausible initiatives for moving towards stated objectives, these were in most instances set in general terms (“increase”, “decrease”), while milestones set for 2015 and 2018 measured progress on outputs and outcomes\. In some instances, outcome indicators were too narrowly defined, as noted in Section 9a\. More generally, considering that the series went on for almost eight years, it would be plausible that some information on results would be available – for instance the efficiency gains from improved public sector management mechanisms such as performance- based budgeting\. As noted in Section 3a, PSCSI-1 was disbursed immediately after effectiveness to meet the immediate needs for financing\. To address potential future risks, the design included a Deferred Drawdown Option for PSCSI- 2, providing quick access to financing in the case of a potential shock that could reverse the favorable trends that were underpinning the country’s macroeconomic management\. The PSCSI series’ design complemented other Bank operations that focused on expanding capacity and improving quality in education (P111662), increasing access to primary health care (P050716), and strengthening the institutional framework for innovation to enhance competitiveness (P095520)\. It also built on achievements under a previous programmatic DPL series that had focused on improving voluntary tax compliance, expanding family allowances, and financial sector reforms through legislation that strengthened capital markets\. An Institution Building Technical Assistance Loan (IBTAL-P097604) was structured to support core elements of the government’s public administration modernization agenda, and addressed institutional needs arising from the reform program supported by the PSCSI series\. PSCSI was also closely coordinated with the programs of Uruguay’s other development partners, including the Inter- American Development Bank and the Andean Development Corporation\. There was an adequate macroeconomic framework and treatment of possible risks in place at the time of appraisal of PSCSI-1\. The government's cash reserves, planned borrowing, exchange rate management and prudent fiscal policy were appropriate in light of the uncertain global economic outlook at the time\. If global and domestic growth turned out to be less than expected, the Bank’s financing would help to achieve fiscal and monetary targets\. At the time of the appraisal of PSCSI-2, the macroeconomic framework was also judged to be solid, with internal demand the key driver of growth, inflation expected to decline, a stable banking system, and manageable current account and fiscal deficits\. PSCSI-1 helped address an urgent need for funding so that the government could continue implementing reforms\. PSCSI-2 provided quick access to funding if vulnerabilities emerged from external shocks\. The access to actual and contingent credit lines also helped Uruguay's investment grade rating, thus giving a positive signal to credit markets (PD1, pp\. 11-14; PD2, pp\. 6- 9; ICR pp\. 11-12)\. Page 4 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Rating Modest 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To improve public sector management Rationale The objective was to be achieved by: (i) making public administration more transparent, flexible and agile; and (ii) implementing performance-based budgeting (PBB)\. Increased transparency was promoted by legislation expanding the use of online transactions to public services (prior action under PSCSI-1) and the adoption of output and outcome indicators for selected expenditure programs (prior action under PSCSI- 2)\. The former supported expansion of e-government; and the latter was to improve the quality and impact of public spending\. The following outputs/outcomes were achieved under the PSCSI series: E-government\. The number of processes that can be started and completed electronically rose from a baseline of 20 in 2009 to 766 in 2018, exceeding the target of 25\. PBB\. A comprehensive platform is now operational to analyze budgets for which output and outcome indicators have been identified\. This includes seven priority areas, and 11 other areas (unspecified in the ICR), covering altogether 16 expenditure programs\. The PDO target of covering 40 expenditure programs was met in substance, taking into account the change in methodology and program consolidation over the period (ICR, p\. 17)\. However, a platform showing program outcomes in priority areas is not fully operational, in part due to shortage of experienced technical staff in line ministries despite efforts to attract and train new staff\. Page 5 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 2 Objective To improve competitiveness Rationale The objective was to be achieved with several measures aimed at enhancing trade facilitation, the business climate and financial market depth\. Trade was to be facilitated by reducing logistics costs in trade flows through the creation of a national commission for trade promotion (prior action under PSCSI-1), and by improving port and customs efficiency with the introduction of risk-based inspections in customs (prior action under PSCSI-2)\. The business climate was to be improved by the introduction of a one-stop shop for the creation of firms (PSCSI-1)\. Financial market development was to be promoted with the introduction of a capital markets law designed to enhance investor confidence in capital markets through such means as opting for a regulatory approach rather than a self-regulatory one (prior action PSCSI-1)\. A prior action for PSCSI-2 included additional measures aimed at enhancing investor confidence (tax incentives, capital market promotion, standards for stock offerings)\. The areas of trade facilitation, business licensing and access to finance that were supported by the series, were among the top business environmental obstacles for firms (Enterprise survey, 2017)\. Other perceived obstacles were being addressed with support from other partners, such as assistance on tax reform from the Inter-American Development Bank\. Trade facilitation\. Processing of import and export documents in 2018 took on average 24 hours, compared to an average of 53 hours for LAC countries; inspected cargo declined from 30 percent to 12 percent; and the number of irregularities detected relative to total cargo inspected rose from 1\.1 percent to 2\.1 percent\. The changes introduced at the customs level indicated the likelihood that logistics costs went down as waiting times at borders became shorter while the effectiveness of border controls increased\. Some aspects still needed more work: for example, Uruguay took 96 hours to perform customs operations, compared to the Latin American country average of 62 hours, and costs in Uruguay were double the average\. Stronger business environment\. With the introduction of the one-stop-shop for establishing businesses, the time to establish a new business dropped to 6\.5 days in 2018 from a baseline of 65 days\. Financial markets\. With the implementation of a capital markets law, financial markets saw a rise in market capitalization, private sector issuances, stock exchange activity as follows: market capitalization rose from a baseline of US$139 million in 2009 to US$852 million in 2018; new private sector issuances rose from eight Page 6 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) per year in 2009 to nine in 2018; and stock market activity increased from US$6,200 million in 2009 to US$20,294 million in 2018\. While the changes in financial market activity could be attributed to the measures introduced under the Program, the results were also influenced by other factors: according to the ICR (page 15) these developments took place against a background of reluctance on the part of the private sector to engage – both for historical and cultural reasons\. Consequently, while capital markets showed value growth, there was a downside: only 6 percent of industry financing (out of US$2\.4 billion) was raised through capital markets, with the rest mainly coming from bank loans and raising private funds\. Membership in the stock exchange fell from 74 in 2011 to 25 in 2019\. During the duration of the series, Uruguay’s ranking on the World Competitiveness Index improved from 64 to 54 (World Economic Forum, Global Competitiveness Reports, 2010-2011 and 2019)\. This improved result was driven by several factors including economic fluctuations and, in the case of financial markets, exogenous factors\. However, there is a plausible connection between the achievements in the three areas supported and improved competitiveness\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 3 Objective To improve social inclusion Rationale Social inclusion included measures to enhance the equity and efficiency (access to and quality of) social protection, health and education systems\. Several measures supported achievement of the objective\. Coverage under the social protection system was to be expanded, notably by expanding the family allowance and food assistance programs to still poor but uncovered families (PSCSI-1), and by increasing the food allowance for the extremely poor (PSCSI-2)\. A first phase of a reform of the beneficiary identification system, targeting adolescents and children, was also initiated as a prior action for PSCSI- 2\. Formal health insurance coverage was to be extended to include primary care controls for children and pregnant women (PSCSI-1); and to spouses with 3 or more children (PSCSI-2)\. Equity and quality of the education system was to be promoted by reducing the digital gap through the distribution of laptops to all children in public primary schools and by providing wireless connectivity to the Internet in said schools (PSCSI-1); and to secondary public schools (PSCSI-2)\. Social protection\. The number of households in extreme poverty declined from 0\.8 percent of households in Uruguay in 2009 to 0\.1 percent in 2018 against a target of 0\.4 percent\. Page 7 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Health\. Health insurance coverage rose from a baseline of financing 43 percent of primary care services for pregnant women and children in 2009 to 72 percent in 2018, against a target of 60 percent\. Education\. Digital access in public primary schools rose from a baseline of 95 percent to 100 percent, and in grades 1 to 3 in public secondary schools in the interior of the country (excluding Montevideo and Canelones) from a baseline of 30 percent to 96 percent, equal to the target\. In grades 1 and 2 of secondary schools in Montevideo and Canelones, coverage increased from a baseline of zero to 94 percent, equal to the target\. The ICR (p\. 15) notes that languages were taught online thrice weekly throughout the country, while in the past only 30 percent of schools had English lessons\. The greatest effect of digital access has been on the poor: evaluations indicated that the achievement gap in math between 1st and 5th quintile students substantially narrowed\. Summary: All three areas of intervention promoted social inclusion through improved access to social benefits and services as noted above, enhancing beneficiaries’ ability and opportunity to participate in society\. While national economic factors were likely to influence poverty rates and social protection, and therefore attribution was less straightforward than in the health and education sectors, results were nevertheless strongly tied to the three activities under this objective, which all expanded access to and raised quality of services for poor and vulnerable groups\. \. Rating Substantial PHREVDELTBL PHREVISEDTBL 5\. Outcome Relevance of objectives was rated substantial as program objectives addressed macroeconomic stability, supported the government’s reform program, and continued to reflect the new CDF, although maintaining a narrower focus than that adopted in the CDF\. Design was rated modest reflecting weaknesses around the results framework\. Efficacy was rated substantial for all three objectives: the first exceeded one target and made progress towards the second; in the second, four out of five targets were met or exceeded, and one was Page 8 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) nearly met; and in the third, significant gains were made towards stronger social inclusion under the series, while at the same time recognizing the influence of external factors on social protection results\. \. a\. Outcome Rating Moderately Satisfactory 6\. Rationale for Risk to Development Outcome Rating According to the ICR, the government was committed to the program, which drew on its development strategy\. This was reinforced by the series building on earlier DPLs and included activities that were already underway, including e-government, PBB, health sector reform and digitalization of the education system\. Economic risks persist\. Uruguay is vulnerable to outside shocks to the regional and global economy, in particular through its dependence on Argentina and Brazil, and on commodity prices\. The overall fiscal deficit will be nearly 5 percent of GDP in 2019, with gross public sector debt nearly 70 percent of GDP, almost twice as high as projected in the PDs\. The risks are mitigated by generally sound economic policies aimed at achieving high and sustainable economic growth, such as the ones supported under this series, and by macroeconomic management that focuses on maintaining fiscal discipline\. a\. Risk to Development Outcome Rating Modest 7\. Assessment of Bank Performance a\. Quality-at-Entry The series supported the government’s reform in the targeted areas, while at the same time providing a backstop against the country’s vulnerability to potential external economic shocks that were likely to influence fiscal balance by the introduction of a deferred drawdown option\. It drew on experience from a preceding DPL program, related projects, and substantial analytical work that the Bank and other partners were carrying out including the Investment Climate Assessment, the Global Competitiveness Report, the Doing Business Report, and Uruguay's Expanded National Household Survey, along with focus group meetings with workers and entrepreneurs\. (PSCSI-1 PD, p\. 21)\. While the series addressed fiscal challenges and reduced fiscal risk while introducing initiatives to support economic growth, the results framework had weaknesses noted in Sections 3b and 9a, notably in a relatively weak outcomes- focus (the emphasis was on outputs and intermediate outcomes) and in the formulation of outcome indicators, including the absence of quantitative targets, something that presented difficulties in assessing achievements\. Another shortcoming was that implementation risk due to a potential shortage of trained personnel had been rated low on the expectation that shortages would be addressed through capacity strengthening efforts by the Bank, government and other donors (PSCSI-1 PD: p\. 49; PSCSI-2 Page 9 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) PD: p\. 39)\. In the end, some measures such as the platform for performance budgeting were only partially achieved due to personnel shortages\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision Regular supervision missions – ten over a period of five years - maintained a constructive relationship with country entities and helped advance the project\. Supervision was often carried out jointly with the parallel IBTAL, drawing on synergies between the two entities\. At the same time, the project took some eight years to reach the ICR stage, during which time there were several changes in task manager and sector specialists\. Government observed that this made the policy dialogue less effective than hoped for\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 8\. Assessment of Borrower Performance a\. Government Performance Government ownership was strong, as the series had been informed by a series of consultations involving the government and key stakeholders\. Those consultations had also informed the development of the government’s longer-term development plan\. Still, the series, and in particular the introduction of the PBB platform, would experience difficulties in implementation with a shortage of technical staff\. Loan preparation also benefited from consultations with the parliament, civil society organizations, research institutes and the private sector\. The Ministry of Economy and Finance (MEF) conducted these discussions and oversaw monitoring of the series implementation, collaborating fully with the Bank supervision teams\. Government Performance Rating Satisfactory b\. Implementing Agency Performance Not assessed\. Implementing Agency Performance Rating Not Rated Page 10 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Overall Borrower Performance Rating Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The policy reform matrix (the results framework) set out the legal and regulatory actions serving as prior actions for the series, as well as defining expected outcomes\. The latter were measurable, but some lacked specific targets\. In some instances, they were too narrowly formulated to adequately serve as sufficient outcome indicators, for example the indicator on financial markets\. The education PDO indicators and targets were very similar to the outputs in the education prior action; a better PDO indicator would have measured improved learning outcomes facilitated by the improved connectivity supported by the prior action\. More generally, the adequacy of outcomes became uncertain in the absence of a stronger results chain\. b\. M&E Implementation All indicators included in the policy reform matrix were monitored by the government as well as the Bank through its ISRs\. The MEF collected data every six months to assess progress\. c\. M&E Utilization The information gathered during Bank supervision and MEF monitoring served to assess progress; a key point in time was a comprehensive stocktaking of program policies as PSCSI-2 was being prepared\. At that time, continuing concern over the regional economic situation led to the decision was taken to proceed with a deferred draw-down operation\. M&E Quality Rating Modest 10\. Other Issues a\. Environmental and Social Effects The ICR does not rate environmental or social effects for the series\. However, the proposed operation is not likely to have any significant effects on the environment (PD, p\. 47) Page 11 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) b\. Fiduciary Compliance The ICR does not discuss fiduciary compliance c\. Unintended impacts (Positive or Negative) None noted\. d\. Other --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment IEG notes moderate Outcome Satisfactory Moderately Satisfactory weaknesses in the results indicators IEG notes the Risk to Development economic/financial risks in the Negligible Modest Outcome absence of debt backup arrangements Moderately Bank Performance Moderately Satisfactory --- Satisfactory Borrower Performance Satisfactory Satisfactory --- Quality of ICR Modest --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 12\. Lessons The following lessons are drawn from the ICR: \. Business regulations need to be aligned with business practices\. In this series, the Government and Parliament laid down a legal and regulatory framework hoping that it would make participation in formal capital markets attractive\. This turned out not to be the case: a more careful analysis of private sector incentives could have promoted an approach that would have been more attractive to the private sector\. Page 12 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review UY 1st Prog PubSect Comptitiv&Soc I DPL(P116215) Technical assistance can be an essential complement to development policy lending\. In this project, an institution-building technical assistance loan provided financing as well as knowledge and advice to agencies implementing the reforms\. Government officials stressed to the ICR mission that the technical assistance loan was crucial for implementing key components of the DPL, such as the transition to performance budgeting, expansion of e-government and reform of customs\. World Bank participation in a high-income country in a crisis situation provides market signaling that can encourage policy reforms\. Prior to the series, the government was facing fiscal financial constraints that threatened to delay or even stop progress on key policy reforms, including in particular the ones that subsequently would be addressed under the PSCSI series\. The series, especially its first phase, brought the government the means and confidence to continue with its reform process (ICR, p\. 11)\. \. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The structure of the ICR is a bit unconventional with valuable pieces of information distributed throughout the text – for instance, the discussion of performance indicators, or targets; and implementation challenges appear as lessons, and are also covered under Relevance, Quality at Entry, and Supervision\. A focused reading does allow the reader to assess and piece together the results and ratings for the operation, but with some difficulty\. IEG attempted to set up a meeting with the Task Team Leader to clarify these and other issues, but he did not respond\. a\. Quality of ICR Rating Modest Page 13 of 13

REVIEW

P070992

 ICRR 12586 Report Number : ICRR12586 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/02/2007 PROJ ID : P070992 Appraisal Actual Project Name : NCO - Social Sector US$M ): Project Costs (US$M): 51 0\.0 Adjustment Credit 2 (sosac 2) Country : Bosnia-Herzegovina Loan/ US$M): Loan /Credit (US$M): 51\.0 0\.0 Sector Board : SP Cofinancing (US$M): US$M ): Sector (s): Other social services (75%) Compulsory pension and unemployment insurance (25%) Theme (s): Social safety nets (29% - P) Social risk mitigation (29% - P) Conflict prevention and post-conflict reconstruction (14% - S) Social analysis and monitoring (14% - S) Improving labor markets (14% - S) L/C Number : C3926 Board Approval Date : 06/15/2004 Partners involved : Closing Date : 06/30/2006 06/30/2006 Evaluator : Panel Reviewer : Group Manager : Group : Michael R\. Lav Roy Gilbert Ali Khadr IEGCR 2\. Project Objectives and Components: a\. Objectives: To support reforms in the cash transfer (welfare benefits, veteran's programs, and pensions ) and labor programs in Bosnia Herzegovina which reorient social protection towards programs which protect the poorest and most disabled in a fiscally sustainable manner \. More specifically, concerning pensions, the objective was to reduce or eliminate disparities between the Republica Serbska (RS) and the Federation of Bosnia and Herzegovina (FBH) concerning the determination of pension rights \. This became an important issue since many citizens who moved from one Entity to the other and received lower pensions than they would have otherwise been entitled were seeking redress in courts thereby creating a large backlog \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): (i) ensure that protection for disabled veterans and survivor families is better focused on the most disabled; (ii) improve the impact and efficiency of the social safety net for the poorest, in particular, social welfare benefits; (iii) consolidate an appropriate institutional structure for employment services at the State and Entity levels, and reorient active labor market policies to increase cost effectiveness, transparency, and employment outcomes; (iv) improve the efficiency and equity of pension and disability programs, including pensions policy harmonization between the Entities of Bosnia Herzegovina, and (v) ensure that social policy reforms are done on the basis of better information, within the system and to the public, and that living standards monitoring is more effective and timely \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was cancelled without ever becoming effective, so there were no disbursements or borrower contribution\. The project was appraised in April, 2002, approved by the Board on June 15, 2004, and closed on June 30, 2006, which was the original closing date \. 3\. Relevance of Objectives & Design: The project objectives were consistent with Bosnia and Herzegovina's first Medium Term Development Strategy (PRSP) which was adopted by the State and Entity Governments in 2004\. The Medium Term Development Strategy (MTDS) outlines a number of key objectives fully reflected in this project,namely, rationalizing the veterans' benefit system, structural reforms to improve the financial stability of extra -budgetary pension and unemployment funds, improving the relations between the two Entity's pension funds and the inter -Entity portability of pension rights, and improving the financial position of the pension funds in particular through improvements in contribution collection to ensure stability of pension payments \. 4\. Achievement of Objectives (Efficacy): (i) Ensure that protection for disabled veterans and survivor families is better focused on the most disabled \. FBH relaxed rather than tightened its policies towards veteran's benefits so that if anything they became less focused on the most disabled\. The FBH government seemed only weakly committed to this objective and did not effectively counter the initiatives which undermined any possibly of complying with the objectives of the project \. In contrast, RS did implement a veteran's benefit program in line with the objectives of the project \. (ii) Improve the impact and efficiency of the social safety net for the poorest, in particular, social welfare benefits \. Not implemented\. (iii) consolidate an appropriate institutional structure for employment services at the State and Entity levels, and reorient active labor market policies to increase cost effectiveness, transparency, and employment outcomes - modest achievement\. BH at the State level passed relevant legislation and a Labor and Employment Agency was set up and made operational\. (iv) improve the efficiency and equity of pension and disability programs, including pensions policy harmonization between the Entities of Bosnia Herzegovina - negligible achievement\. (v) ensure that social policy reforms are done on the basis of better information, within the system and to the public, and that living standards monitoring is more effective and timely - substantial achievement\. Both the Household Budget Survey (2004) and the Living Standards Measurement Survey (2001/2002/2003) were conducted in conjunction with the BH Statistical Agency which will repeat the exercise in 2007\. In sum, while RS, met key conditions regarding containing veteran's benefits consistent with a fiscal sustainability, FBH did not meet this key condition \. There was no progress on harmonization of pensions \. Hence the project was cancelled before effectiveness since the credit's legal construction prevented effectiveness with respect to only one of the two Entities\. 5\. Efficiency (not applicable to DPLs): ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome:  Outcome is not rated for projects which do not become effective \. a\. Outcome Rating : Not Rated 7\. Rationale for Risk to Development Outcome Rating: This is not rated for projects which do not become effective a\. Risk to Development Outcome Rating : Non-evaluable 8\. Assessment of Bank Performance: 1\. Project design and quality at entry were unsatisfactory : (a) The project was designed to address a number of complex issues, including veteran's benefits and harmonization of the pension systems \. FBH implementation faltered in terms of excessive spending on veteran's benefits, and in hindsight the Bank should have gotten firmer assurance on Borrower Ownership in the case of FBH\. The failure of FBH to adhere to the spirit of the project by as soon as December 2004 in preparing its draft budget for 2005 does little to reassure that the Bank had prudently ascertained adequate Borrower ownership before proceeding \. (b) Pension harmonization was an issue of some importance, and it was therefore a reasonable objective, especially given the successful implementation of SOSAC I, and also the successful implementation of PFSAC I which showed that harmonization between the two Entities could be a feasible objective (in that instance, of tax and revenue systems)\. However, the pension harmonization component was politically risky in requiring action by both RS and FBH\. Given this clear risk, the Bank should have more firmly ascertained borrower ownership and perhaps explored risk amelioration strategies such as the formulation of a floating tranche for this component, so that the other components could have gone forward even in the absence of progress on harmonization \. 2\. Supervision\. The Bank attempted to remedy these shortcomings with respect to FBH with an intensive supervision effort\. Although this did not succeed, the supervision effort itself is rated moderately satisfactory \. at -Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: Performance on the part of RS was fully satisfactory, and had the project been structured differently, the RS component might have been implemented \. Performance on the part of FBH was highly unsatisfactory \. In particular, spending on the part of FBH which was to have been frozen under the project, in fact ballooned and seriously compromised fiscal stability \. On balance, therefore, the Borrower performance is rated as moderately unsatisfactory\. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Unsatisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: M&E design was satisfactory\. The project called for monitoring by a Committee composed of all of the relevant agencies including the Ministries of Finance of both entities \. The MTDS social sector working group was also to have acted as a key inter -entity body for monitoring and coordinating implementation of the reform agenda supported by the SOSACII\. Since the project was not implemented, the M&E was not implemented nor utilized \. a\. M&E Quality Rating : Non-evaluable 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): There are no safeguard or fiduciary issues \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Not Rated Not Rated Risk to Development Non-evaluable Non-evaluable Outcome : Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Government ownership is essential, especially concerning implementation of unpopular but necessary programs \. The Bank needs to pay particular attention to assuring government ownership, especially in risky situations \. Special care needs to be taken when the Bank is proposing lending to a country comprising distinct entities, to ensure that all such entities are fully on board \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The completion document is a Project Completion Note (PCN), rather than an ICR, as is appropriate in this case since the project was cancelled without any disbursements having been made \. The PCN is short and concise, but deals adequately with the government shortfalls which prevented the project from becoming effective, and the unsuccessful attempts by the Bank during supervision to improve government policy \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P096926

Document of The World Bank Report No: ICR00003675 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-76840) ON A LOAN IN THE AMOUNT OF US$130\.0 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A JIANGSU WATER AND WASTEWATER PROJECT June 7, 2016 Water Global Practice China and Mongolia Country Management Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective May 31, 2016) Currency Unit = Renminbi (RMB) RMB1\.00 = US$0\.15 US$1\.00 = RMB6\.57 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Assistance CEA Consolidated Environmental Assessment CNAO China National Audit Office COD Chemical Oxygen Demand CPMO City Project Management Office CPS Country Partnership Strategy DO Development Objectives EA Environmental Assessment EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EPB Environmental Protection Bureau FB Finance Bureau FIRR Financial Internal Rate of Return FM Financial Management FMS Financial Management Specialist GDP Gross Domestic Product GIS Geographic Information System ICB International Competitive Bidding ICR Implementation Completion and Results IBRD International Bank for Reconstruction and Development IP Implementation Progress JPFD Jiangsu Provincial Finance Department JWWP Jiangsu Water and Wastewater Project KPI Key Performance Indicator LA Land Acquisition M&E Monitoring and Evaluation MTR Mid Term Review NCB National Competitive Bidding NMWGC Nanjing Municipal Water Group Company NRW Non-Revenue Water PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementing Units PPMO Provincial Project Management Office PMO Project Management Office RAP Resettlement Action Plan RF Results Framework RP Resettlement Plans RPF Resettlement Policy Framework SEPA State Environmental Protection Bureau TA Technical Assistance VO Variation Order WTP Water Treatment Plant WWTP Wastewater Treatment Plant Regional Vice President: Victoria Kwakwa Country Director: Bert Hofman Senior Global Practice Director: Jennifer Sara Practice Manager: Ousmane Dione Project Team Leader: Khairy Al-Jamal ICR Principal Author: Heinrich K\. Unger  PEOPLE’S REPUBLIC OF CHINA Jiangsu Water and Wastewater Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructurings I\. Disbursement Profile 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 12 4\. Assessment of Risk to Development Outcome\. 20 5\. Assessment of Bank and Borrower Performance \. 21 6\. Lessons Learned \. 23 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 24 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Outputs by Component \. 27 Annex 3\. Economic and Financial Analysis \. 31 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 36 Annex 5\. Beneficiary Survey Results \. 38 Annex 6\. Stakeholder Workshop Report and Results\. 39 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 40 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 51 Annex 9\. List of Supporting Documents \. 52 Annex 10\. Project Pictures \. 53 MAP IBRD No\. 36486 A\. Basic Information Jiangsu Water and Country: China Project Name: Wastewater Project ID: P096926 L/C/TF Number(s): IBRD-76840 ICR Date: 11/13/2015 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 130\.00M Disbursed Amount: USD 129\.20M Commitment: Revised Amount: USD 130\.00M Environmental Category: B Implementing Agencies: Jiangsu Provincial Project Management Office Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/04/2008 Effectiveness: 09/28/2009 09/28/2009 11/21/2013 Appraisal: 09/09/2008 Restructuring(s): 03/11/2015 Approval: 06/02/2009 Mid-term Review: 05/28/2012 11/05/2012 Closing: 12/31/2014 12/31/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Low Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Public administration- Water, sanitation and flood 1 1 protection Wastewater Collection and Transportation 26 20 Wastewater Treatment and Disposal 24 24 Water supply 49 55 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 75 70 Pollution management and environmental health 25 30 E\. Bank Staff Positions At ICR At Approval Vice President: Victoria Kwakwa James W\. Adams Country Director: Bert Hofman David R\. Dollar Practice Ousmane Dione Ede Jorge Ijjasz-Vasquez Manager/Manager: Project Team Leader: Khairy Al-Jamal Mara Warwick / Mingyuan Fan ICR Team Leader: Khairy Al-Jamal ICR Primary Author: Heinrich K\. Unger F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective was to improve the efficiency and effectiveness of water and wastewater services and reduce pollution discharges in local rivers in Jiangsu Province\. ii Revised Project Development Objectives (as approved by original approving authority) The Project Development Objectives (PDO) were not revised\. (a) PDO Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Coverage of water supply in project cities/towns (percent) Value 96% for cities 98% for cities 98% for cities 99\.8% for cities (quantitative or 78% for towns 92% for towns 93% for 100% for towns qualitative) towns Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments (incl\. % Target was exceeded: Zhenjiang achieved 99%, and other 4 cities 100%\. achievement) Non-revenue water (NRW) average over supply area of 4 city water companies Indicator 2 : (percent) Value (quantitative or 27% 22% 22% qualitative) Date achieved 04/16/2008 12/31/2014 12/31/2015 Comments Target was achieved\. Weighted average NRW percentage from four cities was (incl\. % used to calculate indicator values\. achievement) Total annual COD load reduction from municipal wastewater in project Indicator 3\.1 : catchment area in Taixing - Huangqiao (in tons) Value Indicator (quantitative or 0 1,825 N/A dropped qualitative) Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments The Taixing - Huangqiao sub-component was dropped from the project as part of (incl\. % the November 2013 restructuring\. However, the proposed WWTP was built achievement) under BOT\. Total annual COD load reduction from municipal wastewater in project Indicator 3\.2 : catchment area in all other areas (in tons) Value (quantitative or 18,302 39,436 43,000 60,729 qualitative) Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments The target was substantially exceeded by the two WWTPs in Nanjing, i\.e\., (incl\. % Qiaobei and Tiebei\. achievement) iii (b) Intermediate Outcome Indicators Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1\.1 : Number of project towns with 24-hour water supply Value (quantitative or 40 50 52 84 qualitative) Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments (incl\. % The target was substantially exceeded\. achievement) Indicator 1\.2 : Number of project towns receiving city water supply Value (quantitative or 14 68 70 qualitative) Date achieved 04/16/2008 12/31/2014 12/31/2015 Comments (incl\. % The target was fully achieved\. achievement) Number of project towns with NRW at or below target determined in NRW Indicator 1\.3 : reduction strategy 1\. Value (quantitative or 18 51 58 qualitative) Date achieved 04/16/2008 12/31/2014 12/31/2015 Comments (incl\. % Target was exceeded\. achievement) Indicator 2\.1 : Coverage of wastewater service in project cities (percent) Value (quantitative or 67% 80% 83% 95% qualitative) Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments Target was exceeded significantly by Nanjing\. Dayang and Taixing were (incl\. % cancelled by the November 2013 restructuring\. achievement) Ratio of municipal wastewater generated to treated wastewater in project cities Indicator 2\.2 : (percent) Value 50% 81% 83% 100% 1 The NRW strategy consisted of: improved pressure management; reinforced leakage detection capabilities; improved customers’ meter management; improved asset management; and City water supply companies were to take over towns and reorganize and improve town systems management\. iv (quantitative or qualitative) Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments Target was exceeded significantly by Nanjing\. Dayang and Taixing were (incl\. % cancelled by the November 2013 restructuring\. achievement) Proportion of total revenue to total expenditure for wastewater services in project Indicator 3\.1 : cities (ratio) Value Wastewater (quantitative or 0\.63 0\.43 components N/A qualitative) were dropped Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments WW sub-components Danyang & Taixing were canceled by the November 2013 (incl\. % restructuring and the indicator was dropped as Nanjing was excluded from cost achievement) recovery requirement under its PA\. Indicator 3\.2 : Ratio of cost recovery from imposed tariff of wastewater in project cities (ratio) Value Wastewater (quantitative or 1\.03 1\.16 components N/A qualitative) were dropped Date achieved 04/16/2008 12/31/2014 11/21/2013 12/31/2015 Comments (incl\. % See comments under 3\.1 above\. achievement) (c) Core Sector Indicators This project was approved before core sector indicators (CSI) became mandatory but project restructuring in November 2013 added three CSI for which baseline were readily available but no specific targets were set\. Core Sector Indicator Baseline Achievement Direct project beneficiaries (number) 0 4,769,000 - of which female (percentage) N/A 48\.5 Water utilities that the project is supporting (number) 0 5 Volume of BOD pollution loads removed by the treatment plants supported under the project (tons/year) 0 1,792 G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/12/2010 Satisfactory Satisfactory 8\.00 2 04/14/2011 Satisfactory Satisfactory 46\.97 3 04/04/2012 Satisfactory Satisfactory 73\.28 4 03/31/2013 Satisfactory Satisfactory 86\.58 5 12/16/2013 Satisfactory Satisfactory 92\.13 v  6 06/24/2014 Satisfactory Satisfactory 92\.13 7 11/29/2014 Satisfactory Moderately Satisfactory 96\.19 8 06/08/2015 Satisfactory Satisfactory 119\.20 H\. Restructurings ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 1\. The following sub- components were dropped from the project: (i) Danyang wastewater system, because of lack of progress with land acquisition; (ii) Taixing- Huangqiao WWTP because the facility was built under a BOT scheme; and (iii) part of institutional TA associated with Taixing sub-component\. 2\. The scope of the following sub-components was reduced: (i) Yancheng water supply system, due to use of non-Bank 11/21/2013 N/A S S 92\.13 financing; and (ii) Nanjing- Tiebei wastewater collection system, due to delays in the linked construction of roads\. 3\. To utilize loan savings from dropped items, the following were added: (i) Longtan WTP in Nanjing, and (ii) water supply system extension in Taixing\. The loan was re- allocated accordingly\. 4\. Closing date was extended by one year to December 31, 2015 to allow completion of the additional sub-components\. Disbursement percentage was increased from 50 to 80% for 03/11/2015 S S 108\.34 Longtan WTP to allow full utilization of the loan\. vi I\. Disbursement Profile vii 1\. Project Context, Development Objectives and Design 1\. Jiangsu is an economically important province in central eastern China\. It has a population of about 75 million and, in 2007, had an average GDP per capita of approximately RMB 27,200 (US$4,000) which was the second highest provincial GDP in the country (after Guangdong province)\. Jiangsu’s economic success is mainly concentrated in the prosperous southern areas around the Changjiang Delta region where the capital city of Nanjing (current population about 7 million) is located\. The Changjiang Delta region is water-rich but increasing pollution of surface waters had created a scarcity of adequate quality water for residential and industrial needs, and this has been limiting development in the province, especially in southern Jiangsu\. In July 2007, a severe algal bloom in Lake Tai, an important water source for several large cities in Jiangsu, caused the emergency shutdown of the Wuxi City water supply system\. Similar problems in smaller rivers and canals were causing frequent disruptions to water supply systems in Jiangsu’s towns and peri-urban areas and, for this reason, many town and peri-urban water providers had reverted to groundwater sources\. This resulted in over-extraction and quality deterioration of groundwater, as well as saltwater intrusion in coastal areas\. At the time, scarcity of adequate quality water was considered to be one of the most crucial limiting factors for sustainability of water supply systems and future development in the province\. 1\.1 Context at Appraisal 2\. The proposed project interventions were fully consistent with the Bank Group’s 2006 – 2010 China Country Partnership Strategy (CPS) with its focus on managing resource scarcity and environmental challenges\. The sub-components also were in line with the objectives of China’s 11th Five-year Plan (2006-10) that aimed to create a “harmonious society” that balances economic growth with distributional and environmental concerns\. To address issues of water quality and water supply security, Jiangsu Provincial Government had adopted a forward-looking water resources management strategy to concurrently reorganize and develop the water supply and wastewater service sectors\. This strategy, which was under implementation prior to appraisal, included the following key sectoral reforms and developments: (a) reorganization of the water supply sector to provide sustainable and better quality water to all residents and industrial users of the province, including those in towns, villages and peri-urban areas; and (b) rapid expansion of the provision of wastewater services in the province and raising of wastewater discharge standards, especially in highly sensitive environments\. 3\. Jiangsu Province had also chosen a strategy of municipal water supply expansion and aggregation as a way to address the poor sustainability of the water supply sector\. Prior to 2000, all city, town and village water supply systems in the province were institutionally and physically separate\. This high degree of fragmentation of the sector resulted in low efficiency and poor quality of water supply, especially in rural and urbanizing areas\. While the provincial government is responsible for policy matters and oversight, the water supply and wastewater companies report to their respective municipal governments\. Through a series of planning pilots in the most highly developed southern region, Jiangsu Province developed a model for replacing the smaller systems by expanding services from the urban 1 cores into the surrounding peri-urban and rural areas\. Where possible, the program promoted the use of the higher-quality, more reliable Changjiang River as the raw water source\. Furthermore, it was thought that through the expansion of city systems to peri- urban and rural areas, water service standards, including pressure, quality and leakage, could be improved\. In some cases, that program also included the institutional aggregation of town and village water supply companies with larger city providers\. In others, a system of bulk sales from the city system to the town and village providers was the preferred solution\. 4\. Jiangsu Province was relatively successful in developing wastewater systems for newly urbanizing areas in its cities, but less successful in effectively retrofitting services into older urban areas, especially those undergoing redevelopment\. Many of the large cities and towns in Jiangsu, including the capital Nanjing, did not have wastewater services in the oldest, most heavily urbanized areas\. Wastewater service provision to smaller communities in towns and villages was also lagging\. In this context, in 2007, Jiangsu Provincial Government had issued a new provincial regulation that required wastewater treatment to Class 1A discharge standards\. This implied tertiary treatment, irrespective of influent quality, pollution load, town size, affordability and capacity to operate sophisticated systems\. The higher discharge standard was predicated by the importance attached by the Province and central government to water quality in the Lake Tai and Changjiang River areas, where considerable efforts were being made to improve or maintain water quality\. 5\. Jiangsu Province’s plans for water supply aggregation and wastewater service expansion brought with it significant challenges for ensuring financial sustainability\. The water and wastewater tariff structure in Jiangsu, designed prior to the implementation of the water supply expansion program, was not appropriate for long-term financial sustainability of the program\. As a result, short-term tariff adjustment measures had to be taken by the Province in the years leading up to the Project\. 6\. Lastly, in 2001, Jiangsu province had adopted the Jiangsu City and Town System Strategic Plan, which provided strategic direction for urbanization within the province\. In line with this plan, the city and town system was reorganized to reflect updated development trends and to improve efficiency\. Under the plan, some towns were merged and others absorbed into larger cities nearby\. Through this process, the total number of towns in Jiangsu was expected to decrease from 2,000 to about 650 by 2020\. The plan encouraged cross-boundary cooperation through regional coordination in environmental management, public infrastructure planning and construction, water resource development and tourism\. The restructuring of the province’s water supply system was therefore being conducted consistent with the plan’s overall strategy for developing a more efficient urban structure within the province\. 2 1\.2 Original Project Development Objectives (PDO) and Key Indicators 7\. The project development objective was to improve the efficiency and effectiveness of water and wastewater services and reduce pollution discharges to local rivers in Jiangsu\. 8\. Key indicators were: (i) coverage of water supply in project cities / towns; (ii) non- revenue water (NRW) (accounting for both commercial and physical losses) percentage averaged over the supply areas of city water companies; and (iii) total annual COD load reduction from municipal wastewater in project catchment area in (a) Taixing – Huangqiao, and (b) all others\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9\. The PDO were not revised\. However, further to the cancelation of sub-component 2(iii) Taixing: Expanding wastewater collection and treatment in Huangqiao Town (see sub-section 1\.6 below), the key indicator “total annual COD load reduction from municipal wastewater in project catchment area in Taixing – Huangqiao” was dropped\. In addition, the target for key indicator (i) was slightly increased as part of the November 2013 restructuring, and key indicator (iii) (b) was made applicable to Nanjing only and also had its target value increased\. 1\.4 Main Beneficiaries 10\. The water supply investments were to directly benefit 4,769,000 people in 78 towns and villages in Jiangsu province where service expansion was proposed by enhancing the capacity of city water supply systems\. Populations in eight separate districts / towns 2 in the four project cities were expected to benefit from the expansion of the collection and treatment systems for municipal wastewater\. Additionally, the project benefited staff of the municipal utilities in project cities through the capacity building and institutional strengthening component of the Project\. The focus on project management, financial reform, non-revenue water (NRW) reduction strategies, training and foreign study tours was expected to greatly benefit municipal and utility company staff\. 1\.5 Original Components 11\. Component 1\. Water Supply Expansion (Total cost: US$178\.5 million) (i) Danyang: Enhancing capacity of Danyang city water supply and expanding supply of treated water to 24 towns\. (ii) Taixing: Enhancing capacity of Taixing city water supply system and expanding supply of treated water to 22 towns, including reduction of NRW in five towns\. 2 The structural hierarchy of administrative divisions in the People's Republic of China consists of five levels: Provincial level (1st); Prefectural level, e\.g\., cities (2nd); County level, e\.g\., districts (3rd); Township level, e\.g\., towns and sub-districts (4th); and Village level (5th)\. 3 (iii) Yancheng: Enhancing capacity of Yancheng city water supply system and expanding supply of treated water to 21 towns, including rehabilitation and expansion of water distribution networks and reduction of NRW in two towns, and implementation of a participatory planning pilot in one town\. (iv) Zhenjiang: Enhancing the capacity of the Zhenjiang city water supply and expanding supply of treated water to 11 towns, including reduction of NRW in two towns\. 12\. Component 2\. Wastewater Management (Total cost: US$233\.7 million) (i) Danyang: Expanding wastewater collection in Shicheng urban district of Danyang city\. (ii) Nanjing: Expanding wastewater collection and treatment in Qiaobei, Tiebei and Chengbei areas of Nanjing city\. (iii) Taixing: Expanding wastewater collection and treatment in Huangqiao Town\. 13\. Component 3\. Implementation and Capacity Building Support (Total cost: US$2\.5 million) (i) Provincial Implementation Support and Capacity Building: Strengthening and building institutional capacity at the provincial level, including (a) provision of technical assistance for project and contract management, and review of project design; (b) carrying out a study on the existing wastewater and water supply tariff system; (c) developing and piloting strategies to reduce NRW at the township level; and (d) carrying out training and study tours on various aspects of water supply and wastewater management\. (ii) Company Capacity Building: Taixing Huangqiao Wastewater Treatment Company: Strengthening the company’s institutional capacity to manage and implement project activities through provision of technical assistance and training\. 14\. Project costs – including contingencies, interest during construction and front-end fees – were estimated at appraisal to be US$431\.8 million\. See Annex 1 for details of appraisal and completion costs\. 1\.6 Revised Components 15\. Following the mid-term review (MTR) in November 2012, the project was restructured in November 2013\. The following changes were made to project sub- components: - 1 (iii) Yangcheng water supply network was reduced substantially in scope; - 2 (i) Danyang (Shicheng urban district) wastewater collection system was dropped; - 2 (ii) Tiebei wastewater collection system in Nanjing city was reduced in scope; - 2 (iii) WWTP in Taixing (Huangqiao Town) was dropped, as the facility was built by a BOT scheme; - 3 (ii) institutional capacity building for the Taixing Huangqiao Wastewater Treatment Company was canceled; - 1 (v) Taixing Town Water Supply Networks Rehabilitation was added; and - 1 (vi) Nanjing Longtan Water Treatment Plant (WTP) was added\. 4 16\. As a result, total project costs decreased by about five percent to US$409\.8 million\. Loan funds were reallocated accordingly and the loan amount did not change\. 1\.7 Other significant changes 17\. The following other significant changes were made: - As part of the November 2013 restructuring, the closing date of the project was extended by one year to December 31, 2015\. - The March 2015 project restructuring increased the disbursement percentage for the sub-category of Nanjing Longtan WTP (added in November 2013) from 50 to 80 percent to allow full use of the loan funds allocated to that sub-category\. - In March 2013, the original Nanjing Municipal Water Co\. Ltd\. merged with Nanjing Municipal Drainage Administration into Nanjing Municipal Water Group Co\. Ltd\. - Several interim outcome indicators had their target values increased marginally as part of the 2013 restructuring, based on the very good progress made towards achieving the original targets\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Rationale for Bank involvement 18\. Water supply and wastewater management were – and still are – critical sectors for China\. These are also areas of significant Bank expertise\. In China, water shortages and water pollution have been constraining growth and affecting public health\. Since the early 1990s, the Government of China has consistently requested Bank assistance in this important sector\. In 2005 the Bank launched several Analytical and Advisory Assistance (AAA) thematic studies, including one on improving urban water and wastewater utilities 3\. This study identified efficiency, governance, and financial sustainability as key issues affecting the long-term performance of water and wastewater utilities in China\. As designed, the Jiangsu Water and Wastewater Project (JWWP) exemplified the Bank’s unique role in China’s water sector\. As a limited lender, the Bank always supported innovation where spillover benefits are far greater than the direct benefits of the project itself\. Bank involvement was particularly compelling in the case of Jiangsu where innovation in aggregation was homegrown and client-driven; however, it was in need of empirical analysis, a global perspective, and a strategy of diffusion to other provinces; these were all tasks that the Bank was well suited to support\. 3 The World Bank\. Stepping Up: Improving the Performance of China’s Urban Water Utilities\. 2007\. 5 Project design 19\. Pilot projects to implement (i) aggregation of town and village systems into larger city suppliers, and (ii) bulk sales from large city systems to town and village suppliers had been relatively successful in southern Jiangsu\. However, the province did not succeed in replicating these pilots in less developed areas due to high investment costs, relatively lower existing connection rates, higher leakage rates in existing town systems, and weak institutional and financial capacities\. The project was therefore designed to support the expansion of the Changjiang-based systems in the Nanjing Urban Cluster area\. An extensive customer survey conducted in all potential service areas of the project had shown that there was high demand for these services amongst new industrial and residential customers\. In addition, the reduction of non-revenue water (NRW), which was a problem in the existing systems in smaller towns, would be addressed concurrently, albeit on a pilot basis\. 20\. As described further above, large cities in Jiangsu lacked wastewater services in the oldest, densest parts; similarly, many smaller communities in towns and villages were without sewer systems\. The project therefore focused its attention on the provision of wastewater services in these areas\. One design priority was the reduction of resettlement impacts of the wastewater system retrofits through optimization of design; this principle demonstrated a more sustainable approach to the provision of services in urban areas\. To ensure long-term financial sustainability of the municipal sector, project design included a comprehensive review and revision of water supply and wastewater tariff structures for the entire province\. By addressing both water supply and wastewater service expansion concurrently, the project was in the unique position to assist Jiangsu to evaluate the true cost of these programs, and to design an equitable and sustainable tariff system that could support both programs concurrently\. 21\. Project design considered several alternatives for the reorganization of water supply, and eventually adopted the sale of bulk raw or treated water by large cities to smaller towns, complemented by a pilot NRW reduction program to address the serious leakage problems in the outdated town water distribution networks\. Two alternatives were considered for the treatment of wastewater: either Class 1A effluent standard (tertiary treatment), which had just been mandated in Jiangsu; or Class 1B (secondary treatment), which was more commonly applied in other parts of China at the time\. Although analysis had shown that tertiary treatment would achieve little incremental environmental benefit to the Changjiang River, Class 1A treatment was incorporated into the design of the project WWTPs in order to comply with provincial requirements\. Incorporation of lessons learned 22\. The project considered and incorporated recent lessons from: (i) similar Bank projects in China, (ii) assessments by the Independent Evaluation Group, and (iii) relevant 6 Bank reports 4 covering the urban, water supply and sanitation sectors in China and internationally\. For example, recommendations for improving the operational performance of urban water utilities from the water sector study Stepping Up were used in the formulation of the project, with respect to: reducing NRW in towns; examining tariff requirements for water and wastewater services; ensuring adequate fiscal support; and recognizing the capabilities of town water supply agencies\. Another lesson applied was the use of realistic demand projections based on extensive demand surveys undertaken during project preparation to ensure appropriate sizing of the facilities; some investments were phased to ensure appropriate short and medium term capacity\. A lesson from the high cost estimates used in many recent projects led to the consideration of: (i) inflation in construction costs; (ii) relatively faster appreciation of the RMB; and (iii) prevailing market rates and prices during the preparation of cost estimates\. Lastly, it was clear from past projects that significant efficiencies and economies of scale were possible through the construction of regional infrastructure, such as jointly financed and shared water supply and wastewater facilities\. Risks and their mitigation 23\. Project design identified one substantial risk, i\.e\., that expected demand for water supply may not materialize due to the availability of alternative sources and the higher cost of central supply\. This risk was mitigated by the use of: (i) phased expansion of city water supply capacity based on demand; (ii) least-cost approach to reduce investment costs; and (iii) appropriate incentives from the Government for towns to upgrade and connect, i\.e\., high quality and reliable bulk water supply from city utilities, government grants for network upgrading and rehabilitation, and NRW reduction pilot programs\. All other risks were assessed to be modest or low and standard design approaches were used for mitigation\. The overall risk rating for the project was Modest\. 2\.2 Implementation Implementation arrangements 24\. The project area included three municipalities (Nanjing, Yancheng and Zhenjiang), two county-level cities (Danyang and Taixing), and seven project implementation units (PIUs) in the above municipalities/cities\. Project Management Offices in the province (PPMO) and the project municipalities/cities (CPMO) and also in the PIUs were established for the preparation and implementation of the project, in line with the standard arrangements for such projects in China\. Nanjing Urban Construction Investment Group Company was the co-implementation agency for the Nanjing wastewater project\. 4 China Urban Development Program: A World Bank Portfolio Review (2007); A Partnership for Innovation: A Quarter-Century of China-World Bank Cooperation (2007); Stepping Up: Improving the Performance of China’s Urban Water Utilities (2007); Financing Water Supply and Sanitation Investments (2005); Characteristics of Well Performing Public Water Utilities (2006) and Models of Aggregation for Water and Sanitation Provision (2005) 7 Consultants were engaged to provide support to the PPMO, CPMOs and PIUs in project management, procurement, contract management, detailed design review, bid document review, project monitoring and reporting, and to assist in the preparation of the Borrower’s Implementation Completion Report (ICR)\. The PPMO was responsible for procuring consultant services for project and contract management and design review services, safeguard monitoring and training\. PIUs were responsible for carrying out procurement of works, goods and services for their respective activities with the assistance of the procurement agents and design institutes, and the guidance of the PPMO\. Progress and scope changes 25\. Project implementation proceeded well, and project performance ratings for DO and IP were Satisfactory throughout the implementation period; there was an IP rating of Moderately Satisfactory in 2014 due to the slower than scheduled construction progress of the new sub-components\. The project was never rated “at risk”\. However, by early 2012, the PPMO had identified a number of contracts that did not proceed because of the reasons listed in Table 1 below\. The PPMO was considering the cancellation of the affected sub- components and was proposing two major new water supply sub-components that would still benefit the same project cities, but would shift the sector balance slightly towards water supply\. The achievement of the PDO would not be affected by the proposed changes, and the outcome indicators would not need revision\. 26\. The mid-term review (MTR) in November 2012 found generally very good progress with the construction of water and wastewater networks, as well as water and wastewater treatment facilities\. The majority of the large contracts had been completed and over 60% of the loan had been disbursed – but there was still no formal application for restructuring the project to drop the stalled contracts and re-allocate the resultant loan savings\. The MTR resulted in agreement on the scope and details of project restructuring, and the necessary actions, such as additional EAs, EMPs and RAPs\. However, it took until November 2013 for the formal restructuring to be concluded and approved\. The main changes and their reasons are shown in Table 1 below\. Table 1: Project Scope Changes and their reasons CHANGE REASON Yangcheng water supply was Towns involved used their own financing to reduced substantially in construct part of the water supply lines\. scope\. Danyang (Shicheng urban Lack of progress with land acquisition and district) wastewater resettlement of a linked river rehabilitation project\. collection system was dropped\. Tiebei wastewater collection Contracts for linked urban roads were delayed and in Nanjing city was reduced not all sewers could be installed\. in scope\. 8  Construction of WWTP in Local government decided to have the WWTP Taixing (Huangqiao Town) constructed under a BOT scheme\. was dropped\. Institutional capacity Because of the cancelation of the Huangqiao building TA for the Taixing WWTP, there was no need for the associated Huangqiao Wastewater institutional capacity building technical assistance\. Treatment Company was canceled\. Taixing Town Water Supply Use of loan savings to expand supply system and Networks Rehabilitation was increase water sales from the new WTP\. added\. Nanjing Longtan WTP was Use of loan savings for new medium/long term added\. WTP for the fast growing Nanjing City\. 27\. A total of US$21 million was saved by the dropped sub-components and all loan savings were re-allocated to the two new sub-components\. To allow the completion of the large additional contracts, the closing date was extended by one year to December 31, 2015\. Implementation continued to progress well and the project was completed before the extended completion date\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 28\. A comprehensive results framework, including realistic targets, was designed at appraisal to facilitate the measurement and monitoring of project progress towards achieving the PDO\. In addition, the format of the semi-annual progress report required monitoring data on all aspects of project implementation, such as financial management (FM), loan disbursements, project scope and changes, implementation progress, land acquisition and resettlement, environmental aspects, and most importantly, project indicators\. The system was well designed to generate all necessary M&E data and information\. 29\. Implementation of the M&E system was slow, and in early 2012 the PPMO and PIUs still did not satisfactorily collect and analyze all the necessary data and information for proper monitoring: project KPIs were not always updated in a timely and appropriate manner\. The MTR recommended that the PMOs take full charge of the M&E systems\. Starting in 2013, M&E implementation improved considerably, and complete semi-annual progress reports were delivered on time until project closing\. The PMOs also showed disaggregated data for the aggregated indicators to better understand and improve the performance of individual project entities\. 30\. Once timely and complete reports were available, project entities and the Bank utilized the data and information to track progress and achievements\. They also monitored the environmental and social aspects of project implementation and dealt with issues and problems as they arose\. The timely and satisfactory completion of the project can, at least in part, be attributed to the effective utilization of the M&E system in the later stages of the project\. Two intermediate outcome indicators on financial improvement of wastewater 9 services were dropped because the associated sub-components were dropped as part of the restructuring\. 2\.4 Safeguard and Fiduciary Compliance Environment 31\. The project was classified as Category B under OP4\.01, for three reasons: none of the proposed facilities was located in areas with sensitive receptors which could be adversely influenced by the construction or operation of the facilities; proposed facilities discharge into water bodies with extremely high receiving capacities (i\.e\., Changjiang River); environmental issues associated with construction activities were limited in extent, were temporary and reversible, and could be readily managed by standard practices of good site management and engineering\. During project implementation the original classification was found to have been correct as no serious environmental issues arose\. 32\. Jiangsu PPMO was responsible for the review of Environment Management Plan (EMP) implementation with the assistance of consultants; it also supervised and reviewed all environmental management activities, such as training, coordination and reporting, based on details included in the respective Project EMPs\. Each PIU set up a separate environmental management division, and provided to contractors the detailed requirements for environmental management in construction contracts\. To facilitate the smooth implementation of EMPs, targeted on-the-job environmental training was provided to the PIUs\. No significant environmental management issues arose, and no complaints related to environmental impacts were received\. 33\. Both internal and external environmental monitoring was conducted during implementation, and monitoring results for operational plants met national environmental standards\. By covering the treatment tanks of Tiebei WWTP, the wastewater utility minimized odor nuisance and avoided resettlement burden – a good solution to solve an environmental and social problem\. In the later years of implementation, key water and wastewater quality data were reported regularly in the semi-annual progress reports\. Based on the EMPs, the following key environmental mitigation measures were employed: (i) control of air and noise pollution; (ii) control of wastewater pollution; (iii) control of the spreading of solid waste; and (iv) reducing the incidence of traffic conflicts\. For the project restructuring in November 2013, two additional EAs and EMPs were prepared for the two new sub-components\. Compliance with environmental safeguards is rated satisfactory\. Land Acquisition and Resettlement 34\. Land acquisition (LA) and resettlement of affected residents was undertaken in accordance with the resettlement action plans (RAPs) approved by the Bank\. During project preparation, the reduction of potential resettlement was a key criterion for the analysis of alternatives, and through this process, land acquisition and resettlement needs were substantially reduced from the initial estimates\. During implementation, PMOs and PIUs complied strictly with the requirements of the resettlement policies and relevant RAPs\. The resettlement agencies had local offices and a well-trained full-time workforce\. 10 35\. Project-affected persons (PAPs) were fully engaged through public participation activities, i\.e\., mobilization meetings to collect comments and opinions from PAPs\. The grievance redress and appeals mechanisms were also well publicized\. PIUs attached great importance to the prompt restoration of public facilities to high standards after temporary land occupation 494 PAPs were properly resettled and/or compensated; many of the PAPs initiated their own livelihood restoration measures, such as job training\. A total of 59 ha of land was acquired, and 1,043 ha of land was temporarily occupied during construction\. There was regular monitoring and review of all LA and resettlement activities by an independent external agency, and detailed reports were prepared periodically, with key findings summarized in the semi-annual progress reports\. LA and resettlement generally proceeded smoothly and compliance with social safeguards is rated satisfactory\. Financial management 36\. The project had a good financial management (FM) system that performed generally very well\. Consolidated project accounts were prepared in a timely manner and audited, as covenanted, within six months of the end of the calendar year\. All audit opinions were clean and no significant FM-related issues were identified by the audit reports\. The FY2013 project audit report disclosed minor non-compliance under the Nanjing component concerning national bidding and tendering procedures and some project management weaknesses, such as poor maintenance and filing of engineering documents\. The PPMO worked with the Nanjing PIU to address the noncompliance and improve the project management\. Overall, FM performance was satisfactory\. Procurement 37\. Procurement followed a detailed procurement plan that was updated regularly\. All project procurement followed Bank rules as set out in the loan agreement\. A total of 39 large contracts (prior and post-review), valued at more than US$200 million, involved Bank financing; three of these were ICB contracts for major plant equipment supply, valued at US$21 million\. Procurement issues and delays, if any, were flagged for action and resolution in the semi-annual progress reports\. The progress of bidding, contracting and construction was well monitored, and all contract changes, such as variation orders (VO), were well documented and followed the necessary Bank approval procedures\. No serious issues arose during implementation; a bidder’s complaint that was investigated in detail (which caused a significantly delayed contract award) led to work on improved bidding documents\. Compliance with Bank procurement guidelines is rated satisfactory\. 2\.5 Post-completion Operation/Next Phase 38\. By December 2015, at the end of the extended project implementation period, all facilities built with Loan financing had not only been completed but they were in full operation\. Specifically, the new and expanded WTPs are performing well and produce treated water at design capacity\. Most PIU staff were assigned from the water supply / wastewater companies to work with the PIUs\. These staff members have now joined the operating companies that are responsible for operation and maintenance (O&M)\. Therefore, 11 O&M of the constructed facilities is expected to be effective and the treated water will meet national standards for drinking water\. Three of four WTPs meet O&M costs through revenues from water tariffs; Zhenjiang Water Supply Company’s tariff revenue is high enough to cover full costs, including overheads and debt service\. The local governments provide subsidies to the other companies to make up shortfalls in tariff revenue; this is the accepted practice in China for urban water and wastewater utility companies, as water and wastewater companies are bound by the tariffs approved by local governments\. 39\. The new GIS-based network plans allow staff to operate and maintain pumping, transmission, and distribution facilities in an efficient manner, and the NRW reduction pilots have improved system performance\. The water supply companies are committed to continue the NRW reduction initiative\. 40\. The two new WWTPs in Nanjing are in operation and produce effluent that meets the national standards for tertiary wastewater treatment\. Capable staff are in place to operate the WWTPs and have been trained in all aspects of operations and management\. Specialized training in sludge management and odor control was provided by the TA consultants to ensure that the new treatment technologies are utilized in an optimal manner\. This training was complemented by international study tours to familiarize managers and operators with high standards of water and wastewater management\. The newly established institutional arrangements in Nanjing are expected to provide a solid foundation for the further development of sustainable wastewater services in Nanjing\. Wastewater tariffs were increased during the years of project implementation\. Although the current net income of Nanjing Municipal Water Group Company (NMWGC) is still negative, financial performance of NMWGC is expected to improve and become positive based on increased wastewater volumes and the resulting lower unit treatment costs\. 41\. The raw water intake for the Nanjing-Longtan WTP, the newly added sub- component financed by counterpart funds, is located only 1\.2 km downstream from a small, river-type oil wharf\. This is not in full compliance with Class II raw water regulations which require that intakes should be at least 2 km away from any potential upstream source of pollution\. However, the siting of the water intake for Longtan WTP is within the protection zone established by the Provincial Department of Water Resources since 2004 (covering the Nanjing Section of Yangtze River from Jiuxiang River Estuary to Qixiang River Estuary) and is compliant with the relevant regulations\. This zone and the protective regulations were further confirmed in 2008 and 2009 when the “Decision of Strengthening the protection of drinking water source by the Standing Committee of Jiangsu Provincial People’s Representative Congress” (No\. 146) and the “Approval of Provincial Government on the zoning of centralized drinking water source protection zones above county-level in Jiangsu Province” (SuZhengFu [2009] No\.2) were issued\. 42\. Nanjing Municipal Government has further strengthened environmental protection for the surrounding areas to ensure safe water use and abstraction at the intake\. Currently, staff from Longtan WTP patrols the water source protection zone twice a day in the Grade 1 protection zone and once a week in the Grade 2 protection zone\. Online monitoring instruments have been installed to monitor key parameters, such as turbidity, pH, 12 temperature, electronic conductivity, ammonia, COD and DO levels of raw water\. In addition, other important indicators of raw water quality are regularly monitored, including chromaticity, odor, visible substances, alkalinity, nitrite and nitrate, chlorine gas and free chlorine, total bacteria, total coliform and heat-resistant coliform\. To cope with any accidental pollution of the water source, emergency plans to deal with oil pollution and organic trace pollution have been developed\. An automated activated carbon dosing system has been installed and oil-absorbing cotton and pillows have been prepared for emergencies\. Working in parallel, relevant governmental departments have started to facilitate the relocation of the upstream wharf\. 43\. With regard to financial sustainability, all project cities witnessed an 11% average annual increase in GDP between 2009 and 2014, The rate and trend of increases indicates the potential economic capacity to afford the service and that the local governments have sufficient capacity to provide supplemental financial support\. This is consistent with China’s policy to provide financial support to water utilities to keep water and wastewater tariffs affordable\. An action plan, prepared by the project-financed tariff and institutional reform study, has laid out a road map of short, medium and long term actions on all important areas of water and wastewater service provision (see Annex 2)\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Relevance of Objectives Rating: High 44\. The PDO was fully consistent with the Bank Group’s 2006 – 2010 China CPS, which sought, among other objectives, to: (i) improve the competitiveness of the various regions of China and the overall investment climate, and (ii) address the needs of disadvantaged groups and underdeveloped areas through financing infrastructure\. Specifically, the project supported the CPS objectives of: (i) reducing poverty, inequality, and social exclusion; (ii) financing sustained and efficient growth; and (iii) improving public and market institutions\. The PDO continued to be relevant to the current CPS for the period of 2013 – 2016, which highlights the high level of pollution in China’s water bodies that necessitate better management of environmental pollutants from wastewater\. The current CPS also recognizes the need for high-quality public services; promoting an integrated approach to water and environmental management; expanding safe water supplies to smaller cities; enhancing urban environmental services through improved water supply and wastewater collection, treatment and disposal; and enhancing opportunities in rural areas and towns through improved services\. 13 45\. The project was also relevant to China's 12th Five Year Plan 5, which covered the years from 2011 to 2015; it promoted sustainable growth, and it particularly aimed to address environmental and social imbalances through the development of services and measures to set targets for reduction of pollution and increased energy efficiency\. The project was – and continues to be – relevant to the current phase of the Jiangsu Rural Drinking Water Initiative, which started in 2009 and will be effective until 2018\. The objective of the initiative is to provide better water services for rural areas, including townships, and to connect households\. Network expansion and improvements were part of this initiative, and the project responds to this provincial program\. Relevance of Design and implementation Rating: High 46\. Project design built on the lessons of earlier projects in Jiangsu\. Possible design alternatives were carefully considered before selecting an option that would deliver high water and wastewater quality standards; meeting the standards Jiangsu Province considered a necessity and a priority\. The few modest risks discussed in section 2\.1 were mitigated through project design and government actions\. The PDO addressed the key sector needs and the environmental concerns clearly\. The three projects components, namely water supply expansion, wastewater management, and implementation and capacity building support, were fully aligned with each element of the PDO\. 47\. Project design was flexible and accommodated some changes in the project scope\. The project was adjusted to cope with linked road construction schedules, resettlement challenges, and opportunities for leveraging extra funds through BOT financing; these led to a surplus of loan funds that was used to finance other priority sub-projects\. 48\. The technical assistance support was well designed and implemented; it focused on practical aspects of water supply and wastewater management operations, such as high quality treatment standards, taste and odor control, network management and optimization, NRW reduction and financial modeling to ensure financial viability\. Tariff structure and institutional reforms were addressed in a short, medium and long-term action plan\. Capacity building as part of project implementation also provided valuable experience – as described in the Borrower’s completion report (see Annex 7) – in procurement and project management\. Considering the relatively small budget for consultants’ services, the TA was very efficient in view of the significant impacts it had on building technical and institutional capacity\. 49\. The results framework (RF) was well designed with focused and appropriate key and intermediate outcome indicators that captured the most important outcomes\. The indicators focused on service coverage and some were aggregated to facilitate monitoring\. The indicators and targets were reviewed during implementation and modified through 5 The current CPS and the 12th Five Year Plan were informed by the joint study, “China 2030”, prepared by the Bank and the Development Research Center of the State Council of China\. 14 restructuring, where appropriate\. Apart from the initial minor delay, the well-established M&E system enabled regular and smooth data collection to update the RF\. 3\.2 Achievement of Project Development Objectives PDO: Improve the efficiency and effectiveness of water and wastewater services and reduce pollution discharges to local rivers in Jiangsu\. Rating: High (i) Improve efficiency of water supply services Sub-rating: High 50\. Project activities contributed significantly to important efficiency improvements to water supply services in Nanjing and in the other four cities\. The NRW reduction strategy was developed by the TA consultants jointly with the four water supply PIUs\. It comprised improved pressure management, reinforced leakage detection capabilities, improved customers’ meter management, improved asset management, and improved town system management through agglomeration and reorganization of services\. Implementation of this strategy led to average NRW being reduced in the targeted four cities from 27% to 22%, and it increased the number of towns which meet the strategic targets for NRW to 58\. NRW activities have increased water availability by more than 50,000 m3 (equivalent to around US$10 million in annual revenue increase at an average price of US$0\.5 per m3)\. 51\. Implementation of Jiangsu Province’s integrated urban and rural water supply plan under the project resulted in a staffing plan being developed based on the size of service area, annual water sale and number of water users\. Out of the original team, most staff was recruited into the new team based on their experience and capability, while the remaining staff were either reassigned by the local government or took early retirement\. For example, in Danyang 165 staff were finally recruited while in Zhenjiang, over 85% of the staff from the original town/township water treatment plants were taken on by the three new wholly- owned subsidiaries of Zhenjiang Municipal Water Supply Company\. 52\. The project also improved the efficiency of water supply services through: (i) increasing the efficiency of WTPs and reduction of water treatment costs; (ii) improving the operational performance of the water distribution networks, using project-financed GIS-based mapping and monitoring (implemented with the support of project-financed consultants); (iii) reduction of water losses and increased water sales and revenues, as a result of project-financed rehabilitation and repairs of pipeline networks, water meters and house connections; and (iv) expanding service areas to cover 84 rural towns, leading to increase in water sales and hence revenues\. The efficiency increase in water supply interventions is demonstrated by Economic Internal rates of return (EIRR) in the 10% to 20% range for various water supply sub-components (see Section 3\.3 and Annex 3 for details)\. (ii) Improve effectiveness of water supply services Sub-rating: High 15 53\. The project successfully improved the availability of adequate, reliable and high quality water supply for a population of 4\.65 million through investments, supported by the highly effective and focused TA that led to improved project management\. Good project outcomes are demonstrated by water service coverage reaching 99\.8% in cities (from a baseline of 96% while the target was 98%) and 100% for towns (from a baseline value of 78% and a target of 93%)\. Project towns with 24 hours coverage has increased to reach 84 from a baseline of 40 (well above the target of 52) and 70 towns have been agglomerated with the city services from a baseline of 14\. 54\. The main project outputs that contributed to improve the effectiveness of water supply services in Jiangsu Province and to achieve the above outcomes, include the construction of: (i) three new raw water intakes and pumping stations with a combined capacity of 705,000 m3/day; (ii) 26\.1 km of large diameter raw water transmission pipelines; (iii) five new WTPs with a combined capacity of 650,000 m3/day; (iv) three new clear water pumping stations with a total capacity of 145,000 m3/day; (v) 594 km of treated water transmission and distribution pipes; and (vi) 1,815 km of new and rehabilitated water distribution lines in the rural towns\. (iii) Improve efficiency of wastewater services Sub-rating: High 55\. The project contributed to the improved efficiency of wastewater services in three cities in Nanjing Municipality (Chaobei, Chengbei and Tiebei), as a result of the following measures: (i) design and layout of WWTPs optimizing the use of space and reducing the need for costly and disruptive land acquisition; (ii) application of advanced tertiary wastewater treatment technology that achieved effluent quality at the lowest possible energy costs; (iii) reducing the fixed part of treatment cost through maximizing the utilization of WWTPs, construction of a new sewage pumping station in Meijiatang that enabled the existing Chengbei WWTP in Nanjing to be operated at full capacity of 300,000 m3/day; (iv) utilization of efficient variable speed pumps that improved energy efficiency at partial flows; (v) covering of WWTP treatment tanks to reduce odor nuisance to a tolerable level and avoid resettlement of residents in the vicinity; (vi) comprehensive training of plant operators in new treatment technology and sludge handling; and (vii) acquiring the services of a private sector operator for sludge incineration through service contracts as the least-cost option for sludge disposal\. 56\. The above achievements were supported by well targeted and competently executed TA support that focused on procurement and contract management, quality of technical design and construction, and the training of operating staff\. The efficiency of the wastewater investments was demonstrated by the EIRR results of 13\.4% for the Nanjing wastewater component (see Section 3\.3 and Annex 3 for details)\. (iv) Improve effectiveness of wastewater services Sub-rating: High 57\. The project contributed to improving the effectiveness of wastewater services in the project areas by expanding the collection systems and reducing pollution discharge to 16 local surface and groundwater\. The technical assistance for design review, training and study tours made important contributions to the standards of quality of works and outputs\. Achievements in terms of wastewater service effectiveness are evident through: (i) annual COD load reduction from municipal wastewater to 60,729 tons, exceeding the target of 43,000 tons a year; (ii) service coverage reaching 95%, exceeding the target of 83%; and (iii) 100% of the generated wastewater in Nanjing being treated, exceeding the target of 83%\. The Taixing WWTP was dropped from the project, but was constructed by the private sector under a BOT arrangement\. This, in turn, freed up funds to finance additional works relevant to the PDO, e\.g\., the strategic Longtan WTP in Nanjing\. 58\. The expansion of the sewerage collection system and increase in WWTP capacity benefitted 533,000 people (and is projected to serve 781,000 by 2020) within a coverage area of 146\.9 km2\. The associated achievements in terms of reduced pollution discharges are shown in Section 3\.2 (v) below\. 59\. The above improvements in wastewater service were achieved through the construction of: (i) 99 km of new wastewater collection lines in Tiebei and Chengbei; (ii) two sewage pump stations in Tiebei and Chengbei with a combined capacity of 77,000m3/day; and (iii) two WWTPs in Qiaobei and Tiebei with a combined capacity of 200,000 m3/day\. (v) Reduce pollution discharges to local rivers in Jiangsu Sub-rating: High 60\. As mentioned earlier, the project achieved a very significant and measurable reduction in pollution discharges to local rivers: in 2015 it amounted to a reduction of 60,729 tons/year of COD pollution loads from municipal wastewater in the project catchment area – far exceeding the key indicator target set at appraisal (39,436 tons) as well as the revised target set at project restructuring (43,000 tons), in spite of two cities (Danyang and Taixing) dropping out during project implementation\. Key parameters of the treated effluent were tested regularly by an external environmental monitoring agency and met the Class 1A Pollutant Discharge Standard\. Expansion of, and improvements to, the wastewater collection systems, including the construction of 99 km of 300 – 1,500 mm diameter wastewater collection pipes and two large sewage pump stations with a combined capacity of 77,000 m3/day in Tiebei and Chengbei in Nanjing, greatly contributed to the pollution reduction\. TA support for design review and quality construction supervision as well as project innovations also contributed to these achievements\. Investments in wastewater infrastructure resulted in the treatment of 100% of the generated wastewater, thus protecting local rivers and water bodies in Jiangsu from domestic wastewater pollution\. 3\.3 Efficiency Rating: High 61\. Economic Internal Rates of Return (EIRR) had been calculated for all sub- components at appraisal\. Re-calculation of the EIRR of the various sub-components after completion demonstrated good rates of return: in the 10 – 11% range for city water supply 17 sub-components; 20% for the Nanjing Longtan WTP; and 13\.5% for the WWTPs in Nanjing\. All EIRRs are particularly sensitive to increases in operating costs\. EIRRs at appraisal had ranged from 10\.6 to 13\.1%, i\.e\. they were close to the rates at completion\. 62\. Project-financed TA updated the financial models for the participating utility companies; this enabled them to calculate Financial Internal Rates of Return (FIRR) at project completion\. FIRRs for the four city water supply companies are in the 10 – 11% range, for Nanjing Longtan water supply the FIRR is 19%, and for the two Nanjing WWTPs the FIRR is 6\.9%\. The FIRRs are sensitive to lower revenues and higher operational costs, two aspects that received special attention under project TA\. FIRRs at appraisal were between 8\.8 and 10\.5% for water supply, and 8\.5% for the Nanjing wastewater sub-components\. 99% of project costs were subject to EIRR and FIRR analysis\. Annex 3 provides more details on the assumptions and results of the EIRR and FIRR calculations; further details are in Annexes 5 and 6 of the Borrower’s ICR\. 63\. To ensure least cost results, competitive bidding was used for all supply and construction contracts, including ICB contracts for large treatment plant equipment\. Cost- efficient solutions were adopted whenever possible, i\.e\. avoiding costly and disruptive resettlement by covering the Tiebei WWTP to reduce odors, and by stacking the sedimentation tanks above the reservoir in the Zhenjiang WTP\. TA inputs, which accounted for less than 0\.5% of total project costs, contributed significantly to reducing costs and increasing efficiency\. 64\. Project implementation also demonstrated high administrative efficiency: (i) original project components were implemented at or below costs and within the project period; (ii) sub-components added at restructuring only required a one-year extension of the closing date and were completed as planned; and (iii) the Loan was almost fully utilized (99\.6%)\. 3\.4 Justification of Overall Outcome Rating Rating: Highly Satisfactory 65\. Based on the ratings of high for relevance of project objectives, relevance of design, achievement of the PDO, and efficiency, the overall outcome of the project is rated Highly Satisfactory\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 66\. Lower income households which are more likely found in underserviced areas of cities would have benefited proportionally more from the significant expansion and improvements of water supply and wastewater services, especially in the surrounding rural areas; however, poverty impacts of the project were neither monitored nor measured\. There were no specific gender themes or impacts of this project but the environmental and resettlement monitoring likely had considerable positive social impacts on the affected households\. Local communities were encouraged to participate in public consultations and had opportunities to contribute to addressing environmental and social problems through 18 the well-designed grievance process\. (b) Institutional Change/Strengthening 67\. The capacities of staff of the provincial, local government and utilities were strengthened significantly, not only through the well-targeted capacity building TA, but also by acquiring practical on-the-job experience in project and financial management, application of competitive procurement procedures, and employing innovative technical solutions\. Staff capacity for operation and management of the newly built facilities was increased through training and study tours\. Staff of project utilities also benefited from the major project-financed study on tariffs and institutional reform; a financial model was built for all water companies to facilitate financial planning and projections\. The study also provided a plan of actions to reform and strengthen the utilities over the medium term\. (c) Other Unintended Outcomes and Impacts (positive or negative) 68\. Project investments in additional drinking water treatment capacity led some of the participating utilities to raise treated water quality to a higher level, i\.e\., they installed tertiary treatment, also called “polishing” (involving ozone and activated carbon), in Zhenjiang and in the Nanjing area out of concern over customer complaints regarding poor taste and odor\. In the case of the two Nanjing WWTPs, wastewater effluent quality is high enough that there is now some water re-use by industry\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 69\. There was no beneficiary survey and no stakeholder workshop\. 4\. Assessment of Risk to Development Outcome Rating: Low 70\. The main risks to the PDOs are: (i) poor quality operations; (ii) failure to continue NRW reduction efforts; and (iii) inadequate tariffs to cover costs including debt service by the water supply and wastewater companies\. These risks are rated low and were readily mitigated by: (i) training of staff using project-funded TA that focused on treatment technology and good O&M, as well as study tours; (ii) NRW reduction and network modeling and optimization techniques, plus training in asset management; and (iii) training and advice on financial aspects of utility management, e\.g\., financial modeling and tariff reform\. Network expansion into growing peri-urban and rural areas is expected to increase the customer base, water sales and net revenues; this will enable the utilities to become financially more self-reliant\. In addition, the municipal governments involved are able and willing to provide financial support to utilities whose revenues are falling short\. The short term risk of the Nanjing intake being located close to an oil wharf is discussed in Section 2\.5 above\. 19 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 71\. The quality of the Bank’s good performance during preparation and appraisal was demonstrated through: (i) designing a well-balanced water and wastewater project with a clear PDO that was highly relevant for the water and wastewater sector in China and in Jiangsu Province; (ii) appropriate technical solutions, based on the consideration of alternatives; (iii) conducting a well-documented economic and financial analysis of all infrastructure investments; (iv) carrying out a sound assessment of environmental and social impacts and guiding the project agencies in preparing acceptable EIAs and associated EMPs, as well as comprehensive RAPs, for each component; (v) ensuring that project implementation arrangements were appropriate and in line with provincial-level urban infrastructure projects in China; and (vi) assigning a competent task team to take the project to approval in a relatively short time\. A minor shortcoming was the selection of some sub-components that had to be dropped during implementation as part of project restructuring in 2013\. 72\. Based on the above, the Bank’s performance in Ensuring Quality at Entry is rated as Satisfactory\. (b) Quality of Supervision Rating: Satisfactory 73\. The quality of the Bank’s performance during supervision has been demonstrated through: (i) focusing on technical aspects and project management to ensure good quality technical implementation that produced the outputs necessary to achieve the desired outcomes; (ii) fielding technical teams for follow-up outside of regular supervision missions; (iii) ensuring the submission of timely and comprehensive semi-annual progress reports to document status and progress towards achievement of outputs and outcomes; (iv) paying specific attention to procurement, FM and safeguards issues by assigning specialized staff to join supervision missions to review progress and resolve implementation issues; (v) actively assisting the PPMO to advance project restructuring and requiring new EMPs and RAPs to be prepared and reviewed before approving the restructuring; (vi) supporting institutional and financial aspects of implementation with sound advice; and (vii) supervising the project at regular intervals – albeit at longer intervals in the first few years – and providing thorough and candid assessments in the ISRs\. The Bank’s Quality of Supervision is therefore rated Satisfactory\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 74\. Based on the Satisfactory ratings for Quality at Entry and for Quality of Supervision, Overall Bank Performance is rated Satisfactory\. 20 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 75\. Both the central government and the provincial government provided appropriate guidance and support during all stages of the project\. The PPMO, which was responsible for the overall guidance and coordination of the project, had rich experience in implementing a Bank-financed project through the Tai Basin Urban Environment Project, and it had demonstrated a strong and efficient leadership in managing and implementing the project\. In particular, the PPMO: (i) worked closely with the Bank during project preparation and generated timely feasibility reports, design documents and the required safeguards documents; (ii) installed proven implementation arrangements to provide effective project management and coordination with competent staff and adequate continuity; (iii) ensured timely preparation and delivery of all progress reports, audit reports, and interim financial reports (iv) when some sub-components had to be dropped during implementation, presented timely proposals for restructuring and successfully replaced dropped sub-components with equivalent investments; (v) prepared a comprehensive application for a project restructuring to still achieve the PDO and to fully utilize the Bank loan; (vi) updated the economic and financial analyses and re-calculated the EIRRs and FIRRs at project completion; and (vii) delivered a good quality and timely Borrower’s implementation completion report\. The delayed formal application for, and late approval of, project restructuring were minor shortcomings\. 76\. On balance, Borrower Performance is rated Satisfactory\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 77\. With the changes to project sub-components, the project had five PIUs: Taixing Water Supply Co\.; Danyang Water Supply Co\.; Zhenjiang Water Supply Co\.; Yancheng Huijin Water Affairs Co\. Ltd\.; and Nanjing Municipal Water Group Co\. Ltd\. jointly with Nanjing Urban Construction Investment Holding (Group) Co\. Ltd\. (responsible for the implementation of the Nanjing wastewater sub-components and the Longtan WTP)\. Danyang Water Supply Co\. implemented the project as per the original scope\. The other four PIUs faced some changes which required amendments to the scope of the original contracts\. The companies were successful in managing changes as a result of other infrastructure development plans, e\.g\., road construction in the case of Tiebei Water Supply Co\., and availability of private sector financing in the case of Taixing Water Supply Co\. and its BOT arrangement to build the WWTP\. All PIUs completed the planned, as well as additional, works by proper sequencing of activities within the project period\. The PIUs were supported by, and benefitted from, the TA and training\. They achieved satisfactory implementation performance and maintained the focus on project management (including FM, procurement, technical quality, and safeguards monitoring)\. 78\. All implementing agencies performed equally well in: (i) implementing EMPs and RAPs, and using external monitoring agencies to gather data on environmental and social aspects of implementation to ensure full compliance with Bank policies, especially on land 21 acquisition and resettlement; (ii) setting up separate units for implementing land acquisition, including public consultation and a grievance redress process; (iii) utilizing procurement training to ensure compliance with Bank procedures (including for some ICB packages) despite the initial lack of familiarity with Bank procurement of some PIUs; (iv) managing changes in contract scope and variations while keeping contract costs within set budget limits; (v) setting up project accounts and putting in place good FM systems that resulted in timely and issue-free audits; (vi) meeting all financial covenants; (vi) after some initial problems and delays, producing comprehensive and timely semi-annual progress reports with good monitoring data and information; (vii) keeping close track of project monitoring indicators and making sure that the targets were achieved; (viii) through the use of provincial authority and building on earlier pilot projects, successfully completing the agglomeration of a large number of peri-urban and rural systems into city water supply companies; (ix) designing and implementing an effective NRW reduction initiative for 58 agglomerated towns through the use of incentives to motivate staff; (x) by project closing, operating all project-financed facilities, especially treatment plants, and meeting water quality and effluent parameters; and (xi) adopting an action plan to guide utilities to continue tariff and institutional reform actions in the short, medium and long term until 2030\. 79\. Based on the above, the performance of implementing agencies is rated Satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 80\. Based on the Satisfactory ratings for Government and Implementing Agencies Performance, Overall Borrower Performance is rated Satisfactory\. 6\. Lessons Learned (a) General 81\. Strong provincial leadership can create a supportive enabling environment that contributes greatly to successful implementation\. The Jiangsu Provincial Government’s strategy and pilot projects for water systems agglomeration, high effluent standards, and experienced and competent PPMO staff were key elements for achieving good outcomes\. Salary incentives for staff, good support from the TA consultants, and helpful Bank supervision inputs also contributed to successful implementation\. 82\. Cost recovery can be achieved through subsidies by the municipal governments\. In China it is common practice for municipal governments to set tariffs at levels that they consider affordable and provide annual subsidies to water and wastewater companies in order to cover any revenue shortfalls\. Until agreement is reached with Government on the appropriateness of such subsidies, individual Bank projects should focus on strengthening the capacities of utilities to operate efficiently and ensure that municipal governments confirm that they would provide the required subsidies if the tariff levels are not raised to recover costs\. 22 83\. Well designed, targeted and focused TA that is implemented in a timely manner can achieve good results, even on a low budget\. Project TA was less than 0\.5% of project costs; nevertheless, it was credited by the Borrower and by staff for having built capacity for technical quality and innovation, project management and procurement, system mapping and NRW reduction, asset management, and O&M arrangements\. The PPMO in particular was well supported by TA, which was key to successful project implementation\. (b) Operational 84\. Loan reallocations can be made in a timely and effective manner, without negative impacts on completion time and project outcomes\. Based on lessons from previous projects, the PPMO succeeded in adding two important new sub-components and fully utilized Loan proceeds: early preparations were made, discussions were held with the Bank, agreements were reached, and procedures were fast-tracked to allow the identification, preparation, and implementation of two beneficial additional investments, i\.e\., the Longtan WTP and the Taixing water supply network rehabilitation\. 85\. Sub-standard water supply systems of peri-urban and adjacent rural areas can be successfully integrated and amalgamated into larger urban systems\. Based on a provincial strategy for the aggregation of water supply services, a large number of peri- urban and rural water systems were amalgamated without negatively affecting the viability and performance of the large urban water supply systems\. This effective approach built on earlier pilot projects and employed well-planned and targeted network rehabilitations, GIS- based system mapping and management, NRW initiatives (see also below) and the installation of water meters\. Centralized provincial level decision-making was a key factor for the quick aggregation of smaller systems\. 86\. NRW reduction pilot projects can achieve their targets if they are well prepared and implemented using advanced technology and incentives for staff\. Targeted surveys, field visits and interviews helped the project to set realistic, yet challenging, NRW reduction targets specific to conditions in each project city\. Leak detection devices, electronic metering and network mapping, together with ongoing monitoring, supported NRW implementation\. Dedicated staff units and incentive systems for staff also helped to improve outcomes\. 87\. Innovative solutions can help address environmental and social problems\. The new Tiebei WWTP caused odor problems that would have required the resettlement of several hundred close-by residents\. Covering the treatment tanks at relatively low incremental cost solved the odor problem and thereby avoided the need for costly and socially disruptive resettlement of local people\. In the case of the Zhenjiang WTP, the treated water reservoir was built directly below the sedimentation tanks, thereby saving valuable space and also avoiding more land acquisition and resettlement of people\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 23 88\. The Borrower in the December 2015 draft implementation completion report (see Annex 7 for the Executive Summary) stated that “the JWWP has been very successful, with most of its original objectives achieved, particularly in terms of institutional intervention\. The Bank was not only a funding source but also provided state-of-the-art management expertise regarding project implementation and business operations such as modern project management, international bidding and contracting, construction supervision, international routine practices, performance measurement, and project completion reporting\. Significant capacity building in relevant aspects of procurement using Bank’s guidelines, contracting and project management, WTP and WWTP operations and maintenance, environmental monitoring, and financial management was achieved\. In particular, the Bank’s construction management procedures, demonstrating fairness and accuracy, were considered to be a prerequisite of project success”\. 89\. The Bank concurs with these observations; they demonstrate the relevance and value of Bank support well beyond the financial resources\. Jiangsu Province made very good use of the assistance and advice offered by Bank staff and the consultants, and as a result the project achieved its objectives in a highly satisfactory manner\. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 24 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) A\. Municipal & City Water Supply 152\.1 165\.38 108\.7 B\. Wastewater management 199\.3 207\.40 104\.1 C\. TA & Capacity building 2\.5 1\.69 67\.6 Total Baseline Cost 353\.8 374\.47 105\.8 Physical Contingencies 17\.6 0\.00 0 Price Contingencies 43\.4 0\.00 0 Total Project Costs 414\.8 374\.47 90\.3 Interest during implementation 16\.7 0\.33 0\.5 Front-end fee IBRD 0\.3 0\.00 0 Total Financing Required 431\.8 374\.80 86\.8 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 301\.80 245\.60 81\.4 International Bank for Reconstruction 130\.00 129\.20 99\.4 and Development Total financing 431\.80 374\.80 86\.8 25 Annex 2\. Outputs by Component A\. Components 1 and 2 of the project generated a large number and range of physical outputs with many general and some city-specific outcomes\. The main outputs and outcomes are shown below in matrix format\. The outcomes all contributed to the achievement of the PDO which were “to improve the efficiency and effectiveness of water and wastewater services and reduce pollution discharges to local rivers”\. CITY OUTPUTS OUTCOMES Component 1 – Water supply expansion Danyang - improved supply capacity & reliability for 310,000 customers - capacity expansion of Changwan - treated water quality meets new WTP from 100,000 to 200,000 m3/d national “Hygienic Standard for including sludge treatment facilities Drinking Water Quality” - reduced water use & increased - construction of 15 km 1800 mm working efficiency of WTP operations dia\. raw water transmission pipeline - treatment of 11,000 tons of sludge in 2014 improved river environment - reduced WTP operating costs Taixing - expansion of Baota WTP by 50,000 m3/d of capacity - 27\.3 km of clear water - water supply capacity increased from transmission lines (300 to 800 mm 90,000 m3/d to 200,000 m3/d dia\.) - greater reliability of supply - expansion of Heshi pumping - additional population of 700,000 is station (PS) to 80,000 m3/d of served by expanded system capacity - rural towns benefit from higher - expansion of Huangqiao PS to quality & greater reliability of water 45,000 m3/d of capacity supply - construction of Zhangqiao PS with - treated water quality meets new capacity of 20,000 m3/d national standard for drinking water - construction of 144\.8 km of clear - water losses (=NRW) have been water transmission lines (200 to 800 reduced mm dia,) to townships - water sales and company revenues - construction of water supply have increased systems in 8 townships involving 355\.6 km of pipes up to 300 mm dia\. - all 16 townships are covered by - implemented “Township Water expanded system Supply Network Rehabilitation - total population served is 1\.2 million Project” incl\. rehabilitation of after township rehabilitation project 1,339\.44 km of water distribution lines in 8 communities in 6 towns, incl\. 41,000 house connections and water meters Yancheng - capacity expansion of Chengdong WTP from 100,000 to 200,000 m3/d - significantly increased supply - construction of 200,000 m3/d capacity capacity raw water intake PS - greater reliability of supply 26  - construction of 10\.75 km 1,400 - high quality of treated water which mm dia\. raw water pipeline meets new national standard for - laying of 58\.2 km 500 to 800 mm drinking water dia\. clear water transmission lines - total population served is 1\.04 - expansion & rehab of distribution million in 2016, with capacity for 1\.26 networks (366 km, 50 - 200 mm million by 2020 dia\.) in townships of Qinnan & Longgang Zhenjiang - capacity expansion of Jinshan - expanded WTP serves a population WTP from 100,000 to 300,000 m3/d of 1\.1 million - construction of 100,000 m3/d - guaranteed reliable supply for urban capacity raw water intake PS & suburban areas of Zhenjiang - construction of 265m long 1200 - high quality of treated water which mm dia\. raw water intake pipe meets new national standard for - rehabilitation & expansion of drinking water water distribution networks in - significant reduction of NRW Xinfeng & Dinggang towns - increased water sales & revenue involving 109\.1 km of 50 to 200 - accurate water metering increases mm dia, pipes revenue & reduced complaints - rehabilitation of 6,480 water meters Longtan in - construction of 200,000 m3/d - serving a total population of 1 Nanjing capacity WTP million - construction of Yangtze River - high quality of treated water which water intake using 2 x 2,200 mm meets new national standard for dia\. pipes of 338 m in length drinking water with turbidity of less - construction of intake PS with full than 0\.2 NTU capacity of 800,000 m3/d (installed - raw water intake facilities and layout capacity is 3 x 105,000 m3/d) of WTP provide room for significant - construction of 8\.2 km clear water capacity expansion for future growth main of 1,200 mm dia\. in the Nanjing area Component 2 – Wastewater management Nanjing - - total area served is 120\.6 km2 with Qiaobei - construction of Qiaobei WWTP current population of 408,000 growing with capacity of 100,000 m3/d to 750,000 in the medium term using advanced A/A/O biological - 100% of WWTP effluent meets Class process 1A of Pollutant Discharge Standard for towns Nanjing - - construction of Tiebei WWTP - total area served is 26\.3 km2 with Tiebei with new capacity of 100,000 m3/d current population of 125,000 growing - construction of PS with capacity of to 231,000 by 2020 50,000 m3/d - 100% of WWTP effluent meets Class - construction of 56 km of 400 to 1A of Pollutant Discharge Standard for 1,500 mm dia\. wastewater towns collection system Nanjing - - with completion of new PS, existing Chengbei - construction of 43 km of 300 to Chengbei WWTP can be operated at 1,500 mm dia\. wastewater full capacity of 300,000 m3/d collection system - WWTP effluent meets Class 1A of Pollutant Discharge Standard for 27  -construction of Meijiatang PS with towns capacity of 27,000 m3/d - more wastewater intercepted & treated - local environment & river improved The project activities under Components 1 and 2 described above are the detailed activities as actually implemented\. As part of November 2013 project restructuring, two activities were reduced in scope, three items of the original project scope at appraisal were dropped, and two new subcomponents were added\. These changes are listed in detail in the table below; the table also provides the specific reasons for the various changes in the project scope\. Project Scope Changes and their reasons CHANGE REASON Yangcheng water supply was Towns involved used their own financing to reduced substantially in construct part of the water supply lines\. scope\. Danyang (Shicheng urban Lack of progress with land acquisition and district) wastewater resettlement of a linked river rehabilitation project\. collection system was dropped\. Tiebei wastewater collection Contracts for linked urban roads were delayed and in Nanjing city was reduced not all sewers could be installed\. in scope\. Construction of WWTP in Local government decided to have the WWTP Taixing (Huangqiao Town) constructed under a BOT scheme\. was dropped\. Institutional capacity Because of the cancelation of the Huangqiao building TA for the Taixing WWTP, there was no need for the associated Huangqiao Wastewater institutional capacity building technical assistance\. Treatment Company was canceled\. Taixing Town Water Supply Use of loan savings to expand supply system and Networks Rehabilitation was increase water sales from the new WTP\. added\. Nanjing Longtan WTP was Use of loan savings for new medium/long term added\. WTP for the fast growing Nanjing City\. B\. Component 3 comprised four consulting contract packages\. The consultancy for project and contract management provided essential assistance to the PPMO and PMOs during implementation, and also produced the Borrower’s ICR report\. Another package produced a comprehensive study of water tariffs and financial reform of water supply companies, and the fourth package piloted the implementation of GIS-based network management systems in two cities, including the supply of software and hardware\. The last package was for several training and international study tours\. One package – for institutional 28 strengthening of Taixing WW Company – was canceled because the associated wastewater sub-component for Taixing – Huangqiao was dropped from the project\. Together with some savings due to competitive bidding, this has resulted in major saving in the budget of component 3 (from $2\.5 to $1\.69 million), which though small but led to high percentage decrease in the overall component 3 budget to become 67% of the appraisal estimate\. The consultancies provided a range of services; they are shown below in matric format, together with the key outcomes they generated\. Component 3 – Institutional strengthening and capacity building (4 TA packages) Contract Outputs Outcomes Project and - suggestions & on-the-job training - project implementation Contract on procurement, construction & proceeded smoothly Management & contract management, fund - no complaints received with Design Review utilization, env\. mgt\., land acquisition regard to environmental & land Services & resettlement acquisition aspects - specific training events were held: - project stakeholders, such as *Financial management, PIUs, contractors, supervision withdrawal & disbursement consultants & others were fully procedures supported with advice & training *Project financial management & - well trained operators in WW audit requirements treatment & sludge handling *Operation & management of - 9 towns in Taixing & Zhenjiang WWTPs, sewage sludge mgt\. & odor were identified as pilots for NRW control initiatives & significant NRW - performed study on NRW reduction reductions were achieved by strategies targeting Danyang, Taixing pilots & Zhenjiang Tariff Study & - preparation of “Financial Projection - extensive consultations on tariff Town Water Model & Analysis Report” for each & financial reform were held with Supply Instit\. & project PIU local authorities concerned Financial - preparation of “Water Tariff - discussion of action plan for Reform Institutional Reform Report” utility companies to implement Action Plan The nine action areas covered: - Promotion of PS investments in water & wastewater services - Tariff review mechanisms Generated nine recommended actions - Tariff structures, incl\. block and for water and wastewater companies progressive tariffs to implement over the - Wastewater providers & tariff - short (3 – 5 years), principles - Performance benchmarking - medium (5 – 10 years), and - Government subsidy issues - longer term (10 – 15 years) - Provincial level water sector consultative committee - Public participation promotion - Incentive schemes for state- owned enterprises in water sector GIS-based Net- - demand survey & analysis for each - Danyang integrated GIS network work Plans for of 4 project cities data with monitoring data in a 29 Town Networks - outline design reports for 4 cities new control center for early & Transmission - procurement & supply of GIS detection & quick repair of Lines platform software network problems - start-up of data processing in - GIS data facilitates efficient & Taixing & Yancheng rational management of water - procurement of hardware for supply system Taixing - targeted NRW reduction program Training & - Nanjing PMO to Australia & NZ - officials & technical staff from Study Tours - Taixing PMO to France & NL competent authorities had many - Zhenjiang PMO to Australia & NZ opportunities to learn from the - Danyang PMO to Australia & NZ experience & expertise in - Yancheng PMO to Australia & NZ developed countries about - Jiangsu Prov\. PMO to France &NL municipal water supply & - Jiangsu Prov\. PMO to Australia wastewater management 30 Annex 3\. Economic and Financial Analysis 1\. Economic benefits Upon project completion, economic analysis was conducted to evaluate the economic performance of the project\. The project’s primary benefits are: • Reduction in poverty and inequality through balanced urbanization and access to basic infrastructure services; • Better management of scarce water resources and environmental challenges; and • Improvement of public health through safe and clean drinking water and a reduction of untreated wastewater discharge into local rivers and open channels\. In addition to these key benefits, project investments directly benefited an additional 1\.99 million people with new and improved water supply, and an additional 1\.04 million people with wastewater treatment facilities\. The five water supply companies and the two WWTPs in Nanjing added about 900 permanent jobs to the local economies, with Taixing providing about half of these new positions\. 1\.1 Water Supply Component Specific benefits associated with improved water supply treatment and distribution services include: (i) water tariff revenue; (ii) health benefits, such as reduction in incidence of stomach and intestinal diseases due to improved water quality; (iii) labor savings; and (iv) increased industrial production outputs (added value) in project cities\. Due to the difficulty of quantifying the benefits of labor savings and increased industrial production, only tariff revenues and increased health benefits were used for calculating the EIRR, i\.e\., the same benefits that were used at appraisal for computing EIRR\. Municipal water operating revenues Table 3\.1 below presents the operating revenues for the five project cities in 2009 and 2014\. Increases ranged from 30% for Nanjing to more than triple in Danyang and Yancheng over five years\. With the exception of Danyang, operating revenue increase is substantially a direct result of the increase in the volume of water sold (as a result of increasing production capacity and reducing losses, as well as expanding the service area)\. In Danyang this is also attributed to the tariff increase (more details are provided in Section 2\.1)\. Table 3\.1: Water operating revenues in 2009 and 2014 (RMB million) City 2009 2014 Rate of increase Zhenjiang 110\.1 157\.7 46% Danyang 40 137\.1 243% Yancheng 102\.88 179\.42 74% Taixing 28 94 236% Nanjing 529\.04 (2012) 688\.19 30% 31  Total 807\.92 1256\.41 56% Water-borne disease incidence and reduced medical expenses Important health benefits were derived from the specific project interventions\. With the project, improved water quality would have reduced the incidence of diseases attributed to contaminated water\. The EIRR was calculated for Danyang only, as an example of a city where good health data was available\. The calculations used: disease incidence rates for 2009 and 2014 as reported by Danyang Water Supply Company, the respective population numbers, and reduced medical expenses for treating water-borne diseases\. Table 3\.2: Water-borne Disease Incidence and Medical Expenses Incidence Expenses Incidence Reduced Medical Rate saved Diseases Rate % affected Expense/time % (million (2009) population (RMB) (2014) RMB) Dysentery 0\.01835 0\.00703 9,880 500 4\.94 Typhoid 0\.00195 0\.0001 1,649 1800 2\.97 Other Water- 0\.00587 0\.00531 325 500 0\.16 Borne Disease Total 11,854 8\.07 Savings 1\.2 Wastewater Component Economic benefits of the investments in wastewater treatment are: (i) land value increases as a result of infrastructure improvements; (ii) ability of local governments to attract more investments and thus help to improve the local economy; and (iii) health benefits, such as reduction in incidence of stomach and intestinal diseases due to improvements as a result of upgrading wastewater treatment facilities\. Only economic benefits due to land value increases have been calculated due to the difficulties of quantifying the other benefits\. Land Value Increase The project improved the ecological water environment through the construction of the Nanjing, Tiebei and Qiaobei WWTPs\. With more wastewater collected and treated, land values in these urban areas increased substantially\. According to surveys of property prices in 2009 and 2015, there was an average annual increase of RMB533/m2 of land values within one km of the Tiebei and Qiaobei WWTPs; this increase can be largely attributed to improved wastewater services\. 1\.3 Economic Internal Rates of Return 32 EIRRs, calculated by sub-component after project completion, are shown in Table 3\.3 below\. They range from 10\.19% to 20\.18%\. Sensitivity analysis indicated that the EIRRs are highly sensitive to increase in operating costs and equally to delayed tariff increases; however, economic benefits remain positive assuming 10% fluctuations\. Table 3\.3: EIRR by Sub-Component Base 10% 10% Revenue Component Case Decrease in Increase of Delayed EIRR Main Benefit O&M by 1 Year Zhenjiang Water Supply 11\.95 9\.82 11\.48 11\.75 Danyang Water Supply 10\.44 5\.28 6\.92 9\.66 Yancheng Water Supply 10\.19 2\.59 4\.58 9\.62 Taixing Water Supply 11\.69 9\.29 10\.68 11\.46 Nanjing WWTPs 13\.43 10\.40 9\.85 9\.80 Nanjing Longtan Water 20\.18 5\.29 4\.78 19\.68 Supply 2\. Financial performance Financial projections were made for each utility, based on performance during 2009 – 2014 and the latest information available\. An overview is presented below\. The financial internal rates of return (FIRR) for each sub-project, along with the results of sensitivity analysis, are shown in Table 3\.4; details of the analysis are in the Project Files\. Water supply - Water supply tariffs in all project cities were raised in response to higher operating costs\. However, total operating costs of water supply companies varied, as did total revenues, resulting in insignificant increases in net incomes\. - All water supply companies met the covenant requirement, i\.e\., for each fiscal year commencing in FY 2012, total revenues were higher than total operating expenditures\. - Except for Danyang, current water tariffs of the project cities cover O&M costs\. However, only Zhenjiang Water Supply Company’s tariff is high enough to cover total costs, including overheads and debt service\. The other water companies have to rely, to a lesser or greater degree, on local government financial support to supplement tariff revenues\. - When interest plus principal repayments commence in 2017, the water supply companies will face even higher financial pressure to (i) lower operating costs and overheads, (ii) decrease the percentage of NRW, and/or (iii) increase water tariffs\. - In terms of debt service coverage, apart from Danyang, none of the project water supply companies managed to meet the target of 1\.1 or higher by 2014\. However, municipal 33  governments in other project cities are providing adequate financial support to ensure full operation of the WTPs\. - There was a significant reduction in NRW in Zhenjiang (from 21\.3% to 16\.7%) and in Taixing (from 51% to 30\.5%) as a result of the project, but NRW in Yancheng did not change during these years\. NRW in Danyang in 2014 (30%) was higher than in 2009 (20\.42%), but has shown a decreasing trend since 2015 (12%) as a result of significant improvements to the water distribution network\. - Financial projections show that by 2030, all project components will have sustainable financial performance, with FIRRs over 10% (see for summary of FIRR results further below in this annex in Table 3\.4)\. Wastewater - Jiangsu Province requires joint billing for water and wastewater; wastewater tariffs are computed based on the volume of water consumed\. - Wastewater tariffs increased by RMB0\.12/m3 to RMB1\.42/m3 from 2012 to 2014, i\.e\., an increase of 9%\. - The current unit O&M cost is lower than the wastewater tariff\. The current net income of NMWC is negative; however, NMWC’s financial performance is expected to improve and become positive based on increasing water treatment volumes and low unit treatment costs\. - By 2030 the two WWTPs will have sustainable financial performance, with an FIRR of 6\.9%\. Table 3\.4: Projected Financial Rates of Return at Completion (in percent) Base Capital Collection Operating Expenditure Sub-Project Case Cost plus Rate less plus 10% FIRR 10% 10% Zhenjiang Water 11\.24 10\.62 8\.39 10\.14 Supply Danyang Water 10\.44 9\.44 5\.28 6\.92 Supply Taixing Water 10\.48 10\.11 8\.09 9\.56 Supply Project Yancheng Water 10\.19 9\.03 2\.59 4\.58 Supply Nanjing Longtan Water Supply 19\.01 17\.34 6\.57 5\.6 Component NMPC WWTP 6\.90 3\.51 3\.13 0\.97 34 Financial benefits of project investments are highly sensitive to increases in operating costs and to lower revenues, i\.e\., failure of the utility companies and municipal governments to increase tariffs when needed\. 3\. Financial capacity of project city governments During 2009 to 2014 project cities experienced an average annual 11% increase in GDP\. While GDP growth will likely moderate in the coming years, local governments are expected to have sufficient financial capacity to provide the necessary subsidies to the utility companies to enable them to operate and maintain project created assets in a satisfactory manner\. 35 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Mara K\. Warwick Sr\. Water and Sanitation Specialist EASCS Task Team Leader Aldo Baietti Lead Infrastructure Specialist WBISD Financial Specialist Mingyuan Fan Sr\. Water and Sanitation Specialist EASCS Co-TTL, Engineer Sr\. Financial Management Haixia Li EAPCO Financial Mgt Specialist Specialist Xujun Liu Procurement Specialist EAPCO Procurement Specialist Chongwu Sun Senior Environmental Specialist EASCS Environment Specialist Margaret Png Senior Counsel LEGES Country Lawyer Songling Yao Sr\. Social Development Specialist EASCS Social Development Spec Chunxiang Zhang Sr\. Program Assistant EACCF Team Support Vellet Fernandes Program Assistant EASUR Team Support Zhun Zhang Consultant Institutional Specialist Yijing Ye Consultant Fin/Institutional Analyst Chandra Godavitarne Consultant Municipal Engineer Eleanor Dougoud Consultant Operations Officer Supervision/ICR Khairy Al-Jamal Sr\. Infrastructure Specialist GWA02 Task Team Leader Suhail Jme’an Program Leader SACKB Former TTL Axel Baeumler Sr\. Infrastructure Economist GSU11 Former TTL Mingyuan Fan Sr\. Sanitary Engineer Former Co-TTL Guangming Yan Sr\. Urban Development Specialist GSU08 Co-TTL Toyoko Kodama Urban Specialist GWA02 Operations Specialist Feng Ji Senior Environmental Specialist GEN02 Environmental Specialist Zheng Liu Procurement Specialist GGO08 Procurement Specialist Meixiang Zhou Social Development Specialist GSU02 Social Development Spec\. Alejandro Alcala Gerez Senior Counsel LEGES Lawyer Huiying Guo Program Assistant EACCF Team Assistant Isabel Duarte A\. Junior Program Assistant GWA02 Team Assistant Dawei Yang Consultant Procurement Specialist Urvaksh Daraius Patel Consultant GTI02 Team Member Tomoko Kato Consultant Team Member Eddie Hum Consultant GSU08 Municipal Engineer Yan Li Consultant GSU08 Economist Wang Ling Consultant FM Specialist Heinz K\. Unger Consultant GWA02 ICR Author 36 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY07 7\.61 40\.99 FY08 29\.55 175\.49 Total: 37\.16 216\.48 Supervision/ICR FY09 26\.44 144\.23 FY10 21\.83 67\.51 FY11 15\.61 64\.94 FY12 16\.15 73\.43 FY13 11\.16 87\.56 FY14 14\.10 76\.66 FY15 28\.08 161\.84 FY16 16\.10 88\.87 Total: 149\.47 765\.04 37 Annex 5\. Beneficiary Survey Results There was no beneficiary survey\. 38 Annex 6\. Stakeholder Workshop Report and Results No stakeholder workshop was held\. 39 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 6 1\. Project Background and Key Objectives In view of existing development challenges, the Jiangsu Provincial Government (JPG) adopted a forward-looking water resources management strategy to concurrently reorganize and develop the water supply and wastewater service sectors, including the following key sectoral reforms and developments: (a) reorganization and aggregation of the water supply sector to provide sustainable and better quality water to all residents and industrial users of the province, including those in towns, villages and peri-urban areas; and (b) rapid expansion of wastewater services in the province and tightening of wastewater discharge standards, especially in highly sensitive environments\. Therefore, the Jiangsu Water and Wastewater Project (JWWP, hereinafter called the “Project”) was developed in 2009 to support the implementation of above-mentioned provincial water resources management strategy\. The key project objectives have been designed to improve the efficiency and effectiveness of water and wastewater services and reduce pollution discharges to local rivers in Jiangsu Province\. The objective would be achieved through municipal water supply expansion to towns and the expansion of wastewater collection and treatment in five project cities\. Despite various component changes/adjustments, the key project objectives remain unchanged throughout project implementation\. 1\.1 Original Components A US$130 million loan was approved for JWWP by the Bank in June 2009\. The Loan was declared effective on Sep\. 28th, 2009\. The project aims to enhance the capacity of city water supply systems to expand service to 78 towns and villages, expand the collection and treatment of city and town wastewater, and improve the operational capacity of water supply and wastewater companies, which consists of the following components: - Component 1\. Water Supply Expansion (Total cost: US$ 178\.5 million) (i) Danyang: Enhancing the capacity of Danyang water supply and expanding the supply to 24 towns\. (ii) Taixing: Enhancing the capacity of Taixing water supply system and expanding the supply 22 towns, including NRW reduction in five towns\. (iii) Yancheng: Enhancing the capacity of Yancheng water supply system and expanding the supply to 21 towns, including NRW reduction in two towns\. (iv) Zhenjiang: Enhancing the capacity of the Zhenjiang water supply and expanding the supply to 11 towns including NRW reduction in two towns\. - Component 2\. Wastewater Management (Total cost: US$ 233\.7 million) (i) Danyang: Expanding wastewater collection in Shicheng district of Danyang city\. (ii) Nanjing: Expanding wastewater collection and treatment in Qiaobei, Tiebei and Chengbei areas of Nanjing Municipality\. (iii) Taixing: Expanding wastewater collection and treatment in Huangqiao Town\. 6 This is the unedited version of the Borrower’s draft ICR, dated December 2015\. 40 - Component 3\. Institutional Strengthening and Training (Total cost: US$ 2\.50 million) (i) Provincial Implementation Support and Capacity Building, including (a) technical assistance for project and contract management, and review of project design; (b) study on the existing wastewater and water supply tariff system; (c) developing and piloting strategies to reduce NRW at the township level; and, (d) training and study tours on various aspects of water supply and wastewater management\. (ii) Company Capacity Building: Taixing Huangqiao Wastewater Treatment Company\. 1\.2 Project Changes The loan was restructured twice during project implementation, respectively in November 2013 and March 2015\. With the MTR, a total of 5 original projects/contracts were removed from the World Bank-funded project list and were changed to NBF projects due to inconsistency of contractors’ progresses or delayed project implementation plan with World Bank’s schedule\. Component A – YCWS1\.5 Water Distribution Network in Qinnan and Longgang of Yancheng Water Supply\. Due to administrative adjustments of shared responsibilities between two towns, the pipelines have been constructed separately by local government using non-Bank funds\. Component B – NJTB1\.3 Wastewater Collection System under Planned Road of Nanjing Tiebei Wastewater System, due to pending implementation plan of corresponding road which made it very likely impossible to complete the contract during the project period\. Component B – Danyang Shicheng Wastewater System (DYWW), since it was expected to be badly delayed due to delayed implementation of land acquisition and resettlement in the project area but under another government financed river rehabilitation project\. Component B – Taixing Huangqiao Wastewater System (TXHQ), upon the request of PPMO in July 2010 and on the premise of no resultant impact on the project’s overall targets\. Component C –JSTA3\.4 Taixing - Huangqiao WW Company: Institutional strengthening, training and project management, which was cancelled together with withdrawal of Taixing Huangqiao Wastewater System (TXHQ) component\. Two new sub-components were thus added and carried out with savings from other Bank- financing projects with the Bank’s approval, namely Nanjing Longtan Water Treatment Plant (Phase I) and new Taixing Town/Township Water Supply Networks Rehabilitation Project\. 1\.3 Project Delays The original closing date of the loan was Dec\. 31st, 2014\. With the addition of two new components after MTR, the loan closing date was accordingly extended to Dec\. 31st, 2015\. 1\.4 Project Implementation The procurement of all the project contracts was undertaken in accordance with the Bank guidelines\. All bidding documents were reviewed by the Consultant and approved by the municipal PMOs\. The contracts requiring Bank prior review were submitted for approval\. By end 2015, all the 39 BF contracts under the Project have been awarded with a total value of RMB 1353\.71million\. All these contracts have been physically completed and the total payment as reported by Dec\. 25th, 2015 has summed up to RMB1299\.95million\. 41 2\. Achievement of Objective and Outputs 2\.1 Output by Components As per project design, the implemented project improved the efficiency of infrastructure service delivery, providing safe and quality water to cities and towns, reducing pollution discharge to water bodies, improving water resources management and utility performance\. More specifically, the following positive benefits were provided: (i) improvement of a total water supply capacity by to meet future demand; (ii) improved mechanisms to safeguard the rural water supply and health of rural people; (iii) collection of wastewater to improve quality of urban life and industrial development; and (iv) treatment of wastewater to improve the water quality of rivers, as presented below\. (a) Danyang City Water Supply - US$38\.80 million in PAD, US$38\.80 million completed The sub-component increased water treatment capacity of Danyang City by 100,000m3/d and laid an additional raw water transmission pipe (DN1800, L=15km) which significantly improves local water supply reliability serving a total population of 310,000 people\. The treated water quality meets the new national standard of “Hygienic Standard for Drinking Water Quality” (GB5749-2006)\. (b) Taixing City Water Supply - US$39\.8 million in PAD, US$39\.8 million completed This sub-component includes: extension of Baota WTP to the capacity of 50,000m3/d; laying of Taihuang Phase 2 clean water transmission pipes (27\.3km, DN300-DN800) with the extension of Heshi PS (to the capacity of 80,000m3/d) and Huangqiao PS (to the capacity of 45,000m3/d); construction of Zhangqiao PS (20,000m3/d); laying of clean water transmission branches to townships (144\.82km, DN200-DN800); construction of aggregated water supply systems in 8 townships (355\.6km, De2-DN300)\. Together with the new Taixing Town/Township Water Supply Network Rehabilitation Project added after the Project MTR, the total water supply of Taixing Water Supply Company increased from 90,000m3/d of 2009 to 200,000m3/d of 2015 with an additional population of 700,000 persons served by Taixing water supply system covering all the 16 townships\. The treated water quality meets the new national standard of “Hygienic Standard for Drinking Water Quality” (GB5749-2006)\. (c) Yancheng Municipality Water Supply –US$53\.3 million in PAD, US$53\.3 million completed This sub-component includes: expansion of Chengdong WTP from 100,000 to 200,000m3/d, construction of a 200,000m3/d raw water intake PS, laying of 10\.75km long, DN1400 raw water pipe and 58\.2km long DN500-800 clean water transmission pipe (partially financed by the WB loan), and expansion and rehabilitation of distribution networks (366km long, DN200-DN50) in 2 townships of Qinnan and Longgang\. The sub- component served a total population of 1\.04million people in 2014, and its served population will increase to 1\.26million people by 2020\. This project significantly increased the water supply capacity of Danyang and the treated water quality meets the new national standard of “Hygienic Standard for Drinking Water Quality” (GB5749-2006)\. (d) Zhenjiang Municipality Water Supply –US$46\.6 million in PAD, US$46\.6 million completed Before expansion, Jinshan WTP was installed with a treatment capacity of 100,000m3/d, but in fact operated at the capacity of 70,000m3/d to guarantee treated water quality\. This 42 sub-component includes expansion of existing Jinshan WTP to 300,000m3/d, construction of a raw water intake PS (100,000m3/d), laying of a transmission pipe (265m long, DN1200) and rehabilitation and expansion of water distribution network in Xinfeng Town (69km, DN63-DN200) and Dinggang Town (40\.1km, DN50-DN200) together with rehabilitation of water meters for over 6480 households\. The completed Jinshan WTP is now serving a total population of 1\.10million people, which makes the total water supply capacity of Zhejiang up to 500,000m3/d and effectively guarantee water supply of both its urban and suburban areas\. The treated water quality meets the new national standard of “Hygienic Standard for Drinking Water Quality” (GB5749-2006)\. (e) Nanjing Longtan WTP (newly added after MTR) – US$12\.7 million completed This component is to construct 200,000 m3/d Nanjing Longtan Water Treatment Plant (Phase I), including a Yangtze River water intake of 2*DN2200 raw water pipeline of 338m, an intake pumping station at full capacity of 800,000 m3/d equipped with 3x105,000 m3/d pumps for Phase I, and a 8\.2km clear water main of DN1200\. The constructed WTP has been put into commissioning serving a total population of 1million people\. The treated water quality meets the new national standard of “Hygienic Standard for Drinking Water Quality” (GB5749-2006) with the turbidity no higher than 0\.2NTU\. (f) Taixing City Water Supply (network rehabilitation, newly added after MTR) – US$9\.00 million completed Based on the outputs of original Taixing City Water Supply sub-component, this new sub- component implemented the rehabilitation of totally 1339\.44km water distribution network in eight communities in six towns\. Together with the original Taixing City Water Supply sub-component, it serves a total population of 1\.20million people in 2015\. (g) Nanjing Wastewater System – US$213\.4 million – PAD, US$ million completion This component consists of three parts, namely: Nanjing Qiaobei Wastewater Sub-component includes the construction of Qiaobei WWTP with a capacity of 100,000m3/d adopting A/A/O biological treatment process, all of whose wastewater discharge now meets Class 1A of the Pollutant Discharge Standard for Town WWTPs\. The WWTP serves a total area of 120\.6 km2 and a total population of 408,000 in the short term and 750,000 in the long term\. A total volume of 22\.72 million m3 of sewage was treated in 2014 with annual COD load reduction of 3816t and annual BOD5 load reduction of 1688t\. Nanjing Tiebei Wastewater Sub-component includes construction of a 56km long, DN400- DN1500 wastewater collection system, a 50,000m3/d capacity PS in Taixing Road and a new Tiebei WWTP with treatment capacity of 100,000m3/d\. All of its wastewater discharge now meets Class 1A of the Pollutant Discharge Standard for Town WWTPs\. The WWTP serves a total area of 26\.3 km2 and currently a total population of 124,300 (231,500 by 2020)\. A total volume of 4\.60 million m3 of sewage was treated in the year of 2014 with annual COD load reduction of 323t and annual BOD5 load reduction of 104t\. Nanjing Chengbei Wastewater Sub-component includes construction of a 43km long, DN300-DN1500 waste water collection system and a new Meijiatang PS with a capacity of 27,000 m3/d (in dry weather)\. The project operation enables existing Chengbei WWTP to be operated at its full capacity of 300,000m3/day for wastewater treatment to meet Class 1A of the Pollutant Discharge Standard for Town WWTPs\. 43 (h) Institutional Strengthening and Training - USD 2\.5 million PAD, USD1\.685 million completed This part was implemented with four components: JSTA3\.1: Project and Contract Management and Design Review Services: The contract was extended once until project closing to provide support on procurement procedures, project and contract management, fund utilization, financial management, environmental management, implementation of land acquisition and resettlement and etc\. In addition, as part of this contract, a study on NRW reduction strategies targeting at the project cities of Danyang, Taixing and Zhenjiang was completed in June 2011, which proposed strategies to achieve sustainable NRW reduction in project cities\. JSTA3\.2: Tariff Study and Town Water Supply Institutional Financial Reform: The contract was awarded to develop the “Financial Projection Model and Analysis Report” tailored to each PIU, and through the study a “Water Tariff Institutional Reform Report” was finalized based on extensive consultation with local authorities and the World Bank in February 2014\. JSTA 3\.3: GIS-based Network Plans for Town Networks and Dedicated Transmission Lines: Under this contract, based on demand survey and demand analysis conducted specific to each project city (Danyang, Taixing, Yancheng and Zhenjiang) and subsequently developed outline design, the procurement and supply of GIS platform software was completed for all the project cities\. The internal development and data processing of GIS system was completed for Taixing and Yancheng\. The procurement of hardware for Taixing has been completed and the goods were delivered in late August 2014\. The Consultants has also completed the installation of delivered equipment, setting-up of database and provision of trainings under this contract\. JSTA 3\.5: Training and Study Tours: The contract was implemented based on seven different delegations on various aspects of water supply and wastewater management during Nov\. 2011 - Apr\. 2014\. These study tours provided the officials and engineers from competent authorities with good opportunities to learn advanced experience and expertise of developed countries on municipal water supply and wastewater management\. 2\.2 Economic Benefits Major economic benefits from the project will arise from increased coverage and improved service of water supply, and wastewater collection and treatment\. The project has undoubtedly contributed to the sustainability of continued strong economic growth in the region\. The project has produced a number of benefits arising from: (i) Reduction in poverty and inequality through balanced urbanization and access to basic infrastructure services; (ii) Better management of scarce water resource and environmental challenges; and (iii) improvement of public health through safe and clean drinking water and a reduction of untreated wastewater discharge into local rivers and open channels\. 2\.3 Financial Performance The financial design for the project aimed to ensure financial sustainability of involved water supply and wastewater companies\. According to financial analysis conducted for each entity operating water supply/wastewater facilities constructed under the Project, it is found that: - During project implementation, water supply tariff in all project cities were raised to balance high water supply cost\. However, with the increase of overall operation cost, 44  there is only insignificant increase in terms of their net income\. With the repayment of both principal and interest during 2016-2033, the project-involved water supply companies will face even higher financial pressure unless with the reduction of operating cost, overhead or service fee, NRW percentage or further increase of water tariff\. - All project-involved water supply companies managed to meet LA requirement by have a total revenue higher than total operating expenses in each fiscal year covered by the conducted financial analysis, commencing in FY2012\. - With project implementation (2009-2014), significant reduction of Non-Revenue Water (NRW) has been observed, in Zhenjiang (from 21\.3% to 16\.7%) and Taixing (from 51% to 30\.5%)\. NRW remains at a stable level in Yancheng, and in Danyang, with significant expansion of centralized water supply services into suburban/rural areas, its NRW level in 2014 (30%) was even higher than that in 2009 (20\.42%), but showing an obvious reduction trend since 2015 (12%) thanks to significant improvement of water distribution network\. - In terms of debt service coverage, apart from Danyang, none of the analysed water supply companies managed to meet the target of 1\.1 or higher by 2014\. However, the municipal governments in all the project cities are providing adequate financial resources to ensure full operation of the WTPs\. - As predicted, by 2030, all of these components have the ERR above the threshold acceptable to the GoC, i\.e\., the 10% discount rate recommended by NDRC in 2002\. - As predicted, by 2030, all of these components shows sustainable financial performance, with over 10% FIRR\. - During project implementation, wastewater tariff in Nanjing increased from 1\.30RMB/m3 to 1\.42RMB/m3, which is currently higher than unit treatment cost\. Although the analysis showed negative net income of the WWTP operator, Nanjing Water Utilities Company, with low treatment cost and increased treatment volume, financial performance of the company is expected to be positive in the future\. - As prediction, by 2030, the two WWTPs can lead to sustainable financial performance, with over 6\.9% FIRR\. 2\.4 Construction Management The high involvement of international consultants under package JSTA3\.1, enabled the construction management of the project to be carried out to a satisfactory standard\. 2\.5 Poverty Alleviation and Social Impacts Throughout implementation, the Project has created several thousands of temporary job opportunities\. Also, over 900 permanent job opportunities were created for project operation\. The Project, seen as a promoter of the concept of economic sustainability, will be continuously conducive to a reduction of poverty and inequality through balanced urbanization and access to basic infrastructure services with the expansion of centralized water supply system into suburban and rural areas\. With the implementation of Nanjing Wastewater component, more wastewater has been intercepted and discharged after centralized treatment\. This has improved the local environment and living conditions and reduced the risk of health problems caused by water contamination\. In addition, a priority 45 of the project design was the reduction of resettlement impacts through optimization of design, and this has already demonstrated a more sustainable approach to the provision of services in urban areas\. 2\.6 Environmental Impacts No significant environmental management issues arose during project construction and the environmental management plans prepared to mitigate potential adverse environmental impacts resulting from the project activities were implemented in full\. The Project is set to fully achieve the beneficial impacts identified in the PAD Environmental Assessment, and although it will only be possible to assess the full environmental impacts some years after project completion, specific benefits are already apparent\. 2\.7 Land Acquisition and Resettlement All land acquisition and resettlement of affected persons was successfully dealt with in accordance with the resettlement plans approved by the Bank\. 2\.8 Achievements of Key Performance Indicators During loan restructuring, some of the appraised KPI targets were found to be impractical and therefore revised\. Most of the KPI targets were already met before December 2015; however, the targets of NRW reduction were only partially met in Danyang and Yancheng\. This was due to the fact that some old water supply networks in township areas of other project cities remained to be replaced, and this would require more time and budget as the main constrains\. Since NRW reduction should be considered as the key strategic issue for the long-term sustainable development of local water supply system, in particular, considering the ongoing trend of expanding centralized water supply system into suburban areas, continuous efforts would be made accordingly by local authorities, even after the Project completion\. 3\. Major Factors Affecting Implementation and Outcome 3\.1 Factors Outside the Control of Local Government or the Implementing Agency a) Fluctuation of exchange rate of US$ against Chinese RMB during project implementation; b) The rule of awarding to the bidder offering the lowest bid price in some cases resulted in the contractors unable to provide quality services due to lack of funding, weak managerial capacity and low quality of project delivery\. It has been identified that contract documents in general should be of a higher quality to prevent such situation\. 3\.2 Factors under the control of the local government a) The Project was carried out in locations where economies were rapidly developing, in some cases regarded as key contributors to local socioeconomic development\. b) The project process under World Bank procedures can take some time compared to local procurement procedures\. Consequently certain contracts were changed to use 100% local funding (non-Bank financed) during implementation\. c) Both State and Provincial governments have provided assistance throughout all stages of the Project\. In particular, following good practice in earlier World Bank-funded project, a powerful and efficient project management group under the provincial government was assigned to be responsible for overall guidance and coordination of 46  project implementation\. Relevant municipal/city governments, together with PIUs, have made great efforts in project management, financial and other resources arrangements\. d) The Project has been successfully implemented in full compliance with all applicable Bank policies, (procurement, contract management, construction supervision and safeguards)\. Major project deliverables have been achieved; however, it has to be noted that it has not yet proved possible to implement all the institutional and financial reforms set out during the project appraisal stage\. 3\.3 Factors under the control of the project implementing units (PIUs) The project has enabled the PIUs to improve their capacity and efficiency in project management\. Due to the comparatively long project implementation period there have been a number of changes in the project management personnel\. This has occasionally caused difficulties during project implementation, but without adverse impacts on end results\. 3\.4 Costs and Financing Total project costs identified during project appraisal were US$ 431\.8 million, of which the total project costs without interest during construction and front-end fee was US$414\.8 million\. Other major funding resources include state bonds, provincial government provision, and local finance from municipal government and project units\. The actual portion the Bank loan was 34\.7% and other major funding resources were 65\.3%\. During project appraisal, this ratio was 30\.1% to 69\.9%\. 4\. Sustainability 4\.1 Prospects for Sustainability Generally speaking, the Project can be regarded as sustainable\. The newly built WTPs are operating well and being maintained appropriately\. The water tariffs form an integral part of financial sustainability\. Current water tariffs in project cities are generally higher than current unit operating and maintenance costs, but lower than total unit costs when including overhead, service costs and other financial costs\. The water supply companies should lower their operating costs, overhead and service costs, further reduce NRW, and / or further raise water tariffs for continuing financial sustainability\. For the wastewater component in Nanjing, it is believed that the combination of the newly established institutional arrangements with new tariff will provide a solid foundation for the sustainable development of wastewater services in Nanjing municipality\. Current wastewater tariff is higher than total unit cost, which indicates improving financial performance and sustainability of the wastewater company, particularly considering low wastewater treatment cost and increase of treated wastewater\. 4\.2 Arrangement of daily operations All five expanded/new WTPs are now fully operational complying with applicable national standard\. Experienced or well-trained operational staff were recruited for the WTPs\. The implemented TA component on GIS-based network plans also provided a good foundation for better operation of these WTPs in the near future\. Both new WWTPs are now fully operational\. Experienced operational staff were recruited with proper training started with the WWTP commissioning\. In addition, the TA 47 Consultants for JSTA3\.1 have provided advice and training on wastewater operational procedures, treatment processes, asset management and awareness of pollution control\. Following project completion, effluent from both WWTPs has complied with the requirements of the Class-1A National Discharge Standard\. The wastewater treatment rate in Nanjing reached 95% in 2014, and all sewer and pipeline system performance was satisfactory\. 5\. Project Experience and Lessons Learned The Project has been very successful with most of its original objectives achieved particularly in terms of institutional intervention\. Significant capacity buildings in relevant aspects of procurement, contract and project management, WTP and WWTP operations and maintenance, environmental monitoring and financial management have been achieved\. In particular the Bank’s construction management procedures, demonstrating fairness and accuracy, were considered to be a prerequisite of project success\. 5\.1 Project Experience 1）Capacity building of project management organization – Following good practice in earlier World Bank-funded project, a powerful and efficient project management group under the provincial government was assigned\. Despite only staffed with four full-time officials, the PPMO was capable of efficient project coordination and management throughout project cycle with consultants’ support\. In addition, the Project continued to provide training and valuable recommendations to project cities not familiar with the utilization of international funding\. 2）Institutional reform for wastewater management – During project implementation, Nanjing municipality has completed institutional reform of its wastewater management\. On March 1st, 2013, Nanjing Water Group Co\., Ltd\. was founded based on the original Nanjing Municipal Water Supply Company by integrating the whole Nanjing Utilities Water Co\., Ltd\. and part of Nanjing Municipal Drainage Management Department, which was planned to be built into a nationally first-class water and wastewater service provider and the investment and financing platform for the whole municipality in three to five years\. 3）Targeted efforts for NRW reduction – Before project implementation, the NRW rate in some towns/townships within project areas was as high as 70% mainly due to physical loss caused by the aging of water supply network\. During project preparation, different options were considered to support and facilitate the rehabilitation of existing network before being connected with urban water supply system\. NRW reduction was also included as part of key performance indicators designed for the Project\. During implementation, with loan financing, experienced international consultants were hired to conduct a study on NRW reduction strategy and guidelines, through which tailored NRW reduction strategies and guidelines were developed for project cities with 9 towns identified for piloting the strategies\. With project MTR, some of the pilot towns were covered by the new component of water supply network rehabilitation in Taixing to further reduce local NRW\. Upon project completion, the NRW percentage in project cities has been significantly reduced, even with large-scale integration of suburban and rural areas into their service scope\. The project implementation has built up practical experience for urban-rural water supply services integration and further strengthened the management capacity of local PIUs on town/township water supply services\. 48 4）Significant improvement of town water supply safety and reliability – The integration of township water supply system into urban water supply system under the Project has significantly increased the suburban and rural areas directly served by city water supply companies with water supply from Changjiang River and thus improved water supply safety and reliability of newly connected townships\. 5）Benefited overall water quality in Nanjing Municipality – With project implementation, the coverage of wastewater services in Nanjing was increased from 67% in 2008 to current 95%\. In old urban areas, more wastewater was able to be collected by the implemented separate drainage system for proper treatment at corresponding WWTPs before being used to replenish the local rivers for scenery purpose with compliant effluent quality\. 6）Improved project cities’ images – The success of the Project have contributed to further development of project cities who were awarded with a number of honours during the Project implementation period\. 7）Rational arrangement of remaining loan – With experience from earlier World Bank-financed project, the PPMO and local PIUs have started the preparation of loan reallocation based on expected loan saving from component cancellation and lower costs during bidding\. Two new components were quickly identified for Bank funding with all project preparation, application procedures and approval completed in a short period of time\. The construction of both new components was completed by the end of 2015\. 5\.2 Borrower’s Observations 1）Lowest price requirements in bid evaluation – The Bank’s Procurement Guidelines specify that contracts should be awarded to the lowest costs substantially responsive bid\. However, there were still cases of irrational competition during project implementation despite efforts made, it was thus suggested that, in future, the preparation for design and bidding documents should be of a high quality to prevent irrational competitions\. 2）Contributions from the Consultants – During project implementation, PMOs and PIUs became familiar with the use of the consultants, and the Project made better uses of the Consultants throughout its whole cycle\. With their assistance, some technical issues were effectively solved and communications were strengthened, which was important for the successful completion of the Project\. 5\.3 Specific Lessons Learned 1）Improvement of network contract packaging – During the implementation of water supply/wastewater network under the Project, a lot of variations and serious delay was observed, in particular, in relation to wastewater collection pipelines under planned roads\. This was mainly due to delayed implementation of corresponding planned roads\. Instead of waiting for long pending road construction as part of changing urban development master plan during implementation, the possibilities of implementation shall be included as one of the considerations for network contract packaging in addition to catchment zoning and differentiation between mains and branches so as to prioritize the pipelines that can be easily implemented and thus to realize designed project benefits at an earlier date\. 49 2）Prevention of unreasonable variations – PMOs and PIUs emphasized the importance of accurately preparing the bidding documents, including designs, specifications and BOQ, etc\. This will benefit the PIUs by preventing unreasonable variations during construction\. 3）Familiarity with procurement and financial management procedures – It was noted that PIUs would benefit from earlier training and timely guidance on the Bank’s procurement and financial management procedures, in particular , for those cities without prior Bank experience\. 4）Be less optimistic about project performance results for the indicators highly dependent on prevailing policy environment - Do not set targets that are unlikely to be achieved in view of the prevailing policy environment and precedents\. For example, both financial indicators were removed from the project result framework, since these indicators were not well selected since the utilities in the project cities do not have control of tariff adjustments – tariffs are usually imposed by the local governments\. 50 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders N/A 51 Annex 9\. List of Supporting Documents The World Bank\. Project Appraisal Document, Report No\. 45032-CN\. April 16, 2009\. Loan Agreement and Project Agreement (and Amendments)\. July 22, 2009\. The World Bank\. Aide Memoires, ISR Reports and Management Letters\. 2009 to 2015\. The World Bank\. Project Restructuring Paper, Report No\. RES12295-CN\. Nov 20, 2013\. The World Bank\. Project Restructuring Paper, Report No\. RES17982-CN\. Mar 11, 2015\. Mott MacDonald and Jumbo Consulting\. Study on Water and Wastewater Tariff and Institutional Reforms: Final Report - Vol\. 1: Tariff System and Reform Study & Vol\. 2: Regulation and Institutional Improvement\. September 2013\. Jiangsu Water & Wastewater Project Management Office\. Semi-annual Progress Report No\. 12\. September 2015\. Jiangsu Provincial Water and Wastewater Project Management Office\. Jiangsu Water and Wastewater Project\. Loan No\.: 7684-CN\. Borrower’s Implementation Completion Report (Draft)\. December 2015\. 52 Annex 10: Project pictures Danyang WS - Construction of Changwan Danyang WS - Completed Changwan WTP WTP November 2009 Nanjing Tiebei - Construction of WWTP Nanjing Tiebei - WWTP in operation November 2009 Nanjing Qiaobei - Construction of WWTP Nanjing Qiaobei - Greening of WWTP November 2009 site 53 Completed Nanjing Qiaobei WWTP Taixing WS - Laying of Water Supply Pipe March 2010 Taixing WS - Completed Baota WTP Taixing WS - Zhangqiao PS Yancheng WS - Guomeng PS Yancheng WS - Interior of Guomeng PS 54 Yancheng WS - Completed Chengdong Yancheng WS - Completed Sludge WTP Thickening Tank of Chengdong WTP Yancheng WS - Bridge for water Zhenjiang WS – Old transmission pipe Zhenjiang WS – Pump station Zhenjiang WS – Pump station 55 Zhenjiang WS- Jinshan WTP in Operation Zhenjiang WS - Control room of Jinshan WTP Nanjing WS – Longtan WTP Nanjing WS – Longtan WTP Nanjing WS – Longtan WTP Nanjing WS – Longtan WTP 56 1

REVIEW

P073135

 Document of The World Bank Report No: ICR2045 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-53247) ON A GRANT IN THE AMOUNT OF US$ 7\.1 MILLION TO THE REPUBLIC OF NAMIBIA FOR AN INTEGRATED COMMUNITY-BASED ECOSYSTEM MANAGEMENT PROJECT November 29, 2011 Environment and Natural Resources Management Unit - AFTEN Sustainable Development Department Southern Africa 1, Namibia, Botswana, Lesotho, South Africa, Swaziland – AFCS1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 13, 2011) Currency Unit = N$ N$ 1\.00 = US$ 0\.121 US$ 1\.00 = 8\.24 N$ FISCAL YEAR April 1 – March 31 ABBREVIATIONS AND ACRONYMS CBD Convention on Biological Diversity CBIEM Community-based Integrated Ecosystem Management CBNRM Community-based Natural Resource Management CBO Community-based Organization CBS Central Bureau of Statistics CCF CBNRM Consultative Forum CFF Community Funding Facility CPP Country Pilot Programme CPS CBNRM Policy Specialist CSD CBRNM Support Division CSP Contracted Service Provider DEA Directorate of Environmental Affairs DoF Directorate of Forestry DPWM Directorate of Parks and Wildlife Management DSS Directorate of Scientific Services EIA Environmental Impact Assessments ESA Environmental and Social Assessment ESMF Environmental and Social Management Framework EWERAP Enhancing Wildlife-based Economy in Rural Areas Project FFEM Fonds Français pour l'Environnement Mondial (French GEF) GEF Global Environment Facility GEO Global Environment Objective GRN Government of the Republic of Namibia HVAS High Value Animal Species HVPS High Value Plant Species HWC Human Wildlife Conflict ICEMA Integrated Community-Based Ecosystem Management Project IEM Integrated Ecosystem Management IFFM Integrated Forest and Fire Management IOI Intermediate Outcome Indicator IP Implementation Progress IPDP Indigenous Peoples’ Development Plan IRDNC Integrated Rural Development and Nature Conservation KPI Key Performance Indicator LIFE Plus Living In a Finite Environment LLM Local Level Monitoring M&E Monitoring and Evaluation MAWF Ministry of Agriculture, Water and Forestry MCA Millennium Challenge Account MES Monitoring and Evaluation Specialist MET Ministry of Environment and Tourism MLR Ministry of Lands and Resettlement MNC Mudumu North Complex MOF Ministry of Finances MOMS Management Oriented Monitoring System MRLGHRD Ministry of Local Government, Housing and Rural Development MTR Mid-term Review NASCO National Association of Conservancy Support Organizations NATH Namibian Academy for Tourism and Hospitality NBRI Namibian Botanical Research Institute NDP National Development Plan NDT Namibia Development Trust NGO Non-Governmental Organization NIED National Institute for Educational Development NNDFN Nyae Nyae Development Foundation of Namibia NNF Namibia Nature Foundation NPCS National Planning Commission Secretariat NRM Natural Resources Management NRM-WG Natural Resources Management Working Group PA Protected Area PAD Project Appraisal Document PDO Project Development Objective PIM Project Implementation Manual PIP Project Implementation Plan PO Project Office QEA Quality at Entry Assessment RPF Resettlement Policy Framework SC Steering Committee TA Technical Assistance / Advisor TTL Task Team Leader ToR Terms of Reference TSAR Technical and Scientific Advisory Roster UNAM University of Namibia WB World Bank WDT Welwitchia Development Trust WIMSA Working Group of Indigenous Minorities in Southern Africa WWF World Wide Fund Vice President: Obiageli Ezekwesili Country Director: Ruth Kagia Sector Manager: Idah Pswarayi-Riddihough Project Team Leader: Claudia Sobrevila ICR Team Leader Claudia Sobrevila  NAMIBIA Integrated Community-Based Ecosystem Management Project(ICEMA) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Global Environment Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 11 4\. Assessment of Risk to Development Outcome\. 21 5\. Assessment of Bank and Borrower Performance \. 22 6\. Lessons Learned \. 24 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 25 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Outputs by Component \. 27 Annex 3\. Economic and Financial Analysis \. 36 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 38 Annex 5\. Beneficiary Survey Results \. 40 Annex 6\. Stakeholder Workshop Report and Results\. 41 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 42 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 44 Annex 9\. List of Supporting Documents \. 45 MAP A\. Basic Information Integrated Community- Country: Namibia Project Name: Based Ecosystem Management Project Project ID: P073135 L/C/TF Number(s): TF-53247 ICR Date: 11/29/2011 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: NAMIBIA Original Total USD 7\.10M Disbursed Amount: USD 7\.04M Commitment: Revised Amount: USD 7\.10M Environmental Category: B Global Focal Area: M Implementing Agencies: Ministry of Environment and Tourism (MET) Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/17/2002 Effectiveness: 11/15/2004 11/15/2004 Appraisal: 02/11/2004 Restructuring(s): Approval: 06/01/2004 Mid-term Review: 11/19/2007 Closing: 01/31/2010 03/30/2011 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Global Environment Outcome Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Moderately Satisfactory Overall Borrower Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Moderately Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): GEO rating before Satisfactory Closing/Inactive status D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 45 25 General agriculture, fishing and forestry sector 35 30 Other social services 5 25 Sub-national government administration 15 20 Theme Code (as % of total Bank financing) Biodiversity 29 30 Environmental policies and institutions 29 25 Land administration and management 14 15 Participation and civic engagement 14 15 Rural non-farm income generation 14 15 E\. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E\. Madavo Country Director: Ruth Kagia Fayez S\. Omar Sector Manager: Idah Z\. Pswarayi-Riddihough Richard G\. Scobey Project Team Leader: Claudia Sobrevila Christophe Crepin ICR Team Leader: Claudia Sobrevila ICR Primary Author: Claudia Sobrevila ii F\. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The project development objective (PDO) is to support community-based integrated ecosystem management practices in targeted conservancies\. The global environmental objective (GEO) is to restore, secure and enhance key ecosystem processes in targeted conservancies with biodiversity and land conservation and sustainable use as a goal\. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications There were no revisions\. (a) GEO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Communal land under sustainable IEM as defined by the National Community- Indicator 1 : Based Natural Resource Management (CBNRM) (km2) (KPI) Value (quantitative or 2,500\.00 25,000\.00 km2 38,595\.00 km2 qualitative) Date achieved 06/01/2005 07/05/2004 03/30/2011 Comments M&E work plan adjusted the initial indicator target surface area figure (25,000 (incl\. % km2) to 30,000 km2 to include all 16 of the target sites (initially 15 target sites)\. achievement) By completion, the target had been exceeded\. Conservancy committees effectively managing, deploying efficiently and Indicator 2 : sustainably their natural, human, financial and other resources according to their conservancy plans (KPI) Value (quantitative or 0\.00 80\.00 100\.00 qualitative) Date achieved 06/01/2004 07/05/2004 03/30/2011 Comments (incl\. % Target achieved achievement) Ministry of Environment and Tourism (MET) effectively established Indicator 3 : partnerships with key stakeholder to enable achievement of Project objective (criteria) (KPI) Value (quantitative or 0\.00 5\.00 5\.00 qualitative) Date achieved 06/01/2004 07/05/2004 03/30/2011 Comments Target achieved (incl\. % iii achievement) Indicator 4 : Populations of key species remain at current levels and have increased (KPI) Value (quantitative or 0\.00 0\.00 0\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % This indicator is measured by selected species reported below\. achievement) Indicator 5 : Lechwe (Species of Antilope) Value (quantitative or 21\.00 121\.00 135\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % Target significantly exceeded achievement) Indicator 6 : Black Face Impala Value (quantitative or 150\.00 190\.00 203\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % Target exceeded achievement) Indicator 7 : Black Rhino Value (quantitative or 8\.00 14\.00 18\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % Target significantly exceeded achievement) Indicator 8 : Elan Value (quantitative or 7\.00 275\.00 461\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % Target very significantly exceeded achievement) Indicator 9 : Common Impala Value (quantitative or 0\.00 100\.00 266\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments Target significantly exceeded (incl\. % iv achievement) Indicator 10 : Desert Elephant Value (quantitative or 3\.00 3\.00 5\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments (incl\. % Target exceeded achievement) Indicator 11 : Mountain Zebra Value (quantitative or 23\.00 30\.00 2\.00 qualitative) Date achieved 06/30/2004 07/05/2004 03/30/2011 Comments This species is subject to rainfall patterns and the last monitoring could not find (incl\. % many individuals\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years MET's CBNRM M&E system is functional and links to other environmental Indicator 1: information systems MET's CBNRM Rudimentary elements for M&E system is Value CBNRM M&E system in functional and CBNRM M&E (quantitative or MET available and links to other platform in place qualitative) development process environmental and functioning underway information systems Date achieved 06/01/2004 07/05/2004 03/30/2011 Key elements for CBNRM M&E system were developed within MET and in Comments NACSO\. The overall system is called CONFIFO and is the most current (incl\. % knowledge management tool and interface available for monitoring achievement) conservancies\. State of Conservancy reports have been published regularly\. Indicator 2: Community Funding Facility resources used according CFF manual criteria Value (quantitative or 0\.00 90\.00 100\.00 qualitative) Date achieved 05/01/2004 07/05/2004 03/30/2011 Comments (incl\. % Target achieved\. achievement) Indicator 3: Conservancies built sufficient capacity to plan, develop and implement v  ecosystem based income generating activities with decreasing external support\. Value (quantitative or 0\.00 12\.00 16\.00 qualitative) Date achieved 06/01/2004 07/05/2004 03/30/2011 Comments Target exceeded\. Measurement against 10 criteria (NRM management, (incl\. % Governance, and Financial sustainability, etc\.) achievement) Conservancies implemented ecosystem management activities across thematic Indicator 4: areas Value (quantitative or 0\.00 90\.00 100\.00 qualitative) Date achieved 05/01/2004 07/05/2004 03/30/2011 Comments (incl\. % Target exceeded\. achievement) Conservancies developed skills to design, up-date and implement local level Indicator 5: monitoring and reporting Value (quantitative or 0\.00 80\.00 87\.50 Qualitative) Date achieved 06/01/2004 07/05/2004 03/30/2011 Comments (incl\. % Target exceeded\. achievement) Indicator 6: Conservancy committees strengthened Value (quantitative or 0\.00 12\.00 16\.00 qualitative) Date achieved 04/01/2006 07/05/2004 03/30/2011 Comments (incl\. % Target exceeded achievement) Indicator 7: Environment Management Act enacted Value Environmental (quantitative or 0 Management Act Enacted in 2007 qualitative) enacted Date achieved 06/01/2004 07/05/2004 03/30/2011 Comments (incl\. % Target achieved\. achievement) Indicator 8 : Parks and Wildlife Management Bill enacted Bill drafted and Value Enactment of the reviewed within (quantitative or 0 Bill MET\. Awaiting qualitative) Parliament approval Date achieved 05/01/2004 07/05/2004 03/30/2011 vi Comments When the project was designed in 2004, promising an enacted Bill was highly (incl\. % ambitious\. Despite the ambitious target, MET informed the WB that the achievement) enactment is expected early in 2012\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. GEO IP Disbursements Archived (USD millions) 1 06/30/2004 Satisfactory Satisfactory 0\.00 2 11/30/2004 Satisfactory Satisfactory 0\.00 3 05/12/2005 Satisfactory Satisfactory 0\.50 4 12/29/2005 Satisfactory Satisfactory 0\.65 5 06/14/2006 Satisfactory Satisfactory 0\.94 6 12/22/2006 Satisfactory Satisfactory 1\.31 7 06/26/2007 Satisfactory Moderately Satisfactory 1\.63 8 06/26/2007 Satisfactory Moderately Satisfactory 1\.63 9 12/21/2007 Satisfactory Moderately Satisfactory 2\.24 10 05/28/2008 Satisfactory Moderately Satisfactory 2\.52 11 11/30/2008 Satisfactory Moderately Satisfactory 3\.11 12 06/18/2009 Moderately Satisfactory Moderately Satisfactory 3\.37 13 11/28/2009 Satisfactory Moderately Satisfactory 4\.42 14 06/04/2010 Satisfactory Moderately Unsatisfactory 5\.13 15 02/14/2011 Satisfactory Moderately Satisfactory 6\.66 16 03/26/2011 Satisfactory Moderately Satisfactory 6\.92 H\. Restructuring (if any) Not Applicable vii I\. Disbursement Profile The image cannot be display ed\. Your computer may not hav e enough memory to open the image, or the image may hav e been corrupted\. Restart y our computer, and then open the file again\. If the red x still appears, y ou may hav e to delete the image and then insert it again\. viii 1\. Project Context, Global Environment Objectives and Design 1\.1 Context at Appraisal 1\. Namibia became independent from South Africa in 1990\. It borders on the Atlantic Ocean to the west, Angola and the Democratic Republic of Congo to the north, Botswana to the east and South Africa to the east and south\. Namibia is a middle-income country whose considerable successes rest on a strong multiparty parliamentary democracy that delivers sound economic management, good governance, basic civic freedoms, and respect for human rights\. The greater part of Namibia consists of arid and semi-arid rangelands with little to no permanent surface water\. Namibia is divided into five geographical regions: a) the Central Plateau where the majority of Namibia’s population and economic activity is; b) the Namib desert; c) the Escarpment where vegetation ranges from dense woodlands to shrubby areas; d) the Bushveld with flat and sandy soils covered with savannah vegetation; and e) the Kalahari desert which is home to the Succulent Karoo, an area with high proportions of endemic species\. These regions support diverse megafauna such as rhino, elephant, wildebeest, buffalo, giraffe, zebra, oryx, kudu, eland, hartebeest, springbock, etc\. and their associated large predators, including lions, cheetahs and hyenas\. 2\. Before independence in 1990, wildlife populations in Namibia’s communal areas were plummeting as a result of extensive poaching during prolonged military occupation\. While 14 percent of Namibia has been set aside as state-controlled parks and reserves, the protected area network is heavily skewed towards the Namib biome, leaving savannas, woodlands and Karoo biome severely under-represented\. Overexploitation of woodlands, shrublands and savannas and uncontrolled cutting of trees for cattle farming and shifting cultivation have resulted in significant land degradation that, if not stopped, could result in further desertification, economic loss and escalating poverty\. 3\. Since the early 1980’s the Government of the Republic of Namibia (GRN) initiated the National Community-based Natural Resources Management (CBNRM) program, a joint venture between the Government, non-governmental organizations, communities, community-based organizations (CBOs) and donors\. The CBNRM program aims to provide incentives to communities to manage and use wildlife and other natural resources in sustainable and productive ways to reduce deforestation, land degradation and biodiversity loss\. The policy framework for CBNRM grants rights over wildlife and natural resources use and tourism management to communities on their lands once they are organized as “conservanciesâ€?\. Conservancies are multiple-zone areas with legal status, registered with the authorities (Ministry of Environment and Tourism) where residents farm more sustainably and collectively manage wildlife and tourism activities\. USAID through the World Wildlife Fund (WWF) was a major co-financier under the CBNRM program of activities through the Living in a Finite Environment (LIFE) program which ended in 2008\. The USAID/WWF funded LIFE program channelled its resources mainly through the non-governmental CBNRM service providers and their network organization, the National Association of Conservancy Support Organizations (NACSO)\. 4\. Lessons from the CBNRM program started to emerge\. As the linkages and interactions among natural systems as well as with people were often compromised within the CBNRM program, the GRN and its partners decided that a new project should attempt to introduce an integrated ecosystem management (IEM) concept to optimize the positive ecological, economic and social benefits of activities aimed at maintaining or restoring ecosystem structure and 1 function not just biodiversity conservation\. A broader range of investment activities were needed to sustain the ecological and economic integrity of conservancies\. 5\. In 2004, the GRN requested a US$ 7\.1 million Global Environment Facility (GEF) grant from the World Bank (WB) to initiate a new operation that incorporated the CBNRM lessons\. Within the overall CBNRM, the Integrated Community-Based Ecosystem Management project (ICEMA) was to build on the achievements of the on-going LIFE program (LIFE plus)\. When the interventions for ICEMA were designed, due cognizance was taken of a number of sector issues that needed to be addressed: a) conservation and sustainable use of Namibia’s biodiversity and natural resource base; b) support for the shift from a wildlife-focused to an integrated ecosystem management (IEM) approach; c) strengthening of the Government’s policy and legal framework to enable IEM in conservancies; d) reinforcement of capacity and institutional support for CBNRM at the central and decentralized levels; and e) provisions for increased livelihood options for rural communities\. 6\. At the time of appraisal, the GRN and the WB agreed to adopt this new approach in 15 registered conservancies with significant biodiversity values (16 conservancies were eventually supported)\. Specifically, the project was to foster the shift from traditional natural resource management (mainly of wildlife) to an integrated ecosystem management approach in the targeted conservancies, thereby enhancing globally significant biodiversity conservation and reducing land degradation while, at the same time, providing increased income-generating opportunities\. More importantly, the project was to strengthen the governance aspects of the conservancies and private sector participation in economic activities\. The project also aimed at providing institutional support to the Ministry of Environment and Tourism (MET), which is the lead government agency responsible for implementing the National CBNRM program, in its efforts to coordinate regional and local agencies and the GRN’s decentralization process\. 7\. During preparation, the WB did not have a country assistance strategy for Namibia\. The WB had had limited involvement in Namibia at that time, by providing technical assistance to support the GRN’s efforts to reduce poverty and to support decentralization\. The WB’s involvement in ICEMA was the first operation in the country and was justified on the following grounds: a) the project was an opportunity for the WB to cooperate with the GRN for the first time in a project of unique national and global benefits; b) the project would contribute to two of the main development objectives of Namibia’s National Development Plan; and c) the project would support improvements in living standards among the rural poor by creating employment opportunities and strengthening a natural resource management model that maximizes the socio- economic advantages of the conservancies without compromising the globally valuable biodiversity\. Soon after the ICEMA project was approved, the GRN and the WB developed a second GEF operation “the Namibia Coast Conservation and Management Projectâ€? (NACOMA)\. 8\. ICEMA was consistent with the priorities of the GEF operational programs for integrated ecosystem management (OP12) and for arid and semi-arid ecosystems (OP1)\. Also, the project was in line with GEF Strategic Priority 2 for Biodiversity, as conservation would be enhanced and mainstreamed into the various production landscapes (mainly wildlife, forestry and tourism)\. 1\.2 Original Global Environment Objectives (GEO) and Key Indicators 9\. As stated in the Project Appraisal Document (PAD), the ICEMA Project Development Objective (PDO) stated that community-based integrated ecosystem management practices are supported by the National CBNRM framework and used by targeted conservancies\. Its Global Environment Objective (GEO) was to restore, secure and enhance key ecosystem processes in targeted conservancies with biodiversity and land conservation and sustainable use as a goal\. 2 10\. The Grant Agreement stated the PDO differently “to assist the Recipient in promoting community-based integrated ecosystem management that generates socioeconomic benefits for conservanciesâ€?\. Despite the difference in the way the PDO was stated, the key indicators were the same in the PAD and the Grant Agreement\. For the purposes of the ICR, the PAD PDO and indicators are used\. 11\. The Key Indicators to measure overall project performance (KPIs) were: For the PDO: ï‚ Around 25,000 km2 of communal land under integrated sustainable ecosystem management as defined by the National CBNRM Program\. ï‚ 80% of targeted conservancies committees are effectively managing and deploying efficiently and sustainably their natural, human, financial and other resources according to the objectives of their conservancy plans\. ï‚ MET as CBNRM lead agency has established effective partnerships with other agencies and institutions, including local governments, NGOs and the private sector to enable achievements of project objectives in an efficient and effective manner\. For the GEO: ï‚ Populations of targeted threatened fauna and flora remain at current levels or have increased in targeted conservancies (5 species specified)\. ï‚ Biological monitoring indicates that the integrity of the target sites remains secure with no significant changes in habitat\. 1\.3 Revised GEO and Key Indicators, and reasons/justification 12\. Key Indicators, GEO and KPIs were not formally revised during implementation\. 1\.4 Main Beneficiaries 13\. The primary target group of the project, as identified in the PAD, consisted of the communal conservancies and their community members including populations of the indigenous peoples “Sanâ€? targeted by the project (initially 15 target sites, later 16 sites), non-governmental organizations, the Ministry of Environment and Tourism (MET), and the Ministry of Agriculture, Water and Forestry (MAWF) through its Directorate of Forestry (at the time of appraisal under MET)\. 14\. The secondary beneficiaries, as described in the PAD, were the other line ministries involved in CBNRM such as the Ministry of Lands and Resettlement (MLR), the Ministry of Local Government, Housing and Rural Development (MRLGHRD), the Regional Councils, private enterprises engaged in joint ventures, tourism investments with conservancies and other NRM-based enterprises\. 1\.5 Original Components 15\. The project comprised three inter-related components and project administration\. 16\. Component 1: Ecosystem-based Income-Generating Activities (US$ 2\.20 million): This component was designed to provide resources to local communities in order to help them generate socio-economic benefits\. The component supported a Community-Funding Facility (CFF) to finance sub-projects (micro-projects) using detailed selection criteria agreed with the WB and targeting wildlife, tourism, forestry, and multi-sector (e\.g\., non-timber forest products (NTFP)) activities\. The component also provided support for the dissemination of information to eligible communities, so that they may access the CFF, technical support at the conservancy level 3 for strategic business planning and establishing a benefit sharing mechanism, and support to implement sub-projects\. 17\. Component 2: Sustainable Ecosystem Management (US$ 2\.08 million): This component aimed at strengthening conservancies to incorporate an integrated ecosystem management (IEM) approach to natural resources management\. The component supported: a) the establishment of the methodology for planning and monitoring the use of an IEM approach at the community conservancies level; b) the development of management plans in 15 (later 16) conservancies using the IEM approach; c) the implementation of site-specific key prioritized activities in the 15 (later 16) conservancies for ecosystem restoration, wildlife translocation and other ecosystem management activities as outlined in the IEM plans; and d) the development and implementation of an IEM Monitoring and Evaluation system\. 18\. Component 3: Targeted Institutional Support (US$$ 1\.13 million): This component was designed to strengthen the capacity of the Ministry of Environment and Tourism (MET) to carry out strategic planning, implementation, monitoring and replication of activities to strengthen the National CBNRM program and policies in Namibia\. The component was also to strengthen the administrative capacity of individual conservancies\. The component specifically supported: a) policy research (identifying and funding of targeted CBNRM research issues to be undertaken or guided by a technical and scientific roster of experts); b) an assessment of the current National CBNRM strategy and institutional set-up in order to identify and implement a training plan for MET's centralized and decentralized staff; c) formalization of a CBNRM consultative forum to discuss policy issues and progress within the National CBNRM Program; d) equipment and operating costs as well as limited training and workshop budget for conservancy management needs; and e) training and technical assistance to MET and conservancy staff to improve CBNRM scientific monitoring and evaluation activities and to further develop and adapt its central M&E system to the expanding needs of the CBNRM program\. 19\. Component 4: Project Management Support (US$ 1\.69 million): This component supported the management costs to supervise the ICEMA activities\. It provided the necessary equipment and training for the Project Office (PO) staff to perform the administrative functions (technical planning, budgeting, procurement, financial management and auditing, monitoring progress and reporting)\. 1\.6 Revised Components 20\. Project components remained unchanged during implementation\. 1\.7 Other significant changes 21\. The project had one formal amendment of the Grant Agreement, dated November 2009, to extend the closing date from January 31, 2010 to March 31, 2011\. The extension was requested to complete sub-projects under component 1 that had experienced delays (see Section 2\.2), due to the need to establish certain procedures before funds could be disbursed\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 22\. Project preparation started in January 2002 and two and a half years later, in November 2004, the grant was declared effective, five and a half months after approval\. In July-August 2005, the WB’s Quality Assurance Group carried out a Quality at Entry Assessment (QEA)\. The 4 QEA rated overall preparation as moderately satisfactory for Poverty, Gender and Social Aspects, Environmental Aspects, Institutional Arrangements, Risk Analysis, and WB Inputs and Processes\. The remaining four dimensions: Strategic Relevance and Approach, Technical, Financial and Economic Aspects, Fiduciary Aspects and Policy and Institutional Aspects were rated satisfactory\. The QEA recognized that the project design built on a strong country context for natural resources management that started in the 1990, with a rapidly growing base of communal conservancies, and strong donor support for the sector as well as GRN commitment\. During preparation, the WB played a positive role in building donor collaboration in the sector, and had better defined its role in Namibia\. The design of the project sought GEF support from the multiple focal area OP12, being one of the first GEF projects involving the relatively new OP12 on Integrated Ecosystem Management\. The project adopted lessons from an early GEFSEC review of OP12 design experience\. 23\. The QEA identified two weaknesses: (i) the project would likely face some difficult institutional issues, such as the role of (foreign-financed) conservation NGOs and the appropriate role of government in setting parameters and guidelines for local resource use decisions\. During the preparation phase, MET's ownership of the project increased substantially to the point that it assumed full responsibility for implementation with outsourcing to NGOs, conservancies and the private sector for MET's non-core activities\. During implementation, this weakness was mitigated and the conservation NGOs worked positively with MET and the communities\. (see paragraph 67); and (ii) weakness in the M&E design which was not uncommon for projects at that time\. Due to the QEA findings, the team improved the M&E system throughout implementation (see section 2\.3)\. It specifically included definitions and management criteria for "ecosystem restoration" or “integrated ecosystem managementâ€? in the target areas, and developed and applied a scorecard methodology that was used to measure progress against the PAD indicators\. While the indicators were not revised, their measurement was improved\. 24\. The main reasons for the moderately satisfactory QEA rating did not materialize\. However, the ICR team maintains the rating of moderately satisfactory to be consistent with the QEA\. Also, the risk section did not adequately identify the risk of implementation delays of the sub-grants component\. This component was delayed due to the need to have strong community ownership as well as clearly defined processes and tools\. In the risk analysis and mitigation plan of the PAD some mitigation measures were missing for several of the risks identified, such as NGO opposition\. 25\. Overall, there were several positive features in the quality of preparation: (i) project intervention sites and/or conservancies were selected using a rigorous process with set criteria and through a participatory process\. Annex 16 of the PAD (Conservancy Profiles and Prioritization Process) described this process in detail and identified the targeted registered communal conservancies that would be supported under the project\. These were agreed with the GRN at appraisal and were finalized before negotiations of the Grant Agreement\. This selection proved to be useful to test conservancies in different regions and with different levels of development; and (ii) the participatory nature of the project design\. Annex 20 of the PAD describes in detail the consultative process with NGOs, communities and different government directorates\. This process ensured that no conflicts came up during implementation\. 2\.2 Implementation 26\. The project was approved in June 2004 and became effective in November 2004\. The first disbursement was made in February 2005\. The Grant Agreement indicated a project completion date of July 31, 2009 and a closing date of January 31, 2010\. However, one extension of the closing date was requested, until March 31, 2011, to be able to disburse the remaining 5 funds of the sub-projects under component 1 which had experienced delays (see explanation below)\. For the day-to-day operation, a Project Office (PO) was based within MET reporting directly to the Directorate of Environmental Affairs (DEA) and the Directorate of Parks and Wildlife Management (DPWM) ensuring project ownership by MET and included five staff, a coordinator, a procurement officer, an accounting officer, a monitoring and evaluation specialist and a secretary\. The project faced some staff turnover and delays in replacing them, but with the WB active supervision, implementation took its due course\. 27\. A mid-term review (MTR) took place in November 2007 and an independent external review was financed by the GRN in September 2007 providing inputs into the MTR\. The MTR confirmed that the project design, scope and implementation arrangements were still fully relevant\. Therefore, no restructuring was needed\. During the MTR mission, the WB team recognized the slow disbursement of the Community Funding Facility (CFF) program (Component 1)\. The slow disbursement can be ascribed to a number of organizational requirements that had to be put in place such as: a) finalization of the MET Concession Policy; b) operation of MET’s concession investments for conservancies; c) lease agreements to be obtained from land boards; d) social and environmental safeguards to be identified; e) head concession and operator contracts to be drafted and agreed; and f) preparation of business plans\. During implementation, the Bank team rated the Implementation Progress (IP) in ISRs as moderately satisfactory mainly due to the slow disbursement of this component\. Despite these delays, all the sub-project funds were disbursed by project closure\. Activities funded included tourism joint ventures, a community-based camp site, a tourism information hub and curio outlet, as well as projects to supplement household income through aquaculture and beekeeping\. 28\. Physical, institutional and management arrangements had to be established and strengthened at each conservancy level, before the implementation of reasonable and replicable CBNRM/IEM-based sub-projects could take place\. This included the provision of infrastructure (such as the administrative office of the conservancy) that would allow conservancies to manage their affairs\. The required institutional arrangements that were put in place included assisting the process of conservancy management from the preparation of resource management plans and the drafting of work plans and policies to the establishment of enterprise management committees\. 29\. Another issue considered during the MTR was that the MET counterpart funding for ICEMA suffered delays\. The financial arrangements for the project included a Special Account for GEF funds and a Counterpart Fund Account for GRN funds (Annex 6-b of the PAD)\. In most GEF projects the grant finances 100 percent of all expenditures as governments were often not able to provide cash as part of their co-financing requirements to pay for global public goods\. In Namibia, the GRN agreed to provide cash which was not an easy negotiation for MET with the Ministry of Finances (MOF)\. Counterpart funding delays were due to the GRN’s system of government budgeting\. This matter was raised during the MTR and other supervision missions (also explaining the moderately satisfactory ratings for IP in the ISRs\. Despite the delays, by project closure, the GRN honored their commitment and contributed US$ 1\.23 million in cash, more than stipulated in the PAD (around US$ 0\.83 million)\. In addition, the GRN funded the CBNRM activities through other state budget and off state budget mechanisms such as staff salary in the field offices and at headquarters\. The total counterpart funding (US$ 1\.23 million in cash and US$ 5\.32 million in-kind) amounts to US$ 6\.55 million, slightly higher than the level agreed in the PAD (US$ 6\.11 million)\. 30\. In 2005, the French GEF approved a grant worth 1\.4 million Euros to support components 2 and 4 of ICEMA\. The French GEF project closed in January 2011 with an overall positive final evaluation\. ICEMA ran in parallel with the USAID/WWF funded LIFE Plus 6 program that supported the overall CBNRM program\. In 2007, there was a reduction of financial resources in the LIFE Plus program which meant a reduction of financial resources for the contracted service providers (CSPs) and CBOs\. The WB team observed that, although this reduction in financial resources could have put a strain on the CBNRM activities and ICEMA, it actually fostered cost-effective and more coordinated efforts by the various CBNRM funding sources, which also contributed to improved institutional relationships between MET and non- governmental partners\. In 2009, the Millennium Challenge Account (MCA), funded by the US Government, had started operating in Namibia and provided support to the CBNRM activities related to ICEMA\. Other donors (KfW, Finland and the European Commission) expected at the preparation stage continued their support throughout ICEMA’s implementation (see Annex 1 of this ICR)\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 31\. The M&E system for the project was designed taking into consideration existing capacity and monitoring efforts from involved stakeholders at the local and national levels and the results of the QEA review\. The system was described in the PAD (Annex 18) and in the M&E Manual for ICEMA\. It was developed on the basis of studies and consultations carried out during preparation and in close cooperation with the National Association of Conservancy Support Organizations (NACSO) led working groups on NRM, Business and Enterprise Development and Institutional Development to ensure buy-in and needed contributions from key CBNRM stakeholders\. 32\. Human and financial resources for M&E were defined and agreed upon at appraisal\. The M&E functions were carried out initially by the LIFE Plus program\. During the MTR, it was decided that an M&E specialist be employed by ICEMA as part of the PO as the LIFE Plus program was closing\. The specialist was a highly qualified and experienced Namibian citizen who had been working on project M&E for several years\. 33\. The system was conceived as a bottom-up process of monitoring and feeding data at relevant levels for progress and performance measurement using the successfully introduced wildlife-based “Event Book systemâ€? in conservancies which was part of the Management Oriented Monitoring System (MOMS) under the LIFE Plus program\. The MET, with support from the NRM group, promoted the use of the CBNRM Event Book for Local Level Monitoring and Evaluation\. 34\. The Event Book System is a highly successful management and monitoring tool that had been developed and introduced over the past nine years and was strengthened by ICEMA\. This simple but rigorous monitoring system promotes conservancy involvement in the design, planning and implementation of natural resource monitoring\. Each conservancy decides what resources it needs to monitor bearing in mind issues on which conservancies are obliged to report to MET\. The resources or themes identified may include human wildlife conflict, poaching, rainfall, rangeland (veld) condition, predators and bush fires, and a variety of others\. Conservancies monitor a larger suite of resources such as plant foods (melon seed, “mangettiâ€? nuts in the Euphorbiaceae family, “marulaâ€? oil in the Anacardiaceae family), palms, fish, honey, rangeland, and even livestock\. For each topic selected for monitoring, there is a complete system that begins with data collection, goes through monthly reporting, and includes long-term reporting\. 35\. Every year, an annual ‘audit’ of the system is conducted where all data are collated and compiled into a conservancy’s Annual Natural Resource Report, which is sent to the MET and provided to NACSO to update their monitoring databases\. Due to its almost universal application, 7 the system is now being ‘exported’ to state and private sector parks in Namibia, as well as to other countries in Africa and Asia\. In addition to day-to-day monitoring through the Event Book, most conservancies conduct periodic game censuses\. ICEMA supported the adaptation and implementation of the Event Book in all the targeted sites\. In addition, ICEMA helped to mainstream the Event Book for local level IEM M&E in targeted sites and to support its adaptation for integrated monitoring\. This level of monitoring worked very well and continues to be widely used by the conservancies\. 36\. In addition to this bottom-up monitoring system, the project made use of a number of Key Performance Indicators (KPIs) and Intermediate Outcome Indicators (IOIs) that were used to monitor and evaluate progress during the implementation of the various components of ICEMA\. Linkages were established between the 12 IOIs identified in the PAD, the various activity and output levels and the 5 KPIs\. The WB supervision missions spent many hours strengthening the M&E system and the rating of M&E was always moderately satisfactory due to the difficulties in reaching agreements on the robustness of the indicators and the methodology to measure them\. After several missions, agreement was reached on the criteria to ensure responsiveness of the indicators to project interventions and which were designed to: (i) qualify progress for a particular indicator at a target site level; and (ii) establish linkages and feed data from IOIs to the KPI level\. The M&E system included a methodology for all 5 KPI baseline assessments\. In addition, the M&E system provided for monitoring of project risks, compliance with safeguard instruments (Environmental and Social Assessment - ESA, IPDP and Resettlement Policy Framework - RPF), financial management and disbursement as well as implementation performance\. The performance of ICEMA was assessed regularly and reports were produced and sent to the WB every three months\. The final indicators and their values are provided in Annex 2 (a)\. 37\. An end monitoring report entitled: “Streamlining the Monitoring and Evaluation Systems of ICEMA and the CBNRM program of METâ€? was conducted in May 2010\. The CBNRM Sub- Division performed an evaluation of a selected number of sites to assess if the IEM approach had been incorporated in the management and administration of the conservancies\. Four teams conducted this evaluation\. The first team tested the applicability of the open ended questionnaire that was designed to collect information for this purposes at the Khob Naub conservancy in the Karas region\. The second team went to target conservancies in the North Central region\. The third team went to the Otjozondjupa, Kavango and Caprivi regions and the last team went to the Kunene region\. The evaluations ended in May 2011\. Most of the evaluations were carried out at conservancy offices\. The report concentrated on individual evaluations conducted in each target site (Annex 2 (b) describes some results of this evaluation)\. 38\. ICEMA also contributed expertise and data to the CONINFO database developed by NACSO\. CONINFO is a data management tool for storing and managing conservation related data\. It comprises 4 main data types: 1) Databases and spread sheets; 2) GIS data; 3) Image data; and 4) Documentation\. Each conservation area (e\.g\. conservancy, concession, national park) has its own folder under each data type within which all relevant data are stored\. The project has contributed to state-of-the-art reporting, such as the Annual Conservancy Assessment Report, as well as a number of videos, reports and brochures (including one on the positive results of the project with the San population)\. 2\.4 Safeguard and Fiduciary Compliance 39\. Environmental Safeguards\. The project was classified as environemtal category B and triggered the following safeguard policies: OP 4\.01, OP 4\.04, OD 4\.20, and OP 4\.12\. As ICEMA was expected to be environmentally beneficial by design, the entire project could be interpreted as an environmental management program\. While the project was not expected to have any 8 significant negative impacts on the environment, the sub-projects in the conservancies supported by the Community Funding Facility (CFF), such as tourism campsites, handicraft center, office infrastructure and the meat drying facility, could have resulted in low-level impacts\. To ensure that any potential impact of these activities was identified and mitigated, the ICEMA PO, MET personnel and the Contracted Service Providers (CSP) were responsible for implementation of the ESA\. This ESA had been prepared in line with Namibia's National Environmental Assessment Policy, the emerging Environmental Management Bill (approved in 2007) and the applicable WB safeguard policy\. During implementation, almost none of the investments required a full EIA, except for the joint venture community tourism projects (Etendeka and Khaudum), which were implemented in a satisfactory manner\. 40\. Social Safeguards\. ICEMA triggered OP/BP 4\.12 in the unlikely event of restricted access to natural resources as a result of project activities such as: (i) establishment of core wildlife areas or game camps; and/or (ii) establishment of tourism facilities such as camp sites or lodges in the conservancy\. In all of these cases, such developments were planned to take place in areas of the conservancy where there is no permanent settlement and that measures are taken to provide adequate compensation for the potential loss of resources\. No people had to be resettled due to activities of ICEMA\. Whenever land was required (e\.g\., for the Kongola Information Hub or the Nudi Campsite of the Khob Naub conservancy), the obligatory permissions were obtained from the relevant land boards or the traditional authority\. 41\. ICEMA also triggered OD 4\.20 due to the fact that San populations were located in some of the conservancies\. The term San refers to a diverse group of indigenous peoples living in Southern Africa who share historical and linguistic connections\. As part of the Environment and Social Management Framework for the project, an Indigenous Peoples Development Plan (IPDP) was developed during preparation under coordination of MET\. The IPDP detailed a plan to manage the transition process of the San, who no longer live as hunter and gatherers but reside in permanent settlements, so that they can participate in national development by encouraging their roles in decision making and overall participation, especially in sub-project planning and implementation in their conservancy\. During the MTR, a review of the IPDP was carried out by a WB Social Development specialist\. The IPDP was considered comprehensive, although sometimes excessive in details\. The IPDP had a detailed Action Plan and Guidelines for its implementation\. It essentially sought to establish equal opportunities for the San in the organizational, cultural, technical and financial areas\. It had a good approximation to the target population but was affected by the poor quality of data on the San of Namibia\. Thus, the estimates of San population of the conservancies were revised during the mid-term review\. 42\. The IPDP was implemented by the WIMSA (Working Group of Indigenous Minorities in Southern Africa)\. Most of the planned activities until 2007 had been carried out, although with delays\. They were largely focused on the Na Jaqna and Nyae Nyae conservancies and included: a) capacity building on governance (roles and responsibilities of the conservancy, financial management planning, harvesting and processing devil’s claws, community game guard training, wildlife management and trophy hunting, event book training, and predator identification training); b) tourism development, supported by game introduction and game water development; and c) natural resources management activities (particularly improved harvesting, processing and marketing of devil’s claws)\. 43\. Compliance with OD 4\.20 which was later changed to OP/BP 4\.10 (Indigenous People) and OP/BP 4\.12 (Involuntary resettlement/Loss of assets or restricted access to assets) were again evaluated by a WB Social Specialist in September 2010\. The mission’s aide memoire reported that overall, ICEMA supported capacity building and income generating sub-projects that ensured 9 compliance with both safeguard policies\. The IPDP facilitated the further integration of the San people into the mainstream development of Namibia, however, there were differences in implementation of the different activities depending on the target sites: The Nyae Nyae conservancy in East Tsumkwe started with a well established CBO, the Nyae Nyae Development Foundation of Namibia (NNDFN), which was supported by international development partners (WWF, USAID etc\.)\. The conservancy still benefits from a number of NGO initiatives, coordinated predominantly by NNDFN, and a successful commercial hunting operation (African Safari Hunting)\. The Nyae Nyae population (approximately 2000 people) is mainly Juhoansi and is relatively homogenous culturally, with a relatively stable social structure, and a strong sense of tradition and identity\. In contrast, the population of the Na Jaqna conservancy in West Tsumkwe is a mixture of San people from different areas and sub-ethnic backgrounds (approximately 5000 people, mainly Kung, Vasekela, Juhoansi, Haiom and Mpungu )\. In 1976 and 1978, the South African Defense Force relocated around 1,000 San from Kavango, Caprivi and Angola to West Tsumkwe\. There are also a number of settlers of Kavango and Herero origin in the district\. The San in West Tsumkwe have, until recently, been unable to access services provided by NGOs resulting in weaker community institutions and limited institutional capacity\. 44\. Following the final evaluation, a series of actions were recommended to be conducted by WIMSA\. In July 2011, WIMSA provided a final report responding to most of the requested actions\. These included, among others: a) assistance with the formation of a long-term game water point plan provided to San people in the project site; b) support to negotiations and capacity building with Devils Claw buyers; c) grazing management support; and d) a pamphlet for MET/DoF staff to increase sensitivity to San\. What was not concluded was the drafting of an exit strategy for the Na Jaqna conservancy\. One interesting result of the IPDP is that despite differing views within the CBNRM network, the IPDP has been regarded as most helpful to make the differing needs of San-led conservancies visible and to report back to decision-makers on actions taken\. WIMSA underwent a number of institutional changes which impacted its performance to some extent, but WIMSA concurred that the project helped to define priorities and to present broader program-wide priorities (not a one size fits all approach)\. 45\. Fiduciary Compliance\. The project used the WB’s financial management and procurement system\. Annual audits and the final audit took place as prescribed, and the findings were to the satisfaction of the MET and the WB\. Initially, the WB supervision missions observed that staffing, internal controls, record keeping, budgeting systems, funds flow arrangements and audit arrangements were conducted satisfactorily; however, financial reporting and monitoring and information systems needed improvement and further guidance\. With further guidance from the WB, this situation improved\. The final mission reviewed the financial management arrangements of the project in terms of being capable of recording correctly all transactions and balances, supporting the preparation of regular and reliable financial statements, safeguarding the entity's assets, and auditing arrangements, and found them acceptable\. 46\. All procurement was satisfactorily handled in accordance with WB procedures\. All goods procured under the project have been donated to the targeted conservancies and to the collaborating Directorates of MET\. Treasury approval has been granted by the Ministry of Finance for MET to accept the project vehicles as a donation\. The seven vehicles are fully equipped and well maintained\. 2\.5 Post-completion Operation/Next Phase 47\. Given the high demand to support existing and new conservancies, building on the successful implementation of the fourth CBNRM phase, the GRN and long-standing or new partners have demonstrated continued or new commitments to the CBNRM program for the 10 coming years, including: WWF in Namibia has successfully secured strong support from the WWF Network (Netherlands, Norway, Germany, US) for strategic elements of the CBNRM program, with anticipated annual investment levels of approximately US$ 3 million/yr for the next five years; WWF-UK funding to Integrated Rural Development and Nature Conservation (IRDNC) (though on a declining level) is scheduled for conclusion in 2013, providing three more years of reliable funding assistance to the IRDNC in carrying out field-based support to conservancies in Kunene and Caprivi; and MCA funding, which is aiming to increase capacity- building and business assistance to 31 targeted conservancies\. This large (US$ 18 million) investment has commenced with an initial training needs assessment of the targeted conservancies and will run through 2014\. 48\. The next four years will provide an important window of opportunity for the CBNRM program, moving from its current development stage, to strategically establish funding mechanisms that can sustainably cover the costs of the critical, core long-term services required for the conservancies to permanently operate and prosper\. In this regard, the permanent funding of national program support costs will need to be considered such as sectoral coordination, training of service providers (i\.e\. training of CBNRM trainers), CBNRM programmatic monitoring/documentation (i\.e\. Annual State of Conservancy Reports), and provision of specialist knowledge and assistance through the three CBNRM pillar working groups (the Natural Resource Management Working Group (NRM-WG), the Institutional Development and Governance Working Group (IDG-WG), and Business, Enterprise, and Livelihood Working Group (BEL- WG)\. 49\. The MET will continue to collaborate closely with the MCA compact implementation team on issues of common interest in natural resource management and tourism development\. The following ICEMA target sites form part of MCA’s priority conservancies: Anabeb, Doro Nawas, Ehirovipuka, Kasika, Khoadi-Hoas, George Mukoya, Muduva Nyangana, Na Jaqna, Omatendeka, Sheya Shuushona, Sorri Sorris, Uukolonkadhi Ruacana, and the Mudumu North Complex (MNC) conservancies of Kwando, Mayuni, Mashi and Sobbe\. As more than 75 percent of the ICEMA sites are also MCA target sites (12 conservancies as well as the majority of the MNC sites), continuous exchange of information has taken place on these conservancies\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 50\. The Project Development Objective was, and continues to remain highly relevant for the GRN\. Support of the development of communal conservancies remains a priority for the GRN and donors\. The CBNRM program was widely recognized and supported in the National Development Plan II (NDP II) (2001) at the time the project was designed\. For example, the NDP II presented the CBNRM development approaches and conservancies as cross-cutting strategies to further increase sustainable natural resources management and sustainable use, in ten of its 48 chapters\. Since the ICEMA project, the MET developed a strategy where the CBNRM was given stronger recognition through staff increase and budget\. In the last two years, the GRN has prepared the Namibia’s Vision 2030 and the National Development Plan III and IV were sustainable natural resources management is mainstreamed in their development actions\. Although this mainstreaming was facilitated by LIFE Plus and other actors in the sector, it is important to note that this could not have happened without the Namibian political will to improve the livelihoods of rural and historically disadvantaged populations and to recognize CBNRM as a suitable tool for this goal and not only as a “conservationâ€? tool\. Namibia’s Vision 2030 specifically mentions the need to ensure the development of Namibia’s natural capital and 11 its sustainable utilization, for the benefit of the country’s social, economic and ecological well- being across all of their development activitiesâ€?\. The GRN, who approved the MCA in Namibia, agreed to use a large portion of the funds to strengthen community-based tourism as a mean to safeguard biodiversity and at the same time generate jobs and livelihood opportunities for poor communities\. The design of the project that included an integrated approach to managing the conservancies is even more relevant now with the need to diversify the sources of income by communities (i\.e\. tourism, game, handicraft and plant resources)\. 51\. As mentioned earlier, ICEMA was the first investment operation of the WB in Namibia\. At appraisal, the WB was only providing technical assistance to support the GRN’s efforts to reduce poverty, to support decentralization and urban development, to analyze various sources of growth and to identify suitable options to strengthen the human capital development including knowledge management\. The PDO and the project design remain relevant to the WB’s engagement in Namibia\. The current Interim Strategy Note (guiding the WB engagement with Namibia) coincides with the National Development Plan IV and includes technical assistance on natural resource management, water conservation, energy, and climate change, reflecting the centrality of environmental sustainability for Namibia's economic development\. All major sources of economic growth and livelihood directly use the country's biodiversity, natural resources, and environmental services, and are vulnerable to climate change\. The WB is also engaged in the GEF funded NACOMA project that seeks to receive additional funding from the GEF to implement a second phase\. Namibia has also been selected by the WB as one of the countries that will benefit from the “Wealth and Accounting Valuation of Environmental Services programâ€?\. 3\.2 Achievement of Global Environmental Objectives 52\. The PDO stated that community-based integrated ecosystem management practices are supported by the National CBNRM framework and used by targeted conservancies\. This was realistic and remained relevant throughout\. The GEO was to restore, secure and enhance key ecosystem processes in targeted conservancies with biodiversity, land conservation and sustainable use as a goal\. The Grant Agreement indicated that the PDO was to assist the Recipient in promoting community-based integrated ecosystem management that generates socioeconomic benefits for conservancies\. This section analyzes the achievement of the PDO as stated in the PAD\. In satisfactorily achieving this objective, the project: a) increased the number of conservancies that use an integrated ecosystem management (IEM) approach; b) improved the effective management of the conservancy committees; c) increased the effective partnerships of MET with other agencies and institutions, including local governments, NGOs and the private sector; d) maintained levels and/or increased populations of targeted threatened fauna and flora; and e) increased the integrity of the target sites with no significant habitat change\. More specifically: 53\. Increase the number of conservancies that use an integrated ecosystem management (IEM) approach: During preparation, the project underwent many discussions about the meaning of an integrated ecosystem management approach (IEM)\. In the PAD, the IEM approach referred to three pillars: (i) the capacity of the conservancies to sustainably use and manage their natural resources, and to encourage biodiversity conservation; (ii) improved access by rural communities to enterprise development and income generation; and (iii) strengthened capacity of the conservancies to enjoy strong and transparent governance structures and equitable sharing of benefits\. During implementation, result was measured by an independent consultancy that further developed the tool to measure the IEM approach in the target conservancies and carried out a field evaluation\. The tool used eight criteria to determine whether this indicator had been achieved: a) activities integrate the management of various resources (renewable); b) clear and 12 agreed conservancy objective articulated in IEM plan; c) IEM plan integrates ecological, social and economic aspects; d) government and NGO involved in IEM planning; e) spatial and temporal coverage in IEM plan; f) key actions are prioritized in Quarterly Activity Plans; g) ongoing evaluation and planning within conservancy; and h) ongoing TA support for activity implementation\. For all 16 assessed conservancies all eight criteria were met\. Therefore, the ICR concluded that, at the end of the project, the total area covered by the 16 conservancies that had adopted the IEM approach was 38,595 km²\. The target value at appraisal was 25,000 km2, and therefore this indicator was over achieved (129 percent)\. 54\. Increase the effective management of the conservancy committees: ICEMA aimed at reaching this indicator when a minimum of thirteen targeted conservancy committees (or 80 percent) would be effectively managing and efficiently deploying their natural, human, financial and other resources according to the conservancy plan\. This indicator was broadly defined at appraisal, and was further refined by applying a checklist to measure key actions, capacity improvements and investment results for each conservancy\. In its annual monitoring reports the project measured this indicator against the following ten criteria: Natural Resource Management 1\. Integrated Ecosystem Management (IEM) plan in place 2\. Natural Resource (NR) monitoring system in place to monitor resource use 3\. Quota set by MET based on NR monitoring and evaluation respected 4\. The zoning plan is being adhered to Governance 5\. Decision by committee members on use of conservancy funds (civil society participation and transparency) 6\. Number of meetings held with conservancy committee members 7\. Members have access to conservancy information Financial sustainability and economic development 8\. Conservancy takes over financing of staff (number of conservancy members employed) 9\. Extent to which conservancy matches annual income to expenditure 10\. Extent to which the conservancy plans for financial sustainability 55\. Agreements had been reached between the WB and the GRN that in order to meet the broad indicator, 8 out of the 10 criteria would have to be met (80 percent) by project closure\. The final monitoring report showed that all 16 conservancies had fulfilled at least 8 criteria, thus the project met this indicator\. The extent to which a conservancy would match its annual income to its expenditure (criteria 9), however, was only reached by 11 conservancies and the extent to which a conservancy took over the financing of its own staff (criteria 8) was only reached by four conservancies (Kasika, Impalila, Khoadi Hoas, Doro Nawas)\. 56\. Increase the effective partnerships of MET with other agencies and institutions, including local governments, NGOs and the private sector: The original target was that MET engages in five partnerships by the end of the project\. During the annual monitoring supervision, the partnerships achieved by the project were numerous and significantly more than five\. The effective partnerships included: (i) cooperation between MET with all the service providers (governmental and non-governmental); (ii) public consultation by MET to develop new CBNRM related policies and legislation; (iii) cooperation between MET and the Department of Forestry to integrate conservancy and community forestry initiatives; (iv) support by MET to develop the enabling framework for CBOs to access and develop business opportunities; (v) cooperation between MET and CBO and NGOs to establish the CBNRM M&E system and integrate it with other systems; (vi) collaboration between MET and the Country Partnership Pilot (CPP) on 13 income generating activities, integrated rangeland management and climate change in some of the conservancies targeted in the project; and (vii) collaboration between MET and the MCA program on tourism related activities in some of the conservancies targeted in the project\. 57\. Maintain levels and/or increase populations of targeted threatened fauna and flora: The project was able not just to maintain the levels of key species populations, but to increase several populations of targeted threatened fauna and flora\. This was mainly accomplished through the game translocation program that ICEMA financed (see Table 1)\. During the ICR mission, game translocation investments were identified by communities as the most positive outcome of the project\. They are considered to be a long term investments and are already beginning to have an impact\. All these translocations serve to improve the tourism attraction of target sites while also offering direct benefits through increased animal harvests following strict quotas provided by MET\. Table 1: Number of translocated individuals of each species under the ICEMA Project Species # translocated Species # translocated Blue Wildebeest 230 Burchell’s zebra 193 Sable 37 Giraffe 107 Kudu 233 Common Impala 266 Eland 461 Hartmann’s zebra 251 Hartebeest 351 Oryx 339 Black faced Impala 203 Springbok 350 Black Rhino 18 58\. The extension of the endemic black-face impala and the boosting of their populations in key areas (Uukolonkadhi Ruacana, Ehirovipuka, Khoadi-Hôas, Doro Nawas) has contributed significantly to the conservation status of the species, thereby supporting the national management plan\. ICEMA has provided considerable assistance for the extension of the black rhino range to a number of conservancies and has supported the implementation of the custodian program in these areas\. Besides the global environmental benefit of a less fragmented population, the involvement of rural people in species management has added to the security of the species, which had previously been decimated by the radically increasing poaching threat elsewhere in Africa and especially in southern Africa\. Not only the extension of range and the boosting of existing non-viable populations have been significant, but also the management of the species has improved through additional training for its management\. In the case of Khoadi-Hôas, the project also has been able to demonstrate that the management costs of the conservancy are adequately covered by the increased revenues from enhancement of the tourism product\. Responsible and sustainable rhino-based tourism represents an additional global benefit\. 59\. Wild dogs are arguably the most threatened large predator on the continent with a shrinking range in Namibia and under considerable threat\. The wildlife introductions to Na-Jaqna, coupled with support for a natural resource-based local economy, have contributed to the possibility of using an additional 800,000 hectares habitat\. Similarly, the zoning of the southern areas of Muduvu Nyangana and George Mukoya conservancies as wildlife areas has created a buffer for the species in the Khaudum National Park\. Elephants are the source of considerable human wildlife conflict (HWC) and threaten to undermine the success of the CBNRM program in some areas\. ICEMA, by supporting the development of a national HWC policy and implementation plan, has promoted long-term mitigation against this potential conflict\. This has been further supported at the site level through the provision of water point solutions in both, 14 southern Kunene and Caprivi\. These steps have greatly contributed to reduced conflict between humans and elephants\. 60\. Increase the integrity of the target sites with no significant habitat change: ICEMA had set this indicator at appraisal and agreement was reached that it would be measured by the fixed point photography technique\. The fixed point photography is one of the most effective and robust methods to monitor vegetation change\. The results indicate that the integrity of the target sites had increased as indicated by the change in the percentage of tree cover between 2007 and 2010 (see Table 2) in the eight conservancies measured\. Table 2: Tree cover measured in 2007 and 2010 in selected sites in 8 Conservancies Conservancies Tree cover (%) 2007 2010 Huab 28\.1 31\.0 Khoadi Hoas 30\.0 33\.0 Anabeb 21\.0 23\.3 Doro Nawas 12\.1 15\.0 Ehirovipuka 19\.0 27\.0 Omatendeka - 21\.4 Sorri Sorris 20\.1 23\.0 Uukolonkadhi/Ruacana 26\.2 22\.0 3\.3 Efficiency 61\. At the time of appraisal there were no requirements to include calculations of economic and financial rates of returns\. The project was a stand-alone GEF project with a GEF grant and counterpart funding from GRN\. No benefit or cost-effectiveness parameters were calculated, and would be extremely difficult to calculate ex-post\. Despite these hindrances, efficiency was assessed by: a) the inputs and returns in the CBNRM program available in an independent evaluation; b) the results at project closure of the incremental cost analysis presented in the PAD (Annex 4); and c) the efficiency achieved by the collaboration of different organizations to deliver technical assistance to the conservancies\. 62\. a) A report by Barnes (2008) measured the efficiency of the CBNRM program in Namibia based on inputs and returns of all conservancies between 1990 and 2005 (which included the 16 conservancies supported by ICEMA)\. The conclusions show on one hand that communities in these conservancies derive positive net returns to their investments in tourism- driven and that the overall government and donors spending in the CBNRM program has resulted in tangible economic benefits\. The internal rate of return of the whole program investment over the 16 years period was close to 15 percent and the net present value of the investment over the period after discounting at 8 percent was US$ 7\.8 million\. The fact that investment in the CBNRM program generated a higher return (15 percent) and a positive net present value, allows the conclusion that it was economically efficient and contributed positively to development\. The report further concludes that community conservancy investments, in which tourism is the dominant land use, are economically efficient and contribute positively to national economic wellbeing\. ICEMA funded tourism related activities in all 16 conservancies\. For example, ICEMA supported MET to move black rhino to conservancy areas and to seek ways of allowing the species to enhance tourism values\. Also, the Khoadi-Hôas pilot sub-project with the Grootberg Lodge is a prime example of how biodiversity management and tourism provide 15 additional revenue to conservancies\. It is likely that this enterprise also provides additional security for rhinos in the face of increasing threats\. 63\. b) The GEF methodology of incremental cost analysis compares a baseline scenario (activities that will promote sustainable land use in the country without GEF support) with the cost of the GEF-supported scenario\. At appraisal, incremental cost was estimated at US$ 10\.63 million (PAD, p\.81)\. Of the incremental expenditures of US$ 10\.63 million, GEF was requested to fund US$ 7\.1 million; the balance would be funded by the French GEF and by the GRN\. At closing, incremental cost was US$ 10\.15 million\. 64\. c) The collaboration in the CBNRM program and ICEMA has been exceptional, particularly in the way that the conservancies have received technical support, capacity-building, and facilitation which is highly efficient and collaborative and consists of a synergistic mix of government and NGO support\. MET has provided the legal policy/legislative basis for the program and some training, technical support, and enforcement of regulations on a range of natural resource-related matters\. MET has been strongly complemented by a number of field- based NGOs and the University of Namibia, which work under the umbrella of the National Association of Conservancy Support Organizations (NACSO)\. Through a joint endeavor, MET and NACSO members have provided on-the-ground training and technical guidance for a wide range of activities through three programmatic support pillars\. These pillars include: (i) natural resource management (NRM); (ii) institutional development and governance (IDG); and (iii) community benefits through strengthened business, enterprise, and livelihood opportunities\. In addition, NACSO has played a strong sectoral coordination role ensuring that the various NGOs are working in tandem with one another and promoting programmatic monitoring efforts through the collection of the monitoring data required to produce the Annual State of Conservancy Reports\. 65\. The various activities allowed the directorates to leverage resources to undertake activities which were captured in MET’s annual work plan and which ensured that activities were aligned and not seen as an add-on\. By this means, ICEMA supported “mainstreamingâ€? key activities which, prior to the project, had been largely conducted by NGOs\. However, rather than weakening partnerships between MET and NGOs, this served to strengthen MET and the partnerships\. A few pertinent examples include: ï‚ The annual Kunene Game Count which is now jointly organized and managed by MET\. This is a key activity which supports quota-setting and hence is a pre-requisite for ensuring the most significant benefits for conservancies in the region\. ï‚ Game translocations - with support from ICEMA, MET has taken control of what is an annual activity in its work plan\. Also with support from ICEMA, MET has sought alternative funding assistance beyond ICEMA (e\.g\., from the EU and MCA)\. ï‚ Support for local-level monitoring which is now embossed in the MET work plan and provides the mechanism for long-term M&E\. ï‚ MET is playing an active role in the harmonization of conservancy and community forest approaches\. To this end, a natural resources working group has been established and is chaired by the Director of Forestry\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 66\. ICEMA was the first WB investment project in Namibia\. The GRN and its various partners had decided that a new project with the WB was to attempt to introduce the integrated ecosystem management (IEM) concept to optimize the positive ecological, economic and social 16 benefits of activities aimed at maintaining or restoring ecosystem structure and functions in 16 conservancies\. At the end of the project, the total area covered by the 16 conservancies that had adopted the IEM approach was 38,595 km2\. The target value at appraisal was that 25,000 km2, which means that this indicator was over achieved (129%)\. ICEMA achieved its objectives and the overall impact and development of the conservancies are numerous, particularly in terms of the participatory management of the conservancies, the conservation and sustainable utilization of biodiversity (wildlife, useful plants and other resources) and on the improved livelihood of local communities\. The PDO was satisfactorily achieved as discussed in section 3\.2\. In addition, the project put the legal framework in place and generated strong experience by incorporating IEM to the GRN’s CBNRM program and creating the enabling conditions to link economic incentives with environmental management and wildlife conservation through strengthened ownership at the local level\. 67\. As a result of the support provided by ICEMA, a more conservancy-centered approach has been adopted to planning and implementation\. MET and the PO worked closely with CSPs and target sites to identify investments which would either enhance the resource base or mitigate HWC (e\.g\. wildlife water points, wildlife translocations, etc\.), provide a platform for improved integrated resource management (e\.g\. building offices), act as a catalyst for further investments and income generation (e\.g\. the Sorri Sorris office was the catalyst for the development of an enterprise centre and the Huab office for a firewood enterprise) or would improve the benefits to the membership (e\.g\. meat handling facilities which improves meat distribution BUT also paves the way for value addition through meat processing – biltong, smoked game - and better management of hides)\. 68\. A recent study conducted by MCA (2010) carried out a conservancy needs assessment\. The report ranked 28 conservancies based on their capacities to manage their financial, institutional, natural resource, wildlife, human wildlife conflict, business, tendering, and negotiating responsibilities and to identify and manage tourism enterprises and benefit distribution\. The results are positive and indicate that mature conservancies have increased their capacities in moving towards sustainability\. Their financial, institutional and natural resources management approaches have improved over the years\. The report points out that future investment in CBNRM should focus on business development, management of tourism enterprises and joint venture tendering\. 69\. Although no socio-economic indicators were monitored under ICEMA, abundant data exists showing that ICEMA and the CBNRM program are succeeding in raising the living standards of people living in the target conservancies through the provision of operational funds, facilities, and training to conservancy staff and committees, as well as by funding game translocations and, income generating sub-projects such as camp sites or joint tourism ventures and through the provision of water infrastructure for game, to mention but a few\. Between 2005 and 2009, the total revenues, including cash (salaries, jobs from the tourism sector and various payments) and proceeds from other sources (e\.g\. meat sold and consumed, plants utilized and sold), for all the conservancies increased substantially from US$ 1\.4 million in 2005 to US$ 3\.5 million in 2009 (NACSO, 2009)\. Also, the increase in the number of registered conservancies established since the start of ICEMA (from a baseline of 42 in 2005 to 59 in 2010) indicates that the CBNRM initiative has gained growing popularity over the years at both the national and international levels\. 70\. ICEMA went beyond what it was set to accomplish which was to deliver conservation and livelihood efficient-activities at each conservancy level, but it also supported larger scale impacts\. Landscape-level management was one of the key approaches for management of a 17 range of resources that was tested by ICEMA\. The Mudumu North Complex (MNC) consists of four conservancies, three community forests and three national parks\. The inhabitants have pooled resources and expertise to manage those resources at the landscape level, including: (i) joint management; (ii) game monitoring; (iii) zoning and wildlife corridors; (iv) human wildlife conflicts; and (v) economic development through wildlife, tourism, agriculture and crafts\. This complex has been supported by MET, INRDC, WWF, the French GEF and ICEMA\. The mainstreaming of this approach and the associated positive biodiversity outcomes will have long- term global outcomes for ecological processes and species management\. ICEMA and the French GEF have specifically supported joint management, translocations, tourism activities and training\. It is likewise worth noting that conservancies to the south of Mudumu National Park formed a similar complex towards the end of 2010 and are using the MNC as a model upon which to base their approach\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 71\. The project was not designed as a targeted poverty alleviation project\. However, it was designed to enable local communities to benefit from improved income generation activities, such as game hunting, tourism, sale of products and the Community Funding Facility (CFF) sub- projects\. MET actively engaged with a number of stakeholder groups to support community development with a view towards increasing educational and training activities and support to sub-projects\. ICEMA delivered some concrete outcomes to aid poverty alleviation and social development, including: ï‚ Household income - as a measure of the growth of importance and value of communal conservancies, in 1998 cash income and non-cash income to CBNRM activities was N$ 1\.15 million\. By 2008, benefits from the same had increased to N$ 42 million (NACSO, 2008)\. ï‚ Benefits through tourism activities created much needed employment, especially for young rural school leavers for whom opportunities are limited\. Skills development and capacity building have greatly improved their chances in life\. ï‚ Access to markets for a range of natural products came under the umbrella of conservancy organizational support - e\.g\. Commiphora gum harvested for sale internationally\. 72\. In February 2011, the PO carried out an assessment of 18 CFF sub-projects\. The assessment measured the benefit and business impact piloted by ICEMA measuring marketing NR products; environmental benefits; livelihoods improvement; diversification of IEM income; employment creation; income generation by the community; and outsourcing complementary enterprises\. 73\. The assessment was qualitative and did not provide the exact number or monetary values gained, but informed whether the sub-project had succeeded in one or more of these aspects\. Overall, this assessment found that the activities that mostly benefitted the communities included: craft development and marketing (Khoadi Hoas and Otjituuo), renovation and operationalization of campsites (Anabeb), establishment of the community-based professional hunters camp (Ehirovipuka), refurbishment of the Omatoko Valley rest camp (N’Jaqna), sustainable harvesting and marketing of the medicinal plant, devil’s claw, from the Pedialacea family (Nyae Nyae and N’Jaqna), improvement of community camp site workshop facility (Joseph Mbangandu), sustainable harvesting and marketing of Commiphora resin (Puros), construction and operation of beekeeping facilities (Nyae Nyae and the Mudum North complex), aquaculture (Khaudum North complex), tourism joint ventures (Khaudum North complex), outsourcing operation of Nudi Camp Site (Khob Naub), and construction of the Kongola Tourism Information Hub (Mudumu 18 North complex)\. As can be seen from this list of benefits, ICEMA has directly supported the welfare of communities living in the 16 conservancies supported by the project\. (b) Institutional Change/Strengthening 74\. The project supported the first five-year MET Strategic Plan and the re-structuring process of MET, which has been completed and is being implemented in a phased approach\. Besides direct contributions to this strategic process, the mere presence of ICEMA as a MET CBNRM project provided a positive re-enforcement to Strategic Theme 4 (Develop and Support CBNRM) of MET’s strategic plan\. The project was also able to strengthen, through specific activities, Strategic Theme 5 (Support to Rural Development) whereby a number of activities were supporting local economic development\. It is important to note that the ICEMA and MET work plans were also integrated at coordination level with the CBRNM Support Division (CSD), as well as at the regional level, where the PO participated in work plans with the Kunene MET regional staff\. 75\. A positive aspect of implementation was the high level of cooperation and partnership, building on and further strengthening a long history of inter-agency collaboration to promote natural resources management in the community conservancies of Namibia\. The PO was advised by a Steering Committee (SC)\. 76\. The ICEMA SC operated throughout implementation and included the MET Permanent Secretary and all the MET directors (Directorate of Scientific Services (DSS), Directorate of Forestry (DOF), Directorate of Parks and Wildlife Management (DPWM), Directorate of Tourism (DOT) and Directorate of Environmental Affairs (DEA))\. The SC would approve annual work plans while MET staff and the PO were engaged in activity implementation\. MET staff across directorates were involved in local level monitoring (LLM), IEM planning and implementation, game introductions/translocations, Community-Funding Facility (CFF) appraisals, policy development and TA to conservancies\. In addition, ICEMA and MET regional work plans were coordinated\. 77\. The PO was involved with different Directorates in developing the MET annual work plans, thus ensuring that project activities remained MET activities\. ICEMA also blended very well with the existing consultative groups (e\.g\. the National Association of Conservancy Support Organizations (NACSO))\. ICEMA’s capacity building activities substantially improved the executing agency’s managerial capacity and knowledge to lead the CBNRM program\. 78\. The project was well implemented thanks to the award of successful TA contracts to the Conservancy Service Providers (CSP), which included: the Namibia Development Trust (NDT), the Integrated Rural Development and Nature Conservation (IRDNC), the Mudumu North Complex (MNC), the Welwitchia Development Trust, the Namibia Nature Foundation, the Rössing Foundation and, the Voluntary Services Overseas (VSO)\. During the final year, funding was also provided directly to a few ICEMA conservancies to fund activities included in their annual work plans\. This step was taken to assess the capacity of the management cadre to identify needs, calculate costs, implement activities, report on the outcomes achieved and carry out financial and auditing functions\. This experience turned out to be successful and set out the stage for future operations such as that supported by the MCA\. Some funding was also used to assist conservancies in the implementation of the micro-enterprise sub-projects\. While this component initially disbursed slowly, a number of significant initiatives assured full disbursement 19  1 towards the end of the project \. The design and implementation of the Indigenous Peoples’ Development Plan (IPDP) was contracted out to WIMSA (Working Group of Indigenous Minorities in Southern Africa)\. This activity is discussed in Section 2\.4 below\. (c) Other Unintended Outcomes and Impacts 79\. ICEMA’s impact went beyond the intended outcomes\. The MCA adopted the IEM approach as the implementation approach to be mainstreamed at MCA program level, and the GEF NAM-PLACE initiative also builds on the achievements of ICEMA\. The GEF NAM- PLACE initiative, which has recently been approved and commenced in mid 2011, includes the MNC and 4 or 5 other target sites that have enjoyed ICEMA’s support and where “lessons learntâ€? from this experience were used in the project design\. The approach of providing grants to conservancies based on focused activities and delivering outputs represents a departure from just providing funding for straight operational costs\. This approach is further refined by the target sites requesting specific services from their service providers and paying directly for this support\. This approach has been adopted by MCA and gives new direction to the way conservancies conduct business\. 80\. One legacy left by this component is the fact that the procedures to provide income- generating grants to conservancies were tested and adjusted and now these same procedures are being used in new donor funded government programs such as the MCA and the Country Pilot Program (CPP) that provide support to communal conservancies in Namibia\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 81\. Meetings with community members in five conservancies were convened by MET during the ICR mission to discuss the results of the ICEMA project\. Valuable comments were provided that can be summarized as follows: ï‚ The project had positive effects on biodiversity conservation and on territorial and land use management, in particular the introduction of game species, and the zoning plans were praised as a key contribution from the project and to increasing tourism revenues\. ï‚ The construction and furbishing of the conservancies’ management offices, the support of a few salaries to run the offices and training to conservancy committee members are having a long lasting benefit\. Conservancies are now perceived internally and externally as legitimate entities\. Resolution of land titling and other issues and decisions on outsourcing concessions and new projects has increased in most conservancies as they are able to negotiate with a single voice\. The conservancies’ governance structure and offices are seen as nodes for rural development\. ï‚ Some of the challenges that remain are the need for training and legal advice to avoid unfair deals and illegitimate operations with some dishonest trophy hunters and lodge concessionaries\. Specific cases where, lamentably, the communities were cheated on were described during the meetings\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 82\. For this project, the Risk to Development Outcome is assessed in terms of the global objectives, which comprise the long-term beneficial impacts from an IEM approach to manage 1 A list of all the sub-projects and their accomplishments is provided in Annex 2-b\. 20 the conservancies and enhanced local community and intermediary NGOs capacities to generate incomes\. The overall assessment is based on the following elements: ï‚ Technical: Negligible to Low\. The interventions were designed with the best available knowledge and experience to achieve the project outcomes\. ï‚ Financial: High\. The CBNRN initiatives are expensive and require long-term financial support to increase the capacity of communities to become self-sustaining\. More conservancies are being established, which will require continuous donor and GRN support\. Under ICEMA, three joint ventures were established with the potential for replication under the MCA; however, additional financial resources will be required to replicate this experience\. ï‚ Economic: High\. Economic benefits from an integrated ecosystem management approach to the conservancies are documented in general terms in the NACSO report (2010)\. The Community Funding Facility under ICEMA supported economic activities but the benefits of these activities have not been quantified in economic terms\. Also, to sustain these economic benefits will require continued technical assistance and funding\. ï‚ Social: Moderate\. The conservancy movement in Namibia has strong social roots and the GRN, the CSP through NACSO and the donors have been providing constant support, thereby increasing the social benefits and ensuring the equitable sharing of benefits\. ï‚ GRN ownership/commitment: Moderate\. The Ministry of Environment and Tourism is committed to supporting the management of the conservancies to ensure ecological and economic sustainability\. New GRN programs such as the Environment Fund capitalized at US$ 30 million suggests that GRN commitment to the CBNRM program remains firm\. ï‚ Other stakeholder ownership: Low\. The CSP, private sector and local governments have increased their interactions and partnerships with conservancies over time\. This trend is likely to continue given the economic return from tourism activities in Namibia which is a fast growing sector and the fact that so much land where wildlife is located is titled to communities\. ï‚ Institutional support: Low\. The close collaboration among the different government programs to support conservancies has been growing\. The committees and advisory boards have made a difference in preparing joint work programs and avoiding duplication of efforts\. ï‚ Governance: Moderate\. While the conservancies that have been supported under ICEMA have adopted more transparent governance structures, these structures require continuous technical assistance and training, especially when members rotate\. In addition, new conservancies will require training and infrastructure support to set up their governance structures\. ï‚ Natural disasters exposure: High\. Namibia has been subject in recent years to serious floods that have affected some of the conservancies’ territories\. These events are likely to increase over time due to global and regional climate change patterns\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 83\. The Quality at Entry review rated performance as moderately satisfactory\. The main reasons for the moderately satisfactory rating of the project design and quality at entry in the QEA did not materialize (see section 2\.2 Implementation)\. However, the ICR team maintains the moderately satisfactory rating to be consistent with the QEA\. Also, the risk section did not 21 adequately identified the risk of delays in the implementation of the sub-grants component\. This component was delayed due to the need to develop strong community ownership as well as clearly defined processes and tools\. The risk analysis and mitigation plan in the PAD lacked some of the mitigation measures for several of the risks identified, such as the mitigation for the risk of NGO opposition\. (b) Quality of Supervision Rating: Satisfactory 84\. Supervision has been unusually proactive and diligent\. The skill mix of the supervision team has been appropriate and staff continuity very good\. The Task Team leader that prepared the project supervised it until 2009, one year before project closure\. WB staff provided regular (twice a year) supervision mission during implementation\. Mission findings and recommendations are documented in detailed aide memoires, which are available for all years\. The project benefitted from constructive criticism from the independent mid-term evaluation\. The MTR in November 2007 was comprehensive and resulted in an action plan with recommendations that were later implemented\. Efforts may have been hampered by the slow disbursement of the community sub-projects, but this is not unusual for activities targeting communities which often require some time for investments to materialize\. The important point is that at the end, the subprojects were operating and had disbursed the funds\. The social and environmental safeguards were well monitored, with appropriate actions taken\. The team rated the project in an appropriate way with most ISRs having ranked the likelihood that the project would achieve its GEO as satisfactory while Implementation Performance (IP) was rated moderately satisfactory\. This lower rating of the IP was a constant reminder to conclude the project successfully\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 85\. The overall WB performance is rated Moderately Satisfactory based on performance at entry\. 5\.2 Borrower (a) Government Performance Rating: Satisfactory 86\. The GRN has maintained continuous commitment to ICEMA since its establishment\. The GRN agreed at time of appraisal to provide direct cash contributions to a Counterpart Fund Account\. Annex 6-b of the PAD includes the percentage of government cash to be contributed by the government which amounted to approximately US$ 0\.83 million\. Despite delays in the disbursement of these funds due to budgetary transfer issues, by project closure, the GRN had honored its commitment and contributed US$ 1\.23 million in cash, more than stipulated in the PAD\. As mentioned earlier, this was unusual for GEF projects to contribute cash because most of the government counterparts are in kind\. In addition, the GRN funded the CBNRM activities at a steady pace through other state budget and off state budget mechanisms such as staff salary in the field offices and at headquarters (US$ 5\.32 million)\. This funding was critical to ensure the implementation of ICEMA\. 87\. During implementation, the GRN showed its priority to safeguard Namibia’s environment and natural resources by issuing the Promulgation of the Environmental Management Act, 2007 (Act No\. 7 of 2007) by the Parliament\. Passing this law was included in the results framework of the PAD\. ICEMA had included two additional bills in the PAD as output indicators for the project - namely the Parks and Wildlife Management Bill and the Access to Biological Resources and Associated Traditional Knowledge Bill\. Including the passing of 22 laws as performance indicators was ambitious and currently, most WB projects include the drafting of bills as the performance indicators, because it is beyond the project’s performance control to have it approved by the Parliament\. In the case of the Parks and Wildlife Management Bill, it has been drafted and has undergone all the internal reviews within MET\. It is now awaiting the enactment\. Regarding the other bill, MET was awaiting the final approval of the Access and Benefit Sharing (ABS) protocol that was only approved in Nagoya in 2010 during the COP 10 of Convention on Biological Diversity (CBD)\. There was no point for MET to draft its own law until the international protocol was in place\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 88\. The Directorate of Environmental Affairs (DEA) within MET provided strong leadership during the implementation of ICEMA by ensuring the participation of four directorates within MET, although there was a dedicated unit, the CBNRM Sub-Division (CSD), which resides in the Directorate of Parks and Wildlife Management (DPWM) that played a critical role\. The ICEMA activities were well coordinated across these Directorates at planning, project, and local level, even with the Directorate of Forests that was moved during implementation to another ministry (Ministry of Agriculture, Water and Forestry) with the result of aligned community-forest and conservancy legislation and practices\. The various activities allowed the Directorates to leverage resources to undertake activities which were captured in the MET's annual work plan which ensured that activities were aligned and not seen as an add-on\. 89\. Considering that this project was the first WB investment in Namibia, the ICR team considers that despite some of the delays in budgeting the government’s contribution and the staff turnover, the PO office functioned well, particularly in the financial and procurement activities that did not encounter any major issues\. The initial weakness of the M&E system was discussed earlier, but it was not due to a lack of MET performance, but due to the complexity of the indicators agreed and was addressed through the employment of a highly qualified M&E specialist and further detailing and agreement on data collection for the key indicators\. ICEMA supported the adaptation and implementation of the Event Book in all the targeted sites as part of the M&E system\. The Event Book was strengthened by ICEMA and MET has expanded the use of this excellent system for community forests and national parks (supported by MET UNDP PA SPAN project)\. 90\. MET's regional (and to lesser extent national) staff performance at local level increased significantly during implementation\. MET upgraded the regional CBNRM functions with additional staff and defined more clearly the role of the regional offices\. MET played a fundamental role in defining the roles and functions of all the key players of the CBNRM program\. A few key examples include: (i) the annual Kunene Game Count which is now jointly organized and managed by MET\. This is a key activity which supports quota-setting and hence a pre-requisite for ensuring the most significant benefits for conservancies in the region; (ii) game translocations - with support from ICEMA, MET has taken control of what is now an annual activity in the MET work plan\. Also with support from ICEMA, MET has sought alternative funding assistance beyond ICEMA (EU, MCA); (iii) support for local-level monitoring which is now embossed in the MET work plan and provides the mechanism for long-term M&E; (iv) MET played an active role in the harmonization of conservancy and community forest approaches\. To this end, a natural resources working group has been established and chaired by the Director of Forestry; and (v) support to the development of the Concessions Unit and its functioning as a key sub-division holds great potential for conservancies adjoining national parks\. 23 (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 91\. This was the first GEF project to be implemented in Namibia and the GRN and its line ministries responded positively to working with the WB in a complex and ambitious project\. MET’s Directorate of Environmental Affairs assisted ICEMA throughout its implementation with financial and institutional resources while the Directorate of Parks and Wildlife Management, through its CBNRM Sub-Division, assisted with the implementation, monitoring and evaluation of project activities in the targeted conservancies\. One positive aspect of the ICEMA PO is that it assisted the second WB NACOMA project particularly with setting up its financial management and procurement procedures which strengthened NACOMA's efficiency and performance during the first year\. Other experiences and lessons from ICEMA were used during the preparation of the NACOMA project\. MET has provided an endorsement for a NACOMA II (GEF-5) project which clearly demonstrate that MET sees the WB as a strong development partner with whom the GRN would like to continue its policy and operational dialogue\. 6\. Lessons Learned 92\. Some key lessons learned from the project include: 93\. Conservancies operate in large, open systems with highly variable climatic conditions\. Rainfall is extremely sporadic\. Ungulates move over vast areas in accordance with their availability for grazing and browsing; predators roam in search of prey and; elephants follow ancient migration routes\. The effects of climate change are likely to increase this variability\. Adaptive management that takes changing circumstances into account is vital in such systems\. Landscape-level management was one of the key approaches for management of a range of resources that was tested by the ICEMA project\. The Mudumu North Complex consisted of four conservancies and a community forest in which inhabitants pooled their resources and expertise to manage those resources at a landscape level\. This positive experience is worth sharing and replicating in similar parks and surrounding conservancies not just in Namibia, but throughout Africa and around the world\. 94\. ICEMA has filled important gaps in natural resource management (as acknowledged by all stakeholders during the ICR mission) thanks to the adoption of the Integrated-Ecosystem Management (IEM) approach by the CBNRM program\. To succeed with IEM, it is important to: (i) introduce standardized business development approaches based on a vision of sustainability using a categorization of conservancies and an integrated planning and implementation approach; (ii) strengthen governance through compliance systems, local level monitoring and financial management; and (iii) strengthen the concept and capacity to carry and implement ecological and economic zoning within each conservancy including monitoring of the zoning rules by internal and external conservancy users\. Community-based integrated ecosystem management is now an accepted and adopted strategic approach and the development of IEM guidelines is leading to an innovative, integrated CBNRM framework that will involve several line Ministries (MLR, MAWF, MFMR) in Namibia in addition to MET in the future\. 95\. Community sub-projects faced challenges during implementation as indicated in earlier sections\. The main lessons learned for future activities involving income-generation sub-projects with communities include: (i) focus the resources geographically; (ii) earlier definition of the thematic focus related to sub-projects; (iii) ensure that the capacity of service providers is in place before sub-projects are selected; (iv) disseminate the CFF information earlier on through 24 stakeholder meetings with targeted conservancies and service providers (SPs); and (v) strengthen the conservancy-level business planning\. Retrospectively, the main stakeholders involved - from CBOs to Government and the WB - underestimated the time and resources needed for sound business development in conservancies, but also within the Contract Service Provider network\. 96\. Large scale translocations of fauna to conservancies within differing biomes and with different biodiversity, income-generating and development needs were, until the inception of ICEMA, largely untried and untested\. The project was able to develop an implementation approach which showed good results and attracted significant funding from Enhancing Wildlife- based Economy in Rural Area Projects (EWERAP) and the MCA to scale up MET/ICEMA achievements\. Key lessons are to ensure that: (i) leadership and strong oversight by one entity such as the Ministry of Environment manages the entire process and provides technical oversight and quality control; (ii) this entity provides a quota of animals on an annual basis which may be moved to conservancies from protected areas; (iii) regular meetings are held with a range of partners, including field staff, NGO partners and regional experts to agree upon recipients for different species, taking due cognizance of institutional, ecological, economic and management issues; (iv) translocations are discussed and agreed with the conservancies, and release sites agreed upon with field staff participating and contributing to the process; (v) an agreed joint action plan for the release of the animals is agreed on; (vi) post-release monitoring takes place, which involves a suite of approaches; (vii) intensified local level monitoring takes place to ensure the long term success and compensate for any technical failures; and (viii) a satellite and animal tracking system is used\. 97\. Planning, monitoring and evaluation are core aspects of conservancy activities, as they allow for adaptive management through the strategic use of gathered information\. A number of M&E systems were put in place by MET and its development partners\. However, many of these M&E efforts were either ad hoc interventions required by external funding agencies to determine the impact of their programs, or they are of a specialized nature that can be linked to the environmental mandate of MET as regards desertification, bio-diversity, climate change, etc\. What is required, in addition to the above-mentioned efforts, is an M&E system that is:(i) recurring at fixed intervals; (ii) conducted nation-wide; (iii) institutionalized as an official/legitimate data gathering exercise; and (iv) standardized, with an enumeration methodology that allows impact assessment over time\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The client raised some issues about the low overall rating of the draft ICR (see Annex 7 for details)\. (b) Cofinanciers (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 25 Annex 1\. Project Costs and Financing (a) GEF Project Cost by Component (in US$ Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate Estimate Appraisal (US$ million) (US$ million) (%) Component 1 2\.20 1\.82 83 Component 2 2\.08 1\.85 89 Component 3 1\.13 1\.36 120 Component 4 1\.69 2\.01 118 Total Project Cost 7\.10 7\.04 (b) Financing by Financier Appraisal Actual/Latest Percentage Source of Funds Estimate Estimate of Appraisal (US$ million) (US$ million) (%) USAID 10\.29 8\.23 90 Borrower 6\.11 6\.55 106 Local Communities 0\.18 0\.19 107 EC: European Commission 3\.00 3\.22 107 FINLAND: Ministry for Foreign Affairs 1\.00 1\.07 107 FRANCE: French Agency for Development 1\.75 1\.88 107 Global Environment Facility 7\.10 7\.04 107 Germany: Kreditanstalt fuer Wiederaufbau(KFW) 3\.00 3\.22 107 TOTAL 32\.43 31\.39 97 26  Annex 2\. Outputs by Component (a) Indicators Performance at the End of the Project Base Target Achieved Score2 Outcome Indicators line EOP EOP 2005 PDO – Community based integrated ecosystem management supported by national CBNRM framework + used by conservancies KPI 1\. Km2 of communal land under sustainable integrated ecosystem 0 25,000 38,595 2 management (IEM) as defined by the National CBNRM program KPI 2\. % of targeted conservancies committees are effectively managing 0 80 100 2 and deploying efficiently and sustainably their natural, human, financial and other resources according to the objectives of their conservancy plans\. KP1 3\. # Criteria met showing that MET, as CBNRM lead agency, 0 5 5 1 established effective partnerships with other agencies and institutions, including local governments, NGOs and private sector to enable achievements of project objective in an efficient and effective manner\. Score PDO 5/3 or 160% GEO – To restore, secure and enhance key ecosystem process in targeted conservancies with biodiversity and land conservation and sustainable use as a goal KPI 4\. Populations of targeted threatened fauna and flora remain at 12/7 or current levels or have increased in targeted conservancies (5 species 1\.7 specified) Black faced impala (baseline 2007) 150 190 203 2 Elan (baseline 2007) 7 275 461 2 Black rhino (baseline 2007) 8 14 18 2 Impala (baseline 2005) 0 100 266 2 Desert elephant (baseline 2005) 3 3 5 2 Red lechwe (baseline 2005) 21 135 121 1 Mountain Zebra (baseline 2007) 23 30 2 0 KPI 5\. Biological monitoring indicates that the integrity of the target sites remain secure with no 1 significant change in habitant GEO Score 2\.7/2 or 135% Total Score 7\.7/5 or (154%)     2 This scoring system was designed to rate objectively project outcomes\. When an indicator reaches plus or minus 10% of its target value, it receives a score of 1\. Less than 10% is zero and more than 10% is two\. The scores are then added and divided by the number of indicators\. This leads to an overall score which is then rated: less than 40% Unsatisfactory, 40-60% Moderately, Unsatisfactory; 60-80% Moderately Satisfactory; 80 to 120% Satisfactory; more than 120% Highly Satisfactory\. 27 Intermediary Outcome Baseline EOP EOP Vari- Score: 2005 Actual Target ance <10% target 1 w/in 10% target 2> 10% target Component 1 – Ecosystem-based income generating activities 1 % of Community Funding 0 100 90 10 2 Facility resources are used/committed according to CFF manual criteria 2 # of conservancies that have built 0 16 16 0 1 sufficient capacity to plan, develop and implement ecosystem based income- generating activities with decreasing external support\. Total Component 1 3/2 or 150% Component 2 – Sustainable ecosystem management 3 Community-based integrated 0 16 12 4 2 management plans (CBIEM) are 7 detailed 9 6 in place basic detailed 6 basic 4 # conservancies with baseline 0 16 16 0 1 data and TA expertise required to prepare, implement and monitor CBIEM plans are provided by MET and other stakeholders to the ICEMA target sites 5 % of (16) targeted conservancies 0 100 90 10 2 under this component are implementing ecosystem management activities across identified thematic areas 6 % of (16) targeted conservancies 87\.5 80 7\.5 1 developed skills to implement local level monitoring and reporting\. Total Component 2 6/4 or 150% Component 3 – Targeted institutional support 7 Environmental Management Act 0 Enacted Enacted 1 8 Parks and Wildlife Management 0 Not Enacted Enacted 0 Bill 9 Access to Biological Resources 0 Not Enacted To be 0 and Associated Traditional enacted Knowledge Bill (2011) 10 # targeted conservancy 0 16 12 4 2 committees that have been strengthened 11 MET’s CBNRM knowledge To be Completed Under 1 28  management and replication designed impleme strategy ntation 12 MET’s CBNRM M&E system Elements 90% Functio- 1 for nal & CBNRM linked to M&E other system environ- available mental & dev\. informa- progress tion under systems way Total Component 3 5/6 or 83% Component 4 – Project management support 13 % of project activities 0 80 90 10 0 identified in annual work plans has been satisfactorily completed 0/1 or 0% Total Component 4 14/13 or Overall Total 107% 29 Annex 2 (b): Assistance per Conservancy ICEMA's Contribution towards the Development of Targeted Conservancies Category Sub-Projects Services Training Works Goods Translocations Community Counterpart appointment and JV contract training to 5,000 l water tank, stand meat handling equipment 2008: 66 Kudu Contribution (CCC) to financing of Contracted conservancy members and PVC pipeline for assist with building of a Service Providers (CSP) office lodge in the Etendeka Concession meat handling facility High Value Plant Species training in maintenance ablution facility tents, water cans, jerry 2010: 50 Eland and evaporative cooler (HVPS): long-term for vehicles and cans, axes for game survey on Mopane fruit buildings guards baseline data on water financial training outside, weather proof 1\.Anabeb infrastructure with information boards on support from IRDNC NR and institutional issues wildlife management training of one plans and zoning (with professional hunting Conservancy WWF, NNF) guide training in hunting and meat handling meat handling facility compilation of a water training in maintenance repair conservancy office tents and torches for 2008: 66 Red Hartebeest and evaporative cooler; management plan; for vehicles and roof structure and staff game guards ICEMA project but funds baseline data on water buildings housing leveraged from WWF infrastructure and NNF feasibility study and financial training installation of mobile cell phone signal booster 2009: 49 black-faced business plan for rhino solar water pump for and 3G internet access Impala tracking tourism office 2\.Doro Nawas enterprise using Granietkop as base HVPS: ornamental plant training in hunting and rehabilitation of outside, weather proof 2009: 119 Red household nurseries trial meat handling Draaihoek Well (well information boards on Hartebeest digging, recharge NR and institutional measurement, solar issues pump, tank, water point for game) 30  wildlife management disciplinary code establishment of game laptop computer, with 2009: 3 Black plans and zoning (with development outpost software, virus protection Rhinoceros WWF, NNF) and back-up facilities specialist training in Granietkop campsite shelving for storage monitoring translocated upgraded and engine for game water pump repaired Staff accommodation nursery for ornamental plants CCC support towards the appointment and holistic rangeland fencing of office and cell phone signal booster 2005: 36 Eland development of water financing of CSP management pilot project hunting camp and 3G internet access infrastructure for the (implemented by infrastructure and related Hobatere Roadside IRDNC) facilities Concession meat handling facility compilation of a water JV contract training to tents, water cans, jerry 2007: 24 Black-faced and evaporative cooler management plan; conservancy members cans, axes for game Impala; 50 Burchell's baseline data on water guards Zebra infrastructure with support from IRDNC HVPS: long-term survey training in maintenance outside, weather proof 2008: 18 Giraffe 3\.Ehirovipuka on Mopane fruit for vehicles and building information boards on NR and institutional issues Conservancy holistic rangeland financial training meat handling equipment management pilot project implemented by IRDNC training in hunting and upgrade solar system and meat handling provide mobile light wildlife management training of one hunting cell phone signal booster plans and zoning (with guide (can handle Internet at a WWF, NNF) later stage) CCC for the Khaudum appointment and Ximenia harvesting and installation of a radio tents, camping chairs, 2009: 198 Common Concession tourism joint financing of CSP monitoring through the communication network water containers, axes, Impala; 99 Kudu; 41 venture HVPS Programme of rain suits, heavy duty Eland; 43 Burchell's FFEM basins, steel dinner plates Zebra bee keeping and honey HVPS: study to develop Integrated Fire 4\.George production (pilot project) potential of Ximenia Management through the Mukoya Caffra and Americana HVPS Programme of FFEM HVPS: Kalahari Melon training of local resource Translocation was done monitors in plant-related jointly with Muduva local level monitoring Nyangana 31  HVPS: Devil's Claw JV contract training to conservancy members HVAS: monitoring of training in maintenance game with camera traps of vehicles and buildings sustainable harvesting of financial training Devil's Claw specialist training in monitoring translocated game evaporative cooler appointment and training in maintenance construction of tents and torches for 2006: 98 Hartmann's financing of CSP of vehicles and buildings conservancy office game guards Zebras firewood project compilation of a water financial training fencing of office meat handling equipment 2008: 44 Eland management plan; infrastructure and related baseline data on water facilities infrastructure feasibility study on the training in hunting and water point for game, 3G internet access 2009: 6 Black harvesting and marketing meat handling equipped with solar Rhinoceros of firewood pump 5\.Huab HVPS: ornamental plant upgrading of solar household nurseries trial system Conservancy wildlife management Welkom well plans and zoning (with rehabilitation and WWF, NNF) Bergville Pos repair and elephant safety nursery for ornamental plants aquaculture project appointment and training of local resource financing of CSP monitors in plant-related local level monitoring 6\.Impalila training in maintenance of vehicles and buildings financial training aquaculture project appointment and training of local resource financing of CSP monitors in plant-related local level monitoring 7\.Kasika training in maintenance of vehicles and buildings financial training 32  support for the compilation of a water training in maintenance establishment of 5 donkey carts for game 2006: 2 Black development of management plan; of vehicles and buildings community game guard guards Rhinoceros concession rights in baseline data on water outpost Hobatere North infrastructure evaporative cooler HVPS: long-term survey financial training renovation of garages to tents and torches for 2007: 64 Black-faced on Mopane fruit serve as conservancy game guards Impala; 1 Black offices Rhinoceros HVPS: ornamental plant training in hunting and solar panels for weather proof info 2008: 83 Eland, 16 household nurseries trial meat handling conservancy office boards on NR and Black-faced Impala 8\.Khoadi-Hôas institutional issues HVAS: telemetry solar powered water meat handling equipment equipment installation at Klip River office equipment laptop computer, with 2009: 50 Black-faced software, virus protection Impala and back-up facilities contribution towards the appointment and training in maintenance boots, water bottles, hats, 2008: 85 Oryx; 350 ≠Nudi Campsite financing of CSP of vehicles and buildings torches, binoculars and Springbok development financed by tents for game guards EU's RPRP 9\.Khob Naub meat handling facility financial training meat saw and evaporative cooler training in hunting and meat handling Conservancy CCC for the Khaudum appointment and training of local resource installation of a radio tents, camping chairs, Translocation was done Concession tourism joint financing of CSP monitors in plant-related communication network water containers, axes, jointly with George venture (infrastructure) local level monitoring rain suits, heavy duty Mukoya (see above) basins, steel dinner plates bee keeping and honey HVPS: study to develop training in fire production (pilot project) potential of Ximenia management 10\.Muduva Caffra and Americana Nyangana HVPS: Devil's Claw and training in maintenance sustainable harvesting of vehicles and buildings HVPS: Kalahari Melon financial training HVAS: monitoring of specialist training in game with camera traps monitoring translocated game 33  renovation and upgrading planning for developing sustainable harvesting of solar water pump for laptop computer and 2007: 64 Blue of Omatako Camp Site wildlife water points at the Devils Claw through game water points computer with software, Wildebeest Piering, Danger and the HVPS Programme of virus protection and Forestry Station FFEM back-up facilities WIMSA: support to the training of local resource office equipment 2010: 50 Blue conservancy (San monitors in plant-related Wildebeest community) through the local level monitoring Indigenous Peoples 11\.Na Jaqna Development Programme (planned for last quarter of Year 5) HVAS: monitoring of training in maintenance office combo (tel, fax, 2010: 50 Eland game with camera traps of vehicles and buildings printer, scanner) certification of Devil's financial training tents and sleeping bags 2010: 30 Giraffe Claw to increase value for game guards Community Counterpart appointment and JV contract training to fencing of office meat handling equipment 2007: 6 Black Contribution (CCC) to financing of CSP conservancy members infrastructure and related Rhinoceros assist with the revamping facilities of the Etendeka Concession meat handling facility compilation of a water training in maintenance installation of a solar 2008: 48 Kudu and evaporative cooler management plan of vehicles and buildings system 12\.Omatendeka training of one hunting guide wildlife management financial training 5,000 l water tank and Conservancy plans and zonation (with stand WWF, NNF) training in hunting and meat handling CCC support for the appointment and training in craft making assistance with office tents, axes and water development of a hunting financing of CSP construction considered containers for game camp guards 13\.Sheya tourism development training in maintenance laptop computer, with Shuushona study of vehicles and buildings software, virus protection and back-up facilities financial training meat handling facility appointment and training in maintenance conservancy office and 3G internet access 2006: 99 Hartmann's 14\.Sorri Sorris and evaporative cooler financing of CSP of vehicles and buildings ablution facilities Zebra (including septic tank) 34  compilation of a water financial training fencing of office outside, weather proof 2008: 68 Red Hartebeest management plan; infrastructure and related information boards on baseline data on water facilities NR and institutional infrastructure issues HVPS: ornamental plant training in hunting and Goedgenoeg water point laptop computer, with 2009: 98 Red Hartebeest household nurseries trial meat handling (10,000 l tank, solar software, virus protection panels, etc\.) and back-up facilities HVAS: aerial monitoring installation of a solar meat handling equipment of released game system for office wildlife management 5,000 l water tank and shelving for storage plans and zoning (with stand WWF, NNF) nursery for ornamental plants appointment and training in craft making assistance with office laptop computer, with 2008: 52 Kudu; 58 Oryx; financing of CSP construction considered software, virus protection 54 Hartmann's Zebra and back-up facilities 15\.Uukolonkadhi HVPS: long-term survey training in maintenance 3G internet access 2009: 196 Oryx Ruacana on Mopane fruit of vehicles and buildings tourism development financial training 2010: 100 Burchell’s study Zebra bee keeping, honey appointment and training of local resource installation (Sobbe) and 2005: 26 Kudu; production and honey financing of CSP monitors in plant-related upgrading of radio 2006: 116 Blue bee centre at Kongola local level monitoring communication network Wildebeest; 11 Giraffe (other) Mashi Craft Market and planning for water training in maintenance HVAS: build new water 2007: 113 Eland; 26 Conservancy Tourism Information installations at 2 sites of vehicles and buildings infrastructure (with Giraffe; 68 Common 16\.Mudumu Hub IRDNC/NNF) Impala; 37 Sable North Complex (Kwandu HVPS: Kalahari Melon financial training conservancy signpost 2009: 42 Eland; 22 Mashi Giraffe Mayuni) HVPS: integrated fire installation of a solar management system HVPS: sustainable Terminalia root bark harvesting techniques survey 35 Annex 3\. Economic and Financial Analysis The project was a stand-alone GEF project with a GEF grant and counterpart funding from the GRN\. At the time the project was designed, neither financial nor economic analyses were prepared\. No standard cost-benefit or cost-effectiveness parameters were calculated; these would be very difficult to calculate ex-post\. However, a comprehensive analysis of the economic benefits of investment in conservancies is available in NACSO (2010)\. All 16 conservancies supported by ICEMA are included in their analysis as well as other conservancies not supported by ICEMA\. The analysis is useful to illustrate the value of investing in conservancies\. The following summary is provided\. The formation of communal conservancies is unlocking massive income/benefit generation opportunities, and in the process, providing legal focal institutions through which private sector partners are contracted for lucrative trophy hunting and joint venture lodge tourism opportunities\. At the closure of 2010, a total of 24 joint venture lodges and 36 trophy hunting concessions were operating in communal conservancies\. These high paying ventures are complemented by a range of smaller enterprises, including community campsites, community guide services, handicraft production, sell of natural plant products, community forest enterprises, and various forms of sustainable wildlife use (i\.e\., premium hunting, shoot-and-sale, and own-use of game)\. Over the past 15 years the CBNRM program has generated impressive annual escalations of incomes and benefits to conservancies and CBNRM stakeholders (Figure 1), growing from no benefits in 1994 to N$ 42,481,015 during 2009 (NACSO, 2010)\. A breakdown of these funds (Table 1) shows N$ 35,021,859 directly flowed to conservancies and their members, while N$ 7,459,156 went to community benefactors not affiliated with conservancies (community forests, communities at large in communal areas supported by the CBNRM program and enterprises in conservancies which have no affiliation with the host conservancy)\. A direct benefit of the increased numbers of enterprises in these remote locations is the growing employment opportunities for local community members\. At the end of 2009, a total of 1,366 full-time and approximately 9,000 part-time jobs were attributed to CBNRM enterprises or the collective incomes returned to conservancies through these enterprises\. Livelihoods of conservancy members are receiving boosts through a number of means\. The meat from trophy hunted game and animals harvested for own-use is substantial\. During 2009, more than 330,000 kg of meat, valued at N$ 4,944,075 were distributed to residents of conservancies\. 36  Figure 1\. Income and benefits generated by the CBNRM Programme to conservancies and CBNRM benefactors outside of conservancies from 1994-2009 (Source: NACSO, 2010)\. Similarly, each job created provides valuable livelihood benefits to direct family members (i\.e\., an average of 5-6 people) and indirect benefits to extended family members (sometimes up to 10- 12 people or more)\. Table 1\. Source and Value of Benefits Generated By Communal Conservancies in 2009 SOURCE OF INCOME VALUE IN N$ PERCENT OF BENEFITS Conservancy Income & Benefits Joint Venture Tourism 19,979,916 57\.0 Trophy Hunting Concessions 5,724,911 16\.3 Own-Use-Game 3,153,750 9\.0 Game Meat Distribution 1,790,325 5\.1 Shoot-And-Sell 1,367,986 3\.9 Crafts Production 1,233,047 3\.5 Campsites / Community-Based Tourism Enterprises 915,827 2\.6 Natural Plant Products 587,081 1\.7 Live Game Sales 263,760 0\.8 Premium Hunting 5,256 0\.0 Total Conservancies: 35,021,859 100\.0 37 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Christophe Crepin Senior Environmental Specialist EASER Task Manager Chris James Warner Environmental Specialist ENVCF Gabriele Rechbauer Consultant AFTEN Nina Doetinchem Biodiversity Specialist AFTEN Slaheddine Ben-Halima Senior Procurement Specialist AFTPC Steve Gaginis Senior Disbursement Specialist CTRDM Iraj Talai Senior Financial Management AFTFM Aberra Zerrabruk Legal Counsel LEGAF Jack Ruitenbeek Consultant AFTEN John MacGann Consultant AFTEN Francois Odendall Consultant AFTEN Lucie Tran Operations Analyst AFTEN Dan Aronson Social Safeguards ASPEN Arne Dalfelt Environmental Safeguards ASPEN Beula Selvadurai Program Assistant AFTEN John A\. Boyle Environmental Safeguards ASPEN Reiner Woytek Indigenous Knowledge ASPEN Harri Seppanen Consultant ASPEN Jonathan Nyamukapa Financial Management Specialist CTRDM Pauline McPherson Resource Management Officer AFTEN Hisham A\. Abdo Kahin Legal Advisor LEGAF Kirk Hamilton Lead Environmental Economist ENV William Sutton Agricultural Economist ARD Supervision/ICR Christophe Crepin Senior Environmental Specialist EASER Task Manager Hisham A\. Abdo Kahin Senior Counsel LEGES Sushenjit Bandyopadhyay Consultant DECPI Mohamed Arbi Ben-Achour Consultant AFTUW Slaheddine Ben-Halima Consultant MNAPR John A\. Boyle Consultant AFTWR Antonio L\. Chamuco Senior Procurement Specialist AFTPC Karsten Feuerriegel E T Consultant AFTEN Steve J\. Gaginis Senior Finance Officer CTRDM Simon Ochieng Lang'o Finance Officer CTRDM Melanie Eltz McIntosh Consultant ENV Rajat Narula Sr\. Financial Management Specialist EAPFM Tandile Gugu Ngetu E T Consultant AFTFM 38 Jonathan Nyamukapa Sr\. Financial Management Specialist AFTFM Sophia Elizabetha Frederi Program Assistant AFCS1 Odendaal Africa Eshogba Olojoba Sr\. Environmental Specialist AFTEN Jonathan David Pavluk Sr\. Counsel LEGAF Jean-Michel G\. Pavy Sr\. Environmental Specialist AFTEN Ayala Peled Ben Ari Consultant MNSEN Gabriele Rechbauer Consultant AFTEN Herman Jack Ruitenbeek Consultant SASDI Beula Selvadurai Program Assistant AFTEN Pascal Tegwa Senior Procurement Specialist AFTPC Joao Tinga Financial Management Analyst AFTFM Patrick Piker Umah Tete Sr\. Financial Management Specialist AFTFM Jorge E\. Uquillas Rodas Consultant OPCQC Aberra Zerabruk Consultant LEGAF (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ (including travel and No\. of staff weeks consultant costs) Lending 2001 3\.1 33,247 2002 8\.47 71,587 2003 1\.86 46,848 2004 16\.71 88,915 Total (LEN): 30\.14 240,597 Supervision/ICR 2005 26\.96 97,915 2006 20\.35 69,673 2007 17\.87 59,453 2008 8\.39 70,124 2009 10\.03 73,468 2010 8\.25 28,876 2011 11\.26 52,990 2012 3\.88 34,840 Total (SPN): 106\.99 487,339 GRAND TOTAL 137\.13 727,936 39 Annex 5\. Beneficiary Survey Results (N/A) 40 Annex 6\. Stakeholder Workshop Report and Results (N/A) 41 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrower’s comments on the draft ICR are presented below as sent to the Bank\. Project objectives: The project had two key objectives, one a development objective and the other a global environmental objective\. The ICEMA Project Development Objective (PDO) stated that community-based integrated ecosystem management practices are supported by the National CBNRM framework and used by targeted conservancies\. Its Global Environment Objective (GEO) was to restore, secure and enhance key ecosystem processes in targeted conservancies with biodiversity and land conservation and sustainable use as a goal\. All the above two objectives have been satisfactorily achieved with key performance indicators in many instances exceedingly achieved\. The project focused its support to 16 selected conservancies, ranging from providing capacity building and technical and infrastructural/facilities development\. The project has four components: Ecosystem-based Income-Generating Activities, Sustainable Ecosystem Management, Targeted Institutional Support, and Project Management Support\. Factors that affected implementation The project has experienced smooth staffing of the project office with experienced personnel\. Even though there has been some staff turn-over, it did not really impact negatively the performance of the project\. The support of the implementing Ministry, MET, has been outstanding in ensuring that all necessary required wares and assistance are in place\. The project was advised by a functional steering committee, which also approved the annual work plans\. The monitoring and evaluation would have been on board from day one; this would have improved this aspect of the project\. But upon recommendation of the MTR an evaluation specialist was hired\. The Government has honored its co-financing contribution albeit delays sometimes due to government system of budgeting\. This matter has been raised during supervision missions, and has been accordingly attended\. At the end of the project, the GRN has all its co-financing contribution complied with\. With respect to component 1: ecosystem based income generation activity – there was some delays due to the establishment of procedures and some outstanding policies like the Concession Policy which needed to be in place before major activities were carried out\. Further, some legislation like the Environmental Management Act, became in place only in 2007, the Parks and Wildlife Management Bill still awaiting approval by the MET\. This delayed some activities especially in view the ecosystem approach at landscape level\. However, the environment Management Act was approved in 2007\. A positive aspect of implementation was the high level of cooperation and partnership, building on and further strengthening a long history of inter-agency collaboration to promote natural resources management in the community conservancies of Namibia\. 42 Overall outcome The ICEMA project has achieved its objectives\. The ICEMA project increased the number of conservancies that used the IEM approach\. At the end of the project, the total area covered by the 16 conservancies that had adopted the IEM approach was 38,595 km²\. The target value at appraisal was that 25,000 km2, which means that this indicator was over achieved (129%)\. The project laid a strong foundation for integrated ecosystem approach\. It also supported a broad rural development with focus on income generating activities, value-additions to natural resources and empowerment of local communities in matter related to management of their natural resources\. Facilities established under ICEMA project have now become established nodes for community consultations and vehicles for rural development initiative diffusions\. In particular the capacity for conservancies has been built, governance structures, administration, monitoring skills, translocation of wildlife to conservancies and office facilities are now in place\. Even though, the overall ratings for the project is moderately satisfactory, the GRN believes that ICEMA achieved most of its objectives and only component one that deals with targeted community investments through community funding facility, of which most of the activities, the conditions was beyond the project realms\. We would nevertheless, like to see the overall rating of satisfactory, given that most key performance indicators have been exceedingly achieved\. The Government of the Republic of Namibia (GRN) is very much appreciative of the financial support from the GEF and a good technical support provided by the WB team assigned to this project as the Implementing Agency\. The GRN is grateful for the competent Project Coordinator, Mr\. Jo Tagg and his team who really steered the implementation of this first WB GEF funded project in Namibia\. 43 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders (Not received) 44 Annex 9\. List of Supporting Documents Diez, L\. 2007\. Review of Key Components of the Integrated Community-Based Ecosystem Management Project (ICEMA)\. ICEMA Report\. Barnes, J\.I\. 2008\. Community-based Tourism and Natural Resources Management in Namibia: Local and National Economic Impacts\. Chapter 16\. In: Responsible Tourism – Critical Issues for Conservation and Development, edited by Anna Spenceley\. Earth Scan\. London\. Boudreaux, K and Nelson, F\. 2011 Community Conservation in Namibia: Empowering the Poor with Property Rights\. Economic Affairs, Institute of Economic Affairs\. Published by Blackwell Publishing, Oxford MET\. 2010\. Streamlining the Monitoring and Evaluation Systems ICEMA and the CBNRM Programme of MET\. ICEMA Report\. MET\. 2011\. The National CBNRM Sustainability Task Force: The Namibia National CBNRM Program Sustainability Strategy\. MET, Windhoek\. NACSO, 2008\. Namibia's communal conservancies: a review of progress and challenges in 2007\. NACSO, Windhoek NACSO\. 2010\. Namibia’s communal conservancies – a review of progress and challenges in 2009\. NACSO, Windhoek\. USAID, 2008\. USAID Support to the Community-Based Natural Resource Management Program in Namibia: LIFE Program Review\. WIMSA\. 2011\. Indigenous Peoples World Bank\. 2004\. Project Appraisal Document on a Proposed Grant from the Global Environmental Facility Trust Fund in the Amount of US$7\.1 Million to the Republic of Namibia for the Integrated Community-based Ecosystem Management project\. The World Bank\. Washington\. Aide Memoires, ISRs and Midterm Review Report, M&E and CFF Manual\. 45  IBRD 38968 NAMIBIA INTEGRATED COMMUNITY-BASED ECOSYSTEM MANAGEMENT PROJECT CONSERVANCIES SUPPORTED BY THE PROJECT REGION CAPITALS REGISTERED CONSERVANCIES NATIONAL CAPITAL STATE PROTECTED AREAS TRUNK ROADS CONCESSIONS INTERNATIONAL BOUNDARIES COMMUNITY FORESTS Source: Ministry of Environment & Tourism of Namibia\. 20° E A N G O L A ZAMBIA Katima 11 60 47 32 Uutapi Oshikango 57 Mulilo 31 56 44 Oshakati 8 20 19 Rundu 9 49 64 2 43 Opuwo 37 16 2753 34 5 ZIMBABWE 41 59 35 40 45 54 21 10 28 62 26 17 13 25 Tsumeb 29 1 3 20° S 38 20° S 22 50 46 42 7 6 65 Otjiwarongo 6 33 39 15 55 18 48 12 63 BOTSWANA 61 30 51 Swakopmund Gobabis WINDHOEK REGISTERED CONSERVANCIES A T L A NT I C Date Date Name Registered Name Registered 1 Nyae Nyae 1998 Feb\. 34 Shamungwa 2005 Sep\. O CE A N 2 Salambala 1998 Jun\. 35 Sheya Shuushona 2005 Sep\. Mariental 3 Khoadi/Hoas 1998 Jun\. 36 Gawachab 2005 Sep\. 4 Torra 1998 Jun\. 37 Muduva Nyangana 2005 Sep\. 58 5 Wuparo 1999 Dec\. 38 Otjituuo 2005 Sep\. 14 6 Doronawas 1999 Dec\. 39 African Wild Dog 2005 Sep\. 7 Uibasen Twyfelfontein 1999 Dec\. 40 King Nehale 2005 Sep\. ATLANTIC 8 Kwandu 1999 Dec\. 41 George Mukoya 2005 Sep\. 9 Mayuni 1999 Dec\. 42 Okamatipati 2005 Sep\. 23 10 Puros 2000 May 43 Kasika 2005 Dec\. OCEAN 11 Marienfluss 2001 Jan\. 44 Impalila 2005 Dec\. 12 Tsiseb 2001 Jan\. 45 Balyerwa 2006 Oct\. 52 Keetmanshoop 13 Ehirovipuka 2001 Jan\. 46 Ondjou 2006 Oct\. 14 Oskop 2001 Feb\. 47 Kunene River 2006 Oct\. 15 Sorris Sorris 2001 Oct\. 48 Ohungu 2006 Oct\. 36 16 Mashi 2003 Mar\. 49 Sobbe 2006 Oct\. 17 Omatendeka 2003 Mar\. 50 Audi 2006 Oct\. 18 Otjimboyo 2003 Mar\. 51 Ovitoto 2008 May 19 Uukwaluudhi 2003 Mar\. 52 Han/Awab 2008 May 20 Orupembe 2003 Jul\. 53 Okondjombo 2008 Aug\. 24 21 Okangundumba 2003 Jul\. 54 Otjambangu 2009 Mar\. 22 Huab 2003 Jul\. 55 Eiseb 2009 Mar\. 23 Khob Naub 2003 Jul\. 56 Sikunga 2009 Jul\. 24 Gamaseb 2003 Jul\. 57 Okongo 2009 Aug\. 25 Anabeb 2003 Jul\. 58 Huibes 2009 Oct\. 26 Sesfontein 2003 Jul\. 59 Dzoti 2009 Oct\. 27 Sanitatas 2003 Jul\. 60 Otjitanda 2011 Mar\. 28 Ozondundu 2003 Jul\. 61 Otjombinde 2011 Mar\. This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information SOUTH 29 30 N’a-Jaqna Gaingu 2003 Jul\. 2004 Mar\. 62 63 Orupupa Omuramba ua Mbinda 2011 Mar\. 2011 Mar\. 30° S shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any AFRICA 30° S 31 32 Joseph Mbambangandu Uukolonkhadi-Ruacana 2004 Mar\. 2005 Sep\. 64 65 Bamunu Khoro Goreb 2011 Mar\. 2011 Sep\. endorsement or acceptance of such boundaries\. 20° E 33 Ozonahi 2005 Sep\. NOVEMBER 2011

REVIEW

P001980

Document of The World Bank FOR OFFICIAL USE ONLY 24311 IMPLEMENTATION COMPLETION REPORT (TF-21431; TF-20816; IDA-26180) ONA CREDIT IN THE AMOUNT OF SDR 29\.3 MILUON (US$41\.4 MILLION EQUIVALENT) TO THE REPUBLIC OF NIGER FOR THE BASIC EDUCATION SECfOR PROJECT (HYBRID) 6/20/200J2 fluman Development III Country Department 13 Africa Region [ This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective November 29, 2001) Currency Unit = FCFA FCFA 794 = US$ 1\.00 US$ 0\.0126 = 100 FCFA FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAPED Cellule d'Animation Pedagogique (Pedagogical Peer Support System) CE Cellule d'Evaluation (Evaluation Unit) CTPSF Cellule Technique pour la Promotion de la Scolarisation des Filles (Technical Unit for the Promotion of Girls' Education) DAAP Direction des Affaires Administratives et du Personnel (Department of Administrative Affairs and Personnel) DPE Direction des Programmes d'Education (Education Projects Unit) DCA Development Credit Agreement EERP Emegency Education Rehabilitation Plan ENI Ecole Nationale des Instituteurs (National School of Grade-school teachers) GER Gross Enrollment Ratio MEN Ministry of Education (Ministere d'Education Nationale) SRP Sectoral Reform Program SIP Sector Investment Program UNIPAC United Nations International Procurement Agency Vice President: Callisto E\. Madavo Country Director: Antoinette M\. Sayeh Sector Manager: Alexandre Abrantes Task Team Leader: Rachidi Radji  FOR OFFICIAL USE ONLY REPUBLIC OF NIGER BASIC EDUCATION SECTOR PROJECT (HYBRID) CONTENTS Page No\. 1\. Project Data I 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 11 7\. Bank and Borrower Performance 12 8\. Lessons Learned 14 9\. Partner Comments 16 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Borrower's Completion Report 28 This document has a restricted distribution and may be used by recipients only in the perfDrmance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.  [Project ID: P00 1980 Project Name: Basic Education Sector Project L__________________________________________ (Hybrid) lTam Leader: Rachidi B\. Radji TL Unit: AFTH2 ICR Type: Core ICR Report Date: June 19, 2002 1\. Project Data Name: Basic Education Sector Project (Hybrid) L/C/TF Number: TF-21431; TF-20816; IDA-26180 Country/Department: NIGER Region: Africa Regional Office Sector/subsector: EP - Primary Education KE_Y DATES Original Revised/Actual PCD: 03/17/1987 Effective: 11/08/1994 09/26/1995 Appraisal: 06/12/1989 MTR: 11/15/1997 08/17/1998 Approval: 05/31/1994 Closing: 12/31/2000 12/31/2001 Borrower/lmplementing Agency: GOVT OF NIGER/MIN OF EDUC; GOVT OF NIGER/HIGHER EDUC; GOVT OF NIGE]VAND LABOR Other Partners: Gennany (KfW Grant of $10\.s m), Norway (Norwegian Grant of $4\.8 m), UNICEF, STAFF Current At Appraisal Vice President: \.Callisto E\. Madavo K\. Jaycox Country Manager: Antoinette Sayeh M\. Gillette Sector Manager: Alexandre V\. Abrantes F\. Agueh Team Leader at ICR: Rachidi Radji B\. Fredriksen ICR Primary Author: Aminata Maiga-Toure; Myrina McCullough 2\. Principal Performance Ratings (HS--Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The project supported the implementation of the Govermment Emergency Education Rehabilitation Plan (EERP) between 1994 and 2000\. It was a hybrid project comprised of a Sectoral Reform Program (SRP) designed to promote cost-effective use of public education resources, and a Sector Investment Program (SIP) designed to increase access to, and quality of, primary education and to improve the capacity of the Government to plan and manage the utilization of resources in the education sector\. These objectives and design were appropriate and responded adequately to the needs and capacity of the country at the time\. Specific baseline and target indicators were agreed upon and are presented in Annex 1\. With hindsight, some of the targets may have been modest, but at the time of this project's preparation, particular efforts were being made in the Bank to design realistic projects with realistic targets and objectives\. The Initiating Memo of 1989 states, "On the one hand, the modest medium-term prospects for economic growth and the many competing claims on public budgets leave little room for additional public funds for education\. On the other hand, as the school-age population increases by about 3\.4% a year, and the aging of the teaching force implies an automatic annual increase of about 3% in the salary budget, continuation of present policies will necessitate more funds even to maintain present, very modest enrollment ratios of 37\.3%\. Simulations indicate that if the education budget were to increase as in the past and primary education's share of the budget remains unchanged, the primary enrollment ratio would decline to 20% in 1995/96\." With the reforms agreed upon under the sectoral part of this hybrid project, such a decline in enrollment was not expected, but neither were huge increases in enrollment; thus the modest target of increased primary enrollment from 29 to 35% over the five-year period, was realistic\. The objectives of the Sectoral reform Program were to promote more cost-effective use of public resources and to lay the foundation for future financial sustainability by implementing a set of reform measures\. The objectives of the Sector Investment program were: * Improving Access to and Quality of Primary Education: It supported the Government's objectives to (i) increase the primary enrollment ratio from 290/o to 35% by 1999; (ii) equalize educational opportunities, particularly between urban and rural populations and between boys and girls; and (iii) improve the quality of primary education and the training of primary school teachers\. * Strengthening Sector Managerial and Planning Capacities: It aimed at improving the Education Ministrs capacity to efficiently manage scarce educational resources and meet the reform objectives by providing support for (i) educational planning; (ii) private education; (iii) financial and personnel management; (iv) evaluation of education improvement programs; and (v) education projects coordination\. 3\.2 Revised Objective: The objectives of the project were not revised\. 3\.3 Original Components: Component 1: Implementation of the Sectoral Reform Program (US$20\.0 m) in two tranches contingent on six reforms: A\. Increased public expenditures on primary education -2 -  B\. Extension of double-shift teaching in primary education C\. Restructured and consolidated training of primary school teachers D\. Consolidated training of secondary school teachers E\. More efficient use of teachers in general secondary education F\. Restriction of student subsidies in secondary and higher education\. Component 2: Improving Access to and Quality of Prinary Education US$51\.2 m) A\. Construction and rehabilitation of primary school classrooms B\. Developing and implementing a program to accelerate girls' education C\. Improve the quality of primary school teacher-training programs D\. Provide about 1\.6 million primary school textbooks and 30,000 teacher guides E\. Support a UNICEF-run micronutrient program Component 3: Strengthening (Ministry of Education) Sector Managerial and Planning Capacities (US$4\.8 m) to: A\. Manage resources, implement and evaluate education improvement programs B\. Improve the efficiency of decentralized sector planning and management C\. Develop a strategy for higher education D\. Coordinating Unit (DPE) 3\.4 Revised Components: There was no formal revision of the components\. However, the emphasis and focus of the project were modified to adjust to the very volatile environment and evolving budgetary constraints of the sector\. By the midterm review in 1998, it became clear that the success of the project depended primarily on the maintenance of a stable environment in the education sector\. For this, a lot of energy was devoted to responding to the increasing teacher recruitment needs while stabilizing the wage bill burden on the national buidget and enhancing the involvement of parent associations\. Two amendments to the original DCA (that ol'November 1998 to create the "Volunteer teachers salaries" subcategory, and that of January 1999 to establish a separate special account to facilitate the payment of salaries and benefits of voluntary teachers) were ratified\. The other project objectives dealing with educational planning (higher education strategy, private education) were appropriately put on hold while these fundamental issues were resolved along with the stabilization of the sector institutional framework and the creation of more enabling conditions\. 3\.5 Quality at Entry: Quality at entry is rated Satisfactory\. When this project was under preparation, the QAG proceedings had not yet been introduced, so no assessment is available for Quality at Entry\. The objectives and design of this project were appropriate for meeting its development objectives and responded adequately to the needs and capacity of the country at the time, as stated in the CAS\. The project design and preparation were based on (i) lessons learned from two previous Bank education projects in Niger; (ii) studies done over the previous five years; (iii) the Government's EERP Plan; (iv) the National Plan for Education which the Government developed following the 1990 World conference on Education; (v) working papers developed for each project component by national teams; (vi) national and regional workshops held during project preparation to develop stakeholder ownership; and (vii) extensive discussions nation-wide conducted with the Nigerien authorities, the teachers' union, Parents Associations and the donor community\. The project was prepared by the Governnent with support from IDA, in close coordination with France, Germany, Norway, UNICEF, and UNDP\. Project objectives responded directly to the needs of the country and the priorities of the sector\. -3-  Preparation was initiated in 1987 but was interrupted due to considerable political instability in Niger\. During that time, enrollment barely increased despite population growth, and the quality of instruction suffered\. An experienced team maintained policy dialogue with the Government during this troubled political period and during the transition towards democratic elections\. In 1993, the project team was finally able to proceed with a pre-appraisal mission for the project\. The hybrid nature of the project responded directly to the first Country Assistance Strategy for Niger, which stated, "because Niger ranks among the poorest countries in the world, it needs to focus on improving access to health, education, employment, and credit\., increasing overall access to prinary education\. In light of the current fiscal crisis, the above measures imply a transfer of resources from the comparatively privileged civil service sector towards vital development sectors (health, education and agriculture)\." The President's Report clearly outlined the risks of projects in Niger at the time and the measures it would take to mitigate those risks\. As the hybrid approach was quite a new instrument at the time, the project was submitted to the Regional Operations Committee (ROC), which supported "the use of a major sector operation to justify the need for quick disbursing money \." and "\.as a sector investment project, found the proposed operation a good example of an investment project\." [Minutes of the Operations Committee, June 26, 1989]\. Niger had undertaken a SAL earlier, but the Government had difficulty in handling the reforms envisaged\. The political environment was still very unstable, but the selective interventions within the Education Sector appeared and proved to be feasible\. Although the sectoral reform (quick disbursing) program took longer than expected due to civil turmoil in the nation, it was implemented and successfully promoted cost-effective use of public education resources\. The complementary investment program then allowed specific progress towards the major objective of improved primary education in a stabilized education sector\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Achievement of the objectives is rated satisfactory overall (See Annex I for indicators used), since Components 1 and 2 were satisfactory, and Component 3 was marginally satisfactory\. The sector reform program: Component one is rated satisfactory\. The core policy reforns introduced were sustained and laid the ground for further dialogue on efficiency and cost-effectiveness measures in the sector\. Efficiency in primary teacher recruitment was increased by the application of the the law requiring that recruitment include 85% Instituteurs adjoints and 15% Instituteurs\. This generated cost savings of about FCFA 117\.4 between 1996 and 1998, when the Government decided to introduce a more radical teacher recruitment reform\. It broke with tradition and introduced contractual teacher recruitment, thereby producing even greater savings relative to the salaries of civil service teachers\. This policy measure - not foreseen at the time of project preparation - became one of the most important achievements of the project\. It was essential in responding to additional schooling demands and has made it possible to bring the total number of new teachers to 7381 over the past six years while limiting the salary burden on the national budget\. Given the difficulties experienced by the education sector (non-payment of salaries, teacher and student strikes, political shutdowns) during these years and the inflamnmatory issues being dealt with at the time, this achievement deserves full credit\. -4 -  Another important policy measure implemented was the extension of double-shift teaching in urban primary schools\. The initial objective of creating 1,380 pupil-groups per year was rapidly exceeded, and an average of 1,850 pupil-groups were observed over the past five years\. This resulted in some FCFA 7\.1 billion cost savings\. Overall, the implementation of the reform measures, including the restriction of secondary and ]hiigher education scholarships and subsidies, has led to a savings of CFAF 19\.5 billion (see Annex 3), as compared to what would have been if those measures were not applied\. ][mproving Access to and Quality of Primary Education: This component was rated satisfactory\. The Gross Enrollment Rate (GER) surpassed the appraisal target of 35%, reaching 37\.3% in 2000 (Annuaire statistique 2000-2001)\. The total first grade enrollment increased from 85,000 pupils in 1998 to 129,753 in 1999 and to 152,190 in 2000\. Girls' gross enrollment rate went from 23\.6% in 1990-1991 to 29\.6% in 2000-2001 and by the end of the project, girls r epresented 400/o of the total student population admitted in grade 1; and the proportion of girls in total enrollment has also improved over the past years and reached 390/O in 2000\. Thanks to the concerted efforts on the part of the Government and its Partners in Education, the quality of education in Niger did not deteriorate significantly over the last ten years in the face of a sharp increase in enrollment as has been the case in some countries in the Region (eg\., Uganda, Malawi)\. The CFEPD (end of grade 6) exam pass rate increased slightly from 30% in 1994 to 33\.6% in 2000\. The repetition rate in prinary education did not reach the 10% target but declined from 13\.1% in 1998-1999 to 12\.1% in 1999-00\. In the final grade of primary school, repetition rates declined somewhat from 37\.5% in 1998-99 to 36\.4% in 1999-00\. However, learning achievement remained low\. Results from a pilot standardized test reveal a low level of learning achievement\. Half of the tested students (from grades CP, CE2 and CM2) scored 35 points out of 100 in mathematics, and less than 4% reached the required score of 70%\. While only further analysis would pinpoint the real causes behind the stagnation of the quality of education over the life of the project, the two major causes were probably the failure to make textbooks available to students in the classroom (ending up with a ratio of 1 book for three students as opposed to the targeted 4 books per student) and the repercussions that the unstable political situation may have had on the whole system (two full school years lost to strikes), including the teacher training schedule\. Teachers were trained in double-shift techniques and in gender analysis as foreseen in the project design, and a participatory, active training methodology, well liked by both teachers and pupils, was put into place eight years ago, but the end results did not show a clear, statistical improvement in the quality of education\. Strengthening Sector Managerial and Planning Capacities: Although much benefit came indirectlyfrom Component 3, it is rated marginally satisfactory because of some shortfall in actual outcomes compared to the stated objectives\. The first part of the objective of this component -- to improve the Ministry of Education's (MEN) capacity to efficiently manage scarce educational resources - was substantially achieved through the implementation of the contractual tzacher program worked out jointly between the Borrower and the Bank (see above)\. Due to the flexibility and innovative work of both the Borrower and the Bank, substantial progress was made in this area\. In - 5 -  addition, improvements were noted in the minstry's capacity in school mapping as well as school data gathering and processing\. The establishment of a functional computerized staff data base in the Administrative Affairs Unit helped improve the overall personnel management capacity in the ministry\. On the other hand, the objective of supporting reforns by building knowledge, improving program coordination and evaluation, and improving financial management capacity fell short of expectations, in particular with respect to the decentralization\. Outcomes were also limited in terms of promoting result-based management and greater accountability\. Most of the sectoral studies envisaged were caried out either by project consultants or by other donors by the end of the project and have been useful in laying the foundation and providing the knowledge-base for the current 10-year plan\. Capacity created in the central Planning Department was very helpful in this respect\. However, time and circumstances did not allow for a full use of some of the studies\. For example, although a pilot school mapping exercise was done in Dosso, a country-wide school map was not developed as planned; decentralized planning units were trained in data collection, but their capacity remained low in the area of basic statistics analysis and school mapping; the results of the study on higher education were not yet used to build up a consensual and sustainable strategy for its development\. 4\.2 Outputs by components: Component 1: Sectoral Reform Program: Implementation of this component is rated satisfactory\. The first tranche of the quick-disbursing component of the project (US$10\.0 m) was released at effectiveness (September 26, 1995), albeit with a delay of over a year due to a deteriorated macro-economic situation\. The second tranche of the quick-disbursing component (US$10\.0 m\.) was released on July 3, 1996, when the following, agreed-upon activities were implemented * recruitment of 520 new primary school teachers, 85% of which were instituteurs adjoints and 15% instituteurs; * 720 student teachers were admitted to the ENI in the same proportion; * the number of classes implementing double-shift teaching were increased from 670 to 683 in 1995/96; * scholarships for higher education decreased from CFAF 5\.5 billion to CFAF 4\.5 billion, and scholarships for secondary education were maintained at CFAF 1\.6 billion; * 76 contractual teachers' contracts were terminated; * 120 classrooms were built using national and community resources; * budget for teaching materials were reserved exclusively for primary schools and increased from 360 million CFAF to 439 million CFAF in 1995/96; * teachers received in-service training: 2,295 in double-shifting; 260 in the use of new textbooks; 41 in gender analysis\. Some of these measures were expanded and/or reinforced later on as shown in Annex 3\. It should be noted that some project activities undertaken during the initial quick-disbursing phase were only barely maintained later on due to a lack of adequate funding or to changes in school conditions\. For example, primary teacher in-service training was to have been maintained through a pedagogical peer support system (CAPED) spread throughout the country\. By the mid-term review, however, this previously successful endeavor was presenting some flaws\. CAPED structures were not receiving any supplies, equipment, or financial support\. Without vehicles or other incentives, teacher-trainers were increasingly frustrated in their attempts to reach outlying areas and provide support to primary teachers working there\. Additional attention and resources will be allocated to these activities during the coming - 6 -  years\. Also, the new lower-secondary teacher-training system failed to respond to the demand for teachers because, from among the already limited number of graduates from the various facultes, only a relatively small number choose the teaching stream and succeed in passing the entrance exam to enroll in the Ecole AVormale Superieure\. Component 2: Improving access to and Quality of Primary Education A\. Construction Program: The quantitative objectives of the civil works component were reached and even surpassed: 1770 new primary school classrooms were built, of which 84% in rural areas (290 financed by IDA)\. The remaining civil works were financed by the Belgian, German, and Nigerien governments\. The civil works financed by the latter were implemented by regional services, which was an accomplishment in itself\. Up to that time construction had been managed entirely by the National Public Works Department \. One hundred percent of the rehabilitation program was completed, corresponding to 1,500 classrooms (all financed by IDA)\. Ten inspectorates were built and equipped with IDA funds\. It was noted, upon inspection, that the quality of many of the facilities left room for improvement\. The quality of many buildings was below standard due to poor contractor performance, deficient supervision and delay in payment, inadequate quality of materials or labor\. Maintenance was often neither budgeted nor planned for; all of which resulted in an early deterioration of the buildings\. The pilot cost sharing stream in school construction with communities did not succeed because the poorest of communities could not afford the agreed-upon level of 10% participation\. B\. Girls' education: The project achieved all its objectives under this sub-component\. The main objective which was to bring the proportion of girls in primary school from 36% in 1996 to 40% in 2000 was reached\. The girls' education unit, CTPSF, was created in 1994, and its activities focused on regions that were designated as priority areas\. Massive sensitization campaigns, which involved local leaders, helped achieve a certain change in parents' attitudes especially in rural areas\. Of the 254,619 students attending primary school in rural areas, 32% were girls\. In 1999-2000, girls represented 35%\. The average annual growth rate in 1999 stood at 9% for boys as opposed to 14% for girls\. Furthermore, the project helped produce a teachers' guide based on the findings of a study on gender stereotypes; regional focal points were recruited at the regional level and for the first time in Niger, the issue of girls' education was discussed in the context of medersas (Koranic schools)\. To keep up this momentum, further demand stimulating approaches are beeing put into place namely measures to curtail the impact of distance on regular attendance; tutoring, to improve retention, regional focal points as well as more sensitization campaigns and mothers' association to further support female schooling\. C\. Primary School Teacher training programs: The objective of improving the quality of primary school programs was not fully achieved, but significant steps were made to ensure improved quality in the coming years\. In 1993 a new integrated method of teaching with adapted textbooks and teacher guides was introduced in Niger\. For several years, the program -- introducing an active, student-centered approach, quite different from the old, top-down methodologies used to date - was resisted, if not ignored, but currently the methodology is being adopted with enthusiasm by those younger teachers having received rudimentary training in its use\. Itvis felt by these teachers that the methodology will be better mastered if it is used in conjunction with additional pedagogical peer-support (CAPED)\. The CAPED system had been introduced prior to the project and subsequently adapted and supported by the project\. The system offers a forum in which new teachers are supported and mentored in teaching techniques, while the older teachers learn about the new approach from the younger teachers\. During the school year 1999-2000, 712 in-service training sessions were held by the CAPED\. CAPED represents a very promising method of - 7 -  in-service teacher training that the government ought to support further\. D\. Textbooks: It should first be noted that an unforeseen output was achieved under this component\. Niger was able to take ownership of textbook copyrights, thereby avoiding previous bottlenecks resulting from foreign ownership, while also improving its capacity to design culturally-appropriate textbooks\. The stated objective - to purchase and distribute 1\.6 million textbooks, 1\.2 million math workbooks, and 30,000 teacher guides - was only partially achieved\. By the end of the project, a total of 840,000 textbooks, 353,000 math workbooks and 62,000 teacher guides were purchased\. Unfortunately, however, problems in the storage and distribution of textbooks surfaced quite early on in the project when it was found that textbooks were being diverted from the schools to commercial sales people\. Various distribution systems were tried unsuccessfully, resulting in a temporary suspension of distribution altogether\. Consequently, most primnay schools currently offer I reading textbook per three students, as opposed to the 1:1 ratio targeted and insufficient math workbooks\. In many classrooms, Math is done on the blackboard and the pupils' slates, based on the Math Guide held by the teacher\. Textbooks received by the schools are maintained with great care under a strict policy of limited use\. In double-shift classrooms the books are kept in the desks and used by both shifts in turn\. In single-shift classes the books are also kept at the school and often collected between class sessions\. The disadvantage of these measures is, of course, that pupils have no access to books at home, which precludes homework, tutoring, and supplemental reading\. Most textbooks (and these are all paper-backs, not hard-cover) last and are used over three years\. E\. Micronutrients: The initial objectives of this component were fully achieved\. With the support of UNICEF, teachers operating within the pilot zone of the micronutrient program were trained within the second year of the project\. 26,000,000 micronutrients (vitamin A, iron, vermifuges, iodized capsules) were distributed to 165,000 students in the regions of Dosso and Maradi\. US$210,000 of the allocated US$220,000 was disbursed\. This program wasn't expanded nation-wide following the mid-term review as originally proposed, because it was decided at that time that the voluntary teacher training program should be given top priority for project funds\. UNICEF continued to provide micronutrients and vernifuges upon demand in the pilot areas of Dosso and Maradi\. Component 3: Strengthening Sector Managerial and Planning Capacities: A\. Performance of Resource management and program implementation/evaluation varies\. The project helped the Government produce a statistical inventory on a regular basis as of 1996-1997\. During the project, a strong national team has become adept in school data gathering and processing\. School mapping skills have been developed, and a school map was established on a pilot basis for one region\. Although the school mapping exercise has yet to be officially presented and discussed, it did reveal that many pedagogical advisors and inspectors retired from service soon after receiving training, leaving a gap in current teacher supervision practices\. Although a personnel data base was established by the Department of Administrative Affairs and contributes to the ministry's capacity to manage its human resources, little progress was made in the area of financial resource management\. Participation and consultations with main stakeholders (parents associations and teachers unions) increased over time, even though the level of accountability remains low\. To improve the capacity of the Ministry of Education to evaluate education programs, this project set up an evaluation unit (CE) for the purpose of studying and understanding student performance in French, - 8 -  Mathematics and social studies\. A good study was conducted, the involved personnel received good quality training\. The final report awaits discussion and dissemination\. The specialists involved in the analyses are willing to cooperate with both the secretary general's office and INDRAP, the textbook design section to fiurther this endeavor\. B\. Decentralized sector planning and management feU short of expectations\. Training in data collection, school mapping, and personnel management were provided to decentralized units\. The construction and equipping of inspectorates was carried out as planned\. However, at the decentralized level capacity remained low in basic statistics iinalysis and resource management\. Returns in training investment were lowered due to a high tum-over and early retirement of the trained staff\. School mapping and the computenzation of an information system were financed by the French Cooperation\. Computers and data system software were provided to the MoE Department of Statistics, and the departmental statisticians were trained in their use\. The result has been the development of a uieful, statistical directory, produced in a timely manner over the last three years\. Some initial plans were made for the data collection at the regional level, but equipping regional offices to support computers was beyond the scope of the project\. C'\. The development of a strategy for higher education was not fully achieved\. A sector study for the "Preparation of a Development Strategy for Higher Education in Niger" was developed in five volumes in 1999\. Though the report was not formally used for the organization of a national debate as foreseen by the project design, the results of the study were publicized in the press, and the study has been used as a resource for the design of the follow-on education project\. Also, the National Language Study was executed with the German Development Agency financial support D'\. The Project Unit performance declined over time\. Initial investments to the managing unit were valuable\. Unit staff were trained and gained valuable technical experience and skills\. However, as time went on, the unit encountered problems\. It was unable to ensure the coordination of either donors or irtvolved ministerial units as outlined in the initial design of the project\. Despite the fact that the DPE was a unit within the MEN (created by Presidential decree and part of its organizational chart), it acted as a separate unit and was perceived as such\. The unit's efficiency was further affected by the absence of any systematic personnel performance evaluation which in turn led to insufficiencies in administrative, financial, and accounting services\. Recommendations made in audit reports and during supervision missions were not readily acted upon\. 4\.3 Net Present Value/Economic rate of return: At appraisal, neither an estimate of net present value (NPV) nor the economic rate of return (ERR) was foreseen\. However, efforts were made to estimate the cost savings which would be generated by the mrteasures supported under the project\. The analysis presented in Annex 3 provides the results of the calculation of actual savings generated by the imnplementation of the principal project measures\. In comparing the increase of public expenditures on primary education with the cost savings obtained over the past five years, a total net expenditure of FCFA (-9\.7 billion) is revealed\. This savings allowed for the increased enrollment under a very tight macroeconomic framework\. The high level of net expenditures (as compared with the FCFA 7 billion estimated at appraisal) is attributable to the effect of the contractual teacher recruitment policy after 1998\. 4\.4 Financial rate of return: 9-  N\.A\. 4\.5 Institutional development impact: The initial sector reform measures implemented at project outset were key in reshaping the education system and in setting the pace for institutional development and change\. Debates and consultations held around the reform design and project implementation decisions contributed to a change in behavior and attitude towards a more participatory and inclusive management approach within the education system\. The decentralization process fell short of expectations, but the level of involvement of the main stakeholders (including community representatives) and the recognition they were given in considering education issues at different levels (such as teacher recruitment, school operation and maintenance), has changed the environment of the education sector and offers great potential for future dialogue regarding sector development Although some of the institutional development objectives were not reached early on during this project due to more immediate needs, project funds were eventually used for the undertaking of nine studies, which would serve as policy-maldng documents for the Education Sector in general, and for the preparation of the 10-year plan in particular\. These were studies on the Policy Framework, Early Childhood Development, Primary Education, Elementary Education, Private and Community Education, Informal Education, School Construction, Health-Nutrition-AIDS, and School guide and textbooks Policy\. While the unstable political situation did not favor a fuller usage of the results of these studies, they constitute a rich source of information that will serve in the ongoing discussion and strategizing of the 10-year plan\. 5\. Major Factors Affecting Implementation and Outcome S\. I Factors outside the control of government or implementing agency: Project implementation was greatly influenced by a variety of factors, some of which were identified at the time of project preparation (risk analysis)\. Outside the control of the implementing agency was the chaotic political environment in Niger during most of the project implementation period\. Implementation was slowed because of civil unrest and teacher and student strikes\. Two of the project years were "annees blanches" for the students, meaning they did not go to school at all\. Two other years were aborted before exarns were administered\. Both parents and students interviewed for statistical purposes could often not declare with certainty the school year the student was currently enrolled in\. The outcomes of the planning components (statistical records and analyses) were obviously curtailed by these circumstances\. 5\.2 Factors generally subject to government control: Positive factors: The initial strong link of the project with the macro-economic framework gave the project high visibility while providing the leverage for pursuing and enhancing the dialogue on sector financing and spending issues\. Despite a high turn-over of the ministers and senior staff (8 different ministers of education in the course of project preparation), a certain stability was maintained by the presence of a number of unchanged, committed technical staff within the Ministry\. Govemment showed strong commitment to the education sector, undertaidng controversial reforns in a contentious atmosphere with tight budget constraints, and engaging in courageous and innovative approaches to fill the needs of the country, such as the hiring of voluntary teachers, which required two - 10 -  amnendments to the original DCA (in November 1998 to create the "Volunteer teachers salaries" subcategory, and in January 1999 to establishing a separate special account to facilitate the payment of salaries and benefits of voluntary teachers)\. These amendments were pivotal to the stability and sustainability of the education sector\. Without the time and attention given to these issues - to the detriment, it is true, of some other components - the education sector would have come to a complete standstill\. Consequently, Government's choice to focus on the question was appropriate\. The ability and willingness of some senior staff to persevere in improving the dialogue with the civil society, in particular teacher unions, on fundamental sector issues was of great importance\. Open dialogue and a spirit of inclusiveness have proven to be effective means to manage and mitigate risks associated with reform implementation\. Negative factors: It should be noted that the intra-institutional set up of the project coordination mechanism may have been the cause of some of the difficulties encountered during project implementation\. Not only did some key players not quite master their role, but communication among the various players did not seem sufficiently developed\. The good quality of donor coordination developed during the project preparation phase deteriorated during the implementation phase, when many donors suspended their aid to Niger due to the political crisis and instability\. During that period the IDA project was virtually the only source providing external financing to the education sector in Niger\. With the return of stability, there was a tendency towards proliferation of PIUs, and coordination became more difficult\. 5\. 3 Factors generally subject to implementing agency control: Positive factors: The stability and commitment of the implementation team throughout most of the project was important The project management team worked well with the IDA missions, organized the MTR, arnd assured the timely submission of audit reports and other procedures\. Negative factors: Govemment didn't always take the lead in ensuring coordination of donor activities over the course of the project\. Although structures were set up at the start of the project to ensure donor co\.mmunication and cohesiveness, it was not maintained\. In the face of uncertainties at the national level, project activities of the various donors became more and more isolated and stratified\. This lack of coordination resulted in a breakdown of a consistent strategy (regarding textbooks for instance) and in some poor management decisions (such as the execution of unprogrammed school construction and rehabilitation activities)\. 5\.4 Costs andfinancing: The project was implemented between 1994 and 2001 at a cost of US$78 million, of which IDA financed U:S$41\.4 million\. Additional funding was obtained from Norway ($4\.8M US), Germany ($10\.2M US), Belgium ($2M US), and the Government of Niger and its communities ($\.2M)\. 6\. Sustainability 6\.! Rationalefor sustainability rating: Niger is committed to giving education the highest priority, but its economy is not growing, and the national budget is stretched very thin\. The question arises, therefore, as to whether the country has the capacity to continue to finance the recurrent costs required to maintain activities and investments which were made under the project\. As mentioned earlier, some project activities had already started to suffer from lack of financial support (CAPED network, school maintenance)\. Nonetheless the overall - 11 -  sustainability of project achievements is likely for several reasons\. First, the Government's decision to adopt a recruitment policy of contractual teachers at lower salaries is already bearing fruit (see Annex 3)\. Second, in 2002 the Government agreed to cover a number of education costs financed by the project, including the costs of contractual teachers, out of the general budget\. Third, the decision to increase community involvement and responsibility in school management should help improve the quality of public expenditures in the sector and ensure more cost-effective maintenance of the infrastructure and equipment\. Fourth, the level of donor support (including IDA) to the Ten-year Program is quite high and will help the Government expand some of the project's positive results\. Overall, given the country's economic conditions, there is no doubt that continued financial donor support will be required over the medium term if continued progress in the Education Sector is to be made\. The positive achievements described above will be pivotal in enlisting that support\. The level of risks associated with some of the policy reforms such as the recruitment of contractual teachers remains quite high and could raise a long run sustainability issue\. The open consultations and discussions held by the Government with main stakeholders including teachers' union (SNEN) and parents' association (APE) on these issues has proven productive and effective in mitigating these risks, and they should be re-inforced in the future\. 6\.2 Transition arrangement to regular operations: Firstly, Niger now has a firm 10-year-plan, the foundation of which was laid during the current project\. The use of resources in the sector has been improved through multigrade and double-shift approaches along with the new contractual method of recruiting teachers and increased community participation\. Secondly, certain principles hammered out during the project under review have now become standard and accepted ways of working\. There has been a general "unbundling" within the Education Sector through which a sharing of responsibility and financing is slowly becoming more acceptable\. Thirdly, project activities have been streamlined in MOE and are fully integrated into the ministerial structures\. The core activities are being funded under the CY 2002 general budget in the context of the Public Expenditures Adjustment Credit\. Finally, in view of the above, Government has requested an additional loan in the form of a SIP, and preparation has begun on a new project design for the "Basic Education Project\." 7\. Bank and Borrower Performance Bank 7\. Lending: Bank performance during lending is rated Satisfactory\. Though preparation of the project was delayed during Niger's lengthy transition period (1987-1994), the Bank remained staunchly involved in a dialogue with each new Ministerial team (8 ministers of education over 8 years), thereby maintaining consistency and support\. Once the Bank Team was able to start full time preparation on the project, its performance was good\. Pre-appraisal and appraisal missions were participatory, donor involvement was significant, and project documentation was complete with indicators and analyses of issues, risks, and lessons\. At the time, the choice of a hybrid instrument was innovative and somewhat experimental\. With hindsight, it still appears to have been an appropriate decision, since the hybrid nature of the instrument greatly contributed to the achievement of the dual objective of providing necessary general budgetary support required by the macroeconomic reforms and promoting sectoral reforms, while better linking the sector to the macroeconomic framework\. - 12 -  7\.2 Supervision: Bankperformance during supervision is rated Satisfactory\. The project was supervised with consistency and thoroughness\. The same Task Team Leader managed the project throughout and was based in the field, working from the country office, which increased his ability to supervise project actitivies continually and competently\. Supervision missions were regular and fairly well documented, with te;ans of adequate skills-mix\. A large "Midterm Review Meeting" was held just previous to the MTR mission at which time all outstanding issues were discussed and a plan developed for dealing with them\. Advice continued to be shared by all team members throughout the mission, but no financial management specialist was present in the field at that time, which would have been preferable\. In general, problems (vehicle use, textbook issues, and lack of in-service training) were flagged early, and Bank staff made recommendations for appropriate solutions\. The Bank team worked continually with the Ministry of Education to develop and implement altemative solutions for increased enrollment at a cost-effective rate\. It consistently worked with the Borrower on establishing strong, quality indicators\. At mid-term review, the Bank demnonstrated great flexibility in finding ways to respond proactively to the sector's essential needs\. At mid-term, project disbursements were behind schedule, and project activities were not moving as well as hoped\. A variety of implementation issues were examined jointly by the Bank team and the Borrower, and recommendations were made to improve project progress\. Nonetheless, problems continued to surface at the level of the management of the project unit\. Personnel changes to the unit were ultimately carried out, but at the ICR mission, it was apparent that dissatisfaction with the unit persisted despite IDA recommendations\. 7\. 3 Overall Bankperformance: Overall Bank performance is rated Satisfactory\. The team spirit in which this program was developed set a precedent of Bank-Borrower-Beneficiary cooperation which has been maintained and will hopefully be coatinued in the future\. Borrower 7\.4 Preparation: BorrowerperfornanceforPreparation is ratedsatisfactory\. As mentioned earlier (see Quality at Entry), the preparation period of this project corresponded to a period of intense strife and unstable political conditions in Niger\. Nonetheless, the Bonrower was able to maintain ongoing dialogue with the Bank and move forward with controversial reforrn proposals\. The Minister of Plan, the Secretary Generals of the Presidency and of the Ministry of Education, and other individual ministers were active and involved in the project preparation\. 7\.Z\. Government implementation performance: Government implementation performance is rated satisfactory\. Effectiveness was delayed for 1 1 months while some basic changes to the macro-economic policy framework were laboriously hammered ouL The Borrower finally took all the measures (revenue enhancement, wage bill containment, etc\.), ne:essary to bring the framework into line with the objectives of the Program and the project moved into implementation\. The Borrower was fully involved in the project from the start\. It conducted a successful Project Launch Seminar and continued to take responsibility for many aspects of the project\. The Sectoral Reform Pr)gram was implemented by 1997, resulting in direct and indirect budgetary savings of about 3\.2 billion - 13 -  CFAF, and public resource allocation to primary education increased through the refonns, as expected\. In the face of almost constant turbulance within the Education Sector, Government persevered in looking for viable solutions allowing them to provide basic education, with increased enrollment, but at low cost\. The Borrower participated actively in mid-term review assessments and developed solutions jointly with the Bank team for improved implementation (establishment of an Education Sector Coordinating Unit, transfer of bidding oversight to BIES, increased dialogue among component coordinators\. However, the quality of coordination of various projects and other interventions in both the ministry and the sector has lagged behind expectations, and the continued dissatisfaction of many component directors shows that improvements are needed in future management\. 7\.6 Implementing Agency: Overall ImplementingAgency performance is rated unsatisfactory\. The Education Projects Unit (DPE), placed within the MOE, developed experience and skills over the life of the project\. The personnel remained fairly constant, but ambiguities in the job descriptions gave rise to some major concerns after the mid-term review, when the Project Director left for another position\. Disbursement procedures (lagging already at over 30% at MTR) slowed down, supervision of civil works was not carried out, and support to the regions was interrupted\. The accounting/management personnel, which did not change throughout the project, ensured timely submission of audit reports, some of which were fully acceptable\. (A few reports, though not unacceptable, were qualified, and recommendations from IDA were duly sent to the project unit in that regard)\. Project accounting was acceptable maintained, and records were available at the end of the project\. However, in the last two years some poor management decisions made by DPE staff led to the execution of unprogrammed civil work activities\. Project financial management conditions were not fulfilled\. Information on disbursements was not forthcoming\. Double-shift teacher and voluntary teacher salaries got backed up over three months, and some civil work and supplier payments were outstanding\. To resolve the issue, the Government will pay the unpaid contracts and reimburse the project account for the amount spent on unaccepted expenditures\. Lines of cornmunication and accountability became increasingly fragile between the project unit and the tutelle ministry as well as between the project unit and component directors (including requests regarding respective budgets, for example)\. At the midterm review, plans to rectify the identified problems (weak coordination and communication between component coordinators and the project unit, unclear finance and procurement management, and an incomplete project procurement filing system) were developed, but these issues were not fully resolved by the time the project director left the unit\. Subsequent management remained rather difficult as described above\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated satisfactory\. With the backdrop of school disturbances from both student and teacher strikes, the Borrower must be given credit for holding strong to its reform program, achieving increased access to students, increasing teacher availability, and supporting a new method of teaching\. 8\. Lessons Learned The financial instrument: The hybridfinancial instrument increased effectiveness in the implementation of sectoral reforms There has been a long debate on the effectiveness of adjustment credit to deal with sector reform\. The lesson learned from this operation does not totally answer this question\. However, there seems to be some - 14 -  evidence that the hybrid nature of the instrument improved the link between the sector and the macroeconomic framework and enlarged the base for alliance and support to the reform measures\. This, in turn, increased the project's visibility, which helped sustain the implementation of core measures, after the quick disbursements were executed\. Access and Quality: Cost-sharing in school construction raised implementation and equity issues\. Although financial contributions for classroom construction were solicited from communities, this often gave rise to tensions\. The unit cost of building schools decreased compared to the cost under Public Works, but it is still high, relatively speaking\. Some communities, particularly in rural areas, had trouble mobilizing the funds needed to build\. In view of the level of poverty in Niger, community ownership might be better built by soliciting more involvement in the decision-making aspects of school management: school-site selection, the provision of land in rural areas, the daily supervision of the construction work, and later on, participation in school maintenance\. It is important that extremely poor communities (particularly in rural areas) be sensitized early on, so they have time to plan ways to make a significant contribution\. Empowering measures and greater responsibility in activities such as daily supervision of the construction work and then involvement in school maintenance are effective means of increasing ownership\. Although an important volume of construction was carried out, the technical supervision of the construction was weak\. In the future, effective accountability and control mechanisms of the construction process must be ensured\. Good leadership and sustained commitment to the implementation of measures ensuring improved quality of education are key\. The project succeeded more in terms of access than in terms of quality\. In general, the wide sensitization campaigns helped increase demand for education, particularly in rural areas and for girls\. The massive effort to improve access did not, however, favor quality\. It is important in the future to ensure that such an effort is followed by concrete measures to improve the quality of the teaching and learning\. It is only this improved quality of education that will inspire parents to keep their children in school\. The implementation of teacher recruitment reforms requires time, patience, and an adequate risk management strategy\. The decision made by the Government to introduce the recruitment of contractual teachers in 1998 at MTR was an innovation which took place under exceptionally tense financial conditions nation-wide\. Its implementation required extensive, open discussions with the main stakeholders, in particular with the teacher unions (who originally considered the changes to be transitory measures rather than a new recruitment policy)\. The reform had to be implemented by degrees, providing the Government time to build consensus among the various actors and to consolidate the system\. Though the short-term benefit of this reform lies in the economies resulting from the lower salary grid of the contractual teachers, the long-term benefit resides in the efficiency gains associated with the enhanced involvement of local community in teacher recruitment and management as well as the flexibility provided by the fixed-term contract\. Efficient textbook distribution is key to ensuring availability of books in the classroom\. Discrepancies between availability of textbooks in classrooms and the level of expenditures on textbooks leads to recommendations for the future: (i) Project implementation unit must scrupulously plan the procurement processes and closely monitor the implementation of textbook contracts to ensure the delivery of the books on time; (ii) Books should be packed per school by suppliers and delivered to the schools by suppliers or private distributors; (iii) Books should be received in the schools by school/textbook management committees or school directors in the presence of teachers, students, parents and other members of the community\. During the reception, each copy should be stamped on several pages and recorded; (iv) Inspectors, other supervision persornel and school directors should make sure that books are - 15 -  effectively used and taken care of by teachers and students\. Communication and Coordination\. Because of the past history of turbulence and distrust in Niger, a participatory approach and clear, thorough explanations regarding project activities are of paramount importance\. Communications between the coordinating unit and component directors must be comfortable and frequent\. Measures taken by the Ministry should be communicated by appropriate public media, so that school directors, university professors, teachers, students, and union members are all apprised\. Donors, too, must be active participants in decisions taken by the project\. Both current and any new project activities need to be discussed and explained fully and openly, particularly with those affected by the changes, thereby building a team spirit of cooperation in the effort to improve the education sector overall\. Furthermore, to assure a more efficient project management, not only should roles and responsibilities be clarified from the outset - especially within the PIU and between it and the Ministerial administration - but they should also be carefully monitored and reevaluated throughout the project\. Financial management reviewers would recommend that: (i) personnel performance and evaluation procedures - written up in a manual of administrative, financial, and accounting management - be rigorously followed; (ii) the financial management coordination unit for the project produce and publish a quarterly activity report for distribution to all involved partners, including the Office of the Prime Minister\. 9\. Partner Comments (a) Borrower/implementing agency: The ten-page synthesis of the Borrower's evaluation of the project is attached in Annex 8\. The Borrower is in general satisfied that the project, despite the difficult conditions, was fully implemented\. The Government continued to perceive the project as relevant and having had an impact especially on access, equity and participation\. The borrower appreciated the continued commitment of IDA without which the project's implementation would have been impossible\. The main difficulties deplored by the borrower in the project implementation and the achievement of its objectives were political instability and low technical capacity\. Where the borrower perceives the greatest challenge remains quality which it vows to address through a new program under preparation\. (b) Cofinanciers: A completion report was submitted by the Dutch in October 1998, detailing their contribution to both the Education II project and the Hybrid Education Sector\. (c) Otherpartners (NGOs/private sector): 10\. Additional Information At the end of the ICR mission, the Borrower organized a half day workshop on April 25, 2002, at which the Govemment's version of the ICR was presented and discussed\. Both Government\.and international partners attended the workshop\. There was general agreement by all that the project succeeded in laying the foundation for the development of basic education and succeeded in creating a participatory process despite difficult political conditions\. It was also agreed by all that the Borrower will continue to face an enormous challenge to improve the quality of teachers and teaching conditions in order to improve learning\. Finally, the Borrower will have to address other issues such as the over- centralization of decision-making and a weak management capacity at all levels\. There was general consensus that Government should pursue measures to address these problems through the ten-year program under preparation\. - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Irmact Indicators: Indicator Actual Target by EOP May 1997 Statistical Directory Baseline fiom 2000-2001 PR (1994) Gross primary school 29% 35% 30\.3% 37\.3% enrollment rate Share of girls' 22\.2% 40% 23\.4% 39\.6% enrollment in primary education Percentage of 16% 10% 13% 12\.47 (99/00) epetition in primary Percentage of students 34% 20% N\.A\. 33% failing CFEPD School supplies FCFA 80m FCFA 80 m\. 553 Subsidies for Higher FCFA 5\.5b\. CFA 3\.5 b\. FCFA 3\.7 b\. CFA 3\.5 b\. Ed scholarships Subsidies for FCFA 1\.6b\. CFA 1\.6 b\. CFA 1\.6 b CFA 1\.6 b\. Secondary Ed scholarships Output Indicators: Indicator Target EOP MTR Latest Estimate (2000) Construction of primary 1,770 861 total 1774 of which 290 (by classrooms IDA) remaining by others Rehabilitation of primary 1,500 631 1,500 classrooms Number of teachers 3,000 500 CAPED in N\.A\. receiving 4-week operation retraining sessions Double-shift classrooms 690 700 892 Primary textbooks 1\.6 million 579,000 840,000 provided Mathematics workbooks 1\.2 million 353,000 353,000 provided Teachers' guides provided 30,000 23,000 62,000 Children receiving 165,000 165,000 165,000 micronutrient intervention National Language 75,000 35 manuscripts in 75,000 Books distributed process Some figures were unavailable due to the break-down of data collection during certain troubled times - 17 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) \. : -v ' Appraisal Actual/lLatest Percentage of Estimate \.-Estimitte A ppraisal , , P'roject'CostBy Corponent' US$ million S$ million: Implementing a Sectoral Reform Program (Quick 17\.48 17\.48 100 Disbursing) Improving Access and Quality Construction 4\.30 5\.71 1\.32 Girls'education 1\.10 0\.51 46 Primary School teachers TRG 5\.80 1\.21 20 Primary School textbooks 6\.00 0\.57 6 Micronutrient Program 0\.30 0\.30 100 MEN 1\.70 3\.22 188 Decentralized sector 1\.70 2\.11 124 Strategy for Higher Education 0\.30 0\.30 100 Contractual Teachers and overtime cost of double shift: 0\.00 6\.70 670 recipients of REALLOCATED FUNDS Total Baseline Cost 38\.68 38\.11 Physical Contingencies 1\.40 1\.40 100 Price Contingencies 1\.40 1\.40 100 Total Project Costs 41\.48 40\.91 Total Financing Required 41\.48 40\.91 The DCA stipulated that Norway would finance a $4\.8 rnillion grant and that Germany would finance a $10\.2 million grant\. In fact, a Norwegian Grant of $4\.8 mnillion was signed in October 1994; Germany undertook the Language Study with its own financing; a Belgian Grant of about $2\.6 million was signed in July 1996\. The President's Report reflected a total project cost of 75\.80, of which the IDA Credit was $41\.4 million Project Costs by Procureme nt Arrangements (Appraisal Estimate) (US$ million equivalent) 'Procurement Method' Expenditure Category ICB NCB N\.B\.F\.' Total Cost 1\. Works 0\.00 4\.60 2\.40 12\.60 19\.60 (0\.00) (4\.60) (2\.20) (0\.00) (6\.80) 2\. Goods 7\.00 4\.10 0\.20 11\.20 22\.50 (7\.00) (4\.10) (0\.20) (0\.00) (11\.30) 3\. Services 0\.00 0\.00 1\.80 0\.00 1\.80 (0\.00) (0\.00) (1\.80) (0\.00) (1\.80) 4\. TRG 0\.00 0\.00 1\.80 0\.00 1\.80 (0\.00) (0\.00) (1\.80) (0\.00) (1\.80) 5\. Direct Imports (Quick 17\.20 0\.00 0\.00 2\.80 20\.00 Disbursing (17\.20) (0\.00) (0\.00) (0\.00) (17\.20) -18 -  6\. Miscellaneous 0\.00 0\.00 2\.36 7\.80 10\.16 (0\.00) (0\.00) (2\.36) (0\.00) (2\.36) Total 24\.20 8\.70 8\.56 34\.40 75\.86 (24\.20) (8\.70) (8\.36) (0\.00) (41\.26) Project Costs by Procurement Arrangements (Actual/Latest Estimatel (US$ million equivale nt) -Procurement Method Expenditure Category 2CB NCB O N\.B\.F\. Total Cost 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 0 (0\.00) (5\.32) (0\.00) _ (5\.32) 2\. Goods 2\.77 2\.77 0\.44 0\.00 5\.98 (2\.77) (2\.77) (0\.44) (0\.00) (5\.98) 3\. Services 1\.53 0\.00 0\.66 0\.00 2\.19 (1\.53) (0\.00) (0\.66) (0\.00) (2\.19) 4\. TRG 1\.23 0\.00 1\.23 0\.00 2\.46 (1\.23) (0\.00) (1\.23) (0\.00) (2\.46) 5\. Direct Imports (Quick 17\.48 0\.00 0\.00 0\.00 17\.48 Disbursing (17\.48) (0\.00) (0\.00) (0\.00) (17\.48) 6\. Miscellaneous 0\.00 0\.00 7\.50 0\.00 7\.50 (0\.00) (0\.00) (7\.50) (0\.00) (7\.50) Total 23\.01 2\.77 9\.83 0\.00 35\.61 1 (23\.01) (2\.77) (15\.15) (0\.00) (40\.93) Goods includes micro-nutrient component, furn, equip; pedag\. mat, girls fund, education improvement, and PROSEF (unit) Miscellaneous includes volunteer teachers and incremental recurrent costs "Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2Ilncludes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Since participation of funding to this project was through parallel financing, with no fund management of partner funds by IDA, there is no breakdown of component financing between IDA and co-financiers\. Germany donated a grant of $10 m; Norway a grant of $4\.8 m\. -19 -  Annex 3\. Economic Costs and Benefits At appraisal, no estimate of either the net present value (NPV) or the economic rate of return (ERR) was prepared\. However, efforts have now been made to estimate the cost savings generated by the measures supported under the project\. The analysis presented below attempts to calculate the actual savings generated by the implementation of the main measures and compare them to the initial estimates\. Given the available data, this analysis will cover the following three aspects: (i) the use of double-shift teaching; (ii) the primary teachers'salaries; and (iii) the containment of student subsidies\. 1\. Use of double-shift teaching Double-shift teaching has allowed for the enrollment of 417,821 pupils in urban areas over the past five school years\. About half of those children would not have been educated in the absence of this measure, given the limited resources for increased demand in public education in these urban areas\. Double-shifting resulted in a total cost savings of CFAF 7\.2 billion as presented in Table 1 (not including savings related to the training of new teachers)\. This is higher than the estimated CFAF 5\.8 billion savings estimated at appraisal, because the initial project objective of 1380 pupil-groups per year was largely exceeded during implementation (34%)\. Table 1: Cost Savings generated by the Double shift teaching (FCFA million) 1996/97 1997/98 1998/99 1999/00 2000/01 Total Number of classes 906 978 950 911 892 Pupil-groups 1812 1955 1879 1822 1783 Number of pupils 82050 87988 85531 82012 80240 417821 Cost Savings Teachers 906 978 950 911 892 4637 Salary cost 565\.3 610\.3 592\.8 568\.5 556\.6 2893\.5 Classroom construction 3986\.4 316\.8 4303\.2 Total 4551\.7 927\.1 592\.8 568\.5 556\.6 7196\.7 2\. Primary teachers' salaries Under the project to keep primary school salary costs down, the Teacher Training Centers annually recruited 85% INA and 15% IN rather than the 46% INA and 54% IN recruited in the past\. Further savings were introduced with the adoption of the recruitment policy concerning contractual teachers\. This became an essential sector reform, on which long-term financing sustainability greatly depends\. Both measures helped significantly increased the number of teachers recruited (7381 over the past six years) while generating some CFAF 2\.3 billion cost-savings (see table 2)\. - 20 -  Table 2: Cost saving generated by teacher recruitment measures (in FCFA millions) 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 Total 1\. Teacher recruitment -Ina 602 442 442 442 156 2084 -IN 120 78 78 78 100 454 -NE 791 2005 2047 4843 Total 722 520 520 1311 2005 2303 7381 2\. Salary paid 581\.9 417\.2 417\.2 749\.5 842\.1 1078\.5 4086\.4 3\. Salary costs without reform 628\.5 452\.6 452\.6 1141\.1 1745\.2 2004\.6 6424\.7 4\. Cost savings (3-2) 46\.6 35\.4 35\.4 391\.7 903\.1 926\.2 2338\.3 VE: Contractual teachers 3\. Containment of student subsidies The measures taken to control the rapidly increasing trend in scholarship for students (secondary and higher education) generated about CFAF 10 billion over the past five years\. Table 3: Cost savings generated by student subside control measures (in FCFA millions) 1996 1997 1998 1999 2000 Total 1\. Controlled allocations - Secondary schools 1667 1667 1600 1133 897 6964 - University 3700 3700 3700 3700 3700 18500 Total 5367 5367 5300 4833 4597 25464 2\. Uncontrolled allocations 1/ - Secondary schools 1600 1600 1600 1600 1600 8000 - University 5500 5500 5500 5500 5500 27500 Total 7100 7100 7100 7100 7100 35500 0 3\.Costsavings(2-1) 1733 1733 1800 2267 2503 10036 1/: Baseline scenario, e\.g\. 1993-94 allocations are kept over the period 4\. Estimates of the net expenditures (1997-2001) The comparison of the supported increase of public expenditures on primary education with the cost savings obtained over the past five years shows a total net expenditure of CFAF 9\.7 billion, which allowed the increase of enrollment under a very tight macroeconomic framework\. The high level of net expenditures (as compared with the CFAF 7\.0 billion estimated at appraisal) is attributable to the effect of the contractual teachers recruitnient after 1998\. -21 -  Table 4: Estimates of net expenditures (1997-2001) 1997 1998 1999 2000 2001 Total l\.Increase of public Expenditures -Teachers salaries 417\.2 417\.2 749\.5 842\.1 1078\.5 3504\.5 -Inputs (materials and supplies) 320 479 715 624 1177 3315 -Classrooms constructions 1/ 600 600 600 600 600 3000 Total 1337\.2 1496\.2 2064\.5 2066\.1 2855\.5 9819\.5 2\. Cost savings -Double shit teaching 4551\.7 927\.1 592\.8 568\.5 556\.6 7196\.7 - Teachers recruitments 35\.4 35\.4 391\.7 903\.1 926\.2 2291\.8 - Student subsides 1733 1733 18002 267 2503 10036 Total 6320\.1 2695\.5 2784\.5 3738\.6 3985\.8 19524\.5 3\. Net expenditures (1-2) -4982\.9 -1199 -720 -1672\.5 -1130\.3 -9705 1/: Estimates (Actual figures not available) -22 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 5/3/88 3 ECON, EDU, ASST 9/14/88 3 EDU, ECON (2) 2/10/89 8 EDU (2), ECON (2), PED MAT, ARCH, PLAN, ASST Appraisal/Negotiation 7/21/89 8 EDU (2), ECON (2), VOC, PED MAT, ARCH, PLAN 7/30/93 1 EDU 4/8/94 4 EDU, GIRLS, NUT, HR Supervision 10/31/95 3 ED SPEC (2) ASST S S 4/19/96 3 ED SPEC, PROG OFF, ASST S S 10/8/96 2 ED SPEC, PROG OFF S S 3/12/97 4 ED SPEC (2), PROG OFF, S S ARCH 10/14/97 2 ED SPEC, PROG OFF S S 4/30/98 2 ED SPEC, PROG OFF S S 10/13/98 5 ED SPEC PROG OFF (2) ASST S S (2) 5/10/99 1 ED SPEC S S 7/11/99 2 ED SPEC, PROG OFF S S 5/22/00 2 ED SPEC (2) S S 10/8/00 1 FIN ANAL S S 12/6/00 2 EDU SPEC, ECON S S 4/11/01 2 ECON, HLTH SPEC S S 10/10/01 3 ECON, FIN MGT, PROC S S ICR 4/16/2002 6 ECON, OPER, GIRLS, S S TXTBKS, ARCH, EDUC (b) Staff Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation NA 192,326\.00 Appraisal/Negotiation NA 192,326\.00 Supervision NA 477,825\.19 ICR NA 40,000 Total NA 902,477\.19 Total for LEN = 384,652 including trust fund monies; SPN includes Belgian Funds - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating OMacro policies O H *SUOM O N O NA Sector Policies O H *SUOM O N O NA O Physical O H *SUOM O N O NA • Financial OH OSUOM ON ONA F Institutional Development 0 H O SU *M 0 N 0 NA Oi Environmental O H OSUOM O N * NA Social O Poverty Reduction O H OSUOM O N O NA Gender OH *SUOM ON ONA G Other (Please specify) O H OSUOM O N O NA O Private sector development 0 H O SU *M 0 N 0 NA O Public sector management 0 H O SU *M 0 N 0 NA LI Other (Please specify) O H OSUOM O N O NA - 24 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating F Lending OHSOS OU OHU 0 Supervision OHS OS O U O HU 0 Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating F Preparation OHS OS O u O HU 2 Government implementation performance O HS O S 0 U 0 HU 2 Implementation agency performance OHS OS * U O HU M Overall OHS OS O u O HU - 25 -  Annex 7\. List of Supporting Documents Aides-Memoires from throughout the project (18 missions) Development Plan for Primary Education - Completion Report (Projet de Developpement de l'Enseignement Primaire - Rapport d'Achevement) Don Hollandais TF22964; October 1998\. Girls' Education Component - Completion Report (Rapport d'Achevement du Programme de\. la Cellule Technique pour la Promotion de la Scolarisation des Filles au Niger)\. Implementation Plan, Component 1, Vol\.1 (Manuel d'Execution, Composante 2, Volet 1); B\.I\.E\.S\.; September 1994\. Medium Term Financial Plan 2002-2005 (Projet de Cadre de Programmation Financiere d Moyen Terme du Secteur Education -- 2002-2005)\. Private and Community Education in Niger - Completion Report and Annexes (Etude sur le developpement de l'Enseignement Prive et Communautaire au Niger, Rapport Final (vol 1) et Annexes (vol 2)); Eric LaVendhomme, Jean-Marie Luttringer, Hamidou Soumana Diallo; July 2000\. Report and Recommendation of the President of the IDA to the Executive Directors, May 5, 1994 School Attendance Simulations and School Mapping Exercise for Dosso (Projection des Effectifs et Carte Scolaire Prospective du Departement de Dosso); INSE, September 2001\. Sector Study for the Preparation of a Development Strategy for Higher Education in Niger-Summary ( Etude Sectorielle pour la Preparation d'une Strategie de D&eeloppement de l'Enseignement Superieur au Niger-Rapport de Synthese); Paul Bachelard, September 1999\. Sector Study for the Preparation of a Development Strategy for Higher Education in Niger-Economic Analysis (Economie de l'Education dans le Systeme d'Enseignement Superieur du Niger); Joachim Lama; September 1999\. Sector Study for the Preparation of a Development Strategy for Higher Education in Niger-Academic Organization and Qualitative Aspects (Organisation Academique et Aspects Qualitatifs de l'Enseignement Superieur);Y\. Ismael, 1999\. Sector Study for the Preparation of a Development Strategy for Higher Education in Niger-University Management and Administration (Management et Administration des Universites); Mamoudou Djibo; September 1999\. Sector Study for the Preparation of a Development Strategy for Higher Education in Niger - Scholastic/Professional Orientation and Informational Organization for students (Orientation scolaire et professionnelle, et organisation de l'information des eleves et des etudiants); Idrissa Soumana; September 1999\. Study on the Management and Distribution of School Books in Niger (Etude sur la gestion et la -26-  distribution des manuels scolaires au Niger), Cabinet d'Etudes en sciences sociales et humaines, February 2000\. - 27 -  Additional Annex 8\.B orrower's Completion Report (excluding tables, too large for format) Summary in English A follow-up to the Primary Education Project (Credit 1740-NIR) the present Basic Education Sector Project (Cr\. 2618-NE) was a hybrid, so named because it contained a reform element and an investment element\. With a 29\.5% GER at the start of the project (October 1995), Niger was one of only 5 countries in the world with only 1/3 of its school-aged population having access to education\. The project lasted six years and used US$78 million\. The objectives enumerated for the Reform Section of the project are the same as in the Bank ICR\. The major conclusions regarding the reforms that grew out of the project are as follows: Although the voluntary teacher mechanism may be able to respond to a rapid demand for basic education, it may also lead to the destabilization of the school work force if teachers are not sufficiently motivated and leave the force as soon as something better becomes available to them\. Consequently a communications strategy must be developed to counteract and head off misunderstandings and tensions due to short-term transitional measures\. Regarding the Investment Section of the project, although one might consider the quantitative objectives to be effectively reached, one cannot say the same for the objectives in relationship to the quality of basic education\. Recommendations put forth in regards to this section are the following: (i) closely define the functions of Ministry personnel, particularly in light of the 10-year-plan, and offer training to eliminate current deficiencies; (ii) undertake organizational restructuring of the Ministry of Basic Education to better meet the challenges of educational reform laid out by the 10-year plan; (iii) carefully review the studies done during the current project in order to glean maximum information from them in coming up with innovative approaches for the future; (iv) give proper importance to quality by developing a monitoring unit (combining the cunrent pedagogical unit and evaluation unit) which will work with regional teams in developing programs covering research, training, knowledge sharing, and remediation; (v) ensure that Education Ministerial units (both central and peripheral) have the means and the personnel to effectively carry out their mandates\. - 28 -  REPUBLIQUE DU NIGER MINISTERE DE L'EDUCATION DE BASE DIRECTION DES PROJETS EDUCATION BP\. 11\.897 Niamey Te1\. (227) 72 35 16 (227) 72 25 26 FAX\. (227) 72 27 97 RAPPORT D'ACHEVEMENT DU PROJET SECTORIEL DE L'ENSEIGNEMIENT FONDAMENTAL (PROSEF) (RWsumk) CREDIT IDA 2618 NIR 1995 - 1996 / 2000 - 2001 Hamidou LAILABA Coordonnateur Technique et Pedagogique Niamey, le 30 Mai 2002 -29-  lIN TRODUCTION FIaisant suite au Projet de Developpement de l'Enseignement Primaire (PRODEP, 1986-1995, Credit IDA 1740 NIR), le Programme Sectoriel de l'Enseignement Fondamental (PROSEF) est un projet hybride, ainsi appele parce que combinant un Programme Sectoriel de Reforme (PSR) et un Programme Sectoriel cl'Investissement (PSI), voulu pour contribuer a la rehabilitation et au developpement du secteur education au Niger sur la periode 1995-1996/2000-2001\. Avec 29,5 % de taux brut de scolarisation au moment du demarrage du PROSEF (octobre 1995), le Niger comptait au nombre des cinq (5) pays de la planete qui parvenaient a assurer l'acces a l'institution scolaire A 1/3 a peine de leur population scolarisable\. Dans le cas specifique du Niger, il etait d'autant plus urgent d'e mettre en place un projet de l'envergure du PROSEF que la scolarisation avait amorce une dynamique de regression qu'il fallait imperativement maitriser et inverser\. En effet, parti de 3% de taux brut de scolarisation quand il accedait a l'ind6pendance en 1960, le Niger etait parvenu a porter cet indicateur a 30 %v' en 1989, apres des efforts veritablement titanesques, au vu de la masse de priorites et de defis auxquels devaient faire face les pouvoirs publics avec des ressources aussi limitees que precaires\. Mis en place pour etre partie integrante d'un Programme d'Urgence de Rehabilitation du Secteur Education (PURSE), le FROSEF en sera finalement la composante la plus visible du fait de sa taille et de son organisation qui btanche nettement d'avec l'informalisation de ce programme qui ne s'est appuye sur aucune forme de coordination\. Ainsi qu'il est donne de le constater dans l'organigramme ci-apres, la vision que l'on doit avoir de ce projet est celle d'une totalite coherente dont les parties (programmes, composantes et sous-composantes) sont organisees en un reseau dynamique de relations et d'interrelations, mediates ou immediates, voulues pour etre le cadre d'une synergie devant deboucher sur des resultats mesurables, en rapport avec les urgences et les imperatifs d'un choix strat6gique qui accorde la plus haute priorite au developpement de l'ducation de base\. Feront l'objet d'un regard particulierement attentif: (i) les mesures sectorielles de reforme envisagees pour la valorisation d'espaces de liberte oui des initiatives courageuses de gestion doivent pouvoir rationaliser l'utilisation des ressources d'education et poser les jalons de traditions de management a meme d'assurer des 6conomies devant conforter le developpement de l'education de base; (ii) la promotion de la scolarisation des files, dont la proportion dans l'enseignement de base I doit passer de 37,51% (1995-1996) a 40% en 2000-2001 ; (iii) la reduction des disparites entre la zone urbaine et la zone rurale oiu le TBS est canse passer de 21,6% a 37 % a terme echu; (iv) le relevement de la qualite de l'enseignement devant se traduire par une reduction substantielle des taux de redoublement sur l'ensemble du cycle et dans la classe terminale (CM2) ; (v) 1'expansion de l'offre en quantite et en qualite pour faire face a l'accroissement de la population scolarisable et (vi) F'amelioration des capacites institutionnelles de planification et de gestion du MEB en vue de relever les perfonnances des organes de gestion de l'education autant que de leurs animateurs\. Le PROSEF a eu une duree de vie de six (6) ans\. II a dispose d'une enveloppe de soixante dix huit (78) millions de dollars des Etats Unis\. Parvenu a terme 6chu, il doit faire l'objet d'une evaluation sommative\. II s'agira de rendre compte des resultats enregistres et des enseignements a tirer aussi bien de ces resultats que diu processus de mise en ceuvre\. - 30 -  PREMIERE PARTIE: DE L'EXECUTION DU PROGRAMME SECTORIEL DE REFORME (PSR) I\. OBJECTIFS Le Programme Sectoriel de Reforme (PSR) se compose d'un corpus de mesures destin6es A mettre en place les bases d'une gestion rationnelle des ressources d'education et A generer des economies devant etre utifisees A conforter le developpement de l'education de base d'un double point de vue quantitatif et qualitatif\. Ces mesures ont concem6 : Ia formation de 720 enseignants par an dans les ENI A raison de 15% d'instituteurs et de 85% d'instituteurs - adjoints et le recrutement de 520 d'entre eux sur la duree du projet; * I'expansion de la double vacation qui doit comprendre 1380 cohortes de 55 eleves chacune en 1996 et evoluer A raison de 1340 la premiere annee et 1380 cohortes pour chacune des annees suivantes; I'augmentation de la ligne fournitures du budget du MEB selon une progression de 80 millions de FCFA par an sur la duree du projet; * Ia reduction des bourses du superieur de 4,5 A 3,5 milliards de CFA et le mnaintien des allocations des eleves du secondaire A 1,6 milliard de FCFA; * le redeploiement de 32 professeurs d'ENI en sumombre; * Ia resiliation des contrats de 76 professeurs en poste dans le second degre; * le redeploiement de 24 enseignants du secondaire public vers le prive; * le relevement des charges horaires hebdomadaires des professeurs de college A 21 heures et de celles des professeurs de lycee a 18 heures; * Ia libralisation des tarifs de l'enseignement prive; * Ia reforme des programnes des ENI et la reduction de la duree de la formation dans ces etablissements A un (1) an pour les instituteurs et A deux (2) ans pour les instituteurs - adjoints; * la transformation de la Faculte de Pedagogie en Ecole Normale Superieure en vue d'une collaboration systematique de cet 6tablissement avec le MEB\. H\. RESULTATS L'ensemble de ces mesures ont et executees\. On soulignera que les initiatives prises en matiere de recrutement sont meme allees au-delA des objectifs du Programme Sectoriel de Reforme\. En effet, outre le recrutement de 2538 enseignants par l'Etat sur fonds propres pour un objectif de 2600, la creation du volontariat pour l'education A la rentree de 1998 a permis de recruter 791 VE en 1998, 2005 VE en 1999 et 2047 VE en 2000, soit un total de 4843 formateurs de ce\. statut\. Les VE per,oivent chacun un pecule de 35\.000 FCFA par mois\. Le recrutement des enseignants titulaires (2538) s'est fait selon une quotite de 17,88 % d'instituteurs et de 82,12% d'instituteurs - adjoints\. La creation du volontariat a permis de realiser une economie de 1\.818\.679\.000 FCFA sur les charges salariales\. Quant a l'expansion du double flux (pratique jusqu'au CE2 dans tous les etablissements publics des centres urbains), elle a permis d'economiser 3\.180\.017\.300 FCFA en charges salariales et 4\.204\.817\.300 FCFA en infrastructures et equipements, soit un total de 7\.204\.817\.300 FCFA\. Le double flux a compte respectivement pour 2,78 %, 5,32%, 5,54%, 5,20%, 4,83% et 4,56% dans la formation du TBS en 95/96, 96/97, 97/98, 98/99, 99/00 et -31 -  00/01\. III\. RECOMMANDATIONS Autant le volontariat constitue un facteur en mesure d'assurer un developpement prodigieux de I'education de base, autant il represente potentiellement un facteur de destabilisation dont il convient de desamorcer la capacite d'entropie\. Cela reviendra A assurer au volontaire la possibilite d'acceder au mieux-etre qu'il pourrait etre tent; de rechercher dans d'autres secteurs que I'education si I'avenir lui offrait de meilleures perspectives d'emploi\. L'experience demontre que les mesures de reforme visant a rationaliser la gestion des ressources I'education et A degager des economies entrainent generalement une levee de boucliers\. II est demontre avec la creation du volontariat et l'impact d'une etude comme Contraintes et espaces de liberte pour le developpement en quantite et en qualite de l'education au Niger (A\. Mingat et al\., 1999) que la pertinence des initiatives de communication strategique et des arguments peuvent opportunement prevenir les tensions que suscitent g6n6ralement ces mesures\. La strategie du partenariat et celle consistant A renforcer la capacite de jugement des acteurs et partenaires de l'education sur la base d'analyses exhaustives est manifestement porteuse\. II est souhaitable que le management du programme decennal s'en inspire\. DEUXIEME PARTIE: DE L'EXECUTION DU PROGRAMME SECTORIEL D'INVESTISSEMENT (PSI) Ce programme se decline en deux composantes qui sont (i) l'amrlioration de l'accessibilite et de la qualite de l'enseignement de base I et (ii) le renforcement des capacites institutionnelles de planification et de gestion du MEB\. I\. DE L'AMELIORATION DE L'ACCES AU CYCLE DE BASE I ET DE SA QUALITE 1\. Objectifs et modalit6s de mise en euvre de la composante L'am6lioration de l'acces au Cycle de Base I et de la qualite de 1'enseignement qui y est dispense est en continuite avec des activites essentielles du Projet de Developpement de l'Enseignement Primaire (PRODEP) auquel a succede le PROSEF\. En la matiere, le PRODEP avait deja jete les bases de cette composante en developpant une strategie d'amrlioration de l'accessibilite physique des infrastrctures scolaires couplee avec une strategie d'amelioration de l'accessibilit6 culturelle et economique des ouvrages scolaires\. C'est a ce double titre que furent construites 982 salles de classe neuves dans le cadre du PRODEP qui confia par ailleurs A l'INDRAP le soin de reactualiser les programmes scolaires et la redaction des manuels de l'enseignement primaire et du premier cycle de 1'enseignement secondaire\. Ces activites furent completees par des actions ayant interesse la formnation des formateurs, la formation des formateurs de formateurs, la gestion des ecoles, des personnels et du materiel\. Un programme d'informatisation fut egalement mis en place en vue du renforcement des capacites de gestion\. Projet sectonel hybride compose d'un programme structurel de reforme et d'un programme structurel d'investissement, le PROSEF a le plus significativement interesse l'enseignement primaire en faveur duquel devaient etre confortes les acquis du PRODEP et developpees de nouvelles strategies aussi bien en matiere ,de reforme structurelle, d'amrlioration de l'acces et de la qualite qu'en matiere d'amelioration de l'efficacite de la planification et de la gestion sectorielles decentralisees\. Le PSR se presente comme un ensemble de mesures que l'on peut considerer comme le socle necessaire sur lequel s'appuie le PSI\. Quels sont les resultats obtenus ? - 32 -  2\. Les resultats globaux Tableau I Profil des resultats de la composante amelioration de l'acces au cycle de base I et de sa qualite (see supporting documents) 3\. Conclusion et perspectives Si les objectifs de developpement quantitatif ont et atteints, on ne peut nullement en dire de meme de ceux relatifs A l'amelioration de la qualite de l'enseignement\. II importe de souligner que c'est essentiellement le croit de la scolarisation en milieu rural , et tout particulierement de la scolarisation des filles , qui a tire la croissance des effectifs\. Trois regions sont tout particulierement a la base des progres enregistres\. II s'agit de Maradi, Tahoua et Dosso\. La sensibilisation etant un aspect necessaire de la promotion de la scolarisation, il importe de s'employer A identifier le sesame qui a permis A ces regions de parvenir a ce resultat, sans perdre de vue que la promotion de la scolarisation demeure un tout comprenant la communication strategique, les infrastructures, les equipements, les formateurs, les intrants p6dagogiques et l'attrait de la scolarisation , cette demiere variable renvoyant essentiellement A la pertinence des programmes\. Pour ameliorer la qualite de 1'enseignement, le programme d6cennal devra compter la reforme des curricula et de la formation des enseignants et l'accessibilit6 des intrants pelagogiques au nombre de ses chantiers prioritaires\. I\. DU RENFORCEMENT DES CAPACITES INSTITUTIONNELLES DE PLANIFICATION ET DE GESTION 1\. Objectifs et modalit6s de mise en oeuvre Etant donne la modicite des ressources d'education, il s'est agi ici d'assurer au MEB I'aide devant lui permettre d'en assurer la gestion selon le meilleur rapport cout/efficacite; d'une part en renforcant les capacites des structures de la portion centrale et, d'autre part, en amelioration les capacites de planification et de gestion des structures deconcentrees\. On ne peut envisager un developpement quantitatif et qualitatif durable de l'education sans une veritable synergie entre ces deux espaces d'initiative et d'action\. L'aide a essentiellement concemr l'amelioration de la gestion et la planification de l'enseignement, avec pour objectif axial le renforcement des capacites de la Direction des Etudes et de la Prograrnmation (DEP) a planifier, suivre et animer le developpement de l'enseignement\. Pour ce faire, la structure a beneficie de l'appui n6cessaire en matiere de mise en place de capacit6s nationales, aussi bien au niveau central que p6ripherique, pour (i) assurer la collecte de l'information et la publication reguliere de l'annuaire statistique, (ii) assurer la tenue A jour de la carte scolaire et (iii) catalyser I'emergence d'une authentique valeur ajout6e et d'une synergie devant assurer la gestion la plus efficiente possible du developpement du systeme educatif, des personnels, des ressources materielles et financieres et de 1'ensemble du patrimoine d'education\. La DEP est invit6e a developper A cette fin des initiatives d'orientation, de formation et d'information a l'adresse et au benefice, de ses personnels , des autres directions centrales et des structures decentralisees dans les domaines de la coilecte et de l'analyse des donnees, de la mautrise des statistiques de base, comme de l'analyse des politiques sectorielles\. L' enseignement prive est partie prenante A ce programme\. Une etude sur ce sous-secteur et - 33 -  1'enseignement communautaire a e realisee et des perspectives de developpement assorties de plans d'action ont ete proposees\. Une autre 6tude a &6 realis&e pour la definition d'une strategie de developpement de 1'enseignement superieur\. Pour soutenir ce processus, un programme d'informatisation pilote par le Service Central Infonnatique a et lance qui a considerablement am6liore la gestion des bourses, des personnels, des e1lves et etudiants\. Son extension est envisagee pour comprendre la gestion des donnees et du patrimoine d'education\. Pour leur permettre de s'engager dans cette dynamique avec un maximum d'atouts, differents services du MEB ont beneficie d'un appui en infrastructures et mobilier, materiel roulant, materiel informatique, materiel de reprographie et en carburant\. Ainsi: - 47 vehicules neufs ont e livres A un nombre egal d'inspections; - 2 vehicules de seconde main (patrimoine PRODEP) ont ete livres A deux (2) autres inspections; - 5 vehicules neufs ont et6 mis a la disposition de la DEP, de la DEPRI, de la DEBI, de la DEP et de la DAF; - 2 ordinateurs ont ete mis a la disposition de la DEP et de la DEPRI; - 10 nouvelles inspections ont ete construites et eguipees\. Plusieurs formations ont et assurees: - statistique (agents de la DEP et partenaires des structures decentralisees); - carte scolaire (agents de la DEP et partenaires des structures decentralisees); - informatique (SCI, Directeurs centraux, agents des services informatiques des DRE)\. Tableau 2 Etat des ressources allou6es A l'execution de la sous-composante Renforcement des capacites institutionnelles de planification et de gestion Composante S/composantes Ressources consomrnees Renforcement des capacites Institutionnelles de planification et de gestion du MEB Arn6lioration de l'efficacit6 de la planification et de la gestion d6centranise \.1\.262\.649\.597 Elaboration d'une strategie de d6veloppement de l'enseignement sup6rieur \. 249\.679\.376 Gestiondu PROSEF \. 1015124368 Renforcement des capacites de gestion et evaluation des programmes \.1475300966 Etude sur 1'enseignement comnmunautaire et I'enseignement prive \. 59\.672\.000 - 34 -  Total \. 4\.062\.426\.307 FCFA 2\. Resultats L'execution de cette composante a particulierement pernis de developper les capacites du MEB dans quatre (4) domaines essentiels de la gestion de l'&ducation: (i) le suivi regulier des indicateurs d'offre et de perfornance ; (ii) le developpement d'une capacite reelle d'elaboration et d'execution d'activites de carte scolaire ; (iii) la formation d'agents de la portion centrale et des structures deconcentrees et (iv) la maitrise de l'outil informatique cormne instrument d'amelioration de la gestion des persomnels, des elves, des bourses et du patrimoine d'education\. Le premier e1lment a pernis des la deuxieme annee du projet la publication reguliere de I'annuaire des statistiques scolaires qui avait cesse de paraitre au cours des annees 80\. Le deuxieme element a permis le developpement d'une carte scolaire prospective dans la region de Dosso, activite qui permet desormais a la Direction des Etudes et de la Programmation et a ses demembrements d'envisager avec serenite la generalisation de cette approche irremplacable de planification aux autres regions du pays\. Le troisieme element a permis de doter le MEB de ressources humaines operationnelles maitrisant des aspects varies de la gestion de l'education\. Enfin, le quatrieme element repr6sente un acquis en matiere de maitrise des effectifs autant que de gestion des ressources d'education\. Renforces et demultiplies, I'ensemble de ces acquis, qui assurent deja des gains substantiels d'efficacite devraient pouvoir permettre au MEB de disposer des personnels necessaires i l'execution du programme decennal\. 3\. Recommandations * identifier avec la plus extreme minutie les fonctions qui devront conforter et developper les acquis actuels et proceder a breve echeance a la mise en formation des competences additionnelles qui permettront au MEB de faire face aux echeances a venir, et tout particulierement a la mise en ceuvre du programme decennal; * proceder aux r6formes de structures qui devront permettre au MEB de se doter du potentiel institutionnel qui lui sera necessaire pour entreprendre avec un maximum de chances de reussite la refondation du systeme educatif compte tenu des objectifs assignes au programme decennal d'un double point de vue qualitatif et quantitatif; * questionner, avec une attention soutenue, les etudes r6alis6es dans le cadre du PROSEF en vue de la valorisation du potentiel de novation et d'innovation dont recele bon nombre d'entre elles; * marquer tres nettement l'importance accordee a l'amelioration de l'efficacite inteme du systeme educatif par la creation d'un observatoire de la qualite de l'enseignement a envisager sous la forme d'une structure issue d'une fusion de l'ENPM et de la Cellule Evaluation collaborant avec des antennes implantees au sein des ENI pour composer un cadre de partenariat planifiant et executant des programmes de recherche, de formation, d'information et de remediation; * doter les services du MEB (portion centrale et d6membrements ) de moyens de travail en mesure de conduire a l'optimisation de leur rendement ainsi que des personnels qui les animent\. - 35 -     IIMIkINLU Report No\.: 24311 Type: ICR

REVIEW

P004534

Document of The World Bank FOR OFFICIAL USE ONLY Report No\.:17651 PERFORMANCE AUDIT REPORT PHILIPPINES ENERGY SECTOR PROJECT (LOANS 3163-PH, 3164-PH, 3165-PH) April 3, 1998 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Currency Equivalents (annual averages) Currency Unit = Philippine Peso (P) P1\.00 = 100 Centavos (ctv\.) US$1\.00 = 121\.5 (end-July 1989) US$1\.00 = P262 (end-Dec\. 1995) US$1\.00 = P26\.3 (end-Dec\. 1996) Weights and Measures kWh Kilowatt-hour (1,000 watt-hours) MW Megawatt (1,000 kilowatts) GWh Gigawatt-hours (million kilowatt-hours) Fiscal Year Government: January 1-December 31 Abbreviations and Acronyms ADB Asian Development Bank BOT build-own-transfer DOE Department of Energy EMB Environmental Management Bureau ERB Energy Regulatory Board FCDS fluid collection and disposal system GOP Government of the Philippines IBRD International Bank for Reconstruction and Development IPP independent power producer JEXIM Export Import Bank of Japan NEA National Electrification Administration NPC National Power Corporation OEA Office of Energy Affairs OED Operations Evaluation Department PAR Performance Audit Report PNOC Philippine National Oil Company PNOC-EDC PNOC-Energy Development Corporation PPA power purchase agreement REC rural electricity cooperative SAR Staff Appraisal Report Director-General, Operations Evaluation Mr\. Robert Picciotto Director, Operations Evaluation Dept\. : Ms\. Elizabeth McAllister Acting Manager, Sector and Thematic Evaluations Group Mr\. Roger Slade Task Manager : Mr\. Alain Barbu FOR OFFICIAL USE ONLY The World Bank Washington, D\.C\. 20433 U\.S\.A\. Office of the Director-General Operations Evaluation April 3, 1998 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Philippines Energy Sector Project (Loans 3163-PH, 3164-PH, 3165-PH) Attached is the Performance Audit Report prepared by the Operations Evaluation Department (OED) on the above project, which was supported by Loans 3163-PH (to the National Power Corporation), 3164-PH (to the Philippines National Oil Company), and 3165-PH (to the government) for a total of US$390 million equivalent\. The loans were approved in FY90 and closed in June 1995, December 1995, and April 1996, respectively 6 months, one year, and 16 months behind schedule\. A total of US$19\.4 million was canceled\. Cofinancing of US$150 million was provided by the Export Import Bank of Japan\. The objectives of the project were to (a) develop a sector-wide capability to plan energy resource development and coordinate policy implementation; (b) adopt least-cost development strategies for energy subsectors; (c) strengthen regulatory activities in order to rationalize consumer energy prices and improve product standards and the quality of service; (d) encourage private sector participation in the energy sector through joint ventures and other schemes; (e) improve environmental standards and monitoring in areas of high energy use or resource development; and (f) enhance the technical capabilities of sector institutions, particularly the Office of Energy Affairs (OEA), the Energy Regulatory Board (ERB), and the Environmental Management Bureau (EMB)\. The loans were to help finance a time-slice of the sectoral investment program, with specific items to be determined and agreed with the Bank during project implementation\. The project's objectives were wide-ranging and involved the participation of seven entities, including one outside the energy sector\. The objectives were generally relevant, but despite a looming power shortage (which materialized in 1991), they missed a most critical one, i\.e\. to ensure an adequate power supply to support economic recovery\. The loans financed a diverse mix of investments (a generation plant, power distribution equipment, geothermal drilling, refinery upgrading, spare parts, civil works equipment) and working capital\. Project start up took place amid a major power crisis to which the government responded by negotiating with private investors a series of fast-track build-own-transfer projects (resulting in additional capacity of 1,300MW by 1994)\. Achievement of the project's physical objectives was mixed\. The National Power Corporation's (NPC) main component-the Paliminon 80MW geothermal plant-was completed two years late at a 30 percent cost overrun (other items financed by the Bank loan included fuel, spare parts, and transmission lines)\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. 2 The loan to the Philippines National Oil Company (PNOC) financed the drilling of geothermal steam wells, a steam gathering system, and a large stock of drilling materials and civil works equipment\. Of the 38 wells drilled, only 13 are useable for production or reinjection\. Moreover, the firm production capacity gained by PNOC as result of the component is about one fourth of what was anticipated at appraisal\. The other components (Petron's refinery upgrading investments for US$20 million and the National Electrification Administration's (NEA) investments in power distribution equipment for US$40 million) were completed satisfactorily\. The project's stated institutional objectives were only partially achieved\. The project failed to strengthen the Department of Energy's technical capability to plan resource development and coordinate policy implementation\. Despite support from the project, ERB remains overstretched and lacks financial autonomy\. The institution-building impact of the project on NEA was modest-its loan portfolio management systems remain weak\. On the other hand, the project's provision of equipment and logistical support to EMB substantially strengthened the board's operational capacity\. But, most important, the project clearly failed to put the power sector on a financially sustainable footing: NPC's finances are still very fragile, and estimated 1997 internal cash generation was negative, in contravention of loan covenants\. NPC is already over-indebted and urgently needs a substantial equity injection and/or debt relief\. Furthermore, it faces paying very large penalties to several independent power producers for unused power (the result of delays in NPC's completion of major transmission lines)\. The audit rates overall project outcome as marginally unsatisfactory (instead of satisfactory in the ICR) because the physical and institutional benefits directly attributable to the project were both substantially less than projected at appraisal and seriously delayed\. In light of the above shortcomings, the project's institutional development impact is rated as modest (substantial in the ICR)--there is no evidence that the government's success in attracting private capital to invest in power generation can be attributed to this project, or to the Bafik's overall involvement in the sector\. Sustainability is rated as uncertain (likely in the ICR), given NPC's precarious finances\. The Bank's project-related performance through loan closing (end-1995) is rated as unsatisfactory owing to the project's design weaknesses, gaps in the project's appraisal, uneven quality of supervision, and weak enforcement of financial covenants\. Broader Bank performance, particularly relating to the policy dialogue on sector restructuring in the closing stages of this project and during implementation of subsequent operations, was satisfactory\. Two lessons can be extracted from this project\. First, it is unrealistic to expect power projects developed with private funds to be "least-cost" in the traditional sense (the additional cost over the hypothetical "least-cost" alternative is the price to pay for mobilizing resources that would otherwise not be available to the sector)\. Second, there are no shortcuts to a successful "sectoral" lending operation; success requires (a) very substantial inputs of Bank resources; (b) broad staff skill mixes for project design, appraisal, and supervision; (c) application of normal project appraisal standards to all project beneficiaries and components; (d) true synergies among major components and subloans; and (e) clearly defined processes and criteria for joint reviews and Bank approval of investment proposals to be funded by the loan but not defined at appraisal\. Attachment Contents Ratings and Responsibilities \. \. 3 Preface\. \. 5 1\. Background \. \.7 2\. Project Objectives, Design, and Quality at Entry\. \.8 One Project or Three?\.9 Choice of Loan Covenants\. \.9 Choice of Subprojects for Bank Financing\. \.10 Assessment of Implementation Capacity\.10 Assessment of Environmental Impact\.10 Assessment of Project Risks\.10 3\. Project Implementation\.12 Summary of Project-Funded Components\.12 Geothermal Energy Development by PNOC (Ln\. 3164)\. 12 Petron Oil Refining Component\. 14 Institutional Strengthening of Sector Utilities (Ln\. 3165) \.14 4\. Key Issues \. \. \.8\. NPC's Financial Difficulties\. \.18 Power Shortages: A Failure of Planning or of Decisionmaking \. \. 19 Powne Sector Planning \. \. \. \.20 NPC's Restructuring \. 21 Other Sectoral Issues (n\. 3\.65)\. \.22 5\. Bank and Borrower Performance\.24 Bank Performance \. \. \.24 Borrower Performance\.25 Overall Project Assessment and Ratings\.25 6\. Conclusions and Lessons Learned \. \.27 Current Sector Status \.27 Lessonsr\. \. \. \. \. \. \.28 Annexes A\. Basic Data Sheet\.29 B\. Tables: 1\. Loan363toNPC \. \.38 2\. Loan 364 to PNOC \.38 3\. Loan365 to GOP \. \. 39 4\. NPC Monitoring Indicators \.40 C\. Comments from the Borrower \.43 This report was prepared by Messrs\. Alain Barbu (Task Manager) and Sunil Mathrani (Consultant)\.  3 PRINCIPAL RATINGS Loans 3163-PH 3164-PH, 3165-PH Audit ICR Outcome Marginally unsatisfactory Satisfactory Sustainability Uncertain Likely Institutional Development Modest Substantial Bank Performance Unsatisfactory Satisfactory Borrower Performance Unsatisfactory Satisfactory KEY STAFF RESPONSIBLE Loans 3163-PH, 3164-PH, 3165-PH Task Manager Division Chief Country Director Appraisal H\. Razavi I\. Sud G\. Kaji Midterm C\. Fernandez V\. Nayar C\. Madavo Completion J\. Irving J\. Shivakumar C\. Madavo  5 Preface This is a Performance Audit Report (PAR) on the Philippines Energy Sector Project for which the World Bank approved three loans (3163-PH, 3164-PH, 3165-PH), a total amount of US$390 million, on February 1, 1990\. The original closing date of December 31, 1994, was extended until April 30, 1996\. A total undisbursed balance of US$19\.4 million was canceled\. This report is based on the Implementation Completion Report (ICR) prepared by the East Asia and Pacific Region, issued on May 23, 1996, the Staff Appraisal Report, loan documents, project files, and discussions with Bank staff\. An Operations Evaluation Department (OED) mission visited the Philippines in May 1997 to discuss the effectiveness of the Bank's assistance with the government and the various project implementing agencies\. The cooperation and assistance of government officials and PNOC, NPC, EMB, ERB, and NEA management and staff are gratefully acknowledged\. Following standard OED procedures, the draft of this PAR was sent to the Borrowers for comments before finalization\. All comments received are included in Annex C\.  7 1\. Background 1\.1 The economic and political crises in the Philippines during the early 1980s, when the economy shrank, were followed by recovery during 1986-89, when annual growth rose to an average 5\.5 percent\. The energy sector was ill prepared to cope with the surge in demand brought about by higher economic growth\. Its investment program had been cut sharply and in 1986 was only a third of its 1979 level (in constant price terms)\. The Bank limited its lending for the energy sector from the mid-i 970s to the late 1980s to small petroleum and geothermal exploration operations, and it conducted no dialogue on policy issues\. After the fall of the Marcos regime in 1986, the new government's decision to mothball the nearly completed 620MW nuclear power plant and to abolish the Ministry of Energy added to the energy sector's problems\. No new generating plant came into service on Luzon between 1984 and 1989, leaving the National Power Corporation (NPC) in a weak position to respond to growing demand resulting from the economic recovery\. The early 1990s saw severe power shortages throughout the country\. The Bank conservatively estimated the annual economic losses to the Philippines during this period to have been US$600-800 million\.' 1\.2 In 1988, the Bank conducted a major review of the sector\.! That review provided the framework for the 1989 Energy Sector Project, the subject of this Audit Report\. Since the sector study-over eight years from 1988 to 1996-the Bank has lent large sums to energy projects in the Philippines: it committed almost $1\.5 billion dollars to nine operations (incl\. this one), more than to any other sector\. Since 1982, the Bank has lent a total of US$879 million to NPC and US$377 million to the Philippines National Oil Company (PNOC)\. 1\. Using US$0\.5/kWh as the cost of unserved energy\. 2\. Philippines Energy Sector Study, Report No\. 7269-PH, September 1988\. 8 2\. Project Objectives, Design, and Quality at Entry 2\.1 According to the Staff Appraisal Report (SAR), the Energy Sector Project grew directly out of the Energy Sector Study\. Discussions of this report had resulted in agreement between the government of the Philippines (GOP) and the Bank on a development strategy for the sector\. The project was therefore designed to help the government implement the agreed strategy and to help finance a time-slice of the 1989-93 sectoral investment program\. Specifically, the project sought to: (a) develop a sector-wide capability to plan the development of energy resources and coordinate policy implementation; (b) adopt least-cost development strategies for energy subsectors; (c) strengthen regulatory activities in order to rationalize consumer energy prices and improve product standards and the quality of service; (d) encourage private sector participation in the energy sector through joint ventures and other schemes; (e) improve environmental standards and monitoring in areas of high energy use or resource development; and (f) enhance the technical capabilities of sector institutions, particularly the Office of Energy Affairs (OEA), the Energy Regulatory Board (ERB), and the Environmental Management Bureau (EMB)\. 2\.2 The project's objectives were wide-ranging and generally relevant\. Despite a looming power shortage, however, they missed a most critical objective, i\.e\. to ensure an adequate power supply to support economic recovery\. The project's measures to reinforce the OEA were too modest, even though the need for an effective planning and coordinating agency with authority over energy entities (resulting from the abolition of the Ministry of Energy) had been rightly identified\. The lack of a Ministry of Energy undoubtedly contributed to the costly delay in taking action to solve the power crisis that hit the Philippines in the early 1990s\. The project also should have been more ambitious regarding reform of NPC's finances, given the diagnosis carried out by the sector study less than a year before project preappraisal\. 2\.3 Achieving objective (a) above required a satisfactory institutional framework for the sector, which was lacking due to the ineffectual arrangements to replace the Ministry of Energy\. In a major lending operation such as this, more substantial measures should have been included to address this shortcoming\. Objective (b) reflected a perennial Bank preoccupation that rapidly turned out to be irrelevant under the circumstances prevailing in the largest energy subsector, power\. Least-cost power system planning is predicated upon the existence of a "normal" system where supply and demand are in balance and reserve capacity is adequate to cover unforeseen outages and demand growth until the commissioning of new plant\. In the Philippines power sector in the late 1980s and early 1990s these conditions clearly did not prevail; the selection of new generation investments ultimately depended upon the speed with which projects could be put on line\. Objective (d) was highly relevant and desirable and has succeeded far beyond the 9 expectations of GOP and the Bank\. However, the project contained little in the way of conditionality or financing to promote this objective\. One Project or Three? 2\.4 The project design was unusual\. It consisted of three separate loans packaged together in a single "project," even though the subprojects were not interlinked\. The project designers and appraisers felt this was a way to combat the fragmentation in the energy sector at that time\. They saw it as responding to the need to bring the different entities together to take an overall view of the sector's development, particularly in the absence of a Ministry of Energy and the noticeable lack of coordination and collaboration between NPC and PNOC over geothermal development and steam pricing\. Only a single SAR was prepared and its coverage of the borrowers was limited\. 2\.5 The decision to produce a single SAR with limited coverage of the project entities was presumably justified by the availability of the recently completed sector study and the desire to keep loan processing costs down\. In hindsight this decision clearly led to insufficiently thorough scrutiny of the borrowing entities, particularly NPC\. The SAR did not contain any financial analysis of NPC or PNOC\.' Had NPC's finances been fully reviewed at appraisal, its negative internal cash generation may have come to light then, rather than when the government had to bail out the company in early 1991 (para\. 4\.1)\. Choice of Loan Covenants 2\.6 The loan conditions were overwhelmingly "boiler plate," and few policy reforms were covenanted\. Yet the sector report that preceded the loan contained an excellent analysis of the sector and had numerous recommendations that could have been incorporated in loan conditionality\.4 The choice of financial covenants for NPC was inappropriate because Bank staff already knew from the preceding sector study that an 8 percent rate of return on assets was insufficient to generate adequate cash to meet the local component of NPC's investment program\. In these circumstances, it would have been more appropriate to aim for an internal cash generation target, as the Asian Development Bank (ADB) did in its loans to NPC\.' Neither did the loan covenant a debt-to-equity ratio for NPC, although this also would have been appropriate\. 2\.7 Although the sector study highlighted the difficulty NPC was likely to face in raising adequate local resources to cover its share of the very large 1989-93 investment program (US$2\.7 billion), the project did not address this issue\. Even when earning the maximum allowable 10 percent return on revalued assets, NPC could not generate sufficient cash internally to meet its local cost funding needs\. At the time, NPC could not borrow long-term on the local capital market\. The sector study therefore correctly recommended that the government help NPC to float long-term (peso) debt while also increasing its own equity in NPC\. These proposals 3\. The SAR also did not provide a balance sheet or income statement for these borrowers\. 4\. For example, reform of the royalty structure for geothermal steam development (see para\. 4\.17)\. 5\. However, because NPC's charter limits it to a 10 percent rate of return, meeting a 20 percent internal cash generation covenant like ADB's might have been impossible because it could have led to a rate of return higher than the 10 percent ceiling\. 10 should have been incorporated in the project's loan conditions\. The failure to address this problem was a major contributory factor to NPC's financial collapse in 1991 (para\. 4\.1)\. Choice of Subprojects for Bank Financing 2\.8 The sector study was very explicit about the looming power shortages,' but the SAR did not treat the problem adequately\. It is difficult to explain why the NPC did not use the Bank's loan for the urgently needed gas turbines rather than for generation plants with longer gestation periods\. The items to be financed by the Bank were not irrevocably determined at appraisal, and the loan agreement permitted a very wide range of eligible project components\. The list of items to be financed by the Bank was to be agreed annually with NPC based on the availability of other funding and related procurement constraints\. The Bank and NPC should have focused their efforts on averting or rapidly mitigating the power supply problem by allocating the loan funds to the highest priority investments, but they did not do so\. Assessment of Implementation Capacity 2\.9 Despite the participation of seven project entities (including one outside the energy sector), some of which had no prior experience of Bank projects, the appraisal team concluded that the project required no special implementation arrangements\. All the executing agencies were assessed as having adequate implementation capacity to carry out the project\. This proved not to be the case, particularly with NPC, which encountered considerable difficulties with bid evaluation, contract award, acquisition of rights of way, etc\.,' leading to major delays and significant cost overruns (para\. 3\.2)\. Assessment of Environmental Impact 2\.10 Because the exact list of Bank-funded subprojects was not fixed at appraisal, the SAR could not provide an environmental impact summary\. According to the SAR\., environmental impact assessments were to be prepared for each subproject for review by both EMB and the Bank\. OED found little evidence in the project files of such reviews by Bank environmental staff\. For projects of this sort, it is good practice for the Bank to require a sector impact study at an early stage to identify the issues and mitigatory measures associated with the options (fuel and plant study) retained in the strategic plan\. Assessment of Project Risks 2\.11 The assessment of risks in the SAR was weak in several areas\. In particular the lack of a technical, financial or economic evaluation of PNOC's geothermal exploration program in the SAR meant that the geological and financial risks PNOC faced were glossed over\. This was 6\. The sector study (Executive Summary, para\. 36) says: "In the short-run (1989-90) the power sector will face a shortage of capacity due to the rapid recovery of electricity demand, mothballing of the nuclear plant and the downgrading of the [existing] geothermal plant\." 7\. These problems also beset the Bacon-Manito Geothermal Power Project (Ln\. 2969-PH), which was concurrently implemented with the Energy Sector Project\. The experience with the Bank's follow-on projects (Leyte geothermal development; ongoing), which incorporated project implementation units and specifically nominated project directors, shows them to be still unresolved today, despite these additional design features\. 11 probably due to PNOC's high success rate until then, which led the Bank to over-optimism\. The geothermal prospects on Luzon turned out to be highly disappointing, and the results on other islands were mixed\. About half the wells drilled under the project have no prospect of being used for geothermal production\. Other Bank-financed drilling under a parallel project on Luzon was also unproductive\. With hindsight, the contribution of geothermal energy to increased power production in Luzon appears to have been greatly overestimated\. 2\.12 The Bank's appraisal completely failed to identify the risks arising from NPC's precarious financial situation or to acknowledge the difficulty NPC was likely to face in generating resources internally to finance its share of a very large investment program\. 2\.13 The SAR mentioned the risk of difficulties in project implementation, but it did not anticipate or acknowledge the extent of problems the projects under NPC's responsibility were likely to encounter\. 12 3\. Project Implementation 3\.1 Because the specific components to be financed by the Bank were not determined at appraisal, the Implementation Completion Report (ICR) should have contained a more complete description of what was actually financed and the costs and benefits of these components\. (The ICR offered no economic analysis of the very substantial geothermal investments by PNOC\.) Hence, this section contains descriptive material normally provided in an ICR\. Summary of Project-Funded Components 3\.2 The project financed a diverse mix of investments and working capital, as shown in Annex B Tables 1-3\. For NPC, the largest single subproject was the construction of the Palimpinon 80MW geothermal power plant\. This plant was commissioned two years late and cost US$105 million, 30 percent more than the original estimate, partly because of unforeseen soil problems affecting the foundations and to appreciation of the Yen\. The cost of this plant (more than US$1,300/kW) is also much higher than the Bank-financed 110MW Bacman I geothermal plant (US$980/kW) that was completed shortly before Palimpinon\. Other items funded by the loan to NPC included US$38 million of fuel for power stations, US$29 million for spare parts, and US$19 million for transmission lines\. The fuel and spare parts together represent a substantial injection of working capital to NPC\. 3\.3 The loan to PNOC-Energy Development Corporation (EDC) financed the drilling of38 geothermal steam wells, a steam gathering system, and a large stock of drilling materials and civil works equipment, together totaling US$118 million\. Again, the Bank loan was used to finance a significant increase in working capital\. Petron's US$20 million share of the loan was spent on investments to improve LPG output and diesel quality from the Bataan refinery\. 3\.4 The largest part of the US$40 million loan to GOP was passed on as an equity contribution' to the National Electrification Administration (NEA), which spent US$16 million on power distribution investments in many locations throughout the country\. The three non- revenue earning beneficiaries essentially used their allocations from the loan to purchase office equipment, studies, technical assistance, and training, amounting to US$13 million\. Over 20 percent of the loan was not used, partly because of difficulties in raising counterpart funds\. The counterpart funding shortage for institutional development was a recurrent theme throughout implementation and was indicative of weak GOP commitment to the institutional strengthening component of the project\. Geothermal Energy Development by PNOC (Ln\. 3164) 3\.5 Of the US$150 million lent to PNOC, US$133 million was earmarked for geothermal investments\. The project envisaged a large program of investments: 76 wells, fluid collection and disposal systems (FCDS) for 380MW of power plant, and consultancy services for geothermal resource assessment and engineering\. Given the size of the program and the high average cost of 8\. The necessary legislation increasing NEA's capitalization by the amount of the IBRD loan had still not been passed by Congress more than a year after the final loan closing date\. 13 wells (more than US$1\.5 million each), this allocation was inadequate\.' Unsurprisingly, implementation fell far short of these targets; only 38 wells were drilled, and 40MW of FCDS capacity installed\. Loan disbursements (US$118 million) were also below expectations because US$15 million was reallocated to, but not fully used by, Petron (para\. 3\.12)\. 3\.6 Neither the SAR nor the ICR offers a technical, economic, or financial evaluation of PNOC's geothermal exploration program\. The drilling program undertaken was very different from that expected at appraisal\. The 76 wells to be drilled were divided across six different areas in Luzon\. Only six wells were eventually drilled in Luzon, three for exploration in Mount Labo and three for production and reinjection as part of the Bacman II project\. Exploration in Northern Negros, where four wells were drilled, and in Mount Labo (Luzon) was also unfruitful\. Twenty- eight wells were drilled on Leyte, which did not figure as one of the six areas identified at appraisal\. At that time, the Leyte-Luzon and Leyte-Cebu electrical grid interconnections had not been adequately studied to justify concentrating more drilling effort on Leyte, particularly as the area's potential was already relatively well known\. However, as Luzon's geothermal potential did not live up to initial expectations,"o PNOC correctly refocused its drilling program to Leyte once it was clear that NPC was also committed to developing the geothermal potential of the Greater Tongonan area on Leyte for power generation\. 3\.7 PNOC drilled in several locations on Leyte, some of them exploratory in nature, such as in the Alto Peak area\. Here the Bank financed the first 6 of 10 wells drilled by PNOC before it abandoned the area\. The encouraging result of a 20MW output from the second well was the principal reason for PNOC's unwillingness to abandon the area sooner, as advised by Bank staff\. The remote location and difficult access mean that it is not viable to develop the resource for just 20MW of power output\. Most of the Bank-funded wells (20) were concentrated in the Greater Tongonan area; 10 of these will serve as production or reinjection wells for the Bank-funded follow-on Leyte-Luzon and Leyte-Cebu geothermal power projects\. Seven wells are unusable and the remaining three are reserve or re-entry wells\. 3\.8 In summary, of38 wells drilled, 13 are useable for production or reinjection\." The firm production capacity gained by PNOC as result of the project is about 100MW, rather than the 380MW projected at appraisal\. Of this new capacity, only 20MW is actually in production (one unit of the Bacman II power plant), due to delays in completing NPC's portion of the Leyte geothermal project (para\. 4\.15)\. 3\.9 OE1D also found that PNOC used the Bank loan to purchase US$62 million of drilling "consumables," about US$30 million more than required for the 38-well program\. According to PNOC, these items have been used in the drilling operations of the two follow-on Leyte projects\. PNOC does not appear to have sought Bank approval for its decision to procure extra drilling consumables as a way of fully using the loan\. 9\. PNOC commented that 'had the drilling program proved to be successful, the additional funding requirements could have been generated through private sector participation'\. 10\. Nine exploration wells on Luzon were financed by the Bacon-Manito Geothermal Project (Ln\. 2969-PH), which was being implemented in parallel (1989-93)\. 11\. This excludes two potential reinjection wells in Northern Negros, an area that is unlikely to be developed\. 14 3\.10 PNOC estimates the average cost of the 94 wells financed by the Bank under the three projects to be US$1\.6 million" per well\. This includes rig rental costs but not equipment and civil works required for site access and preparation\. Following Bank advice, in recent years PNOC has increased its use of specialized drilling services and international contractors in an effort to obtain better results during drilling operations and thereby cut delays and costs\. 3\.11 The remaining US$10 million the Bank disbursed to PNOC-EDC was used to finance the FCDS for the 40MW Bacman II power plant\. The FCDS was completed in April 1994, but only the first 20MW unit has been commissioned by NPC, due to major completion delays of the second unit arising from a contractual dispute between NPC and its contractor\. 3\.12 In view of the implementation experience described above, OED rated the outcome of this component as marginally unsatisfactory, " although PNOC's performance under this component was satisfactory\. Institutional development was a very minor part of the project and was thus rated as negligible\. Petron Oil Refining Component 3\.13 Petron, the downstream petroleum subsidiary of PNOC, received US$20 million as on- lending in order to upgrade the Bataan refinery\. The rest of the necessary funding (US$18 million) was internally generated by Petron, which has always been financially very healthy\. The company borrowed from IBRD mainly because it was unable at that time to raise long-term funds in the local capital market\. The refinery upgrade was to increase LPG production and improve diesel quality by reducing its sulfur content to comply with stricter exhaust emission standards\. OED's audit mission was told that Petron carried out an ex-ante economic and financial analysis of these investments, but there is no mention of it in the SAR\. PNOC and Petron did not respond to an OED request for an ex-post economic evaluation\. 3\.14 Petron was privatized in 1994, when 60 percent of the shares were soldl4 for a total of 18 billion pesos (US$720 million)\. GOP allowed PNOC to retain 8 billion pesos from the proceeds of the sale mainly for reinvestment in future geothermal projects\. Petron has since prepaid the loan to PNOC, and PNOC subsequently made an initial request to the Bank proposing prepayment of this portion of the IBRD loan\. The Bank has taken no further action because PNOC apparently prefers to keep up the level of its cash reserves\. Institutional Strengthening of Sector Entities (Ln\. 3165) Department ofEnergy Component 3\.15 Following a period in which the OEA/Energy Coordinating Council arrangement for policymaking and coordination (set up under the project) failed to work satisfactorily, the government finally created a Department of Energy in late 1992\. NPC, PNOC, and NEA were 12\. According to PNOC, its average well drilling costs, using its own rigs, currently range between US$1\.2 and 1\.5 million, depending upon the hole diameter\. 13\. PNOC feels that outcome was satisfactory because the initial funding for the component was unrealistically low for a 76-well program and that actual performance should be measured against more realistic objectives\. 14\. Aramco holds 40 percent of the shares; the remainder were sold to the public on the local stock market\. 15 put under its control while ERB remained attached to the Office of the President\. The Department of Energy (DOE) has been operating since February 1993 and sector policymaking and coordination has improved considerably\. The Energy Sector Plan of January 1993 was drawn up concurrently with the reestablishment of DOE, in consultation with the Bank, and an exchange of views on its implementation was incorporated in the conditions of the Power Transmission and Rehabilitation Project (Ln\. 3626-PH) approved in mid-1993\. 3\.16 The impact of the project on the institutional development of DOE was minor: a small amount of technical assistance, training, and equipment was provided to set up an energy database and for power system planning\. The impact of the studies funded by the project was also marginal\. The only lasting project impact on the DOE was the construction of its new office building, to which the Bank loan contributed US$1\.1 million, or 40 percent of the total disbursed from the loan to DOE\. Although this was part of the program envisaged at appraisal, OED considers it a substantial use of Bank funds and believes the government should have funded the construction from its own budget\. 3\.17 It is clear from the content of supervision mission aide-memoires that the policymaking, planning, and coordination objectives of the project were neglected in the later years of implementation, when the Bank focused its attention mainly on NPC and PNOC\. This was unfortunate because DOE, as a new institution, could have benefited more from the project, particularly for training new staff\. The underuse of the available funds shows the lack of Borrower commitment to pursuing these institutional strengthening objectives\. OED concludes that the project failed in its objective to strengthen DOE's technical capability to plan resource development and coordinate policy implementation\." The need to reinforce DOE is as important today as at the beginning of the project because the tasks it faces have become more complex with the growing participation of private firms in the energy sector\. It is also in charge of the restructuring and privatization of NPC, which have yet to begin\. Environmental Management Bureau Component 3\.18 The project helped EMB with a significant injection of equipment and logistical support\. EMB has wide responsibilities for environmental monitoring throughout the Philippines and also issues Environmental Compliance Certificates, which are required for all new energy sector projects before construction starts\. During the early 1990s, EMB's annual budget of about 25 million pesos (US$1 million) was entirely for recurrent costs and contained no allocation for capital expenditures\. The US$6\.6 million of Bank funds drawn by EMB when averaged over the project life thus exceeded EMB's total annual budget\. It had a substantial positive impact on EMB's ability to a carry out its work, particularly for air quality monitoring\. The country still has only three mobile air quality monitoring vans, all of them purchased under the project\. The project also funded consultants to review environmental impact analysis guidelines, which have since been streamlined\. Many more air and water quality monitoring stations are needed than the nine funded by the project," but EMB failed to use its share of the loan (more than US$10 million), despite the 16-month extension of the closing date\. 15\. Comments received from DOE (see Annex C), providing additional information on activities undertaken as part of the project, do not lead OED to revise this assessment\. 16\. Fifty air quality monitoring stations (30 of which were to be located at power stations) were envisaged at appraisal, but only three of the nine acquired under the project have been sited at power plants\. 16 3\.19 Apparently underspending was due to delays arising from the lengthy clearance process for procurement and DMB's slowness in releasing funds\. Some equipment supply contracts were only signed in December 1995, just a few months before final loan closure, while no disbursements at all had taken place during the first three years of the project\." This shows a low level of EMB and GOP commitment to the pursuit of project objectives\. On the Bank side, better results may have been obtained if environmental staff had supervised this component\. OED was unable to assess the degree to which Bank-funded equipment is in use or the extent of follow-up actions in terms of compliance enforcement\. However, it concludes that the project partially achieved the stated objective of improving environmental standards and monitoring and enhancing EMB's technical capabilities\. Energy Regulatory Board Component 3\.20 ERB was allocated US$3\.5 million from the loan to finance various essential office and communications systems, including computers\. These investments have helped the board meet the enlarged workload arising from the 1992 law setting up DOE\. This law redefined ERB's role and significantly increased its responsibilities by giving it authority for price regulation of NPC and about 120 small rural electricity cooperatives (RECs)\. More tasks were added to ERB's already large mandate by the Anti-Pilferage of Electricity Law (1994)" and the DOE directive that all utilities submit their demand-side management plans to ERB every two years\. Despite the extra responsibilities, however, the DOE gave the board no significant increases in staff or budget\. The project also financed several pricing studies done by external consultants and provided staff with legal and financial training\. Implementation suffered delays from a lack of timely counterpart funding from GOP\. OED concludes that the project succeeded in strengthening regulatory activities and the technical capabilities of ERB, albeit on a modest scale\. 3\.21 Despite support from the project, ERB is overstretched and requires financial autonomy if its progress is to be sustainable\. ERB should not depend upon GOP's budget allocations but should be self-financing through a small levy\. It should have the right to delink its pay scales from the civil service\. Training of existing staff, recruiting of additional\. staff, and larger offices are also essential because its role and importance will increase further under the proposed new power sector structure\. National Electrification Administration Component 3\.22 The Bank had carried out a detailed review of rural electrification" in the Philippines just a few months before the appraisal of this project\. The NEA component in this project should therefore be seen as a stopgap intervention before a full-scale rural electrification project, which followed in 1991\.2 The NEA used 85 percent of the funds to purchase distribution equipment 17\. DOE commented that 'the major factor that hindered loan availment during the first two years was the implementation of the procedure on special account mechanism wherein NEA and EMB had a common special account\. NEA had been slow in their disbursement, correspondingly delaying EMB's loan availment\.' 18\. This act requires an ERB representative or law officer to be present as witness at the time the REC "charges" the consumer with pilferage at the location it takes place\. 19\. Rural electrification: An Integrated Program to Revitalize the Sector, Report\. No\. 8016, November 1989\. 20\. The Rural Electrification Revitalization Project (Ln\. 3439-PH) channeled US$91\.3 million to 54 RECs\. 17 that was installed in RECs\. It used the balance (US$2\.1 million) for its own needs, which consisted of office and warehouse space and communications equipment and test vans\. It also paid for a small amount of technical assistance and training\. Total disbursements were 20 percent below the initial allocation\. 3\.23 The impact of the component was modest, both physically" and institutionally\. More could have been achieved with NEA's loan portfolio management, which is still done manually, by the full use of the available funds to hire consultants, particularly as the necessary computer hardware had already been acquired\. Overall progress in NEA's institutional development needs to be assessed in a future performance evaluation of the follow-on project, which overlapped with this one from 1991 through 1995, and which addressed rural electrification lending policy as well as NEA's financial restructuring\. 21\. Total peak demand of RECs in 1992 was about 1,330MW\. Meeting demand growth of 5 percent p\.a\. at US$1,000/kW of new distribution capacity would mean investing US$70 million annually, compared to the US$16 million spent under the project\. 18 4\. Key Issues NPC's Financial Difficulties 4\.1 In 1991, NPC had insufficient cash to meet its short-term operating needs\. This was due, inter alia, to: a rate base used to calculate its rate of return on assets which had not been revalued despite high inflation since 1987, delays in tariff increases, increased fuel costs following the Gulf War, and sharp depreciation of the peso, which increased the foreign debt service burden\. Internal cash generation, which NPC's accounts showed as positive from 1987 to 1990, was in fact negative\.22 This situation was unsustainable and necessitated a government bailout-to the tune of 3\.6 billion pesos (US$135 million)-to enable NPC to meet its obligations\. The cash injection was later converted into an equity contribution\. NPC's losses in 1991 were 3 billion pesos and the corporation was also in violation of World Bank and ADB loan covenants during 1990-91\. Key indicators of NPC's performance are shown in Annex B, Table 4\. 4\.2 While the initial years of project implementation were characterized by delayed tariff increases due to political and legal opposition, significant improvements in the structure of electricity tariffs, as well as greater "automaticity" in adjustments to tariff levels were introduced from 1992 onwards, in the wake of the NPC financial crisis\. The introduction of demand (capacity) charges envisaged under the project was not achieved until 1995\. The progress in electricity tariff reform was largely the result of conditionality linked to the Bank's follow-on projects rather than a result of the sector loan\. 4\.3 NPC's financial situation improved after 1992, but it remains precarious for several reasons: (a) a very high and rapidly rising level of foreign debt (including for the financing of local peso expenditures), with the attendant foreign exchange risk (on the interest portion); (b) insufficient paid-in equity; (c) a very large investment program (exceeding US$1 billion in 1997), mainly for critical high-voltage transmission links, which has to be overwhelmingly foreign-funded; and (d) a rate of return ceiling of 10 percent, which prevents NPC from substantially increasing its internal cash generation\. After an improvement in 1994, NPC's self- financed contribution to investment was once again negative in 1995-96 (3-year average)\. This is unacceptably low by international standards\. Delays in commissioning ongoing transmission projects are meanwhile increasing the heavy burden of financial penalties paid to independent power producers (IPPs) for failure to take the contracted power\. Because the government has neither the financial resources nor the wish to increase its stake in the power sector, and because tariffs cannot be raised beyond the 12 percent rate of return ceiling (increased from 10 percent in 1993), the only way to put NPC's finances on a prudent footing is to reduce its indebtedness\. This can only be done by using resources obtained from the privatization of NPC\. A bill to permit the sale of power sector assets has been under consideration by Congress over the past several years (para\. 4\.12), but its final passage is very unlikely before the 1998 presidential elections\. 4\.4 Since its severe liquidity problems of 1991, NPC's financial recovery has been only partial because it has not received an injection of fresh equity capital from either the government 22\. Due to incorrect accounting practices, financing provided by restructured/rescheduled loans was deducted from debt service instead of treated as new loans\. 19 or the private sector\. Its debt is increasing exponentially" (see Annex B, Table 4) and it risks exceeding its capacity to service that debt\. At the end of 1996, the corporation's debt-equity ratio was unacceptably high (over 90:10), and without a government guarantee it would be extremely difficult for NPC to borrow\. NPC's debt service burden has worsened further in 1997\. Power Shortages: A Failure of Planning or of Decisionmaking ? The Causes and Consequences 4\.5 The mothballing of the 620MW nuclear plant in 1986 caused major disruption to NPC's system expansion plans\. This plant represented about 15 percent of Luzon's generating capacity at that time and had absorbed virtually all the investment resources available for new power generation projects in the early and mid-1980s\. The 1988 Energy Sector Study projected a need for more than 700MW of new capacity by 1992 in Luzon alone, in order to avoid shortages\. It drew up a least-cost sequence of investments, but these did not take place in a timely fashion\.24 NPC was thus forced to opt for those projects with the shortest lead times, regardless of cost\. At the same time, NPC's aging thermal plant" increasingly suffered unplanned outages due to heavy usage combined with neglected maintenance\. Finally, a drought in 1991 severely reduced the output of hydro plants, which accounted for about 20 percent of installed capacity\. The resulting four plus hours per day of load shedding in Luzon" had very damaging consequences for the economy\. The extent of suppressed demand can be seen from NPC's Luzon sales, which remained roughly constant during 1991-93, before leaping by 18 percent in 1994, once the supply constraint had been eliminated\. 4\.6 OED's audit mission learned that NPC was unable to get the government's approval to invest in sufficient new capacity before the onset of serious load shedding\. A contributory factor was the lack of a Ministry of Energy to argue the case for timely investment\." The Solution 4\.7 The passage of Executive Order 215 in mid-1987 ended NPC's monopoly over power generation and opened the door to private sector participation\. The first build-own-transfer (BOT) scheme was successfully concluded in 1989 and the 210MW plant began operation in 1991\. As this was clearly insufficient to meet demand, a series of other "fast-track" BOTs were rapidly negotiated in 1991-92\. Given the urgency, these BOT schemes all featured gas turbine 23\. Long-term debt (almost all in foreign currency) has doubled in four years to US$5 billion at the end of 1996\. This excludes another US$6\.5 billion equivalent of peso debt on account of long-term lease obligations for BOT capacity fees\. 24\. The program included the Bank-financed Bacon-Manito 110MW geothermal plant, which was commissioned in 1993, more than two years late\. The 300MW Calaca II coal plant, projected for 1992, was delayed to 1995, partly because of difficulties in obtaining environmental clearances\. 25\. The average age was more than 20 years in the early 1990s\. 26\. The situation in Mindanao, where the power system is dominated by hydro plants, was even worse\. 27\. Apparently, in the eyes of the Aquino government the power sector was "tainted" by association with the controversial nuclear plant built by the previous regime\. The President's Office, to which the NPC and OEA were attached, was unwilling to commit scarce resources to the power sector and did not heed NPC's advance warnings about the shortage of generation capacity until load shedding actually began\. 20 plants with short implementation periods, generous incentives, take or pay provisions and GOP guarantees\. In all cases, NPC provides the fuel and purchases the power generated, thereby enabling investors to avoid dealing with small, financially weak distribution companies\. The risks to private firms were thus kept to a minimum\. These BOTs were intended to add more than 900MW of new capacity to the Luzon system within 12 to 18 months\. Similar steps were taken to boost capacity in the Visayas and Mindanao grids\. By early 1994, 12 private power plants with a total capacity of 1,300MW, or about 20 percent of total generation capacity, were in service\. Load shedding had thus been eliminated in the Philippines faster than most people thought possible\. 4\.8 The Bank had serious reservations about the apparent high cost (more than US$0\.09/kWh)" of the fast-track BOTs, failing to appreciate GOP's lack of alternatives and limited bargaining power in a context of supply constraints, excess demand, high willingness to pay for electricity, and NPC's inability to implement projects as rapidly as the private sector\. In retrospect, the BOT route clearly was the right approach to ending the damage to the economy from power shortages\. The high cost of the electricity produced by these BOT schemes was still several times less than the economic cost of outages (at least US$0\.50/kWh on average)\. Neither NPC nor GOP could have easily mobilized the funds or implemented the projects rapidly enough to solve the power crisis within a reasonable time\. The attractive terms29 offered helped ensure a strong degree of foreign interest in investing in the power sector, which has been sustained despite the less favorable terms offered to later entrants\. 4\.9 After the fast-track program, NPC's board decided to seek BOT proposals on a competitive basis for all its new generation requirements\. Very large (700-1,000MW) coal and hydro plants are now being developed as build-own-transfer/build-own-operate schemes,30 which will account for the majority of power supplies by the end of the decade\. The competitive bidding process has helped to bring down sharply the cost of power from these plants compared to the early BOTs\. NPC's most recent contracts with IPPs have a levelized power purchase price of about US$0\.06/kWh\. Distribution utilities are also entering into supply contracts with IPPs for significant volumes of power as they are no longer obliged to purchase all their requirements from NPC\. In total, over 40 power purchase agreements (PPAs) have been signed in the Philippines, more than in all other developing countries combined\. There is no evidence that the Bank was involved in any advisory role in improving the terms and conditions of PPAs\. Power Sector Planning 4\.10 "Traditional" least-cost power sector planning cannot apply to an increasingly fragmented power sector featuring both public and private entities\. But strategic planning (by DOE) is still required to ensure that supply and demand are balanced and that the fuel mix of power plants matches local resource availability while ensuring adequate supply diversity\. Without it, DOE would be unable to judge the need for new BOT schemes and grant accreditation to IPPs\. However, this type of planning is also more difficult because of the higher degree of uncertainty arising from 28\. Philippines Power Sector Study, Report No\. 13313-PH, November 1994\. 29\. The Region has pointed out that the take-or-pay capacity charges on the early BOTs are an unavoidable cost to NPC because they remain in force for 15 years\. 30\. Some are now without sovereign guarantees\. 31\. MERALCO, the largest distributor, intends to get all its incremental power needs from IPPs\. 21 difficulties new IPPs may encounter in coming to financial closure and the need to incorporate the effects of measures to improve demand-side management\. 4\.11 Despite a potential conflict of interest, the NPC, which has the country's only pool of experienced power planning staff, still prepares the annual national power sector development plan\. This planning should be done at the DOE, especially now that the distribution companies are increasingly signing up for bulk supplies directly from IPPs and NPC will be less and less able to keep track of investments in power generation being made by others\. The transfer of NPC power planners to DOE is likely to prove problematic, however, given the substantially better employment conditions at NPC\. NPC's Restructuring 4\.12 Partly as a result of the power shortages and the backlash to them, GOP decided to privatize NPC as long ago as late-1992\. The issue became so politicized, however, that in 1993 bills were introduced in Congress32 to simply split the corporation along regional lines\. This approach presents numerous disadvantages without addressing the underlying problems\. The government's preferred structure for the power sector would create several private generation companies out of NPC's existing power plants and a single transmission company, that would initially be partly state- owned\. The draft legislation (the Omnibus Electric Power Industry Bill), reflects advice contained in the Bank's 1994 study of the structural framework for the power sector\." It also contains incentives to encourage consolidation in the over-fragmented& distribution subsector\. 4\.13 The legislative process needed to pass these proposals has taken much longer than hoped: for the past two years a bill has been under review by the Senate and a separate one has been filed in the House since September 1996\. It is unlikely that the legislative process can be completed during the life of the present Congress, which means the process would have to begin again in the new Congress after the Presidential elections in mid-1998\. Given the substantial depreciation of the peso since mid-1997 that has aggravated NPC's foreign debt service burden, GOP will have to step in with a financial restructuring package for NPC\. Some combination of debt rescheduling, equity injection and tariff increases looks unavoidable\. 4\.14 It will take at least two to three years to put in place the agreed new structure once congressional approval has been given\. During this transition phase many complex operational issues will require solutions, such as power trading and regulatory oversight of newly privatized generation companies, consolidation among RECs, wheeling charges for bulk power, pricing mechanisms to recover the subsidies required by the small-island (non-grid-connected) power systems, etc\. 32\. NPC's legal status as public corporation means that legislation is required to privatize it\. 33\. Philippines Power Sector Study: Structural Framework for the Power Sector, Report No\. 13313-PH, November 1994\. 34\. Electricity distribution is carried out by MERALCO, 14 investor-owned utilities and 119 RECs\. 22 Other Sectoral Issues 4\.15 Coordination of transmission and generation investments\. Several large private power plants have been commissioned," but will sit idle for long periods, pending completion of the transmission lines by NPC\. The Bank's own follow-on projects, the Leyte-Cebu and Leyte- Luzon geothermal projects face the same problem\. The PNOC steam supply systems (Bank- financed) and four BOT power plants amounting to nearly 400MW capacity are idle because of major delays in completing NPC's transmission system (also Bank-financed)\. One of the main causes of the delay is difficulty in obtaining timely rights-of-way for the transmission lines\. This waste of resources is now "externalized" in the new "mixed" sectoral set-up, because the IPPs have to be compensated financially for the delays under take-or-pay contracts with NPC\. The latter is now incurring large costs for power it is unable to transmit and sell\. In some cases, NPC has arranged to take at a later date the energy it has already paid for and considers these penalties to be equivalent to "stored energy\." 4\.16 The short-term cash flow consequences are still very severe\. For example, since July 1996, under the terms of the PPA between NPC and PNOC for the output from Leyte-Cebu, NPC has to pay PNOC-EDC about 200 million pesos (US$8) million per month for power it is unable to draw\. For its part, PNOC-EDC paid the IPP 947 million pesos (US$37 million) for capacity charges on the idle power plant during the second half of 1996\. In addition, NPC owed PNOC- EDC more than 1 billion pesos (US$39 million) at the end of 1996 for steam sales, excluding these financial penalties\. The further build-up of NPC debt to PNOC-EDC was very rapid in 1997\. This will be a hindrance to the forthcoming public sale of shares in PNOC-EDC, whose total accounts receivable at the end of 1996 were already 55 percent of its net sales in that year\. 4\.17 Enabling environment for investment in geothermal development\. It was (and still is) impossible to get private sector participation in geothermal development without a more incitative GOP policy on royalties, a reduced state share, and tax treatment comparable to other private investments\. Under current policy, which dates from 1978 (P\.D\. 1442), cost recovery is limited to 90 percent of gross revenues, while 60 percent of the net proceeds from any geothermal project flows to GOP, which is a disproportionate share\. By way of comparison, an IPP operating with imported fuel receives more favorable treatment and is taxed at 35 percent\. This distortion is unsatisfactory and hinders private investment in geothermal development\. 4\.18 The Bank's 1988 sector study recommended altering the legislation, and the SAR suggests that the government was planning to do so, but this has not yet occurred\. A bill to reform this policy has been pending in Congress since 1993 but has not been passed, despite having been certified as an Administration Bill, which was supposed to give it priority in consideration for passage\. Not surprisingly, there has been no private sector investment in geothermal field development\. Yet at the time of appraisal, the Bank expected joint ventures with PNOC to be set up and the Bank loan was available for financing PNOC's share of such ventures\. Currently PNOC is also handicapped by P\.D\. 1442, which makes returns on investment marginal (below 10 percent), and drives up the steam sale price for power\. Action on this issue 35\. For example, the 700MW Pagbilau BOT plant (Hopewell)\. 23 has never been covenanted in any of the four recent Bank loans for geothermal development, despite its importance for promoting private sector geothermal projects\. 24 5\. Bank and Borrower Performance Bank Performance 5\.1 As discussed in Section 2, the project's quality at entry suffered from the decision to consolidate a collection of discrete and unrelated projects into a single project package\. In the end, there was little synergy among the many components of the project\. 5\.2 Supervision\. Total resources devoted to supervision over the five-year period were only 170 staff weeks\. This was low for an operation of this scale and with so many implementing agencies\. It was also low in comparison with sector loans in other countries\. Furthermore, the Bank was also formally responsible for supervision of the Japanese cofinancing of the project\. The representation of skills required to supervise such a diverse operation was insufficiently broad: the Bank had no power engineer on its team from the end of 1991 to the end of 1993 to supervise the Palimpinon power plant construction\. No environmental staff participated in supervision, and Bank files contain no references to any internal review of the environmental assessment of the Palimpinon geothermal power plant funded under the project\. Joint annual reviews of the investment plans of PNOC and NPC, which were envisaged in the project design, do not appear to have been carried out in the later years of project implementation\. The Bank's technical supervision of PNOC's drilling program was satisfactory until late 1992, but it was not continued during the three subsequent years of project implementation when most of the drilling took place\. It resumed in late 1995 as part of the follow-on projects, but by then the loan had closed\. 5\.3 Policy dialogue\. The Bank's input into the design and implementation of the government's BOT initiative aimed at solving the power shortages of the early 1990s (para\. 4\.7) was minimal\. At best the Bank was unenthusiastic, at worst it opposed the GOP solution\. Despite this difference of opinion, the Bank maintained its dialogue with the government on sector issues and the preparation of a new power project continued in 1992-93\. Although the Bank was slow to realize the severity of NPC's financial problems, it was thereafter heavily involved in working out an acceptable financial recovery plan for NPC, particularly as the unanticipated commitment of budgetary resources by GOP had implications for the ceilings agreed with the International Monetary Fund at that time\. A formal threat to suspend disbursements was issued in December 1991 to keep up pressure on the government to approve a tariff increase that was critical to NPC's recovery\. 5\.4 Subsequently, the dialogue switched to the structural framework for the power sector once GOP had decided in late 1992 on the principle of privatizing NPC\. The Bank committed substantial staff resources to study the sectoral framework, culminating in a formal reporte issued in late 1994\. The government has subsequently adopted many of this study's proposals in its own approach to restructuring and privatizing the power sector\. The Bank thus appears to have been useful in helping GOP to determine its preferred long-term sector structure\. This assistance was provided primarily in the context of follow-up Bank loans for the development of the Leyte geothermal project, which were under preparation in 1993-94, having been delayed 36\. Philippines Power Sector Study: Structural Framework for the Power Sector, Report No\. 13313--PH, November 1994\. 25 since mid-1991, mainly because of the NPC financial crisis\. Furthermore the government committed itself under the most recent Bank loan (Ln\. 4571 -PH) to NPC to reintroduce enabling legislation for sector restructuring to Congress by mid-1996\. Unfortunately, implementation of the restructuring now depends upon the passage of the necessary legislation (para\. 4\.13), which is delayed indefinitely\. 5\.5 The Bank's project-related performance through Loan closing (end- 1995) is rated as unsatisfactory (satisfactory in the ICR) in light of the project's design weaknesses (paras\. 2\.3- 2\.6), unsatisfactory appraisal (paras\. 2\.7-2\.12), uneven quality of supervision (para\. 4\.3), and weak enforcement of financial covenants\. However, broader Bank performance in the sector, particularly relating to the policy dialogue on sector restructuring in the closing stages of this project and during the implementation of subsequent operations, was satisfactory,7\. Borrower Performance 5\.6 Borrower performance varied according to the implementing agency, as shown in Table 5\.1\. The government's overall performance is rated as unsatisfactory because of the failure in timely decisionmaking, which allowed the damaging power shortages to develop, and because of inadequate commitment to the institutional development goals of the project, which led to underuse of the available funds despite pressing needs in the implementing agencies\. Overall Project Assessment and Ratings 5\.7 The overall project outcome is rated as marginally unsatisfactory because the physical and institutional benefits directly attributable to the project were both substantially less than projected at appraisal and seriously delayed\. There is no evidence that the Government's success in attracting private capital to invest in power generation can be attributed to this project, nor to the Bank's overall involvement in the sector\. The overall institutional development impact of the project is rated as modest in light of the ratings for each component shown in Table 5\.1\. Sustainability of the project benefits is rated as uncertain due to NPC's financial problems, which remain unresolved\. These ratings differ from those in the ICR, which rated overall project outcome as satisfactory, the performance of the Borrower and the Bank as satisfactory, institutional development as substantial, and sustainability as likely\. 37\. The region pointed out that NPC's precarious financial situation has been discussed extensively with senior policy makers during 1997\. Actions are now being considered within the context of a proposed adjustment loan for public sector management reform\. 26 Table 5\.1: Summary of Performance Ratings Entity/ Outcome Institutional Borrower performance Sustainability Component devt\. impact during project NPC unsatisfactory negligible unsatisfactory uncertain PNOC-EDC marginally unsatisfactory negligible satisfactory likely Petron satisfactory negligible satisfactory likely DOE unsatisfactory negligible unsatisfactory unlikely ERB satisfactory modest satisfactory likely EMB marginally satisfactory substantial marginally satisfactory likely NEA marginally satisfactory modest marginally satisfactory uncertain 27 6\. Conclusions and Lessons Learned Current Sector Status 6\.1 Compared to five years ago, when the country was suffering from power shortages, consumers are unequivocally better served, even though the introduction of IPPs has raised the cost of electricity\. The generation reserve margin is healthy and growing, and no supply constraint is foreseen between now and 2005\. On the contrary, if demand growth slows sharply there could be a short-lived supply glut before 2000\. However, transmission network bottlenecks persist and the distribution sector (excluding MERALCO), which has unacceptably high technical and non-technical losses, continues to suffer from underinvestment\. 6\.2 NPC's finances are still very fragile, despite progress under subsequent Bank loans\. NPC is again li]kely to be in contravention of its financial covenants with the Bank in 1997\. The corporation urgently needs a substantial equity injection and/or debt relief to help it deal both with its existing over-indebtedness and with a serious additional debt problem arising from penalties NPC has to pay to PNOC and IPPs for generation plant capacity it is unable to use\. The Bank has lent over US$800 million to a non-creditworthy NPC over the past decade\." The substantial recent depreciation of the peso has further aggravated NPC's foreign debt burden\. The severe liquidity problems of 1991, when net internal cash generation was also negative for several years, do not appear to have served as a lesson to NPC and the Government\. 6\.3 The Philippines experience has shown that traditional least-cost planning criteria are of little use where power supply shortages are acute\. Eliminating these shortages requires more costly but quicker solutions\. Given the broader economic costs imposed on the country at large by the load shedding, the Government's fast-track BOT approach was clearly correct in the prevailing circumstances\. 6\.4 PNOC-EDC's exploration program had mixed results\. Recouping the costs of unsuccessful exploration fully through the sale of steam for power is not possible under the current fiscal regime\. In retrospect, risky exploration should have been funded from GOP equity contributions or PNOC's retained earnings, rather than from IBRD loans-which have financed more than 20 unsuccessful exploration wells at cost of over US$40 million under this project and its predecessor (Ln\. 2969)\. 6\.5 In sum, despite the clear progress made in attracting private capital to invest in power generation, the privatization of Petron, and the full deregulation of the downstream oil industry, (including petroleum product pricing) there remains a great deal of unfinished business in the energy sector\. 38\. In its comments, NPC points out that it has never defaulted on its loans (see Annex C)\. 28 Lessons 6\.6 The following lessons can be drawn from developments in the Filipino power sector during the 1990s: (a) Governments' bargaining power to secure the best contractual terms from private investors is severely limited where there are power shortages\. (b) It is preferable to use international competitive bidding to select IPPs because bidding generally results in better terms than negotiated contracts\. (c) It is unrealistic to expect power projects developed with private funds to be least-cost in the "traditional" sense: the additional cost over the hypothetical "least-cost" alternative is the price to pay for mobilizing resources that would otherwise not be available to the sector\. 6\.7 Other lessons that can be drawn from this operation are as follows: (a) The use of a "rate of return on assets" target for financial performance is inappropriate for a company/sector with a very large and lumpy investment program\. (b) Geothermal exploration can be as risky as oil and gas exploration but yields lower returns because the end product is less valuable and impossible to transport over long distances\. Accordingly, greater caution is required to evaluate risks and a relatively generous fiscal regime is needed to allow geothermal investors to recoup their costs\. (c) There are no short cuts to a successful "sectoral" lending operation; success requires: (i) very substantial (and above average) inputs of Bank rescurces; (ii) broad staff skill mixes for project design, appraisal, and supervision; (iii) the application of normal project appraisal standards to all project beneficiaries and components; (iv) true synergies among major components and subloans; and (v) clearly defined processes and criteria for joint reviews and Bank approval of investment proposals to be funded by the loan but not defined at appraisal\. 29 Annex A Basic Data Sheet ENERGY SECTOR PROJECT (LOANs 3163-PH, 3164-PH, 3165-PH) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 3,509\.20 2,936\.10 84% Loan amount 390\.00 370\.60 95% Cofinancing 150\.00 150\.00 100% Cancellation N/A 19\.40 N/A Date physical components completed 12/31/94 12/31/95 N/A Economic rate of return 17%1 13\.5%' N/A 1\. NPC only; no ERR calculated for other components\. Cumulative Estimated and Actual Disbursements (US$ million) Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 15\.00 70\.00 160\.00 280\.00 372\.00 390\.00 - Actual 15\.00 82\.53 155\.90 234\.18 315\.01 368\.96 370\.77 Actual as percent of appraisal 100 115 93 83 82 94 95 a) Loan 3163-PH: National Power Corporation Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 6\.00 26\.00 62\.00 127\.00 189\.00 200\.00 - Actual 15\.00 53\.32 100\.04 159\.00 188\.18 200\.00 - Actual as percent of appraisal 250 211 161 124 96\.0 100 - 30 Annex A a) Loan 3164-PH: Philippines National Oil Company Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 6\.0 28\.0 64\.0 112\.0 142\.0 150\.0 - Actual 0\.0 19\.82 36\.97 54\.61 105\.05 139\.21 139\.31 Actual as percent of appraisal 0 7168 58 49 105\.05 93 93 b) Loan 3164-PH: PNOC-EDC Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate * 2\.5 33\.3 65\.5 122\.1 133\.0 133\.0 - Actual 0\.0 19\.0 33\.7 49\.6 84\.3 117\.9 118 Actual as percent of appraisal 0 57 51 40 63 89 89 * Revised appraisal estimate with appraisal disbursement for the loan as a whole\. c) Loan 3164-PH: Petron Corporation (Part A (2) of Loan Agreement) Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate* - - - - - Actual 0\.0 0\.52 2\.94 4\.36 19\.97 19\.97 - Actual as percent of appraisal - - - - - - * Planned disbursement of part A(2) of the loan not available in appraisal document\. Figure only for total loan\. d) Loan 3165-PH: Republic of the Philippines Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 3\.0 16\.0 33\.3 40\.0 - - - Actual 0\.34 6\.50 14\.88 22\.16 25\.83 28\.61 32\.70 Actual as percent of appraisal 0 41 44 55 64 72 80 e) Loan 316-PH: Department of Energy (DOE/formerly OEA) Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 0\.50 2\.50 4\.30 - - - Actual 0\.34 0\.53 0\.68 1\.26 1\.91 2\.53 3\.11 Actual as percent of appraisal 68 21 16 29 44 59 72 31 Annex A f) Loan 3163-PH: Energy Regulatory Board (ERB) Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 0\.50 2\.50 3\.00 - - - - Actual 0\.00 0\.08 1\.21 1\.97 2\.39 3\.45 3\.45 Actual as percent of appraisal 0 3 40 66 80 115 - g) Loan 3165-PH: National Electrification Administration (NEA) Bank FY FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 1\.00 7\.00 16\.60 22\.30 - - - Actual 0\.00 8\.78 16\.87 16\.87 16\.87 18\.33 18\.33 Actual as percent of appraisal 0 87 90 80 80 81 - h) Loan 3165-PH: Environmental Management Bureau (EMB) Fiscal Year FY90 FY91 FY92 FY93 FY95 FY95 FY96 Appraisal estimate 1\.00 4\.00 9\.40 10\.40 - - - Actual - - 0\.13 0\.47 0\.61 5\.44 1\.80 Actual as percent of appraisal - - 1 5 6 52 75 Loan 3163-PH final transaction on February 23, 1995\. Loan 3164-PH final transaction on April 15, 1996\. Loan 3165-PH final transaction on May 3, 1996\. 32 Annex A Project Dates Steps in project cycle Date planned Date actual/latest estimate Identification October 1988 October 1998 Preparation May 1989 May 1989 Appraisal June 1989 June 1989 Negotiations October 1989 October 1989 Board presentation January 1990 February 1, 1990 Signing March 1990 March 16, 1990 Effectiveness May 1990 June 12, 1990 Project completion December 31, 1994 December 31, 1995 Loan closing (Loan 3163-PH) December 31, 1994 June 30, 1995 Loan closing (Loan 3164-PH, 3165-PH) December 31, 1994 December 31, 1995 Staff Inputs (Staff Weeks) Stages ofproject cycle Staff weeks US$ ('000) Through Appraisal 98\.8 180\.9 Appraisal Effectiveness 47\.0 98\.8 Supervision 169\.5 373\.0 Completion 12 22\.5 Total/planned 327\.3 6674\.3 33 Annex A Mission Data Date No\. of Staff days Specializations Performance Rating Types ofproblems (month/year) persons infield represented' Implement Development statusb impact Identification/ Preparation Through November/ 9 N/A Eec, ES, FA(2), Appraisal December PrS, PE, Ree, SC EM June/July 1989 11 N/A ES(2), PE, PE, PrS,PE,L,FA, EM, L November 1989 5 11/19/89 PE(2), ES,FA, advance NPC to reduce procurement of to Constant procurements 20MW Geothermal Modular steam 12/8/89 turbine generators to 10; procurement to proceed in two stages, first submission of technical bids, and following their evaluation, price bids and financial proposals to be invited in second stage\. NPC's revaluation of assets and increase in fuel prices may require significant changes in price to meet the 8% Rate of Return\. Supervision I June 1990 2 6/18/90 EE, PE 1 1 Difficulties in international to competitive bidding procurement 6/30/90 e\.g\., 20MW geothermal modular units, transmission line, equipment and materials Supervision II March 1991 4 3/11/91 Eec, FA, PE, PS 1 1 Disbursement progressing as to scheduled for NPC, PNOC\. No 3/22/91 disbursement for NEA due to delays on-lending arrangements between the government and NEA\. Delays in budget appropriation may affect procurement of OEA, ERB\. Request for 100% Bank financing\. Bank agreed to amend the loan agreement as requested, except 95% for works on 7/23/91\. Delays in implementation of long- run marginal cost pricing\. Implementation to be made by end September 1991\. Cofinancing with Japan not finalized\. Supervision Ha June 1991 1 6/24/91 FA NPC financial performance in 1990 to was unsatisfactory\. Government 7/04/91 bailout of US$280 million and tariff increase from January 1992 of about 0\.27kWh required\. Supervision II aJune 1991 1 5/30/91 ES PNOC needs to sign a steam price (limited to contract with NPC, as agreed in the supervision) 6/13/91 case of all Luzon\. NPC in financial crisis and delays in tariff increase based on revalued assets\. 34 Annex A Date No\. of Staff days Specializations Performance Rating Types ofproblems (month/year) persons infield represented' Implement Development status impact Geothermal projects not commercially feasible at Natib and Pinatubo; delays in obtaining environmental clearance at Bulusan\. Supervision IIb September- 1 9/23/91 FA 1990 financial performance (limited October 1991 to unsatisfactory and could deteriorate mission) 10/2/91 further\. Require government bailout of about US$280 million\. Financial irregularities and inefficiencies in financial management observed\. New conditions: 6% rate of return on revalued assets; satisfactory cash position with out additional government contributions; potential difficulties for all NPC loans\. Supervision IIc 1 8/10/91 PE Reviewed issues related to small (limited to hydro-power development, e\.g\., mission) 12/10/91 avoided cost, implementation options, etc\. Supervision III November 1991 4 11/18/91 FA(2), PE, ES 2 1 Financial crisis likely to delay to projects like Leyte Geothermal, an 11/28/91 Japanese loan of US$150 million not likely to be approved\. NPC's and PNOC's loans are being executed satisfactorily\. Sector coordination and other legislation lagging\. Difficulties in confirming BOT/BTO and/or because of delays of environmental decisions\. Potential energy crisis\. Bank mission recommended loan suspension\. Disbursement slow for Loan 3165- PH due to counterpart funding\. Delays in approving bills to establish DOE\. Delays in approving ECC for Bulusan for three years\. Supervision IV June/July 1992 4 06/17/92 FA (2), PE, ES NPC: defaulted on financial to covenants (ROR %) below 8%\. 07/3/92 Required government bailout partly due to delays on PO\. 17/kWh increase approved by the board in February 1991\. Under the agreed Reform Program of September '91 Bank waived the 8% ROR for 92, if NPC achieve 6%, and not require cash contribution from GOP\. 35 Annex A Date No\. of Staff days Specializations Performance Rating Types ofproblems (month/year) persons infield represented' Implement Development status impact Restructuring of NPC tariffs, a revenue-neutral way designed to introduce demand charges equivalent to 30% of present billings delayed (expected implementation by September 1992)\. Sucat plant had four blackouts after being rehabilitated at cost of US$130 million\. Delays in training program implementation and in sending audit reports for SOE and special account\. PNOC-EDC: Pinatubo (acid wells), Natib & Cagua areas due to lack of commercially viability of the steam reserves\. Bulusan awaiting environmental clearance of DENR\. Use of loan uncertain due to uncertainty over drilling of wells at Labo and Bulusan\. PNOC-Petron: implementation behind\. Cost of project US$27\.3 compared to $65\.5m at appraisal\. OEA's Energy Policy Frame: satisfactory; but DENR has yet to release the ECC for Masinloc and Pagbilao Plants\. Similar delays (Calaca II coal and Bulusan geothermal) has stopped for more than three years\. Delays in elimination of the 8 years royalties to give incentive for geothermal development\. Restructuring relationship between petroleum prices requires the completion of energy pricing\. Out of US$4\.4 million only US$0\.52 million disbursed\. NEA: audit report for SOE was overdue; Need to set a Steering Committee (ERB, OEA, NPC, PNOC, NEA) to review the energy pricing study, so that its conclusions can be applied EMB: only 2% of US$10\.4 million loan disbursed due to government budgetary appropriation\. 36 Annex A Date No\. of Staff days Specializations Performance Rating Types ofproblems (month/year) persons infield represented" Implement Development b b status impact Supervision November 1992 1 11/2/92 PS Problems associated with drilling IVb to low-pressure volcanic rocks under 11/6/92 the extremely high temperature characterized most of PNOC-EDC geothermal fields resulting in hole drilling fluid loses, stuck drilling strings and inadequate casing cementing\. PNOC-EDC coping well\. But need to contract out international experience and improve its drilling capacity\. Supervision V August 1993 3 N/A to FA,EE,ES 2 1 NPC: Audit report not received as (supervision 8/30/93 of September 1993\. Disbursement done with was to stop if audit not received by evaluation of October 30, 1993\. Tariff approval the Sector needed to ensure ROR 8%\. PNOC: Structure) legislative change on royalty and provision of other incentive needed for privatization Loan 3165-PH: loan disbursement substantially delayed for DOE and EMB\. EMB suffers from reduced budgetary appropriation\. Supervision VI June 1994 2 6/6/94 to PE, FA S S NPC: extension of loan requested 6/30/94 to complete civil works and foundation works at Palimpinon Geothermal stations due to unexpected ground condition found during construction\. Implementation of JEXIM component delayed due to the prolonged brownout and transfer some components to loan 3163-PH\. PNOC: Contracts for refinery awarded in March 1994 after delays\. Extension of loan required\. Loan 3165-PH: Delays in disbursement, loan extension required\. Supervision January 1995 1 1/15/95 E Reviewed the status of EMB\. VIa (limited to agreed on use of the remaining supervision) 1/26/95 fund under loan\. Availability of counterpart funding was still an issue\. Completion February/March 1 2/25/95 FA ICR mission 1996 to 03/95 a\. ES= Energy Specialist; FA=Financial Analyst; PE=Power Engineer; EE=Energy Economist; PS=Petroleum Specialist\. b\. 1=Minor problems; 2=Moderate problems; 3=Major problems; S=Satisfactory\. 37 Annex A Other Project Data Borrower/Executing Agency: RELATED BANK LOANS Operation Purpose Year of Status Approval Preceding Operations: Petroleum Exploration Promotion Project Promote private oil companies in petroleum 1982 Closed (Loans 2201-PH & 2202-PH) exploration and strengthen the exploration capabilities of Bureau of Energy and PNOC\. Geothermal Exploration Project Improve national strategy for geothermal 1982 Closed (Loan 2203-PH) exploration, government geothermal development policy and institutions; facilitate private involvement in geothermal exploration, etc\. Bacon-Manito Geothermal Power Project Support the least-cost source incremental 1988 Closing (Loan 2969-PH) capacity for Luzon grid; and strengthen institutional capabilities and financial viability\. Manila Power Distribution Improve MERALCO's subtransmission and 1989 Active (Loan 3084-PH) distribution system and its institutional capacity\. Following operations: Japanese NPC-JEXIM component of First phase of a least-cost energy sector 1992 Active (Loan 3163-PH) development program\. Rural Electrification Revitalization Project Enhance National Electrification 1992 Active (Loan 3430-PH) Administration's effectiveness, REC's Investment Program for 1992-95\. Power Transmission & Rehabilitation Project Alleviate power shortage in Luzon\. 1993 Active (Loan 3626-PH NPC) Leyte-Cebu Geothermal Project Develop geothermal resources for power 1994 Active (Loan 3700-PH/Loan 3702-PH NPC) generation, strengthen institutions and their financial viability\. Leyte-Luzon Geothermal Project Develop geothermal resources for power 1994 Active (Loan 3746-PH/Loan 3747 3747-PH NPC) generation, strengthen institutions and their financial viability\. Power Transmission & Rehabilitation Support the government's plan to restructure 1996 Appraisal (Loan - PH) the National Power Corporation and power stage sector privatization\.  39 Annex B Table 1\. Loan 3163 to NPC (in US$ millions) Palinpinon 80MW Geothermal Plant 105\.1 Various 69 kV Transmission Lines 19\.2 Sucat Thermal Plant rehabilitation 2\.3 Spare Parts 28\.9 Fuel for power stations 38\.3 Hydro plant feasibility studies 6\.3 GRAND TOTAL 200\.0 Table 2\. Loan 3164 to PNOC Bacman II Steam gathering System 9\.6 Cosumables for drilling operations 61\.7 Drill Pipe 3\.1 Tools 2\.7 Technical services (incl\. rig rental) 24\.2 Equipment for civil works 13\.0 Consultancy services 3\.6 SUBTOTAL (PNOC-EDC) 118\.0 PETRON COMPONENT 20\.0 - Gasoil desulfurization unit -LPG treatment facilities upgrade CANCELED PORTION OF LOAN 10\.7 GRAND TOTAL 50\.0 40 Annex B Table 3\. Loan 3165 to GOP DOE component 2\.8 - Construction of office building 1\.1 - Studies 0\.7 - Institutional Strengthening (TA & Training) 0\.9 ERB component 3\.5 Studies and TA Training Office equipment EMB component 6\.6 Monitoring & lab equipment, vehicles 6\.2 TA/Consultancy services 0\.3 Training 0\.1 NEA component 18\.3 Office & communication equipment 1\.0 Equipt\.& materials: Rehab\.of REC distbn\. networks 8\.0 Testing equipment 1\.2 Transformer & substation packages 7\.6 Training & TA 0\.6 CANCELLED PORTION 8\.7 GRAND TOTAL 40\.0 41 Annex B Table 4\. NPC Monitoring Indicators 1992 1993 1994 1995 1996 ACHIEVEMENT OF GOALS: Total Energy Sales (GWh) 23,958 24,805 28,745 31,031 33,381 Net Sales (Excluding Test-Run) 23,875 24,712 28,520 30,356 32,549 Power Sold/Total Pop\. (kWh/person) 395 409 474 452 487 MANAGEMENT/EFFICIENCY: # Days Accounts Receivable 38 39 36 38 37 % Receivables on Billing 10\.7% 11\.9% 10\.3% 11\.1% 11\.2% Total No\. of Employees 14,208 14,560 15,794 14,742 13,119 # of Operational Employees 11,185 13,142 12,448 12,164 11,024 Personnel Cost on Revenues 3\.8% 3\.9% 5\.0% 6\.4% 6\.4% Sales per Oper\. Employee (MWh) 2,142 1,887 2,309 2,551 3,028 % Total Energy Losses 6\.8% 6\.8% 6\.1% 6\.8% 6\.3% FINANCIAL RATIOS: Average Tariff - P/KWh 1\.5768 1\.6385 1\.7717 1\.7282 1\.9551 Average Tariff Increase P/KWh 0\.18 0\.06 0\.13 -0\.04 0\.23 Average Tariff - USc/KWh 6\.3 5\.9 7\.3 6\.6 7\.4 Working Ratio 62\.4% 60\.3% 61\.1% 56\.9% 59\.5% Operating Ratio2 81\.2% 83\.5% 76\.1% 78\.0% 79\.1% Rate of Return - NPC's Charter? 6\.8% 5\.7% 8\.0% 7\.0% 7\.9% Rate of Return on Reval\. assets4 7\.1% 5\.9% 8\.3% 7\.3% 8\.2% Return on Capital Employeds 10\.7% 13\.9% 18\.2% 21\.5% 8\.6% Net Profit - Million P 2,440 1,365 7,460 3,914 5,543 Net Profit on Equity 6\.1% 1\.9% 7\.2% 3\.7% 5\.6% Self-Financing Ratio (3-Year Av\.)6 5\.9% -12\.0% 17\.4% -3\.3% -5\.3% Debt Service Coverage7 1\.13 1\.49 1\.15 1\.15 1\.31 Interest Coverageg 1\.28 2\.32 2\.37 2\.39 2\.75 Debt/Equity Ratio9 84% 86% 75% 83% 93%* Long Term Debtlo 67,306 96,004 103,750 152,220 297,839 1\. Operational expenses excluding depreciation/operational revenues\. 2\. Total operational expenses (including depreciation & provision for d/a)\. 3\. Operating income on net average fixed assets plus one sixth of cash operating expenditures\. 4\. Operating income on net average revalued fixed assets in operation\. 5\. Profit before interest and taxes/total equity and reserves\. 6\. Cash available from operations/3-year average capital expenditures\. 7\. Operating cash flow divided by debt service (principal plus operational interest\. 8\. Profit before interest and taxes/total interest (operational and capitalized)\. 9\. Long-term debt/(long-term debt plus total equity) [* 1996 is estimated]\. 10\. Includes lease obligations for BOT plants amounting to: P35,429m\. in 1995 & P169,544m\. in 1996\. Sources: NPC & Bank SAR # 14844-PH\.  43 Annex C Comments from Borrowers IRepublic ar:hehilippines \. DEPARTMENT OF ENERCY 12 Mach Ip98 Mr\. VIny Bargava \.COatry DIrector Phluppine East Asia and,Pacift Regius the WMrld\.Dank Resident,Missi Philippinu§ 23 d Floor TRipan Plao Emerld Avenue, Ordgas Centcr Pasig City Daar Mr\. lehargava: This is in responu ta your roquett for o=mm= on\.he DrfR Adit Perormwne Rgport on the Phiippine EnergyStor Loan Prqojet No\. 3165, '~1tio y céithe vaious componnts fnder thå institui~nl strengthsning of sector entite1 Plas bé advised of the: project's positive impa=t\. on jhcingf/ru ~thein DOE's\. cpabiities in t=ms of planning and progrm iplementatioit as 'el as in the,ethbHhmcnt of an efctive monitorig and ärcoimting asystera 'Fr a oE detailed commnt on our evaluaion of th governmänt portion of the bon, nclosed pluase findour input to the d andit report\. We tst you fnd everything in ordr, Very tralJy yours, 44 Annex C Comments on the WB-Energy Sector Loan No\. 3165 L Department of Energy A\., Institutionaijzation of Methods and Procedres f6r Logo N- Conventonal EIrm\. Plaznina at the Rosio1nal nd Sub-Re anal Levels (Non-conventions1 Eniery PSropam) The Framework Study under this component pavt4 the way for the implementation of new and renewable energy accountmg and coordation syat*ms\. It established the ooordination network in 3iOionovenionAI\. or renewable sector among the different government and\.private\. agencis and groups\. It likewise established the vertical and horizontal ieishis of the various sertors and organizations that are directly affiotingenergy uses\. The "Cesus of National Capital Region" study on the other hanW, illed up one of the'DOEs data gajs as it provided the atual atabase for new and renieable eneWy in the Metro Manila ar\. On the raimng seminar and equipment outay, the IAP softwPare mode4 seminars, conducted under this project was abic to provide the skills in enabling these planer to analyze available resources and prevailing consumption putterns and in the process forecast f&Utre qnrgy situtiomk Through the hardware procured under this compomwt, the non\. conventional encrgy database was established\. Similarly\. the laboratory and field instrwots gave the -proponent first hand, quantitative dat* on the local ccrgy resources available in the country allowing [mulatio of reliable estimates of non-conventional onergy contribution to the eiergy mix\. B\. Power System\.Elanninromint As envisaged in the appraisal report, training on the Power Sytt:A Planning (PSP) Software was conducted among conccrncd, agencies namely, Nadonal Power Corporation, National \.':Electriflat6on Adutinistration, and private utilities\. like MERALCO\. As an offshoot\. the PSP is now being utilized as a basic planning tool on toe flmuilaCan 'and updatimg of the Power Development Proguam whic4 lays down, the log, 45 Annex C term plan tomeet the futue power requirements of the country,V&s4-Vs the coiny's economic growth rates\. C\. MraDatab Despite the' non-completiot of this project duo to ftLe failum \.of the contractor to deliver the required database systemt, systems developmet activities such as rescarch\. programming and systems analysis which provided useful data were undertakcn\. D\. En3onmentaL Imnacis of Accelerated Geothermal Deveopasi The: recommndaions of this stu4 reafarmed the DOE's policy thrust of putting in place 'initruments that will guarantee \.an in a*d \.anMry- Gavirofl2mAt approach in energy project developient\. The one top ebop coucept in scoing environmental permiuts for encrgy projects is: now in place in line with the DOE's role to facilitate the srOung of:the Environmenthl Compliance Certificate of\.all projects which is ndtakmn by the Environmental Protection -and Management Division,e'f Fur\.DOE\. Further, the Memorandum of Agreement \.definig the role 0nd responsibility of DOE in lnvirOnMental permits i coordinai with the- Depustment of Environmet and Natural Resources is schedu 4 to be signed during the second quarter ci the year\. E\.' Mannower Tranin zud Building ExpansionProrm The above cited impact of institutional strengtheningca4 also IN qnindc iz oras of the number of employees that were able to-avaiI'WS-ESL ,d4I for training\. As of the end of the Project a total of 431 DOE kmploye\. availed of the fud\. The construction of the new building responded to the Aued'for hritional spacs for oMos, working areas, supplies and necessary equipment in view of\. the transfomation of, the then Offic of Funcrgy Alfars \.into a\. Depadment lovel\. II, E%vironmental Managemeut Bureau A\. Fo Line 11tem 3 &18\. P 15E* Requests deletion of the\.phrae "EMB's Qmssion to requems GOl budge appropriations" inasmuch as the project undertook soe of the activ 46 Annex C during the second year of its implementation despite t&e non-relase of th\. loan allocation\. utilizing only the GOP couaterpart,amounting to six millioan five hundrd pesos (P6\.5 m)\. B\. Line 5\. hM 3 &18\. Dage 15 Requests the deletion of the sentence 'This shows a low lvel of EMB and GOP commitment to the pursuit of project objectives\." since the project ba sudcessfully achieved its yearly target and satisfavtorily disbursed,: the budget annual allotmet as released by the Philippine Depasthntsof Budget and Management\. The maior factor that hindered loan ava t during the first two years was the implementation of the procedure 'on special account mcchanism wherein the National Eletiation Adminisation (NEA) and the EMB have a common-special account The NEA \.had been slow in their disbursement, Corrsponingly\. dlaying EMB's loan availment\. In view of this, the\.Bureau opled to ;ue direct payment scheme to expedite implementOWion of the project\. 47 Annex C PNOC ENERGY DEVELOPMENT CORPORWIoN9 AHl1: P\. PNOC Energy Compania SIdg\. Mefritt Road\. Fort Sonifacio\. 1201 Makati Ciy\. Philippines P\.O\. Box 2102 MCPO Tel\. No\. 93-6001/1320 March 6, 1998 Mr\. Vinay Bhargava Post-V Fax Note 7671 Dale # Country Director, Philippines F , m' 4 East Asia and Pacific Region To F\. w& R dk Resident Mission Philippines CoMept\. _Co_W&_A_4P_ 23rd Floor, Taipan Place Phone # Shwe *(;Z) 9/7- 3007 Emerald Avenue, Ortigas Center SR:Z / F-* t Pasig City Subject: Ene'= Sector Projects Draft Audit Performance Report We have reviewed the World Bank (WB/Bank) draft Audit Performance Report for the Energy Sector Projects and below are our comments and suggestions\. 1\. Reference: Page 1, Par\. 3; Page 13, Par\. 3\.8 "\. of the 38 wells drilled only Lare useable for production or reinection\. Please change the figure 13 to 15 based on the attached submission to the WB audit representatives in May 1997 - "Status of 38 Wells Charged to IBRD Loan 3164-PH" (highlighted for your easy reference)\. 2\. Reference: Pages 2, 3 and 26 - Principal Ratiugs/Performance Ratings The report provided explanations on the principal ratings given on page 3 for the Energy Sector Project as a whole\. We suggest that explanations corresponding to the performance ratings found in Table 5\.1 on page 26 for each implementing agency be also provided\. The Bank should qualiy its rating of "marginally unsatisfactory" on PNOC EDC in terms of "Outcome" (Table 5\.1) as the project outcome were based on 76 wells and 380 MW FCDS using a WE funding of USS133 million which the WB had indicated to be inadequate\. If we will count the total investment required for the 76 wells and the 380 JvIW FCDS it will require a funding of (USSI 14 +USS380) US$494 million\. The project output of 38 wells and 40 MW FCDS is commensurate with the WB input of US$133 million and should therefore be satisfactory\. 48 Annex C 3\. Reference: Page 10, Par\. 2\.11 "The assessment of risks was weak in several areas\. First, the geological andfinancial risks PNOC faced in its geothermal drilling program were glossed over\." The appraiser should give recommendation on how the assessment of risks could have been strengthened in the light of the facts and circumstances available during the time of project appraisal\. It is very easy to make this statement now since thesewere based on hindsight\. Had drilling been successful, it is doubtful whether the appraiser will still make these statements\. 4\. Reference: Page 11, Par\. 2\.11 "\. Other Bank-financed drilling under a parallel project on Luzon was also unproductive\. The contribution of geothermal energy to increased power production in Luzon was thus greatly- overestimated" This is unfair, since at the time of the project appraisal this may be the best estimate available in the light of successful experiences with available geothermal projects such as Bacman I, Tongonan I, and Palinpinon I\. 5\. Reference: Page 12, Par\. 3\.2 "\. The cost of this plant (more than USS1,30/kW) is also much higher that the Bank- financed IIOMW Bacman I geothermal plant (USS9804cW) that was completed shortly before Palimpinon\. It also compares unfavorably with the most recent privately financed geothermalplants on Leyte, which average under USS1,000/kW " This is not true since the BOT power plant projects contracted cost is from S 1,200/kW to 31,500/kW\. 6\. Reference: Pages 12 & 13, Par\. 3\.5 "Of the USS150 million lent to PNOC, US$13J million was earmarkedfor geothermal investments \. Given the size of the program and the high average cost of wells (more than US$1\.5 million each), this allocation was inadequate\. Unurprisingly, implementation fell far short of these targets; only 38 wells were drilled, and 4-0MW of FCDS capacity installed Had the exploration drilling program proved to be successful, the additional funding requirements could have been generated through private sector participation which is one of the objectives of the project\. 7\. Reference: Page 13, Par\. 3\.6 "Neither the SAR nor the ICR offers a technical, economic, or financial evaluation of PNOC's geothermal exploration program\. The drilling program undertaken was very different from that expected at appraisal\. The 76 wells to be drilled were divided across six different areas in Lzon\. Only six wells were drilled in Luzon \. Twenty-eight wells were drilled in Leyte which did not even figure as one of the six areas idennfied at 49 Annex C appraisal At that time, the Leyte-Luzon and Leyte-Cebu electrical grid nterconnections had not been adequately studied to justify concentrating more driling effort on Leyte\. particularly as the area's potential was already relatively well known\." PNOC adopted a prudent approach in its drilling program by concentrating first in Luzon and later on in Leyte\. Had the Luzon drilling activity been successful it could have avoided the Leyte-Luzon interconnection since the bulk of the power dena'nd is in Luzon\. The fact that not all programmed wells were drilled is to minimize losses by not pursuing drilling in areas where the results of initial drilling indicated low probability of success\. S\. Reference: Page 13, Par\. 3\.9 "OED also found that PNOC used the Bank loan to purchase USS62 million of drilling "consumables ", about USS30 million more than required for the 38-well program\. According to PNOC these items have been used in the drilling operations of the two follow-on Leyte projects\. PNOC does not appear to have sought Bank approval for its decision to "over-procure" drilling consumables as a way offidly using the loan\. " PNOC followed WB procurement guidelines and did not "over-procure" since the procurement were based on -program requirements\. If PNOC EDC had adopted a piecemeal procurement it could have become costly and could have resulted in project delay\. Anyway, there have been no losses since the excess materials were later used in the Leyte project 9\. Reference: Page 14, Par\. 3\.11 "\. The FCDS was completed in April 1994, but only the first 20MW unit has been commissioned by VPC\. due to major completion delays arising from a contractual dispute\. Please change the above statement to read: The FCDS was completed in April 1994, but only the first 20 MW unit has been commissioned by NPC, due to major completion delays of the second 20MW unit of NPC arising from a contractual dispute\. We would like to clarify that the subject dispute is between NPC and its contractor\. 10\. Reference: Page 22, Par\. 4\.15 The PNOC steam supply systems (Bank financed) and Lre BOT power plants amounting to\. Please change the word three to four\. II\. Reference:\. Page 22, Par\. 4\.16 NPC has to pay PNOC EDC about USS7 million per month for power it is unable to draw\. For its part\. PNOC paid the IPP 977 million pesor (USS38 million) for capacity charges on the idle power plant during the second hal of 1996\." 50 Annex C We prefer the US$7 million above be expressed in currency used in billing, i e\., peso\. The amount is about P200 million per month\. Please change 977 milhon pesos to 947 million pesos and accordingly, the corresponding US Dollar equivalent based on the applicable exchange rate used by the Bank\. 12\. Reference: Page 24, Par\. 5\.3 "\. The Bank's inpu into the design and implementation of the government 's BOT ininative aimed at solving the power shortages of the early 1990's was mmnimal\. At best the Bank was unenhusiastic, at worst it opposed the GOP solution\." This is not true as the Bank supported the BOT scheme for Leyte- Cebu and Leyte-Luzon\. 13\. Reference: Page 27, Par\. 6\.4 "PNOC-EDC's explorazion program has been costly and the results have been mixed Recouping the costs of unsuccessful exploration filly through the sale of steam for power is not possible under the current fiscal regime\."' It is only costly because of the unsuccessful wells\. However, since we have factored in the cost of these unsuccessful wells as part of the total cost of geothermal drilling and PNOC had adopted a prudent approach to minimize these drilling losses, the exploration program has not been costly\. With 40MW discovered for a WB input of USSl33 million, the outcome has adequately covered the cost\. 14\. Reference: Page 28, Par\. 6\.7 (b) "Geothermal exploration can be as risky as oil and gas exploration but yields lower returns because the end product is less valuable and impossible to transport over long distances\. Accordingly, greater caution is required to evaluate risks and a relatively generous fiscal regrme is needed to allow geothermal investors to recoup their costs\. While we agree that a relatively generous fiscal regime is needed to improve the return on investment we do not agree that it is as risky as oil and gas exploration based on the result of the project\. We hope that the above comments and suggestions be considered in the final report\. Very tru) yours, R/PI /BPL NAZARI VASQUEZ President Attach 51 Annex C Attach\. STATUS OF 38 COMLVPLETED WELLS CHARGED TO IBRD LOAN 3164 P\. PROJECT/AREA WELL STATUS 7'70 DESIGNATION I\. Luzon 1\. BacMan II OP-6D Production Well, Botong 20 MWe Plant CN-2RD RI Well, Cawayan 20 MWe Plant CN-3RD RI Well, Cawayan 20 MWe Plant\. 2\. Mou4t Labo LB-4D Potential RI Well LB-5D Potential RI Well LB-6D Acidic, Will not be used \. Visayas 1\. No\. Negros HG-ID Non-Commercial (WHP) Well, Potential RI Well PT-ID Plugged and abandoned CT-ID Non-Commercial, Potential RI Well PT-2D Will be acidized to increase permeability and commercial viability 2\. Greater Tongonan/ 4R\.2D RI Well, Upper Mahiao 125 MWe Plant Alto Peak 4R3D RI Well, Upper Mahiao 125 MWe Plant 4R4D (Top Hole) Re-entered and completed as RI Well, Upper Mahiao 125 MWe Plant 5R2D Very tight Well, will not be used MG-IRD Very tight Well, will not be used MG-2RD Very tight Well, will not be used MG-3RD Very tight Well, w;I not be used MG-4RD Very tight Well, will not be used MG-3D Production Well, MG-A 120 MWe Plant IMG-4D RI Well , MG-A 120 MWe Plant MG-7D Production Well, MG-A 120 MWe Plant MG-SD Very tight Well, will not be used MG-9D Acidic, reserve RI Well, MG-A 120 MWe Plant 52 Annex C PROJ WELL STATUS DESIGNATION _ I MG-IOD Very tight Well, will not be used ' MG-i1D (Top Mole) For re-entry MG-12D (Top Hole) For re-entry MG-13D Production Well, MG-A 120 MWe Plant NIC-14D -Production Wall\. MG-A 12C MWe Plant MG-15D Pl Well, MG-B 60 MWe Plant MG-16D Production Well, MG-A 120 MWe Plarnt AP\.1D' 2 MWe Production Well A\.P\.2D' 17 MWe Production Well AP-3D Non-Commercial AP-4D Nqn-Cormmercial AP-5D' Non-Commercial AP-6D Plugged and Abdndoned 2 Mahagpao NMI-TD Limited permeability\. for further test NUIT-2D Cold Well, may not be commercial Entire Alto Peak'devclopmen abandoned in nid-1996 as resource area is small and acidic\. 53 Annex C REPUSUKA No PILIPINAS Pambansang Korporasyon Sa Elektrisidad (NATIONAL POWER CORPORATroN) CASRSQ 98-055 April 3, 1998 Mr\. Vinay Bhargava Country Director, Philippines East Asia and Pacific Region The World Bank 23rd Floor Taipan Place Emerald Avenue, Ortigas Center, Pasig City Dear Mr\. Bhargava Subject: World Bank Report - Energy Sector Projects (Loan Nos\. 3163,3164, and 3165) Thank you for furnishing us your draft performance report on your Loan Nos\. 3163, 3164, and 3165\. We find the report incisive and on the whole acceptable\. But, we woLid like to make some clarificatory comments on the points you have raised particularly on some portion of the preface and on key issues 4\.1 - 4\.5, '5\.5, 6\.2 and 6\.6 to put things\. in their proper perspective:\. 1\. On Preface a\. 40 Paragraph 6 sentence- "\. the- projectCclearly--failed- to put the power sector on a ffnancially sustainablelfooting: NPCt finances are still very fragile,-" For a project with a loan amount of only $200 million, we don't expect it will ;ropel NPC into having a sustainable financial footing\. We have to remember that a project has considerable gestation period before it can be self-sustaining\. If ever it is able to do so, it can only contribute to a certain extent to NPC's Iquidity but never to a point of making the whole NPC's finances stabia\. There is obviously a mismatch in assessing the actual purpose of the loan with what the report purports it to be\. b\. 4't Paragraph 7th sentence - "\.NPC already over-indebted and urgently needs a substantial equity Injection\." and 51h Paragraph 2" sentence - " \.no evidence that the governments success in attracting private capital to invest in power generation can be attributed to this project \.' We have always pointed out to the\. government that the major problem of NPC is undercapitalization\. But the government is also in dire straihs so we have to resort to BOT as a means of providing capital to power projects and later orivatization\. 54 Annex C inasmuch as the level of investor confidence was on the low side at the time, the BOT terms we had were not necessarily on the least cost side\. The priority then was just to address the power crises\. But now, with increased level of investor confidence, we are able to attract more investor and solicit better terms\. 2\. On 2\.9 and 3\.2 - Delays in project implementation While admittedly there were delays in the implementation of the project, we cannot say however, that NPC does not have the capability to carry out the project because it was able to overcome all the problems: commonly attendant in govemment bureaucratic processes\. The lessons, learned prod\. us to further streamline the process\. 3\. On 4\.1 - NPC's insufficient cash in 1991 to meet its short-term operating needs The tight cash position of NPC at the time was primarily brought about by external adverse events not of NPC's making: the eruption of Mt\. Pinatubo where NPC's operations in and near the area were wildly disturbed; the severe drought that caused NPC to use expensive fuel where the additional cost was not 100% recoverable despite the implementation of the Fuel Compensating Charge; increase, at the same time, in fuel prices as a result of the Gulf War; and followed by the precipitate depreciation of the peso which made debt servicing quite a burden\. We had wanted to increase our tariff in 1990 and 1991, when we sustained operational losses, but given its unfavorable social impact and the bleak economic scenario enveloping the country at the time as described above, the proposed increase was implemented only in 1993\. The NP Board had actually approved this increase but was suspended by a Temporary Restraining Order issued by the Supreme Court upon request of consumer-\.groups\. and labor, sector\. To top all of the above, NPC's\. tax exemption -privileges were\. questioned- that resulted to the non-refund of about\. P15 billion cumulative taxes:and duties\. It was only on June 8, 1993 that the Supreme Court reaffirmed with finality NPC's tax and duty exemptions\. In the meanwhile, the government, to enable NPC to meet its obligations, had to infuse R3\.6 billion (US$135 million)' in 1994\. The rate base used to compute the rate of return on assets was not revalued, in termis of local indices, during 1988 - 1990\. But in terms of foreign exchange fluctuations, the rate base was effectively appraised as the revaluation of foreign loans at the end of each year is added to the asset account\. The result of the independent appraisal done for this period i\.e\. 1988-1990, was recorded in 1992\. Hence the basis of the latest basic rate increase in 1993 was already reflective of the appraised values of operating assets\. Gross internally generated funds after changes in working capital accounts for the years 1987 - 1990 were positive before the debt service\. The deficit resulted only after deducting the total debt service inclusive of both the restructured loans and the amount due for tlocking which was considered as new loan\. Later converted into an equity contribution\. 55 Annex C 4\. On \.4\.3 - Reasons proffered for the continuing\. precarious financial situation of NPC a\. 1st sentence (1st clause) - "\. with attendant foreign exchange risk\." This refers only to the interest expense portion of the foreign debt\. FOREX fluctuations on the principal debt-servicing of foreign loans, foreign denominated purchased power and other operating expenses are automatically passed on through the recovery adjustment mechanisms implemented starting 1994\. Since INPC's interest payments are greatly affected by-the peso's depreciation,:, NPC is looking into various measures,to\. reduce, the;same NPC\.is:thust pursuing! with the Bangko' Sentral\. ng:\. Pilipinas,- the- approval- of" NPC's- entry into cross,\. currency and interest swaps and possible refinancing of maturing loans with zero coupon bonds or other financial instruments with lower interest costs\. b\. 1t sentence (3rd clause) - "\. large investment\.,(exceeding US $1Billion annually)" NPC investment program exceeded US$1 9 only in 1997\. In 1998, investment is estimated at less than US$600 million\. c\. 1" sentence (4mh clause) "\.ceiling of 10%\. prevents NPC from increasing its internal cash generation\." The rate of return ceiling was increased from 10% to 12% pursuant to the Electric Power Crisis Act of 1993\. However\. even at \.10%, the return could not be met because NPC's basic rate has remained stationary for three years, even though there were substantial additions to operating assets\. Besides, there is a limit to what the public, can bear\. Thus- only- autonatic\.recovery-adjustmentsiwere implemented- startingA 994-to-:recover, -changes;iin fuel\. prces,purchased::power- costs as well as foreigr exchangefluctuations-on the principal idebt- service and foreign denominated operatingeexpenses\._ d\. 2nd sentence - "_ NPC3s self financed contribution to investment was once again negative in 1995"7\." After the improvement in 1994, NPC's self-financed contribution to investment was negative only in 1995 when principal debt-service rose due to full payment of restructured Paris Club loans\. This left NPC with no ICG to finance 20% of capital expenditures\. However, following World Bank computation where capital expenditure is an average of a three-year period, self-financed contribution to investment was negative for 1995 and 1996 only\. Be that as it may, perhaps it would do well for the World Bank to likewise reconsider imposing a certain self-financing ratio as the ADB has already removed its previously mandated 20% self-financing ratio\. It just stuck to a debt- service ratio of 1\. 56 Annex C e\. 4" sentence - "Delays in commissioning on-going transmission projects\." An addendum agreement was executed between PNOC-EDC and NPC wherein the contracted energy would be paid by NPC upon the commercial operation of Leyte A\. But said contracted energy was treated as stored energy which would be lifted in the future based on agreed schedule\. 5\. On 4\.4 - "Since its near bankruptcy In 1991\." The more appropriate term to use is severe! liquidity problem as fortified by the current ratio of 0\.70 and Fixed Assets\. to Long-Term Debt\.of\. 1\.09: From 1990 - 1994, there were equity infusion in the form ofl cash and equity conversion of the government's advances for NPC's debt service amounting to P5\.5 billion and R6\.5 billion, respectively\. Notwithstanding such equity infusion, NPC remains undercapitalized as the total equity Infusion at 223\.3 Billion as of 1997 represents only 3\.77% of total assets\. At the end of 1996, NPC's debt to equity stood at 75:25 mainly due to the increase in loans and capital lease obligation with the coming in of Pagbilao Coal Fired Power Plant amounting to P144 Billion\. The ratio catapulted to 80:20 at the t -d of 1997 attributable to the revaluation of said loans and capital lease obligation 8: a result of the hit sustained from the regional currency crisis\. 6\. On 5\.5 - The Bank's unsatisfactory rating of its project-related performance through Loan closing (end - 1995) More than the review done on the project itself, there\. is a -need to emphasize that the financial crunch that\. NPC finds itself-in is'mainly due to under-capitalization\. Paid-up capital is only P26\.45TBillionout of the authorized capitalization ofEP50 Billion; compared to\. total\., assets-\.it is just roughly 4 3%\. This, compared with the extensive capital outlay required to continuously put up new facilities an& upgrade existing ones, there is no way for NPC to get out of the quagmire except to resort to foreign borrowings, making it highly leveraged in the end\. The regional meltdown further worsened the condition\. Also, the mismatch between the average life of the assets at 19 years as against that of the loans at 9 years, need to be lo:ked into, in so far as it directly affects NPC's liquidity\. 7\. On 6\.2 4"' sentence - "\.lent over $800 million to a non-creditworthy NPC\." We have attached an updated Indicator (Table 4 of the WB report) up to 1997\. As presented, there were improvements in some of the ratios compared to 1996\. NPC, though in tight financial condition in the past and even now, has never defaulted in any of its loans\. Given also the discussion in no\. 4 and the various reforms2 being instituted, the adjective 'non-creditworthy' should be reconsidered\. 2Open Access Transmission Service, One-day Power Sales Contract\. Bulk Power Supply, Unbundling of Tariff, etc\. 57 Annex C The raison d' etre or reason for being of the World\. Bank is to help distressed countries and put it in good stead\. If NPC or the whole Philippines for that matter has been non-credit worthy for the last ten years, to whose succor would NPC or the national government turn to - to the commercial lenders? If that be the case, then the World Bank would have been a big letdown\. 8\. On 6\.6@ - "It is unrealistic to expect power developed with private funds to be least-cost in the "traditional" sense\." This may not be true\. The early projects developed with the use of private funds\. were procured during the impending occurrence and-during,the occurrenceof power shortages\. They are really far from "least-cost\." But, projects, procured,with the private funds after the crisis showed a downward trend and the costs are approaching the "least-cost" For your consideration\. \.A\. ELGADO *- President cc: M\. T\. Nufiez Project Director, IBRD

REVIEW

P004834

Document of The World Bank Report No: 27427-VN IMPLEMENTATION COMPLETION REPORT (IDA-27110) ON A CREDIT IN THE AMOUNT OF SDR 67\.0 MILLION (US$ 100\.0 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR A IRRIGATION REHABILITATION PROJECT December 22, 2003 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2003) Currency Unit = Vietnamese Dong (VND) 1 VND = US$ 0\.65 US$ 1 = VND 154970\.0 FISCAL YEAR Government: January 1 December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank DAF Development Assistance Fund CAS Country Assistance Strategy CPO Central Projects Office DARD Department of Agriculture and Rural Development (provincial) DCA Development Credit Agreement DFE Department of Fisheries and Environment ERR Economic Rate of Return FAO Food and Agriculture Organization GoV Government of Vietnam IBRD International Bank of Reconstruction and Development ICR Implementation Completion Report IDA International Development Association IMC Irrigation Management Company IRP Irrigation Rehabilitation Project M&E Monitoring and Evaluation MARD Ministry of Agriculture and Rural Development PMIS Management Information System MTR Mid-Term Review O&M Operation and Maintenance PAF Project Affected Family PIM Participatory Irrigation Management MIS Project Management Information System POM Plan of Operations Management QAG Quality Assurance Group RAP Resettlement Action Plan SAR Staff Appraisal Report SDR Special Drawing Right SIO Sub-project Implementation Office MWR Ministry of Water Resources WUA Water User Association Vice President: Jemal-ud-din Kassum, EAPVP Country Director Klaus Rohland, EACVF Sector Manager Mark Wilson, EASRD Task Team Leader/Task Manager: Cuong Hung Pham, EASRD  VIETNAM IRRIGATION REHABILITATION PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 6 5\. Major Factors Affecting Implementation and Outcome 12 6\. Sustainability 13 7\. Bank and Borrower Performance 15 8\. Lessons Learned 16 9\. Partner Comments 18 10\. Additional Information 19 Annex 1\. Key Performance Indicators/Log Frame Matrix 20 Annex 2\. Project Costs and Financing 22 Annex 3\. Economic Costs and Benefits 25 Annex 4\. Bank Inputs 30 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 32 Annex 6\. Ratings of Bank and Borrower Performance 33 Annex 7\. List of Supporting Documents 34  Project ID: P004834 Project Name: IRRIGATION REHABILITATION PROJECT Team Leader: Cuong Hung Pham TL Unit: EASRD ICR Type: Core ICR Report Date: December 22, 2003 1\. Project Data Name: IRRIGATION REHABILITATION PROJECT L/C/TF Number: IDA-27110 Country/Department: VIETNAM Region: East Asia and Pacific Region Sector/subsector: Irrigation and drainage (95%); Central government administration (5%) Theme: Rural services and infrastructure (P); Other rural development (P) KEY DATES Original Revised/Actual PCD: 06/22/1993 Effective: 10/09/1995 09/13/1995 Appraisal: 09/29/1994 MTR: 11/16/1998 11/20/1998 Approval: 04/25/1995 Closing: 12/31/2001 06/30/2003 Borrower/Implementing Agency: GOV/MINISTRY OF AGRICULTURAL & RURAL DVELOPMENT Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam Kaji Country Director: Klaus Rohland Bradley Babson Sector Manager: Mark D\. Wilson Jeffrey Gutman Team Leader at ICR: Cuong Hung Pham William L\. Cuddihy ICR Primary Author: Cuong Hung Pham 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The aim of the Irrigation Rehabilitation Project (IRP) was to restore or establish irrigation service by rehabilitation and completion of infrastructure and the improvement of operation and maintenance in selected irrigation schemes\. The project's objectives were to increase agricultural production (primarily of rice for food) and farmer incomes, and reduce poverty\. IRP's aim and objectives were relevant and appropriate at the time and have build a foundation of experience in the Government of Vietnam (GoV) for further investment by the Bank and other donors\. IRP was the first World Bank-assisted irrigation project in Vietnam since the 1970s and only the second in the rural sector after the Bank's return to Vietnam in 1993\. The project concept grew out of a joint GoV and FAO-IBRD Agricultural and Food Production Review in 1989 which concluded that the highest priority for irrigation and drainage was the rehabilitation, repair and upgrading of existing irrigation schemes in the northern and central regions, followed by the completion of schemes in the Mekong Delta\. When international donors returned to Vietnam in 1993 this GoV priority was reflected in the World Bank's first Country Assistance Strategy (CAS) which was approved by the Bank's Board of Executive Directors on October 25, 1994\. A primary objective of the CAS was rural poverty reduction\. Vietnam's poverty rate in 1993 was 58 percent and its rural poverty rate 68 percent\. The strategy to reduce rural poverty included the allocation of land-use rights to farmers, freeing-up of agricultural factor and product prices, and targeted projects to improve rural infrastructure\. The project was consistent with the CAS' recommendations\. The GoV signed a Development Credit Agreement (DCA) on July 11, 1995 to implement a US$ 135\.7 million with IDA financing of US$100\.0 million (SDR67 million) of which US$79\.5 million was disbursed and US$20\.5 million was canceled\. Given Vietnam's unfamiliarity with Bank procedures, managing the project, which contained a number of related activities which were dispersed geographically, provided a formidable challenge to the GoV\. Achieving the project's goal and objectives required the successful integration of: (i) seven multipurpose civil works projects, (ii) numerous institutional development activities, (iii) appropriate resettlement and compensation programs for affected farm families, and (iv) meaningful environmental safeguard measures\. Achievement of the project's objectives required an effective management systems able to work through regional and provincial offices and agencies\. At the time of project preparation and start-up, devolved management systems were being introduced into Vietnam's public sector for the first time\. In 1993, the designated implementing agency was the Ministry of Water Resources (MWR) which in 1995 became part of the Ministry of Agriculture and Rural Development (MARD)\. MARD's Central Projects Office (CPO) and its Sub-implementation Offices (SIOs) - responsible for all donor-supported irrigation projects - were established only in 1994\. However, the mutual respect shown among Vietnam's development partners and the responsiveness of the project to Vietnam's development priorities provided a satisfactory environment and incentives for these new management units to pursue the project's aims and objectives effectively\. 3\.2 Revised Objective: The project objectives were not revised\. However, the scope of the project was expanded to respond to requests for additional work and to support flood damage repairs\. These additional activities were all consistent with the project's original aims and objectives\. Additional work as agreed and reflected in amendments of the DCA allowed the Credit to be used to: (i) extend the scope of rehabilitation work within - 2 -  some of the original subprojects; (ii) include new subprojects with comparable rehabilitation needs in the same regions as the original subprojects; and (iii) respond to urgent requests for flood damage repair work in the project areas including dam safety inspections and repairs following acute floods in 1998, 1999 and 2000\. By applying national and international competitive bidding for goods and works actual project costs were well below the estimates made during preparation\. These project savings were used to finance the additions to the seven original subprojects, to add seven, new small rehabilitation subprojects and to repair flood damage\. These changes were formalized in three amendments to the DCA: (i) in 1997 to finance retroactive works; (ii) in 1999 to extend project support to tertiary system development of areas less than 150 ha; and (iii) in 2001 to reallocate project savings to new areas for rehabilitation, to flood damage repairs and to extend the project duration by 18 months\. By making these changes, the project financed more rehabilitation work than originally planned and provided funds responsively in emergencies\. Nevertheless, despite these additional activities, total actual project costs were about 80% of the estimated costs and 20% of IDA's credit was cancelled\. 3\.3 Original Components: The original project components as described in the Staff Appraisal Report (SAR - paragraph 3\.3) and agreed in the DCA (Schedule 2) were as follows: Component 1\. Rehabilitation and Completion of Seven Irrigation Schemes\. The first project component was for rehabilitation and completion of seven irrigation schemes with a gross area of 130,000 ha located in southern central and northern regions of Vietnam\. The main works included rehabilitation of diversion and head works, main canals, structures and pump, and completion and construction of main, secondary and tertiary canals and on-farm works (US$108\.1 million)\. The seven subprojects were: (i) Cam Thuy in Thanh Hoa Province; (ii) South Nghe An in Nghe An Province; (iii) Linh Cam in Ha Tinh Province; (iv) An Trach in Quang Nam and Da Nang Provinces; (v) Thach Nam in Quang Ngai Province; (vi) Dong Cam in Phu Yen Province; and (vii) Hoc Mon and North Binh Chanh in Ho Chi Minh City and Long An Province\. Component 2\. Institutional Development The second component was for institutional development through (i) the transfer of technology for engineering design, procurement and construction of irrigation works through technical assistance and job training (ii) the improvement of operation and maintenance practices and cost-recovery mechanism; (iii) the strengthening the delivery services through irrigation management companies (IMCs) and farmer user groups through training; and (iv) support for accounting and auditing\. This component focused on strengthening the capacity of the MWR and MARD at the central and provincial levels (US$4\.6 million)\. Component 3\. Resettlement and Rehabilitation The third component was for resettlement of families whose land or assets were acquired by the state for the project to be carried out in accordance with the provisions of the Resettlement Action Plans (RAPs)\. This was the first time in Vietnam an irrigation project was implemented using the RAP (US$7\.4 million)\. Assessment of Original Components: Project design responded to the recognized need to rehabilitate deteriorated irrigation infrastructure and to extend civil works in unfinished irrigation systems\. By doing so, the project contributed to improvements in rural income and poverty reduction\. Agriculture continues to be Vietnam's major employer (about 60% - 3 -  of the national labor force) accounting for some 24% of GDP and exports, as well as providing essential food security for Vietnam\. During the 1990s, Vietnam went from a food deficit country to the world's second largest rice exporter largely due to the restoration of land-use rights to farm households, the freeing-up of farmgate prices and investments that improved rural infrastructure, including irrigation\. The component design was relevant and appropriate to the circumstances faced by Vietnam in the early-1990s and to the achievement of the project's development objectives\. The project's design adopted lessons learned from two previous IDA agricultural development credits in Vietnam: the Dau Tieng Irrigation Project (Cr\. 845-VN; ICR No\. 8239; and PPAR No\. 9993) and the Agricultural Rehabilitation Project (Cr\. 2561-VN)\. The limitations of MWR and MARD and the need to strengthen their administrative and technical management capacities were addressed in part through the advanced preparation of technical components (survey investigations and design of works) and provision of technical assistance to support implementation management\. The financial and organizational arrangements for implementation management, were in practice complex and the CPO shared responsibility for implementation with several other MARD departments and external agencies which resulted at times in delays in project decision making\. Although this is a critical weakness, it was not foreseen at appraisal and it contributed to implementation delays\. 3\.4 Revised Components: While overall project structure remained unchanged, the scope of work for the first project component (Rehabilitation and Completion of Seven Irrigation Schemes) was revised to increase the number of sub-projects to 14 and the geographic coverage from seven provinces to 12\. These additions - which were all much smaller in scale than the original subprojects, but involved similar rehabilitation works - were assessed in accordance with Bank policies for feasibility and safeguards\. The additions enabled the project to: (i) respond to acute natural disasters and the need for dam safety improvements revealed following acute floods; and (ii) extend project benefits to a larger number of sites - that were immediately adjacent to or very similar to those in IRP - but which had not been appraised originally because of expected financing constraints\. Cost savings resulted from the introduction of competitive bidding and prudent financial management of the project credit facility\. Actual subproject costs were much lower than those used in the project Feasibility Study that used administrative rather than market prices, in 1998 MARD requested the World Bank to reallocate savings to an expanded scope of work in order to repair flood damage and enhance dam safety, and to finance new and complementary works associated with the original subprojects or flood-damaged structures\. - 4 -  The Revised Project Component included the following additional works: Scheme / Works Province (i) Flood Damage Repair and Reinforcement Works Original and New Sub-projects and Associated Works (a) An Trach Quang Nam (b) Thach Nham Quang Ngai Province; (c) Thu Bon River Bank Protection Quang Nam (d) Phu Ninh Reservoir Quang Nam New Sub-project areas (e) Hoa My Thua Thien Hue (ii) Expansion Works Original Sub-projects and Associated Works (a) Dong Cam Phu Yen (b) Linh Cam Ha Tinh (c) South Nghe An Nghe An (d) Hoc Mon N\. Binh Chanh HCMC and Long An New Sub-projects areas (e) Kieu Thanh Hoa, (f) Kinh Mon Quang Tri (g) South Truoi Thua Thien Hue (h) Da Mai Quang Binh (i) Vuc Tron Quang Binh (j) Liet Son Quang Ngai (k) Duy Thanh sluice Quang Nam 3\.5 Quality at Entry: Quality at entry is considered satisfactory in that: (i) the project objectives were clear and consistent with GoV priorities for the sub-sector as well as the Bank's first CAS; and (ii) projects were appropriately appraised using reasonable risk assumptions\. The project design was coherent, incorporating lessons from previous experience and took account of the organizational arrangements and capacity of the implementing agencies that was emerging\. However, the highly decentralized approach to project implementation that came to be pursued by the GoV during the late-1990s was not foreseen\. The SAR did not include a logical framework or key performance indicators, but these were not required at the time the project was appraised\. Lacking these made the assessment of project performance and the completion of the ICR more difficult\. Perhaps the most significant weakness of the SAR was that it failed fully to quantify risks associated with varying degrees of progress in agricultural diversification and land-use change especially in the industrializing Mekong Region and with potential changes in the national policy environment\. Also, the assessment of procurement capacity could have been more rigorous for a new borrower\. The risks associated with inexperienced procurement offices handling large numbers of contracts (more than 230) for - 5 -  physical works and goods were not fully appreciated\. The geographic and dispersion of subprojects and the potential for delays in operating decisions were not recognized\. Based on assessments of implementation capacity, new accounting, procurement and information management systems were introduced\. However, MARD and the CPO were "learning by doing" and implementation delays were encountered\. The SAR adequately described the targeted physical improvement, production and economic benefits for each sub-project although in some it overestimated the extent of physical rehabilitation that was feasible under IRP\. For these subprojects, the SAR projected that all the remaining rehabilitation work will be completed under IRP when in fact it only completed the next phase of a long-term development plan\. Summary output and outcome indicators for each of the original subprojects are presented in SAR Tables 3\.1 and 5\.1 and SAR Annexes 1-7\. Some of the verifying SAR data were overly ambitious or inconsistent, reflecting data limitations prevalent in Vietnam in 1993-95\. This made the definition of some "with" and "without" project results imprecise\. It is important to remember that in the early-1990s when IRP was prepared and appraised, precise analysis and sharing of data did not exist in Vietnam\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The overall project outcome and the achievement of its objectives is rated satisfactory based on its contribution to improved of food production, food security and farm income, and poverty reduction\. While the original project was implemented more slowly than planned (closing was extended once by 18 months), it achieved its aims and objectives by strengthening and expanding irrigation infrastructure, developing more capable and responsible institutions and services and managing resettlement according to an approved RAP\. In addition, the project was extended to support rehabilitation in seven additional sub-projects and contributed to flood damage repair and improved dam safety following natural disasters\. The project produced substantial socioeconomic benefits\. The final achievement exceeded the appraisal targets in most categories, but utilizing approximately only 80% of the total investment support requested from IDA when the project was approved\. Additional benefits resulted from implementation of the seven new sub-projects - which expanded the extent of rehabilitation, enhanced dam safety and restored the integrity of systems that had been damaged by floods\. However, since implementation was delayed, most sub-projects are still only in year 2 or 3 of a 5-year development schedule following the completion of physical works (see Appendix A) and the full benefits are yet to be realized\. Compared to appraisal, the main project achievements are already evident\. These include: l 338,388 families have benefitted (108% of the appraisal estimate), including 205,000 farm families in the seven original subprojects and 133,388 farm families in the new areas; l the area rehabilitated has been increased by 103%, from 67,700 to about 133,889 ha, including 24,015 ha in the new project areas; l rice production has been increased by 179%, from 518,000 tons per year to about 926,229 tons per year; and l overall net farm income increased by US$66\.8 per annum (112% of the SAR objective)\. At the same time the total cropped areas has fallen from 250,090 ha to 235,035 ha due to more intensive land use; and cropping intensity has fallen from 192% to 175% because of losses of cropped land to rapid urban growth in the Mekong Region\. One significant project outcome was the overall increase in paddy rice productivity from 3\.0 to 4\.8 tons per ha\. At appraisal, average yields in five of the seven original project areas were significantly lower than - 6 -  averages for the provinces, while at completion, average yields were close to or greater than provincial averages in all seven original subproject areas\. The freeing-up of input and farmgate prices in the 1990s made rice a profitable crop for Vietnam's farmers and increases in rice production have contributed to improved farm incomes and reduced rural poverty\. Project outcomes and benefits are detailed in Annexes 1 and 3\. Resettlement and rehabilitation of Project Affected Persons (PAFs) was implemented satisfactorily and in accordance with the provisions of the RAP and World Bank guidelines and safeguard requirements, meeting or exceeding the original resettlement targets\. The compensation, resettlement and rehabilitation of PAFs in the new sub-projects of Kieu, South Truoi, Hoa My, Liet Son, Vuc Tron, Kinh Mon and Da Mai irrigation schemes was supported through the provisions of a second-phase RAP\. Resettlement activities have been completed satisfactorily with more than 22,000 PAFs covered under the project (more than 14,000 more than expected at appraisal) and only one residual issue concerning six households unresolved (the location of replacement land is still outstanding)\. The project's environmental action plan to mitigate potential negative environment impacts during project construction and operation was fully implemented, providing support for sustainable improvements in agricultural productivity as well as social benefits\. A specific Environmental Monitoring Program was carried out for the Hoc Mon-North Binh Chanh sub-project as part of the safeguards policy activities because of special soil and groundwater conditions prevailing there\. Reports from the environmental monitoring contractor, the Southern Institute of Water Resource Research (SIWRR), show that soil salinity has been reduced, soil acidity levels although still fluctuating are generally dropping, water pollution levels have been reduced and acid-sulfate soils have been restored\. 4\.2 Outputs by components: Component 1\. Rehabilitation and Completion of Irrigation Schemes\. (US$108\.1 million SAR, US$95\.3 million actual, including additional works and flood repairs\.) The original scope of work, with one exception; Duy Thanh Sluice has been satisfactorily completed as were the additional works and flood damage repairs\. The output indicators shown in the SAR table 3\.1 have been substantially exceeded in most of the original and additional sub-project areas, as shown in Annex Table 1b\. The achievement of this component is fully satisfactory both in terms of the volume of work completed and cost effectiveness\. Actual costs of civil works and goods were substantially less than their SAR estimates due largely to the introduction of competitive bidding\. The results shown in Annex 1b indicate that for 85% of the output categories (table 3\.1 SAR) the targets have been significantly exceeded, including 300% of the SAR for main canals, 112 % for the pumping stations, 361% for rehabilitation of sluices and spillways, 375% for reservoir works, and 124% for tertiary canal systems development\. Overall, 226 contracts for civil works packages were implemented in 41 rural districts in 12 provinces and the quality of completed works is rated overall as satisfactory\. Overall physical completion at ICR is 99\.8% of the amount planned\. This small gap (0\.2%) is attributable to unfinished work at one subproject - the Duy Thanh Sluice (see below)\. Additional Works\. Additional work included the expansion of South Truoi, Da Mai and Kinh Mon irrigation systems, the Duy Thanh sluice and Thu Bon riverbank protection works\. All but one of the seven additions has been completed\. The only unfinished work is at the Duy Thanh Sluice (which was more than 95% complete at project closing) where complex, in-river site conditions, delays in processing approvals and releasing counterpart funds, slowed implementation\. MARD is completing Duy Thanh Sluice in FY2004 using the state budget\. Additional completion information and details are given in the CPO's Project Progress Report-May 2003 and the appendix tables\. - 7 -  Tertiary System Development\. Tertiary system development planned for the seven original sub-projects is complete\. In total, 48,152 ha was improved compared to 41,135 ha planned\. Total cost of this activity was VND 185\.626 billion, i\.e\. 31% greater than the planned budget\. Tertiary system development action plans were developed by the International Consultant in 1998, approved by MARD and assigned to the IMCs for implementation\. However, only five of the seven subprojects chose to utilize funds channeled via the Development Assistance Fund (DAF); the two remaining provinces preferred to carry out improvements using their own funds\. The DAF is a Government funding institution, formerly under the Ministry of Finance, which loaned funds to provinces to prefinance tertiary canal system development\. The provinces are obligated to repay the borrowed amounts to the DAF\. Of the US$10\.5 million allocated for this purpose by IDA, US$9\.45 was used\. Progress reports from the IMCs and the DAF provided consistent and complete project information\. While the works are fully satisfactory, too little time has elapsed to assess the success of the cost recovery mechanism included in the action plans\. While repayment by most IMCs is irregular, they appear to be gaining a better understanding of the process\. Full cost recovery from end users, however, has been limited so far by the reluctance of provincial authorities to pass on the full cost of tertiary system improvements to farmers - a political decision - preferring to raise fees step-by-step as the benefits of system development are realized by farmers\. Component 2\. Institutional Development\. (US$4\.6 million SAR; US$7 million actual)\. Overall institutional development outputs were satisfactory, but with some mixed results\. This component provided significant new opportunities to strengthen technical, administrative and operational management within the implementing agencies and partners (MARD, CPO, SIOs, IMCs and DARDs) through the provision of practical training, on-the-job experience and technical assistance\. Financial Management Plans were prepared for the IMCs for the first time\. Specifically, this component supported the following: (i) technical assistance, on-the-job and formal training for CPO, SIOs and IMCs in engineering design and technical reviews, management of the Bank's procurement procedures (from needs assessment and scope of work to selection of goods and services, and monitoring their delivery and acceptance) and overseeing irrigation works construction; (ii) technical assistance and preparation of guidelines supplemented by formal workshops in financial management to improve operation and maintenance practices, and cost recovery mechanisms in IMCs and WUAs; (iii) provision of training modules and the conduct of seminars and workshops in participatory methods for irrigation management (PIM Workshops in 1997 and 1998) and the purchase of basic equipment for strengthening of the construction, operations and maintenance capacity of IMCs and WUAs; (iv) development and deployment of a project management information system (PMIS) to track project transactions for accounting and auditing purposes; (v) training of trainers for district extension officer training; and (vi) extension worker and farmer training\. More than 550 participants completed irrigation-related, in-country training courses at a total cost of about US$155,000 The 20 separate training modules provided, included construction and project management, construction quality assurance and use of management information systems\. A total of 10 overseas training programs was organized for 138 participants at a total cost of US$466,000\. These included three international conferences and seven technical management courses held in Australia, China, Thailand and the U\.S\. chosen for their relevance\. In addition to the irrigation-related training modules, the project cooperated with the National Center for Agricultural Extension Services and nine provincial agricultural extension centers to plan and conduct "training of extension trainers"and farmer training courses in 25 districts with 1,885 participants, at a cost - 8 -  of approximately US$134,800\. The cost of this training was included under the Agricultural Support component\. Most training was carried out on schedule\. Training objectives and requirements were fulfilled and financial disbursements for training were made in accordance with the relevant financial policies and disbursement procedures\. A total of 8,862 person day of training (443% of SAR) at a total cost of US$773,000 (110\.4% of SAR) were given at the farm, commune, district, city, provincial and national levels during implementation\. IMC operations and system maintenance\. Subproject operation and maintenance was elaborated with IMCs during the preparation of their Financial Management and Tertiary Development Investment Cost Recovery Plans\. The IMCs, assisted by the CPO's Consultant through a participatory process, produced Action Plans to improve their operational performance\. These Action Plans identified specific areas where technical assistance and training were needed\. These areas were subsequently addressed in the O&M Plans and Procedures and in the training programs prepared by the CPO with technical assistance from the International Consultant\. In Phase I, the Consultant developed an Outline Plan of Operation and Maintenance (POM)\. The IMCs were provided with the outline plan and guidelines for preparing their own POMs\. The IMCs completed the draft Plans and submitted them to the CPO's approval in June 1998\. Phase II activities, during the final two years of implementation, were limited to working with two IMCs to review and reinforce the POM standard and its implementation and to provide reviews and workshops on financial operations and asset maintenance\. Assessments of further needs for strengthening IMC operational and financial management capacities for O&M indicated that continued capacity building is needed if the IMCs are to realize the objectives of self-sufficiency in IMC operations fully\. Dam Safety Activities\. A dam safety improvement activity that was included at appraisal and expanded following the acute floods of 1998 and 1999, was completed satisfactorily\. Specifically, the project provided dam safety inspection of the Thung Bang, Dau Tieng, Lower Yazul and Hinh dams\. The SAR required the conduct of a technical evaluation by an independent panel of experts\. This was provided by Hanoi University of Water Resources experts hired by MARD (contract value US$ 47,000) in order to ensure that national and World Bank dam safety standards were met\. Following the acute 1998 floods, it was decided to support improvements in dam safety and associated irrigation systems in Phu Ninh, Liet Son, Hoa My and Vuc Tron, as part of the additional scope of work\. International technical expertise was provided for this activity by a grant from the Government of Italy for US$150,000\. Reservoir rehabilitation and improved dam safety features typically included: installation of additional spillways and spillway gate-hoists (complete with fail-safe, emergency operators) to increase flood retention and spill capacity; dam slope erosion protection; improved drainage; operation management facilities; upgrading access, emergency services and community roads; and rehabilitation of controls and irrigation water delivery canals\. These works were successfully completed and handed-over in accordance with the acceptance criteria of local IMC boards\. Agricultural Support Program\. The Credit Agreement or DCA called for a two-year Agricultural Support Program in the seven original subproject areas\. The agreed program included construction of experimental sites and extension service stations for training and the transfer of advanced agricultural technology to the project's beneficiaries\. In most cases, this was a first for the participating provinces\. The SAR allocated approximately US$ 950,000 for implementation of this component and the design called for 24 months of intensive technical support to implement the program, although this was not a stated objective in the SAR\. Recognizing the need to intensify agricultural production and the importance of effective agricultural extension services to enhancing the benefits of the infrastructure investment, the CPO allocated consulting - 9 -  resources for the preparation by the Consultants of an agricultural support investment plan\. This resulted in a detailed investment plan, based on a participatory needs assessment and a stakeholder workshop to share experiences and set priorities\. In 2002, an Agriculture Support Investment Plan was approved by MARD with total investment budget of VND 24\.3 billion (about US$1\.6 million)\. The project financed construction of 25 district level extension centers; procurement of furnishings and equipment for the centers; "trainer training" programs for extension service field staff in extension methods and delivery; and farmer training in improved production and post-harvest practices\. The training programs were conducted in coordination with the National Extension Service Center and completed by June, 2003\. The program has improved the capacity of district extension staff to provide their clients with appropriate levels of technical support and materially assisted sustainable increases in agricultural productivity\. The project organized a National Participatory Irrigation Management (PIM) workshop in 1997 and carried out financial and operations and maintenance activities in support of IMCs and WUAs\. This effort increased implementing agency and user awareness, understanding, and experience with these functions\. This helped enhance implementation capacity and the sustainability of operational management for improved infrastructure at district levels\. During project implementation, the GoV and its development partners adopted a complementary policy promoting IMC and WUA responsibility for financing of irrigation system O&M based on PIM-related methodologies\. Overall, this institutional development component supported the improvement of irrigation works and O&M activities by strengthening IMC and WUA management and service delivery capabilities\. The outcome of these activities could have been more successful if: (i) MARD's construction and irrigation departments were more unified in their approaches and more cooperative; (ii) the coordinating mechanisms between provincially-owned IMCs and nationally-based MARD was stronger; and (ii) an effective performance monitoring system based on benchmarking data to ensure compliance had been in place\. These lessons, however, are already valuable inputs to the preparation of the Bank's next irrigation investment in Vietnam\. Consulting Services Technical Assistance\. An International Consultant contract valued at US$3,278,039 was signed between the CPO and the Louis Berger Group/SMEC International on June 23, 1997, later than planned\. The original contract provided for 120 international consultant person months and 150 local consultant person months\. During the period of the contract the Consultant carried out all assigned activities and prepared numerous reports including inception, design review, draft tender documents, draft bid evaluation, quarterly progress, O&M plans, financial management and tertiary development recovery, sub-project MIS and M&E system recommendations, environmental monitoring, consultant training, and other project documentation as requested\. The International Consultant's performance is rated fully satisfactory\. The Consultant completed all the assignments and provided the technical assistance required under the contract\. In particular, the amendment of the Consultant contract in 2002 to provide additional assistance to project management in the final stages of delayed project implementation proved highly beneficial in terms of management and technical support as well as institutional development\. The Consultant guided completion plans for civil works, provided construction quality assurance in the field, installed information systems modules, delivered agricultural extension training, reviewed financial management and O&M capabilities of IMCs, designed the Agricultural Support Program, and drafted project progress and completion reports\. At ICR, a total of US$3,239,000 has been disbursed for consulting services, representing 98\.8% of the contract value and 87\.5 % of the original DCA allocation of US$3,700,000 \. - 10 -  Component 3\. Resettlement and Rehabilitation (US$7\.4 million SAR; US$3\.9 million actual)\. This component supported resettlement under the agreed RAP\. This was the first time MARD implemented a RAP and performance was satisfactory, largely due to the commitment of the implementing agencies and the frequent Bank supervision available from a decentralized office\. Only 312 project-affected households were relocated (175% of the SAR estimate) but 22,104 PAF households received compensation for some permanent or temporary loss of land (262% of the SAR estimate)\. About 503 ha\. of land was permanently lost compared with 582 ha\. in the SAR (89%) and compensation provided for 9,651 ha of land temporarily affected by the project\. Approximately US$3\.87 million was spent on resettlement compensation programs under the RAP, 60% of the SAR estimate of US$ 6\.4 million\. Only six outstanding issues remain with PAFs in one subproject to be completed by local authority\. The successful outcome is notable because this was the first irrigation project in Vietnam to implement resettlement and land compensation according to RAP policies\. Environmental Measures\. An Environmental Action Plan was approved by World Bank in three parts; June 1996, September 1996 and March 1997\. Environmental monitoring of compliance with the action plan and water quality in the Hoc Mon-North Binh Chanh subproject was requested by the Bank and undertaken to determine potential physical, chemical and socioeconomic impacts\. According to the monitoring reports, (i) civil works construction during subproject implementation did not affect the environment, plants or domestic animals; and (ii) the completed structures helped improve water quality by reducing levels of salinity and metals, and reducing flooding\. This improved agricultural production through increases in cultivated area and crop productivity\. The projects Environment Mitigation Budget was included under the Resettlement and Rehabilitation category, above\. 4\.3 Net Present Value/Economic rate of return: The project's economic rate of return (ERR) was re-estimated for the overall project and the seven original subprojects, and estimated for the seven additional subprojects using actual costs and benefits and updated assumptions of future costs and benefits based on the latest data and information available\. Project costs were based on project records and data provided from the field by Subproject Implementation Offices (SIOs), IMCs and Provincial Departments of Agriculture & Rural Development (DARDs) who annually collect agroeconomic data\. The Bank's and the CPO's International Consultants conducted quantitative and qualitative analyses based on data collection and field assessments at the seven original subproject sites and data collection from the seven new sites\. All data were cross-checked with stakeholders at CPO and relevant agencies\. The projected benefits are best estimates and are based on the actual performance of existing crops, field visits and discussions with farmers and project staff\. Full details are presented in Annex 3\. Despite delays in implementation, economic analysis shows that 13 of the 14 subprojects exceed the Bank's 12% guideline, with an overall ERR of 19% for the seven original subprojects (compared with the 17% at SAR) and an ERR of 20% for the seven additional subprojects\. (Only Da My subproject has a low ERR (3%) and this new subproject was included for emergency flood damage repair\.) In addition, the project provided numerous, non-quantifiable social and environmental benefits\. These include community safeguards under the RAP, the increase in reliability of water delivery brought about by the lined canals, enhanced drainage and salinity intrusion protection, improved road access to communities, improved dam safety and accelerated repair to flood-damaged irrigation systems in 1998, 1999 and 2000\. Benefits achieved by the original subprojects, new subprojects and the entire project - as well as comparisons with the estimates made at the time of project appraisal - are provided in Annex 1\. Agricultural Benefits\. The project met almost all of the quantitative targets and made a significant impact - 11 -  on agricultural production in the project area compared to SAR projections and the "without project" case\. These are detailed in Annexes 1 and 3\. The total irrigated area has increased from 67,000 ha to 133,889 ha; total rice production has risen from 518,000 tons to 926,000 tons; average rice yields have risen from 3\.0 to 4\.8 tons per ha; corn yields have increased from 1\.2 to 3\.6 tons per ha; peanut yields have increased from 1\.3 to 2\.5 tons per ha; and soy bean yields have increased from 0\.7 to 1\.3 tons per ha\. Small but valuable increases in fruit production (14,000 ha) and - on acid sulfate soils in the Mekong Region - forestry (175,000 ha) have taken place that we not anticipated at appraisal\. Reasons explaining this situation is the change in cropping pattern as triple cropping of rice has declined since it has been shown to be environmentally less sustainable in many areas and winter crop land in the north of Vietnam is being followed or used for crops other than rice\. At the same time, total crop area and cropping intensity have fallen slightly due to the encroachment of urban land uses into rural areas - notably in the Hoc Mon/North Binh Chanh subproject on the edge of Ho Chi Minh City\. 4\.4 Financial rate of return: The impact of the project on farm incomes has been substantial and helped to raise farm incomes for some 338,388 farm families benefiting directly from the project\. At ICR, the incremental net annual income of farm households that adopted improved irrigation and technology under the project has been raised by US$86 (about 246% of SAR) in Cam Thuy, US$12\.4 (about 17\.2% of SAR) in South Nghe An, US$52\.1 (about 75\.6% of SAR) in Linh Cam, US$69 (about 82\.1% of SAR) in An Trach, US$152 (about 175% of SAR) in Thach Nham, US$17 (about 188\.9% of SAR) in Dong Cam, and US$78\.9 (not available in SAR) in the Hoc Mon - North Binh Chanh subproject area\. The overall annual average net farm income for farm households in 7 original subproject areas has increased about US$66\.8 (about 112% of the SAR projection)\. This indicates strong financial incentives for farmers to participate in the project and the direct poverty alleviation effects\. The full set of farm models representing all the subprojects are provided in the project file\. 4\.5 Institutional development impact: There was a high level of interest and participation in capacity development activities, including the management and administration training modules\. Activities varied in intensity and absorptive capacity for institutional change varied considerably across the project's organizational spectrum as expected with exposure to new systems and methods\. The PMIS in particular has been well received and will likely be eventually deployed in all the provincial DARD offices\. However, it is important to note that effective office information systems and technology utilization normally requires dedicated in-house support staff and facilities to ensure sustainability, including development of specific needs based data applications\. In this regard and with other facets of intended institutional development (e\.g\. improved O&M, financial management, tertiary development cost-recovery, WUA participation in IMC management), the project design underestimated existing capacities and assignment of resources for institutional strengthening\. Investment in the Agriculture Support Program has provided much needed improvements in the capacity to deliver effective extension services to farmers\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Acute and record breaking floods and typhoons in 1998 and 1999 in Central Vietnam and in 2000 in the Mekong Region slowed down project implementation significantly, damaging some works that had already been rehabilitated and needed to be restored a second time\. The East Asia financial crisis between 1997 and 1999 reduced the availability of counterpart funding and caused delays in implementation\. Vietnam weathered the crisis well but only with careful management of its budget and expenditures\. Devaluation of the Vietnam dong over the life of the project made more local currency available than expected and this contributed to the extension of the project's scope of work\. The SARs outbreak in 2002 interfered with - 12 -  project implementation and delayed some procurement activities in the final year of implementation\. 5\.2 Factors generally subject to government control: These included the following factors: (i) although MWR and subsequently MARD, through the CPO as the lead agency, was required within the organizational framework to provide overall project coordination, CPO's management lacked sufficient authority always to ensure timely decision making and proper integration of development activities within MARD and among the line agencies involved; (ii) coordination was made difficult by the horizontal organization of the implementing organizations and the proliferation of reporting lines between central and provincial agencies; and (iii) due to several delays in deployment and implementation, particularly for some the extended works and pump procurement, the project was unable to adhere strictly to the schedule proposed in the SAR\. 5\.3 Factors generally subject to implementing agency control: Some delays in implementation resulted from: (i) occasional lack of effective coordination among implementing agencies of procurement and lack of timely decision making mechanisms for timely and efficient and effective management of project activities; and (ii) delays in decision making caused by the lack of clearly defined and project-specific lines of authority, reporting and communications among the various implementing agencies with the MARD\. 5\.4 Costs and financing: Total project costs at SAR were originally estimated to be US$135\.7 million (US$128\.7 million net of taxes), with a foreign exchange component of US$ 75\.5 million, or 55 percent\. The IDA Credit of SDR 67 million (about US$100 million equivalent) was expected to finance 78 % of project costs\. At completion, total disbursement reached US$79\.5 million or 79\.5% of the original US$ 100\.0 million allocation, and 89 % of the allocations of US$89\.1 million when the DCA was amended in 2001\. Not all of the amended allocation was used\. GoV consistently overestimated the cost of goods and works and its own capacity to spend money and about US$20\.5 million was canceled\. DCA Category Amended Allocation Value relative to 2001US$ millions amended DCA % Civil works 76\.76 92% Goods 4\.04 41% Consulting Services 3\.67 88% Training 0\.63 105% Unallocated 4\.77 0% Special Acct\. balance -0\.149 - Total 89\.72 89% 6\. Sustainability 6\.1 Rationale for sustainability rating: Sustainability of project outcome is considered to be likely\. The GoV is committed to: (i) completing the outstanding subproject (Duy Thanh Sluice) in FY04; and (ii) sustained operation of works financed under the project\. The policy environment, the available institutional and human resources, the provincial capacity and commitment to financing the IMCs (from a combination of water fees and budget), and the commitment by GoV generally to provide continued funding and further development for irrigation are positive indicators that the project will fulfill its expectations over the long term\. - 13 -  The assessment of project sustainability is based on the: (i) Government of Vietnam's commitment to alleviating rural poverty through support of the agriculture sector, including sustained improvements in the operational capabilities of irrigation systems; (ii) increase in crop productivity through intensification, brought about by the greater availability and application of production inputs including irrigation water; (iii) development of community participation, including promotion of greater WUA responsibility for O&M and eventual self-sufficiency for IMCs; and (iv) integrated approach being adopted toward water resources management\. The improvements in specialized technical and contracts management capacity developed within the CPO and SIOs during project implementation will remain a continuing asset\. While IMCs may be limited in their ability to finance O&M costs fully from water fees, most provincial governments are committed to raising water fees progressively and all are committed to financing fully the operating costs of the IMCs themselves\. RAP implementation, involving direct participation by the community and the affected persons, has produced good results with very few conflict situations that required higher level resolution\. Sound implementation of the RAP has helped to establish a positive social environment for future development initiatives\. The Agriculture Support Program, although a late entrant to the project, is already contributing to agricultural productivity gains by providing needed facilities, equipment and training programs to district extension services\. The program should continue to have a positive impact on sustainable realization of the potential economic benefits attributable to the project\. Infrastructure designs and quality are considered to be generally sound, with minor upgrades and repairs anticipated to accommodate recurrent damage from adverse weather and natural disasters\. It will be essential to provide continued public service support for improvement of O&M capabilities and proper infrastructure utilization during the immediate post-construction period in order to entrench the culture of sound water management and strengthen the participation of beneficiaries (through WUAs) in irrigation scheme O&M\. However, the allocation of responsibility for O&M between IMC's (government) and beneficiaries (WUAs) should, over time, also become more clearly defined\. Project implementing agencies have shown a solid commitment to the project, although there have been some shortfalls in local budgetary support\. Physical maturity is considered in mid-2003 to be about 50%\. Institutional sustainability for future operations is considered adequate, although some risks remain\. Risks are primarily related to the impact of community development strategies to be applied by regional government and the priority given to providing necessary public resources for the continued delivery of O&M and water management services through IMCs\. Water fees are rising but they cover only a share of total O&M costs\. Given the application of adequate public services, appropriate agricultural growth strategies and sufficient O&M resources, and the already demonstrated active participation of WUAs, the risks are considered to be modest\. 6\.2 Transition arrangement to regular operations: The commitment expressed by the MARD and CPO to develop fully the potential of all of the subprojects has been met at ICR, with a sole exception (Duy Thanh Sluice)\. Some 195 project packages have been procured and handed over to IMC management, with an additional 39 completed packages ready for hand-over\. Only packages connected with the Duy Thanh Sluice are still under construction, being funded fully by the government\. The GoV is committed to full utilization of the agricultural land base and infrastructure, with the aim of achieving full agricultural production potential through crop intensification\. It is also fostering agricultural policy changes and expanding its programs to encourage community involvement in management of the agricultural resource base\. These measures should help to optimize returns from rehabilitation investments\. - 14 -  7\. Bank and Borrower Performance Bank 7\.1 Lending: IRP was the first Bank-supported irrigation project in Vietnam following its return in 1993\. Accordingly, the Bank provided a highly qualified team to guide preparation and appraise the project, building on information gained from FAO-World Bank explorations in Vietnam that began in 1989\. The appraisal team included seasoned experts able to work effectively in an environment where the GoV was unfamiliar with the Bank and where information was scarce\. Particular attention was paid to managing resettlement issues under a RAP (a first for the GoV) and to special environmental conditions in the Mekong Delta Region\. While the PAD contains some weaknesses due to data limitations, Bank performance during project preparation is rated as satisfactory\. 7\.2 Supervision: Sixteen Bank supervision missions supported fiduciary oversight and guidance of project activities by MARD, CPO, the SIOs and their implementing partner agencies\. Bank missions were regular and timely, developing a high level of understanding of the project, as well as effective cooperation with a new borrower agency coming to terms with the Bank complex procedural issues for the first time\. Supervision was enabled by the Bank's policy of decentralization that resulted in the opening of a Bank office in Hanoi in 1994, the recruitment on national operations officers with knowledge of the GoV, and the assignment of supervision responsibility to the field office in 1995\. Numerous mini-supervision missions were mounted between the formal, six-monthly supervision missions\. Supervision performance is rated as fully satisfactory\. 7\.3 Overall Bank performance: Overall the performance of the Bank is considered to be fully satisfactory\. This judgement has been reinforced by the borrower, including the national and local agencies involved in project implementation\. Satisfactory performance was supported by decentralization of task team leadership and supervision to the resident staff of the World Bank Mission in Hanoi\. Having key members of the project task team in the field, including the team leader, allowed extensive direct communication with the borrower outside normal schedule of supervision missions\. The continuity provided by one operations officer who followed the project from appraisal to ICR proved invaluable in a project with five task managers between identification and ICR\. Borrower 7\.4 Preparation: Although the Borrower was unfamiliar with the Bank when preparation began and data limitations were common in Vietnam at that time, ownership of, involvement in and contributions to project preparation were always constructive and are considered fully satisfactory\. Relevant aspects of project design were adequately addressed including technical, institutional, environmental and social issues, and the planning of activities and budgets\. 7\.5 Government implementation performance: Despite its inexperience with World Bank-financed projects, Borrower performance was satisfactory\. MARD had created the CPO in 1994 and worked hard to develop and maintaining effective coordination with the several departments involved with project implementation and the Bank\. This was challenging working within the project's institutional arrangements as agreed at appraisal\. Organizational arrangements required adjustment to established lines of accountability for processing activities related to procurement and financial management\. Some progress was made in strengthening IMC capacity for - 15 -  autonomous operations and self-reliance as well as for the use of the DAF to fund tertiary system development and other O&M activities\. Nevertheless, some delays were encountered in MARD's internal decision making, the timely provision of counterpart funding and the fielding of technical assistance\. These events slowed down project implementation\. However, given the scope and complexity of the project and the long learning process MARD went through, Borrower performance was satisfactory throughout implementation\. 7\.6 Implementing Agency: The overall performance of the implementing agency (MARD its CPO and SIOs) is considered to be satisfactory\. CPO performance improved steadily from the outset of implementation to project closing\. At the outset, the CPO and its project implementing partners were unfamiliar with Bank procedures, and their management effectiveness steadily improved in light of experience\. The CPO's administrative, procurement and financial management processes, as well as the staffing and general resource levels, are still in need of further strengthening if future projects are to be implemented effectively and on time\. MARD's implementing units, the CPO and SIOs, require further capacity strengthening to undertake project tasks, particularly with respect to implementing monitoring, financial management and related information systems efficiently\. Specific areas where further support for capacity building would be valuable include procurement planning and procedures, application of the MIS, construction quality assurance systems for works in the field, processing of delayed contracts payments and administration and financial accounting systems\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated satisfactory\. MARD, the CPO, SIOs and IMCs have learned World Bank procedures and shown the flexibility and commitment needed to improve their capacity to make the project outputs and outcomes successful\. Despite some shortcomings, most project targets have been achieved within a slightly extended time frame, at or below budget and to an acceptable standard of quality\. Numerous additional tasks were also completed, many under difficult circumstance, such as those caused by the Asian Financial Crisis and after acute flooding\. The GoV through its pursuit of improved policy and regulatory commitments is also providing assurances of project sustainability\. 8\. Lessons Learned A number of lessons have been identified based on project implementation, these include: Future project designs should include a logical framework and KPIs applied in all World Bank-assisted projects\. When these are not available in dated projects, some effort should be made to compensate for their absence\. The authority, responsibilities and accountability of the implementing agencies ­ notably the CPO and SIOs - should be sufficient and clearly defined at project start-up\. The ability of agencies outside the project - but inside MARD - to delay implementation should be reduced\. The existence of an institutional framework and capacity to coordinate activities and decision-making among project implementing agencies effectively is a prerequisite for efficient and timely project management\. The CPO should be provided with increased authority to fulfill its interdepartmental functions in a timely way\. Good coordination among agencies at all levels requires common understanding of the project concept - 16 -  and objective and shared information\. To facilitate this common understanding, primary project documents such as the Staff Appraisal Report, Mid-term Review, and periodic Aide-Memoires should be translated and widely distributed throughout the project as they become available\. Institutional capacity building (e\.g\. for O&M and Cost Recovery) should include activities enabling timely recruitment and participation of locally engaged staff through appropriate human resources management methods in order to: (i) deliver services effectively; (ii) integrate agriculture extension and water user groups into the program; and (iii) facilitate formation of organized beneficiary groups\. Greater emphasis on community development and participatory methods in project planning should be included in future projects, early in implementation\. The adaptation of approaches currently being planned for World Bank- and ADB-funded projects, including support for integrated water resource management in a basin context, agricultural intensification and diversification, and user participation in O&M management, are important in order to strengthen IMCs and WUAs and raise their level of self-sufficiency\. Socioeconomic considerations are important in WUA and IMC strengthening programs\. Projects should address special needs, such as instruction in family and community financial management, to help ensure local commitment and active farmer involvement\. This can be particularly critical when changes in water user fees are part of project design\. Social baseline surveys and participatory needs assessments should be routinely included when designing future programs for rural development and poverty reduction\. Contracting the WUA to undertake infrastructure O&M poses both benefits and costs\. On the one hand, it can be a cost-effective approach that enables the WUA to select the most capable local contractors and create local employment opportunities; on the other, it may remove the competitive element of procurement and sometimes lends itself to abuse\. Extension service and farmer technical support activities should commence at an earlier stage in future projects, with the active involvement and support of Department of Agriculture & Rural Development (DARDs), Department of Agriculture & Forestry Extension (DAFEs) and the provincial and district agricultural extension offices\. The introduction of new activities (such as financing tertiary system development through loan financing and farmer training at the local level) should be well designed, openly discussed and realistically scheduled\. Sufficient lead time is needed in order to educate administrators and potential beneficiaries and to prepare clear guidelines - including administration procedures and reporting formats - in order to raise understanding of program requirements\. Training for staff and farmers should be conducted well in advance, with the early involvement of Community Organizers\. Major investments in irrigation system rehabilitation in areas adjacent to urban communities need to be assessed carefully in light of likely land use changes\. While currently outperforming the SAR estimates, the sustainability of investments in Hoc Mon-North Binh Chanh subproject on the urbanizing boundary of Ho Chi Minh City are likely to be stressed in the future with agricultural land re-assigned to urban use and agricultural water re-allocated to urban and industrial uses\. Growing industrialization also poses challenges for water quality in agricultural areas\. - 17 -  9\. Partner Comments (a) Borrower/implementing agency: The Project was appraised in 1995\. The analysis conducted at the time determined that the investment was justified on the expectations that the objectives stated for the project would be achieved and, in quantifiable terms, the economic rates of return for the 7 subprojects and the project overall would exceed the threshold rate of 12%\. These estimates were calculated on assumed costs and benefits over a 20-year period with subproject maturity defined as being reached 5 years after completion of construction\. A Project Impact Assessment was completed by the CPO using the International Consultants to compare the original SAR results with revised estimates based on actual costs and benefits, and updated assumptions of future costs and benefits based on the latest data and information available\. The consultants assigned for this purpose conducted quantitative and qualitative analyses based on visits to all 7 subproject sites where actual data was collected and in-field assessments were made\. These were followed up by consultations with stakeholders at CPO and other interested agencies\. The results of the analyses are contained in this report\. Given some delays in project construction and implementation, all but one of the subprojects, Thach Nham, have still not reached maturity by the definition provided at the time of project appraisal\. Nevertheless, economic analyses of the subprojects revealed that all exceed the 12% threshold and overall, the project ERR is 19% compared to 17% previously estimated\. This is a satisfactory result, especially given the early stage of subproject development and the non-quantifiable benefits provided by flood damage repair and dam safety which are considerable\. The stated objectives of the project were to increase agricultural production and farmer incomes, and reduce poverty\. Despite the early stage of subproject development, the CPO's Project Impact Assessment has borne out the expectation of these achievements\. There is already a significant increase in rice and corn production, in most cases above the levels estimated at the time of Project Appraisal\. Farmers' incomes have also increased with such increases ranging at the various subprojects from 96% to 140% of those estimated without the project\. Other benefits of the project include: § Increased irrigated area; § Increased cropping intensity; § Improved land and labor efficiency; § Increased yield of rice and other crops on irrigated areas; § Increased yield of other crops on non-irrigated areas; § Improved groundwater conditions; § Improved drainage; and § Improved transport infrastructure\. In combination, these benefits have contributed to a reduction in rural poverty levels, which is borne out by improved poverty, health and education statistics compared to those evident before the Project\. The environmental impact of the project is generally positive with improved drainage and groundwater, and decreased water and soil salinity at the project sites\. However, there were also some potential negative - 18 -  impacts reported, including the potential for the pollution of wells in close proximity to canals and drains, and polluting and unsanitary conditions caused by disposal of waste into the canals\. This is a result from human behavior and beyond the control of IMCs\. However, none of these reported potentially detrimental environmental impacts could be substantiated and are considered as anecdotal information for the purpose of this report only\. Verification of anecdotal information was not always possible and beyond the scope and resources of the impact study\. Therefore, while reported as potential negative impacts, confirmation would have to be the subject of further study\. In most subprojects, project activities focused on the rehabilitation of existing irrigation schemes and therefore, the requirements for land acquisition and resettlement at appraisal stage were considered small or nonexistent\. However, in some subprojects, particularly Thach Nham and Hoc Mon - North Binh Chanh subprojects, there was major construction and expansion of the irrigation schemes for which the acquisition of land required substantial resettlement and compensation programs\. Besides Thach Nham and Hoc Mon - North Binh Chanh, the compensation requirements of the other 5 subprojects were also greater than expected at the time of Project Appraisal\. However, it was found that implementation of the resettlement and compensation programs were carried out about as smoothly as could be expected given the complexities involved\. The principles of the Resettlement Action Plans and other criteria required by the National and local governments were largely complied with in a timely and efficient manner by the organizational structures and systems established for this purpose\. Eligibility criteria for beneficiaries were followed and only a few complaints and grievances were deferred\. There probably could have been more participation in the resettlement and compensation programs by those ultimately affected in the planning and establishment of various aspects of the program and coordination between project construction and these programs could have been improved\. However, all in all, it was determined that the resettlement and compensation programs were successfully formulated and effectively administered for the benefit of the Project Affected Families\. In conclusion, the project has had a positive overall impact on the lives of beneficiaries and the Vietnam economy\. However, in many cases the subproject development is not yet mature enough for impacts to be fully realized\. Therefore, the benefits will continue to grow and possibly exceed original expectations as the project matures\. The Government is committed to completing the one remaining subproject where some contracts are less than 100% complete (Duy Thanh Sluice)\. MARD appreciates highly the cooperation shown by the World Bank in the flexible implementation of IRP especially: (i) the extension of the project to cover flood damage repair and additional subprojects; and (ii) the attention given to the project by the World Bank task team\. The CPO appreciates highly the support provided by the World Bank and especially its office in Hanoi that enabled implementation to proceed effectively\. (b) Cofinanciers: n/a (c) Other partners (NGOs/private sector): n/a 10\. Additional Information The draft ICR was sent to GoV for comment\. The Borrower ICR was prepared by the CPO and submitted to the World Bank as required\. Borrower comments on the Bank ICR are included as required in Section 9\. - 19 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/ Impact Indicators: Indicator/Matrix Projected in SAR Actual achieved at ICR Percentage A\. Increase agricultural production Irrigated area treated 130,353 ha\. 133,889 ha 102\.7 Paddy area developed/cropped 195,115 ha 193,497 ha 99\.1 Maize area developed/cropped 10,909 ha 15,202 ha 139\.3 Additional rice production pa 283,293 ton 406,881 ton 143\.6 Additional maize production pa 38,317 ton 57,433 ton 149\.9 Cropping intensity 217% 176% 81\.1 B\. Increase farmer income & reduce poverty Number of project beneficiaries 312,892 families 338,388 families 108\.2 Project area covered by province 7 Provinces 12 Provinces Net annual farm households US$59\.3 per hh at full US$66\.8 per hh at ICR 112\.7 income development C\. Resume agricultural Agricultural activities, disrupted byAgricultural activities resumed in activities following floods floods\. affected areas\. D\. Detailed impact indicators a\. Cropped area (ha) Rice 195,115 193,497 99\.2 Sweet potatoes 36,305 6,053 16\.7 Maize 10,909 15,202 139\.3 Peanuts 7,189 4,793 66\.7 Soybeans 3,300 1,765 53\.5 Sugarcane 13,940 9,975 71\.6 b\. Crop Yield (ton/ha) Rice 4\.0 4\.8 119\.7 Sweet potatoes 9\.2 6\.3 69\.1 Maize 3\.6 3\.8 104\.7 Peanuts 1\.8 2\.5 142\.1 Soybeans 0\.8 1\.8 242\.6 Sugarcane 57\.4 54\.1 94\.3 c\. Crop production (ton) Rice 802,541\.0 926,229\.2 115\.4 Sweet potatoes 332,762\.0 38,335\.6 11\.5 Maize 39,349\.0 57,433\.5 146\.0 Peanuts 12,589\.0 11,933\.9 94\.8 Soybeans 2,495\.0 3,237\.0 129\.7 Sugarcane 799,720\.0 539,437\.5 67\.5 Total 2,064,541\.0 1,766,506\.6 - 20 -  Output Indicators: Component/Item/Unit Unit SAR estimated ICR % Actual/Latest Actual/Latest Estimate (2) Estimate A\. Irrigation and Drainage System Rehabilitation Works Dams/weirs, sluices, spillways no 9\.0 42\.0 366\.7 Main canals km 174\.0 452\.2 259\.9 Primary canals km 98\.0 480\.3 490\.1 Secondary canals km 512\.0 650\.0 127\.0 Tertiary canals ha 41,135\.0 48,152\.0 117\.1 Dredging 1000 m3 740\.0 2,449\.6 331\.0 Dykes km n\.a\. 80\.4 Pumping stations no 97\.0 101\.0 104\.2 New Works (1) Dams/weirs, spillways, sluices no 14\.0 31\.0 121\.4 Main canals km 13\.8 127\.2 921\.7 Primary canals km 94\.0 136\.8 145\.5 Secondary canals km 340\.0 405\.0 119\.1 Tertiary canals ha 33,700 45,150\.0 134\.0 Dredging 1000m3 0\.0 1,086\.1 Dykes km n\.a\. 27\.1 Pumping stations no 3\.0 11\.0 366\.7 B\. Flood Protection (1) Dams/weirs and spillways no n\.a\. 10\.0 Canals km n\.a\. 13\.8 Dykes km n\.a\. 6\.1 C \. Resettlement Affected families no 8,451\.0 22,104\.0 261\.6 Houses compensated no 178\.0 312\.0 175\.3 Land acquired ha 582\.0 9,651\.0 1,658\.2 D\. Agriculture Support District extension centers no 20\.0 25\.0 125\.0 Office equipment no 120\.0 475\.0 395\.8 Farmer 1-day training seminars no 1,600\.0 1,885\.0 117\.8 E\. Operation and Maintenance (IMC) O&M vehicles and equipment $'000 2,900\.0 1,167\.0 40\.2 F\. Training, Technical assistance and Consultant National Training course, workshop no n\.a\. 20\.0 International Training course, no n\.a\. 10\.0 workshop Participant person day 6,000\.0 8,862\.0 147\.7 Irrigation extension adviser in CPO mm 3\.0 3\.0 100\.0 International experts mm 194\.0 184\.0 94\.8 National experts mm 504\.0 498\.0 98\.8 Notes: (1) The percentage of completion at ICR is calculated based actual versus new subproject designs and flood repair proposals\. (2) Column 4 includes changes made under MTR (with flood damage repair and 7 additional, new subproject areas for each component) - 21 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million) PROJECT COST BY COMPONENT Appraisal Estimate Actual/latest Percentage of Estimate Appraisal A Subprojects a Cam Thuy 2\.7 2\.1 76\.2 b South Nghe An 18\.6 16\.7 89\.5 c Linh Cam 11\.5 10\.1 87\.5 d An Trach 4\.4 7\.2 164\.8 e Thach Nham 29\.5 26\.2 89\.0 f Dong Cam 10\.2 6\.4 63\.2 g Hoc Mon-North Binh Chanh 31\.2 11\.1 35\.5 Sub-total: 108\.1 79\.8 73\.8 B Flood damage repair 5\.5 C Expansion of works and rehabilitation 10\.0 D Consultants and training Technical Advice 1\.7 4\.2 247\.7 Project Administration 2\.9 2\.8 96\.3 Sub-total: 4\.6 7\.0 152\.2 E Total Baseline Costs 112\.7 102\.3 90\.7 Physical Contingencies 16\.8 Price Contingencies 6\.2 F Total Project Costs 135\.7 102\.3 75\.4 Taxes and Duties 7\.0 Total Costs Net of Taxes and Duties 128\.7 102\.3 79\.5 Project Costs by Procurement Arrangement (Appraisal Estimate) (US$ million) Expenditure Category Procurement Method Total Cost ICB NCB Other N\.B\.F 1 Civil Works Major Civil Works 55\.0 37\.2 5\.0 13\.6 110\.9 IDA share 50\.0 33\.2 5\.0 0\.0 88\.2 2 Goods Equipment and vehicles 9\.1 0\.5 9\.6 IDA share 7\.0 0\.5 7\.5 3 Consultants and Training Consultants 3\.6 0\.2 3\.8 IDA share 3\.6 3\.6 Training 0\.7 0\.7 IDA share 0\.7 0\.7 4 Engineering/Administration 3\.4 3\.4 IDA share 0\.0 5 Resettlement/Environment/Mitigati 7\.3 7\.3 on IDA share 0\.0 Total 64\.1 37\.2 9\.8 24\.5 135\.7 Total IDA share 57\.0 33\.2 9\.8 0\.0 100\.0 - 22 -  Project Costs by Procurement Arrangements (Actual) (US$ million) Expenditure Category Procurement Method Total Cost ICB NCB Other N\.B\.F 1 Civil Works Major Civil Works 0\.0 61\.1 24\.2 2\.1 87\.3 IDA share 0\.0 51\.7 20\.5 72\.2 2 Goods Equipment and vehicles 3\.2 0\.9 0\.0 0\.0 4\.1 IDA share 2\.3 0\.6 2\.9 3 Consultants and training Consultants 3\.4 0\.0 0\.0 0\.0 3\.4 IDA share 3\.4 0\.0 0\.0 3\.4 Training 0\.8 0\.8 IDA share 0\.8 0\.8 4 Engineering/Administration 2\.8 2\.8 IDA share 5 Resettlement/Environment/Mitigati 3\.9 3\.9 on IDA share 0\.0 Total 6\.7 61\.9 25\.0 8\.8 102\.3 Total IDA share 5\.7 52\.3 21\.2 0\.0 79\.3 Notes: Civil works - others: South Nghe An sub\. -direct appointment 0\.9 Thach Nham sub\. -direct appointment 0\.6 Project Retroactive financing 9\.5 Tertiary canal 9\.4 Subtotal 20\.5 There are no ICB packages because they were not relevant given the original project design which mainly rehabilitated and upgraded canal systems which were located over a wide area and where the scope of works was modest and unlikely to attract international bidders\. During implementation, MARD discussed and agreed with the Bank to divide potential ICB packages into NCB\. - 23 -  Project Financing by Component (in US$ million) Component Appraisal Estimate Actual/Latest Percentage of Estimate Appraisal Subprojects Total IDA Govt\. Farme Total IDA Govt\. Farme IDA Govt\. Farme rs (1) rs rs 1 Cam Thuy 2\.9 2\.3 0\.3 0\.3 2\.1 1\.5 0\.5 0\.0 65\.2 166\.7 0\.0 2 South Nghe An 19\.4 15\.1 2\.2 2\.1 16\.7 13\.8 2\.9 0\.0 91\.4 131\.8 0\.0 3 Linh Cam 12\.0 9\.3 1\.4 1\.3 10\.1 8\.6 1\.5 0\.0 92\.5 107\.1 0\.0 4 An Trach 4\.9 3\.8 0\.6 0\.5 7\.2 5\.3 1\.9 0\.0 139\.5 316\.7 0\.0 5 Thach Nham 29\.9 23\.2 3\.4 3\.3 26\.2 19\.0 7\.3 0\.0 81\.9 214\.7 0\.0 6 Dong Cam 11\.2 8\.7 1\.3 1\.2 6\.4 5\.4 1\.0 0\.0 62\.1 76\.9 0\.0 7 Hoc Mon-North Binh Chanh 30\.0 23\.4 3\.4 3\.2 11\.1 8\.2 2\.9 0\.0 35\.0 85\.3 0\.0 sub-total 110\.3 85\.8 12\.6 11\.9 79\.8 61\.8 18\.0 0\.0 72\.0 142\.9 0\.0 8 Flood damage repair 0\.0 0\.0 0\.0 5\.5 4\.8 0\.8 0\.0 0\.0 9 Additional works 0\.0 0\.0 0\.0 10\.0 8\.5 1\.4 0\.0 0\.0 Sub-total subproject cost 110\.3 85\.8 12\.6 11\.9 95\.3 75\.1 20\.2 0\.0 87\.5 160\.3 0\.0 Consultants and training Technical Advice 4\.2 4\.2 0\.0 0\.0 Project Administration 2\.8 0\.0 2\.8 Subtotal 5\.5 4\.3 0\.6 0\.6 7\.0 4\.2 2\.8 0\.0 108\.0 466\.7 0\.0 Total baseline cost 115\.8 90\.1 13\.2 12\.5 102\.3 79\.3 23\.0 0\.0 88\.0 174\.2 0\.0 Unallocated 12\.9 9\.9 1\.6 1\.4 0\.0 0\.0 0\.0 0\.0 Total project cost 128\.7 100\.0 14\.8 13\.9 102\.3 79\.3 23\.0 0\.0 79\.3 155\.4 0\.0 - 24 -  Annex 3\. Economic Costs and Benefits Major economic benefits achieved by the project include the increase in agricultural production and farmers' incomes, and the reduction of poverty in the project area through restoration, rehabilitation and/or completion of 14 irrigation schemes, improvement of operation and maintenance practices, and strengthening of agriculture services in project areas\.In addition, the project accelerated the repair of irrigation schemes damaged by acute floods in 1998, 1999 and 2000\. This contributed to the restoration of livelihoods of numerous rural communities\. Agricultural Benefit The project has made a significant impact on agricultural production in the project area, compared to the "without" case and quantitative targets set at project appraisal\. The total project developed/rehabilitated irrigation area has increased from 67,700 ha (without project) to about 133,889 ha (103% of SAR, with additional 24,015 ha in seven new subproject areas)\. At the ICR, the average crop yields in project area has increased from 3 ton to 4\.8 ton for rice (116% of SAR), from 1\.2 ton to 3\.6 ton for maize (105% of SAR), from 1\.3 ton to 2\.5 ton for peanut (142% of SAR), from 0\.7 ton to 1\.8 ton for soybean (243% of SAR), from 36\.5 ton to 54\.1 ton for sugarcane (94% of SAR, 148 % of the without project scenario), and from 6\.2 ton to 6\.3 ton for sweet potatoes (70% of SAR, 102 % of the without project scenario)\. There is already a significant increase in rice, corn, peanut and soybean production\. Total rice production has already increased by 407,982 tons (116% of SAR), from 518,000 tons to about 926,229 tons per year; the annual corn production has increased from 1,032 tons to 57,433 tons (almost 5,565% over the "without project" case, and 160% of SAR); the annual production for peanut increased from 6,882 tons to 11,934 tons (104% of SAR, or 173% of the without project scenario); and annual soybean production increased from 2,310 tons to 3,237 tons (about 123% of SAR)\. Overall, total incremental annual production is valued at VND475\.7 billion\. Incremental production of various crops in 14 subproject areas are shown below: Incremental Crop Production at ICR (Unit: Ton) Crop Without SAR estimate Actual Actual Actual Incremental Incremental production project in at full production at Incremental Incremental percentage percentage 1995 development ICR production production (3/1) (3/2) (1) (2) (3) (3-2) (3-1) Rice 518,247 799,972 926,229 126,257 407,982 179% 116% Sweet potatoes 236,418 334,006 38,336 -295,670 -198,082 16% 11% Corn 1,032 35,892 57,433 21,541 56,401 5565% 160% Peanuts 6,882 11,502 11,934 432 5,052 173% 104% Soybean 2,310 2,640 3,237 597 927 140% 123% Sugarcane 410,701 900,524 539,438 -361,087 128,737 131% 60% Fruit n\.a\. n\.a\. 14,400 14,400 14,400 Wood n\.a\. n\.a\. 175,500 175,500 175,500 Sources: Subproject SIOs, IMCs and DARDs Note: (1) At the full development defined as 5 years after completion of construction (2) With the project, farmers no longer cultivate mung beans\. Compared to the "without project" scenario and expected targets at SAR, the total crop area and crop intensity have been decreased from 250,090 ha to 235,035 ha (94% of the without project scenario) and - 25 -  from 192% to 175% respectively at the ICR, due to the decreased crop land for urban development in local area and the reallocated administrative area at county level\. In addition, the cropping area of third season rice was reduced significantly in most area due to a substantial increase in crop yields, and one season crop area for corn (almost 1,700% over the "without project" case, and 139% of SAR)\. As shown above, achievements of the subprojects and the project overall have had a significant impact on agricultural production compared to the case without the project and, despite the early stage of development, some indicators approach and even exceed the targets set at the time of project appraisal\. The details for irrigated land, crop intensity, crop area and yield, and total production in each subproject area are presented in attached Table 1 for original seven subprojects, Table 2 for the seven additional subprojects, and Table 3 for the overall project\. Rural Incomes and Impact on Poverty (Financial analysis) Although financial analysis, strictly speaking, is not relevant to public irrigation schemes financed under the project, farm level financial analysis was carried out to assess the project's impact on beneficiary farmer incomes\. The project at ICR is benefiting about 338,388 farm families (about 205,000 in the seven original subprojects area and 133,388 in new area), who are poor rural farmers in 12 provinces, that is about 108% of the SAR estimate of some 312,892 family beneficiaries\. The farm model analysis shows a substantial increase in beneficiary farmers' income with the comprehensive improvement in irrigation and drainage facilities, crop production and agricultural support services\. Representative farm households were selected in the seven original subproject areas\. The following assumptions were made to assess the financial impact of the project on household incomes: (a) average farm holdings of 0\.31 ha in Cam Thuy, 0\.35 ha in South Nghe, 0\.39 ha in Linh Cam, 0\.35 ha in An Trach, 0\.5 ha in Thach Nham, 0\.25 ha in Dong Cam, and 1\.0 ha in HM-NBC subproject, combined with the actual cropping intensity in each subproject area due to the change from dry and partially irrigated land to fully irrigated land; (b) the average 2000 financial farm gate prices were used to value outputs and inputs; and (c) from 1996 to 2003, actual cropping pattern, intensity and the per ha crop budgets (with and without the sub-project) were applied for annual and perennial crop production in each subproject area, with increased crop yields derived from the development of irrigation and drainage and changes in agricultural technology\. The results including incremental farm households income are presented below for seven, typical household farm models\. Income Impact on Farm Household Sub-project Average farm Cropping Farm Families Incremental Incremental Incremental size (ha) Intensity (No\.) annual net annual net Percentage (percent) income at SAR income at ICR (ICR/SAR) at full (USD) development (USD) Cam Thuy 0\.31 224\.0 3,890 35 86\.0 245\.7 South Nghe An 0\.35 231\.4 45,586 72 12\.4 17\.2 Linh Cam 0\.39 200\.0 18,351 69 52\.1 75\.6 An Trach 0\.35 161\.7 16,534 84 69\.0 82\.1 Thach Nham 0\.50 129\.6 53,922 87 152\.0 174\.7 Dong Cam 0\.25 202\.7 55,980 9 17\.0 188\.9 Hoc Mon 1\.00 135\.6 10,710 n\.a\. 78\.9 n\.a\. Total Project 0\.45 172\.0 204,973 59\.3 66\.8 112\.0 - 26 -  The impact of the project on farm incomes has been substantial and helped to raise farm incomes for some 338,388 farm families benefiting directly from the project\. At the ICR, the incremental net annual income of farm households which adopted improved irrigation and technology under the project has been raised by US$86 (about 246% of SAR) in Cam Thuy, US$12\.4 (about 17\.2% of SAR) in South Nghe An, US$52\.1 (about 75\.6% of SAR) in Linh Cam, US$69 (about 82\.1% of SAR) in An Trach, US$152 (about 175% of SAR) in Thach Nham, US$17 (about 188\.9% of SAR) in Dong Cam, and US$78\.9 (not available in SAR) in the Hoc Mon - North Binh Chanh subproject area\. The overall average net farm income for farm households in 7 original subproject areas has increased about US$66\.8 (about 112% of SAR)\. This indicates strong financial incentives for farmers to participate in the project and the direct poverty alleviation effects\. The full set of farm models representing all the subprojects are provided in the project file\. Net Present Value/Economic rate of return The economic rate of return (ERR) was re-estimated for the original seven subprojects, the seven additional subprojects, and the project as a whole\. The ERR for the project is estimated at 19\.2% (NPV: VND 281 billion), higher than the 17% estimated at appraisal\. The main reasons for this are: (i) an increase in developed/ rehabilitated irrigated land (an increase of some 3,536 ha) for total project area; (ii) large project cost saving (total of US$18\.3 million for 14 irrigation subprojects, i\.e\. about 17% of the total original subproject costs at SAR) due to the savings attributable to the introduction of competitive bidding in procurement of works and goods; (iii) devaluation of the VND that resulted in a substantial increase of IDA funds in local currency terms; and (iv) substantial increases in main crop yields, e\.g\., increases in yield of rice and corn of more than 30 percent in most subproject areas\. A comparison of ERRs by subproject is shown below: Original subproject ERR at SAR ERR at ICR New subproject ERR at SAR ERR at ICR Cam Thuy 16% 15\.0%South Truoi n\.a\. 19\.3% South Nghe An 12% 19\.6%Kieu n\.a\. 29\.7% Linh Cam 21% 16\.5%Kinh Mon n\.a\. 18\.1% An Trach 27% 17\.5%Da Mai n\.a\. 11\.0% Thach Nham 24% 20\.6%Vuc Tron n\.a\. 13\.8% Dong Cam 12% 16\.5%Liet Son n\.a\. 16\.6% Hoc Mon - North Binh Chanh 12% 17\.7%Hoa My* n\.a\. 3\.0% Subtotal original subproject 17\.0% 19\.0%Subtotal new subproject n\.a\. 20\.5% Total project 17\.0% 19\.0% NPV: VND 281 Billion * The Hoa My new area was mainly for flood damage repairs and reinforcement works with high investment cost and small irrigation area\. At the time of project appraisal the economic analysis included only the seven original subprojects\. However, at ICR separate economic analyses have been carried out for the additional seven new subprojects (see above table), which were approved at the MTR, and accounted for 11% of the total civil works costs and 18% of the total developed/rehabilitated irrigation areas\. The analysis compared "with project" and "without project" scenarios, and the quantifiable benefits derived from improvements to irrigation and drainage facilities, low yield farmland, and agricultural services, and the estimated economic costs\. The ERRs of individual subprojects range from about 11% in Da Mai irrigation area to 29\.7% in Kieu irrigation area (excluding Hoa My), depending on the actual crop yields, cropping intensity and - 27 -  cropping pattern, the size of the irrigation and planted area, and the investment and O&M costs for each scheme at the time of implementation\. The overall ERR for the seven new subprojects is estimated at 20\.5% with a net present value of about VND 37\.4 billion\. For the original seven subprojects, the ERRs range from 15% for Cam Thuy to 20\.6% for Thach Nham\. For South Nghe An, Dong Cam, and Hoc Mon - North Binh Chanh subprojects, the actual ERRs are higher than those estimated at SAR, mainly due to significantly increased yields of paddy (about 131-136% of SAR), maize (about 160% of SAR) and peanuts (about 140% of SAR) and to more diversified crop production in these subproject areas\. In Hoc Mon- North Binh Chanh subproject, for example, the total irrigated land and sown area were reduced by 15% and 35% respectively due to increased local urbanization and crop diversification (with reduced cropping intensity)\. However, the ERR is still higher than the 12% estimated at appraisal because of the increased production of high value fruit crops (1800 ha) and forests (1950 ha), and increased yields for sugarcane\. For Linh Cam, An Trach, and Thach Nham subprojects, the actual recalculated ERRs are lower than those estimated at the appraisal, because the irrigated land decreased significantly due to the urbanization in these localities and to change in administrative boundaries which affected implementation\. In addition, the cropping area of the third season rice was reduced significantly in most area due to the increased yields for maize and winter-spring and summer-autumn rice which are more cost-effective and environmentally more sustainable\. Nevertheless, economic analysis of the subprojects shows that the recalculated ERRs are all favorable, with an overall subproject ERR of 19% (NPV: VND 249\.6 billion), compared with the 17% estimated at SAR (NPV not available)\. This is considered to be a satisfactory result, particularly in view of the early stage of most subproject developments and the numerous non-quantifiable, social and environmental benefits attributable to the project\. These include community safeguards under the RAP, the increase in reliability of water delivery brought about by the lined canals, enhanced drainage and salinity intrusion protection, improved road access to communities, and the increases in agricultural production\. Main Assumptions for Financial and Economic Analysis The ERR estimate was compared with the SAR, using revised estimates based on the latest data and information for actual costs and benefits, and updated assumptions of future costs and benefits provided by SIOs, IMCs and DARDs at 14 subproject sites in 2003, and a summary of the International Consultants' Financial and Economic Analysis report (a quantitative and qualitative analyses based on the information collected and assessed for 2001 in the seven original subproject area)\. The framework of the analysis follows, to the extent possible, that of the SAR\. Key assumptions have been changed only when clearly better estimates are available\. The assumptions applied in the financial and economic analyses mainly cover the general concepts and field activities relating to on-farm crop development for the incremental production of crops made possible as a result of the project\. The general assumptions are as follows: \. (a) The project implementation period was seven years with 1996 being the first year of the project unless otherwise stated, as was the case for some subprojects\. The economic life of subprojects is assumed to be 20 years for field development\. The benefits and costs are presented in 2000 prices\. Inputs and outputs prices used in the crop budgets are actual 2000 farm-gate prices in project area, and provided by the project authorities\. - 28 -  (b) At the ICR, total actual investment cost for civil works of 14 irrigation schemes was about US$95\.3 million of which 83\.7 percent (US$79\.8 million, 74% of SAR) was invested in the original seven subprojects, 10\.5 percent (US$10 million) in the seven additional, new subprojects, and about 7 percent (US$5\.5 million) in flood protection works\. All above project costs (except flood damage repair), agricultural production cost and O&M costs, have been considered in estimating the economic costs of the project, but the cost of consultants and training component (US$7 million, 152% of SAR ), taxes, duties, and other charges were omitted\. The basic rural daily wage in Vietnam is assumed to be VND 15,000 per day\. The shadow wage rate applied in the economic analysis is 0\.8\. A discount rate of 12% was applied to approximate the opportunity cost of capital in Vietnam\. (c) The project benefits are best estimated and are based on the actual performance of existing crops in each subproject area\. They reflect the actual irrigated land developed/rehabilitated with the actual cropping pattern and intensity by year in each subproject area\. The detailed crop budgets reflect actual scenarios for rice, corn, peanut, soybeans, sweet potato, sugarcane, fruit and forest production in each irrigation area\. Projected yields are actual yields from 1996 to 2003, and the estimated yields (to full development) are based on the experiences of the existing project in each sub-project area\. The amount applied of seeds, fertilizers and farm chemicals are also the actual average and the incremental levels in each area\. Flood control benefits - which are likely to be substantial - have not been included in the analysis, because information is not available to quantify them\. (d) The World Bank Commodity Price projections were used to estimate farm-gate prices in constant 2000 terms for traded inputs and outputs (rice and fertilizers) with domestic and international transport and handling\. A standard conversion factor of 0\.9 is applied to all non-traded items\. The details of these and other assumptions applied in the financial and economic analysis are presented in the project files\. - 29 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 05/15/1993 6 IRRIGATION ENG\./ TEAM LDR\., AGRICULTURALIST, ECON\., IRRIGATION ENG\., SOC\. SPEC\. ; ENV\. SPEC\. 01/10/1994 5 TEAM LDR\., IRRIGATION ENG\. (2), SOC\. SPEC\.; ENV\. SPEC\. 04/14/1994 3 TEAM LEADER, IRRIGATION ENG\., ENV\. SPEC\. Appraisal/Negotiation 07/05/1994 9 TEAM LDR\.; IRRIGATION ENG\. (3), ECONOMIST, FIN\. ANALYST, ENV\. SPEC\., SOC\. SPEC\., LAWYER, 10/08/1994 10 TEAM LDR\., SOC & ENV\. SPEC\., IRRIGATION ENG\. (2), LAWYER, FINANCIAL SPEC\. ECON\. (4) Supervision 07/18/1995 5 IRRIGATION ENG\.; S S RESETTLEMENT SPEC\.; WATER RES\. MGMT\. SPEC\.; PROCUREMENT SPEC\.; TEAM LDR\./ECON\. 12/08/1995 4 PROCUREMENT SPEC\.; S S WATER RES\. MGMT\. SPEC\.; IRRIGATION ENG\.; TEAM LDR\./ECON\. 02/06/1996 3 PROCUREMENT & S S DISBURSEMENT SPEC\., ENV\. SPEC\., TEAM LDR\. 01/25/1997 4 IRRIGATION MGMT\. SPEC\.; S S TEAM LEADER; INSTIT\. SPEC\.; ENG\. 06/17/1997 4 TEAM LDR; INSTIT\. SPEC\.; S S WATER RES MGMT SPEC\.; ENG\. 11/29/1997 2 TEAM LDR\.; ENG\. S S 8/14/1998 3 TEAM LDR; ECON\.; ENG\. S S 11/15/1998 6 TEAM LDR; ECON\.; ENG\.; S S RESETTLEMENT SPEC\.; PROCUREMENT SPEC\.; - 30 -  FINANCIAL SPEC\. 06/29/1999 4 TEAM LDR; ECON\.; ENG\.; S S RESETTLEMENT SPEC\. 06/18/2000 3 TEAM LDR/ECON\.; ENG\.; S S RESETTLEMENT SPEC\. 12/12/2000 2 TEAM LDR\., ECON\.; ENG\. S S 09/06/2001 1 TEAM LDR\.ECON\./ENG\. S S 05/25/2002 4 TEAM LDR, ENG\.; S S RESETTLEMENT/SOCIAL SPEC\.; PROCUREMENT SPEC\. 11/22/2002 7 TEAM LDR\./ECON; ENG\.; S S SOC\. DEV\. OFFR\.; FINANCIAL MGMT\. OFFR\.; PROCUREMENT ANALYST; ECON\.; ENV\. OFFICER 05/15/2003 5 TEAM LEADER/ECON\.; S S CO-LEADER/ENGINEER; FIN MGMT\. OFFR\.; PROCUREMENT ANALYST; DISBURSEMENT ANALYST ICR 10/25/2003 3 TEAM LEADER/ENG\.; S S ECON\.; RD SPECIALIST (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation na 708,477(i) Appraisal/Negotiation na Supervision na 677,809 (ii) ICR na Total na 1,386,286 The total includes: (i) all Bank preparation costs up to negotiation (LEN) including US$196,745 in consultant trust funds and a contribution of US$52,815 from FAO/CP, i\.e\. actual Bank preparation costs were US$458,887; (ii) all Bank supervision (SPN) and ICR costs including a contribution of US$23,887 from FAO/CP, i\.e\. actual Bank SPN and ICR costs over 16 missions was US$653,922, an average of US$40,870 per mission\. Overall Bank budget for the project was US$1,112,809, which was 1\.5% higher than the Bank budget allocated for LEN, SPN and ICR\. - 31 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Agricultural production/ productivity Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA Agricultural extension support program has great potential to enhance the effectiveness of investment in irrigation infrastructure facilities under the project\. - 32 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 33 -  Annex 7\. List of Supporting Documents 1\. Project and subproject feasibility studies 2\. Project Staff Appraisal Report dated April 7, 1995 3\. Development credit agreement, April 7, 1995 and three DCA amendments 4\. Full supervision reports (16), including Form 590/PSR of the project: 1995-2003 5\. Environmental impact assessment and environmental monitoring reports 6\. MARD/CPO Impact Assessment Report (2003) 7\. MARD quarterly monitoring reports 8\. MARD/CPO Project Completion Reports for Physical Works TA Components (2003) 9\. MARD/CPO Project Completion Report for Agricultural Support Program component (2003) 10\. IMC Financial Management Plans 11\. PIM plans and workshop proceedings 12\. Agricultural Support Program 13\. ICR full economic and financial analysis - 34 -  - 35 -

REVIEW

P039749

 ICRR 12232 Report Number : ICRR12232 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/22/2005 PROJ ID :P039749 Appraisal Actual Project Name :Health Sector Reform Project Costs 48\.8 47\.43 US$M ) (US$M) Country :Jordan Loan/ US$M ) Loan /Credit (US$M) 35\.0 35\.0 Sector (s):Central ): government US$M ) Cofinancing (US$M) 0 0 administration; Health L/C Number :L4449 FY ) Board Approval (FY) 99 Partners involved : None Closing Date 12/31/2003 12/31/2004 Evaluator : Panel Reviewer : Group Manager : Group : Judith Hahn Gaubatz Fernando Manibog Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives (1) To increase the efficiency of health services, including through more efficient utilization of physical facilities; (2) To improve the delivery and quality of health services; and (3) To increase the long-term financial sustainability of health services\. b\. Components (or Key Conditions in the case of Adjustment Loans ): (1) Rationalizing Jordan’s health delivery system (US$35\.9 mil, 73\.6% of project costs), including financing the rehabilitation or construction of health facilities, and staff training; (2) Developing and implementing health information systems (US$2\.9 mil, 5\.9%), in order to collect epidemiological and patient data; (3) Improving hospital financing and management (US$0\.64 mil, 1\.3%), including developing a financing system; (4) Reforming the pharmaceutical sector (US$5\.44 mil, 11\.1%) including through adoption of treatment protocols and policies regarding generic drug substitution, pricing, rational use; and (5) Continuing the reform process, including exploring various alternatives through sector research (US$0\.26 mil, 0\.5%)\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates As the Government failed to make sufficient progress on the financial sustainability objective, the Loan Agreement was formally amended to drop this development objective in September 2003, as a condition for a one-year project extension (from December 2003 to December 2004)\. Component 3 was dropped and the funds for this component were reallocated to Components 1 and 2\. 3\. Relevance of Objectives & Design : The project is commendable in that its development objectives were firmly rooted in a health sector study conducted jointly by the World Bank and Government of Jordan prior to project preparation \. Original objectives (1) and (3) on improving efficiency and long-term financial sustainability were highly relevant, given the poor “value for moneyâ€? received from national spending on health services \. The health sector study notes that Jordan spends about 8% of GDP on health care, in excess of most middle -income countries, and that the epidemiological and demographic transition ongoing in the country will likely lead to rising public health care costs \. Objective (2) on improving quality was somewhat less relevant, as the sector study highlighted that the health system performs relatively well in terms of overall access and outcomes \. 4\. Achievement of Objectives (Efficacy) : Increased efficiency : (i) All planned facilities (11) were constructed or rehabilitated according to a masterplan (developed during project preparation with an IDF grant ), which purported to prioritize facility investment needs and incorporate standards\. The majority of these facilities became operational \. Surveys conducted by the ICR team showed that at the Royal Medical Services (RMS) facilities (one of the three public sector providers supported through the project), tests now require less time (turnaround time is now in the range of 20 minutes to three days, reduced from 2 days to six weeks), the number of patients attended to each day increased (inpatient load has increased by 20% in 2004 against the same period in 2002), and the length of stay in hospital was reduced (from 4\.2 to 3\.2 days)\. (ii) Information systems were installed, though at varying phases of completion : the RMS system within the King Hussein Medical Center was installed and networked (other hospitals in the RMS systems are planned to be networked to the same system in the next project ), the Jordan University Hospital (JUH) system was computerized to make access to data simpler, the Ministry of Health (MOH) system was partially computerized (including the departments of Health Insurance, Personnel, and Financial Management, and the Jordan Food and Drug Administration (JFDA))\. Computerization in the JFDA has reduced the drug registration processing time from up to 180 days to no more than 90 days\. (iii) Pharmaceutical drugs entities were created, such as the Joint Procurement Directorate to facilitate joint procurement across the various public institutions; a committee to unify drug codes across agencies and create essential drug lists and drug use guidelines; and the Joint National Drug Toxicology Information Center to provide information to all public institutions \. Improved quality : (i) Almost all planned training courses were completed, as training was provided to managerial staff on management (over 230 staff), information systems (over 850 staff), and technical skills (over 100 staff)\. Staff surveys regarding the training showed that the majority felt that the training enhanced their skills for their current jobs\. (ii) Information systems were installed, providing easier access to patient data to improve decision -making on patient care\. (iii) Facilities were constructed or rehabilitated according to a master plan which purported to set norms and standards\. (iv) Standard treatment protocols are now being used by 380 public sector facilities\. The RMS lab is now a national referral center with internationally recognized certification \. (v) Eleven s tudies were conducted to continue exploring avenues for the pharmaceutical reform process \. However, the issues addressed in the project were complex and the project was over - ambitious in addressing them all at once in a single project, particularly given the fact that there are three major public sector providers in the health sector whose strategies and actions needed to be coordinated \. The QAE recommendations noted the implementation risk of coordinating the three providers \. The project failed to make significant progress in implementing the project activities under the financial sustainability objective, namely in establishing consistent financial management systems and norms, and thus the objective was formally dropped; however, efficiency gains in service delivery will likely improve short -term financial sustainability\. The project failed to establish a nation -wide health information system that would have been able to collect and analyze trends in national -level epidemiology to better inform decision-making on resource needs and gaps \. There were no studies conducted regarding further exploring the reform process, aside from pharmaceutical reform studies \. 5\. Efficiency : As the project neither collected data related to project outcomes (i\.e\. hospital occupancy rates, change in share of health expenditures spent on pharmaceuticals ) nor conducted an ex-post cost-effectiveness analysis, it is unclear whether the project led to economic or financial efficiency gains \. However, it is likely that efficiency gains in service delivery will contribute to some economic and financial efficiency gains \. 6\. M&E Design, Implementation, & Utilization: Although a project monitoring plan with indicators was developed during appraisal, data to assess achievement of objectives and overall project impact were not collected during the project period \. A survey was conducted by the ICR team to collect data for the ICR \. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): The project financed rehabilitation of medical waste facilities at the largest hospital and capacity building of staff in medical waste management\. This system is expected to be replicated in other facilities \. 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Unsatisfactory The complexity of the project required closer supervision and more regular, consistent technical assistance (as recommended by QAG), yet these were not provided\. Monitoring indicators were not adequately collected to assess the project’s achievements and impact\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: An institutional capacity assessment would have identified key constraints in coordinating the three public sector providers and thus mitigating measures could have been included in the project design \. In particular, the challenge of coordinating the financial management systems and establishing consistent accounting practices was not adequately addressed and thus the project activities geared towards the financial sustainability objective were not implemented\. Closer attention should have been paid to implementing this quality -at-entry assessment recommendation \. 10\. Assessment Recommended? Yes No Why? The project may be worth assessing in order to analyze how far the actual developments in the sector have diverged from the health sector study's findings and recommendations (given the failure to address financial sustainability issues ), and what the long-term consequences of this divergence would be \. The need for an M&E system, which was not established during project implementation, should also be assessed \. Project outcomes should be validated, since data was not collected \. 11\. Comments on Quality of ICR: The ICR quality is satisfactory \. However, it would have been helpful if the ICR had complied with the suggested guidelines for restructed projects (see OPCVP memo of January 21, 2005) in order to better assess the impact of the dropped objective on financial sustainability \. More information regarding the survey on project impacts conducted by the ICR team (methodology, sample, additional data ) would have been helpful\.

REVIEW

P069501

 ICRR 12080 Report Number : ICRR12080 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 04/26/2005 PROJ ID : P069501 Appraisal Actual Project Name : Kenya Economic & Public Project Costs 150 110\.1 Sector Reform Credit US$M ) (US$M) Country : Kenya Loan /Credit (US$M) Loan/ US$M ) 150 110\.1 Sector (s): Board: PS - Central Cofinancing government administration US$M ) (US$M) (40%), Law and justice (20%), Crops (15%), General transportation sector (15%), General education sector (10%) L/C Number : C3406 Board Approval 01 FY ) (FY) Partners involved : European Commission, UK Closing Date 06/30/2002 04/30/2004 Department for International Development Prepared by : Reviewed by : Group Manager : Group : Jorge Garcia-Garcia Emily S\. Andrews Laurie Effron OEDCR 2\. Project Objectives and Components a\. Objectives To support the implementation of Kenya's interim poverty reduction strategy paper (I-PRSP) and to improve the outlook for economic growth and the delivery of basic services \. The credit supported the Government of Kenya's efforts to improve economic governance and public sector management, stimulate economic growth, and address poverty\. b\. Components 1\. Sound macroeconomic management and preparation of the PRSP \. Reforms were aimed at reducing interest rates, the government's domestic debt, and the tax burden (from 27 percent of GDP in 1998/99 to 24 percent of GDP by 2002/03, par\. 43 of President's Report), and raising the quality of public spending \. 2\. Improving Governance\. Measures included: (a) implementing action plan to enhance fiduciary transparency; (b) cabinet approval of a new comprehensive procurement bill; (c) cabinet approval of and government commitment to implement the judicial code of conduct; (d) government presenting a bill to Parliament to merge the offices of the Auditor General and the Controller\. 3\. Redefining the role of the state and civil service reform \. The reforms intended to create a smaller and more efficient system of public administration and to release resources for investment, maintenance and essential services to the poor\. 4\. Public enterprise reform and privatization \. Redefining the role of the state to focus on policy -making and regulatory functions, not providing commercial services \. Actions included: (a) bringing Kenya Telkom to the point of sale; (b) providing a progress report on milestones laid out in the privatization strategy; and (c) seeking legal opinion of the attorney general that no further legislative action was needed to privatize key infrastructure services \. 5\. Public expenditure reform to ensure that core poverty programs were fully funded in line with the financing plan \. Conditions included: (a) presenting quarterly reports on the financing and spending on core poverty programs; (b) reducing the number of courses taught in primary and secondary schools; (c) funding and making operational the National AIDS Council\. 6\. Private sector development\. Improving the investment climate by (a) liberalizing tea processing of small farmers by abolishing the Kenya Tea Development Authority; (b) approving the sessional paper liberalizing coffee marketing \. In the President's Report these are elements of the public expenditure reform component \. 7\. Improvements in managing the Bank portfolio \. Conditions were to (a) revise the exchequer and audit act and (b) implement its recommendations\. c\. Comments on Project Cost, Financing and Dates The credit had a three-tranche of $50 million each, and was expected to be fully disbursed by June 30, 2002\. The second tranche disbursed on December 18, 2003, after eleven months of the new government taking office \. The closing date was extended twice, and closed on April 30, 2004\. The third tranche of the credit for $ 50 million was cancelled\. The credit agreement was amended four times, three to provide additional assistance under the IDA reflows (SDR 4\.05 million), and once to incorporate the new government's Letter of Development Policy of May 28, 2003\. The objectives of the program were not formally revised but the new Letter of Development Policy revised the strategy for achieving the program objectives; in doing so it changed the program's objectives \. For example, instead of privatizing infrastructure parastatals it proposed private sector participation selectively in existing operations \. 3\. Achievement of Relevant Objectives: 1\. Sound macroeconomic management\. Inflation fell initially, but neither domestic debt nor public expenditure fell as a proportion of GDP although between 2000 and 2003 GDP increased at 0\.8 percent per year\. There is no evidence that the quality of public spending increased \. 2\. Governance\. Parliament passed a bill to merge the office of the Auditor General (Corporations) with the office of the Controller and Auditor General\. Parliament created the Kenya Anti-Corruption Commission and the Public Officer Ethics Act which requires public officers to declare their assets regularly \. The government developed an integrated financial management information system and established a uniform and transparent procurement system for all public procurements\. 3\. Role of state and civil service reform \. About 23,500 civil servants (out of a planned 32,000) and 6,900 employees from parastatals were retrenched, but the government's wage bill increased from 8\.6 percent of GDP in 2000 to more than 9 percent of GDP in 2003/04\. 4\. Public enterprise and privatization \. The attorney general's legal opinion was that existing laws allowed privatizing of infrastructure, and the government reduced its share in Mumias Sugar from 71 percent to 38 percent, and in Kenya Commercial Bank from 35 percent to 25 percent\. The government did not privatize Kenya Telkom and the state continued providing services rather than make policy and regulations \. 5\. Public expenditure reform\. The government identified core poverty programs and submitted quarterly reports regularly\. The reports indicate that funds allocated to them have increased over time, but the ICR does not present information on actual expenditures against allocation \. 6\. Private sector development\. The Kenya Tea Development Authority was transformed into a private entity owned by small-scale tea farmers through their respective tea factories \. Tea farmers receive now a larger fraction of the international price (70 percent of the auction price )\. 7\. Bank portfolio\. Disbursements improved and parliament passed the Public Audit Act \. 4\. Significant Outcomes/Impacts: On the role of state and civil service reform the most significant outcome was reducing employment in the public sector, about 30,000 employees\. However, at the same time, the government wage bill went up as a share of GDP \. The government adopted a medium term expenditure framework (MTEF) but this had little impact on budgetary allocations as the government used it more for planning than for budget control \. Disbursements of funds accelerated \. Transferring funds from the special accounts to the projects' accounts fell from 30 days at the beginning of the program to seven days at program's end \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The economy grew little and real per capita income fell \. Also, there is no evidence that the delivery of basic services improved\. On the fiscal side, the central government's overall deficit increased from about 2 percent of GDP in 2000/01 to about 4\.6 percent of GDP in 2002/03\. Parliament rejected the Code of Conduct and Ethics bill in December 2000, and evidence on progress on corruption is mixed\. While some indicators show modest improvement, others show deterioration \. There is no evidence that the government was able to protect fully core poverty expenditures, and health indicators like vaccination coverage and infant and child mortality deteriorated \. The coffee market was not liberalized and the separation of the regulatory and marketing functions of the Coffee Marketing Board did not appear to affect the price farmers received (about 30 percent of the auction price of coffee )\. Parliament did not pass the Exchequer and Audit Act, and the procurement law has not yet been passed \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Unsatisfactory The ICR states it well in par\. 7\.3: "The Bank team was too quick to accept the government's assurances that it was, this time, committed to reform, which resulted in second and third tranche conditions that were unrealistic\." First, certain CAS base triggers had not  been met at the time the credit was approved by Bank management \. Second, the Bank paid insufficient attention to understanding how various groups might be affected by the reforms and did little to encourage the government to obtain their support\. Finally, as the ICR notes, the conditionality was "too vague" and focused on "action plans" rather than "actions"\. Borrower Perf \.: Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Supporting a "turn around" for a country with a poor record of reforms is risky, but lending against mere promises is inadvisable\. Choosing appropriate tranche release conditions is therefore vital, and these should be few, clear, important and hard to reverse\. The Kenya loan conditions were none of these \. If these conditions cannot be devised it would be better for the Bank to wait for proof of reform \. Bank lending that seeks to achieve specific results should specify indicators of performance, and tailor the conditions to achieving those results \. 8\. Assessment Recommended? Yes No Why? This credit was approved under a fast track, and it is important to understand how these credits perform\. 9\. Comments on Quality of ICR: The ICR provides sufficient information to assess the project, and the quality is satisfactory, but it has short-comings: The ICR lacks macroeconomic indicators, and does not discuss what was expected and achieved in macroeconomic management\. The ICR has unclear information about progress towards the conditions for which waivers were granted (see par\. 4 of page 4 of ICR)\. The judgement on the satisfactory implementation of governance reforms is questionable, given mixed indicators and problems in the Bank's portfolio\. Discussion of the effect of the reforms in tea and coffee on prices received by farmers should have been made in terms of prices net of trading costs, to establish their full impact relative to international prices \.

REVIEW

P074641

 ICRR 13104 Report Number : ICRR13104 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/10/2009 PROJ ID : P074641 Appraisal Actual Project Name : HIV/AIDS Prevention US$M ): Project Costs (US$M): 16\.5 15\.1 And Control Project (second Phase Of The Multi-country Hiv/aids Prevention & Control Apl For The Caribbean) Country : Jamaica Loan /Credit (US$M): Loan/ US$M ): 15\.0 10\.6 Sector Board : HE Cofinancing (US$M ): US$M): N/A N/A Sector (s): Health (90%) Other social services (8%) Central government administration (2%) Theme (s): Participation and civic engagement (33% - P) HIV/AIDS (33% - P) Health system performance (17% - S) Gender (17% - S) L/C Number : L7112 Board Approval Date : 03/29/2002 Partners involved : Closing Date : 12/15/2006 05/31/2008 Evaluator : Panel Reviewer : Group Manager : Group : Judyth L\. Twigg John R\. Heath Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The project’s objective, as stated in the Loan Agreement, was to assist the Borrower in reducing the spread of the HIV/AIDS epidemic\. The ICR evaluates the project using further language from the Loan Agreement and the Project Appraisal Document (PAD), stating the objectives as curbing the spread of the HIV epidemic through (a) the expansion of preventive programs targeted to high -risk groups, as well as to the general population; (b) the strengthening of care, support, and treatment programs for people living with HIV /AIDS (PLWHA); and (c) the strengthening of the Borrower’s multi-sector capacity to respond to the epidemic \. For purposes of this review, (a), (b), and (c) are treated as means toward achieving the primary development objective, to reduce the spread of the HIV epidemic\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The Project had three components : Component 1: Preventive programs targeted at high -risk groups and the general population (estimated USD 7\.55  48 \.3% of estimated )\. This component was designed to support scaling up of six million; actual USD 3\.65 million, or 48\. areas of interventions: behavioral change communication (BCC), voluntary counseling and testing (VCT), condom social marketing programs, syndrome management of sexually transmitted infections (STI), prevention of mother-to-child transmission of HIV, and strengthening the capacity of the blood bank to provide safe blood \. It included demand-driven subprojects intended to involve NGOs and other agencies in the provision of interventions to communities and marginalized groups \. Component 2: Basic health care, treatment, and support for PLWHA (estimated USD 3\.53 million; actual USD 156 \.7% of estimated )\. This component included support for home and community care for PLWHA 5\.53 million, or 156\. by NGOs and community-based organizations (CBOs), and for improvements in the diagnostic capacity, efficiency, and quality of the laboratory system \. Component 3: Strengthening the national capacity for an intensified response to the epidemic (estimated USD 124 \.7% of estimated )\. This component was intended to improve the technical, 4\.65 million; actual 5\.80 million, or 124\. managerial, and implementation capacity of key players in Government and civil society \. It included support for surveillance and data management systems and monitoring and evaluation of program activities, and for project management\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Costs : Significantly more was spent on Components 2 and 3, and significantly less on Component 1, than estimated\. The increased cost for Component 2 was because expenditures for the waste management treatment plant were approximately double the original estimate \. Costs for blood safety activities were moved from Component 1 to Component 3, accounting for part of the decrease in the former and increase in the latter; similarly, activities relating to prevention and treatment services for infected mothers and infants were moved from Component 1 to Component 2\. Reductions in Component 1 were also due to demand-driven projects costing USD 0\.5 million, rather than the USD 2\.0 million originally planned, because NGO capacity was more limited than anticipated \. Spending on condoms under Component 1 was USD 0\.24 million rather than the planned USD 2\.0 million because USAID and the Global Fund also provided funding for condoms \. USD 4\.4 million was cancelled from the loan in March 2006 because the Global Fund picked up financing for some project activities, and cost estimates for some other activities were revised downward \. The partial cancellation also followed recognition of low disbursements (20%) after 3\.5 years of implementation and the likelihood that the loan would not disburse fully\. The ICR notes, however, that after this cancellation, restrictions on the available project budget significantly slowed implementation at a time when capacity had finally been developed to absorb the funds \. The Global Fund provided anti-retroviral drugs worth USD 6\.6 million from 2004-2008\. Borrower Contribution : The Government’s contribution, originally estimated at USD 1\.5 million, was actually USD 4\.53 million\. Dates : The project was extended twice \. The first extension was by 12 months to December 15, 2007, to compensate for early delays in implementation\. The second extension was by 5\.5 months to May 31, 2008, mainly to complete two large contracts for a Waste Management /Treatment Plant and for a Laboratory Information System \. 3\. Relevance of Objectives & Design: Relevance of Objectives : Substantial\. The Bank’s 2005 Country Assistance Strategy for Jamaica makes a continuing commitment to the prevention and control of HIV /AIDS and highlights the Bank’s support for the Millennium Development Goals (while noting that achievement of the HIV /AIDS MDG by 2015 is unlikely in Jamaica)\. The project is consistent with Jamaican Government priorities, implemented under the Government ’s 2002-2006 National Strategic Plan for HIV/STI/AIDS and briefly under the follow-up 2007-2012 National Strategic Plan\. The Borrower notes that the project ’s timing was important to fill gaps between these two Government strategic plans \. Adult HIV prevalence appears to have stabilized at 1\.5% for the last five years, but much higher prevalence is found in key risk groups: 9% among sex workers, and 20-30% among men who have sex with men (MSM)\. The PAD notes, however, that Jamaica was at the time of project preparation undergoing a rapid epidemiological transition, with non-communicable diseases requiring expensive treatment accounting for sixty percent of the total disease burden\. Relevance of Design : Modest\. The project was well aligned with Jamaica ’s National Strategic Plan (NSP), sharing the same impact and outcome indicators \. Extensive analytical work contributed to project design \. Knowledge, Attitude, Practice, and Behavior (KAPB) surveys conducted from 1988-1994 pointed to significant increases in knowledge but lags in behavior change, which should have pointed the project toward preventive interventions focused on behavior change \. The PAD is explicit that lessons learned from other projects were taken into account, most importantly the need for high and sustained Government commitment, the need to focus on prevention among high-risk groups, and the need to strengthen surveillance systems \. Despite this attention to lessons learned, however, only 3% of the total project budget was set aside for demand -driven prevention measures specifically targeted at risk groups (MSM and sex workers; IDU are mentioned only once in the PAD as a high -risk group), and the project’s outcome indicators related to behavior change focused much more on the general population than on risk groups\. The project recognized the need for a multi -sector approach, but as a result it was a complex project, perhaps inappropriate for a first -time operation\. It is not clear how the project was to coordinate efforts with the many other donors active on HIV listed in the PAD \. Procurement arrangements and processes were also inadequate and, according to the ICR, inappropriate for country circumstances \. For example, procurement procedures were too complex to be carried out by NGOs with limited experience and capacity; eventually, procurement procedures were simplified through the use of Service Level Agreements, but those were brought into play so late that they were never used, and as a result, only a quarter of the originally intended resources were spent on the NGO subcomponent \. Finally, HIV prevalence was used as the primary impact indicator; this is an inappropriate measure, as it is affected by both incidence and mortality \. The PAD explains that HIV incidence was all but unavailable; given this fact, the project might have included more extensive efforts to track proxies such as syphilis or relevant behavior changes \. The PAD contains virtually no baseline data on the project's output indicators \. 4\. Achievement of Objectives (Efficacy): Achievement of the overarching objective of reducing the spread of the HIV /AIDS epidemic is rated Substantial\. Outputs : At least one outreach program was implemented using peer educators for each high -risk group in every high-transmission area, covering sex workers (15 workshops), men who have sex with men (MSM), out-of-school youths, and prisoners (reaching 85% of inmates and 100% of wards in 12 institutions)\. Peer educators were trained for risk groups: 89 sex workers, 37 MSM, and 341 prisoners\. 2,348 sex workers were reached by the project (no indication is given of what coverage that represents )\. 3\.5 million condoms were provided under the project, and 2,830 condom outlets were established \. 100% of employees in the labor, tourism, security, local government/community development, and education ministries /sectors were trained on or sensitized to HIV issues, and each of these ministries developed sector policies on HIV \. 93 private employers put in place policies on HIV \. Voluntary testing for HIV among youth increased from 29\.8% in 2004 to 46\.8% in 2008 (KABP surveys)\. The percentage of ANC attendees receiving an HIV test increased from 39% in 2003 to 95% in 2008\. 100% of ANC clinics offered voluntary counseling and testing (VCT) and mother-to-child-transmission (MTCT) interventions in 2008\. The percentage of pregnant women receiving VCT increased from 6\.5% in 2004 to 91\.2% in 2008 for ages 15-24, and from 54\.6% in 2004 to 92\.1% in 2008 for ages 25-49\. The turnaround time for HIV tests was reduced from over 10 days for negative and 2-3 weeks for positive in 2002, to 15 minutes for negative and 7 days for positive in 2008\. The National Laboratory, National Blood Transfusion Services, and surveillance system were completely computerized\. According to the Summary of the Borrower ’s ICR, however, laboratory capacity remains limited, with confirmation of testing results at the National Laboratory inadequate and with too -long turnaround time\. Additionally, the Summary of the Borrower’s ICR states that only 10% of hospital admissions are tested for HIV, with even smaller percentages for attendees at family planning and other outpatient clinics \. Twelve unspecified NGO subprojects targeted at high-risk groups were implemented, representing 3% of total project costs, and training was provided to NGOs on program preparation and administration \. Mass-media awareness campaigns (television and radio ads) reached over one million people\. Regional Health Authorities (RHAs) received training on procurement, management, workplan preparation, and behavior change communication; RHAs carried out the majority of targeted interventions in communities, for a total of 25% of the loan\. 19 HIV/AIDS treatment centers were established, and civil works were provided for 14 VCT sites\. Two editions of an HIV manual and treatment guidelines (including opportunistic infection and tuberculosis ) were developed under the project, and all physicians are re -trained annually on these guidelines\. In 2008, all health clinics had at least one trained counselor providing specialized HIV /AIDS counseling\. Outcomes : HIV prevalence among antenatal clinic (ANC) attendees increased from 1\.2% in 2002 to 1\.3% in 2008, and among army recruits from 0\.22% in 2002 to 0\.72% in 2008\. HIV prevalence among sex workers in Montego Bay decreased from 20% in 2002 to 9% in 2008, and in Kingston from 10% in 2002 to 9% in 2008, but it is unclear how the 2002 data were derived, and the 2008 data are based on a small sample of 250 sex workers\. Given the problems with prevalence as an outcome indicator, it is more appropriate to focus on a proxy for HIV incidence : syphilis prevalence among ANC attendees decreased from 1\.27% in 2002 to 1\.1% in 2007, a reduction of 15% against the project’s goal of 25%\. The Summary of the Borrower’s ICR cautions, however, that there has been a small but significant recent increase in rates of syphilis among pregnant women and among STI clinic attendees \. Median age at first sex increased from 13 in boys and 14 in girls in 2000 to 16 in boys and 16\.9 in girls in 2008 (KABP surveys)\. The percentage of men and women ages 15-49 who reported using a condom in their last sexual encounter with a non-regular partner was 76\.4% for men and 67\.1% for women in 2002, and 77\.9% for men and 68\.8% for women in 2008 (KAPB surveys)\. Unprotected sex with non-regular partners among men ages 15-24 declined from 30\.5% in 2004 to 12\.9% in 2008 (KAPB surveys)\. The ICR presents only one data point related to behavior change among high-risk groups: the percentage of sex workers who reported condom use with their last client increased from 75% in 2002 to 90\.1% for tourist clients and 92\.4% for Jamaican clients in 2008\. The percentage of ANC attendees testing positive for HIV who received medications to prevent mother -to-child transmission (MTCT) increase from 10% in 2002 to 85% in 2008\. The coverage of primary prophylaxis of Pneumocistis carinii pneumonia (PCP) for AIDS patients in HIV/AIDS specialty centers increased from zero in 2002 to 100% in 2008, and staff in all clinics were trained in WHO guidelines \. Global Fund financing resulted in an increase of persons receiving treatment from under 100 in 2003 to 4,458 in 2008, reducing the number of AIDS deaths from 665 in 2004 to 320 in 2007\. 5\. Efficiency (not applicable to DPLs): Substantial\. The ICR provides very solid ERR, NPV, and cost -effectiveness data\. The project set aside only a small percentage (3%) of total costs on measures that have been shown to be most cost -effective, prevention measures targeted to high-risk groups such as MSM and sex workers, and only 20% of total expenditures on the prevention component were spent on efforts that specifically targeted high -risk groups\. The low disbursement rate led to partial cancellation of the project \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 57\.6% 100% ICR estimate Yes 64\.9% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on substantial relevance, efficacy, and efficiency, the project's outcome is rated as Moderately Satisfactory \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The National HIV/AIDS Program is supported at the highest levels of the Government, with the 2007-2012 National HIV Strategic Plan currently under implementation \. A Second HIV/AIDS Project supported by the Bank was approved by the Board on May 13, 2008, and became effective on September 23, 2008\. It is designed to build on the achievements of this project, supporting expanded prevention and treatment efforts \. The Global Fund has approved a second grant of USD 44 million to continue to support Jamaica ’s NSP\. However, it should be cautioned that fresh donor resources are not by themselves a compelling argument for risk resilience \. Important institutional development has taken place: line ministry capacity has been enhanced, and an effective HIV /AIDS Unit has been established in the MOH\. The Government has agreed to convert 21 staff positions from the project ’s PCU and from RHAs to regular Government positions, and it plans to absorb more positions in the coming years during the implementation of the second Bank-financed project\. The Summary of the Borrower’s ICR, however, cautions that human resource problems, including shortages of clinical and administrative personnel, limit program implementation \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: at -Entry : Moderately Unsatisfactory \. The PAD contains a supervision plan, but precise Ensuring Quality -at- relationships and arrangements for all of the implementing agencies involved (line ministries, Regional Health Authorities (RHAs), the National AIDS Committee (NAC), Parish AIDS Committees (PACs), and NGOs) were not completely worked out, resulting in the need to take legal steps to clarify the status of some agencies and to specify detailed working arrangements during implementation \. The capacity of NGOs and RHAs was significantly underestimated, resulting in the eventual need to hire additional staff as consultants to ensure effectiveness of regional operations\. There were also inconsistencies between the Loan Agreement, the Project Appraisal Document (PAD), and the Project Operational Manual (POM) on some important operational issues; according to the ICR, these issues were not resolved until 1\.5 years into implementation\. Overall, project readiness to start implementation was low\. Quality of Supervision : Moderately Satisfactory : The start-up phase of the project was challenging, for the reasons outlined above\. Bank supervision staff changed three times after Board approval until 2003\. There were delays from the Bank in reviewing procurement documentation and providing “no-objections\.â€? However, once problems were identified, through a supervision process that allowed for identification of bottlenecks and development of appropriate solutions, the Bank team worked closely with Government to identify ways to speed up implementation\. The ICR notes that it might have been appropriate for Bank staff to spend more time in the field\. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Government Performance : Moderately Satisfactory : Government commitment to the project was high, particularly from the Ministry of Finance, and remained so throughout implementation \. Close and effective relationships were developed with all relevant line ministries \. There were delays in receiving counterpart funds until mid-2006, with the Budget Planning Office claiming that there was insufficient absorption capacity by the project to handle greater allocations \. In the end, however, the Government contributed three times the initial estimate to the project\. Layers of reviews on the Government side led to delays in procurement processes \. The Government was reluctant to transfer responsibility for program implementation to the NGO sector \. Ultimately, according to the ICR, it was strong, active, and sustained leadership from the HIV /AIDS Program that enabled the project to get off the ground despite significant problems at entry, and to be implemented successfully \. Implementing Agency Performance : Satisfactory : The PCU was a new unit without procurement experience \. Early Bank supervision missions found unclear roles and responsibilities, cumbersome processes, and inefficiency; these issues were identified and resolved by early 2004\. During the latter years of the project, PCU staff were highly motivated and organized, and they formed an excellent working relationship with the Bank and the MOH\. Ultimately, the Project Director and PCU staff were cited as among the best in the country \. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design : Substantial \. The project and NSP shared the same impact and outcome indicators \. M&E was included in the project’s component for strengthening of national capacity for an intensified response to the epidemic, with a subcomponent to support the development of a surveillance plan, design and implementation of second-generation surveillance with a focus on high -risk groups, the establishment of an integrated data management system, and an increase in the country ’s capacity for operational research and dissemination of best practices in priority areas of the NSP \. An M&E subunit was set up in the PCU, and it was to compile and consolidate data related to key input /output indicators every six months in support of an Annual Implementation Review\. Periodic external evaluations of selected pilot interventions were planned, as well as of the project as a whole, in order to provide lessons for project design and implementation \. The project was to rely heavily on these evaluations, as the project design deliberately chose to scale up the interventions that were found to be the most cost-effective (PAD, p\. 16) rather than to implement, from the beginning, an exhaustive gamut of interventions \. The project chose to rely on HIV prevalence as the main outcome indicator, rather than to track proxies that would give some indication of trends in HIV incidence \. Although treatment and care were not included in the project development indicators, treatment and care indicators were introduced into the project ’s M&E framework\. M&E Implementation : Modest \. Baseline data for most indicators were not presented in the PAD \. Following effectiveness, it took more than two years to put an M&E officer in place and to establish the planned M&E subunit; during the last three years of the project, the subunit ’s capacity expanded significantly \. The planned pilots were never evaluated\. Several new databases and data collection tools were developed \. A KABP survey is carried out every four years, a commercial sex worker (CSW) survey was done in 2005, an adolescent survey in 2006, and an MSM survey in 2007\. The surveillance system was completely computerized under the project \. However, data on indicators specific to the project were not collected, as the M&E system focused on support to the NSP \. M&E Utilization : Substantial \. The M&E unit produced a large number of reports to serve the interests of a variety of domestic and international stakeholders, and according to the ICR, it plays a crucial role in the development of the NSP\. A Monitoring and Evaluation Reference Group (MERG) has met since 2005 to provide a forum for stakeholder discussion of project implementation based on indicators \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards : The original plan was for the project to provide incinerators for health facilities, but midway through it was instead decided to construct a waste management plant in Kingston that processes about 60% of all biomedical waste in the country\. This was a more expensive alternative but more effective in disposing of medical waste \. The plant was constructed and all appropriate environmental safeguards were followed in accordance with the project Environmental Management Plan (EMP)\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Flexibility and even more attention than usual to detailed and transparent planning and risk assessment is essential when working with new or inexperienced local institutions \. In this case, failure to consider adequately the procurement environment, as well as NGO and RHA capacity, significantly impacted early implementation \. Investment in human capacity can yield important results and it often worth significant investments of time and resources; in this case, the PCU developed remarkably rapidly into an effective institution \. Particularly when other donors are providing significant resources for care and treatment, it is important for the Bank to maintain a focus on prevention activities targeted at high -risk groups\. Project-specific M&E is crucial when designing and implementing these activities, so that learning can take place about what works and what does not work in a specific country context \. 14\. Assessment Recommended? Yes No Why? This project offers an opportunity for further understanding of the complementarity of Bank and Global Fund financing of interventions\. 15\. Comments on Quality of ICR: The ICR followed the project’s results chain meticulously, with sources cited for the vast majority of data presented \. Explanations for changes in costs and dates are thorough \. According to the ICR, preparation of the ICR was particularly challenging because data had to be found and verified for each of the 24 project indicators from scratch \. The ICR added two additional outcome indicators on HIV testing that were not included in the original indicators \. It contains an excellent analysis of the appropriateness of HIV prevalence as an outcome indicator \. The ICR provides very strong analysis of ERR, NPV, and cost -effectiveness data in Annex 3\. a\.Quality of ICR Rating : Exemplary

REVIEW

P006034

 ICRR 10492 Report Number : ICRR10492 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3460 Project ID : P006034 Project Name : Second Tax Administration Project Country : Argentina Sector : Economic Management L/C Number : L3460-AR Partners involved : Prepared by : Anwar M\. Shah, OEDCR Reviewed by : Laurie Effron, OEDCR Group Manager : Ruben Lamdany, OEDCR Date Posted : 08/20/1999 2\. Project Objectives, Financing, Costs and Components : Objectives: To (a) increase tax revenue through enhanced efficiency in tax administration; (b) sustain revenue enhancement; and (c) facilitate voluntary compliance through increasing popular perception of equity of the tax system\. Financing: World Bank Loan US$20 million; Argentine Government US$10 million Cost: US$31\.9 million of which equipment: US$20 million; and consultants: US$5 million 3\. Achievement of Relevant Objectives : The project objectives were partially achieved \. According to figures in the IMF International Financial Statistics, the central government revenues as a percent of GDP have remained in the range of 12 to 13 percent since 1993, which is when the project started up \. If social security contributions are included, they have declined since then \. On the other hand, there is some evidence that the tax collection has become more efficient and the tax evasion has decreased and voluntary compliance increased \. 4\. Significant Achievements : With computerization of tax collection, unit collection costs have declined \. 5\. Significant Shortcomings : Studies dealing with institutional reform issues and assessing citizens' perceptions were dropped \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Partial Modest The OED rating of 'modest' is equivalent to the ICR rating of 'partial'\. Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Bank performance was, however, only marginally satisfactory as the project experienced serious delays, performance was deficient, and Bank supervision was relatively passive\. Borrower Perf \.: Deficient Unsatisfactory Equivalent rating\. Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : (1) Efforts on tax policy reform and tax administration reform must be closely coordinated \. Without such a coordination isolated reform effort in each of these areas is likely not to be successful \. (2) The long term success and sustainability of tax administration reform requires a focus on fundamental institutional reform \. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR is satisfactory, although marginally so \. It provides a good discussion of project history and is forthcoming about some weaknesses in project implementation, but presents an incomplete record and misleading comparisons (see para\. 12, p\.4) on project performance related indicators \. The relevant measure of whether tax revenues increased is the trend between 1993 and 1997\. These figures are not clearly presented in the ICR \. In addition, relevant tables are missing: key indicators (including a comparison of appraisal estimates and actuals in cost reduction as in the SAR, paras\. 2\.38- 2\.43; Table II\.3; Annex 4; and project performance indicators in Annex 6); project financing; staff missions (timing, duration, expertise)\. The latter data would have been particularly useful in getting a clearer picture of Bank supervision, which was considered by the ICR to be less than satisfactory \.

REVIEW

P076338

Document of The World Bank Report No: ICR2092 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47290 and IBRD-82240) ON A LOAN IN THE AMOUNT OF USD 42 MILLION TO UKRAINE FOR DEVELOPMENT OF THE STATE STATISTICS SYSTEM FOR MONITORING THE SOCIAL AND ECONOMIC TRANSFORMATION PROJECT May 20, 2014 Poverty Reduction and Economic Management Europe and Central Asia  CURRENCY EQUIVALENTS Exchange Rate Effective: May 20, 2014 Currency Unit = Ukrainian Hryvnia (UAH) UAH 1\.00 = US$ 0\.084 US$ 1\.00 = 11\.95 UAH FISCAL YEAR ABBREVIATIONS AND ACRONYMS AF Additional Financing CIS Commonwealth of Independent States CPS Country Partnership Strategy CQ Consultant Qualification CY Calendar Year DC Direct Contracting DEVSTAT Development of the State Statistics System for Monitoring the Social and Economic Transformation Project EU European Union FM Financial Management FMR Financial Monitoring Report FY Fiscal Year GDP Gross Domestic Product GoU Government of Ukraine HQ Headquarters IAWG Inter-agency Working Group IBRD International Bank for Reconstruction and Development IC Individual Consultants ICB International Competitive Bidding ICT Information and Communications Technology IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund IFR Interim Financial Report IO Intermediate Outcome ISDPS Integrated Statistical Data Processing System ISR Implementation Status and Results Report IT Information Technology LCS Least Cost Selection MOEDT Ministry of Economic Development and Trade MOF Ministry of Finance NBU National Bank of Ukraine NSS National Statistical System ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit POM Project Operational Manual PP Procurement Plan RFP Request for Proposals SIL Specific Investment Loan SDDS Special Data Dissemination Standards SSSU State Statistical Service of Ukraine STATCAP Statistical Capacity Building Program STU State Treasury of Ukraine UAH Ukraine Hryvnia USD United States Dollar Vice President: Laura Tuck Country Director: Qimiao Fan Sector Manager: Carolina Sanchez-Paramo Project Team Leader: Svetlana Budagovskaya ICR Team Leader: Mustafa Dinc  UKRAINE Development of the State Statistics System for Monitoring the Social and Economic Transformation Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph Main Report 1\. Project Context, Development Objectives and Design \. 1 1\.1 Context at Appraisal \. 1 1\.2 Original Project Development Objectives (PDO) and Key Indicators \. 3 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification\. 4 1\.4 Main Beneficiaries, \. 4 1\.5 Original Components \. 4 1\.6 Revised Components \. 5 1\.7 Other significant changes \. 5 2\. Key Factors Affecting Implementation and Outcomes \. 5 2\.1 Project Preparation, Design and Quality at Entry \. 5 2\.2 Implementation \. 6 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization \. 7 2\.4 Safeguard and Fiduciary Compliance \. 8 2\.5 Post-completion Operation/Next Phase \. 9 3\. Assessment of Outcomes \. 9 3\.1 Relevance of Objectives, Design and Implementation \. 9 3\.2 Achievement of Project Development Objectives \. 9 3\.3 Efficiency \. 10 3\.4 Justification of Overall Outcome Rating \. 11 3\.5 Overarching Themes, Other Outcomes and Impacts \. 11 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops \. 12 4\. Assessment of Risk to Development Outcome\. 13 5\. Assessment of Bank and Borrower Performance \. 14 5\.1 Bank Performance \. 14 5\.2 Borrower Performance \. 15 6\. Lessons Learned \. 16 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 17 Annex 1\. Project Costs and Financing \. 18 (a) Project Cost by Component (in USD Million equivalent) \. 18 (b) Financing \. 19 Annex 2\. Outputs by Component \. 20 Annex 3\. Economic and Financial Analysis \. 50 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 51 (a) Task Team members\. 51 (b) Staff Time and Cost\. 52 Annex 5\. Beneficiary Survey Results \. 53 Annex 6\. Stakeholder Workshop Report and Results\. 57 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 58 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders \. 65 Annex 9\. List of Supporting Documents \. 66 A\. Basic Information Development of State Statistics System for Country: Ukraine Project Name: Monitoring Social & Economic Transformation Project Project ID: P076338 L/C/TF Number(s): IBRD-47290 ICR Date: 12/04/2013 ICR Type: Core ICR Lending Instrument: SIL Borrower: UKRAINE Original Total USD 32\.00M Disbursed Amount: USD 41\.42 M Commitment: Revised Amount: USD 42\.00M Environmental Category: C Implementing Agencies: State Statistics Service of Ukraine (SSSU) Co-financiers and Other External Partners: Government of Ukraine B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/13/2001 Effectiveness: 06/15/2005 06/15/2005 11/24/2010 Appraisal: 06/09/2003 Restructuring(s): 11/20/2012 Approval: 03/25/2004 Mid-term Review: 12/01/2006 11/10/2008 Closing: 12/31/2009 12/31/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No N/A at any time (Yes/No): (QEA): Problem Project at any Quality of Yes Satisfactory time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 100 100 Theme Code (as % of total Bank financing) Economic statistics, modeling and forecasting 50 50 Other economic management 25 25 Poverty strategy, analysis and monitoring 25 25 E\. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Shigeo Katsu Country Director: Qimiao Fan Luca Barbone Sector Manager: Carolina Sanchez Deborah L\. Wetzel Project Team Leader: Svetlana Budagovskaya Neil James Fantom ICR Team Leader: Mustafa Dinc ICR Primary Author: Mustafa Dinc F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the Project is to build a sustainable state statistical system which efficiently provides timely and accurate data for policy evaluation and decision making\. The Project will support the implementation of a broad-based poverty reduction strategy to attain job-creating, sustainable economic growth in Ukraine by making available a steady supply of trustworthy and readily available social and economic statistics needed for policy making and monitoring purposes\. Revised Project Development Objectives (as approved by original approving authority) The Loan Agreement was amended with a new PDO that is formulated as follows\. "The objective of the Project is to build a sustainable state statistical system which efficiently provides timely and accurate data for policy evaluation and decision making"\. By introducing this change, the PDO in the Loan Agreement has been aligned with what was stated in the original PAD\. However, this change does not reflect any substantive modifications in relation to the previous PDO stated in the Loan Agreement for the original project\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Statistical capacity of the state statistical system according to "PARIS-21" Indicator 1 : methodology Value quantitative or 2\.9 3\.3 3\.5 3\.5 Qualitative) Date achieved 12/31/2006 11/24/2010 11/20/2012 12/31/2013 Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Improved efficiency of statistical system by re-allocation of function between central and Indicator 1 : local statistical offices through piloting of two tier organizational model across the country\. Value (quantitative No Yes Yes Yes or Qualitative) Date achieved 12/31/2005 11/24/2010 11/20/2012 12/31/2013 Comments (incl\. % achievement) Reporting and processing burden diminished: number of statistical forms decreased by Indicator 2 : 12%\. Value (quantitative 4\.61% 33\.18% 35\.48% 34\.10% or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Time need to fill in the structural business survey form decreased from 9\.6 hours to 8\.4 Indicator 3 : hours\. Value 9\.1 8\.5 8\.4 8\.0 (quantitative or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 4 : Statistical business register established, fully operative and regularly updated\. Value (quantitative 2\.7 3\.3 3\.4 3\.4 or Qualitative) Date achieved 12/31/2006 11/24/2010 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 5 : Automated statistical classification system compliant with EU standards introduced\. Value (quantitative 2\.8 3\.3 3\.4 3\.4 or Qualitative) Date achieved 12/31/2006 11/24/2010 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 6 : Achieved full compliance with the international statistical standards\. Value (quantitative 2\.8 3\.5 3\.5 3\.6 or Qualitative) Date achieved 12/31/2006 11/24/2010 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 7 : Increase of rate of response in basic enterprise surveys from 70% to 80%\. Value Not less than (quantitative 72% Not less than 80% Not less than 80% 80% or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Reduce the number of processed reports by 70% as a result of small enterprises sample Indicator 8 : survey\. Value (quantitative 0% 80% 80% 81% or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 9 : Upgraded short- and medium- forecasting models are introduced and used for analysis\. Value (quantitative No Yes Yes Yes or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 10 : Websites created and available for users in all regional offices\. Value (quantitative 26 27 27 27 or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 11 : Increased implementation of surveys using electronic data collection methods\. Value (quantitative 0% 79% 85% 85% or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Number of staff at the central and local level that received certified training in core Indicator 12 : statistical software products (SPSS&SYBASE)\. Value (quantitative 0 292 892 892 or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Integrated system for statistical data processing managed by meta data is developed and Indicator 13 : rolled out\. Value Developed and rolled (quantitative No Developed Rolled out out or Qualitative) Date achieved 12/31/2005 06/15/2005 11/20/2012 12/31/2013 Comments (incl\. % achievement) Indicator 14 : Number of surveys transferred from census to sample based is increased\. Value (quantitative 14 20 N/A 19 or Qualitative) Date achieved 11/20/2012 11/20/2012 12/03/2013 12/31/2013 Comments (incl\. % achievement) Technical adequacy of regional state statistics bodies to the requirements of ISDPS Indicator 15 : functioning\. Value (quantitative 41% 92% N/A 100% or Qualitative) Date achieved 11/20/2012 11/20/2012 12/03/2013 12/31/2013 Comments (incl\. % achievement) Number of indicators obtained from household sample surveys on economic activity and Indicator 16 : agricultural activity that are given to users by gender breakdown is increased\. Value (quantitative N/A 104 N/A 106 or Qualitative) Date achieved 12/31/2005 11/20/2012 12/03/2013 12/31/2013 Comments (incl\. % achievement) G\. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No\. DO IP Archived (USD millions) 1 06/23/2004 Satisfactory Satisfactory 0\.00 2 11/11/2004 Satisfactory Satisfactory 0\.00 3 06/29/2005 Moderately Satisfactory Moderately Unsatisfactory 0\.00 4 12/22/2005 Moderately Satisfactory Moderately Unsatisfactory 0\.00 5 05/31/2006 Moderately Satisfactory Moderately Satisfactory 2\.15 6 09/16/2006 Moderately Satisfactory Moderately Satisfactory 2\.15 7 07/16/2007 Moderately Satisfactory Moderately Satisfactory 6\.22 8 03/04/2008 Satisfactory Satisfactory 12\.61 9 09/05/2008 Satisfactory Satisfactory 14\.07 10 01/12/2009 Moderately Satisfactory Moderately Satisfactory 16\.21 11 08/18/2009 Moderately Satisfactory Satisfactory 17\.18 12 05/07/2010 Moderately Satisfactory Moderately Satisfactory 20\.81 13 02/15/2011 Moderately Satisfactory Satisfactory 25\.35 14 12/10/2011 Satisfactory Satisfactory 30\.47 15 06/26/2012 Satisfactory Satisfactory 31\.43 16 01/30/2013 Satisfactory Satisfactory 31\.43 17 07/24/2013 Satisfactory Moderately Satisfactory 33\.43 18 12/30/2013 Satisfactory Satisfactory 41\.42 1 H\. Restructuring (if any) ISR Ratings Amount Board at Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Restructuring Date(s) Key Changes Made PDO Change in USD DO IP millions Some changes in the results 11/24/2010 N MS MS 23\.58 framework and extension of closing date Additional financing and change 11/20/2012 S S 31\.43 in component E and F 1 The undisbursed funds have been committed for already completed work and all relevant applications for payment were submitted to the Bank\. The actual figure will be updated as soon as these payments were made\. I\. Disbursement Profile 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal The State Statistical System of Ukraine (SSSU) is the system of state statistics bodies, comprising the SSSU as the specially authorized central executive body in the field of statistics, territorial state statistics bodies, and functional state statistics bodies which are developers of statistical data, such as the MOF, MOE, and the NBU\. Statistical activities are conducted according to Ukraine's Law "On State Statistics" adopted in 1992, which lays out the legal basis for statistical work\. The new edition of the Law "On Introducing Changes to the Law of Ukraine on the State Statistics" was adopted by the Parliament of Ukraine in July 2000 and became effective at the beginning of the year 2001\. The process of transition to a market economy highlighted the need for reform of the statistical system from one that served the needs of a centrally planned economy to one which meets the needs of a democratic society and market economy\. Driven by the needs of central planners and decision makers at the lower levels of the administrative system, the scope of statistical collections in the former Soviet Union was extensive\. The system was designed to collect comprehensive micro data, at frequent and regular intervals of time (in some instances weekly, but more normally monthly, quarterly and annually)\. A further feature of the system was that data were collected on a “complete reporting basis” from all legal entities and units\. In addition, data was compiled at the small area level\. Sample surveys were rare as almost all collections were on a complete enumeration basis\. In 1993 the SSSU prepared the long-term "Concept of National Statistics Development" and worked out "The Government Program for Transition to International System of Accounting and Statistics"\. The first stage of statistical reforms was completed in 1997 and was characterized by concentration of resources in key statistical areas\. During 1993- 1997 the basis for the system of national accounts and balance of payments; foreign trade statistics, finance and banking statistics, new labor market statistics was created; some branch statistics had been improved and statistical study of financial conditions of enterprises and organizations was launched; Unified State Register of Enterprises and Organizations of Ukraine was created\. New classifications and data coding were introduced; price indices were calculated in accordance with international standards; and SSSU began to introduce the use of sampling methods\. The second stage of implementation of the program of statistical reforms (1998-2003) led to further improvement of state statistics through a more focused program that is responsive to the demands of all users\. Implementation of the program was to ensure the creation of a statistical system adapted to market conditions and international standards, and its success was demonstrated by Ukraine's subscription to the SDDS\. Implementation of the first two phases was supported by the technical assistance (TA) provided by the IMF, EUROSTAT under its TACIS program (Technical Assistance for the Commonwealth of Independent States), OECD, and such bilateral donors as the UK, France, Sweden etc\. The World Bank provided support under its IBL for a computerization strategy and procurement of the computer equipment for the SSSU in 1 1993-98 ($9\.0m)\. The project contributed to satisfying the most basic data processing equipment needs at both Headquarters and regional departments\. Progress has been limited by resource availability\. The Government did not have sufficient resources, particularly for financing comprehensive organizational reform, staff training at all levels, and introduction of the new data collection mechanisms and modern communication and information technology\. At the same time, the TA provided by other international agencies and bilateral donors was of limited nature and concentrated basically in upgrading the methodological standards and relevant training of the staff at the Headquarters, as well as on the procurement of equipment on a modest scale, not providing enough resources to embark upon a substantive data collection work, renewal or organizational restructuring\. A further constraint was the absence of a proper system of financial and budget management, and an integrated framework to guide the preparation of the annual data collection plan\. The annual plans represented an aggregation of user demands without accompanying justification or explanations as to how the data were to be used by the agencies making the demands\. In the absence of a costing and charge back mechanism users were at liberty to make demands for what was seen as a “free good”\. In addition, the existing approach did not have the requirement of priority setting or taking account of cost considerations\. As a result, in many cases an excessive amount of information was collected\. Large amounts of the data being collected were not wholly relevant to decision making processes in the new environment but were collected for reasons of tradition\. The demand for detailed small area data, particularly on enterprises, driven by traditional and misplaced perceptions about the policy and decision-making role of local administrations, was a driving factor in the explosive data gathering effort\. The insistence for detailed data by small area administrations has hampered the introduction of sampling methods\. The full coverage approach in data gathering in the face of an explosion in the number of business units, particularly small businesses, has greatly increased the workload of SSSU\. A large proportion of these small businesses was often inactive and did not report\. Those that were active, however, did not account for a significant part of output\. The effort and resources employed were not commensurate to the amount of usable data generated\. These issues represented key constraints that need to be addressed at an early stage of modernization if the SSSU was to be able to break away from the past and move towards cutting back on the quantum of data currently collected, adopt sampling methods in its data gathering and operate in a more efficient manner\. The other key issues that hold back adaptation of the state statistical system to market conditions were: • inadequate structure of statistical bodies in the country which is inherited from the planned economy era and hampers the large-scale introduction of advanced data collection methods and use the benefits of the network environment provided by the modern Information and Communication Technology (ICT); • insufficient level of interaction and coordination between the SSSU and other government data providing agencies which results in duplication of activities and general lowering of statistical standards; 2  • insufficient skills and experience in modern management issues, particularly at the middle-management level; • insufficient level of knowledge of international statistical standards, methods and practices, particularly at the regional level; • lack of knowledge and experience in the use of statistical software; • insufficient understanding of analytical techniques and familiarity with data at different levels of government\. The government has approached the World Bank to assist with the formulation and financing of a long term comprehensive modernization strategy for the SSS\. The Project will support the third Program which would, together with ongoing efforts to improve data quality, concentrate on the organizational changes in the system, data dissemination issues and increase in efficiency of data production\. The Bank had a unique advantage due to its global expertise with necessary resources in developing and guiding comprehensive, integrated, and targeted statistical capacity building projects\. The Bank also had broad knowledge about the country and its development programs\. Further, the Bank has established the STATCAP program to support a sector-wide assistance to countries in their statistical capacity building activities that will cover almost all aspects of institutional development, infrastructure improvement, reorganization and human resource development\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The development objective of the project is to build a sustainable state statistical system which efficiently provides timely and accurate data for policy evaluation and decision making\. The Project will support the implementation of a broad-based poverty reduction strategy to attain job-creating, sustainable economic growth in Ukraine by making available a steady supply of trustworthy and readily available social and economic statistics needed for policy making and monitoring purposes\. The Project supports the third long term development Program of the SSSU\. A modernized SSS will help to improve economic policy making and private investment decisions by providing pertinent, reliable, and timely data, thereby contributing to Ukrainian economic growth\. The improved availability of comprehensive sets of social, poverty-related and labor market indicators, with regional breakdowns, will contribute to the monitoring of policy implementation for social and poverty reduction\. This would be achieved by a comprehensive reform of the SSS in the following areas: • strengthening institutional capacity to collect, process, disseminate the data and use it for policy analysis; • improving the match between the needs of those who use the data and the work of those who provide it; • upgrading the quality and flow of official statistical and administrative data by introducing the methodologies and definitions that can bring Ukraine’s performance in the field of statistics up to international standards\. A key indicator of performance is the availability of data conforming to international standards\. In addition, new policy relevant indicators will be available for the 3 Government of Ukraine\. There will be better and timely dissemination of data\. Quantifiable indicators of project outcomes include: • an increase in the reliability of regional poverty indicators; • an increase in trained and re-trained staff, particularly at the regional level; • a decrease in survey non-response; • a decrease in number of reporting forms and burden on respondents; • growth of the number of visits to the SSSU website, etc\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The Loan Agreement was amended with a new PDO that is formulated as follows\. "The objective of the Project is to build a sustainable state statistical system which efficiently provides timely and accurate data for policy evaluation and decision making"\. By introducing this change, the PDO in the Loan Agreement has been aligned with what was stated in the original PAD\. However, this change does not reflect any substantive modifications in relation to the previous PDO stated in the Loan Agreement for the original project\. 1\.4 Main Beneficiaries, There were four main beneficiaries that received direct support from the project: • The State Statistical Services of Ukraine (SSSU) including its regional and local offices; • The Ministry of Finance (MOF); • The Ministry of Economic Development and Trade (MoEDT); and • The National Bank of Ukraine\. The general public, government agencies and policy makers at all levels, academic institutions, private sector, NGOs and Civil Society Organizations and mass media had benefited from project through provision of better quality, timely and accessible statistical data\. 1\.5 Original Components Project components are: Component A (Organizational Development and Management) aimed at streamlining the organizational set-up of the Ukraine State Statistical System, building Institutional Management Systems, strengthening the system of staff training and re-training, developing improved statistical dissemination methods and a better user education strategy, and improving relations with respondents and data providers\. Component B (Statistical Infrastructure) targeted improving the sampling frame for household surveys, establishing the statistical register of enterprises and individual entrepreneurs, introducing a unified classification scheme, and improving the legislative basis for the State Statistical System\. Component C (Data Development) aimed to improve the quality and timeliness of a number of statistical surveys and outputs including: household sample surveys; integrated 4 annual enterprise statistics; sub-annual surveys of economic activities; national accounts; price statistics; government finance statistics; money and banking statistics; foreign trade statistics; balance of payments statistics; and demography, social statistics and poverty statistics\. Component D (Strengthening of Information Basis for Decision Making and Forecasting in the Ministry of Economic Development and Trade (MoEDT) targeted modernizing data presentation methods and processing systems used for analytical purposes, and supporting the use of new short- and medium-term forecasting models\. Component E\. (Introduction of Modern Information and Communication Technology) aimed at developing a detailed design for the informatization of the State Statistics System\. Improvements would be made to source data collection, processing and storage systems; storage and dissemination systems for statistical outputs; data confidentiality and security systems; technical infrastructure; and the skills and competencies of staff using and managing computerized systems\. Component F (Project Management) supported the Project Implementation Unit established within the SSSU\. 1\.6 Revised Components The Component E was revised as part of the additional financing (AF) to expand the Integrated Statistical Data Processing System (ISDPS) nationwide based on the pilots implemented within the original project\. The AF covered the financing gap caused by the lack of state budget funds to complete the activities indicated in Component E of the original DEVSTAT project\. The Component F was also revised and extended to manage successful implementation the Component E Component E\. Introduction of Modern Communication and Information Technology\. This component includes the nation-wide roll out of the Integrated Statistical Data Processing System (ISDPS), including purchase of the additional equipment, expanding the ISDPS’s functionalities and conducting the training program to improve the skills and competence of staff using and managing the ISDPS\. The local consultant will be hired to carry out the supervision and quality control of ISDPS development as well as nationwide roll-out and expansion Component F\. Project Management\. This component supports the Project Implementation Unit established within the State Statistics Service of Ukraine (SSSU)\. The costs for the annual audit will also be included in this component\. 1\.7 Other significant changes No other significant changes in the project\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 5 The project was designed as a Specific Investment Loan under the umbrella of the STATCAP 2 Adaptable Program Loan (APL)\. The STATCAP program provided clear guidance on project preparation and design, with the cornerstone being the development of a comprehensive and integrated national action plan for statistical capacity building, often linked to a comprehensive national statistical plan\. The key element of STATCAP is commitment to the implementation of a nationally-owned Statistical Master Plan based on a coherent statistical development strategy\. Ukraine had a Statistical Master Plan for 2003-2008, and met the eligibility criteria for STATCAP\. Ukraine had included financing for statistical development programs in the National Budget and had demonstrated national commitment and leadership for statistical work, including a willingness to comply with good statistical practice\. The project proposal was prepared by SSSU together with other beneficiary agencies (Ministry of Finance, Ministry of Economic Development and Trade and the National Bank of Ukraine) in close cooperation with the World Bank\. The technical design of the project was based on a detailed analysis of the strengths and weaknesses of the national statistical system as provided in the Statistical Master Plan for 2003-2008 and all four beneficiaries of the project were involved in all phases of project preparation, design and implementation\. The project team took a comprehensive approach by combining the methodological and IT improvements with support for organizational and management improvement\. The DEVSTAT project was designed with a realistic degree of complexity and achievable number of project components\. The project objectives were consistent with the government’s priorities and the Bank’s strategy and goals\. The implementation approach was appropriate and innovative and took into consideration lessons learned from prior statistical capacity building projects and best practices\. Participatory processes were adequate as all beneficiaries were committed to the project since its inception and participated in all phases of its design, preparation, and implementation\. The team properly identified potential risks and accurate mitigation measures during the preparation and paid specific attention to them during the implementation\. Although there was no formal quality at the entry assessment, the DEVSTAT project was one of the pilot STATCAP projects and went through a rigorous review and discussion process during the preparation\. 2\.2 Implementation The actual implementation of the project started with one year delay due to slow progress of the Parliament in ratification of loan agreement that was beyond the control of the Government and the project team (both SSSU and the Bank)\. After ratification the implementation was carried out as indicated in the Loan Agreements between Ukraine and the International Bank for Reconstruction and Development (IBRD-47290 and IBRD-82240) and in the Project Operational Manual\. 2 STATCAP is designed as a horizontal APL to make investments in statistical capacity easier and more effective\. It was approved by the Bank’s Board in March 2004\. A STATCAP project is appraised and prepared for approval at the regional Vice President level following normal provisions for investment lending\. 6 The SSSU was responsible for the overall Project implementation and coordination with other project-beneficiaries who were responsible for the implementation of their respective components of the Project\. As the Project coordinator the SSSU prepared, approved and when necessary revised the Project implementation plan and Project Procurement Plan in close coordination with the World Bank\. All relevant project documents that required the Bank`s review and approval were prepared and submitted on a timely basis\. The SSSU appointed a Deputy Chairman as the Project Manager who was responsible for overall management of the Project in making managerial decisions, coordinating the PIU activity and taking responsibility for preparation, implementation and achievement of project objectives\. Each beneficiary agency appointed authorized representatives who were responsible for the coordination of implementation of the relevant components/sub- components of the Project\. For day-to-day management of the project activities the Project Implementation Unit (PIU) has been established within SSSU consisting of a PIU Head, consultants for the components of SSSU, NBU, MinFin and MoEDT, procurement specialists, FM specialists, IT procurement specialist, translator and office manager\. The PIU provided overall support for the project implementation including preparation and submission of relevant reports, assistance to the Borrower in preparation of bidding documents, organization of tenders for procurement of goods and services, preparation of contracts and coordination among main beneficiaries\. The Interagency Working Group (IAWG) was established to ensure the overall coordination and monitoring of the project implementation and held meetings when needed, but not less than twice a year\. The IAWG is headed by the Chair of the SSSU and includes at least two representatives from each beneficiary agency\. Antimonopoly Committee was also represented in the IAWG\. In general, the project has been implemented in accordance with the specified directions and objectives\. However, due to one year delay in ratification of loan agreement the closing date of the project was extended by one year to December 31, 2010\. The project was restructured in 2010 and the closing date was extended to December 31, 2012 due to delays in the signing of the contract for the development of the integrated data processing system\. An additional financing loan (IBRD-82240) for the project was approved on November 20, 2012 to expand the Integrated Statistical Data Processing System (ISDPS) nationwide based on the pilots implemented within the original project\. The AF covered the financing gap caused by the lack of state budget funds to complete the activities indicated in Component E of the original DEVSTAT project\. The closing date was also extended to December 31, 2013\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization A detailed results framework matrix and necessary arrangements for results monitoring have been included in the project document that would serve as benchmarks for progress\. The project team and the implementing agency, SSSU, have closely monitored the project results and have taken corrective actions when needed\. 7 The results framework was adjusted 3 to reflect the impact of the AF on project performance and achievement of PDO by adding two intermediate outcome indicators to measure outcomes of the activities financed under the AF\. The first indicator assessed the technical compliance of the regional offices with the ISDPS requirements, and the second indicator assessed the impact of the improved technical capacity on statistical data compilation\. The original intermediate outcome indicators that were not affected by the AF did not change the target values, but the target dates were extended December 31, 2013 to capture the impact of additional financing\. Intermediate output indicators that were not relevant for the AF maintained both target values and target date of December 2012\. For the monitoring of the project the following reports were prepared and submitted on a timely basis, which were adequate to monitor project results and outcomes: • Quarterly progress reports including consolidated information on progress of the project and the detailed information concerning fulfillment of procurement plan; • Quarterly financial management reports, which are produced in accordance with the formats coordinated with the World Bank; • Project Progress Report for the last quarter of calendar year included consolidated information concerning implementation of the project for the whole year as well as the updated project monitoring indicators and the results of assessment of statistical capacity based on methodology developed by PARIS 21\. All these monitoring activities have been regularly supervised and coordinated by the IAWG\. 2\.4 Safeguard and Fiduciary Compliance The DEVSTAT project complied with all applicable Bank policies and is entirely consistent with the relevant Operations Policy Guidelines\. The Project did not involve any safeguard policies, and at the time of appraisal rated as category C for Environmental Assessment\. It did not involve involuntary resettlement, natural habitats or forest areas\. The financial management system was run by the PIU and performed well during the implementation\. It was capable of recording all transactions and balances, and supported the preparation of regular financial statements that were submitted to the Bank on time\. Internal control systems and procedures established by the PIU ensured the reliability of accounting records, and safeguarding of the Project’s resources and assets\. All disbursements have been made in line with the provisions of the World Bank Disbursement Handbook and the project disbursement letters dated August 19, 2004 and December 25, 2012\. The PIU prepared consolidated financial management reports and submitted on time with the exception of one report for the third quarter of 2006\. 3 The original results framework and indicators have been elaborated based on the PARIS21 methodology\. The revised framework presents a comprehensive set of indicators to better assess the project implementation progress\. More details can be found at http://paris21\.org/sites/default/files/scbi-final-en\.pdf 8 All procurement of goods and services has been conducted in line with the provisions of the Loan Agreements and Project Procurement Plans that were approved by the World Bank\. No procurement compliance issue was raised during the project implementation\. 2\.5 Post-completion Operation/Next Phase The DEVSTAT project addressed a number of issues and achieved its intended goals\. Most of these achievements have been institutionalized and could be sustained (particularly results of components A to D)\. Although Component E had achieved its stated goals, it is more likely that new functionalities for ISDPS will be developed and introduced stepwise according to the needs and development of the information environment of Ukrainian statistical system\. The impact of the ISDPS on the organization of data collection and dissemination and particularly on the division of labor between different levels of state statistical offices should be taken into account, which would require some changes in the organizational structure of the SSSU and other members of the statistical system\. This, in turn, could entail some changes in the statistical legislation\. The Government of Ukraine has demonstrated its commitment to the improvement of the statistical system, however it is yet to be seen whether it can maintain the level of development, or costs particularly for maintaining, updating and upgrading the ISDPS\. It should be clear that despite the achieved results of DEVSTAT project, building sustainable statistical capacity takes longer time than the duration of such a project\. Further, to introduce new functionalities for the ISDPS and address issues arising from full implementation of the system, SSSU will need significant amount of additional funding\. It is less likely that such funding will be available through regular budget resources and external funding will be needed\. Therefore, further cooperation with the Bank and a follow-up project could help the Government fill the financing gap, and hence could be quite beneficial for the statistical system of Ukranie\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The development objective of the project was relevant and consistent with the objectives of the CAS (2004-2007) by improving the capacity of the statistical system that could provide relevant and good quality statistical data on a timely basis needed for results- based management\. Given that a reliable and trusted statistical system is crucial for a well-functioning market economy, the objective of the project still remains relevant\. The outcomes of the project will certainly contribute to the achievement of the CPS 2012-2016 strategic objective of improving the quality of public services, strengthening accountability to service users, and targeted assistance to the poor and vulnerable\. The modernized statistical system will provide timely, relevant and reliable information for decision making and will address the information asymmetry that exists between the Government and citizens, thus, improve the accountability link\. 3\.2 Achievement of Project Development Objectives The project has achieved its development objective of building a sustainable statistical system that could efficiently provide timely and accurate data for policy evaluation and evidence-based decision making\. The national statistical system of Ukraine is now able to 9 produce and disseminate key statistical data for decision makers in all sectors and at all levels\. The methodological skills of the SSSU have been upgraded, and a new regulatory and institutional framework for the national statistical system is currently in place and operational\. The organizational structure SSSU has been optimized, however this could require additional refining after the full implementation of ISDPS\. The dialogue between SSSU and other data producing agencies as well as users and respondents has improved\. The relevant staff of SSSU and other agencies have received specific training and improved their skills\. Internationally-accepted standards and methodologies are now being used in data production and sound and well-accepted statistical practices are used for data collection, compilation, and validation\. Users enjoy easier and timelier access to data through SSSU website and publications\. The SSSU has now a more efficient management team trained in financial and administrative management and leadership\. With the implementation of ISDPS 4 the work of staff is automated across the board\. All of the SSSU staff have access to PCs that are linked to the corporate network\. This has helped the SSSU to improve reporting and dissemination process\. The development of ISDPS and its full implementation along with development of relevant applications that automate business processes improved efficiency of staff timelines of data production and dissemination\. The project has also supported the establishment of a modern Press Center (also used as a Distance Learning Center) that made it possible to connect all 27 regional offices to the central office for training and meetings\. Rate of user satisfaction increased along with access to data\. The statistical capacity indicator of the statistical system also improved (see for details Annex 2)\. 3\.3 Efficiency As stated in the PAD, the project is not amenable to a cost-benefit or economic rate of return analysis as national statistical offices have hardly any significant cost-recovery, apart from a small revenue generated from data publications, the financial returns from this project will not be representative of the economic returns\. Therefore, it is extremely challenging, if not impossible, to carry out such an analysis and clearly identify the economic impacts of a well-functioning statistical system on the country\. The economic benefits from the project derive from the following main sources: • Improved efficiency of statistical operations of the SSSU, resulting in a broader coverage of and higher quality data that affect multiple sectors of society; 4 The system was developed and tested using two statistical observations nation-wide (25 regions)\. During guarantee period the system will be adjusted and completely prepared for country wide implementation\. Currently, the SSSU is consolidating feedbacks and comments from regional offices regarding problematic issues\. The contractor will address all issue for the nation-wide system usage of two tested observations\. Old and new systems will function in parallel during 2015 while two tested statistical observations will be produced and compared\. In case of consistency, further statistics will be produced using the new system only\. 10  • Better data will enhance the potential for evidence-based decision making, at policy, program, and project levels; • The project helped to address the significant costs of missing or inaccurate data; • A significant reduction in the cost of data collection through improved systems as well as by moving from full count censuses to sample surveys\. Examination of these on the basis of cost effectiveness clearly shows the high level of efficiency achieved by the project\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory A reliable national statistical system is a key building block for evidence-based decision- making in a well-functioning market economy\. The improvement of the efficiency and effectiveness of the statistical system has been achieved as evidenced by the production and dissemination of better quality and timely data in all spheres of economic and social statistics, particularly in national accounts, industry, transport, construction and agricultural statistics\. Training of statisticians and adoption of new techniques and methods have improved data accuracy, timeliness and coherence\. The statistical system has become better coordinated, stronger and more dynamic\. Statistical publications are produced regularly and on time\. In terms of relevance, achievement of the PDO, and efficiency, the project performed at a level consistent with a satisfactory rating\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 5 The DEVSTAT project did not specifically target these social objectives, but had a positive impact on them by improving the capacity of the national statistical system and SSSU\. For example, improvement of the demographic, social and poverty statistics sub- component of the project has helped enhancing the efficiency of social assistance system in Ukraine by improving the identification of target beneficiaries for social assistance and simplifying the benefits allocation procedures\. Further, gender indicators have been incorporated in statistical observations in line with international practice\. The SSSU and other relevant agencies can now produce timely and reliable statistical data that help improve social service delivery to the population, in particular to the poor, in such areas as health, education and social protection\. Further, providing a steady supply of reliable and timely social and economic statistics helped the policy making and monitoring processes\. (b) Institutional Change/Strengthening 5 The issues related to poverty measurement were addressed under the Project "Social Assistance System Modernization" implemented by the Ministry of Labor and Social Policy of Ukraine under the World Bank Loan 4807-UA of 28\.11\.2005 that was ratified in February 2006\. 11 In addition to above mentioned achievements, the SSSU has gone through significant institutional change and as a result has strengthened its institutional capacity as evidenced by the project results/outcomes listed below: • Full harmonization of statistical legislation with international recommendations (UN Fundamental Principles of Official Statistics, EU Code of Practices), which provided the basis for the institutional change of the statistical system; • Modified organizational structure of the SSSU and improved management capabilities; • Strengthened collaboration between the SSSU and other relevant government agencies through IAWG; • A new human resource development framework and training strategy in place that strengthened the institutional capacity of the SSSU; • Introduction of a unified system of classifications, covering all main economic classifications and nomenclatures in economic statistics; • The transfer of knowledge on international standards and best practices of most advanced countries in all domain of statistics; • Modernization of hardware and generalized software, especially in regional statistical offices on the level of oblast and rayon; • Improvement of data collection, processing and storage of primary data, dissemination, publications, ICT supported cooperation with respondents and users; • Implementing the system of integrated processing of statistical data and metadata; • Upgrading skills and competence of staff managing the computer systems at all levels of the statistical system of Ukraine\. It was observed that the SSSU has sustained these achievements and is now capable to provide technical assistance to other developing countries\. (c) Other Unintended Outcomes and Impacts (positive or negative) No negative unintended outcomes were observed\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A formal beneficiary survey has not been conducted, but a World Bank mission 6 visited Kiev, Ukraine on June 21-30, 2011 as part of the ICR preparation process to review implementation progress of the completed components A-D of the DEVSTAT project and conducted interviews with beneficiaries\. The list of people interviewed and the questionnaires used are provided in Annex 5\. A follow-up mission 7 visited Kiev, Ukraine on October 7-18, 2013 for the DEVSTAT project ICR preparation\. 6 The World Bank team was comprised of Svetlana Budagovskaya (Sr\. Economist & Task Team Leader of the DEVSTAT project, ECSP3), Gulnara Febres (Sr\. Operations Officer, DECDG, responsible for preparation of the partial Implementation Completion Report (ICR) on DEVSTAT project, and Oleksiy Balabushko (Economist, ECSP4\.) The team was assisted by Tetyana Komashko (Team Assistant, ECCUA) 7 The mission led by Mustafa Dinc (Senior Economist/Statistician, DECDG) and comprising Josef Olenski (Consultant) visited Kiev, Ukraine on October 7-18, 2013 for the DEVSTAT project ICR preparation\. Svetlana Budagovskaya (Project TTL) joined the team in some meetings\. 12 Both missions held meetings with relevant stakeholders and discussed the project results and outcomes\. In addition, the second mission visited one large regional office, Kiev City, and a small rayon office, Kiyevo-Sviatoshynskyi rayon to observe the project results outside of the central office\. The interviews with the beneficiaries of the DEVSTAT project showed that the results of the project are positive and confirmed the project outputs stated in Annex 2\. The interviewed respondents consider that the project was timely and important in bringing the statistical system of Ukraine up-to-date with the internationally accepted standards and classifications\. All of the interviewed beneficiaries of the project stated that the project positively influenced their own professional development and skill sets that provided them with a confidence in their own capacity to operate in a more efficient way\. There have been noticeable changes in institutional structure of the state statistical system of Ukraine\. The project helped increasing reliability, timeliness and quality of the statistics produced in Ukraine, which, in turn, increased the trust in the statistical system\. All interviewed beneficiaries stated that the capacity of their respective agencies to collect, process, disseminate the data had significantly improved, and they will be able to sustain these gains in coming years\. However, they also mentioned that there will be a need for future support to address the new needs, which will more likely arise from the full implementation of ISDPS\. 4\. Assessment of Risk to Development Outcome Rating: Low The project had properly identified potential risks and relevant mitigation measures and rated the overall risk as moderate at the approval\. The Bank project team and the SSSU have closely monitored the implementation process and during the AF process and updated/upgraded the old “critical risks and possible controversial aspects” framework to the current Operational Risk Assessment Framework (ORAF)\. It was observed that the proposed mitigation measures worked well and project was successfully completed\. Given that the project has achieved all its development objectives and most of these achievements have already been institutionalized, the risk of the sustainability of development outcomes seems low\. However, in coming years, the nationwide realization of ISDPS functionalities will require continuing training of relevant staff and timely maintenance and upgrading of hardware and software\. Further, improvements and use of IT infrastructure in the country opened up new opportunities for the SSSU to further improve the ISDPS\. In coming months and years, new functionalities would be necessary to develop and add to the ISDPS in order to keep it up-to-date, which, in turn, would have an impact on the organization of data collection and dissemination as well as the division of labor between different levels of state statistical system\. The actual implementation and use of the system would help defining the priorities of developing new functionalities of the ISDPS\. In that sense, the ISDPS could be used as the basis for restructuring of the national statistical system of Ukraine\. Although the Government of Ukraine has demonstrated its commitment and continuing support to the improvement of the statistical system, in case the SSSU cannot get the 13 necessary support from the Government for funding these new developments the risk level of development outcomes could increase to moderate\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory As mentioned earlier there was no formal quality at the entry assessment of the project\. It was one of the pilot STATCAP projects that was discussed at the Board, therefore it went through a rigorous review and discussion process during the preparation\. The Bank ensured that the project team had the appropriate skill mix\. Technical aspects of the project were well covered by the team, which was able to establish solid rapport with the Government counterparts based on the quality of advice and information that was being provided\. Lessons from earlier operations and projects, and complementarities with ongoing initiatives were taken into consideration and acted upon\. The Bank supported the idea of establishing the PIU within the SSSU, which was not set up as an independent PIU\. At the time, this approach was not the common practice for most Bank projects in the country\. This approach improved the institutional setup and management capacity of the SSSU during the project’s implementation\. All the risk mitigation measures incorporated into the design were put in place in a timely manner and the project progressed on schedule except with some delays that were mentioned earlier\. Ex-post reviews have only found minor issues during implementation, and most recommendations for improvement have also been put in place in a timely manner\. (b) Quality of Supervision Rating: Satisfactory The Bank provided intensive supervision and conducted timely supervision missions\. Members of the task team were highly competent, had substantive country experience, and remained dedicated to the project as it progressed\. The task team has focused attention on key potential risks – financial management and procurement – and has responded quickly to issues raised by the SSSU or the PIU\. Overall, supervision was rated as satisfactory\. The procurement risks were taken into account and addressed by Bank staff during the supervision missions\. The recommended corrective measures were put in place by SSSU and procurement implementation progressed satisfactorily, although with some delays in few contracts\. Procurement risks have been mitigated through supervision, which took place in a timely and appropriate manner\. Field supervision missions including ex-post reviews have been carried out as scheduled\. Procurement specialists were very well integrated into supervision missions and most reports covered procurement issues in a timely and coordinated fashion\. The Bank team and the SSSU have managed the procurement process and its execution diligently\. 14 Comprehensive financial management supervision was conducted on a regular basis\. Project FM supervision covered all relevant areas including accounting and reporting, internal control procedures, planning and budgeting, external audits, funds flow, organization and staffing and sample transaction review\. The responsible FM specialist was resident in the country office and was therefore able to have regular follow up\. Issues arising from external audits/management letters and submission of FMRS have been resolved in a timely manner\. The ISRs have been prepared with enough detail on a timely basis by the task team\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory In light of project outcomes and the quality of intensive supervision carried out during the project, the overall Bank performance was assessed as satisfactory\. The Bank’s performance did not suffer any shortcomings throughout the duration of the project\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory From the very beginning, government ownership and commitment to the project remained consistently strong as evidenced by the timely provision of counterpart funding, which was provided by the government of Ukraine based on the budget requests of the project beneficiaries\. The Government has also been very supportive in issuing necessary decrees on a timely basis that helped change the system\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The implementing agency, the SSSU, was responsive to the implementation needs of the project and established good cooperation with the task team that was maintained throughout the project implementation\. The SSSU had a competent and knowledgeable Project Coordinator and experienced project implementation team that were able to successfully manage the procurement and financial management aspects of the project\. Similarly, other beneficiary agencies demonstrated strong ownership and successfully implemented their respective components on a timely basis\. They all worked in close collaboration with SSSU and strengthened the capacity of their relevant units\. Representatives of other beneficiary agencies expressed their overall satisfaction with the project and their willingness to carry on the partnership with the SSSU\. Given the overall achievements and results the performance of implementing agencies is rated as satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory With the exception of a delay in ratification of Loan Agreement by the parliament, the borrower has demonstrated strong ownership and continuing support for the successful implementation of the project\. The SSSU is planning to prepare a follow-up project that 15 will ensure the compliance with international standards and best practices in sustainable manner, which is seen as an evidence of continued commitment and interest of the borrower to continue statistical reform agenda\. 6\. Lessons Learned • The team took into account critical lessons learned from the earlier statistical capacity building operations when designing the DEVSTAT project\. Following these lessons, the team employed a more systematic approach instead of the piecemeal approaches and designed the DEVSTAT project as a comprehensive statistical capacity improvement operation that covered broader aspects of the national statistical system\. Another important lesson the team has taken into account and maintained during the implementation was that statistical capacity building requires integrated and coordinated support that could take a long-term commitment\. • The successful completion of the project confirmed once again the soundness of these earlier identified and recognized lessons in statistical capacity building operations\. This was demonstrated by strong ownership and commitment of the Government and SSSU from the beginning through implementation, which helped successful preparation and completion of the project\. Further, ownership and commitment by the Bank project team as evidenced by the continuity and close engagement was another factor that helped successful completion of the project, which was appreciated by the borrower and helped building and maintaining a relationship of trust\. These are good lessons that could be utilized in future operations\. • Initially, the project procurement plan included a large number of small procurement packages\. The project team discussed with the borrower to bundle similar items into one large contract and made necessary adjustments in the procurement plan\. The project proved that this approach has been more cost efficient and time saving\. Signing a single contract with a consortium regarding the TA consulting services was the right choice for such complex and comprehensive projects\. This mechanism provided a one-stop-shop for expertise and technical assistance and helped the implementation of project in a coherent, consistent and well-sequenced manner\. This is an important lesson that should be considered by similar Bank projects in the future\. • In many countries the ratification process of loan agreements by the parliament for the Bank funded projects could cause delays in effectiveness and implementation of projects\. This was the case for the DEVSTAT project in Ukraine\. This was beyond the control of the Government, SSSU and the Bank team at that time\. Since then the process was changed\. For the new projects the Bank project team along with the borrower should make sure that the project funds will be included in the budget line for the implementing agency; so it will not go through the ratification process\. In such cases for other countries, identifying champions of project (statistics) within parliament and/or in key committees and hold talks with key members of the parliament and relevant committees could help the ratification process\. 16  • It has been the general experience from the previous Bank projects that procurement of IT equipment, particularly complex IT systems was a difficult and lengthy process\. Due to their complex structure and limited number of experienced IT procurement specialists in the Bank, procurement process of IT related packages (design and implementation of IT systems, equipment, software and relevant training) is generally slower than other type of procurements\. This appears to be the case in DEVSTAT project\. There was a more than one year delay resulting from lengthy review and clearance process of a key contract on ISDPS development\. The lesson that should be drawn from this experience is twofold\. First, the Bank needs to increase the number of experienced IT procurement specialists\. Second, in such cases, both the Bank and client team should work closely with relevant procurement specialists and design the procurement package in a way that there would be no confusion or misspecification in the package\. • Establishing the PIU within the SSSU instead of as an independent PIU helped improve the management capacity of the SSSU and ensured successful implementation of the project\. This is another good lesson the project demonstrated and should be utilized in such operations in the future\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies N/A (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 17 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Original Loan (Loan 4729-UA) Additional Financing (Loan 8224- Total UA) Actual/Lat Actual/Lat Apprais Actual/Late Apprais Apprais est est al st Estimate Percenta al Percenta al Percenta Estimate Estimate Estimat (USD ge of Estimat ge of Estimat ge of Component (USD (USD e (USD millions) as Appraisa e (USD Appraisa e (USD Appraisa millions) millions) millions of Dec 31, l millions l millions l as of Dec as of Dec ) 2013 ) ) 31, 2013 31, 2013 A\.Organizatio 3\.91 0\.67 17\.1% 0\.00 0\.00 0% 3\.91 0\.67 17\.1% nal Development and Management B\. Statistical 0\.85 4\.95 61\.7% 0\.00 0\.00 0% 0\.85 4\.95 61\.7% Infrastructure C\. Data 7\.17 0\.00 0\.00 0% 7\.17 Development D\. 0\.87 0\.77 88\.5% 0\.00 0\.00 0% 0\.87 0\.77 88\.5% Strengthening of the Information Basis for Decision- Making and Forecasting at the Ministry of Economy and Issues of European Integration E\. 22\.84 26\.95 118\.0% 9\.79 7\.12 72\.7% 32\.63 34\.07 104\.4% Introduction of Modern Communicatio n and Information Technology F\. Project 1\.04 1\.38 132\.7% 0\.227 0\.00 0% 1\.27 1\.38 108\.7% Management Unallocated 0\.94 N/A N/A N/A N/A N/A 0\.94 N/A N/A Total Project 37\.62 34\.72 92\.3% 10\.00 7\.12 71\.2% 47\.62 41\.84 77\.4% Costs Front-end fee N/A N/A N/A N/A N/A N/A N/A N/A N/A PPF Front-end fee 0\.32 0\.16 50% 0\.025 0\.025 100% 0\.35 0\.19 54\.3% IBRD Total 37\.94 34\.88 92\.0% 10\.07 7\.15 71\.0% 47\.98 42\.03 87\.6% Financing Required 18  Costs according to Component Original the revised PP Changes with Revised cost Cost as of Nov\.2011 AF A\. Organizational development 1\. 65 0\.65 0\.000 0\.650 and management B\. Statistical Infrastructure / 7\.51 4\.92 0\.000 4\.920 C\. Data Development D\. Strengthening of Information Basis for Decision-making and 0\.76 0\.75 0\.000 0\.750 Forecasting in the Ministry of Economy E\. Introduction of Modern Information and Communication 20\.06 24\.29 9\.790 34\.079 Technology F\. Project Management 0\.91 1\.23 0\.185 1\.416 Unallocated 0\.95 Front end fee 0\.16 0\.16 0\.025 0\.185 Total 32\.00 32\.00 10\.00 42\.00 (b) Financing Actual/Latest Percentage of Appraisal Actual/Late Percentage Appraisal Estimate Appraisal Estimate st Estimate of Estimate (USD (USD (USD Appraisal (USD Type of Co- millions) millions) millions) Source of Funds millions) financing as of Dec 31, Additional as of Dec Original 2013 Financing 31, 2013 Loan (Loan (Loan 8224- 4729-UA) UA) Borrower N/A 5\.94 3,19 53\.7% 0\.042 0\.005 11\.9% International Bank for Reconstruction and N/A 32\.00 31\.70 99\.1% 10\.00 7\.14 71\.4% Development 19 Annex 2\. Outputs by Component Component A\. Organizational Development and Management Sub-component A1\. Streamlining the organizational set-up of the Ukrainian statistical system No\. Task Implementation Results Current Support Streamlining the In response to provisions of the “Strategy The stage-by-stage organizational set-up of for state statistics development untill reduction of staff of the Ukrainian statistical 2008” the Cabinet of Ministers of Ukraine departments at rayon and system issued the Regulation “On Conduct of city levels with further re- Experiment on Introduction of Two-layer allocation of the staff to System for Statistical Information regional level is under way\. Collection, Processing and The gradual work towards Dissemination”\. According to this integration of the Main Regulation in 2006 in 8 regions of Ukraine Inter-Regional Statistics the relevant organisational and programme Department in the city of and technological tools had been Kyiv with the Head Office experimentally introduced and tested\. of SSCU is being Under this experiment the issues of performed\. optimisation of organisational structure of statistical offices and re-allocation of functional powers between statistical offices of regional and rayon levels in terms of information and analytical support have been studied\. The experiment was conducted under consulting support of Latvian consultants who earlier developed the information system of the Central Statistical Office of Latvia and have been involved in experiment under implementation of this Project\. Starting from 2007 activities related with two-layer system testing have been expanded to the entire system of state statistics offices of Ukraine\. Due to re-allocation of functional powers between statistical divisions of regional and rayon levels initiated by the experiment as well as centralization of data collection, processing and dissemination processed on the basis of technical re- equipment starting since 2006 the systematic reorganization of the structure of state statistics offices is being made gradually\. Over the period 2006-2007 24 departments, units and sectors of statistics in rayon and city departments of statistics were liquidated and their functions were delegated to the regional level\. Sub-component A2\. Building of institutional management systems Building of The automated system for staff working The areas of application of institutional time accounting was introduced into the staff working time management systems practical work of statistical offices and this accounting system are system allows to determine the level of continuously expanded reporting workload on the employees of towards making the state statistical offices, making evaluation managerial decisions with of efficiency of working time spent and regard to allocation of making re-allocation of number of resources, planning and 20  employees of territorial state statistical evaluation of staff inputs in offices\. fulfillment of statistical action plan at all levels\. Sub-component A3\. Strengthening of the system of staff training and re-training Strengthening of the In order to strengthen the capacity of the system of staff training SSCU staff in introduction of international and re-training statistical standards, English training for the staff of the Head Office of the SSCU has been organized under the Project\. In 2007 the Strategy for development of system for training of staff of state statistics offices was developed; implementation of such Strategy was supported under the World Bank Project\. Sub-component A4\. Development of statistical data dissemination and user education strategy Sub-component A5\. Improvement of relations with respondents and data providers Improvement of In the course of experimental introduction relations with of two-layer system for data collection, respondents and data processing and dissemination the number providers of forms of state statistical surveys was decreased by 26 and at the beginning of 2008 reached 181 forms\. In the course of 2007 the SSCU has been introducing the new types of information services using Internet\. In particular, the “Consulting Center” was tested and introduced on the web-site of the SSCU; currently the information coverage of the functioning consulting center is being expanded\. Each year the SSCU holds a number of workshops with data users by different statistical areas where the issues of statistical methodology of relevant branches are considered and discussed\. Thus, during 2008 a number of workshops and round tables with data users were organized to address issues of price statistics, national accounts, regional accounts and agricultural statistics\. Component B\. Statistical Infrastructure Sub-component B2\. Setting up a Statistical Register of Enterprises and Sole Traders No\. Task Implementation Results Current Support The following documents were developed and approved with Order of the State The Register of Statistical Implementation of the Statistics Committee of Ukraine # 481 1 Units has been statistical register December 16, 2009: implemented, and is maintenance system 1) the Policy of the Register of Statistical operational\. Units and the Formation of Sampling Frames of Sets of Units of Statistical 21  Observations of Activities of Enterprises (hereinafter referred to as the "RSU Policy"), the RSU Policy practical implementation time schedule approved with Order of the State Statistics Committee # 16 of January 27, 2010\. 2) Methodological Provisions for the Observation of Trends and Demographic Indicators of Enterprises on the Basis of the Register of Statistical Units (approved with Order of the State Statistics Committee # 526 of December 22, 2010); Generating sampling frames is one of the major objectives of the statistical register; for this reason, general populations (sampling frames) of statistical observation A general list of statistical units are set up for the state statistical observation units is research in accordance with the RSU generated annually as of Policy approved with Order of the State November 15\. Statistics Committee # 481 of General populations December 16, 2009\. (sampling frames) of units Issues of the practical application of the to be studied and reviewed RSU are also determined and regulated by during the statistical the following documents: observation are generated 1) Procedure of the Use of Data from the on the basis of the general Register of Statistical Units (approved with list of statistical observation Order of the State Statistics Committee units\. Application of the # 28 of February 10, 2011); The work on updating the 2 statistical register for 2) Rules of Procedure for the performance list of local units on the generating the of the work related to updating the list of basis of the data of the state sampling frames local units on the basis of data of the state statistical observations are statistical observations developed to ensure carried out annually\. the completeness of the accounting for local units in the statistical register of enterprises (approved with Order of the State Statistics Committee # 302 of November 18, 2011) In 2013, the methodology of the monitoring of the participation of respondents in the state statistical observations has been prepared (and approved with Order of the State Statistics Committee # 149 of May 14, 2013), and the relevant trial calculations have been performed\. Sub-component B3\. Implementation of a Universal Classification System No\. Task Implementation Results Current Support The automated The classifications used for the RSU classification maintenance Development of the maintenance are uploaded, as well as the system is operable; automated tables\. The automated classification 1 classifications are kept up to classification maintenance sub-systems are uploaded into date\. maintenance system Statistical Data Processing Integrated A service of re-encoding the System (SDPIS)\. economic activities of 22  enterprises is offered on the web site of the State Statistical Service of Ukraine The automated classification maintenance sub-system has been set up in the test and trial environments of the SDPIS\. The following classifications have been developed: - national classifier DK 009:2010 "Classification of Economic Activities" (KVED-2010) (Order of the State Technical Regulation and Consumer Policy Committee of Ukraine # 457 of October 11, 2010 (as amended); - Methodological Principles and Explanations of Items of the Classification of Economic Activities (KVED-2010) (Order of the State Statistics Committee # 396 of December 23, 2011); - the structure of the Statistical Classification of Products (SKP-2011) (Order of the State Statistics Committee # 254 of October 7, 2011); KVED-2010 and SKP-2011 Development of the - Methodological Principles and classifications are classification of Explanations of items of the structure of maintained; users of these 2 products and services; the Statistical Classification of Products classifications are provided development of related (Order of the State Statistics Committee with the consultancy classifications # 397 of December 23, 2011) support\. The following documents have been prepared: - a Concept of the implementation of the reviewed versions of standard international classifications of economic activities and products into the state statistics activities (Order of the State Statistics Committee # 120 of April 8, 2009); - Measures aimed at the implementation of the Project Time Schedule in 2009; - Action Plan of the implementation of the Project Time Schedule in years 2010 to 2012; - Measures related to the performance of the retrospective analysis in connection with the implementation of KVED-2010\. The list of industrial Development of the products for the production classification of PRODCOM 2008 was translated into statistics on the basis of 3 products and services; Ukrainian in 2010\. CPA 2008 and PRODCOM development of related 2011 — Nomenclature of classifications Industrial Products (approved with Order of the 23  State Statistics Service of Ukraine # 520 of December 17, 2012) Sub-component B4\. Improvement of the Legislative Framework of the State Statistics System No\. Task Implementation Results Current Support Improvement of the Domestic Statistical Legislation The Operating Principles for State Statistics Agencies have been approved with Order # 216 of June 14, 2010, and published on the web site of the State Completed\. The recommendation has been Statistics Service\. incorporated during the development of A Code of Practice Operating Principles for State Statistics questionnaire has been 1 Agencies\. compiled; the SWOT Most important documents received during analysis has been carried the study tour have been translated\. out as a result of the self- assessment\. Results of the SWOT analysis have been used as the basis for the development of the long- term development program\. Implementation of the System of Statistical Registers of Enterprises (SRE) Documents have been developed on issues related to the maintenance of the Register of Statistical Units\. The new system of the maintenance of the The Policy of the Register SRE contains dedicated tables for types of of Statistical Units and the statistical units\. 1 Formation of Sampling Frames of Sets of Units of In 2009, enterprises were surveyed in order Statistical Observations of to clarify their economic activities\. Activities of Enterprises was approved with Order of the State Statistics Committee # 481 of December 16, 2009 The RSU questionnaires are filled out every year\. Provisions have been made for the entry of data on the activity status, the actual address and the principal economic activity, etc\. into the SRE; - the file structures for downloading the information for the SRE from annual reporting Electronic Data Processing Suites (KEOI); - instructions on the organization of the monitoring of the submission of financial statements by legal entities not included into the set of statistical observation units 24 for structural statistics purposes have been approved\. Minutes of Meeting # 1 of May 26, 2010, "On Amendment of the Catalogue of Files for the exchange of the information between the State Entrepreneurship Committee and the State Statistics Committee on the state registration of legal entities and sole traders, their entry into records and their withdrawal from records"\. Provisions are made for the entry of data on the activity status, the actual address and the principal economic activity, etc\. into the SRE; - the file structures for downloading the information for the SRE from annual reporting Electronic Data Processing Suites (KEOI); - instructions on the organization of the monitoring of the submission of financial statements by legal entities not included into the set of statistical observation units for structural statistics purposes have been approved\. Methodological recommendations on the demography of enterprises have been translated into Ukrainian\. The plan of state statistical observations for year 2010 calls for the implementation of the methodological provisions on the observation of development trends and the demography of enterprises on the basis of the Register of Statistical Units - the Minutes of Meeting "On Amendment of the Catalogue of Files for the exchange of the information between the State Entrepreneurship Committee and the State Statistics Committee on the state registration of legal entities and sole traders, their entry into records and their withdrawal from records" have been approved; - the State Statistics Committee submitted proposals to the State Entrepreneurship Committee on the amendment of the legislation aimed at ensuring the completeness of the record of local units; a working meeting has been held with representatives of the State Entrepreneurship Committee for the discussion of this issue; - a directory of local unit types for the use in the SRE and in the course of statistical observations has been developed; - the priorities of data sources for the 25  generation of specific SRE indicators (such as the "average number of employees") have been specified; - the Process Plan of 2010 State Statistical Observations provides for the work on maintaining and updating the RSU with the specification of data sources, deadlines and officers in charge; the set-up of general populations of enterprises (sampling frames) at the central level has been provided for by the Time Schedule of the Implementation of the RSU Policy since 2010\. The new SRE maintenance system provides for the correction of erroneous administrative data (stored in the form they have been received), while the relevant verified data are added to the statistical database\. The set-up of general populations of enterprises (sampling frames) at the central level has been provided for by the Time Schedule of the Implementation of the RSU Policy since 2010\. The mission resulted in the development of the curriculum for the seminar: "Methods of Dealing with the Sample in Enterprise Surveys"\. The seminar has been held within the scope of Mission 3\.B7\. This is provided for by the RSU Policy\. The training took place during the preparation of descriptions of state statistical observations, while taking inventory of the reporting and statistical documents required for the state statistical observations\. A document named "Policy of the Register of Statistical Units and the Formation of Sampling Frames of Sets of Units of Statistical Observations of Activities of Enterprises" was developed and approved with Order of the State Statistics Committee # 481 of December 16, 2009 The criteria for setting up the sets of statistical observation units have been provided by the sectoral statistics departments during the preparation of descriptions of state statistical observations, while taking inventory of the reporting and statistics documents required for the state statistical observations\. Development of the Automated Classification Maintenance System This work has been performed partly in the 1 form of classifications used for the RSU maintenance\. 26  There is a National Statistical Classifications section on the official web site of the State Statistics Service\. Order of the State Statistics Committee # 120 of April 8, 2009, "On Approval of the Concept of the Implementation of the Revised Version of the Standard International Classification of Economic Activities into the State Statistical Activities" Order of the State Statistics Committee # 120 of April 8, 2009, "On Approval of the Concept of the Implementation of the Revised Version of the Standard International Classification of Economic Activities into the State Statistical Activities" Development of Skills in the Field of Seasonal Adjustments and Allowances for Working Days Sectoral departments of the State Statistics Service use methods of seasonal 1 adjustments and allowances for working days\. Development of the Metadata Base A system of statistical meta- A study visit to the Czech Republic information has been Statistics Office has taken place\. created\. It is supported by The structure of variable statistical reports means of the taking (input indicators) have been standardized inventory of the reporting and unified\. and statistical information The structure of the (variable) input on an annual basis with indicators has been determined by the descriptions of the state Statistical Observations Planning and statistical observations Organization Department on the basis produced in a unified 1 described below in order to support the format\. The meta- descriptions of state statistical observations descriptions of state by sectoral departments: statistical observations for Variable = Indicator + Attribute (classifier) data users are produced on (Indicator = Indicator Basis + Attribute)\. the basis of the above The draft plan of the state statistical descriptions annually and observations (the 2011 draft plan) has been published on the official revised on the basis of descriptions web site of the State produced as a result\. Statistics Service of Ukraine\. Component C\. Data Development Sub-component C1\. Selective Household Surveys No\. Task Implementation Results Current Support Living Conditions Indicators and Reporting Improve the system of Recommendations for the improvement of The program and the system 1 indicators of household the program and the system of indicators of indicators of the national surveys of the national household survey have been household survey have been developed on the basis of the analysis of improved\. The use of the 27  the comparability of the system of national national equivalence scale household survey indicators with the has been implemented for system of indicators of EU member states\. the analysis of inequality and poverty issues (e\.g\., it has been used during the preparation of Joint Order of the Ministry of Social Policy of Ukraine, the Ministry of Economic Development and Trade of Ukraine, the Ministry of Finance of Ukraine, the State Statistics Service of Ukraine and the National Academy of Sciences of Ukraine # 629/1105/1059/408/612 of October 8, 2012, "On Approval of the Methodology of the Integrated Poverty Assessment")\. The experience gained as a result of the familiarization with the European survey program (EU SILC — European Union Statistics on Income and Living Conditions) has been applied during the module- based poll regarding the access of households to goods and services\. Results of this poll are published on a web site and are used to analyze poverty in terms of deprivations\. The Methodological Recommendations for the Income and Consumption Opportunities of Households within the Scope of the Household Survey (Order of the State Statistics Service of January 15, 2013) #10)\. Survey Data Processing Prepare a description of The draft description of the methodology The Methodology of the the existing of the processing of data obtained as a Processing of Results of the methodology and result of the household survey has been Selective Household Living develop developed\. Conditions Surveys was 1 recommendations for The improvement recommendations have developed and published on the improvement of been developed on the basis of the analysis the official web site of the methods and processes of the methodology and procedures of the State Statistics Service of the household living development of the national survey data; (Order of the State Statistics conditions survey data some of the technologies suggested have Committee # 278 of 28  processing\. been tried\. October 31, 2011)\. A pilot exercise has been developed for Results of the pilot study the testing the procedure of the imputation have been used to determine of missing values to a small artificial the national equivalence dataset of the household living conditions scale for the analysis of survey using the SRMI sequential multiple inequality and poverty regression with the SPSS module\. issues\. A pilot study of the impact of various The calculations of the options of equivalence scales on poverty reliability of estimates of and inequality indicators has been indicators of the inequality conducted\. The software has been of the living standards of developed for the calculation of the the population have been reliability of estimates of indicators of the implemented nationally and inequality of living standards of the regionally on a permanent population\. basis\. Staff Training in the Performance of Surveys Familiarize with programs of selective household income, expense and living conditions surveys, as well as modern A study tour took place to the French methods and state-of- Institute of Statistics (Insee) that resulted the-art technologies of in the obtainment of the experience in the processing of data dealing with organizational and of such surveys, and methodological principles of the selective the experience in household income, expense and living The experience gained has methodological conditions surveys, and using the modern been applied in the course approaches toward the software for interviewing, encoding and of the improvement of the 1 adjustment of processing the data of such surveys\. A program and the indicator consumption expenses seminar has been conducted on the system of the domestic of households in order improvement of the program, the indicator household living conditions to record the income system and the survey data processing survey\. and expenses of the technology, as well as on the methodology well-to-do population of the adjustment of consumption expenses strata\. of households in order to cover the Train staff in expenses and income of the well-to-do improving the program, population strata\. the indicator system and the technology of the survey data processing\. Sub-component C2\. Integrated Annual Enterprise Statistics No\. Task Implementation Results Current Support 1\. Head office staff have obtained knowledge of the EU legislative Criteria have been framework on enterprise statistics and the introduced for assigning the organization of surveys in this area in Create an integral state statistical observations specific EU member states\. The EU have 1\. enterprise statistics to the enterprise statistics assessed the Ukraine State Enterprise system (Order of the State Statistics Statistics Development Concept and, Service # 548 of together with the Ukrainian specialists, December 29, 2012)\. determined criteria of assigning the state statistical observations in Ukraine to the 29  enterprise statistics taking into account provisions of the Concept\. The new reporting and statistics toolkit for non- finance-sector enterprises and methodological documents on structural statistics have been introduced and operating starting from 2012 reports, namely: the Methodological Policy of the Mutually Co- ordinated System of State Statistical Surveys for Determining Structural Statistics Indicators as a Part of the Enterprise Statistics (Order of the State Statistics Service # 549 of December 29, 2012); Officers of the head office and regional Methodological statistics departments obtained knowledge Recommendations on the of the EU legislative framework on Organization of the State structural statistics and familiarized Statistical Observation of themselves with the EU countries' Structural Changes in the experience in organizing the structural Economy of Ukraine and Its Improve structural 2 surveys\. Regions (Order of the State statistics 2\. A new reporting and statistics toolkit has Statistics Committee # 366 been developed on the basis of the of December 22, 2011); obtained experience for structural surveys Methodological Policies on of enterprises, as well as methodological the Use of Financial documents that are in conformity with the Statements of Enterprises EU structural statistics regulations\. for the Enterprise Statistics Purposes (Order of the State Statistics Committee # 393 of December 23, 2011); Order of the State Statistics Committee # 321 of August 1, 2012, "On Approval of Forms of State Statistical Observations on Structural Statistics (for Non-Finance- Sector Enterprises)"\. In addition, the draft Methodological Recommendations on Interlinked Structural Statistics Indicators based on Eurostat's Revised Quality Checks document are being tested\. Develop forward- The following documents 3 Key indicators have been identified looking indicators have been developed and 30  implemented: Methodological Provisions for the Organization of Surveys of the Business Activity of Enterprises of the Industrial, Construction, Retail, Service, Transport and Agricultural Sectors (Order of the State Statistics Service # 38 of February 8, 2013)\. Model questionnaires for enterprise business activity surveys have been improved (Order of the State Statistics Service # 544 of December 27, 2012) Sub-component C3\. Current Economic Activity Surveys No\. Task Implementation Results Current Support 1\. The methodology of the 1\. The calculation of the industrial calculation of the industrial production index according to the production index has been methodology that meets Eurostat improved; the calculation of requirements has been implemented in indices at the level of major Ukraine since 2009 (with year 2007 as the industrial groups is baseline year)\. The first publication of data envisaged (the changes to has been made in the express issue of the methodology were Development of "Results of the Operation of Ukraine's approved with Order of the production indices Industry in January 2009" (# 33 of State Statistics Service # 91 February 16, 2009)\. of March 14, 2013)\. Starting from 2013, the industrial production index is calculated according to KVED-2010 (NACE rev\.2 (with year 2010 as the 1 baseline year)\. 2\. The calculation of sales in the industry has been calculated according to 2\. The calculation of the industrial sales KVED-2010 (NACE rev\.2) index (with year 2007 as the baseline year) and according to a has been implemented in Ukraine since methodology based on 2011\. The first publication of data has been Eurostat's recommendations made in the express issue "Volume of (with year 2010 as the Industrial Products Sold and Sales Index in baseline) (changes to the Ukraine in January 2011" # 47 of March 1, methodology have been 2011\. approved with Order of the State Statistics Service of Ukraine # 86 of March 12, 2013)\. 31  3\. The Methodological Provisions for the Calculation of the Index of New Orders in the Converting Industry have been developed and approved (Order of the State Statistics Committee # 16 of January 26, 2011)\. 4\. The calculation of the construction production index according to a 4\. The Methodological Provisions for the methodology coordinated Organization of the State Statistical with Eurostat's Observation of the Short-term recommendations has been Construction Statistics and the Procedure implemented since 2013\. of the Calculation of the Construction The first data publication Production Index have been developed and took place in the express approved (Order of the State Statistics issue "Performance of the Committee # 200 of August 5, 2011)\. Construction Work in Ukraine in January 2013) # 03\.6-33/230 of February 15, 2013 1\. Changes have been introduced to the instruction on the completion of Form # 1- PE of the state statistical observation of economic short-term industry statistics 1\. Questionnaire Form # 1- indicators for the purposes of the PE has been improved obtainment of the information on volumes (Order of the State Statistics of new orders (including those foreign) Service of Ukraine # 482 of (approved with Order of the State Statistics November 26, 2012), and Committee # 380 of November 25, 2005, the procedure of its (in the wording of Order of the State completion has been Statistics Committee # 312 of August 18, clarified The gathering of 2009) and registered with the Ministry of data on volumes of the Justice of Ukraine on September 10, 2009, external sales has been in under # 853/16869 (as amended))\. Improvement of short- place since 2013\. Provisions have been made for the term statistical 4 collection of data on indicators of the observations of the volumes of supply and distribution market situation\. (transportation) of the electrical energy and the gas to consumers by local networks (to be used in the calculation of the industrial production index in Section D of KVED- 2\. The observation 2010 (Form # 1-PE approved with Order questionnaire has been of the State Statistics Committee # 239 of introduced into the practice July 7, 2009,, and appropriate of statistics (Form # 1-kb, methodological recommendations have Order of the State Statistics been developed (approved with Order of Committee # 255 of July 5, the State Statistics Committee # 535 of 2010)\. December 29, 2010)\. 2\. The questionnaire of the state short-term construction statistics observation has been improved in terms of the range of 32  indicators and the deadlines for the submission by respondents\. Application of seasonal 7 fluctuation allowances Sub-component C\.4\. National Accounts No\. Task Implementation Results Current Support Annual Calculations The calculations for the household sector are being developed and published for Implementation of the following sub-sectors: Methodological provisions have been 1 calculations for the employers, self-employed, developed; the calculation has been household sector by employees, recipients of produced\. sub-sectors property income and transfers\. Results are published on the web site of the State Statistics Service The conformity of calculations produced Improvement of by the State Statistics Service with the EU The improved data are calculations of the Price and Volume Handbook has been 2 published in prices of the GDP and its ensured\. The calculations have been previous year and the components in constant improved in line with the above baseline year\. prices Handbook, for instance, in the field of foreign economic activities\. Input-Output Table The expanded cost/output table and appropriate Development of an The toolkit and the cost/output table have analytical materials have 1\. expanded cost/output been developed\. been published\. The table cost/output table is developed every year\. Regional Accounts Improvement of the The methodology of the calculation of the Components of the gross Gross Regional output of goods and services for local units regional product by 1 Product (GRP) has been developed\. The statistical toolkit economic activity are calculation has been improved, and the relevant developed and published methodology\. calculations have been made\. annually\. Geo-information maps are a Improvement of the Introduction of GRP publications using 2 part of the annual GRP GRP publications geo-information maps\. publication\. Quarterly National Accounts Introduction of A methodology has been used for the use econometric methods of econometric methods for the calculation The calculations are made 1 for the calculation of of the output of goods and services by quarterly\. the GDP components economic activity\. The accounts for Introduction of The information support has been institutional sectors of the quarterly national developed in line with the elaborated economy are developed and 2 accounts by methodological provisions, and trial published on the web site of institutional sectors of calculations have been produced\. the State Statistics Service economy\. on a quarterly basis\. Sub-component C5\. Price Statistics 33 No\. Task Implementation Results Current Support This work has been completed within the scope of Contract # 4729/18 of February 27, 2008\. Improvement of the The Methodology of the election of Retail 1 Carried into effect from consumer price and Service Enterprises for the Calculation June 1, 2010 statistics of the Consumer Price Index has been developed (approved with Order of the State Statistics Committee # 179 of May 11, 2010) This work has been completed within the scope of Contract # 4729/18 of February 27, 2008\. The Methodological Recommendations for 3 Improvement of the Carried into effect from the Selection of Goods and Enterprises for producer price statistics May 1, 2010 the Calculation of the Producer Price Index have been developed (approved with Order of the State Statistics Committee # 39 of February 5, 2010) Sub-component C6\. Public Finance Statistics(implemented by MoF) No\. Task Implementation Results Current Support Recommendations on Budget classification improvement in view of GFS and SNA requirements have been obtained\. MoF has amended the Budget classification and the related handbook\. Formats of economic and functional Consulting support of 1 classifications are largely consistent with government finance IMF GFSM 2001\. Departmental and statistics improvement program classifications correspond to regulations of national legal acts\. Classifications of revenue, expenditure, lending, debt and deficit financing require data reclassification according to format IMF GFSM 2001\. 1\. Methodology for construction of data 1\. Data conversion tables conversion tables by classification of make it possible, if revenue, expenditure, lending and budget necessary, to reclassify data deficit financing and debt in format for budgetary and financial GFS2001 has been improved reporting across all general government subsectors according to format IMF GFSM 2001\. Automated conversion Consulting support of tables are updated on a 2 public finance statistics regular basis to reflect improvement changes in the Budget classification and accordingly in budgetary 2\. Recommendations on the methodology and financial reporting\. for statistical adjustment of cash data to data on accrual basis have been obtained; 3\.International experts have provided recommendations on harmonization of GFS data with SNA data, monetary 34  statistics and with balance of payments data; 4\. Training workshops and training courses have been conducted for employees of MoF, Treasury, Pension Fund, State Social Insurance Fund and the relevant central executive bodies on sources and mechanisms of generation of GFS data according to international standards (apprx\. 100 persons)\. Consulting services for 29 employees of MoF have received staff training: training\. Duration of training: 11 months\. improvement of English language skills of MoF employees for them to use the acquired knowledge in practice in their professional activities within the framework 3 of international cooperation in generating GFS data to report in international publications, in particular the Government Finance Statistics Yearbook, and in compliance with the special data dissemination standard\. Computer hardware 45 pieces of computer and office and software equipment, and software have been procurement: upgrade purchased\. of physical infrastructure through 4 the purchase of computer and office equipment as well as software for data generation and analysis of government finance statistics\. Sub-component С7\. Monetary and Banking Statistics(implemented by NBU) No\. Task Implementation Results Current Support - consultancy support 1\. Methodological and organizational 1\. Reports are being for improving the issues of monetary statistics coverage of provided to the methodology and other financial corporations (insurance International Monetary organization of companies, non-state pension funds and Fund according to Form monetary and banking investment funds) were reviewed\. 4SR “Other Financial statistics; Corporations”\. - study tours for An overview of financial improving the corporations and a balance 35  methodology and sheet of other financial organization of corporations by economic monetary and banking sector are being published statistics; in the statistical bulletin and - English language on the official website of training of staff of the the National Bank of National Bank of 2\. Methodological issues of compiling Ukraine\. Ukraine monetary statistics on financial transactions of depository corporations 2\. The data are being were reviewed\. Calculations of indicators published in the statistical of monetary statistics on financial bulletin and on the official transactions of depository corporations for website of the National 2008 – 2013 were made\. Bank of Ukraine\. 3\. Indicators of monetary statistics of Ukraine were harmonized with those of the European System of Central Banks\. A set 3\. An electronic version of of news releases concerning monetary the statistical bulletin that statistics were prepared\. complies with international and European standards of statistics is being published on the official website of the National Bank of Ukraine\. A set of news releases concerning monetary statistics were prepared and are being published on the 4\. Data sources were analyzed to compile official website of the Ukraine`s quarterly financial accounts by National Bank of Ukraine\. institutional sector: non-financial corporations, financial corporations, national administration, households and the rest of the world\. Calculations of quarterly financial accounts of the financial corporations sector and its subsectors were made\. The data were published on the official website of the National Bank of Ukraine 5\. Training of NBU employees was conducted to improve their English; this increased the level of professional communication of NBU staff with representatives of the international statistical community in the course of their professional activities\. Sub-component C8\.1\. Foreign Trade Statistics No\. Task Implementation Results Current Support This work has been completed within the In 2011, the Methodological scope of Contract # 4729/18\. In April Provisions for the Improvement of 2009, the State Statistics Committee Assessment of Volumes of 1 foreign trade statistics carried out a pilot survey of the volume of the Informal Trade in with the incorporation the informal trade at Ukraine/Poland and Statistics of the Foreign of the unofficial trade Ukraine/Russia border checkpoints to Trade in Goods were determine the percentage of the informal developed and approved 36  trade in the statistics of the foreign trade in (Order of the State Statistics goods\. Committee # 225 of September 5, 2011) Assessment of the quality of the foreign Reconciliations were conducted with Data reconciliations were 2 trade data using mirror Germany in 2010 within the scope of a performed with Latvia and statistics of the trade TACIS project\. Serbia in 2011 and 2012\. with key trading partners\. The improvement of the methodology of the This work has been completed within the calculation of indices of scope of Contract # 4729/18\. The indices average prices, the physical of average prices, physical volumes and volume and the terms of the terms of foreign trade in goods have been foreign trade in goods has published on a quarterly basis on the web been include as a dedicated site of the State Statistics Committee since section into the Improvement of the 2009\. The brief methodological comments Methodological Handbook methodology of the on the calculation of the foreign trade on Statistics of the Foreign calculation of price indices have also been published on the Trade in Books approved 3 indices and physical web site\. with Order of the State amounts in the foreign In September 2009, the changes have been Statistics Service of trade, and the terms of introduced into the terms of reference for Ukraine trade the development of the software for the # 546 of December 28, Electronic Data Processing Suite (KEOI) 2012\. "Calculation of Price Indices, Physical Starting from 2013: Amounts and Terms of Foreign Trade in the indices of average Goods" as a result of the improvement of prices, physical volumes calculations on the basis of the expert and terms of the foreign assessment\. trade in goods have been published on a monthly basis since January 2013\. A new methodology for the calculation of statistics of the foreign trade in services in Ukraine (Order of the State Statistics Service #43 of February 8, 2013) and the Classification of Foreign Economic Services Pilot surveys of specific services have been Development of the (Order of the State Statistics conducted with changes introduced as a methodology of the Service # 69 of result of surveys in the reporting Form #9- additional calculations February 27, 2013) have ZEZ (Order of the State Statistics Service 4 of volumes of the been implemented\. They are #377 of September 7, 2012)\. Draft foreign trade in specific in line with methodological provisions for the services and services recommendations of the calculation of items related to services in provided by Manual on Statistics of the foreign economic activities have been individuals\. International Trade in developed\. Services (UN Statistics Division, 2010) and the sixth edition of the IMF Balance of Payments and International Investment Position Manual (IMF, 2009)\. 37  The form of entrepreneurship reports has This work has been carried out at own been improved\. Agreements expense by means of improving the record have been concluded with system\. Changes have been introduced into Improvement of the specific state authorities on the Agreement between the State Statistics register of enterprises the provision of lists of 5 Committee and the NBU on the provision offering external enterprises in possession of of a list of enterprises receiving or making services on the basis of licenses for specific payments for the export/import of services the statistical register business activities (tourism, on the basis of banking reports in order to construction, transportation) ensure the complete coverage of reporting in order to improve the units\. register of reporting enterprises\. Sub-component С8\.2\. Balance of Payments Statistics (implemented by NBU) No\. Task Implementation Results Current Support 1\. Methodological framework was developed and calculations of holdings of foreign currency in cash outside banks were made to display in the international investment position, allowing for adjusting data by flows and stocks in external sector statistics; a new method was introduced for generating data on insurance services and reinvested earnings from foreign direct investment\. 2\. The National Bank began publishing 2\. Keep being published\. new statistical products: The main areas of - international investment position on a implementation of quarterly basis; subcomponent included - short-term external debt by residual consulting support and maturity; study tours on - seasonally adjusted data for the improving the individual components of the current methodology and the account balance; preparation and - data on private remittances\. dissemination of 3\. NBU keeps providing external sector 3\. A set of measures of methodological and data from the balance of statistics in Ukraine\. organizational support were implemented payments, international for the transition to the compilation of investment position and external sector statistics according to the external debt in accordance new methodological framework set out in with BPM6 to the IMF\. the sixth edition of the Balance of Payments and International Investment Position Manual (IMF, 2009)\. Beginning from 2012 onwards, the NBU provides to the IMF data from the balance of payments, international investment position and external debt in accordance with BPM6\. Sub-component C9\. Demographic, Social and Poverty Statistics No\. Task Implementation Results Current Support Development of the Methodology of the Adjustment of Consumption Expenses of Households in Order to Keep Track of Expenses and Income of Well-to-do Population Strata 38  The preparation of the information about the reliability of estimates of indicators of the selective household living conditions The extent of the possible impact of non- survey required for the responses of well-to-do population strata calculation of the consumer on the consumer price index has been price on an ongoing basis Determine the impact estimated\. index has been of the insufficient Proposals have been developed for the implemented\. coverage of the well- methodology of the adjustment of A number of consultations to-do population strata consumption expenses of households in have been held with officers on the bias of estimates order to keep track of expenses and income of the State Tax Service and of the consumer price of well-to-do population strata and the general structure of the index\. recommendations have been issued on the information database of 1 Develop a implementation thereof\. revenues and taxable methodology for the The software has been developed and persons has been analyzed adjustment of tested for the adjustment of the system of in order to find and study consumption expenses statistical weights of the household living more efficient data on of households in order conditions survey using the data from payments made by to keep track of external sources (e\.g\., Kyivenergo data)\. subscribers for the expenses and income The software has been developed for the consumed electrical energy of well-to-do ascertainment of indicators of the in comparison with data population strata reliability of data of the household living from energy suppliers for conditions survey required for the the purposes of the calculation of the consumer price index\. adjustment of consumer expenses of households in order to take into consideration expenses and income of the well-to-do population strata\. Mortality Statistics No\. Task Implementation Results Current Support The death reasons are encoded in accordance with the methodological In line with the vested powers, the guidance document named methodological guidance document named "Morbidity and Mortality "Morbidity and Mortality Encoding in Encoding in Accordance Accordance with International with International Classification of Diseases of 10th Classification of Diseases Revision" has been developed on the of 10th Revision" approved initiative of the State Statistics Committee with Order of the Ministry together with the Ministry of Health of of Health of Ukraine # 503 Improvement of 1\. Ukraine (Order of the Ministry of Health of August 29, 2008\. mortality statistics of Ukraine # 503 of August 29, 2008)\. Materials related to the use The State Statistics Committee has of the IRIS software initiated the translation of the ICD-10 (provided by the expert) are updates into Ukrainian\. The relevant letter used to solve issues related has been sent to the Ministry of Health of to complicated situations Ukraine\. regarding the choice of the root cause of death, and to draw up instruction letters for regional state statistics agencies (instructive materials on encoding and 39  selecting the root cause of death)\. Migration Estimates No\. Task Implementation Results Current Support The approved Program of the Ukrainian National Census contains an The program of the forthcoming Ukrainian expanded set of questions National Census contains a set of questions about the migration activity targeting a broader range of the of the population\. The information about volumes of the external details of the migration migration, including the labor migration\. A (including the international Improvement of question about the possibility of residence 1\. migration) are sent to external migration data of the respondent in another country, the international organizations year of return to Ukraine and the reasons (Eurostat, IOM, ILO, etc\.)\. for the stay in another country has been The relevant information is included\. sent to other countries for data exchange purposes; the data of international questionnaires are processed as well\. Selective internal and The relevant sets of questions have been 2 external migration included into the selective labor migration surveys surveys conducted in 2008 and 2012\. Establishing a Modern Demographic Statistics Data Acquisition and Processing System No\. Task Implementation Results Current Support The methodologies have been developed for "Building up Mortality and Life Expectancy Tables for the Population of The calculations of the Improvement of data Ukraine and Regions Broken down by population reproduction and on the population Gender and Settlement Type" (Order of the life expectancy indicators growth and flows, and 1\. State Statistics Committee # 103 of have been implemented into data on the April 26, 2011) and "Building up General the practice of statistics characteristics of the Fertility Tables for Women of Ukraine and starting from 2011\. population\. Regions Broken down by Settlement Type" (Order of the State Statistics Service # 52 of February 18, 2013)\. A dedicated web site "Population of Ukraine" has been set up in order to Establishment of the The database is being filled migrate to an electronic system of the 2 central demographic up on an ongoing basis management of time series of statistical statistics database starting from the 1989 data\. indicators and to provide broader access to statistics for users\. Implementation of Geographical Information Systems (GIS) No\. Task Implementation Results Current Support The work related to the application of GIS The dedicated software/methodology technologies for the census GEOPEREPYS GIS suite has been zoning of the territory of the Implementation of a developed for the trial census area together country, the monitoring of 1 Census GIS with the specialized software of the census the census and the data zoning GIS\. dissemination is carried out on the basis of digital maps of raions and cities of republican (in the Crimea) 40  and oblast significance\. GIS census implementation seminars have been held for officers of the State Statistics Service and local state statistics agencies\. Measures have been taken to equip the head office and local bodies of the State Statistics Service of Ukraine with the licensed GIS software\. The List of Building and Premises Addresses in The Policy of the List of Building and Urban Settlements for the Premises Addresses in Urban Settlements Ukrainian National Census for the Ukrainian National Census was is used for the census approved with Order of the State Statistics zoning using the GIS Service of Ukraine # 554 of December 29, Zoning software\. The 2012\. information contained in the list of addresses is kept up to date at a regional level\. Sub-component C10\. Other Statistics (Regional Statistics) No\. Task Implementation Results Current Support Municipal Statistics The form of the statistical The system of indicators for the analysis of bulletin on the socio- the socio-economic development of economic condition of the regions using the administrative data region is being unified sources is kept up to date\. For instance, the every year\. It contains administrative data on the official labor information obtained from Co-ordination of market are obtained by state statistics administrative data sources survey data and agencies centrally and locally from bodies 1\. (for instance, on the official administrative sources of the State Employment Centre, and labor market, the social for regional statistics\. published in the monthly statistical bulletin protection, the crime rate)\. Economic and Social Condition of the Activities are carried out to Region or as a part of the Report on the fill up and keep up to date Socio-economic Condition of the Region, the Regional Passport and other publications at the central and databases\. regional levels\. The methodology of the assessment of the The list of indicators and performance of the Council of Ministers of the procedure of the the Autonomous Republic of Crimea, assessment of the oblast, Kyiv and Sevastopol City State performance of the Council Development of the Administrations has been developed and of Ministers of the methodology of the implemented (approved with Resolution of Autonomous Republic of assessment of the the Cabinet of Ministers of Ukraine# # 263 Crimea, oblast, Kyiv and socio-economic of April 6, 2005)\. The range of indicators Sevastopol city state 2\. development of underlying the assessment has been administrations have been regions, including the improved as a result of its trial application, improved\. The performance definition of the set of and the resolution has been properly of the Council of Ministers indicators amended\. The comprehensive assessment of the Autonomous of the socio-economic development of the Republic of Crimea, oblast, Autonomous Republic of Crimea, oblasts, Kyiv and Sevastopol City cities of Kyiv and Sevastopol has been State Administrations is implemented\. The list of indicators has assessed on a quarterly 41  been improved and the Comprehensive basis in accordance with Assessment Procedure has been approved Resolutions of the Cabinet (in pursuance of Resolution of the Cabinet of Ministers of Ukraine of Ministers of Ukraine # 833 of June 20, # 650 of June 9, 2011, and 2007) # 335 of April 9, 2012 Every year, the State Statistics Service of Ukraine provides information support to the monitoring of the interregional and intra- Development of the regional differentiation of interregional the socio-economic comparison A list of indicators for comparisons development of regions in 3 methodology, between areas has been developed and kept pursuance of Resolution of including the up to date\. the Cabinet of Ministers of ascertainment of a set Ukraine # 476 of May 20, of indicators 2009, "On Implementation of the Assessment of the Interregional and Intra- regional Differentiation of the Socio-economic Development of Regions" The list of indicators (other than those defined by the Law of Ukraine "On The list of indicators used Encouragement of the Regional for the monitoring of socio- Development") and methodological economic development recommendations for the calculations indicators of regions, raions related to the identification of depressed and cities of oblast areas have been developed\. With its (republican in the Resolution # 860 of June 245, 2006, the Autonomous Republic of Cabinet of Ministers of Ukraine approved Crimea) significance for the Development of special 4 the Procedure of the Monitoring of Socio- purposes of declaring areas depressive area surveys economic Development Indicators of to be depressed has been Regions, Raions and Cities of Oblast improved\. The monitoring (Republican in the Autonomous Republic in question is carried out of Crimea) Significance for the Purposes every year in accordance of Declaring Areas To Be Depressed\. The with Resolution of the monitoring is based upon data of the state Cabinet of Ministers of statistical observations and administrative Ukraine # 235 of March 2, data\. 2010\. The Methodology of the Assessment The calculations of the total (Calculation) of the Number of Available available population of rural Population in Rural Settlements was settlements have been approved with Order of the State Statistics prepared every year starting Service of Ukraine # 111 of May 6, 2011)\. from year 2011\. Improvement of A list of major socio-economic The form of the statistical 5 estimates for small development indicators of cities of bulletin on the socio- areas republican significance in the Autonomous economic condition of the Republic of Crimea, cities of oblast region containing the major significance and raions has been developed indicators of the socio- and approved (Order of the State Statistics economic development of Service of Ukraine # 107 of March 9, cities of the republican 42  2010)\. significance in the A survey of the socio-economic and Autonomous Republic of financial capacity of village, town and city Crimea, cities of oblast territorial communities has been performed significance and raions is (Request of the Cabinet of Ministers of being unified every year\. Ukraine # 21604/0/1/07 of May 14, 2007)\. The information support to The monitoring of the socio-economic the monitoring of the socio- development of small cities has been economic development of implemented in pursuance of Resolution of small cities is provided the Cabinet of Ministers of Ukraine # 288 annually in pursuance of of April 2, 2009 Resolution of the Cabinet of Ministers of Ukraine # 750 of July 18, 2012, amending Resolution of the Cabinet of Ministers of Ukraine # 288 of April 2, 2009\. Recreation and Tourism Statistics at the Regional Level Development of a system of indicators for They are used by local state the assessment of the Recommendations for the development of statistics agencies for the development level of a system of indicators for the monitoring 1\. preparation of information areas with of recreational areas of Ukraine have been materials for the recreation/tourism developed\. publication\. specializations Sub-component C10\. Other Statistics (Foreign Investment Statistics) No\. Task Implementation Results Current Support 1\. The questionnaires of the state statistical observations of investments into foreign economic activities have been improved 1\. The data are supplied to Improvement of the (Orders of the State Statistics Committee the National Bank of toolkit and the # 420 of November 6, 2009, and # 115 of Ukraine and the IMF on an 1 methodology of the May 13, 2011)\. The methodological ongoing basis\. direct investment clarifications (Order of the State Statistics survey Committee # 110 of April 1, 2009) and methodological provisions (Order of the State Statistics Committee # 58 of February 15, 2010) have been developed\. 2\. The Co-ordinated Survey of Foreign Direct Investments in Ukraine as of December 31, 2009, has been conducted under the IMF program with the support from the consultant\. Sub-component C10\. Other Statistics (Service Statistics) No\. Task Implementation Results Current Support Social Services 43  The education account is drawn up annually on the basis of the approved Methodological provisions for the 1 Education services methodology\. The results compilation of auxiliary (one hundred are published in the year) education accounts in Ukraine\. statistical bulletin "National Education Accounts in Ukraine"\. The social protection account is drawn up Methodological provisions for the annually on the basis of the Social protection 2 compilation of auxiliary (one hundred approved methodology\. The services year) social protection accounts in results are published in the Ukraine\. statistical bulletin "National Social Protection Accounts in Ukraine"\. Non-financial Services The science account is drawn up annually on the The methodology of the compilation of the basis of the approved auxiliary science account has been 1 Science and research methodology\. Results are developed as a part of the Methodological services published in the statistical Provisions for Research and digest "Research and Science/Technology Activities Innovation Activities in Ukraine" Component D\. Strengthening of Information Basis for Decision Making and Forecasting in the Ministry of Economy(implemented by the MoEDT) No\. Task Implementation Results Current Support Sub-component D1\. Modernization of data presentation and processing for analytical purposes In order to support The Project resulted in the development of The Decision-making and decision making and the Decision-making and Forecast Support Forecast Support forecasting to create a Information Management System that Information Management special-purpose gives the means to process data based on System is being used by the information system, the key social/ economic/ financial and MoEDT on regular basis\. which will facilitate the other indicators of the Ukraine’s economic analytical work development based on the relevant through integration of Microsoft technologies, including the various data sets\. following components: • Standard data reporting forms for the data provision to the Ministry; • Data Processing Portal that is used to store and manage different forms, including the input data forms and final consolidated reports; • Statistical Indices Storage Database; • Special uploading tool for the data uploading to the Unified Form Database that contains standard income data forms of the Ministry\. The unified forms are available from the Database in the Microsoft Office Excel format; • OLAP Database designed to 44  generate reports representing consolidated statistical indicators; and • Report generating tool with the report updating capacity that is designed to generate reports in the Microsoft Office Excel format\. The Decision-making and Forecast Support Information Management System (hereinafter referred to as the IMS) was designed as a single data-processing window of the Ministry to collect and process the current data that flows to the Ministry of Economic Development from the local governments and the relevant institutions, including the statistical data that represents the key macroeconomic/ financial/ social indicators and important web data on the stock exchange indices, other international statistics etc\. All the incoming data is collected by the System and made available to the Ministry’s personnel through the IMS Ethernet Web Portal designed based on the Microsoft SharePoint Server 2010 that allows the data being downloaded by the users in Microsoft Office Excel 2010 format\. The so-called System Operators generate and upload to the IMS Portal, on requests from the Ministry of Economic Development offices, standard reports, regulatory reports and special user-specific reports that are used by the Ministry’s offices to support their analyses, management initiatives and the decision-making and forecast processes\. Sub-component D2\. Application of new short- and medium-term forecasting models To upgrade the 1\. Five working visits with the capacity of the consultants from MMC MicroMacro Ministry of Economy Consultants BV to Ukraine (which won the to make tender for procurement item D-02\.01) were reliable short- and held (February 16-20, April 27-30, June 8- medium-term 12, September 7-11, October 5-9, 2009) economic forecasts: in with the representatives of MoEDT\. particular, to During the working missions, develop a forecasting consultants together with experts from the methodology for the Ministry of Economy considered in detail main macroeconomic and substantially finalized each block of indicators with the use the econometric model (monetary, foreign of economic, price, investment blocks, etc\.)\. newly developed short- Also, during the working and medium-term meetings they conducted a macroeconomic forecasting models as analysis of the options of work in the well as to develop integrated econometric model (with a methodology and number of forecast options and temporary 45  practical and permanent shocks simulated)\. implementation of a The outcome included: short term • -final version of the balance forecasting model on model; the basis of quarterly • -final version of the econometric national accounts and model that allows forecasting of seasonally adjusted key macroeconomic indicators on data produced by the an annual basis; SSCU\. • -final version of the independent quarterly module in the integrated system; • -fully functional version of program graphical user interface and the application software to prepare reports; • -final version of the application software to work with different versions of forecasting models, the system of regimented mechanism for user access to the macroeconomic forecasting model; • -complete set of documentation on the system, which includes instructions for users and administrator; • -report on the operational testing of the integrated system using real data and training for the Ministry of Economy employees\. Practical capabilities of the short- term annual forecasting module of the integrated model have been used by the Ministry specialists in the development of Ukraine's economy development scenarios based on the combination of external assumptions, including: • -variant increase in the minimum wage; • -variant increase in the price of imported natural gas; • -variant change of UAH exchange rate against the U\.S\. dollar\. 2\. Study visits on organizing the macroeconomic forecasting process in the system of state economic policy have been organized\. Sixteen representatives of the Ministry of Economy made two study tours: from November 7 to 14, 2010 to London, and from December 5 to 12, 2010 to Paris, France\. Component E\. Introduction of modern communication and information technologies) No\. Task Implementation Results Current Support 46 • Modernization of The questionnaires selected for pilot test The ISDPS has achieved hardware and implementation were chosen optimally\. main functionalities generalized The selected questionnaires are the most specified in the project software, complicated forms containing document\. especially in heterogeneous data and metadata from Practical realization of these regional statistical enterprises\. Successful implementation functionalities shall be offices on the level shall prove that the system should be able verified in the pilot of oblast and to manage all other questionnaires and implementation that is rayon\. structures of data\. Pilot test planned for October- • Improvement of implementation shall verify all main December 2013\. data collection, functionalities of the ISDPS, i\.e\.: processing and The ISDPS is the solid basis • Design and implementation of storage of primary for deep restructuring of the pilot metadata base (limited to the data, national statistical system of surveys of pilot test dissemination, Ukraine\. implementation) publications, ICT • Integrated data capturing and The ISDPS software meets supported editing the objectives specified in cooperation with respondents and • Design and implementing of pilot the project document users\. database system However because of the • Implementing the • Integrated processing of data progress in IT and in the system of • Organization of archived data development of the integrated base information infrastructure processing o\.f • Pilot production of tables and of the economy during the statistical data, other relevant forms of output lifetime of the project, new metadata and data for selected users functionalities should be paradata (ISDPS) • Migration of output data to other developed (specified above) • Upgrading skills systems • Access of selected users to output The extension of the pilot and competence of test implementation shall staff managing the data base (WEB –mart and computed data base)\. help to defining the computer systems priorities of developing new on all levels of the Next step planned for 2014 is the functionalities of the statistical system implementation phase of the ISDPS as the ISDPS\. of Ukraine\. basis of the integrated collecting, processing, storage and dissemination of The center of excellence in statistical data and metadata \. In this phase integrated statistical data special attention should be paid on: and metadata system (based in the SSSC, e\.g\. in IT • changes of metadata and department) seems to be the attributes of metadata items, prerequisite of necessary updating metadata, storage of support for effective and archived metadata and quick implementation of the correspondence tables between ISDPS on all levels versions of metadata, statistical system • editing of input data, with special (independently on external reference to control of producers of the ISDPS completeness and the logical software)\. control, • possibility of using the methods The impact of the ISDPS on of imputation for missing data, the organization of data • control of comparability of time collecting and series of output data, disseminating, with special • use of different techniques of data reference to the division of entry (paper questionnaires, labor between different electronic forms), levels of state statistical • organization of data capturing on offices, should be an 47  the level of rayon and oblast, integral part of including comparative analysis of implementation strategy of efficacy and quality of different the ISDPS\. techniques of data entry, • re-designing of the questionnaires, • elasticity of formulation of queries by end-users, • users friendliness of using the WEB-mart Two statistical products chosen for system’s testing (piloting) assume that ALL functionalities will be tested in order to extend the results of this stage to other statistical products\. At the end of testing stage the operational acceptance of system will take place\. The results of pilot test implementation on the basis of 2x2x2 (2 x questionnaires, 2 x oblasts and 2 x rayons in each oblast) seem to be sufficient for testing main functionalities of the ISDPS\. Positive realization of the pilot test implementation means that the successful completion of the project and DPO are achieved and that the ISDPS is operational for its use in Ukrainian statistics\. However, the scope of the questionnaires in the pilot test implementation, although sufficient for testing main functionalities of the software and orgware, does not cover all kinds of questionnaires, that are used in the Ukrainian statistical system\. It is suggested, if the project is continued, in the phase of full operational implementing of the ISDPS, planned for 2014, to elaborate detailed specification of functionalities of the ISDPS for all types of surveys, questionnaires and information sources\. To reach this objective, it is suggested to specify the sequence of surveys and questionnaires representing main types of surveys, metadata and database systems, representative for usage situations of the state statistics, that will be stepwise implemented to the ISDPS: • one representative questionnaire for each class of statistical respondents: • annual, quarterly and monthly survey (annual data for 3 years, quarterly and monthly data for 18 month period; • surveys using different forms of 48  input data: paper and electronic; • sample survey with changing samples; • metadata base enabling dynamic changes and updating of metadata: classifications, definitions of terms, algorithms of computing output data; • time-series data base; • queries and profiles of end-users for friendly defining of changes of requirements\. 49 Annex 3\. Economic and Financial Analysis As stated in the PAD, the project is not amenable to a cost-benefit or economic rate of return analysis as national statistical offices have hardly any significant cost-recovery, apart from a small revenue generated from data publications, the financial returns from this project will not be representative of the economic returns\. Therefore, it is extremely challenging, if not impossible, to carry out such an analysis and clearly identify the economic impacts of a well-functioning statistical system on the country\. The economic benefits from the project derive from the following main sources: • Improved efficiency of statistical operations of the SSSU, resulting in a broader coverage of and higher quality data that affect multiple sectors of society; • Better data will enhance the potential for evidence-based decision making, at policy, program, and project levels; • The project helped to address the significant costs of missing or inaccurate data; • A significant reduction in the cost of data collection through improved systems as well as by moving from full count censuses to sample surveys\. The impact on economic development could be assessed in three ways: • the value and costs of delivering current statistics and of generating new and upgraded information; • the long-term cost effectiveness of streamlining statistical work and of efficiency and accuracy gains in reducing labor-intensive statistical operations; and • the impact of reliable data on policy making\. It would be quite difficult to evaluate these impacts quantitatively and evaluation methods would be highly subjective\. Given that changing policies and practices would create complex and diversified development patterns, relevant and timely information that could help monitoring the rate and direction of change would become an indispensable asset to public and private-sector policy makers\. The project would have a very low overall fiscal impact\. The effect on recurrent costs resulting from the project is expected to be negligible, since the increase in recurrent costs resulting in the possible higher maintenance costs for the newly installed ICT equipment would be counterbalanced by the decrease in the existing high maintenance costs of the current obsolete equipment, and by the decrease in data collection costs due to rationalization of the data collection plans\. Although this is a non-revenue generating public sector reform project to improve statistical capacity, it should lead to considerable cost reduction through better management and the abolition of costly and archaic methods and processes, as well as undesirable duplication of effort\. Some revenue may eventually be generated by sales of information, statistical products and services in the planned information centers\. 50 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Misha Belkindas Economist ECSP3 Svetlana Budagovskaya Senior Economist ECSP3 Neil James Fantom Senior Statistician DECDG Task Team Leader Richard Gargrave Procurement Specialist ECSO2 Timothy Heleniak Consultant ECSH2 Olga Ivanova Economist ECSP3 Task Team Leader Vitaly Kazakov Financial Management Specialist ECSO3 Maria Koreniako Program Assistant ECCUA Senior Financial Management Galina S\. Kuznetsova ECSO3 Specialist Ganna Musakova Senior Program Assistant ECCUA Craig R\. Neal Senior Public Sector Specialist ECSP4 Jonathan David Pavluk Senior Counsel LEGOP Supervision/ICR Anarkan Akerova Counsel LEGCF Irina Babich Financial Management Specialist ECSO3 Oleksiy Balabushko Public Sector Specialist ECSP4 Misha Belkindas Consultant ECSP3 Svetlana Budagovskaya Senior Economist ECSP3 Task Team Leader Cem Dener Senior Public Sector Specialist PRMPS ICR Task Team Mustafa Dinc Senior Economist/Statistician DECDG Leader Neil James Fantom Senior Statistician DECDG Task Team Leader Gulnara Febres Senior Operations Officer CFPTO Richard Gargrave Procurement Specialist ECSO2 Vitaly Kazakov Financial Management Specialist ECSO3 Tetiana Komashko Program Assistant ECCUA Maria Koreniako Senior Program Assistant ECCUA Tetiana Kovalchuk Team Assistant ECCUA Knut J\. Leipold Senior Procurement Specialist ECSO2 Jozef Olenski Consultant ECSP3 Craig R\. Neal Consultant ECSP4 Irina Shmeliova Procurement Specialist ECSO2 Senior Financial Management Rajeev Kumar Swami ECSO3 Specialist Yulia Tomilenko Program Assistant ECCUA Anna L Wielogorska Senior Procurement Specialist ECSO2 51 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY02 13\.56 45\.05 FY03 29\.07 105\.36 FY04 18\.61 38\.44 FY05 -0\.01 -0\.03 FY06 0\.00 0\.00 FY07 0\.00 0\.00 FY08 0\.00 0\.00 0\.00 Total: 61\.23 188\.82 Supervision/ICR FY02 0\.00 0\.00 FY03 0\.00 0\.00 FY04 7\.28 4\.54 FY05 24\.19 40\.92 FY06 30\.83 78\.42 FY07 31\.38 80\.06 FY08 32\.09 97\.50 FY09 39\.33 116\.55 FY10 34\.83 92\.22 FY11 35\.76 87\.02 FY12 30\.38 106\.76 FY13 26\.84 63\.87 FY14 N/A N/A Total: 292\.91 767\.86 52 Annex 5\. Beneficiary Survey Results A formal beneficiary survey has not been conducted, but a World Bank mission visited Kiev, Ukraine on June 21-30, 2011 as part of the ICR preparation process to review implementation progress of the completed components A-D of the DEVSTAT project and conducted interviews with beneficiaries\. The list of people interviewed and the questionnaires used are provided in Annex 5\. A follow-up mission visited Kiev, Ukraine on October 7-18, 2013 for the DEVSTAT project ICR preparation\. Both missions held meetings with relevant stakeholders and discussed the project results and outcomes\. In addition, the second mission has visited one large regional office, Kiev City, and a small rayon office, Kiyevo-Sviatoshynskyi rayon to observe the project results outside of the central office\. The interviews with the beneficiaries of the DEVSTAT project showed that the results of the project are positive and confirmed the project outputs stated in Annex 2\. The interviewed respondents consider that the project was timely and important in bringing the statistical system of Ukraine up-to-date with the internationally accepted standards and classifications\. All of the interviewed beneficiaries of the project stated that the project positively influenced their own professional development and skill sets that provided them with a confidence in their own capacity to operate in a more efficient way\. There have been noticeable changes in institutional structure of the state statistical system of Ukraine\. The project helped increasing reliability, timeliness and quality of the statistics produced in Ukraine, which, in turn, increased the trust in the statistical system\. All interviewed beneficiaries stated that the capacity of their respective agencies to collect, process, disseminate the data has significantly improved, and they will be able to sustain these gains in coming years\. However, they have also mentioned that there will be a need for future support to address the new needs, which will more likely arise from the full implementation of ISDPS\. 53  Questions for meetings with the beneficiaries of the DEVSTAT project (SSSU, NBU, MOF and MoEDT) • How has the situation in respect of statistics in Ukraine changed since 2005 on: o Institutional development; o Capacity building (HR and infrastructure); o Availability and quality of statistics (Data development)? o Prompt: Compare situation in 2005 with current situation (June 2011) • What has been achieved (outcomes) by the DEVSTAT project: o How has the project helped implementation of the Statistical Master Plan of Ukraine (SMP)? • On the DEVSTAT project inputs: o Has the TA (international expert advice, study tours, training) been effective and addressed the right topics and participants? o Were the inputs focused on implementing DEVSTAT? Were they delivered efficiently? o What is your opinion of the ADETEF International Consortium (France) assistance to the DEVSTAT project implementation? o What other external inputs have there been: equipment, survey funding, other development partner projects? How will you evaluate these developments and contributions of the DEVSTAT to statistical capacity building in Ukraine? • On the DEVSTAT project outputs: o What are the main outputs of your component of the DEVSTAT project? o What are you proud of most? o Is the methodology and data collection/analysis procedure in line with the international standards? • Have relationships with users of statistics and other producers (within SA and with other institutions) improved since 2005? • Have relationships with development partners and donors improved since 2005? • Has the project been well managed: o By Project Implementation Team? o By ADETEF Consortium? o Has it in your opinion given value for money? o By other beneficiaries of the DEVSTAT project? o Was there a fruitful partnership between the beneficiaries? o Were there any problems and challenges that were not resolved? • Were the financial disbursements made in time by the World Bank? • What lessons have been learnt in implementing the DEVSTAT project? • Are the achievements/ gains sustainable? – on: o Institutional development; o Capacity building (HR and infrastructure); o Availability and quality of statistics (Data development)? What else is needed to sustain gains and/or to make further gains? If there is a reincarnation of the DEVSTAT project in any other way, what would you recommend as a focus of this potential new Technical Assistance project? 54  Questions for DEVSTAT Project Implementation Team • Has the DEVSTAT project been (a) efficient; (b) effective in support of implementation of the SMP; (c) given value for money? • What lessons have been learned? • Are the achievements/ gains sustainable? • What else is needed to sustain gains and/or to make further gains? • On project inputs: o In general, has the TA (expert advice, study visits, training) been effective; e\.g\. has it addressed the right topics and participants? o How are the topics and participants for study visits, training, etc\. selected? o Were the inputs focused on implementing SMP? o What is your opinion of the “twinning” arrangement to facilitate contacts with and advice from other statistical agencies? o What other external inputs have there been: equipment, survey funding, other development partner projects? • Have development partners “behaved” themselves: allowing country leadership, coordination, alignment with SMP, etc\. • How well do relationships with the subject matter teams (and between the subject matter teams) work? Any room for improvements? • Has PIT been well supported by the SSCU management, the ADETEF Consortium, the World Bank, National Bank of Ukraine, Ministry of Finance and Ministry of Economy of Ukraine? Other development partners? • How appropriate and effective are the accountability and monitoring/evaluation processes? • Has the DEVSTAT project given value for money? • Can you give some anecdotal evidence, personal reflections on the results of the DEVSTAT project, which, in your opinion, changed your way of thinking or performing at work? • How would you rate the project in terms of its efficacy, efficiency, and relevance to the country needs? 55  Persons met during the World Bank mission to Kiev, Ukraine, June 24-30, 2011 State Statistical Committee of Ukraine (SSCU) Mr\. Osaulenko, Olexander Chairman Mr\. Pischeiko, Vadim First Deputy Chairman Mrs\. Shyshkina, K\. Project Coordinator Mrs\. Kuzmina, Iryna Project Implementation Unit (PIU) Head Mr\. Chaban, N\. PIU Consultant Mrs\. Nikitina, Iryna Director of the Department of Macroeconomic Statistics Mr\. Prokopenko, Oleg Director of the Department of Agricultural Statistics Mrs\. Pugachova, Marina Director of the Research Institute of the SSCU Mrs\. Kruglyak, Valentina Deputy Director of the Department of Trade Statistics Mrs\. Kalachova, Irina Director of Statistics of Services Department Mrs\. Ovdenko, Lyudmila Director of the Department of Industrial Production Statistics Mr\. Fryzorenko, Anatoliy Director, Department of Trade Statistics Mrs\. Timoshenko, Galina Director, Department of Population Statistics Mrs\. Zhuk, Irina Director, Department of Statistics of Entrepreneurship Ms\. Ostapchuk, Olga Director, Department of Planning and Organization of Statistical Observations Mrs\. Shkurskaya, Irina Deputy Director, Department of Price Statistics Mrs\. Kalabukha, Olga Deputy Director, Department of Price Statistics Mrs\. Osipova, Inna Director, Household Surveys Department Ministry of Economy of Ukraine Mrs\. Kryuchkova, I\. Deputy Minister of Economy of Ukraine Mrs\. Gorshkova, Natalia Director; Macroeconomics Department of the MOE Mrs\. Gerasimovich, Viktoria Deputy Director of the Department of Informatization Duda M\. Deputy Director, Macroeconomic Department National Bank of Ukraine (NBU) Mr\. Golovko, V\. Head, Department of Accounting and Reporting Andreichuk V\. Deputy Director, Department for Statistics and Reporting Galchinska, N\. Head, Department of BoP Chepurnova, N\. Deputy Head, Department of BoP Ministry of Finance of Ukraine Ms\. Litkovska V\. Deputy Director; Department for IFO Co-operation, Head of Unit for WB Projects Financing Ms\. Kalinichenko L\. Head of Unit for Economic Statistics, Macroeconomic Forecasting Department Makatsaria Ms\. Kolosova, V\. Pratsiuk M\. Lead Economist 56 Annex 6\. Stakeholder Workshop Report and Results N/A 57 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR I\. Evaluation of the final result, in accordance with the agreed objectives of the project, Development of the State Statistics System for Monitoring the Social and Economic Transformation, including the Additional financing of the project (hereinafter, the Project)\. Rating: good (one of the main reasons for the delay in implementation of the Project was long-time ratification of the Loan Agreement № 4729 - UA 15 July 2004 by the Parliament of Ukraine) The objective of the Project is the development of the sustainable state statistical system that ensures effective and timely provision of accurate data for policy evaluation and decision making – in general achieved, as evidenced by the work that has been performed under the Project\. As a result of the Project, the target value indicators for monitoring the Project implementation are achieved, and relevant information is provided in the Appendix\. Comprehensive performance indicator of statistical capacity of the state statistics bodies of Ukraine corresponds to the specified target value and has been increased from 2\.9 points to 3\.5 points during the implementation of the Project\. The execution of the Project, including actions of the Additional financing, has assured substantial positive changes in the development of the sustainable state statistical system of Ukraine due to the strengthening of statistical infrastructure; testing and introduction of the new methods, that meet up-to-date international statistical standards, into national practice; upgrading of professional skills of the state statistical bodies staff related to the introduction of new methodology and use of new software products\. Moreover, due to the Project, the software and technical infrastructure at all levels has been fundamentally improved that allowed to increase the work productivity and effectiveness, and enabled further introduction of the Integrated statistical data processing system (ISDPS)\. Project implementation was carried out by separate components of the Project in accordance with the set goals and objectives\. The key results of the project are the following\. Under the implementation of the Component A (Organisational Development and Management), in 2009, the modern press-center equipped with video conference facilities was created\. The mentioned enabled new organization of the current work of the state statistics bodies, information dissemination, training of experts at all levels\. The availability of the press-center contributed to considerable reduction in the number of business trips and the related costs\. To fulfill the objective on staff development, a number of English language courses for the staff from the headquarters of the State Statistics Service of Ukraine (SSSU) were conducted\. It enhanced the capacity of the employees to work with the methodological documents of the leading international statistical agencies\. Besides, with regard to the harmonization of national statistics with the European standards, more than 40 legal acts, classifications and methodological documents as well as manuals of UNECE, Eurostat, 58 OECD and national statistical institutes of the EU member states on various areas of statistics were translated to be employed in everyday work\. Components B (Statistical Infrastructure) and C (Data Development) were implemented by the State Statistics Service of Ukraine under the single contract, which covers 16 areas of statistics, and which performance enabled the SSSU staff (at the central and regional levels) to get acquainted with the up-to-date European practice in various areas of statistics, develop new and update the existing techniques, test new surveys and technologies for data collection\. Execution of the measures under the Project contributed to the realization of objectives, set by the Strategy of the State Statistics Development for the Period till 2012, and harmonization of the national statistics with the European statistical standards\. Recommendations given by the European experts are used to further improve the system of state statistics in Ukraine\. Activities aimed at improving the government finance statistics were accomplished by the Ministry of Finance of Ukraine\. The National Bank conducted activities focused on the improvement of the methodology for the monetary and banking statistics, balance of payments, external debt and international investment position statistics\. Experts from the Ministry of Finance of Ukraine and the National Bank completed training to develop skills in the relevant subject-matter area and English language\. In the framework of the Project, the Ministry of Finance of Ukraine and the National Bank procured the equipment required to enhance their capacity to produce relevant statistics\. The Ministry of Economic Development and Trade under Component D of the Project (Strengthening of Information Basis for Decision Making and Forecasting in the Ministry of Economy and the European Integration) implemented measures aimed at applying new short- and medium-term forecasting models and modernization of data presentation methods, and data processing system used for analytical purposes\. In particular, the following items were developed: • applied software, Integrated system of macroeconomic forecasting models, that allows to compile short and medium term forecasting of main macroeconomic indicators quickly and comprehensively, monitor the balance ratio between the main economy sectors, edit the existing econometric model equations based on changes in the economic structure and new development conditions; • software, Information-analytical system for decision-making and forecasting, for automated data collection, accumulation, processing, storage and use of reliable economic information\. The relevant training of the Ministry staff was conducted to ensure the operation with the developed systems\. The key component of the Project was Component E (Introduction of Modern Information and Communication Technology), activities under which were intended to improve the processes of statistical data collection and processing\. According to the Project objectives, a series of activities on Integrated Statistical Data Processing System development was fulfilled\. In particular: • fulfilled testing of the approaches on two-level statistical data processing system introduction(2006); 59  • ISPSD design taking into account the latest achievements of the Statistical Services of other countries was developed (2008); • In order to manage the Sybase databases, the standard software by which the ISPSD was developed as well as the software providing the analysis and processing of the SPSS statistical information were purchased; • During May 2010 - December 2013 the direct development, limited migration and ISPSD testing were fulfilled\. Limited testing of the System was carried out on the basis of the two state statistical observations conducted in two regional offices and four district statistical divisions to ensure its operational acceptance\. As a result of the works a new system was developed based on metadata\. This system is supposed to provide data processing operation debugging for all statistical observations without the development of specific software for data processing\. The developed system was deployed at the regional level to ensure the necessary training of personnel working with ISPSD and building the base for further implementation of ISPSD throughout the country\. In the frameworks of strengthening of the technical infrastructure of the state statistical bodies of all levels, the office, printing, computer and server equipments were purchased\. Taking into account the actual lack of computer equipment at the district level and to create basic working conditions for territorial authorities, the first procurement of computer and server equipment was made in 2007\. In addition, the local computer network of the state statistical bodies was upgraded and expanded and centralized IT infrastructure was created\. It made possible to increase the level of computer equipment, in particular at local and regional levels, as well as provide a basis for further ISPSD development\. With the aim of creating the necessary technical conditions for development, testing and further implementation of ISPSD, the SSSU purchased: additional software for Sybase databases management at the central and regional levels to create the test environment for ISPSD; additional hardware that meets the requirements of the installation of ISPSD and server equipment both for initial testing purposes of ISPSD and tasks of its further implementation\. As a result, 100% equipment level of the regional statistical bodies with computers was provided\. It allows carrying out further activities on implementation of ISPSD\. Within the framework of the additional financing of the Project, the air conditioning in ISPSD datacenters’ server premises at the central and regional levels was upgraded to create favorable technical conditions for further ISPSD functioning (54 units of equipment were purchased and installed)\. With the aim of creating collective networking resources for printing the source documents from the ISPSD users’ automated workplaces, the technical environment of the ISPSD functioning was upgraded by retrofitting the complex of technical means at the central and regional levels with 120 laser printers\. To support the functioning of the system of processing and displaying the streaming media (PDSM) and to ensure the learning process for the ISPSD users, more servers of the system (PDSM) were purchased\. 60 To ensure the further use and work with the software products that have been purchased and developed within the framework of the Project, the training for the state statistics bodies’ staff was conducted to learn: SPSS software for processing and analyzing statistical information (210 persons), Sybase software for database management (82 persons) and specialized training of the SSSU staff at central and regional level, that is to be involved in the implementation and use of the ISPSD, ISPSD functioning (600 persons)\. To provide further support to the ISPSD users during its operation, the customer support was established\. II\. Evaluation of the Borrower work (responsible executive of the Project State Statistics Service of Ukraine) at the project preparation and implementation stages and the acquired experience that can be useful in future Rating: good\. The implementation of the Project was carried out by State Statistics Service of Ukraine (before 2012, the State Statistics Committee of Ukraine, the responsible executive of the Project) in collaboration with three other beneficiaries - Ministry of Finance of Ukraine, that is also the Borrower on the side of the Government of Ukraine, and the National Bank of Ukraine, that are also the developers of the sectoral statistics, and the Ministry of Economic Development and Trade, that is the key user of statistical information\. At the stage of the Project preparation, a group of consultants on the project preparation was involved, that, together with the World Bank and all the beneficiaries of the Project, have designed the set of the project documentation: Description of the Project Strategy "Development of the State Statistics System for Monitoring the Social and Economic Transformations Project", feasibility study, procurement plan, implementation plan, Guidance on the rules and procedures of the Project management\. To ensure coordination of the Project works, the interagency working group for coordination and monitoring of the projects has been created and maintained (Cabinet of Ministers of Ukraine of 11 February 2004 № 75 -p with changes and amendments)\. For the purpose of the Project management in the SSSU, the Project Implementation Group was established, which provided the implementation of all Project activities, including financial management, procurement, organization, preparation of reports, project assessment and monitoring\. The management of the Project Responsible Executive has made every effort to ensure the timely and effective implementation of the Project activities by monitoring the implementation of the planned activities, coordination and solving the project technical and managerial issues with the World Bank, coordination of the works under the World Bank project and other international cooperation projects in the area of statistics\. If at the beginning of the project implementation due to the lack of sufficient experience and knowledge of the World Bank rules and procedures and the rotation in the management of the project beneficiary ministries, some delays in the implementation of the Project activities or with payments posting were observed, then further realization was done timely or without significant procedure problems\. The Ministry of Finance of Ukraine that is a Lendee on the side of Ukraine’s government provided the needed 61 consultative support to an Executive in charge in implementation of the practical tasks connected with the financial part of the Project management\. The experience obtained by the Executive in charge and other beneficiaries of the Project in the part of the preparation and realization of the Project is very useful since it allowed to receive the needed skills which have been used during implementing the procedure of Additional financing of the Project and could be used in the future to prepare and implement the projects financed by IFO\. III\. Assessment of the World Bank work at the stage of the Project preparation and implementation including the effectiveness of their interrelations and the experience obtained\. Assessment: good During the whole period of the Project preparation and implementation, the close cooperation between the World Bank and the Lendee (the Ministry of Finance), the Executive in charge (the SSSU) and other Project beneficiaries was established\. Under the support and during consultations with the World Bank experts, the development of all initial Project documents was made\. To prepare the Project Development of the State Statistics System for Monitoring the Social and Economic Transformation, the Japan government grant was received with the assistance of the World Bank\. During the Project implementation, the Project management from the part of the World Bank, the Bank experts in purchasing, IT matters, financial management provided the needed consultations on different issues that have had the executives in charge\. In order to assess the state of play of the Project implementation, twice a year the World Bank launched the assessment missions which assessed the current status of the project, coordinated actions for more effective Project implementation and defined the steps to achieve the Project objectives\. Based on the results of its missions, the World Bank prepared and forwarded the Memos to the Lendee to be taken into account in further work\. The Project manager on the part of the World Bank made a constant monitoring over the Project implementation through the constant feedback with the Project Executive in charge\. If at the initial stage of the Project implementation the consideration of the selected documents connected with the purchasing was rather long, later on the documents and all requests from the Lendee were considered by the Bank in a timely manner\. The Project management on the part of the World Bank always tried to suggest the approaches for more effective and efficient implementation of some or other Project actions under the framework of the rules and procedures of the World Bank\. Also, the World Bank supported the Lendee's request to provide Additional financing for the Project and ensured a significant support during the procedure for preparing and coordinating the documents for the Additional financing of the project in 2012\. The constructive dialogue and openness during the cooperation helped create the team spirit and confidence between the World Bank and the Lendee\. All comments, consultations and recommendations on the part of the World Bank experts on different matters concerning the Project implementation, especially on issues regarding information technologies, the Project financial and administrative management helped 62 implement the Project actions and achieve the targeted objectives as well as improve the knowledge and skills of the Lendee staff involved into the Project implementation\. IV\. Plan for further development and support to the results achieved during the Project implementation Proceeding from the results achieved during the Project implementation and taking into account the further tasks faced by the state statistics bodies, the SSSU prepared the draft Action Plan aimed at further development and support to the results achieved during the Project implementation\. The ISDPS implementation into industrial practice requires the transition of the rest of statistical surveys into the integrated system and this is a long and labor consuming process since it requires the development of metadata for each survey, migration of data from the existing complexes of electronic processing into the new integrated system, approbation, etc\. The ISDPS implementation and functioning needs the realization of a complex of activities in different statistical directions including information and communication technologies and statistical infrastructure\. I\. Further development of Information and Communication Technologies • The implementation of the Integrated Statistical Data Processing System (ISDPS) in the regional statistics offices\. • Modernization of the system for collecting the state statistical reporting in electronic format and its integration with the ISDPS\. • Development of the corporate network of the state statistics bodies regarding involvement of district level into the ISDPS work\. • Confidentiality and security of data through creation of the comprehensive system for protection of information, corporate information and telecommunication system of the state statistics bodies\. • Expansion of uses of specially-tailored software IBM SPSS Statistics in statistical activity\. • Training of the IT experts and statisticians who work with the updated technical and software means\. II\. Further development of Statistical infrastructure • Modernization of the register of statistical units\. • Automation of the processes to update data from the Statistical register of enterprises (SRE) based on the results of the state statistical observations and administrative sources in order to launch observation over the demography of enterprises and prepare data according to annex 9 of Order 295/2008 of the European Parliament and EU Council of Ministers, upgrade the quality of the register and ensure relevant status of statistical units list for short-term surveys (monthly, quarterly)\. • Improvement of the tools to design samples and its integration with the register of statistical units\. • Development of the statistical metadata system: 63  o Establishment of the unified systemized catalogue for statistical indicators which would be used at all stages of statistical production: starting with the definition of the needs of users and up to dissemination of statistical information as well as filling-up the metadata base of the Integrated Statistical Information System\. o Creation of the standard template for meta description for statistical observation harmonized with the European standards\. III\. Organizational development and management • Modernization of the system to train and re-train the staff\. • Improvement of the relations with respondents and suppliers of data\. 64 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders N/A 65 Annex 9\. List of Supporting Documents 66 1

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P005836

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22117-YEM IMPLEMENTATION COMPLETION REPORT (IDA-23730) ONA CREDIT IN THE AMOUNT OF SDR 24\.1 MILLION * (US$ 32\.8 MILLION EQUIVALENT) TO THE REPUBLIC OF YEMEN FOR A LAND AND WATER CONSERVATION PROJECT June 20, 2001 * after cancellation of SDR 3\.7 million the total amount of the Credit was reduced to SDR 20\.4 million Rural Development, Water and Enviromment Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 2000) Currency Unit = Yemeni Rial (YR) 1000 YR = US$ 6\.25 US$ 1 = 160 Official Rate Market Rate May 1992 US$ 1 =YR 12 US$ 1 =YR 29 October 1994 US$ 1 = YR 50 US$ 1 = YR 103 October 1995 US$ 1 =YR 90 US$ 1 = YR 112 December 1996 US$ 1 = YR 100 US$ 1 = YR 126 December 1997 US$ I = YR 131 US$ 1 = YR 131 June 1998 US$ 1 = YR 135 US$ 1 = YR 135 December 1999 US$ 1 = YR 155 US$ 1 = YR 155 December 2000 US$ I = YR 160 US$ 1 = YR 160 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CACB Cooperative Agriculture and Credit Bank CWMU Central Water Monitoring Unit GDI General Directorate of Irrigation FAO Food and Agriculture Organization GDFDC General Directorate of Forestry and Desertification Control GOY Government of Yemen ICR Implementation Completion Report IDA International Development Association LWCP Land and Water Conservation Project M&E Monitoring and Evaluation MAI Ministry of Agriculture and Irrigation MOPD Ministry of Planning and Development NWRA National Water Resources Authority O&M Operation and Maintenance PIU Project Implementation Unit PMU Project Management Unit ROY Republic of Yemen SAR Staff Appraisal Report SMS Subject Matter Specialist TA Technical Assistance TDA Tihama Development Authority UNCDF United Nations Capital Development Fund UNV United Nations Volunteer WID Women in Development Vice President: Jean-Louis Sarbib Country Manager/Director: Mahmood Ayub Sector Manager Salah Darghouth Task Team Leader/Task Manager: Manuel Schiffler  FOR OFFICIAL USE ONLY CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 1 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 7 6\. Sustainability 8 7\. Bank and Borrower Performance 10 8\. Lessons Learned 12 9\. Partner Comments 14 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 24 Annex 3\. Economic Costs and Benefits 26 Annex 4\. Bank Inputs 28 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6\. Ratings of Bank and Borrower Performance 31 Annex 7\. List of Supporting Documents 32 IBRD Map No\.31316 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P005836 Project Name: LAND & WATER CONSERV Team Leader: Manuel Schiffler TL Unit: MNSIF ICR Type: Core ICR Report Date: June 25, 2001 1\. Project Data Name: LAND & WATER CONSERV L/C/TFNumber: IDA-23730 Country/Department: YEMEN, REPUBLIC OF Region: Middle East and North Africa Region Sector/subsector: Al - Irrigation & Drainage; AT - Forestry KEY DATES Original Revised/Actual PCD: 10/31/1989 Effective: 05/14/1993 Appraisal: 05/17/1991 MTR: 07/01/1995 07/07/1997 Approval: 05/28/1992 Closing: 06/30/1999 12/31/2000 Borrower/lmplementing Agency: GOVERNMENT OF ROY/GDI/MAWR Other Partners: STAFF Current At Appraisal Vice President: Jean-Louis Sarbib Caio Koch-Weser Country Manager: Mahmood Ayub Ram K\. Chopra Sector Manager: M\. Salah Darghouth Ngozi Okonjo-Iweala Team Leader at ICR: Manuel Schiffler Rahul Raturi ICR Primary Author: Manuel Schiffler 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactoxy, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Background Yemen is the poorest and most rural country in the MENA region\. In 1998, 12\.5 million people lived in rural areas, accounting for 76 percent of the population\. From 1992 until 1998, the rural population increased by 16 percent, while value added in agriculture increased by 36 percent during the same period\.  Nevertheless, according to a national household budget survey conducted in 1998, the incidence of rural poverty remained high at 25 percent\. Yemeni agriculture relies to a large extent on irrigation that has brought self-sufficiency in fruit and vegetables and an explosion in qat cultivation, while traditional cereals and the livestock economy were marginalized, with consequent deterioration in watersheds and terraces\. Recent sector work has shown that there is a substantial "yield gap" that Yemeni farmers could close and that there is good potential for increasing returns to water in agriculture\. Market prospects are better than for other sectors, with a domestic market expanding fast in size and quality of demand, and with new prospects for regional exports\. However, natural resources are already fully utilized and in the case of groundwater, over-utilized in many regions, with consequent effects on the prospects for sustainable growth\. The Government of Yemen requested the assistance of IDA in the agricultural sector through a series of projects, including the recently completed Agricultural Sector Management Support Project (ASMSP, Cr\. 22990) as well as the Land and Water Conservation Project (LWCP)\. The start-up of the Land and Water Conservation Project was slow, hampered by a lack of acceptance of the implementation arrangements by the RDAs, initial conflicts between the PMU and the implementing agency, the Ministry of Agriculture and Water Resources (MAWR), slow progress in filling the positions for the PMU, procurement problems, and the turmoil associated with the country's reunification, the repercussions of the Gulf War in 1990 and the 1994 Civil War\. Only with the restructuring of the project in August 1995, the appointment of a new PMU director, and the subsequent second restructuring at mid-term in January 1997 implementation began in earnest\. Disbursement picked up quickly\. In the subsequent five and a half years, and in particular during the last three years, the project achieved its major objectives\. Original Objective To strengthen sustainable agriculture through: (i) institutional and technical developments in irrigation and forestry; (ii) initiating a program of water resource monitoring and regulation in the agriculture sector; (iii) improving water use efficiency in irrigated agriculture; (iv) conserving key indigenous forest areas, accelerating tree planting and extending soil and water conservation; and (v) establishing approaches for watershed management and terrace stabilization\. 3\.2 Revised Objective: No revision made\. 3\.3 Original Components: 1\. Institutional Strengthening 1\.1\. Water Resources 1\.2\. Forestry 2\. Irrigation Development 2\.1\. Spate Irrigation 2\.2\. Groundwater Irrigation 2\.3\. Agricultural Development 2\.4\. Implementation Units 3\. Forestry Development 3\.1\. Land Conservation / Afforestation 3\.2\. Watershed Management 3\.4 Revised Components: -2 -  No revision made\. The restructuring in 1995 and the mid-term review in 1997 reduced the scope of the components and simplified and clarified the implementation arrangements\. 3\.5 Quality at Ent,y: Quality at entry was satisfactory\. Ownership of the project by the GOY was considerable: the project was highly relevant to the Borrower's development priorities, and was consistent with the Borrower's strategy for developing the irrigated agriculture and forestry sectors\. It also reinforced the overall goal - embraced by the Bank and the Government - to more effectively use the country's scarce water resources\. In retrospect, it may have been advisable not to include both forestry and irrigation components in the same project, given the lack of coordination in the detailed planning and the implementation between the departments of MAI (GDFDC and GDI) responsible for the implementation of the components\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective\. The overall outcome of the project is rated partially satisfactory and the project's development objective has been mostly achieved, albeit with some caveats\. Physical targets were reached in most cases, and exceeded in some\. The project has achieved a high economic rate of return\. It has had a beneficial environmental impact through water savings, afforestation, and soil conservation\. Farmers have participated in many project activities by providing labor or through cash payments, creating the basis for the sustainability of these activities at the farm level\. The capacity of most institutions involved has been strengthened\. However, given the size of the technical assistance and training, the institutional development impact remained modest\. PlUs supported under the project will be able to provide many services after the closure of the project until the funds generated through cost sharing arrangements under the project will be depleted\. After their depletion, and assuming no other donor-funded projects, the sustainability of the PIUs' services is not guaranteed\. The project thus has introduced sustainable improvements for farmers\. But since costs have intentionally only been partially recovered in order to spread new technologies, the services needed to expand improved irrigation techniques to new areas cannot be provided on a sustainable basis without further external support\. Also, government's contribution to the project, both for investment and for recurrent expenditures, was much lower than anticipated\. 4\.2 Outputs by components: Under the groundwater irrigation component, the targets in terms of area under improved conveyance efficiency (10,600 ha compared to 8,500 ha) were exceeded\. The reduction in water use due to irnproved conveyance is estimated to be more than 20 percent\. The nunber of pilot pressurized units remained below the target (66 compared to 165); the main reason was that farmers were skeptical about these systems prior to observation of the pilots\. The experience with bubblers and sprinklers was encouraging, while the more sensitive drip systems have experienced some design and operational problems\. However, despite these difficulties, farmers' demand was highest for bubbler and drip and lower for sprinkler\. In terms of cost sharing, every farmer had to deposit a cash contribution on the project's Bank account before receiving technical advice and equipment under the project\. This generated USS2 million in beneficiary contributions to cost sharing arrangements\. These funds will be used to extend the area under improved irrigation after the project ends\. This cost sharing by farmers is a clear departure from earlier practice of free provision of equipment and may be considered a watershed event in this sector\. The definition of upper limits on a farmer's area benefiting from the project helped to prevent windfall profits for larger farmers\. Furthermore, the project used a higher quality of pipes than those sold by the private sector\. Efficient procurement and large packages ensured very competitive rates, resulting from economies of scale, that were passed on to -3 -  the beneficiaries\. Project staff also designed and supervised the implementation of the works\. Farmers who had bought and installed low-quality pipes outside the project often had disappointing results\. This had in turn discouraged other farmers from improving their irrigation techniques\. The project succeeded in reversing this trend\. The trust in piped and pressurized irrigation generated by the project is a crucial prerequisite for the replication of the irrigation component's success to larger areas\. Bearing in mind that the project has covered less than 3 percent of the area irrigated by groundwater in Yemen, this could reveal itself to be one of the project's most substantial benefits\. Under the spate schemes physical targets for construction have not been fully achieved (see Annex 1) and the irrigated area has been less than anticipated (1,175 ha compared to 2,400 ha)\. The reason was that the number of structures had to be reduced after successive flooding led to an increase in width of wadis resulting in higher costs\. Farmers have contributed their labor towards the building of smaller structures, which benefited communities in their immediate vicinity\. In the case of larger structures, farners contributed by building canal outlets to their fields\. Overall, farmer contribution was lower than anticipated\. Economic rates of return are estimated to be much lower than for the groundwater component\. Due to shortage of funds under LWCP, one spate diversion work and one spate breaker/recharge weir that were designed under LWCP were funded under the Emergency Flood Recovery Project (IDA Credit No\. 2932)\. The project's impact on water resources has been beneficial overall, although with variations by region and component\. Given the increasing scarcity of water, this impact has to be given particular attention in future projects\. It was not possible to establish a clear link between water savings under the project and a slowdown in the decline of the groundwater table in a specific area\. The main reason is that individual beneficiary farmers were deliberately chosen from widely scattered locations in order to maximize the demonstration effect of new technologies on other farmers\. In some cases water saved through increased irrigation efficiency has been used to extend the irrigated area; but this seems to have happened mainly in low-hazard, shallow alluvial aquifers, primarily in the foothills of the coastal plains\. In most cases the investments in groundwater irrigation efficiency have significantly reduced pumping, especially in high-hazard aquifers\. One reason for this behavior is that farmers often already had to deepen their wells several times at a substantial cost, while it is uncertain whether their wells will yield the same amount of water after the next deepening\. Other concerns are higher pumping costs and an increase in salinity\. In some cases farmers were unable to increase their irrigated area because they did not have access to additional land, either because of physical constraints or because they were unable to buy or lease lands from their neighbors\. In one case observed by the mission in the Taiz area a farmer sold water he saved to water tankers supplying the city\. The impact of spate structures has also been beneficial overall, especially for downstream structures capturing flood flows that would otherwise have been lost to the sea\. The project also improved the capacity for water resources monitoring through the drilling of 15 monitoring wells, the supply of hydro-meteorological equipment, and related TA and training (see under institutional development impact below)\. The record on groundwater monitoring is rather disappointing, since the number of wells monitored has actually declined during the project for lack of funding for recurrent costs\. Concerning the forestry and land conservation component (closed in 1999), nurseries that were rehabilitated or created under the project have produced almost one million seedlings, reaching its physical target\. Trees were planted either on private land to protect fields from wind or water erosion and to benefit crops such as coffee (agro-forestry), or on public land such as along roads and in schools\. The survival rate of seedlings was high, with a total of about 700,000 surviving trees\. Public nurseries, however, faced operational problems after closure of the component\. Most of the seedlings are given away for free and even transported to the farmers' fields\. A smaller portion has recently been sold below cost\. These limited revenues and current budget allocations are not sufficient to cover operating costs\. In addition, attempts at - 4 -  cost recovery have slowed down demand for seedlings\. As a result, most public nurseries operate at below half their capacity\. The much smaller community nurseries are apparently suffering less operational problems\. Public nurseries may benefit from more budgetary autonomy, allowing them to keep locally generated revenues to cover their recurrent costs\. The current trend towards decentralization could provide a good basis for such reforms\. Under the pilot activity on woodland management the concept of protection contracts signed by the local com-munity combined with the supply of an alternative fuel source (gas) has proven to be successful\. The concept is now being used under similar projects in other parts of Yemen\. Sand dune stabilization by mechanical works and the planting of shrubs in coastal areas has slowed down desertification\. However, because the benefits from reduced sand deposit on fields are spread over large agricultural areas, it was not possible to convince farmers to participate in these works\. In watershed management (small check dams, bank protection) and terrace rehabilitation, farmers participated by contributing labor\. These works were undertaken in poor communities with a high commitment to provide inputs, identified through a socio-economic survey\. Under a small women in development activity rural women were trained in natural resources management, leading to the establishment of home gardens and a small nursery run by women\. A substantial number of cars and heavy equipment was procured under the project\. It appears that most or all of these are operating, mainly at the field level, and continue to be used for the intended purposes\. 4\.3 Net Present Value/Economic rate of return: The Net Present Value of the project at an opportunity cost of capital of 12 percent is USS 2\.0 million and the economic rate of return is estimated at 15 percent, excluding the costs and benefits of forestry as well as TA and training that is not related directly to irrigation and watershed management\. The investment costs included in the analysis (US$20\.4 million) account for 68 percent of total investment costs (USS30\.1 million)\. If all project costs are included, as it was done for the SAR, the NPV falls to US$-2\.0 million and the ERR to 10 percent\. The investment cost, ERRs and NPVs for selected components are as follows: (i) piped groundwater conveyance: ERR 30 percent, NPV US$ 8\.2 m; (ii) spate irrigation: ERR 8 percent, NPV US$-0\.15 m; and (iii) watershed management: ERR 10 percent, NPV USS-0\.01 m\. In the SAR, the NPV at an opportunity cost of capital of 12 percent was estimated at US$11\.1 million and the economic rate of return was estimated at 19 percent, including all costs and benefits\. The overall benefits estimated in the SAR are higher than the benefits that actually materialized for the following reasons: (i) there were substantial delays between the time the costs were incurred for TA, vehicles and equipment and the time the first benefits materialized; (ii) the SAR assumed that higher irrigation efficiency would lead to an increase in the irrigated area, while the ICR assumes - based on empirical evidence - that higher irrigation efficiency has mostly led to reduced pumping\. Because the savings in pumping costs are lower than the incremental value added from increasing the irrigated area, this assumption had a slight negative effect on the ERR; (iii) the SAR calculations were based on a larger project, while the ICR calculations are based on the reduced scope of the project after it was restructured, thus leading to a lower NPV\. The SAR did not provide separate estimates for the NPV and ERR of project components\. 4\.4 Financial rate of retuirn: The estimated financial rates of return vary between 16 percent and 32 percent\. The highest rates of return are achieved in Highland areas where the water table is deep and pumping costs are high (up to 9 US Cents/cubic meter), thus leading to higher savings in pumping costs\. The financial rates of return in the coastal plains (Tihama, Lahej and Dhamar) are lower (16-17 percent), despite the assumption that the irrigated area has been expanded in these areas\. The payback for the investments ranges from 1\. Ito 3\.5 years, with an average of about 2 years\. In the case of the Highlands, this payback is based on the reduced pumping costs alone, not taking into account additional benefits from an increased lifetime of the aquifer, a - 5 -  lower pumping lift, and the avoided or delayed costs of deepening wells in those areas where the water table is declining, or any benefits from the prevention of seawater intrusion in coastal aquifers\. For most crops and project areas, the return on labor has been decreasing, reflecting a stronger increase in labor input than in total returns\. The SAR estimated rates of return estimated for various areas between 27 percent and 89 percent, an increase in the income per family labor day of 15 percent and a payback period for the investment of 1\.4 to 3\.6 years\. The reason for the higher IRR and labor return estimates in the SAR is that the SAR values were based on the assumption that the water savings per hectare would be used to increase the irrigated area\. 4\.5 Institutional development impact: Institutional Strengthening: The TA and training component has been large, its share amounting to 33 percent of project costs\. Both TA and training were crucial to achieve the project's objective\. Without TA most components of the project may never have been implemented\. The main beneficiaries of TA were the PMU, CWMU, GDFDC and PIUs\. Not all the TA and training has been of the highest quality\. But in most cases, TA and training were of high quality, as reflected in studies and reports as well as in the assessment by counterpart staff and trained staff\. But in the case of long-term TA, in some cases no concomitant capacity was created in the counterpart institution, while in the case of short-term TA the counterpart institutions were sometimes unable to follow up on the recommendations made\. The generally low salary level in the public sector is a serious constraint on performance, so that the institutional development impact remains modest\. Under the water resources component, TA and training was mainly extended to staff of the Central Water Monitoring Unit (CWMUJ) in the Ministry of Agriculture and Irrigation, the PMU and PIUs\. Some more limited support was provided to the National Water Resources Authority (NWRA) and to the General Directorate of Irrigation (GDI) in MAI\. Assistance for the CWMU included local well inventories, the categorization of 19 aquifers out of those covered under the project, the identification of the requirements for a national hydro-meteorological network, pilot studies on the use of non-conventional waters for irrigation, and capacity building for the design and installation of irrigation equipment as well as for the monitoring of water savings in irrigation\. Long-term training also contributed to strengthen to a certain extent the capacity of CWMU and other entities, including the PMU of the Sanaa Basin project\. Support to NWRA included mainly a public awareness campaign and support for the National Water Strategy that was approved by Cabinet\. The support for irrigation agronomy, including the strengthening of field units, seems to have been the most successful activity\. The impact of some activities has remained limited, partly due to institutional problems (see above)\. Capacity for water monitoring at the field level in the project area is substantial in MAI through the CWMU and PIUs\. However, the entity that has been legally entrusted with water monitoring and water resources management -- NWRA --has field units only in Taiz and Aden\. The record on cooperation and data exchange is mixed\. Cooperation seems to be more developed at the field level than at the central level\. The sustainability of some of the activities supported is doubtful\. Given the limited field capacity of NWRA, it is not clear who will operate the observation wells and the hydro-meteorological network once they are in place\. Finally, it should be noted that, together with other projects, the project contributed to the preparation of the Water and Irrigation Law that is currently before Parliament\. Overall, the record of institutional strengthening under the water resources component has been mixed\. Under the forestry component capacities TA and training were provided to the GDFDC and its local branches\. GDFDC had been created only shortly before the project\. It had low capacity and was highly centralized\. Intemational experts worked together with forestry staff in teams and succeeded in transferring knowledge\. This was enhanced by long-term training received mainly in other countries in the region with - 6 -  substantial experience with forestry management under similar climatic conditions\. After the training practically all staff returned to GDFDC, including many posted in the field, and were able to put the acquired knowledge to work\. Moreover, a process of decentralization was begun under the project\. Capacity of GDFDC has been somewhat strengthened, but some issues concerning the management of GDFDC remain unresolved\. The results of the institutional strengthening of the forestry component are thus mixed\. Short-term training in Yemen under both components - water resources and forestry -- has proved to be mostly unsuccessful\. The quality of the services was often very low\. Furthermore, even when the quality was acceptable, the duration of the training often was too short to have an impact\. The TA was also crucial in supporting the PMU and the PIUs, and contributed significantly to the turnaround of the project after its slow startup\. However, the weak services in the early phase of the project may have prevented the project from being turned around at an earlier time\. The capacity created in irrigation agronomy and forestry, including particularly at the field level, constitutes a good basis for follow-up activities in these sub-sectors with TA and training limited to specific needs to fill remaining gaps, such as drip irrigation design and management\. Concerning water resources management, much more effort will be needed to resolve institutional problems and, in some cases, to strengthen capacity at the field level\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: When the project was approved by the Board in 1992, the country was suffering from the aftermath of the 1990/91 Gulf War and its repercussions on the Yemeni economy due to the return of Yemeni migrant labor from Saudi-Arabia, severe macro-economic imbalances and an extensive transition period following the reunification of Yemen in 1990, often paralyzing any effective government action\. The project was further affected by the Civil War in 1994\. After the end of the war, periodic social unrest continued to hamper project implementation in parts of the project area\. Heavy floods in parts of the project area widened some wadis to up to more than ten times there original width\. Thus the designs for spate structures along these wadis had to be modified, leading to a substantial cost increase and a concomitant reduction in the incremental irrigated area served within the given budget for this component\. 5\.2 Factors generally subject to government control: Counterpart Funding: During the entire project implementation period, GOY did not provide adequate counterpart funding, despite the continued attempts of IDA supervision missions to resolve the issue\. This shortfall was partially overcome by financing some limited recurrent costs through the FAO's Trust Fund Contracts\. Inflation, Overvaluation and Slow Procurement of Larger Contracts: During the period 1993-96, there was a significant difference between the official and market exchange rates of Yemeni Rial and high inflation\. This made procurement difficult, because contractors were unable to uphold their bids during the long period between bid submission and contract award in the absence of price escalation clauses\. Inflation also increased the value of some large contracts denominated in local currency in such a way that they passed the threshold for review by the High Tender Board, thus slowing down procurement and project implementation\. Inflation also reduced the willingness of CACB to extend credits to farmers to meet their - 7 -  cost sharing part in the purchase of irrigation equipment\. Water Law: The passing of the water law, which has been discussed in several drafts since the early 1990s, has been substantially delayed, thus encumbering the implementation of an effective water resources management strategy\. Slow Effectiveness: Following Board approval in May 1992, the Credit became effective only in May 1993\. The delay was mainly due to the need to receive approval for the project from Parliament\. 5\.3 Factors generally subject to implementing agency control: Slow Procurement of Smaller Contracts: For smaller procurement items which were within the thresholds of the PMU, MAI initially interfered, thus causing delays\. Slow Start-Up: Reflecting the slow start-up of the project, about US$5\.5 million from the IDA credit were canceled in 1994 as part of a Country Portfolio Performance Review\. As a result, the project had to be restructured in August 1995 reducing its targets\. Implementation Arrangements: Initially, budgets were supposed to be allocated to the 7 PIUs through the PMU\. This arrangement proved to be unworkable due to the resistance by RDAs and PIUs were consequently inactive\. In 1996, MAM started allocating the budget directly to the PIUs and the relationship between the PMU, PlUs and the RDAs/regional agricultural offices under which the PIUs were to work was defined in a manner acceptable to all stakeholders\. The PIU staff was entirely deployed only at the end of 1995\. The cost recovery arrangements with CACB, an important pre-requisite for the sale of irrigation equipment, were also finalized only in late 1995\. 5\.4 Costs and financing: The project costs were US$30\.1 million, or 63 percent of the US$47\.6 estimated at appraisal\. The reduction of US$17\.5 million is attributed to the reduction of the physical targets during the 1995 restructuring and the 1997 Mid-Term Review as well as to efficient procurement in large packages leading to cost reductions\. The reduction in physical targets was mirrored by the cancellation of a portion of the IDA credit, the unavailability of UNCDF cofinancing and lower counterpart funding\. Under the spate irrigation sub-component, increased costs due to floods were offset by a reduction in the scope of works\. Also, a number of spate structures designed under the project were funded by other on-going IDA projects\. Under the groundwater irrigation sub-component, prices received on some bids for pipes were lower than anticipated\. Furthermore, the number of pilot projects for pressurized piped irrigation was reduced after initial uptake by farmers remained limited\. The cost reduction due to these two factors allowed the project to increase the area covered by piped irrigation conveyance beyond the targets of the mid-term review\. Ninety-nine percent of the reduced IDA credit were committed or disbursed at project completion\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Sustainability is defined by the ICR guidelines as the "probability of (a project) maintaining the achievements generated or expected to be generated in relation to its objective over the economic life of the project\." The sustainability of the project is likely\. The on-farm investment in irrigation is undertaken on farmers' land based on a cost sharing arrangement, which includes a substantial contribution by farmers\. These - 8 -  investments have achieved a high financial and economic rate of return\. A high degree of beneficiary ownership and the existing financial incentives are expected to ensure that farmers will properly maintain the irrigation equipment and replace it after the end of its economic life\. As far as spate structures are concerned, smaller structures that can be maintained by farmers are likely to be sustainable, while larger structures that traditionally fall within the responsibility of the government are less likely to be properly maintained\. Investments in watershed management have been undertaken with substantial voluntary community participation, suggesting that famners will continue to maintain the structures (bank protection works, terraces) built with their participation under the project\. Afforestation has taken place to a large extent on the land of farmers, protecting their land against wind and water erosion as well as protecting their crops (agro-forestry), thus giving them a stake in protecting these trees\. The survival rate of trees has been correspondingly high at 75-80 percent, including trees planted on public land\. The establishment of a revolving fund of about US$2 million through cost-sharing contributions by farmers who have bought irrigation equipment will ensure that investments in improved irrigation conveyance will even be extended to new areas after project closure without any external funding\. However, given that farmers are not expected to pay the full cost of the equipment, this fund will ultimately be depleted\. It was, however, never intended to fully recover the investments, since the groundwater component of the project aimed at demonstrating unfamiliar technologies to farmers\. In fact, the extent of the partial cost recovery is a considerable achievement in the context of Yemen\. Together with the fact that beneficiaries will cover total costs of O&M the successful cost sharing agreement is unprecedented in IDA-funded projects in the agricultural sector in Yemen\. On another positive note, the technical capabilities of the PIUs, of the Forestry Department and of the CWMU have been strengthened considerably, enabling PIUs to convince farmers to adopt water saving and land conservation technologies and provide technical support in their implementation\. Furthermore, the project has achieved its objective of familiarizing the beneficiaries with land and water conservation technologies concerning especially groundwater conveyance systems and pressurized irrigation systems\. The beneficiaries are not only willing to actively participate in the activities supported under the project, but these activities are likely to be replicated in the future, if cost sharing agreements as devised under the project can be maintained\. The level of awareness created among the farmers in regard to the importance of their own contribution and participating in implementing similar works in the future has increased\. Without continued support, farmers are likely to operate and maintain most of the infrastructure installed under the project\. But public institutions are not likely to be able to promote such investments on new areas without being supported\. PIUs and nurseries lack adequate recurrent budget allocations or revenues necessary to continue their operations at the same level as during the project\. PIUs charge a levy of about 5 percent of equipment supplied to cover the cost of the surveys/designs for irrigation networks, thus allowing them to recover a portion of their recurrent costs from beneficiaries\. Under the forestry component, some nurseries have begun charging small fees for fruit and ornamental trees, but seedlings for other tree species will continue to be provided for free on environmental grounds, thus limiting the scope for cost recovery\. In the absence of a follow-on project, it is expected that public institutions will have to slow down their efforts to further promote the activities supported under the project\. Another issue of concern is the usable life of aquifers on which groundwater irrigation supported under the project depends\. The project has achieved substantial water savings estimated at 15 million cubic meters per annum - mainly in high-hazard aquifers, defined as aquifers having experienced a long-term decline in water tables of more than 3 meters per year - and has thus contributed to reduce overpumping\. In some cases - mainly in low-hazard aquifers, defined as aquifers with stable water tables or an estimated long-term decline of less than 1 meter per year - farmers seem to have used the water savings per hectare to -9-  increase their irrigated area\. Low-hazard aquifers, which are estimated to account for up to half the area covered under the groundwater component\. In high-hazard aquifers, the long-term sustainability of the agricultural activities improved under the project is not guaranteed, unless further reductions in abstraction are achieved\. However, the project has brought water abstraction closer to the safe yield in these high-hazard areas, which is a substantial achievement\. 6\.2 Transition arrangement to regurlar operations: There is no need for transition agreements at the farm level, as all operations and maintenance are undertaken by farmers themselves\. The staff of PIUs, who are part of the RDAs or of the regional agricultural offices, will remain in place after project closure\. The proceeds from cost sharing arrangements deposited in a revolving fund will allow the PIUs to continually fund investments in the higher efficiency of groundwater irrigation for an estimated period of 18 months\. However, the PMU and the PIUs will only be able to extend activities to new areas beyond the lifetime of the revolving fund if financing from a follow-on project becomes available\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Overall, the Bank's performance in lending was satisfactory\. The activities to be implemented under the projects were carefully selected\. But implementation difficulties that could have been foreseen at the time of project preparation were not sufficiently taken into account in the projection of disbursement\. These difficulties include cumbersome procurement arrangements coupled with interference by various government entities in the procurement process, a high level of inflation, weak capacity within the implementing agency, and resistance from the part of RDAs and regional agricultural offices to accept administrative control of the PMU over the PIUs\. It should, however, be noted that the causes for these difficulties were largely beyond the influence of Bank preparation missions\. 7\.2 Supervision: Supervision of the project was satisfactory during the initial phase, and highly satisfactory during the final phase of the project\. The project became effective during the period soon after unification in 1990 during which many of the institutions in the country had to go through an extended transition period and during which the consequences of the Gulf War (1990/1991) were still very much felt on the economy in Yemen\. This was followed by the disruptions of the Civil War in 1994 which delayed activities and brought most development projects to a stand still until the negative consequences of the hostilities could be overcome by Government\. Implementation remained slow due to cumbersome government procurement procedures, high inflation affecting procurement, weak staff at the head of the PMU, and the absence of TA staff in the early years of the project, again due to difficulties in procurement\. In addition, RDAs and some regional agricultural offices initially did not accept the implementation arrangements, which - in their view - gave too much authority to the PMU over the PIUs located within the regional authorities/offices\. Supervision missions have been acutely aware of these issues, but they were either completely or largely outside IDA's control\. In August 1995 only USS3 million (9 percent of the credit) had been disbursed, prompting a restructuring of the project\. The restructuring did not change the project's objectives or components\. It rather consisted of (i) a reduction in the physical targets due to the canceling of US$5\.5 million of the IDA credit as a result of a Country Portfolio Performance Review (CPPR), a lack of adequate counterpart funding and the - 1 0 -  unavailability of UNCDF cofinancing; and (ii) a repeated attempt at building consensus on implementation arrangements and somewhat streamlining them\. After the restructuring the Bank began to increase its supervision efforts, especially with the support of staff from the country office\. Subsequently - and partly due to a general improvement of the prevailing conditions in Yemen, the recruitment of TA and the strengthening of PMU staff - procurement and disbursement picked up, so that US$14\.8 m (54 percent of the credit) were disbursed at the time of the Mid-Term Review in July 1997\. The Mid-Term Review further reduced the physical targets to bring them in line with limited counterpart funding\. The Mid-Term Review finally set realistic targets and confirmed working implementation arrangement, thus finally putting the project on a level plane all the way to a successful completion during the following three years, up to closure of the IDA Credit on December 31, 2000\. With hindsight, the cancellation of US$5\.5 million was premature, since the project subsequently completed surveys, designs and studies for spate irrigation structures estimated to cost about US$5 million, which had to be transferred to other IDA-funded projects in the sector due to shortage of funding\. Overall, supervision missions have been effective in providing constructive suggestions to overcome problems confronting the implementation of the project\. The credit agreement was modified twice to re-allocate funds among different categories and it was extended twice for a total period of 18 months to allow for the completion of the physical targets and to make up for the delays experienced initially\. Bank staff showed the degree of flexibility necessary to accommodate these changes\. 7\.3 Overall Bank performance: The overall Bank performance was satisfactory throughout the project cycle\. Borrower 7\.4 Preparation: The Borrower's performance during preparation was satisfactory, despite the political changes and tensions occurring throughout identification and preparation of the project in 1989-1992\. 7\.5 Government implementation performance: Government implementation performance was marginally satisfactory during the initial phase of the project, when the country experienced macro-economic instability and substantial political tensions that ultimately erupted in a Civil War in 1994\. Even after the situation calmed down, the lack of counterpart funding and slow procurement procedures affected project implementation negatively\. 7\.6 Implementing Agency: The PMU within MAI initially lacked sufficient capacity in procurement and implementation of IDA-funded projects to allow for a smooth implementation of the project\. This situation was remedied subsequently through the direct engagement of expatriate staff to assist the PMU\. From then on the performance of the PMU has been satisfactory\. The expatriate directly engaged TA staff were important in helping the PMU to carry out its activities, especially on expediting procurement, designs of spate irrigation structures, reporting, monitoring and evaluation\. The performance of the seven PIUs was also satisfactory since the project implementation at the local level began\. PIUs were substantially strengthened through the provision of training, vehicles, office buildings, storage facilities and equipment\. The CWMU and the regional offices of the GDFDC performed satisfactorily, although coordination between GDFDC and the PMU remained unsatisfactory at the central level\. - 11 -  Coordination with NWRA remained limited due to the fact that the project was originally intended to provide support for the Water Sector within the Ministry of Agriculture and Water Resources (later named the Ministry of Agriculture and Irrigation, MAI), while NWRA was placed under the direct authority of the Prime Minister upon its creation in 1995\. The small assistance which was extended to NWRA did nevertheless provide satisfactory results such as the public awareness campaign\. At the local level, cooperation between NWRA branches - where they exist - and the PIUs worked reasonably well, concerning mainly the exchange of groundwater monitoring data obtained by the latter\. At the central level, it was difficult to reach satisfactory agreements concerning cooperation between NWVRA and the CWMJU, the details of which have not yet been resolved, thus delaying agreement on issues of coordination of monitoring of meteorological, hydrological and hydro-geological data collection and evaluation\. All legal covenants were complied with, except for those within the responsibility of NWRA, which were only partially complied\. These are expected to be resolved through the Water Law which is expected to be re-submitted to Parliament, after reconciliation with the Draft Irrigation Law\. 7\. 7 Overall Borrower pertbrmance: Overall, the Borrower's performance was marginally satisfactory in terms of project preparation and early implementation, becoming satisfactory during the later part of project implementation\. The performance of most PIUs during the later phase of the project was highly satisfactory\. The only area of deficiency has been provision of counterpart funding in a timely manner, especially the recurrent budget required for the operation of the PMU and its PIUs\. 8\. Lessons Learned The Timing of Reforms in Water Resources Management Should Not Be Too Ambitious The timing of reforms concerning water resources management was too ambitious\. All legal covenants under the project were fulfilled, except those relating to water resources management, in particular the passing of the Water Law, the licensing of drilling rigs, and the levying of fees on drilling rigs\. The leverage achievable under a single project of limited size to drive the policy agenda in such a crucial sector as water policy should not be overestimated\. Project Design and Implementation Arrangements Should Be Kept Simple The project involved a number of departnents and institutions, including RDAs, regional agricultural offices, CWMU, GDFDC, GDI and NWRA\. At the time of project preparation all entities were under the same Ministry, the Ministry of Agriculture and Water Resources\. However, the RDAs operated and operate under a semi-autonomous board and chairman\. NWRA was created in 1995 as an independent government authority under the Prime Minister\. The PMU, which was attached to MAWR (later transformed into MAI), was to be responsible for project implementation and management\. However, as with PMUs for other projects, it had by itself only very limited authority over the various departments and institutions involved\. It could fulfilled its role only with strong support from - and consensus within - the Steering Committee\. The Steering Committee, however, met only rarely in the initial phase of the project\. In later phases it did not succeed in achieving the level of coordination that would have been desirable\. The PMU thus had to focus on implementation facilitation - including support to the Project's Steering Committee, requesting budgetary allocations for counterpart funds from MOF and MOPD, procurement, and making disbursement requests - as well as monitoring and - 12-  evaluation\. Key decisions depended on agreement among stakeholders represented in the Steering Committee, including the Ministry of Finance for budgetary allocations, the Ministry of Planning and the above-mentioned departments and institutions\. Despite coordination difficulties at the central level, the decentralized implementation mechanism of the project, with a strong role being assumed by the various PlIJs and reasonably good coordination at the local level, has proven to be quite successful\. Decentralized implementation should be further promoted during the follow-on project, with a strong reliance on RDAs, regional agricultural offices and regional branches of NWRA\. However, coordination among departments and institutions at the central level has been limited\. It is probably not realistic in the Yemeni context to assume that a Steering Committee will gain consensus and exercise a strong authority over a nunber of various entities, especially if these entities are not under the authority of one Minister\. Therefore the number of departments and institutions involved should be minimized to the extent possible\. If several of them are involved, clear and workable implementation arrangements have to be devised upfront, and active and sustained coordination among the concerned entities is crucial\. Cooperation may be particularly promising at the local level and will be assisted by a higher degree of autonomy for local branch offices of national agencies such as NWRA and Ministries\. A More Concerted Effort is Needed to Ensure Adequate Funding of Recurrent Costs The Government was unable to meet its contribution towards the project costs, contributing to delays\. To ensure smooth implementation, frequent and regular visits to PIUs by the experts and national staff are very important\. However, limited daily subsistence allowances and lack of fuel constrained the mobility of experts and national staff Low salaries also provide limited incentives to national staff to effectively perform their duties\. Under the project, some of these problems were mitigated through the use of the IDA-funded FAO Trust Fund agreements\. Supervision missions repeatedly raised the issue of insufficient counterpart funding, but to no avail\. However, as a matter of principle, recurrent costs should be fully and adequately funded by GOY\. Adequate budgetary allocations to other sectoral Ministries apparently pose less of a problem than budgetary allocations to the MAI\. Therefore, IDA should raise this issue in its dialogue with the Ministry of Finance and the Ministry of Planning in a concerted manner beyond the level of individual projects\. Cost Sharing Targets and Upper Limits on Size of Farms Have to Be Realistic The original project envisaged full cost recovery for irrigation equipment and prescribed a maximum size of benefiting farms\. However, initially there were no takers with these two conditions\. To promote this activity the farm size had to be modified and the farmer's contribution to cost-sharing had to be reduced\. The rules applied during the last years of the project were pragmatic and allowed the project to be implemented, without abandoning the principles of cost sharing and of spreading the benefits to a large number of farmers by setting an upper limit to the size of farm benefiting any one farmer under the project\. Basin Planning Should be Piloted Investments in water and soil conservation could provide higher benefits, if they were spatially planned and targeted at the basin level\. Basin planning in Yemen is still in its infancy and there is little spatial planning and targeting of investments in water and land conservation\. Given the very limited capacity of implementing institutions, it is not realistic to expect that basin planning can be introduced for a project of the scale of the completed project\. However, basin planning should be introduced on a pilot basis in an area with favorable conditions, such as limited size of basin, adequate capacity of relevant local public institutions, and a demonstrated ability of local users to engage in collective action to mitigate local - 13-  environmental problems\. In order to ensure a high level of participation in these pilot areas, farmers may be allowed to contribute a more limited share towards the cost of investments in exchange for an agreement to abide by certain resource management rules determined by local communities with the assistance of the project\. The preparation of groundwater management activities in these pilot basins should rely on the experience gained during the Sana'a Basin project, which follows a similar approach and is currently under preparation\. 9\. Partner Comments (a) Borrowver/limplementing agency: The Government of Yemen agrees, with the reasons cited in the ICR, for the slow start up of the implementation of the project activities, especially the reasons which were beyond the Government control\. As for the reasons within the Government control, especially the project organizational set up and the relationship between the RDAs and the PMU and the PIUs, it is worth to mention that the LWCP had been the second project in Yemen to be implemented under NADP\. The problems associated with the organizational set up and the relationship between the RDAs and the PMU and the PIUs are mainly due to the fact that the project had adopted a different implementation modality compared to the previous RDAs and projects modalities\. The Project Steering Conmmittee and the project management had exerted immense efforts to overcome the sensitive management issues raised by the RDAs and their reluctance to accept the project's new organizational set up and implementation modality\. The success of this modality had encouraged IDA and MAI to adopt the same organizational set up and implementation arrangement in the follow-on projects financed by IDA\. The Goveurnent of Yemen also agrees that the project success in implementing the cost-sharing arrangement in the form of farmer's cash contribution towards the cost of piped conveyance systems and the pressurized irrigation systems\. The cost-sharing arrangement in the form of labor contribution towards the cost of implementation of the pilot watershed management activities, as well as small spate improvement works, was also successfully adopted\. The labor contribution represented 20% to 25% of the cost of these works\. The cost-sharing arrangement, in the form of cash contribution or kind participation, which is successfully adopted and implemented by the project, represented a remarkable departure from the previous traditional implementation modality which relies on the Government doing every thing to farmers, and acknowledged farmers as partners in the development process rather than just recipient of the development efforts\. It is worth to mention that the funds generated from farmer's cash contribution towards the cost of piped conveyance system and pressurized irrigation units are currently used for procurement of PVC/GIs and pressurized irrigation system to continue the installation of the piped conveyance systems and the pressurized irrigation systems in farmer's fields\. The project has also succeeded in creating high level of awareness among farmers with respect to the importance of improving the irrigation efficiency and ultimately conserving irrigation water\. This is clearly reflected in the huge demand among enlightened farmers for these types of water savings technologies\. The amount of water savings resulting from the installation of the piped conveyance systems and the pressurized irrigation systems in the area covered under this project is quite remarkable (about 23 mcm), and these activities proved to be quite consistent with the country agricultural strategy and represent a nucleus for the implementation of the National Water Strategy which had recently been prepared and passed by the Cabinet of Ministers\. - 14 -  The Government strongly believes that the success of the cost-sharing arrangement represents a key element for the sustainability of these activities and that the Government will capitalize on the positive lessons learnt from the project experience in this respect\. The Government agrees that the costs of Technical Assistance and Training under this project are too high compared to the actual project costs, however the exact reasons for the high cost of Technical Assistance and Training are not explicitly stated in the ICR report\. The Government also believes that the costs of Technical Assistance and Training in future projects should not exceed 8% to 10% of any project total cost\. It is quite true, as indicated in the ICR, that the short training program implemented by the International Center for Sciences and System Management (ICSMS), Sana'a had not been successful\. We admit that this was basically due to poor formulation of this program\. The main shortcomings of this program are the very short periods of almost all the courses (3 days to 14 days), in addition to the large number of participants in each course (12 to 40 participants) for a total of 25,420 participants in the whole program\. Against this number, it is worth to mention that, the total project national professional staff (PMU, PIUs, CWMU and GDFDC ) are around 100 m\. This means that most of the beneficiaries from the training program were not project staff and subsequently didn't contribute directly towards the implementation of the project activities\. While the training programs implemented through AMIDEAST consisted of long term Diploma and M\.Sc\. (1 to 2 years), the courses periods organized through FAO ranged from short courses (2 weeks) to long term courses (more than two years)\. We believe that the training program organized through FAO has mixed successes as many of the trainees under this program didn't contribute directly towards the implementation of the project activities\. In a nut shell, even though the training program implemented under this project has positive impact on the capacity building of the national staff in MAI, RDAs, CWMI, GDFDC, GDI and Offices of Agriculture in some Govemorates, yet its direct impact on the implementation of the project activities and achievements may be considered as meager\. The Government strongly believes that the role of the national experts in the implementation and achievements of the forestry activities had been quite vital and significant\. The Government will capitalize on the LWCP experience related to recruitment and utilization of the expertise and experience of the qualified national staff in future projects\. However, for future projects, the recruitment of the International Technical Assistance will be limited to scarce specializations only and for short periods\. The International Experts role will be confined, to the extent possible, to providing technical guidance to the national experts to formulate their technical programs and work plans\. The International Experts should also follow up the pace of implementation and resolve technical problems, if any, during their periodic short term visits\. This will not only reduce the cost of Technical Assistance but also contribute to capacity building and upgrading the skills of the national experts in the country\. It is worth to mention that, despite the remarkable achievements of the physical targets in the forestry component, yet the level of coordination between PMU and GDFDC had been below our expectations\. The level of coordination between PMU and NWRA had been modest but the implementation of activities under - 15 -  the mandate of NWRA were negatively affected by this modest level of coordination\. We hope to overcome this multiplicity in decision making between different institutions involved in one project in the future The Government also agrees that its contribution to the local budget is lower than its original commitment and that had negatively affected the pace of implementation of project activities in many PIUs and especially groundwater monitoring activities in all PIUs\. The Government is determined to resolve this matter which become evident in many projects\. Part of the provisions under the trust fund contracts with FAO had been used to cover the DSA of the project's directly engaged expatriates experts and their counterparts, as well as the petrol expenses for the field visits to the PIUs\. The field visits of these experts had been quite vital and turned out to have a positive impact on monitoring the implementation of the field activities and solving a lot of the technical problems\. However, due to the fact that frequent shortage and unavailability of local budget to cover these expenses can't be avoided sometimes, it would be quite important to make some provisions under the Technical Assistance component to cater for the DSA of the Intemational Experts and the needed petrol expenses for the field visits\. The Government strongly believes that activities imnplemented under this project are overwhelmingly of environmental nature and accordingly most of the benefits generated are long term environmental benefits, which were not quantified and hence not included in the calculations of the NPV and the IRR\. We also accept the interpretations and justifications given in the ICR for the low NPV and IRR obtained under this project compared to NPV and IRR calculated for the project at appraisal\. (b) Cofinanciers: None (c) Other partners (NGOs/private sector): None 10\. Additional Information Financial Management and audits of the project have been satisfactory\. The project had an adequate financial management system in place\. The govermment auditors have submitted adequate audits, although in some cases with substantial delays\. - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Key Monitoring Indicators Unit Appraisal Revised* Actual (up Remarks (as Per SAR 1992) Targets Targets As to (*The targets had to be reduced on (up to per 31-12-200 account of reduction in project cost 30-6-1999) Aug 95/Jul 0) from US$47\.6 million to USS30\.12 97 million) Missions A: IRRIGATION A\.l: Institutional Progress No\. 10 10 10 7 up to May 1996 and 3 in 1999\. (I) SMS (Irrigation Agronomy) appointed (2) Training Completed (i) Foreign (through FAO) No\.) 20 7 6 (a) MSc No\.) (assumed) 10 (b) One Year Diploma No\. 14 160 100 (c) Short term Training/Study Tours (ii)ln-Country (through AMIDEAST & ICSMS (a)MSc No\. 10 ) L\.S\. (b) One Year Diploma No\. - ) provision of 19 (c) Short term Training to Extension rn/m 400) money 273 and other staff A\.2: Technical Assistance Rendered (1) PMU (a) Expat\. S/m 72 53 135 Direct (b) UNVs S/m) 48 42 - (c) Local Contracts S/m) 36 58 Direct (d) Audit S/m - - 73 Direct (e) Secretarial S/m 63 Direct (2) PIUs (Irrigation Engineers) (a) Expat\. S/m - )- 131 Direct (b) UNVs S/m - ) 120 43 FAO (c) Local Contracts S/m - ) (4 mos) 31 Direct (3) Start up activities and review of Organizational Structure (a) Expat\. Sm 12 12 FAO -17 -  (4) G\.D\. of Irrigation (a) Expat\. (Dams Engineer) S/m 12 33 Provided in MTR-Direct (b) LUNV/Local Contracts S/m 3 - - (5) CWMU (WRS/Agr\.) (a) CTA S/m 36 30 29 FAO (b) Expat\. S/m 74 107 105 FAO 39, Direct 66 (c) UNVs S/m 48 48 - (d) Local Contracts S/m - - 44 Direct (e) Other Short term S/m 6 14 Direct (6) Pilot Activities relating to use of Saline Water and re-use of Waste Water (a) Expat\. (2 nos\.) S/m 16 10 2 FAO (7) Studies (Re-organization of WRS, Nos\. 3 3 3 Water Strategy Study, Program for Regulating and Controlling activities of Drilling Rigs) Completed (8) Field Implementation Units Established Nos\. 7 7 7 A\.3: Physical Progress (I) Monitoring Boreholes installed Nos\. 25 25 15 The target of 25 boreholes was reduced in consultation with NWRA\. No boreholes could be drilled in Taiz area due to objection raised by the local farmers\. (2) Monitoring Stations established: (a) Weather Nos\. Not defined Not defined 68 Senior Hydrology Expert recommended 13 Meteorological and 55 Rainfall Monitoring Station\.s (b) Spate Nos\. Not defined Not defined 41 Senior Hydrology Expert recommended 33 automatic wadi flow, 5 manual and 3 cable-way stations\. (c) Ground Water Nos\. 220 220 239 (60*) The 239 nos\. exclude the wells monitored by NWRA in Taiz and Abyan Govemorates and by TDA in Tihama\. These 239 wells are selected for quarterly monitoring\. * Salinity also measured at 60 wells (3) Piped Conveyance System Installed Ha 14,350 8,500 10,600 (4) Pilot Irrigation Systems Nos\. 220 165 66 As revised during MTR to 66 nos\. (Pressurized Irrigation Systems) (I ha each) Installed (5) Spate Improvement works: (a) Spate Diversion works (SDWs) Nos\. 15 15 7* *In the SAR 1992, small size SDWs were envisaged to be constructed\. However, as a result of widening of wadis due to successive floods, large (b) Bank Protection Works (BPWs) size SDWs had to be taken up\. (c) Canal Control Structures (CCSs) Nos\. 165 165 277 Nos\. 43 43 26 10 large size structures in Shabwa had to be in place of the larger number of small size envisaged in (d) Spate Breaker Re-charge Weir the SAR 1992\. (SBRW) Nos\. 2 2 (e) Bana Hssan diversion Channel Nos\. I II -18 -  (6) Pilot Studies: (a) Use of Saline Water for Nos\. 1 1 I Equipment for 68 sites ( 13 Irrigation meteorological and 55 rainfall gauging sites) procured\. These are proposed to be transferred to NWRA for monitoring after installation of equipment\. (b) Re-use of Waste Water Nos\. I I Nil Equipment for 33 Automatic, 5 manual and 3 cable ways procured and monitoring of observations is to start now after installation of equipment\. A\.4: Operating Performance (I) Sites Monitored (a) Weather Nos\. Not defined Not defined 68 (b) Spate Nos\. Not defrned Not defined 33 (2) Observations Collected: (a) Weather Nos\. Not defined Not defined Nil Procurement of equipment and their installation (which has recently been completed) was delayed (b) Spate Nos\. Not defined Not defined Nil All existing wadi flow sites mostly damaged during 1994 civil strife\. Procurement of equipment and their installation (which has recently been completed) was delayed2230 up to June 1998 and 239 afterwards, (c) Groundwater Nos\. Not defined Not defined 2230 up 2230 wells (owned by farmers) were to June monitored up to June 1998 and their 1998 and monitored data is computerized, 239 after- After June 1998, the number of wards wells to be monitored was reduced to 239due to constraint of local budget\. - 19-  (3) Categorization of Aquifers Nos\. Not defined Not defined 19 Includes 4 alluvial aquifers, (4) Basin Plans Initiated Nos\. Not defined Not defined Nil Activity transferred to NWRA\. (5) Trenching Private Sector Ha Not defined Not defined 8,000 (6) Share of Private Trenching in total % Not defined Not defined 75 (7) Piped Conveyance System: (a) Pre-project Irrigated Area ha 12,500 Not defined 9,200 (estimated) (bh Area Irrigated after installation ha 14,350 8,500 10,600 This is on account of reduction in the target area from 14,350 ha as per SAR 1992 to 10,600 ha actually achieved\. (S) Pilot Systems Operating Nos\. 220 165 66 As revised during MTR\. (9) Incremental Spate Cropping Hla 2,400 2,400 1,175 This excludes incremental spate area under Ali Salim SDW (Shabwa) and SBRW on wadi Dowmarine designed and supervised by LWCP but implemented under EFRP (Cr\. 2932)\. (10) Saving of water due to Piped Conveyance System and its economic cost: From wells irrigating 10,600 ha\. (a) Groundwater pumped annuallv Mm3 Not defined Not defined 113 from the target area (b) Annual net saving of water due to Mm3 Not defined Not defined 15 piped conveyance system B\. FORESTRY B\.A: Institutional progress (I) Agricultural Graduates Appointed Nos\. 18 Not defined 18 (2) Training Completed (i) Foreign (through FAO) (a) MSc Nos\. 15 Not defined 9 (b) One Year Diploma Nos\. 9 Not defined 4 (c) Two Year Diploma (Latakia) Nos\. 15 Not defined 15 (d) Short-term Training/Study tours Nos\. 4 (WID) Not defined 59 (ii) In-Country (Through AMIDEAST/ ICSMS) Nos\. 6 L\.S\. provision 5 (a) MSc Nos\. - of amount Nil (b) One Year Diploma m/m 447 300 (c) Short-term Training to Extension and other Staff 20 -  B\.2: Technical assistance Rendered (i) Forestry Advisor S/m 48 (ii) Woodland Management - Expat\. S/m 36 30 36 FAO -UNVlLocal S/m 36 30 34 FAO (iii) Watershed Management -Expat\. S/m 29 36 46 FAO -UNV/Local S/m 48 30 24 FAO (iv) Terrace Stabilization-Expat\. S/m 3 - - (v) Sand Fixation -Expat\. S/m 6 - - -UNV/Local S/m - 4 44 Direct (National Consultants) (vi) M & E -UN V/Local S/m 60 - (vii) Wild Life Expert -Expat\. S/m 4 - - (viii) WID -Expat\. S/m 4 4 3 FAO 2 and IDA I -UNV/Local S/m - 30 14 FAO (ix) Soil Conservation -UNV/Local S/m 120 144 FAO (National Consultants) (x) Survey -UNV/Local S/m - 30 - B\.3: Physical progress (1) Fore-dune Constructed (4 nos\.) M 800 800 3,600 2,600 m in Abyan and 1,000 m in Shabwa\. (2) Shelterbelts constructed along Ha 35 35 146 kms Lahej, Abyan, Shabwa and Taiz\. WadiKabir (3) Trees Planted Kms of 10 10 57 57 krns\. In Lahej, Abyan and roads Shabwa\. In addition, 4,800 seedlings distributed in Shabwa and 7,500 in Abyan\. (4) Stone Dams and Afforestation Ha 200 200 20 Check dams to protect/reclaim 20 ha in Al-Dhala'a constructed\. In _ addition, I 0,000 seedlings planted\. - 21 -  (5) New Nurseries Established Nos\. 2 2 2 At-Masara (Hajja) and Madina Al-Shark (Dhamar) each with a capacity of 125,000 seedlings per year established\. (6) Inland and Coastal Sand Dune Fixation Ha 40 40 37 32 ha in Abyan and 5 ha in Lahej\. (7) Canal bank and Flood Protection Kms\. 20 20 12\.6 Lahej, Abyan and Shabwa\. (8) Aerial Photography completed for Km2 Not defined Not defined Nil Only ground survey was done\. Terrace Rehabilitation (9) Area of Woodland Ma ed Km2 Not defined Not defined Nil Existing maps analyzed\. B\.4: Operating Performance (I) Seedlings Produced Million 1\.06 1\.06 0\.5 (1999) A capacity of 0\.80 million seedlings 0\.23 (1998) per year was created by strengthening 0\.18 (1997) 21 existing nurseries (capacity 0\.10 (1996) 507,450 seedlings annually), rehabilitating 4 nurseries in Lahej, Abyan, Shabwa and Al-Dhala'a (capacity 35,000 seedlings) and establishing 2 new nurseries in Al-Masara (Hajja) and Madinat Al-Shark (Dhamar) with a total capacity of 250,000 seedlings per year\. (2) Seedlings Planted Million Not defined Not defined 0\.95 (up to 1999) (3) Seedlings Destroyed Million Not defined Not defuned 0\.05 About 5%\. (4) Planted Trees Surviving Nos\. Not defined Not defined 700,000 75-89%\. (5) Cost pet Seedling YR Not defined Not defined 25-35 In Sana'a, the cost is around YR 25 per seedling, while in Abyan it is YR 35 per seedling\. (6) Reduction in Sand Movement % Not defined Not defined 60-70% Abyan Site\. (7) Management Plans (a) Woodland Management Plans Nos\. Not defined Not defined 2 (i) to set up a National Park in Jebel Bura'a; and (ii) to protect and rehabilitate Jebel Iraf Woodland\. (b) Watershed Management Plans Nos\. 2 2 2 An integrated participatory approach to watershed management within Wadi Shares and upper catchment of Wadi Rima was developed and representative sites selected for implementation on a pilot basis covering activities like vetiver hedges on steep eroded slopes, afforestation, gully protection, river bank protection, water harvesting, terrace rehabilitation and agro-forestry\. - 22 -  (c) Terrace Rehabilitation Plans Nos\. Not deinfed Not defined I (25Ha) 9 pilot sites were selected in Al-Mahaweet- Shibam (2 sites), Al-Tawila (2 sites), Roujoum (2 sites) for restoration of terrace and repair of terrace walls, erosion control and soil protection with farmers' participation\. (9) Pilot Sites Implemented: (a) Woodland Management Nos\. Not defined Not defined I Priority was accorded to Jebel Iraf (Al-Hissen 56 ha) where a village nursery was established, approach road to Jebel Iraf was improved, reservoir constructed, provision of irrigation equipment made in 1\.0 ha, plantation done in 3 ha with fodder species, fruit trees and multi-purpose plantation, 150 gas cylinders were distributed against use of wood for cooking\. In Taiz and Ibb area the project planted, in more tha 12 ha, trees for agro-forestry, shelter-belts, and public tree planting with average survival rate of over 75%\. (b) Watershed Management Nos\. Not defined Not defined 43 27 sites on Wadi Shares and 16 sited on Wadi Rima were implemented with farmers' participation\. Wadi Bank Protection works were undertaken, and retaining walls and spurs constructed for 2,300 m benefiting 176 families and preventing wadi banks erosion of fertile coffee plantation and reclaimed new arable lands\. 182 loose-stone check dams were constructed resulting in sediment deposit behind these reclaiming new arable lands\. A pilot water harvesting structure benefiting 100 families was constructed in Wadi Rima catchment\. (c) Terrace Rehabilitation Nos\. Not defined Not defined 9 (25 ha) Pilot Terrace Rehabilitation works were implemented by farmers, on self-help operation basis with project support in terms of material and machinery on 9 sites benefiting 50 families\. The activities include construction of 4 reservoirs (120 m3), restoration ofterrace walls, construction of check dams and diversion canals to protect cultivated terraces, improvement of access roads, and planting of 3,500 forest trees and 500 fruit trees- on degraded terraces\. (d) Sand Dune Stabilization ha Not defined Not defined 37 Inland and coastal sand dunes covering 32 ha in Abyan and 5 ha in Lahej were fixed using biological fixation and mechanical fixation with micro-wind breaks of palm fronds and dry plant material\. - 23 -  Annex 2\. Project Costs and Financing Pro ect Cost by Component (in US$ million e uivalent) Institutional Strengthening: Water Resources 5\.61 8\.36 149 Institutional Strengthening: Forestry 4\.12 3\.59 87 Spate Irrigation 6\.01 3\.75 62 Groundwater Irrigation 18\.81 7\.41 39 Agricultural Development 1\.53 1\.63 107 Implementation Units 4\.52 2\.23 49 Land Conservation / Afforestation 4\.21 1\.74 41 Watershed Management 2\.83 1\.41 50 Total Baseline Cost 47\.64 30\.12 Total Project Costs 47\.64 30\.12 Total Financing Required 47\.64 30\.12 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1\. Works 0\.00 3\.72 6\.27 0\.00 9\.99 (0\.00) (2\.37) (0\.00) (0\.00) (2\.37) 2\. Goods 24\.77 0\.00 1\.10 0\.00 25\.87 (20\.40) (0\.00) (1\.01) (0\.00) (21\.41) 3\. Services 0\.00 0\.00 9\.27 0\.00 9\.27 (0\.00) (0\.00) (9\.02) (0\.00) (9\.02) 4\. Operating Costs 0\.00 0\.00 0\.00 2\.50 2\.50 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 24\.77 3\.72 16\.64 2\.50 47\.63 (20\.40) (2\.37) (10\.03) (0\.00) (32\.80) - 24 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Expenditure Category ICa Nr N\.S\.F Total Cost 1\. Works 0\.00 3\.18 0\.61 0\.00 3\.79 (0\.00) (2\.96) (0\.54) (0\.00) (3\.50) 2\. Goods 8\.41 7\.40 0\.87 0\.00 16\.68 (8\.41) (7\.33) (0\.84) (0\.00) (16\.58) 3\. Services 0\.00 0\.00 9\.14 0\.00 9\.14 (0\.00) (0\.00) (8\.68) (0\.00) (8\.68) 4\. Operating Costs 0\.00 0\.00 0\.50 0\.00 0\.50 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 8\.41 10\.58 11\.12 0\.00 30\.11 (8\.41) (10\.29) (10\.06) (0\.00) (28\.76) " Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. I Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. -25 -  Annex 3: Economic Costs and Benefits Overview of Assumptions Economic Analysis The economic analysis was calculated in Yemeni Rials in 1997 prices, with current prices deflated to 1997 prices using the Consumer Price Index as a proxy for the GDP deflator\. No shadow pricing for foreign exchange was performed, since the official exchange rate broadly reflected the equilibrium exchange rate during the period of analysis\. Labor was shadow priced at 50% of the market wage rate, reflecting the opportunity cost of labor since unemployment is widespread in rural areas\. Shadow prices for agricultural inputs and outputs were applied using the values provided in the World Bank's 1997 Agricultural Sector Review\. The analysis includes only the costs and benefits that can be attributed to groundwater irrigation development, spate irrigation, and watershed management, including overhead costs for equipment, vehicles and some technical assistance provided specifically for the support of on-farm activities\. The costs and benefits of forestry, technical assistance for the PMIU, training and support for water resources management are excluded, because (i) the benefits of the forestry component are mainly of an environmental nature and should not be quantified only in economic terms, and (ii) technical assistance, training and support for water resources management are part of institutional strengthening and have a broader, non-quantifiable impact beyond the farrm-level activities supported under the project\. The investment costs included in the analysis (US$ 20\.4 million) account for 68 % of total investment costs (US$ 30\.1 million)\. If all project costs are included, as it was done for the SAR, the NPV falls to US$ -2\.0 million and the ERR to 10 %\. The benefits from watershed management do not include externalities, but only benefits that accrue to the landowners themselves\. These benefits have been assessed through the estimated increase in land value\. Any future benefits from improved production are already included in the increased land values and are thus not shown during later years, when these benefits are shown as zero\. Cost-Benefit Stream for LWCP (excluding forestry as well as some TA and training) - 26 -  Costs | Benefits | Net Investment Incremental Total from Piped from Spate from Total Benefits Year Operating Conveyance Works and Watershed System Bank Protection Management YR mill\. YR mill\. YR mill\. YR mill\. YR mill\. YR mill\. YR mill\. YR mill\. 1993 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 1994 14\.6 15\.4 30\.0 0\.0 -1\.6 0\.0 -1\.6 -31\. 6 1995 183\.9 7\.3 191\.3 0\.0 14\.7 0\.0 14\.7 -176:5 1996 769\.1 32\.2 801\.3 0\.1 -6\.4 0\.0 -6\.3 -807\.6 1997 152\.6 65\.7 218\.3 16\.2 -14\.5 61\.1 62\.9 -155\.4 1998 424\.2 40\.2 464\.4 100\.8 -55\.2 56\.0 101\.7 -362\.7 1999 379\.0 31\.7 410\.6 347\.1 -117\.2 32\.6 262\.5 -148\.1 2000 375\.2 41\.3 416\.5 423\.4 -27\.5 14\.2 410\.1 -6\.4 2001 35\.8 10\.0 45\.8 528\.7 26\.1 0\.0 554\.9 509\.1 2002 0\.0 0\.0 0\.0 529\.2 77\.1 0\.0 606\.3 606\.3 2003 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2004 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2005 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2006 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2007 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2008 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2009 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2010 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2011 0\.0 0\.0 0\.0 529\.2 20\.2 0\.0 549\.4 549\.4 2012 0\.0 0\.0 0\.0 529\.2 78\.3 0\.0 607\.6 607\.6 NPV YR m 378\.7 NPV US$ m 3\.2 ERR 16\.3% Financial Analysis In accordance with ecological variations across project areas, seven farm models are used for the financial analysis of the groundwater component, representing the areas covered by each PIU: Northern Highlands, Tihama, Dhamar (Central Highlands), Taiz, Lahej, Abyan, and Shabwa\. The without project scenario reflects current practice on farms not supported under the project\. The with project scenario is based on on-site monitoring in the seven PIUs\. In the Highlands (PIUs Northern, Dhamar, Taiz and Shabwa) it assumes a reduction in groundwater pumping, while in the Coastal Plains (PIUs Tihama, Lahej and Abyan) it assumes an increase in the irrigated area\. In all areas, the model assumes a slight change in the cropping pattern towards higher-value crops, slightly higher yields, a somewhat higher cropping intensity, a shift from manure to mineral fertilizer for some crops, and a higher labor input\. Many of these changes are due to increased efforts by the farmers to increase the value of their production in order to recoup the investment costs for the irrigation equipment as quickly as possible\. A more detailed overview of assumptions and the spreadsheets have been filed electronically in the MNSRE document library\. - 27 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implemcntation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/89 5 Irrigation Engineer, Ag\. Economists (2), Forestry Specialists, Agronomist 06/89 1 Forestry Specialist 01/90 4 Ag\. Economist, Agronomist, Irrigation Engineer, Financial Analyst 10/90 1 Sr\. Irrigation Engineer 06/90 4 Ag\. Economist, Irrigation Engineer, Agronomist, Financial Analyst Appraisal/Negotiation 05/91 6 Irrigation Engineers (2), Ag\. Economist, Forestry Specialist, Agronomist, Economist 08/91 1 Water Resource Specialist 09/91 2 Ag\. Economist, Irrigation Engineer 10/91 1 Forestry Specialist 03/92 1 Ag\. Economist Supervision 07/92 2 Irrigation Engineer, Sr\. Ag\. HS HS Economist 02/93 1 Sr\. Ag\. Economist S S 10/93 3 Sr\. Agronomist, Sr\. Irrigation S S Engineer, Sr\. Ag\. Economist 04/94 2 Prin\. Irrigation Engineer, Sr\. Ag\. S S Economist 10/94 3 Sr\. Agriculturist, Sr\. Irrigation S S Engineer, Sr\. Ag\. Economist 08/95 1 Prin\. Irrigation Engineer U S 04/96 2 Prin\. Irrigation Engineer, Sr\. S S Irrigation Engineer 10/96 3 Sr\. Agriculturist, Sr\. Irrigation S S Engineer, Agriculturist 07/97 4 Sr\. Agriculturist, Sr\. Economist, S S Sr\. Irrigation Engineer, Agriculturist 02/98 4 Sr\. Agriculturist, Sr\. Economist, S S Sr\. Agriculturist, Agriculturist 10/98 5 Prin\. Irrigation Engineers (2), Sr\. S S Operations Officer, Sr\. Economist, Ag\. Economist - 28 -  03/99 2 Prin\. Irrigation Engineer, Sr\. S S Operations Officer 08/99 4 Prin\. Irrigation Engineer, S S Natural Resource Specialist, Projects Specialist 04/2000 2 Prin\. Irrigation Engineer, Sr\. S S Operations Officer 10/2000 2 Lead Irrigation Engineer, Sr\. S S Operations Officer ICR 2/2001 4 Irrigation Engineer, Sr\. S S Operations Officer, Economist, Sr\. Irrigation Engineer (b) Staff: Stage of Project Cycle Actual/;Latest Estimate No\. Staff weeks USS ('000) Identification/Preparation 87\.20 237\.40 Appraisal/Negotiation 52\.70 165\.10 Supervision 150\.33 443\.96 ICR 14\.73 64\.07 Total 304\.96 910\.53 - 29 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating El Macro policies O H OSUOM O N * NA El Sector Policies O H *SUOM O N O NA El Physical O H * SU OM O N O NA O Financial O H *SUOM O N O NA 3 Institutional Development 0 H O SU* M 0 N 0 NA El Environmental O H *SUOM ON O NA Social O Poverty Reduction O H OSU*M O N O NA El Gender O H OSUOM * N O NA El Other (Please specify) O H OSUOM O N O NA El Private sector development 0 H O SU * M 0 N 0 NA El Public sector management 0 H O SU* M 0 N 0 NA El Other (Please specify) 0 H O SU O M 0 N 0 NA - 30 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating El Lending OHS*S OU Otfru El Supervision OHS OS OU OHU Of Overall OHS *S Q U O HU 6\.2 Borrowerperformance Rating LI Preparation OHS *s O U Q HU Li Government implementation performance 0 HS O S * U 0 HU El Implementation agency performance OHS OS 0 U O HU El Overall OHS *S 0 U Q HU - 31 -  Annex 7\. List of Supporting Documents The documents in each section are listed in chronological order\. Selected key documents are available in an electronic form in the MNSRE electronic document library - a Lotus Notes database - and are marked with an asterisk (*)\. WATER RESOURCES AND IRRIGATION 1\. "Appraisal of Groundwater Resources in the Amran Region, Sana'a Govemorate"\. M\.T\. Jones, Geohydrology Consultant, July 1996\. TR No\. 1\. 2\. "Appraisal of Groundwater Resources in the Sa'adah Plain, Sa'adah Govemorate\." M\.T\. Jones, Geohydrology Consultant, July 96\. TR No\. 2\. 3\. "Technical Assistance to the LWCP, Water Resources/Irrigation Component Preparatory Phase - Project Findings and Recommendations\." Terninal Report\. TR No\. 3\. 4\. Hydrometeorological Network of Yemen: Evaluation and Proposal for Optimized Network\." Tin Maung, Hydrology Consultant, September 1996\. TR No\. 4\. 5\. "Cost Recovery for Investment in Groundwater Improved Irrigation Conveyance System\." Nagib Abdul Lateef, Legal Consultant, October 1996\. 6\. "Public Awareness Campaign\." Mahmoud Saleh Agamia, Communication Consultant, December 1996\. TR No\. 5\. 7\.* "Assistance to the CWMU in Groundwater Monitoring and Aquifer Simulation Modeling\." Paolo Romano, Geohydrology Consultant, January 1997\. TR No\. 6\. (covers the Abyan Delta, the Sana'a Basin, the Axmran region, and the Sa'adah region)\. 8\. "Pilot Studies on the Use of Saline Groundwater\." Ghulam Haider, Salinity Consultant, March 1997\. TR No\. 7\. 9\. "Development of Groundwater Reclamation and Reuse Practices for Urban Areas of Yemen\. Part A\." Andreas N\. Angelakis, Wastewater Reuse Consultant, July 1997\. TR No\. 8\. 10\. * "Assistance to the CWMU in Groundwater Monitoring and Aquifer Simulation Modeling\." Paolo Romano, Geohydrology Consultant, August 1997\. TR No\. 9\. (covers the Sa'adah plain, the Dhamar govemorate, and the Tuban Delta)\. 11\. Development of Wastewater Reclamation and Reuse Practices for Urban Areas of Yemen\. Part B\." A\. N\. Angelakis, Wastewater Reuse Consultant\. TR No\. 10\. 12\.* "Assistance to the CWMU in Groundwater Monitoring and Aquifer Simulation Modeling\." P\. Romano, Geohydrology Consultant, December 1997\. TR No\. 11\. (covers the Shabwa Govemorate)\. 13\. "Public Awareness Campaign\." M\. Uvais Ahmed, Public Awareness Consultant, December 1997\. 14\. "Pilot Studies on the Use of Saline Water\." B\.K\. Garg, Salinity Consultant, April 1998\. TRNo\. - 32 -  15\. Research Trial on Effect of Irrigation Frequency and Leaching Fraction on Salinity Control\. Season 98-99\. Mekki A\. Omar et al\. 16\. Report on Study of Saline Water Use in Irrigation and Achieved Results in Tihama Plain\. Adel Al-Khirbash, National Consultant\. 17\. Proceedings of the Workshop on Water Resources Management in Yemen with emphasis on: Wastewater Treatment, Reclamation and Reuse\. 16-18 December 1997\. A\.N\. Angelakis and S\. Thirugnanasambanthar (editors\.) September 1998\. 18\. "Inception Report\." M\. Bazza, Irrigation Agronomist\. January 1999\. 19\.* Yemen hydro-meteorological network: Selection of hydro-meteorological stations site\. M\. Tayaa, Hydrology Consultant\. October 1999\. 20\. "Field Mission Reports\." M\. Bazza, Irrigation Agronomist\. Fifteen reports\. 21\. * Technical and Economic aspects of water savings\. M\. Bazza, Irrigation Agronomist\. April 2000\. Revised June 2000 and August 2000\. 22\. Water Savings Data\. M\. Bazza, Irrigation Agronomist\. September 2000\. 23\.* Project Terminal Report\. M\. Bazza\. October 2000\. Papers Prepared by the Project for the Workshop on 'Waste Water' 1\. Scope of the Workshop 2\. Potential for Wastewater Reclamation and Reuse in Yemen 3\. Water Resources Degradation and the Risk of Extensive Desertification in Yemen 4\. Groundwater Over-Exploitation and Monitoring 5\. Natural Treatment Systems of Municipal Wastewaters: Design and Operation Principles 6\. Wastewater Reclamation and Reuse in the Mediterranean Basin 7\. Decentralized Systems for Wastewater Management with Emphasis to Aquatic Treatment Systems 8\. Groundwater Recharge with Reclaimed Wastewater Effluents Papers Prepared by the Project for the Workshop on 'Water Savings' 1\. Working Document for the Workshop on the Assessment of Water Savings resulting from the Irrigation Technology introduced by the LWCP\. 2\. Report of the Workshop on the Assessment of Water Savings resulting from the Irrigation Technology introduced by the LWCP\. 3\. Questionnaires to be used by PIUs for assessing the Water Savings\. In Arabic\. 4\. Recommendations of the Workshop on the Assessment of Water Savings resulting from the Irrigation Technology introduced by the LWCP\. In Arabic\. - 33 -  Papers Prepared by the Project for the Workshop on 'Achievements of the L WCP' 1\. General about the Project 2\. Water Monitoring 3\. Agro- and Hydro-Meteorological Stations 4\. Irrigation Technology 5\. Private Sector in Irrigation 6\. Institutional Development and Capacity Building 7\. Experience and Viewpoint of the PIUs 8\. Achievements in Forestry FORESTRY 1\. * FAO: Technical Assistance to Land and Water Conservation Project (Forestry Component), Yemen, Terminal Report, Rome 2000\. 2\. Methodology of Participatory Watershed Management\. H\. Hadi\. (In English)\. 3\. Methodology and Sites Selection for Woodland Management\. M\. Houmymid\. 4\. Vegetation Survey of Wadi Shares Watershed\. A\. Al Khuleidi\. (In English)\. 5\. Vegetation Survey of Wadi Rima'a Watershed\. A\. Al-Khuleidi\. (In English)\. 6\. Socio-Economic Study of the Selected Sites for Terrace Rehabilitation in Al Mahweet Area\. A\. Al Haimi\. (In English)\. 7\. Socio-Economic Study of Wadi Shares Watershed\. A\. Al Hakimi\. (In English and Arabic)\. 8\. Socio-Economic Study of Wadi Rima'a Watershed\. H\. Al Oudi\. (In English and Arabic)\. 9\. Socio-Economic Study of the Woodland of Jebel Iraf A\. Al Hakimi\. (In English and Arabic)\. 10\. Socio-Economic Study of the Zaida Acacia Woodland\. A\. Al Hakimi\. (In English and Arabic)\. 11\. Program of Work of Sand Dune Stabilization in Abyan, Lahej and Shabwa\. M\. Bazar'a\. (In English)\. 12\. Work Plan of the Terrace Rehabilitation in Al Mahweet Area\. M\. Houmymid\. (In English)\. 13\. Methodology for Study of Zyziphus Spina Christii as an Agroforestry Tree\. 14\. Woodland Management Plan for Jabel Iraf\. M\. Hourmymid\. (In English)\. 15\. Woodland Management Plan for Jebel Bura'a\. M\. Houmymid\. (In English and Arabic)\. 16\. Watershed Management Plan for Wadi Shares\. H\. Hadri\. (In English)\. 17\. Strategy of Desertification Controlling the Near East\. (In English and Arabic)\. 18\. A Contribution to the Formulation of the Natural Resources Management Strategy\. H\. Hadri\. (In English)\. 19\. A Draft Report on the Assessment of the Household Energy Strategy\. H\. Hadri et al\. (In English)\. 20\. Torrent Control in Wadi Shares and Wadi Rima'a\. I\.G\. Harmond\. (In English)\. 21\. A Strategy for Introducing Gender Concems into the Forestry Component\. S\. Saidi\. (In English and Arabic)\. 22\. Understanding of Desertification in the Republic of Yemen: Its Causes and Socio-Economic Aspect\. M\. Houmymid\. (In English and Arabic)\. 23\. Ecology, Utilization and Silviculture of Zyziphus Spina Christii\. (In Arabic)\. 24\. Technical Note of Tages Minuta Sp\. (In Arabic)\. 25\. Technical Note of Adansonia Digitata\. (In Arabic)\. 26\. Technical Paper on Energy Strategy of the GDFDC\. (In English and Arabic)\. 27\. Several Reports (Inception report, progress reports, mid-term review reports, field visit reports, annual and monthly work plans and end-of-assignment reports)\. 28\. Several Data Collection forms (terrace rehabilitation, forest inventory, agroforestry study, study form for livestock, study form for wildlife, study form for bee-keeping, study form for water harvesting, study - 34 -  form for tree planting, etc\.) 29\. Three Cooperation Agreement Types: Establishment of Village Nurseries, Forest Protection and Management, Terrace rehabilitation\. 30\. Regeneration and Seed Germination of Juniperus Procera, with Reference to Jebel Iraf Forest\. 31\. Causes of the Die Back Phenomena of the Juniperus Procera\. 32\. Brief courses on woodland management, nursery techniques, tree planting, forestation's, sand dune stabilization, watershed management, aerial photograph interpretation and Rapid Rural Appraisal\. 33\. Drawing of Structure and Specification for Wadi Rima'a\. Khaled Al Attas\. (In English)\. 34\. Drawing of Structure and Specification for Wadi Shares\. Khaled Al Attas\. (In English)\. 35\. Watershed Management Plan of Wadi Rima'a\. A\. Al Khuleidi\. (In English)\. 36\. End-of Assignment Report\. Arachilalage Baminiwate\. (In English)\. 37\. Consultative meeting with the rural leaders on terrace degradation in Al Mahweet area\. (In English and Arabic)\. 38\. Assessment of the Plan of Action to Combat Desertification\. Ahmed Hayel et al\. (In English and Arabic)\. 39\. Booklet of the Land and Water Conservation Project (Forestry Component)\. H\. Hadri\. (In English)\. 40\. Guidelines of Forestation Techniques for Women\. Raja Al Aghbari\. (In English)\. 41\. Draft of the Study of Forest Nursery Seedling Costs\. Abdelassalam Hayel\. (In Arabic)\. 42\. Scenario and Scientific Material of Two Television Films on Desertification and Watershed Management\. Abdul Salam Hayel\. (In Arabic\.) - 35 -   A2' 44' 4A 4B0 505 I2RD31316 REPUBLIC OF YEMEN SAUDI ARABIA _ - LAND AND WATER CONSERVATION PROJECT --- 0Saddat ash Shuqqah 0-7\.RPOr 1 C= PROJECT IMPLEMENTATION UNIT BOUNDARIES j PORTS MEN \. I 0 TOWNS AND VILLAGES --- WADIS i\ ® GOVERNORATE CAPITALS GOVERNORATE BOUNDARIES 5 I * NATIONAL CAPITAL INTERNATIONAL BOUNDARIES j , ARPORTS - 5 t; ')\._ r-t'~~~~~~~~~~~~~~@~~ X ~~~~-_ _ _-_ / , ; /' AL- , \~~~~~~~~~~~~AL Hfa SAADAH // j ;aj MAHARA \.Hbat' 'zi- 4AHRAH AMRAN A ,oam 9a nSib 0IA1Ghural QNihtn m t00 t a ri b & 4 R A , , 0 , tA Al Magh=rim Al GhaydahO auczeyr PROJECt IMPLfSMf NWIPROJCTOIMNLMENTATIN NUNITSIPIUs) X > D _ 2 ~~~~~~~~~~~~~~~L-O F Z\.k SAN n E l A l4 s ~ MagHAri A Al U hT dah 0sApr I NORTH ERN_ TH OPAU -xL;, _,\.da ,, : 0 0 000HJA 0 T\. cSAIGI,,\. F ~~~ Hays0 6\. ARYAN~~~~~~~~~~~~~~~~~~~0 \. Q6 M' R RJCTIPEETAINUISOROPtUO tta "N 2 Y \. -4, R, srs,daa a3a\.DHAMARtTeaIdar 2 0 75 TI ILMTRSIao ~~ It,\. ha,a~~,a\. a t\.daaaoRaattapt\. an any'attn\.rintaanaRan stnawn I I I I I ~~A\. TAI ETHIOPIA / *X'G I o 25 A 0 75 7OILESDaBWA T Socoratra ~ JIBOUTI ly-I APRIL 2001

REVIEW

P093568

Document of The World Bank Report No: ICR0000870 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-7295-0) ON A LOAN IN THE AMOUNT OF US$201\.5 MILLION AND 80\.41 MILLION TO THE TÜRK YE SINA KALKINMA BANKASI A\. \. (TSKB) WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR THE THIRD EXPORT FINANCE INTERMEDIATION LOAN (EFIL III) DECEMBER 20, 2009 Private and Financial Sector Development Department ECCU6 Europe and Central Asia Region  CURRENCY EQUIVALENTS Currency Unit = TL Exchange Rate at ICR, December 15, 2009 US$1=1\.4954 TL US$1=0\.6834 EUR Exchange Rate at Loan Closing, June 30, 2009 US$1=1\.5247 TL US$1=0\.708 EUR EUR 1=1\.4126 US$ Exchange Rate at Appraisal, April 14, 2005 US$1=1\.34 Turkish Lira US$1=0\.80 EUR FISCAL YEAR- January - December ABBREVIATIONS AND ACRONYMS BRSA Banking Regulation and Supervision Agency CAS Country Assistance Strategy EFIL Export Finance Intermediation Loan EIA Environmental Impact Assessment EU European Union EUR Euro- European Union Currency ( ) IBRD International Bank for Reconstruction and Development IEG Independent Evaluation Group ISR Implementation Status Report IT Information Technology LIBOR London Interbank Offered Rate M&E Monitoring and Evaluation PAD Project Appraisal Document PDO Project Development Objectives PFIs Participating Financial Intermediaries PIU Project Implementation Unit SAL Structural Adjustment Loan SLA Subsidiary Loan Agreement SME Small and Medium Size Enterprises TL Turkish Lira TSKB Türkiye Sinai Kalk nma Bankas / Turkish Industrial Development Bank At ICR Time At Project Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Keiko Sato Andrew Vorkink Sector Manager: Lalit Raina Gerardo Corrochano Project Team Leader: Carlos Pinerua Lalit Raina ICR Team Leader: Carlos Pinerua ICR Prepared By: Vinod K\. Goel  TURKEY Third Export Financial Intermediation Loan (EFIL III) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes\. 3 3\. Assessment of Outcomes \. 7 4\. Assessment of Risk to Development Outcome\. 12 5\. Assessment of Bank and Borrower Performance\. 13 6\. Lessons Learned\. 15 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 16 Annex 1\. Project Costs and Financing \. 17 Annex 2\. Outputs by Component\. 19 Annex 3\. Economic and Financial Analysis \. 25 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 26 Annex 5\. Beneficiary Survey Results \. 28 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 35 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 44 Annex 9: Financial Performance of Borrower and PFIs \. 45 Annex 10\. Distribution of loans by region, sector, and loan & emplloyment size \. 48 Annex 11\. List of Supporting Documents\. 49 MAP A\. Basic Information Export Finance Country: Turkey Project Name: Intermediation Loan 3 (EFIL 3) Project ID: P093568 L/C/TF Number(s): IBRD-72950 ICR Date: 12/23/2009 ICR Type: Intensive Learning ICR TURKISH INDUSTRIAL Lending Instrument: FIL Borrower: DEVEL'T BANK (TSKB) Original Total USD 305\.0M Disbursed Amount: USD 305\.5M Commitment: Revised Amount: USD 304\.9M Environmental Category: F Implementing Agencies: Turkiye Sinai Kalkinma Bankasi (TSKB) Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/18/2005 Effectiveness: 12/01/2005 Appraisal: 03/31/2005 Restructuring(s): Approval: 05/17/2005 Mid-term Review: 11/12/2007 Closing: 06/30/2010 06/30/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Highly Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Highly Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Highly Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Highly Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Banking 40 40 Micro- and SME finance 30 30 Other domestic and international trade 30 30 Theme Code (as % of total Bank financing) Export development and competitiveness 40 40 Other financial and private sector development 20 20 Small and medium enterprise support 40 40 E\. Bank Staff Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Keiko Sato Andrew N\. Vorkink Sector Manager: Lalit Raina Gerardo M\. Corrochano Project Team Leader: Carlos Pinerua Lalit Raina ICR Team Leader: Carlos Pinerua ICR Primary Author: Vinod K\. Goel F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) (i) Provision of medium and long-term working capital and investment finance to private exporters, and contribute to further facilitating export growth in Turkey; and (ii) Improvement in the quality, and safety of, and access to, finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. ii Revised Project Development Objectives (as approved by original approving authority) No Change (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Increase in access to finance for exporters measured by number of enterprises and volume of exports supported export multiplier incremental average Indicator 1 : aggregate annual exports generated (measured over 3 years for all subborrowers)total credit line disbursed 168 exporters supported; US$966 million in Value Export multiplier incremental exports quantitative or Not applicable greater than 1 (in generated, and Qualitative) ISR) export multiplier 3\.3 for 2006-2008 period Date achieved 05/17/2005 01/30/2009 06/30/2009 Comments Target achieved\. Exports by participating firms grew by 95% from US$2\.2 (incl\. % billion in 2005 to US$4\.3 billion in 2008\. For comparison, export growth for achievement) Turkey was 80% in the same period\. Increased depth and breadth of financial intermediation as measured by the Indicator 2 : number of additional PFIs (banks and leasing companies) that participate in EFIL III different from those in EFIL II Value 2-4 new PFIs 7 new PFIs relative quantitative or Not applicable compared to EFIL to EFIL II Qualitative) II (in ISR) Date achieved 05/17/2005 05/10/2006 11/05/2007 Comments Target over-achieved\. A total of 10 PFIs (4 banks and 6 leasing companies) (incl\. % participating in EFIL III of which 7 PFIs (4 banks and 3 leasing companies) achievement) were new\. Improvement of quality of credit portfolio management as measured by (a) the Indicator 3 : amount of non-performing sub-loans and leases; and (b) interest and/or principal default /total sub-loans and leases disbursed\. At the loan closing (a) US$4\.5 million Value in non-performing Less than 5% (in quantitative or Not applicable sub-loans and ISR) Qualitative) leases (b) 1\.5 percent of the total disbursed amount Date achieved 05/17/2005 05/14/2008 06/30/2009 Comments Target achieved\. As of June 2009, EFIL III NPL of 1\.5% was lower than banking (incl\. % sector NPL of 4\.9%\. As of September 2009 NPL increased to 3% (1% for banks iii achievement) and 4\.2% for leasing still lower that the overall NPL of 5\.3% for banking and 11\.9% for leasing sector (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Provide effective sustained medium/long term finance to exporters on a timely Indicator 1 : basis as measured by amount of credit line actually disbursed/projected credit line disbursement on a straight line basis\. Value (quantitative Not applicable 100% 100% or Qualitative) Date achieved 05/17/2005 12/01/2005 06/30/2009 Comments (incl\. % The Loan was fully disbursed, one year ahead of projections achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/10/2006 Highly Satisfactory Highly Satisfactory 55\.91 2 11/16/2006 Highly Satisfactory Highly Satisfactory 119\.65 3 07/24/2007 Highly Satisfactory Highly Satisfactory 201\.46 4 09/23/2007 Highly Satisfactory Highly Satisfactory 218\.09 5 05/14/2008 Highly Satisfactory Highly Satisfactory 265\.63 6 01/30/2009 Highly Satisfactory Highly Satisfactory 301\.86 H\. Restructuring (if any) Not Applicable iv I\. Disbursement Profile v  1\. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1\.1 Context at Appraisal Country and Sector Background\. A financial sector still recovering from the financial crisis in 2001 and continuing macroeconomic volatility led to difficulties in accessing investment finance for exporting companies in 2001-02\. With uncertainty surrounding domestic demand, exports were recognized as a driver of growth\. Inflation remained high and domestic currency financing was not realistic for investment needs, so dollar and euro loans were the norm for investment finance\. Firms and financial institutions were well aware of the risks of taking on foreign currency long term finance, but exporting firms were at least partially shielded from exchange rate risk and domestic demand conditions\. Rationale for Bank Assistance\. The Turkish authorities requested the World Bank (in late 2004) for an export credit line to provide medium- to long-term funds for investment and working capital needs of exporting enterprises\. With nominal and real interest rate levels on Turkish Lira loans remaining prohibitively high, and loan maturities very short, demand for affordable longer-term foreign currency funds from the real and financial sectors in Turkey remains strong\. The Third Export Financial Intermediation Loan project (EFIL III, approved in May 2005, effective in December 2005 and closed in June 2009) would largely maintain the design of its successful predecessor EFIL I & EFIL II projects, which had provided a timely and focused response to the unmet demand from banks and exporting companies for medium- and long-term funding, both during the pre- and post-crisis periods\. The project would help the financial sector further develop its investment lending business by demonstrating that term lending can be a viable business proposition while building the necessarily skills at Participating Financial Intermediaries (PFIs) to appraise term loans\. The project is consistent with the FY04-07 CAS for the Republic of Turkey\. As stated in the CAS, an important objective is the revitalization of the real sector by providing access to long term credit\. The CAS's key priorities for the medium term include completing the banking and financial sector reforms and filling the current gap in accessing credit facilities, which is supported by this project\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project specified the following PDOs: Provision of medium and long-term working capital and investment finance to private exporters, and contribution to further facilitating export growth in Turkey; Improvement in the quality, safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. To measure progress the project designed the following performance indicators: Increase in access to finance for exporters measured by the number of enterprises and volume of exports supported; 1  Increased depth and breadth of financial intermediation as measured by the number of additional PFIs (banks and leasing companies) that participate in EFIL III different from those in EFIL II; and Improvement of quality of credit portfolio management by measuring the level of debt service and amortization performance of sub-loans under EFIL III of the participating banks and leasing firms\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO did not change during the project implementation\. 1\.4 Main Beneficiaries The main beneficiaries of EFIL III were Participating Financial Intermediaries (PFIs, banks and leasing companies) and Turkish private exporting enterprises (exporters)\. The Turkish Industrial Development Bank (Türkiye Sinai Kalk nma Bankas , TSKB) intermediated the credit line through PFIs to exporters\. The exporters would benefit from the provision of medium- and long-term working capital and investment finance to make productive investments at a time of (i) increasing demand for longer term credit as in 2005 the economy was showing strong signs of growth and export performance was on the rise-- thus increasing the demand for longer term credit; and (ii) inability of the financial sector to support these trends with very much needed longer term finance at a reasonable cost\. The PFIs would benefit from access to medium- and long-term funding to help them expand their business in medium- and long-term lending and financial leasing (financial leasing is hereafter just referred to as leasing) while reducing maturity mismatches that lead to both interest rate risk and refinancing risk\. In addition, the project's requirements for compliance with banking and leasing regulations and financial covenants would help ensure that the PFIs remain financially sound\. The ultimate objective was to strengthen and improve the ability of the Turkish financial sector to provide medium- and long-term financial resources to the enterprise sector\. 1\.5 Original Components (as approved) The project had a single component, a credit line for exporters for the provision of medium- and long-term funds through two distinct channels, or sub-components: (i) US$165 million and 65 million through commercial banks providing investment and working capital loans; and (ii) US$35 million and 15 million through leasing companies to provide lease finance for the acquisition of productive assets (vehicles, machinery and/or equipment)\. In addition, the Loan included front end fees (US$1,005,250 and 402,050) and small unallocated (US$44,750 and 7,950) amounts\. The credit line was provided by the World Bank to TSKB with a Government guarantee, TSKB passed on funds to PFIs in as subsidiary finance for further on lending to eligible 2 exporters (Figure 1)\. At the level of PFIs, the project had originally allocated US$246 million equivalent to bank sub-loans and US$54 million equivalent to lease finance\. Figure 1: Structure of the EFIL III Credit Line Government guarantees TSKB's IBRD repayment to IBRD IBRD extends credit Government of line to TSKB Turkey TSKB TSKB pays a guarantee fee to the Government TSKB extends subsidiary loans to PFIs PFI 1 PFI 2 PFI 3 \. PFI 10 PFIs extend sub-loans and leases to exporters Exporter 1 Exporter 2 Exporter 3 Exporter 4 Exporter 5 \. Exporter n 1\.6 Revised Components No Change 1\.7 Other significant changes Reallocations took place on two occasions between the leasing and the banking channel resulting in the total net reallocation of US$77 million and 45 million from banks to the leasing sub-component\. During early stage of project implementation, three banks and six leasing companies signed Subsidiary Loan Agreements (SLA) with TSKB which required reallocation of US$90 million and 45 million from banks to leasing companies\. (In its ICR input TSKB defines these as amounts at inception (Annex 7)\. Second reallocation, on a net basis increased banking allocation by US$13 million and reduced leasing allocation by the same amount (see Annex 2)\. No other significant changes\. 2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2\.1 Project Preparation, Design and Quality at Entry The project's preparation, design, and quality at entry were based on the following: (i) Consistency with Bank and Government priorities\. The project's design to fill the gap for export enterprises in accessing credit facilities fitted closely the FY04-07 CAS for revitalization of the real sector by providing access to long term credit\. The project supported the Government's principle objective of real sector recovery and growth\. (ii) Incorporation of lessons learned in the previous EFIL projects\. Important lessons incorporated in the project were (i) project design should be kept as flexible as possible, with minimum or no statutory requirements; (ii) use sensible financial indicators for the selection of both the PFIs and exporters in line with established market practices; (iii) 3 avoid restrictive procurement requirements unsuitable for private sector borrowers, proven to be a hindrance to expeditious project implementation; (iv) combine the Borrower and Implementing Agency functions in one and the same entity for higher quality and expeditious project implementation; and (v) pre-commit PFIs to borrowing a certain part of a credit line as an incentive to be quick and effective in finding and financing eligible sub-projects, thus leading to quicker disbursement of the Bank loan\. (iii) Inclusion of leasing in credit lines\. The inclusion of leasing companies as financial intermediaries was an innovative aspect of the project which was continued from the successful experience under EFIL II\. It helped: (i) reach smaller exporters, which do not necessarily have access to bank loans, but are accessible by leasing companies; and (ii) assist development of the leasing sector and thereby deepen the financial sector\. (v) Decentralized decision-making and sound incentive structure\. With TSKB carrying the credit risk of and selecting PFIs, and PFIs carrying the credit risk of and selecting exporters, the choices of the participants in the project was made by the entities best capable of identifying good financial intermediaries and exporting firms\. Qualitative criteria set out in the project and monitored during supervision helped ensure that the choices were made on a sound basis\. (vi) Identification of risks and associated mitigation measures\. Risks included (i) macroeconomic and structural reform risks with a large government debt overhang and high current account deficit; (ii) risk of delays in three state owned bank privatizations; and (iii) political risk and implementation risks\. Mitigations included the Government's demonstrated commitment to sustained economic and political stability and reforms; that the economy had become more resilient to negative shocks; and exporters' track record of resilience to macroeconomic instability\. At the project level, the Bank team had strong confidence in TSKB's institutional, financial and technical capacity, which had experience in managing foreign credit lines including EFIL II from the World Bank\. 2\.2 Implementation The strong institutional capacity of TSKB was the most important factor in the successful implementation of the credit line\. TSKB implemented streamlined web-based loan processing procedures\. It proactively monitored the performance of PFIs and, in coordination with the PFIs and the Bank team, ensured that funds were allocated and re- allocated to well-performing PFIs with demand for funds, so the credit line continued disbursement in an expeditious manner and with sound procedures in place for intermediating funds to exporters\. Reallocations among PFIs included a slight shift towards banks reflecting increasing demand for working capital funds\. The project's implementation performance was successful in assessing credit risk with exporters, with non-performing loans (NPLs) of US$4\.5 million (or 1\.5 percent) as of June 30, 2009 (at the time of Loan Closing), having been classified as NPL at some stage of project implementation\. Subtracting those loan amounts classified as "NPLs" but that were repaid by the firms, NPLs were US$2\.1 million (0\.7 percent of the EFIL III 4 portfolio)\. The NPLs in question were for one of the PFIs (2 sub-borrowers)\. However, the effect of slower economic growth has started to affect the project\. By the third quarter of 2009, the NPL ratio in the EFIL III portfolio rose to 3\.0 percent (US$9\.5 million) -- the NPL ratio of bank PFIs was 1\.0 percent and that of leasing PFIs was 4\.2 percent\. Foreign ownership in the financial sector further increased during the Project which improved volume of credits and quality of financial services\. Foreign ownership of PFIs helped them gain access to funds at lower costs and thereby stimulated access to finance in Turkey\. However, it also created a more competitive environment for disbursing Project funds\. TSKB proved its responsiveness to the changing market conditions by reallocating loan amounts and renegotiating lending rates with some PFIs\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project had a good monitoring and evaluation framework, with the original set of PAD indicators tracking performance during implementation\. This design was reinforced during the supervision by using additional indicators for tracking developmental impact and financial prudence\. The original indicators proposed in the PAD were on export performance, the scope of financial intermediary participation, and on sub-loan/lease performance (see section 1\.2)\. [PAD did not define baseline benchmarks and targets for these indicators, later targets were set in the Implementation Status and Results Reports (ISRs)]\. The supervision missions monitored the following additional quantitative indicators (see also qualitative impacts discussed in section 3\.2 and Annex 2): (a) planned employment impact associated with the project, (b) financial performance of the Borrower and PFIs, and (c) loan distribution by PFI, loan size, sector and geographical location\. The monitoring indicators were effectively monitored throughout the project\. TSKB further enhanced (developed during EFIL II) its web-based IT system to interface with PFIs for sub-loan applications, monitoring and disbursements\. Financial performance of TSKB and the PFIs was monitored through independent auditors' reports and separate letters confirming compliance with the eligibility requirements\. TSKB performed occasional consistency check and cross referencing for data\. 2\.4 Safeguard and Fiduciary Compliance Procurement, financial management practices, and environmental review process for the project were supported by the operational manual with guidance for TSKB and PFIs\. The well-developed operational manual and experienced and proactive TSKB-PIU helped ensure effective implementation of safeguards and fiduciary compliance\. With regard to fiduciary compliance, all aspects related to financial management were fully satisfactory\. TSKB had worked with the Bank before (as Apex for EFIL II) and was very familiar with the Bank's fiduciary requirements related to procurement, disbursements and applicable safeguards and provided training and guidance to PFIs\. 5 The financial soundness of PFIs was supported by improved banking and leasing sector regulations, project requirements aligned with the regulatory environment, and an incentive structure that ensured that borrowers were effectively pre-screened and monitored\. Banking and leasing sector supervision in Turkey has improved since the EFIL II period, and EFIL III ensured the soundness of PFIs through (i) a prudential regulation compliance certificate; and (ii) independently audited IFRS financial reports\. For leasing companies separate eligibility requirements were applied and compliance was assessed based on quarterly project implementation reports, semi-annual external auditor compliance certificates, and annual external audit reports of the participating leasing companies\. The supervision of the leasing sector has been strengthened after the transfer (as of January 1, 2006) of the supervisory responsibility from the Turkish Treasury to the independent regulator, Banking Regulation and Supervision Agency (BRSA)\. In addition, since TSKB carried the credit risk of PFIs, it had strong incentive to pre-screen and monitor PFIs to ensure their financially viability\. Environmental safeguards procedures were properly implemented at TSKB and PFIs designed in the operational manual\. All approved sub-loans were classified as having negligible environmental impact\. Some projects were rejected by PFIs during the approval process based on the environmental standards of loan applicants\. 2\.5 Post-completion Operation/Next Phase EFIL III was designed to enable participants to continue the activities independent of the project on a commercial basis as the Turkish financial sector's access to medium and long term funding increases, and this has been achieved\. The financial sector's access to medium term finance has improved, but deposits in Turkey remain short term, and syndicated loans are still mostly of 1-2 years maturity\. TSKB has built lending relationships and experience with PFIs\. It has strengthened its long term financing capacity from EFIL and other IFI loans\. PFIs have expanded their client base and honed skills in making medium and long-term credit\. They have used the loan to demonstrate that medium term lending can be a profitable business proposition\. Exporters have built credit history with PFIs and improved their financial records and documentation required for bank loans, thus improving their ability to gain access to credit\. However, additional operations could help sustain the achievements of EFIL III and expand the scale and scope of the development impact\. In particular the following needs remain relevant: (i) access to medium- and long-term funds to exporters; (ii) further development of medium term lending skills; (iii) expansion of the scope of financial institutions included; (iv) scaling up the project, which reaches only a small part of the exporting sector; (v) better reach smaller firms, which still suffer from poor access to credit; and (vi) better reach borrowers outside major urban areas, which are experiencing relatively worse access to credit as evidenced in the Turkey ICA (2007)\. This has become even more critical in light of the recent global financial crisis which has resulted in lower economic growth, shrinking exports and reduced availability of credit and lease finance, especially to smaller exporters and SMEs\. 6 EFIL III has already been followed up with a repeater operation, EFIL IV, and a credit line for SMEs, the SME Access to Finance Project (and another SME credit line is under preparation)\. EFIL IV includes several new banks and leasing companies as PFIs (relative to those included in EFIL I, II and III projects) and thereby expands the scope of the financial intermediaries benefiting from the project; the EFIL program has so far covered 24 PFIs including 10 leasing companies\. The SME Access to Finance credit line (which is now getting a second Additional Financing from the Bank) supports smaller firms and has an additional regional objective to serve an area in priority regions for development in Turkey, where lending to SMEs is still weak\. Exports/GDP in Turkey remains low compared to some other emerging markets, and with the proximity to EU and the Customs Union in place there is still ample scope for expansion of export industries if their investments can be funded\. For the leasing companies the funding mismatch remains an even greater concern than in the banking sector\. Thus, additional credit lines would help to build on the success of the EFIL and SME projects\. 3\. ASSESSMENT OF OUTCOMES 3\.1 Relevance of Objectives, Design and Implementation The objective, design and implementation of the project remain highly relevant with regard to Turkey's and the World Bank's development objectives\. As stated in the FY04- 07 CAS, an important objective is the revitalization of the real sector by providing access to long term credit\. The CAS's key priorities for the medium term include completing the banking and financial sector reforms and filling the current gap in accessing credit facilities, which was supported by the project\. The CPS FY08-11 aims to improve the business climate and identifies export growth and stability of financial markets as key outcomes\. It also identifies increase in export capacity of enterprises financed through credit lines as a Bank Group benchmark\. The Turkish Government in its 9th Development Plan (2007-2013) includes competitiveness in export markets as one of the main objectives and includes improvement to the financial system as a key goal to achieve this\. 3\.2 Achievement of Project Development Objectives The PDOs were fully achieved and well ahead of time\. One PDO indicator was over- achieved, and the other two indicators also showed better results than what should be expected in Turkey, especially given the recent global financial crisis\. Providing medium- and long-term working capital and investment finance to private exporters\. The credit line provided US$312\.9 million equivalent (including US$12\.9 million due to US$/EUR exchange rate appreciation- figures in the ICR Data Sheet may be different as they do not include exchange rate changes) of medium term financing to 168 exporters through 10 PFIs\. US$116\.5 million was provided through 4 banks, and US$196\.4 million was provided through 6 leasing firms\. The project thus added US$312\.9 million worth of financial intermediation\. This is equal to around 0\.3 percent of total domestic credit to the firm sector in Turkey, but it is a much larger part of investment finance in Turkey, which remains underdeveloped\. The average size of sub- loans was US$1\.5 million (US$1\.2 million for the leasing sector and US$2\.6 million for 7 the banks) with 50\.7% of sub-loans (by number, and 21\.5 percent by amount) of less than US$1 million\. The maturities of sub-loans and leases were on average 43 months (banks 32 months and leasing companies 49 months) with more than half the loans having maturities of four years or more\. Early in the project most loans had a maturity of 3-4 years, but towards the end of 2008 the share of loans with one-year maturity had increased due to the changing financial conditions and increasing demand for working capital\. Interest rates for exporters averaged 7\.52 percent for US$ denominated loans and 7\.34 percent for those in EUR\. Most exporters paid less than 10 percent, and a very small number paid above 12 percent\. The impact was well dispersed across 168 firms in several industries and geographic areas (see Annex 10) with some concentration (by amount) in the Marmara region (59\.6%) and textile sector (29\.0%)\. Figure 2: Loan Volumes and Number of Loans by Maturity 1 20 111 1 20 100 100 vyv à h Ç 80 69 80 T V 62 ÃG s à 60 60 à r 46 r i y ÃW 40 40 I À h G ÃÀ 20 12 3 10 20 0 0 1 2 3 4 5 6 7 Maturity (yea rs) Source: TSKB The project reinforced the general trend of increased credit in Turkey\. In US$ terms, Bank loans grew by 111 percent and leasing receivables grew by 29 percent between 2005 and 2008 (during 2005-2007, leasing receivables grew by 95 percent)\. However, the global economic crisis resulted in slower economic growth and depressed demand (and constrained supply) for credit, but the contraction in alternative funding sources by financial institutions increased relevance of the project\. After contracting by 4\.2 percent between October 2008 and April 2009, banks' domestic lending expanded since April 2009 by 4\.6 percent\. But the new leasing volumes have dropped dramatically in part as a result of slower demand and increased credit risk in the SME sector and in part as a result of the investment finance nature of leasing\. Total new leasing volume in 2009 is expected to reach about US$2\.2 billion after amounting to US$5\.3 billion and US$8\.3 billion in 2008 and 2007, respectively\. Total credit to private sector by 4 PFI banks increased by 58 percent in 2007 from the 2006 level, but, as a result of the global crisis, declined by 12 percent in 2008 from the 2007 level (still higher by 40 percent over the 2006 level)\. Further, total export loans (mostly export receivables) by 4 PFI banks increased by 40 percent in 2007 from the 2006 level, but declined by 26 percent in 2008 from the 2007 level (and 3\.5 percent from the 2006 level)\. Their performance in terms of the share of export loans in their total loan portfolio remains mixed\. Further facilitating export growth in Turkey\. The export multiplier (measuring incremental exports divided by loan amount) was 3\.3 for the project meaning that for 8 every dollar of loan taken by an exporter, it increased exports by 3\.3 dollars\. Overall exports by sub-borrowers grew by 95 percent (or by US$2\.1 billion) between 2005 and 2008 and thereby reinforcing the general trend of increasing exports (Figure 3)\. Turkish exports in general expanded by a cumulative growth of 80 percent in US$ terms between 2005 and 2008\. However, Turkey's exports shrank by 29\.2 percent (GDP by 10\.5 percent) in the first half of 2009 as a result of slowing global demand exacerbated by Turkey's export composition, and EFIL III supported exporters are expected to show similar weak export performance\. Figure 3\. Exports Grow th in Beneficiary Firm s 4,000 3,352 3,500 Exports in US$ million 3,000 2,386 2,500 Exports at application 2,000 1,659 Exports at end of 2008 1,500 1,248 * 1,005 966 Increas e in e xports ** 1,000 688 678 460 411 228 327 500 - 2005 2006 2007 TOTAL Ye ar * For 10 companies 2008 exports are not available thus 2007 exports are used in export growth calculation\. ** After elimination of duplicating companies' exports\. Source: TSKB data Improving quality and safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Sub-loans and leases performed reasonably well with 1\.5 percent being non-performing relative to a 4\.9 percent NPL ratio in the banking sector as of June 2009 (at the time of Loan Closing)1\. Two of the participating 168 exporters were classified as non-performing borrowers during the life of the project, and one of them later recovered to performing status\. However, the effect of the slower growth (as a result of the recent global financial crisis) has started to affect the project\. By the third quarter of 2009, the overall NPL ratio in the EFIL III portfolio rose to 3\.0 percent (US$9\.5 million)\. NPL ratio of bank PFIs was 1\.0 percent, while the overall sector average was 5\.3 percent\. NPL ratio of the leasing companies was 4\.2 percent, well below the sector average of 11\.9 percent\. As of June 2009, there were no loans classified as NPL in the leasing companies' EFIL III portfolios\. As of September 2009, four leasing companies reported that they had sub-leases that were not reported as NPL in June 2009 because the repayments were not yet past due period in order to be classified as non-performing\. (Breakdown of NPL ratios by PFIs is given in Annex 9\.) The Borrower (TSKB) and PFIs remained financially healthy during the operation\. One leasing company is currently experiencing difficulties in its lease 1 In the current challenging environment NPL ratios in the financial sector have grown recently, but the participating exporters have performed well relative to the sector\. The banking sector's NPLs rose to 4\.9 percent as of June 2009 from 3\.7 percent at end 2008\. The leasing sector's NPLs rose to 10\.5 percent as of June 2009 from 6\.6 percent at end 2008\. As of September 2009, three participating banks and two participating leasing companies exhibited NPL ratios higher than with the sectoral trends\. 9 portfolio and taking steps to address the problem\. The Loan's concentration in the manufacturing sector and in the Marmara region is explained by the overall exporters' concentration in this sector and region2\. Within the manufacturing sector, a large share went to the textile sector (29 percent), which accounted for 23 percent of Turkey's manufacturing exports in 20083\. The concentration in this traditional Turkish export sector may reflect that these firms have better track records to prove their creditworthiness than emerging industries with better growth potential\. It suggests that there is still room for developing good credit appraisal practices for term financing\. Employment at participating exporters was planned to grow by 3,725 jobs as a result of the sub-projects financed by EFIL III\. 4 Job creation was not an objective for the project when designed, but it is an important objective for the World Bank and for Turkey, and it is therefore an important added benefit of the project\. At the time of sub-loan/lease application the exporters indicated what the planned employment impact of the project association with the loan would be\. According to the firms' plans, some 3,725 jobs would be added to the 45,155 already employed\. However, actual numbers show a reduction of 655 jobs (or 1\.5 percent) as of end 2008- not surprising given the adverse impact of the global crisis on the exports and economic growth in general-- this is still a good performance given the unemployment rate of 13\.4 percent (TurkStat) in October 2009\. Furthermore, as Annex 2 further develops, the project had significant impact towards achieving the PDO through indirect channels, namely (i) a demonstration and spillover effect, with TSKB and the PFIs demonstrating that term lending can be a viable business proposition; (ii) capacity building for TSKB (for example a web-based IT system to process loan applications by PFIs), PFIs (improving their skills in making medium and long term credit through better credit appraisal and monitoring requirements) and exporters (improving formal documentation for gaining access to credit), (iii) improved environmental practices of exporters and the capacity of PFIs to assess environmental risks of borrowing companies\. 3\.3 Efficiency The project was efficient in terms of generating exports\. For every dollar of loan extended, the exporters increased exporters by 3\.3 dollar; (see section 3\.2 and Annex 2)\. It is likely that the project had a causal effect on the outcomes although it cannot be firmly proved\. The alternative that the project merely crowded out private sector financing does not seem plausible\. First, there is very little financing of firms by leasing 2 EFIL III did not have provision for lending to the tourism sector which is one of the largest foreign exchange earning sectors of the Turkish economy\. Therefore, the facility naturally was disbursed to the manufacturing industry\. In 2008, 74 percent of Turkey's exports were realized by companies which have their tax registration in the Marmara region\. 3 Including wearing apparel\. 4 The employment impact is specific to the sub-project for which the loan proceeds are applied, but it reflects the planned impact at the exporter level rather than the actual impact\. During the loan application process borrowers were asked how many employees they planned to add in connection with the investment for which they were borrowing, and that is the basis for the data\. 10 firms and banks that have the long maturities offered in EFIL III, suggesting that there is not a significant private market to crowd out\. Second, for instance export growth and NPLs were benchmarked against and outperformed the rest of the economy\. The only way to firmly establish causality would be to benchmark against a control group created by randomly rejecting loan applications from firms that had already been approved by the PFI and TSKB ­ an experiment which is impossible in practice\. 3\.4 Justification of Overall Outcome Rating Rating: HS ­ Highly Satisfactory The development objectives of the project were and continue to remain highly relevant for Turkey's and the World Bank's development agenda\. The project fully achieved its indicators (some over-achieved), it did so efficiently and faster than planned, and it had additional positive effects such as improved long-term resources (from rollover of project funds), environmental practices, PFIs' capacity building, and a demonstration effect to develop medium and long term financing\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The project's impact on poverty is indirect as it helps firms grow and create employment\. At the macroeconomic level, the project supported expanding export activity, which contributes to economic growth, creating (and preserving) employment and social development\. (b) Institutional Change/Strengthening The project helped strengthen leasing and bank project finance credit appraisal procedures among the PFIs\. Some PFIs indicated that the credit appraisal and documentation, and monitoring requirements under the project helped them upgrade their lending and monitoring practices\. Four banks and three leasing company were new entrants in EFIL III (relative to EFIL II) and some of them used the project requirements as a starting point for developing their credit appraisal and monitoring processes\. TSKB further enhanced (built during EFIL II) its web-based IT system to process sub- loan applications from PFIs, which is being used in other projects\. It allowed for an expeditious interaction with PFIs for the approval of sub-loans and leases, and reducing scope for errors\. During ICR team interviews, all PFIs expressed high praise for TSKB and found their interaction with TSKB to be highly professional and efficient\. The project improved the environmental practices of exporters and the capacity of TSKB and PFIs to assess environmental risks of borrowing companies\. The project's environmental requirements dictated that either an Environmental Impact Assessment (EIA) had to be submitted or an "EIA not required" certificate had to be provided\. In order to implement the requirement, the PFIs built capacity to assess environmental risks and the effectiveness of mitigation at borrowing firms\. TSKB and PFIs have used the project to demonstrate successfully that medium- and long term lending can be a viable business proposition\. This has been a crucial higher-level 11 objective for the project, aiming to ultimately encourage medium- and long-term credit by creating the market and demonstrating its business rationale\. This will further strengthen exporters' access to investment finance in the future\. (c) Other Unintended Outcomes and Impacts (positive or negative) Several PFIs have introduced project supported project appraisal, environment and monitoring procedures in their lending operations; increased awareness of environment safeguards would help improve quality of lending\. TSKB has built a large amount of long term funds for on lending (from rollover of Bank funds which are of longer maturity- 16 years, than its on lending to PFIs- 4-6 years)\. The EFIL program (EFIL I, II, III and IV) had a very successful and broader impact on the financial intermediation as well as overall financial sector in Turkey covering 24 PFIs including 10 leasing firms\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops During the ICR preparation, an independent survey of participating exporters and comparator firms was conducted to assess the impact of the EFIL III project\. Overall, the project had a very positive impact on the beneficiary firms with EFIL III participants outperforming non-participants along a number of important dimensions (Figure 4)\. Participating firms grew more quickly than non-participating firms in terms of exports (10\.4 percent compared to zero percent), sales (11\.7 percent compared to 6\.2 percent) and employment (8\.9 percent compared 2\.5 percent)\. They were also more likely to introduce new products (58 percent compared to 29 percent), improve environmental management practices (79 percent compared to 47 percent) and enter new export markets (69 percent compared to 48 percent) in comparison to non-participating firms\. Participating firms were also asked about their perceptions about the EFIL III project\. Most of the firms were satisfied with the support they received\. Only 6 percent of participants said that they were not satisfied with the project and 89 percent said that they would participate again\. In addition, about 65 percent of participants said that they would have been unable to fully finance their investments or working capital needs in the absence of EFIL III project\. Annex 5 provides more details on the survey results\. Figure 4: Performance differences between EFIL and Non-EFIL firms Export, Sales & Employment Growth (%) New Product, Environment Management & New Export Markets (% of firms) 15\.0 11\.7 10\.4 100 79 8\.9 69 10\.0 80 6\.2 58 60 47 48 5\.0 2\.5 40 29 0\.0 20 0\.0 0 Export Grow th Sales Grow th Employment Grow th New Product Improved Env\. New Export Markets Mngmt\. Non-EF IL F irms EF IL F irms Non-EF IL Firms EF IL F irms Source: Beneficiary Survey Data\. Note: Growth rates are for mean 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME 12 Rating: Moderate Risks to the project outcomes encompass general country risks, risks to financial intermediation, export performance, and project specific risks\. General risks include political risk, natural disasters (the Istanbul region, which is the hearth of commercial activity in Turkey, is earthquake prone), the war in neighboring Iraq, international financial market turbulence, and macroeconomic mismanagement all of which have happened in the past\. Specific export sectors could be affected by changes in the global environment\. The project aims to improve the domestic financial sector's resilience to shocks, but otherwise these factors are beyond the control of the project\. Project specific risks include the future performance of TSKB, the PFIs, and the sub- borrowers\. TSKB's financial performance has been monitored during supervision missions and the bank remains sound\. Its liabilities have long maturities making the bank fairly resilient to financial turbulence (Annex 9 provides additional information on the financial performance of TSKB and the PFIs)\. PFIs, likewise, were monitored during supervision for their financial health and with few exceptions found to be performing well (see section 3\.2)\. However, in light of the recent global economic crisis, in PFIs, lending volumes have declined and NPL ratios have increased (not necessarily in absolute terms in all cases, but in relative terms as lending/leasing volumes have declined), but their liquidity situation and overall performance remains sound\. It should be noted that non-performance on the loan obligations by some exporters is likely to happen as it has happened in the past\. But the aggregate export performance of the sub- borrowers will not be materially impacted by a small number of non-performing firms because the project is disbursed across 168 different firms, and as a group they are unlikely to pose a risk for the projects outcomes\. 5\. ASSESSMENT OF BANK AND BORROWER PERFORMANCE 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: S - Satisfactory The project's identification and design were compatible with the CAS, the project built on the lessons learned during EFIL I and EFIL II, and it was consistent with the Government's development strategy for the sector as noted in section 2\.1\. The project had the benefit of learning from predecessor operations, the EFIL I and EFIL II, and was able to refine its design to ensure a successful implementation\. A particular strength was TSKB's prior experience in implementing EFIL II, which helped ensure that the project was implemented effectively including following Bank procedures\. However, it would have been useful if PAD had established baseline benchmarks and targets for performance indicators\. Although ISR did set such targets, in some cases it was done after-the-fact- such as exports multiplier, and goals for new PFI entrants (this was mostly known at the time of Board approval)\. Also, it would have been useful to specify some more quantitative indicators (such as credit to private sector, share of loans to exporters, etc\.) in order to better evaluate the secondary PDO related to the financial sector development\. 13 The project design was well aligned with the IEG (2006) recommendations for lines of credit: (i) the macroeconomic environment was stabilizing with inflation reaching single digit levels in 2004, although clear vulnerabilities remained; (ii) banking sector reforms (supported by World Bank SALs) were substantially progressing in improving the regulation of the banking sector; (iii) clear eligibility criteria for PFIs were identified in the PAD; and (iv) only private intermediaries were used (the Government was guarantor for TSKB's financial obligation to the World Bank, but not directly involved in implementation)\. Notably, the Loan was disbursed quickly although the Loan size was relatively large\. In the midst of the global crisis, the Turkish financial sector has shown resilience in terms of solvency and liquidity\. Despite increasing NPLs banks remain well capitalized, and strong profitability has been supported by declining interest rates and strong trading income\. All leasing companies included in the project are supported by parent banks or conglomerates, and all PFIs the ICR team met did not express any management, liquidity or solvency problems\. (b) Quality of Supervision Rating: S ­ Satisfactory Effective supervision by the Bank team helped ensure successful project implementation by responding to Borrower needs and by being proactive in addressing implementation problems\. TSKB expressed praise for effective collaboration with the Bank\. Development results were effectively monitored and supervision expanded the scope of monitoring to include employment, and geographical size, and sectoral dispersion of the sub-loans\. Further, the bank supervision has resulted in the institutionalization of best practices for TSKB and PFIs\. TSKB's lending practices improved in sophistication and efficiency, including the IT system to expedite sub-loan processing, while PFIs benefited from building institutional capacity in assessing credit risk for medium term financing and managing environmental risks\. (c) Justification of Rating for Overall Bank Performance Rating: S ­ Satisfactory Based on the above, the overall Bank performance in ensuring quality at entry and quality of supervision is Satisfactory toward achieving the development outcomes\. 5\.2 Borrower Performance (a) Government Performance Rating: S ­Satisfactory The Government's performance as a Guarantor was Satisfactory\. The Government took the credit risk of TSKB by providing a guarantee and has been very supportive of the TSKB's credit line operations financed by the World Bank (as evidenced by EFIL II, III, IV and SME Projects)\. Prudent macroeconomic policies and strengthening of the supervisory framework also contributed to the success of the project\. The regulatory framework was substantially strengthened in part as supported by a new banking law and in part with the transfer of supervisory responsibility of the leasing industry from the Turkish Treasury to the BRSA\. Although Government's direct role in a credit line project with the private sector is relatively small, it has been a critical and very positive role\. 14 (b) Borrower and Implementing Agency or Agencies Performance Rating: HS ­ Highly satisfactory The performance of the Borrower and implementing agency, TSKB, was Highly Satisfactory\. TSKB pro-actively supported PFIs' implementation, effectively performed its responsibilities, enhanced its internet based IT system to help interaction with PFIs and project monitoring, and reacted swiftly to changing market conditions by reallocating funds between PFIs and renegotiating costs to some PFIs\. PFIs indicated praise for TSKB during the ICR mission except for the some complaints (not unexpected) about pricing\. In addition, monitoring data was promptly produced and utilized in decision-making\. (c) Justification of Rating for Overall Borrower Performance Rating: HS ­ Highly Satisfactory Based on the above, the overall Borrower performance is rated Highly Satisfactory\. The Government performance as a Guarantor is rated Satisfactory\. 6\. LESSONS LEARNED In addition to lessons learned from EFIL I and EFIL II as described in Section 2\.1, EFIL III project offers the following lessons: Simplicity and alignment with existing business practices at PFIs speed up the project implementation\. Eligibility constraints and reporting requirements that go beyond what PFIs normally require increases transaction cost of the project, slows implementation, and may have a tendency to shift funds to firms with relatively better access to finance\. The application process for sub-loans and leases reportedly required increased efforts compared to normal lending practices but it did contribute to capacity building\. It may be better to improve PFIs' existing credit appraisal practices, simplify requirements for smaller sub-loans/borrowers, and require audited sub-borrower data on an annual basis (not quarterly)\. Offering longer maturities to PFIs (by Apex body, TSKB) could help further deepen financial intermediation by enabling more rollover of funds at PFI level\. Environmental, procurement and other project requirements may tend to lead to funds being allocated to larger businesses rather than reaching those that need them most\. The costs incurred by these requirements sometimes may make it relatively more attractive for PFIs to lend loan funds to larger customers with greater loan sizes\. Some bank PFIs indicated that project requirements made it less attractive to cater to smaller borrowers (this was not the objective of the project and having leasing companies was done to expand the reach to smaller borrowers)\. For leasing PFIs, sub-loan sizes under the project were less than those for the bank PFIs indicating more targeting of smaller firms\. It should be noted however, that while PFIs (and sub-borrowers) may sometimes find these requirements to be burdensome, they do contribute to capacity building in PFIs and sub- borrowers\. Carefully designing information requirements to minimize compliance costs while serving the capacity building objectives will help ensure successful implementation\. Responsiveness to changing market conditions reduces implementation delays\. During the project, loan funds for one bank in the project became unworkable and would not 15 have continued to disburse\. Prompt reallocation by TSKB to other PFIs ensured that the overall project was not delayed as a result\. 7\. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/implementing agencies The borrower, TSKB's, ICR is included in Annex 7\. (b) Cofinanciers Not applicable\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) The following is a summary of the main points put forward by participating PFIs in during interviews in the ICR mission\. The project has been successful in achieving its objectives by helping PFIs (i) grow their business, extend maturities of liabilities, increase awareness and expertise on appraisal, monitoring and environmental aspects\. The credit line cost to some PFIs was an issue with changed market conditions\. Some PFIs indicated that the price of credit line became higher relative to other funding sources and as price competition and liquidity in the financial sector had become stronger, but longer maturity of the credit line was an advantage\. It would help to simplify credit appraisal and application process\. Some PFIs indicated that time spent on applications under this project was higher than the time for loans funded by their own sources, and requirements could be more streamlined\. Obtaining environmental documentation from small firms was difficult\. Smaller firms generally found it difficult or not worthwhile obtaining environmental documentation required under the project, but they did recognize value-added by this process\. It would be desirable for PFIs to have longer maturity funding\. Some PFIs (especially, leasing companies) mentioned that having longer maturity funds from TSKB would be helpful for them to rollover more and increase longer term lending to enterprises at the PFI level\. (Leasing companies usually lend with tenure of 4 years and payments are front loaded\. The maturity offered by TSKB caters to their needs\.) Including tourism industry as an export industry would help\. Firms in the tourism industry were not eligible as exporters although tourism services to non-residents are exports (by economic statistics definitions)\. There is strong demand for investment lending in the tourism industry, and some PFIs indicated that inclusion of tourism would have helped in their lending\. Inclusion of tourism was considered during project implementation, but not pursued as the Loan was being disbursed fast\. Some of the above suggestions (such as simpler application procedures for smaller loans, and inclusion of tourism) have been incorporated in the design of EFIL IV project\. 16  ANNEX 1\. PROJECT COSTS AND FINANCING (a) Project Cost by Component Project Appraisal Estimate Actual/Latest Estimate Percentage of Component Appraisal US$ US$ US$ CCredit line 200,000,000 80,000,000 200,000,000 80,000,000 100 100 Front End Fee 1,005,250 402,050 1,005,250 402,050 100 100 Unallocated 44,750 7,950 0 0 0 0 Total 201,050,000 80,410,000 201,005,250 80,402,050 99\.98 99\.99 Baseline Cost Physical - - Contingencies Price - - Contingencies Total Project 201,050,000 80,410,000 201,005,250 80,402,050 99\.98 99\.99 Cost (b) Financing Type of Appraisal Actual/Latest Percentage of Source of Funds Cofinancing Estimate Estimate Appraisal Borrower 0\.00 0\.00 0\.00 International Bank for Reconstruction 201,050,000 201,005,250 99\.98 and Development US$ International Bank for Reconstruction 80,410,000 80,402,050 99\.99 and Development Euro (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) /1 Total Baseline Cost 300\.00 312\.90 104 Physical Contingencies 0\.00 0\.00 0\.00 Price Contingencies 0\.00 0\.00 0\.00 Total Project Costs 300\.00 312\.90 104 Credit Line 300\.00 312\.90 104 Unallocated \.069 0\.00 Project Preparation Fund 0\.00 0\.00 0\.00 Front-end fee IBRD 3\.031 3\.031 100 Total Financing Required 303\.10 315\.93 104 17 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal million) million) Borrower 0\.00 0\.00 0\.00 International Bank for Reconstruction 303\.10 315\.93 104 and Development 1/ Actual amount is higher due to exchange rate changes of US$ vs\. EUR at the project closing vs\. appraisal stage\. 18  ANNEX 2\. OUTPUTS BY COMPONENT This Annex summarizes the outputs that have been realized under the project\. It assesses quantitative output targets against those set out in the PAD, in addition to the qualitative impact as assessed during supervision and by the ICR team\. A\. The project had a single component and the quantitative outputs are described below and in Table 2 according to the PDO they supported: (i) Provide medium- and long-term working capital and investment finance to private exporters\. Credit line utilization, as measured by the amount of sub-loans disbursed to exporters, was highly successful with the credit line to private exporters in Turkey fully disbursed (US$312\.9 million) by June 2009, one year ahead of original closing date\. Financial intermediary participation, as measured by the number of PFIs participating in the project and the number of PFIs different from those participating in EFIL II, was high with 10 PFIs (4 banks and 6 leasing companies), of which 4 banks and 3 leasing companies were new entrants relative to EFIL II\. Thus, the project was successful in three dimensions: (a) attracting broad participation from financial institutions different from those in EFIL II; (b) including leasing companies in addition to banks; (iii) including second-tier financial institutions, i\.e\. those that have otherwise more difficult access to funding\. Table 1 provides final loan allocations to PFIs\. Table 1\. EFIL III Final Loan Allocations USD Tranche EUR Tranche Total Allocation PFIs (USD million ) (EUR million ) (USD million) 1/ Banks 88\.0 20\.0 116\.2 Alternatif Bank 25\.0 10\.0 39\.1 Denizbank 10\.0 - 10\.0 Finansbank 40\.0 10\.0 54\.1 Tekstilbank 13\.0 - 13\.0 Leasing Companies 112\.0 60\.0 196\.7 Alternatif Leasing 10\.0 - 10\.0 FFK Leasing 40\.0 10\.0 54\.1 Finans Leasing 4\.0 15\.0 25\.2 Garanti Leasing 13\.0 5\.0 20\.1 Leasing 25\.0 10\.0 39\.1 Yap Kredi Leasing 20\.0 20\.0 48\.2 Total Loan 200\.0 80\.0 312\.9 Banks 44% 25% 37% Leasing Companies 56% 75% 63% 1/ Exchange rate UD$/Euro 1\.4116, as of June 30, 2009\. These amounts exclude front end fees\. (ii) Contribute to further facilitating export growth in Turkey\. Export growth impact, as measured by the export multiplier (incremental export/loans disbursed) for 19 participating firms over a three year period, 2006 to 2008, was 3\.35\. In other words, for every dollar borrowed under EFIL III, exports by participating firms grew by 3\.3 dollars\. Although establishing causality is difficult, exports per se for the participating firms grew by 95 percent from US$2\.2 billion in 2005 to US$4\.3 billion in 2008, when, for comparison, export growth for the country as a whole was 80 percent over the same period\. It should be noted however, that, in 2009 Turkey's exports shrank by 29\.2 percent (GDP shrank by 10\.5 percent) during first half of 2009 as a result of the slowing global demand exacerbated by Turkey's export composition, and participating enterprises are expected to show similar weak export performance in 2009\. Turkey's exports ­ concentrated in hard-hit sectors such as automotive vehicles, consumer durables, and capital goods and machinery ­ made it vulnerable to a dip in export demand\. (iii) Improve quality and safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Sub-loan payment performance, as measured by (i) the amount of non- performing sub-loans and leases and interest and (/or) (ii) principal defaults/total amount of sub-loans and leases disbursed has been very satisfactory\. Two borrowers were classified as non-performers6 with a total of US$4\.6 million worth of outstanding balance equaling 1\.5 percent of the total disbursed amount\. One sub-loan subsequently regained status as performing reducing the non-performing rate to 0\.7 percent\. However, the effect of the slowing growth (as a result of the recent global financial crisis) has started to affect the project\. By the third quarter of 2009, the overall NPL ratio in the EFIL III portfolio rose to 3\.0 percent (US$9\.5 million)\. The NPL ratio of bank PFIs was 1\.0 percent, while the overall sector average was 5\.3 percent\. The NPL ratio of the leasing companies was 4\.2 percent, well below the sector average of 11\.9 percent\. As of June 2009, there were no loans classified as NPL in the leasing companies' EFIL III portfolios\. As of September 2009, four leasing companies reported that they had sub-leases that were not reported as NPL in June 2009 because the repayments were not yet past due period in order to be classified as non-performing\. Breakdown of NPL ratios by PFIs is given in Annex 9\. The financial performance of TSKB and PFIs was closely monitored during supervision through reviews of audited financial statement\. All PFIs remained sound and well performing throughout the implementation period (summary financial indicators are provided in Annex 9)\. However, one leasing company is currently experiencing difficulties in its lease portfolio and taking steps to address the problem\. 5 The most recent export data available are for December 2008, and export performance is therefore measured by 2008 exports\. The base year for measuring increased exports is the year before funds were disbursed to the exporter unless the first disbursement was done in the last quarter of the year\. It is therefore meaningful to measure performance only for firms that received EFIL III funds in the third quarter of 2008 or earlier\. Out of the 168 exporters that have received funding under the EFIL III, it is meaningful to measure export performance for 147 companies- US$291\.5 million was disbursed to those firms, and they increased exports by $966\.3 million; 17 companies have a base year of 2008, and 4 companies do not have export data due to their NPL situation\. 6 NPLs are classified according to BRSA regulations in the sub-standard, doubtful and loss categories\. 20 In the challenging operating environment NPL ratios in the Turkish financial sector have increased, but the EFIL III supported exporters have performed well relative to the NPLs for the overall financial sector\. The banking sector's NPL ratio rose to 4\.9 percent as of June 2009 from 3\.7 percent at end 2008\. The leasing sector's NPL ratio rose to 10\.5 percent as of June 2009 from 6\.6 percent at end 2008\. As of the end of September 2009, the NPL ratios were 5\.3 percent for the banking sector and 11\.9 percent for the leasing sector\. As of September 2009, three participating banks and two leasing companies have NPLs higher than with the sectoral trends\. The Loan was broadly distributed across 168 firms with the largest sub-borrower loan amounting to US$10 million or 3\.2 percent of the total project amount (the smallest loan was US$50,293)\. The sub-loans were geographically concentrated in the Marmara region (59\.6 percent), which includes Istanbul (see Annex 10)\. The regions hosts a large share of Turkey's exporting industries and the main offices of many firms operating throughout Turkey (in 2008, 74 percent of Turkey's exports were realized by companies which have their tax registration in the Marmara region)\. In addition, the financial sector is strongly concentrated in Istanbul, and therefore it is natural to see loan concentration in that area\. Sub-loans were somewhat concentrated in the textile sector (29\.0 percent-- textile sector accounted for 23 percent of Turkey's manufacturing exports) and in the basic metals and fabricated metals sectors (13\.8 percent)\. EFIL III did not have provision for lending to the tourism sector which is one of the largest foreign exchange earning sectors of the Turkish economy\. Therefore, the facility naturally was disbursed to the manufacturing industry\. Fifty percent of the sub-loan volume (21\.5 percent by amount) was for sub-loans of less than US$1\.0 million\. Sixty percent of sub-loans (48 percent by amount) were made to small and medium size enterprises (defined as employees less than 250)\. These figures reflect project's effort to reach smaller exporters\. (iv) Contribute to employment (not a project objective but added during supervision to measure an additional benefit of the project)\. Employment has become an important development objective in Turkey; therefore supervision missions collected data on the planned employment impact of the sub-projects, although this is not an objective of the project\. At the time of application, exporters reported the number of employment they planned to add as a result of financing received from the project\. According to the firms' plans, some 3,725 jobs would be added to the 45,155 already employed by them\. However, actual numbers show a reduction of 655 jobs (or 1\.5 percent) as of end 2008- not surprising given the adverse impact of the global crisis on the exports and economic growth in general-- this is still a good performance given the unemployment rate of 13\.4 percent (TurkStat) in October 2009\. B\. In addition, EFIL III was designed to enable participants to continue activities independent of the project on a commercial basis, thus adding a qualitative impact dimension, assessed during supervision and by the ICR team: (i) Demonstration and spillover effect\. TSKB and PFIs have used the Loan to demonstrate that medium- and long-term lending can be a viable business proposition\. This has been a crucial higher objective for the project, aiming to ultimately encourage 21 medium and long-term credit by creating the market and demonstrating its business rationale\. The EFIL program (EFIL I, II, III and IV) had a very successful and broader impact on the financial intermediation as well as overall financial sector in Turkey covering 24 PFIs including 10 leasing firms\. Just like the most countries in the world, the recent global financial crisis has also affected Turkey as well\. In Turkey, the slowing economic growth is depressing demand for finance, but the contraction in alternative funding sources by financial institutions is increasing the relevance of EFIL projects\. In 2009, GDP is forecasted to shrink 6\.5 percent and is expected to return to positive growth in 2010\. At the same time, supply of credit has been constrained by a contraction in international credit markets\. After contracting by 4\.2 percent between October 2008 and April 2009, banks' domestic lending expanded since April 2009 by 4\.6 percent\. But the Turkish financial sector is proving resilient in terms of solvency and liquidity\. Despite increasing NPLs banks remain well capitalized, and profitability has been supported by declining interest rates and strong trading income\. Many leasing companies included in the project are supported by parent banks and conglomerates, and all PFIs the ICR team met did not express any management, liquidity or solvency problems\. Total credit to private sector by 4 PFI banks increased by 54 percent in 2007 from the 2006 level, but, as a result of the global crisis, declined by 13 percent in 2008 from the 2007 level (still higher by 33 percent over the 2006 level)\. Further, total export loans (mostly export receivables) by 4 PFI banks increased by 40 percent in 2007 from the 2006 level, but declined by 26 percent in 2008 from the 2007 level (and 3\.5 percent from the 2006 level)\. Their performance in terms of the share of export loans in their total loan portfolio was mixed (see Annex 9 for details on credit to private sector and export loans)\. New business in the leasing industry has dropped dramatically in part as a result of slowing demand and increased credit risk in the SME sector and in part as a result of the investment finance nature of leasing\. Total new leasing volume in 2009 is expected to reach about US$2\.2 billion after amounting to US$5\.3 billion and US$8\.3 billion in 2008 and 2007, respectively\. The industry has traditionally focused on the SME segment, where credit risk has been increasing and demand has been weakening more than among larger firms\. Recently, the average transaction size had grown substantially in response to the crisis highlighting the shift away from SMEs\. While the banking sector has been able to shift transactions to working capital, the leasing industry has no such option\. (ii) Capacity building\. The project has had a considerable impact among (i) TSKB, which has built lending relationships and experience with PFIs, and a modern web-based IT system to process loan applications by PFIs; (ii) PFIs, which have expanded their client base and honed their skills in making medium- and long-term credit; (iii) exporters, which have built a credit history with financial intermediaries and improved formal documentation for gaining access to credit\. Indeed, a number of the PFIs (especially the leasing companies) indicated that the credit appraisal and documentation as well as monitoring requirements under the project helped them upgrade their lending practices with some of them introducing such practices in their leasing operations\. 22 (iii) Improved environmental practices\. The project has improved the environmental practices of exporters and the capacity of PFIs to assess environmental risks of borrowing companies\. The project's requirements for environmental protection procedures went beyond what the PFIs had in place and mostly required the exporters to obtain "EIA not required" certificates from the local authorities\. Indeed, some PFIs (leasing companies) indicated that they have decided to introduce in their operations environment practices required by the project\. Table 2: Results Framework and Monitoring Indicator and target Results as measured PDO 1: Provision of medium and long-term working capital and investment finance to private exporters, and contribution to further facilitating export growth in Turkey\. Indicator 1: Increase in access to finance for exporters measured by the number of enterprises and volume of exports supported\. Export Multiplier: Incremental average 168 exporters supported\. aggregate annual exports generated (measured US$966 million in incremental exports over 3 years for all sub-borrowers)/total credit generated, and export multiplier 3\.3 for line disbursed) 2006-2008\. Exports by participating firms grew by 95 ISR target export multiplier greater than 1 percent from US$2\.2 billion in 2005 to US$4\.3 billion in 2008\. For comparison, export growth for Turkey was 80 percent in the same period\. Credit line Utilization: Amount of credit line The credit line was fully disbursed by June actually disbursed/projected credit line 2009, one year ahead of projections\. disbursement on a straight line basis PDO 2: Improvement in the quality, safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Indicator 2: Increased depth and breadth of financial intermediation as measured by the number of additional PFIs (banks and leasing companies) that participate in EFIL III different from those in EFIL II Range of Financial Intermediaries 10 PFIs participated (4 banks and 6 leasing participation: Number of additional PFIs companies) of which 4 banks and 3 leasing participating in EFIL III different from those in companies were new entrants relative to EFIL II EFIL II\. ISR Target 2-4 new PFIs Export Financing\. Growth of export loans and Total export loans (mostly export their share in PFI bank's total loan portfolio receivables) by 4 PFI banks increased by 40 percent in 2007 from the 2006 level, but Added at ICR time declined by 26 percent in 2008 from the 2007 level (and 3\.5 percent increase from the 2006 level)\. Their performance in terms of the share of export loans in their total loan portfolio was mixed (Annex 9)\. Credit to private sector\. Growth in private Total credit to private sector by 4 PFI banks 23 sector credit increased by 54 percent in 2007 from the 2006 level, but, as a result of the global Added at ICR time crisis, declined by 13 percent in 2008 from the 2007 level (still higher by 33 percent over the 2006 level)\. (Annex 9) Indicator 3: Improvement of quality of credit portfolio management by measuring the level of debt service and amortization performance of sub-loans under EFIL III of the participating banks and leasing firms\. Sub-loan Performance Indicators: Decreasing During project, two borrowers defaulted amount of non-performing sub-loans and leases; with a total of US$4\.5 million outstanding Interest and/or principal defaults/total amount of balance or 1\.5 percent of the total disbursed sub-loans and leases disbursed amount\. One borrower later regained status as performing thus reducing NPL ratio to ISR target NPL ratio of less than 5 percent 0\.7 percent as of June 2009 (at the time of Loan Closing)\. As of September 2009, NPL ratio was 3\.0 percent (US$9\.5 million) - for banks 1\.0 percent and leasing companies 4\.2 percent (involving 1 bank and 4 leasing PFIs, see Annex 9)\. For comparison, NPL ratio for the Turkish banking sector was 4\.9 percent as of June 2009 and 5\.3 percent, as of September 2009 (11\.9 percent for the leasing sector)\. Additional Indicators Added During Supervision Financial performance of the Borrower and PFIs With the exception of one PFI, which later recovered, all financial intermediaries in the project remained sound throughout the project's implementation period\. Financial indicators are included in Annex 9\. Loan distribution among regions, sector and size Sub-loans are broadly widely distributed of firms among 168 entities with a maximum sub- borrower loan size of 3\.2 percent of the total project amount\. Fifty percent of the loan volume (21\.5 percent by amount) was for sub-loans of less than US$1\.0 million\. Sixty percent of sub-loans (48 percent by amount) were made to SMEs\. There is significant concentration in the Marmara region (which includes Istanbul)\. The textile industry, which accounted for 23 percent of Turkey's manufacturing exports in 2008, accounts for 29\.0 percent of the sub-loans\. (Annex 10)\. Employment growth of sub-borrowers The planned employment growth as a result of the project was 3,725\. Actual numbers show a reduction of 655 jobs (or 1\.5 percent) as of end 2008\. For comparison, unemployment rate in Turkey was 13\.4 percent in October 2009\. 24  ANNEX 3\. ECONOMIC AND FINANCIAL ANALYSIS At the level of exporters, which are the ultimate beneficiaries, economic and financial analysis has not been conducted, but outcomes (export performance and planned employment impact) have been measured (see Annex 2)\. There are 168 sub-borrowers in the project, and it would not be practical to go beyond those measures for economic and financial analysis considering that intermediaries already find it to be a significant cost of the project to collect just the outcome measures\. See Annex 5 for the results of beneficiary survey\. 25  ANNEX 4\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Lalit Raina Sector Manager ECSPF Team Leader Ahmet Gurhan Ozdora Sr Operations Off\. ECSSD Team member Marius Vismantas Financial Sector Spec\. ECSPF Team member Financial Ayse Seda Aroymak Sr Financial Management Spec\. ECSPS management Dilek Barlas Deputy Executive Secretary IPN Legal Furuzan Bilir Operations Officer ECCU6 Disbursement Salih Kemal Kalyoncu Procurement Spec\. ECSPS Procurement Supervision/ICR Team Leader Lalit Raina Sector Manager ECSPF (supervision) Carlos Pinerua Country Sector Coordinator ECSPF Team Leader (ICR) Team Leader Steen Byskov Financial Sector Spec\. ECSPF (supervision) Vinod K\. Goel Consultant ECSPF ICR team Halil Agah Senior Rural Development Spec\. ECSSD Team member Financial Ayse Seda Aroymak Sr Financial Management Spec\. ECSPS management Dilek Barlas Deputy Executive Secretary IPN Legal Furuzan Bilir Operations Officer ECCU6 Disbursement Salih Kemal Kalyoncu Procurement Spec\. ECSPS Procurement Isfandyar Zaman Khan Financial Sector Spec\. ECSPF Team member Irina L\. Kichigina Chief Counsel LEGEM Legal Zeynep Lalik Financial Management Specialist ECSPS Team member Ahmet Gurhan Ozdora Sr Operations Officer ECSSD Team member Marius Vismantas Financial Sector Spec\. ECSPF Team member 26 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No\. of staff weeks (including travel and consultant costs) Lending FY05 20\.98 98\.42 FY06 0\.00 FY07 0\.00 Total: 98\.42 Supervision/ICR FY06 29\.88 154\.44 FY07 38\.63 181\.15 FY08 47\.17 184\.15 FY09 24\.39 103\.10 FY10 1\.25 21\.64 Total: 644\.48 Grand Total: 742\.90 27  ANNEX 5\. BENEFICIARY SURVEY RESULTS The ICR team commissioned an independent survey of project beneficiaries to assess the impact of EFIL III program on beneficiary firms\. The survey sample consisted of 168 project participants and 50 test group firms in similar sectors and similar regions of the country\. Comparing the performance of the participating firms with the performance of a comparator group is useful because it makes it possible to control for changes in the external environment that might have affected the performance of participants and, therefore, provides stronger evidence that the project improved firm performance\. The sample size and questionnaire were finalized in consultation with TSKB who requested participating financial intermediaries (PFIs) to assist in the survey\. The firms (and PFIs) were provided a written questionnaire and were given several options to provide data--face to face interview, phone interview, and internet\. Participating firms were initially contacted by (and continually encouraged) by PFIs to provide data (comparator firms were selected and contacted by the survey firm)\. This was followed up by the survey firm on a regular basis\. Not surprisingly, some firms were reluctant to provide data and many even refused to do so\. This note presents a summary based upon a subset of survey data­ 50 comparator firms and 72 participant firms\. Unfortunately, with the small data set available it is not possible to use more sophisticated econometric techniques (e\.g\., matching or regression analysis) to control for difference between the firms\. I\. Comparison of Performance of Participating and Non-Participating Firms A first exercise is to compare the performance of participating firms with the performance of the comparator firms between 2005 and 2008\. This comparison is useful because it shows controls for the possibility that the observed growth in exports or other things might be due to things that are external to participation in the program\. That is, without comparison to a comparator group, it would be possible that any observed growth could be due to external economic factors that encouraged growth in the overall economy\. The preliminary data provide good evidence that participant firms outperformed non- participant firms between 2005 and 2008 (Figure 1)\. Exports grew by 10\.4 percent in real terms over this period for the median participating firm compared to only zero percent for the median comparator firm\. Similarly, sales grew by about 11\.7 percent in real terms for the median participating firm and only 6\.2 percent in real terms for the median comparator firm\. Finally, employment grew by about 8\.9 percent for participating firms and only 2\.5 percent for comparator firms over this period\. The preliminary analysis therefore indicates that participating firms grew more quickly than the comparator firms in a number of important ways between 2005 and 2008\. 28  Figure 1: EFIL firms grew more quickly in terms of exports, sales and employment Me dian grow th rate s (2005-08) 14\.0 11\.7 12\.0 10\.4 10\.0 8\.9 8\.0 Non-EF IL F irms 6\.2 6\.0 EF IL F irms 4\.0 2\.5 2\.0 0\.0 0\.0 Export Grow th Sales Grow th Employment Grow th Note\. All growth rates are real growths using the GDP deflator to convert into constant TYL Other evidence from the survey also suggests that participant firms performed better than Non-participating firms over this period\. In addition to asking firms about their sales, exports and employment, firms were also asked about the adoption of new technologies, introduction of new products, initiatives on environmental management and if they entered new export markets (Figure 2)\. Participating firms were more likely to introduce new products than non-participating firms over the period\. Almost twice as many participating firms did so between 2005 and 2008 (58 percent compared to 29 percent for comparator firms)\. Further, more firms also adopted new technologies to reduce cost (88 percent compared to 61 percent for comparator firms) and expanded their client bases (79 percent compared to 58 percent for comparator firms)\. Figure 2: EFIL firms were more likely to introduce new technologies, improve environmental management, and export to new markets % of firms taking action in past three years 100 88 90 79 79 80 69 70 58 61 58 60 48 47 50 40 29 30 20 10 0 New product New technology that New technology to Improve environmental Export to new markets reduces cost expand client base management Non-EF IL F irms EF IL firms Participating firms were also more likely to report that they had improved environmental management than non-participating firms\. Whereas about 47 percent of non-participating 29 firms reported that they had improved environmental management, about 79 percent of participating firms reported the same\. Participating firms that did improve environmental management also tended to take more actions to improve their management than non- participating firms that had done so\. Participants were also more likely to start exporting to new areas than comparator firms were\. Whereas 48 percent of comparator firms reported that they started exporting to new markets between 2005 and 2008, compared to 69 percent of participating firms\. Finally, EFIL participating firms were also more likely to spend on R&D, upgrade existing products and services, obtain internationally recognized quality certification, use foreign technologies and operate formal training programs for their permanent employees (Figure 3)\. Figure 3: EFIL firms were more likely to spend on R&D, upgrade products, obtain quality certification, use foreign technologies and have formal employee training programs % of firms using innovation in past three years 80 75 75 67 70 60 60 50 50 39 40 40 31 30 19 18 20 10 0 Spend on R&D activities Upgraded existing Have internationally Use technology licensed Formal employee training product or service recognised quality from foreign ow ned program certificate company Non-EF IL F irms EF IL firms Of the 41 participating firms that improved environmental management, about 90 percent reduced, reused and recycled waste, 41 percent imposed responsibility for environmental management on management, 39 percent applied environmentally friendly technologies, 49 percent updated environmental facilities, 37 percent provided in-house training on environmental management, 34 percent established management systems (e\.g\., ISO 14001) and 41 percent closely supervised environmental practices at work level (Table 1)\. Fewer of the non-participating firms that had improved environmental management in the past three years did any of these things other than updating environmental facilities\. In summary, participating firms were more likely to improve environmental management and did so more aggressively when they did\. Table 1: Actions taken to improve environmental management by firms improving environmental management practices 30  Comparator Participant Firms Firms Reduce, reuse and recycle waste 90% 65% Impose responsibility on management 41% 26% Apply environmental friendly technologies 39% 26% Update environmental facilities 49% 52% Provide in-house training 37% 26% Establish management systems 34% 9% Closely supervise at work level 41% 35% Note: Only includes firms that improved environmental management In summary, the available evidence suggests that participating firms improved their performance more along a number of important dimensions than non-participating firms did\. They appear to have grown faster on average in terms of employment, sales and exports and were more likely to be innovative and introduce new technologies, improve environmental management and enter new export markets\. II\. Participants Views of the EFIL Program Firms that participated in the program were also asked a series of questions about how they saw the program\. For the most part, participating firms appeared to be satisfied with the program (Figure 4)\. When asked how satisfied they were with the EFIL program, about 69 percent said that they were satisfied and 16 percent said that they were very satisfied\. Only about 8 percent said that they were only moderately satisfied and about 6 percent said that they were not satisfied\. Consistent with this about 89 percent of participants said that they would participate in the program again if it was possible\. Figure 4: Most participants were satisfied with the EFIL program H W N S V S N M S S Y To assess the program's effectiveness, it is also useful to look at the additionality of the financing they received\. That is, it is interesting to see whether the firm managers believed that they would have been able to finance the investments that they made using EFIL program resources in other ways if they had not received funds\. If EFIL funds are just replacing funds, then the additionality might be more modest than if they are 31 allowing the firms to do things that they would not have been able to do if the absence of the program\. For the most part, it appears that the firms believed that there was some additionality\. Only about 35 percent of the firms that received financing believed that they would have been able to fully finance the investment or working capital that they financed with the loans from the EFIL program in other ways in the absence of receiving EFIL funds (Figure 5)\. In addition, about 47 percent said that they would have been able to partially finance the investments that they received in other ways in absence of program funds\. A small number of firms (18 percent) reported that they would not have been able to finance any part of the investment or working capital needs without loans from the EFIL program\. Figure 5: Many of the managers believed that if they had not received funds from the program, they would not have been able to finance the investment N F P Firms that believed they could have partly or fully financed in other ways in the absence of the program were asked how they would have done it\. Firms were allowed to indicate multiple sources of financing\. Most of the firms that believed they would have been able to partly or fully finance in other ways in the absence of the program believed that they would have done so with bank loans (83 percent)\. Of the firms that reported that they could have used bank financing, about half also reported that they would have used other source of financing (e\.g\., equity or loan from owners) in addition to bank financing to fully or partly finance the investment\. Fewer firms reported that they would have used additional equity financing or loan financing from the owner (46 percent) or from retained earnings (15 percent)\. Very few firms (less than 10 percent) reported other sources such as loans from family or friends, loans from other sources, other equity investment, or credit from suppliers or customers\. Finally, participant firms were also asked whether they found any problems with the various aspects of the EFIL program\. Of the four areas that were asked about, few complained about any of the areas\. The most common concern was procurement 32 thresholds for commercial practice ­ about one in five participants said that this had been a major obstacle\. The next most common concern was restrictions on land purchases ­ about 19 percent said that this had been a serious problem (Figure 6)\. Finally, about 15 percent said that provisions related to invoicing and 9 percent said that a restriction on purchasing consultant services was a major restriction\. Figure 6: Although few firms had major concerns about program provisions, they were more likely to say that thresholds for commercial practice were a serious problem than other provisions % of firm s s aying re quirem e nts w e re s erious obs tacles 25\.0 21\.6 18\.9 20\.0 15\.0 15\.0 10\.0 8\.6 5\.0 0\.0 No consultant service Invoicing No land purchase Thresholds f or purchases commercial practice Overall, most of the evidence suggests that firms were relatively satisfied with the program\. Less than one in five firms said that they were only moderately or not satisfied with the program and 89 percent said that they would participate again\. Moreover, few firms said that specific restrictions were serious problems\. Finally, the program seems to have had some additionality in that many of the firms said that they would have been able to finance their investments only partly or not at all in the absence of the program\. 33  Annex 6\. Stakeholder Workshop Report and Results No workshop was held\. 34  ANNEX 7\. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR B ICR TSKB A O P EFIL III B E T T T T E O L PFI L EFIL II T B TSKB TSKB PFI T PFI T PFI A PFI PFI A USD FFK F F K A I F K A Y K F K A G F K A A F K A F F K A F AS A AS T AS D AS T PFI A EUR Y K F K A I F K A F F K A FFK F F K A G F K A A AS F AS T 35 A EFIL III USD FFK F F K AS Y K F K AS I F K AS A F K AS F F K AS D F K AS F AS A AS D AS S L A SLA TSKB T PFI USD USD T D F K M USD T AS USD G F K AS USD PFI A EFIL III EUR Y K F K AS F F K A S FFK F F K AS I F K AS D F K AS A AS F AS S L A SLA TSKB T PFI EUR EUR T D F K M EUR G F K AS EUR PFI O T TSKB T PFI PFI U EFIL II IT TSKB T EFIL III W A PFI T TSKB PFI T PFI N PFI TSKB IT I TSKB D TSKB PIU PFI O D P I U PIU TSKB B E V P PIU B A B FMR B T TSKB PFI TSKB B F TSKB T T I 36  T T T PFI N D T PFI EFIL III S A PFI EFIL III T T T B NPL C T B A PFI EFIL III C P A A PFI TSKB TSKB A PFI T PFI A T P EFIL III B E A USD EFIL III USD T EUR EFIL III EUR T I EFIL III T T T T PFI EFIL III EFIL I EFIL II I EFIL I PFI EFIL II EFIL III PFI A PFI S EFIL III EFIL III A B A D F T A L F L L T A S T USD EUR FFK F F K A G F K A Y K F K A PFI EFIL II EFIL III T PFI EFIL III D EFIL III PFI T USD USD USD T EUR EUR EUR T T USD EUR J 37 O USD USD USD T USD USD L USD USD F USD O T T T T EFIL III USD E A TSKB EFIL I E APEX B B I A EFIL II EFIL III T T T T W S E B T B D B W IBRD A O TSKB PIU D T EFIL II EFIL III EFIL IV TSKB T EFIL IV USD EUR S T EFIL T E USD J EUR USD T EFIL IV 38  I T EFIL III P B SME B SME E A B B A NPL I A USD M NPL N B V H T T T T F T N NIM T T B T B ROE ROA CAR F T EU NIM I H ROE H 39  EM M J I AFS W M J G ON CBT H T O T O H H Q NPL Q S W T Q GDP F Q TRY Q USD TRY FX USD H FX TRY TRY O T USD S W Q FX S Q T B S D L G A TRY TRY E E E E E A C O H C SME FX T L H 40  ASSETS (million TRY) YoY Change 2007 2008E 2009E 2010E 2011E 2012E 2007 2008E 2009E 2010E 2011E 2012E CAGR Sector 433\.686 536\.314 672\.854 837\.332 1\.041\.495 1\.294\.697 17% 24% 25% 24% 24% 24% 24% DEPOSITS (million TRY) YoY Change 2007 2008E 2009E 2010E 2011E 2012E 2007 2008E 2009E 2010E 2011E 2012E CAGR Sector 270\.520 342\.024 435\.043 536\.884 648\.079 775\.300 16% 26% 27% 23% 21% 20% 23% L M A G Y K T IB I B W A F F Total New New Branches Projected (*) Total Bank's announcements, comments Branches Branches Branches Opened Projected 2006 2007 2007 2008 2009 2010 2011 2012 2012 AKBNK 683 716 33 100 100 100 100 100 1,216 1,200 branches by 2012, 100 branches each year ALBRK 63 80 17 20 20 20 20 20 180 200 branches by 2013, 20 branches each year ALNTF 29 40 11 10 20 20 20 20 130 150 branches by 2012 ASYAB 91 118 27 25 25 25 25 25 243 DENIZ 262 320 58 80 50 50 50 50 600 FORTS 225 268 43 50 50 50 50 50 518 40-50 branches in 2008\. 575-600 branches by 2011 FINBN 309 411 102 64 75 50 50 50 700 475 branches by the end of 2008, 550 branches by the end of 2009 GARAN 483 588 105 100-150 150 150 100 100 1,238 1,000 branches by 2010 HALKB 588 590 2 5 5 5 5 5 615 New branches in the 3 biggest cities ISCTR 891 939 48 50 50 50 50 50 1,189 SKBNK 209 235 26 25 20 20 20 20 340 300 branches by 2010 TEBNK 170 273 103 100 50 50 50 50 573 Branch opening ratio will be preserved in 2008\. TEKST 48 59 11 15 15 15 15 15 134 VAKBN 314 362 48 120 50 50 50 50 682 YKBNK 598 676 78 160 180 50 50 50 1,166 1,000 branches by 2010 Total 4,963 5,675 712 824 860 705 655 655 9,524 (*) Colored projections are stated by banks\. The uncolored ones are estimations\. W I Q L O L NPL I Q NPL E B S AFS 41  HTM CBT I CBT O N L A T J BRSA R A NPL NPL H L L E M J L T FINANCIAL PERFORMANCE OF BORROWER AND PFIS TSKB F P H C E R R G NPL L USD T A L E 42  EFIL III DISTRIBUTION OF LOANS BY REGION SECTOR AND LOAN SIZE CONSOLIDATED LOAN DISTRIBUTION REPORT A N SECTOR A USD S T T P B M F M P F P B P P P P P P W W P C S C M L M E NEC I F R P P E O E O N M M P S B M Q C C P M M F TOTAL CONSOLIDATED LOAN DISTRIBUTION REPORT A N REGION A USD S M A S A M C A B S TOTAL CONSOLIDATED LOAN DISTRIBUTION REPORT A N L S A USD S US US US US US US TOTAL E USD 43  ANNEX 8\. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS PFIs provided useful comments and feedback during the ICR mission\. A summary is provided in Section 7\.c, but, due to confidentiality reasons, detailed comments are not mentioned in the ICR\. 44  ANNEX 9: FINANCIAL PERFORMANCE OF BORROWER AND PFIS A\. BORROWER (TSKB) FINANCIAL PERFORMANCE TSKB 2004 2005 2006 2007 2008 20091H Capital adequacy ratio 42\.8% 36\.8% 32\.9% 27\.6% 21\.1% 22\.0% Equity/assets 16\.7% 16\.7% 14\.5% 15\.1% 12\.1% 14\.3% Return on equity 13\.3% 21\.4% 18\.7% 22\.2% 16\.0% 22\.0% Return on assets 2\.2% 3\.5% 2\.9% 3\.3% 2\.1% 2\.9% Gross NPLs/ Total loans 4\.2% 2\.4% 1\.3% 0\.7% 0\.7% 0\.6% Total Assets (USD million) 1,707 2,470 2,881 4,195 4,095 4,099 Loans (USD million) 1,038 1,329 1,757 2,393 2,562 2,542 Equity (USD million) 285 412 418 634 495 587 NON PERFORMING LOANS- PFIS' OVERALL PORTFOLIO AND EFIL III PORTFOLIO 2008 2009 Q2 2009 Q3 EFIL III PFIs Overall Overall EFIL III Overall EFIL III Banks Alternatif Bank 5\.40% 6\.40% 0\.70% 6\.50% 2\.90% Denizbank 3\.20% 4\.80% none 5\.00% none Finansbank 3\.70% 6\.60% none 6\.62% none Tekstilbank 3\.30% 6\.80% none 6\.70% none Leasing Companies Alternatif Leasing 1\.40% 0\.90% none n/a 10\.60% FFK Leasing 12\.00% 19\.90% none 12\.90% 0\.20% Finans Leasing 6\.50% 11\.60% none 12\.10% none Garanti Leasing 0\.70% 1\.20% none n/a none Leasing 7\.30% 11\.10% none 11\.00% 10\.70% Yap Kredi Leasing 6\.50% 9\.80% none 10\.67% 6\.00% Source: All data in Annex 9 was provided by TSKB 45 B\. PERFORMANCE OF BANKS ACTING AS PFIS Financial Performance Indicators PFI 2006 2007 2008 20091H Alternatif bank Return on assets 2\.0% 3\.0% 2\.0% 3\.0% Return on equity 22\.0% 28\.0% 14\.0% 21\.0% Equity/Assets 9\.2% 9\.4% 10\.0% 11\.9% Gross NPL ratio 2\.80% 3\.50% 5\.40% 6\.40% Capital adequacy ratio* 12\.7% 14\.6% 14\.1% 13\.9% Denizbank Return on assets 3\.0% 2\.0% 2\.0% 2\.0% Return on equity 28\.0% 23\.0% 17\.0% 22\.0% Equity/Assets 10\.8% 9\.8% 10\.6% 11\.7% Gross NPL ratio 2\.40% 2\.40% 3\.20% 4\.80% Capital adequacy ratio* 15\.5% 13\.2% 17\.2% 17\.6% Finansbank Return on assets 8\.0% 6\.0% 4\.0% 3\.0% Return on equity 21\.0% 22\.0% 18\.0% 14\.0% Equity/Assets 12\.0% 12\.6% 10\.7% 13\.7% Gross NPL ratio 2\.30% 2\.80% 3\.70% 6\.60% Capital adequacy ratio* 16\.8% 13\.0% 16\.1% 18\.3% Tekstilbank Return on assets 1\.0% 1\.0% 0\.0% 1\.0% Return on equity 6\.0% 12\.0% 1\.0% 5\.0% Equity/Assets 11\.9% 13\.1% 15\.2% 22\.8% Gross NPL ratio 0\.80% 1\.40% 3\.30% 6\.80% Capital adequacy ratio* 14\.2% 13\.2% 17\.9% 21\.7% * Risk weighted Total Loans and Export Loans PFI-Banks 2006 2007 2008 20091H Alternatif bank Export Loans (000 USD) 163 242 262 252 Total Loans (000 USD) 951 1,600 1,568 1,590 Export Loans / Total Loans 17\.1% 15\.1% 16\.7% 15\.9% Denizbank Export Loans (000 USD) 514 760 428 399 Total Loans (000 USD) 4,830 8,934 8,437 8,602 Export Loans / Total Loans 10\.6% 8\.5% 5\.1% 4\.6% Finansbank Export Loans (000 USD) 612 784 719 519 Total Loans (000 USD) 7,814 12,170 11,822 9,944 Export Loans / Total Loans 7\.8% 6\.4% 6\.1% 5\.2% Tekstilbank Export Loans (000 USD) 227 331 158 132 Total Loans (000 USD) 1,198 1,788 1,062 862 Export Loans / Total Loans 18\.9% 18\.5% 14\.9% 15\.3% Credit to Private Sector (Real Sector) Amounts (US$000) As % of total credit 2006 2007 2008 2006 2007 2008 Alternatif bank 901,551 1,553,088 1,486,169 95% 97% 95% Denizbank 3,349,997 6,254,473 5,616,856 69% 70% 67% Finansbank 4,502,095 5,862,232 5,248,943 58% 48% 44% Tekstilbank 1,137,825 1,516,342 837,966 95% 85% 79% 1/ Excluding credit extended to financial institutions, and consumer loans and credit card receivables\. 46 C\. PERFORMANCE OF LEASING COMPANIES ACTING AS PFIS Financial Performance Indicators Alternatif Leasing Return on assets 10\.8% 3\.9% 2\.7% 0\.2% Return on equity 40\.5% 31\.9% 20\.4% 1\.1% Equity/Assets 14\.3% 15\.6% 14\.5% 15\.7% Net Lease Receiv\./Assets 86\.8% 88\.0% 81\.8% 79\.7% Gross NPL Ratio 0\.70% 0\.70% 1\.40% 0\.90% FFK Leasing Return on assets 4\.1% 2\.3% 4\.2% 0\.3% Return on equity 26\.0% 10\.7% 16\.0% 1\.2% Equity/Assets 13\.5% 29\.6% 22\.0% 25\.9% Net Lease Receiv\./Assets 74\.6% 66\.4% 46\.9% 68\.9% Gross NPL Ratio 0\.40% 10\.00% 12\.00% 19\.90% Finans Leasing Return on assets 7\.7% 5\.7% 3\.8% 2\.9% Return on equity 21\.1% 21\.7% 17\.9% 13\.5% Equity/Assets 30\.9% 22\.0% 19\.9% 25\.1% Net Lease Receiv\./Assets 79\.0% 72\.4% 49\.1% 65\.2% Gross NPL Ratio 1\.80% 1\.20% 6\.50% 11\.60% Garanti Leasing Return on assets 31,1% 33,1% 29,3% 23,2% Return on equity 3,6 % 3,6% 3,3% 3,1% Equity/Assets 11\.0% 9,7% 12\.0% 14,83% Net Lease Receiv\./Assets 96\.6% 91\.0% 34\.5% 90\.2% Gross NPL Ratio 0\.90% 0\.80% 0\.70% 1\.20% Leasing Return on assets 3,4 % 4,8 % 6,67 % 3,79 % Return on equity 19,1 % 25,2 % 30,4 % 16,4 % Equity/Assets 18\.0% 20\.0% 23,0 % 23,0 % Net Lease Receiv\./Assets 79\.0% 72\.4% 49\.1% 65\.2% Gross NPL Ratio 9\.90% 8\.10% 7\.30% 11\.10% Yap Kredi Leasing* Return on assets n\.m\. 6\.3% 5\.0% 2\.9% Return on equity n\.m\. 25\.6% 22\.7% 12\.7% Equity/Assets 28\.4% 22\.2% 21\.7% 23\.4% Net Lease Receiv\./Assets 94\.2% 94\.5% 95\.2% 94\.8% Gross NPL Ratio 3\.60% 3\.40% 6\.50% 9\.80% Operational Indicators (US$ million) NLR NLV Profit NLR NLV Profit NLR Alternatif Leasing 193 139 7 178 108 6 161 FFK Leasing 363 190 11 274 116 19 234 Finans Leasing 858 711 39 782 432 37 637 Garanti Leasing 1,722 1,526 44 1,396 799 54 1,243 IS Leasing 658 445 36 612 359 59 580 Yap Kredi Leasing* 2,028 1,562 102 1,774 794 103 1,562 Net Lease Receivables (NLR), New Leasing Volume (NLV) and Profitability *Following the merger with Koç Lease, ratios for the year 2006 and 2007 are followed under Yap Kredi Leasing\. 47 ANNEX 10\. DISTRIBUTION OF LOANS BY REGION, SECTOR, AND LOAN & EMPLLOYMENT SIZE Amount Number of Loans SECTOR US$ million* Share (%) Count Share (%) Textiles and Textile Products 90\.611 29\.0 61 29\.5 Basic Metals and Fabricated Metal Products 43\.237 13\.8 27 13\.0 Food Products and Beverages 40\.131 12\.8 24 11\.6 Pulp, Paper and Paper Products, Publ\.& Printing 22\.923 7\.3 12 5\.8 Wood and Wood Products 18\.508 5\.9 6 2\.9 Construction Services & Construction Materials 16\.961 5\.4 15 7\.2 Logistics 12\.103 3\.9 12 5\.8 Machinery and Equipment N\.E\.C\. 12\.101 3\.9 14 6\.8 Industrial packaging 11\.427 3\.7 7 3\.4 Furniture 10\.635 3\.4 3 1\.4 Rubber and Plastic Products 10\.425 3\.3 9 4\.3 Electrical and Optical Equipment 8\.115 2\.6 6 2\.9 Other Non-Metallic Mineral Products 5\.786 1\.8 3 1\.4 Ship Building 4\.900 1\.6 1 0\.5 Mining and Quarrying 2\.739 0\.9 4 1\.9 Chemicals, Chemical Products & Man-Made Fibers 2\.327 0\.7 3 1\.4 TOTAL 312\.928 100\.0 207 100\.0 Amount Number of Loans REGION US$ million* Share (%) Count Share (%) Marmara 186\.644 59\.6 123 59\.4 Aegean 38\.262 12\.2 31 15\.0 Southeast Anatolia 30\.974 9\.9 18 8\.7 Mediterranean 30\.524 9\.8 15 7\.2 Central Anatolia 20\.358 6\.5 16 7\.7 Black Sea 6\.166 2\.0 4 1\.9 TOTAL 312\.928 100\.0 207 100\.0 Amount Number of Loans SUB-LOAN SIZE US$ million* Share (%) Count Share (%) < US$250,000 2\.291 0\.7 11 5\.3 US$250,000 ­ US$1,000,000 65\.243 20\.8 94 45\.4 US$1,000,000 ­ US$2,500,000 115\.541 36\.9 71 34\.3 > US$2,500,000 129\.852 41\.5 31 15\.0 TOTAL 312\.928 100\.0 207 100\.0 Amount Number of Beneficiaries EMPLOYMENT SIZE US$ million* Share (%) Count Share (%) 50 21\.810 7\.0 25 14\.9 50-250 128\.619 41\.1 76 45\.2 > 250 162\.499 51\.9 67 39\.9 TOTAL 312\.928 100\.0 168 100,0 * Euro disbursements are converted to US$ @ exchange rate 1 =1\.4116 US$ as of June 30, 2009\. 48  ANNEX 11\. LIST OF SUPPORTING DOCUMENTS 1\. Export Finance Intermediation Loan (EFIL) Project Appraisal Document, Report No: 19271-TR, June 1999\. 2\. Export Finance Intermediation Loan (EFIL) Implementation Completion Report, Report No: 27566, December 2003\. 3\. Second Export Finance Intermediation Loan (EFIL II) Project Appraisal Document, Report No: 26937-TR, December 2003\. 4\. Third Export Finance Intermediation Loan (EFIL III) Project Appraisal Document, Report No: 31440-TR, April 2005\. 5\. Independent Evaluation Group (2006), "World Bank Lending for Lines of Credit: An IEG Evaluation", The World Bank, Washington, D\.C\. 6\. The World Bank (2007), "Turkey: Investment Climate Assessment", The World Bank, Washington, D\.C\. 7\. Second Export Finance Intermediation Loan (EFIL II) Implementation Completion and Results Report, Report No: ICR0000610, January 2008\. 8\. The Fourth Export Finance Intermediation Loan (EFIL IV) Project Appraisal Document, Report No: 42800-TR, May 2008\. 9\. Project Aide Memoires, ISRs, FMRs and various other documents\. 10\. Operational Manual 11\. Financial Reports for TSKB and PFIs 12\. Financial Management Assessment and Procurement Assessments Reports 49 50

REVIEW

P035825

 ICRR 11962 Report Number : ICRR11962 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 11/29/2004 PROJ ID : P035825 Appraisal Actual Project Name : State Health Sys II Project Costs $416\.7 million $401\.5 million US$M ) (US$M) Country : India Loan /Credit (US$M) Loan/ US$M ) $350 million $315\.3 million Sector (s): Board: HE - Health (95%), Cofinancing Sub-national government US$M ) (US$M) administration (5%) L/C Number : C2833 Board Approval 96 FY ) (FY) Partners involved : Closing Date 03/31/2002 03/30/2004 Prepared by : Reviewed by : Group Manager : Group : E\. Hazel Denton John R\. Heath Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives To assist the Governments of Karnataka, Punjab, and West Bengal to (i) improve efficiency in the allocation and use of health resources through policy and institutional development; and (ii) improve the performance of the health care system through improvements in the quality, effectiveness and coverage of health services at the first referral level and selective coverage at the primary level to better serve the neediest sections of society \. The ultimate goal was to improve the health status of the population, especially the poor \. b\. Components Working within an agreed Reform Program, the project had three components \. These, together with the appraisal and actual costs, were: Management Development and Institutional Strengthening (Expected cash US$26\.6 million/Actual cash US$28\.7 million) by (a) Improving the institutional framework for policy development; (b) Strengthening the management and implementation capacity of institutions; and (c) developing a surveillance capacity for major communicable diseases and response capabilities \. Improving Service Quality, Access and Effectiveness at the First Referral Level (US$308\.2 million/US$354\.9 million) through (a) upgrading community, subdivisions and district hospitals; (b) upgrading effectiveness of clinical and support services; and (c) improving the referral mechanism and strengthening linkages with the primary and tertiary health care levels \. Improving Access to Primary Health Care in Remote and Underdeveloped Areas (US$24\.3 million/US$17\.9 million) by (a) upgrading primary health centers and improving access to primary health care services in the Sunderban area of southern West Bengal; and (b) increasing access to primary health care services among the Scheduled Castes and Scheduled Tribes in Karnataka \. c\. Comments on Project Cost, Financing and Dates The Credit of SDR 235\.5 million was equivalent to US$315\.3 million at project closing, rather than US$ 350 million as at appraisal\. Total project cost was US$401\.5, against an appraisal estimate of US$ 416\.7 million\. The credit was 99 percent disbursed\. Having been prepared rapidly (five months from appraisal to approval ) it closed two years later than planned, on March 30, 2004\. 3\. Achievement of Relevant Objectives: The first objective was partially achieved \. The efficiency in the allocation and use of health resources was improved as reflected in the overall increases in the share of health resources dedicated to the primary and secondary levels (except in Punjab) as well as an increase in government spending for non -salary recurrent costs, particularly for drugs and supplies \. However, there was a reduction in the absolute levels of state government spending on health in the last few years \. The second objective was achieved, with most of the targets met or exceeded, but there was some variation in performance between the states \. 4\. Significant Outcomes/Impacts: Improving access, quality, and effectiveness of the health care system at the first referral level and selected coverage of primary health care was achieved through increased allocations dedicated to the primary and secondary levels in two of the States; a computerized Health Management Information System was established at state, district, and project -facility levels to provide feedback to assist hospital performance and facilitate follow-up actions; structured involvement of the private and voluntary sector increased with private contractors involved in providing supporting services such as ambulance, sanitation and maintenance \. Upgrading of hospitals exceeded the target (571 hospitals versus 524 planned) with several output targets also exceeded including the number of admissions, out -patients, laboratory tests, surgeries, and X -rays\. Significant increases in access to Primary Health Care (PHC) in Remote and Under-served areas were achieved with the upgrading of PHC facilities in West Bengal plus provision of three floating medical units for the riverine area; health camps were organized in Karnataka which served mostly Scheduled Tribes and Scheduled Castes; In West Bengal, 382 villages were covered by mobile health care services against a target of 351 villages\. Capacity of the implementing agencies in sector analysis and management has been strengthened and more than 70 studies and background papers have been prepared to provide a foundation for policy and institutional development\. A policy of user fees was implemented in all project facilities for paying beds, diagnostic tests, surgery, and out-patient services with revenues retained at the project hospital level (except in West Bengal) and used for non-salary recurrent expenditures \. A Waste Management System has been deployed in a large number of project facilities using segregation of waste, collection in bags and bins of different colors, then treatment and disposal \. It has been documented as best practice within the Bank \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The planned development of a regulatory framework to monitor private health sector development, assess quality, and encourage referrals between the private and public sectors did not happen \. The project activities made no effort to foster interaction between the public and private sectors \. There is no clear evidence on improvements in the referral systems, and hospitals continue to provide services that could have been provided at lower levels \. There is some evidence of under -utilization of upgraded facilities \. While bed occupancy rates increased in all three states, the rates did not meet the ambitious targets set at appraisal \. Although the poor in West Bengal and Karnataka benefited greatly from the facilities improved under the project, in Punjab the poor did not proportionately benefit from the project \. Data from the Reproductive and Child Health surveys show that in all three states although there was a slight increase between 1999 and 2003, only about half of total deliveries were 'institutional deliveries' (IDs); the share of IDs in total deliveries was only a third for the poorest 20%\. In both Punjab and Karnataka the public sector share of total IDs declined over the period of the project \. Data collection for monitorable indicators was inadequate in several aspects \. Although non-project hospitals were included in some surveys, private health facilities were not \. Thus comparisons between project and non-project facilities of patient satisfaction, drug availability, impact of enhancement of clinical skills, admissions, X-rays, and surgeries cannot be made \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Appropriate selection of indicators to be monitored is critical for useful feedback during project implementation \. Recognition of the role of the private sector /NGOs and their incorporation into work with the State Governments can make health care much more accessible \. A framework supporting referral from primary health care to first level referral hospitals can significantly improve the allocation of health care resources \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: Very thorough ICR, with extensive and helpful Annexes \.

REVIEW

P071391

 Document of The World Bank Report No: ICR00004098 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-40860, IDA-51290) ON A CREDIT IN THE AMOUNT OF SDR 132\.7 MILLION (IDA-40860) AND SDR 77\.5 MILLION (IDA- 51290) (US$ 320 MILLION EQUIVALENT) TO THE FEDERAL REPUBLIC OF NIGERIA FOR A SECOND NATIONAL URBAN WATER SECTOR REFORM PROJECT May 21, 2018 GWA08 AFCW2 AFRVP i  CURRENCY EQUIVALENTS (Exchange Rate Effective 12/31/2017) Currency Unit = SDR 1\.00 = US$ 1\.424130 US$ 1\.00 = 0\.702181 FISCAL YEAR 2018 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement (French Development Agency) BCR Borrower Completion Report CPS Country Partnership Strategy CRSWBL Cross River State Water Board Limited ESMF Environmental and Social Management Framework FMWR Federal Ministry of Water Resources FPIU Federal Project Implementation Unit IDA International Development Association ICR Implementation Completion Report LSWC Lagos State Water Corporation NWRCBNet National Water Resources Capacity Building Network M&E Monitoring and Evaluation NEEDS National Economic Empowerment and Development Strategy NUWSRP2 Second National Urban Water Sector Reform Project NUSWRP3 Third National Urban Water Sector Reform Project O&M Operations & Maintenance PAD Project Appraisal Document PDO Project Development Objective PFMU Project Financial Management Units PIU Project Implementation Unit PSP Public-Private Sector Partnership / Private Sector Participation PPP Public-Private Partnership RPF Resettlement Policy Framework SPIU State Project Implementation Unit SWA State Water Agencies RPF Resettlement Policy Framework Senior Global Practice Director: Guang Zhe Chen Sector Manager: Maria Angelica Sotomayor Araujo Project Team Leader: Camilo Lombana Cordoba ICR Team Leader: Maximilian Leo Hirn ii  SECOND NATIONAL URBAN WATER SECTOR REFORM PROJECT Federal Republic of Nigeria Contents ABBREVIATIONS AND ACRONYMS \. ii ICR Datasheet \. iv A\. Basic Information\. iv B\. Key Dates \. iv C\. Ratings Summary \. iv D\. Sector and Theme Codes\. v E\. Bank Staff \. v F\. Results Framework Analysis \. vi G\. Ratings of Project Performance in ISRs\. x H\. Restructuring (if any) \. xi I\. Disbursement Profile \. xii 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 11 4\. Assessment of Risk to Development Outcome \. 20 5\. Assessment of Bank and Borrower Performance \. 21 6\. Lessons Learned \. 24 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 26 Annex 1: Project Costs and Financing \. 27 Annex 2: Outputs by Component \. 28 Annex 3: Economic and Financial Analysis\. 34 Annex 4: Bank Lending and Implementation Support Processes \. 41 Annex 5: Beneficiary Survey Results \. 44 Annex 6: Summary of Borrower’s ICR and Comments on Draft ICR \. 45 Annex 7: Comments of Borrower, Co-financier and Other Partners \. 46 Annex 8: List of Supporting Documents \. 48 Annex 9: ISR Ratings over Project Duration \. 53 ENDNOTES \. 56 iii  ICR Datasheet A\. Basic Information Second National Urban Country: Nigeria Project Name: Water Sector Reform Project Project ID: P071391 L/C/TF Number(s): IDA-40860,IDA-51290 ICR Date: 05/21/2018 ICR Type: Core ICR Lending Instrument: SIM Borrower: GOVERNMENT OF NIGERIA Original Total XDR 132\.70M Disbursed Amount: XDR 204\.95M Commitment: Revised Amount: XDR 204\.95M Environmental Category: B Implementing Agencies: Federal Ministry of Water Resources Cross River State Water Board Limited Lagos Water Corporation Cofinanciers and Other External Partners: Agence Française de Développement B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/14/2001 Effectiveness: 11/15/2005 11/15/2005 03/31/2011 Appraisal: 04/13/2005 Restructuring(s): 06/19/2012 Approval: 07/01/2005 Mid-term Review: 03/10/2009 10/12/2009 Closing: 06/30/2011 05/31/2016 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Unsatisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Unsatisfactory Agency/Agencies: iv Overall Bank Overall Borrower Moderately Unsatisfactory Moderately Unsatisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project No Quality at Entry (QEA): None at any time (Yes/No): Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Moderately Closing/Inactive status: Unsatisfactory D\. Sector and Theme Codes Original Actual Major Sector/Sector Public Administration Sub-National Government 5 5 Central Government (Central Agencies) 3 3 Social Protection Social Protection 1 1 Water, Sanitation and Waste Management Water Supply 91 91 Major Theme/Theme/Sub Theme Private Sector Development Business Enabling Environment 40 40 Investment and Business Climate 40 40 Regulation and Competition Policy 20 20 Urban and Rural Development Urban Development 40 40 Services and Housing for the Poor 40 40 E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Gobind T\. Nankani Country Director: Rachid Benmessaoud Hafez M\. H\. Ghanem Practice Manager/Manager: Maria Angelica Sotomayor Araujo Michel Wormser Project Team Leader: Camilo Lombana Cordoba Alexander A\. McPhail ICR Team Leader: Maximilian Leo Hirn ICR Primary Author: Maximilian Leo Hirn v F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project's principal development objectives are to: (i) improve reliability of water supply produced by the water treatment works in Lagos; (ii) increase access to piped water networks in four cities in Cross River State; and (iii) improve commercial viability of the urban water utilities in Cross River and Lagos States\. Revised Project Development Objectives (as approved by original approving authority) The objectives of the Project are to: (i) improve the reliability of water supply produced in the Participating States; (ii) increase access to piped water networks in Lagos State and in seven cities in Cross River State; and (iii) improve the commercial viability of urban water utilities in the Participating States\. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Target Values documents) Years Indicator 1 : Lagos Treatment Works operate at 85% capacity for 80% of the time-by June 30,2008\. Value quantitative or 33% / 40% 85% / 80% 85% / - 81\.3% Qualitative) Date achieved 05/19/2005 06/30/2008 05/31/2016 12/31/20171 Comments PDO formulation was adjusted to "Lagos Treatment Works operation capacity (water (incl\. % produced / water that would be produced if using the plant at 100%capacity 24/7)"\. achievement) Actual value achieved at final closing date of co-financing represents 96% of target\. Indicator 2 : Number of hours of water supply per day in Lagos State Value 6 hours 18 hours quantitative or More than 23 hours Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. Value achieved at final closure (incl\. % constitutes more than 127% of target\. achievement) Indicator 3 : Number of hours of water supply per day in Calabar / other Cross River State Towns Value 18 hours / 18 19\.3 hours / 17\.8 quantitative or 6 hours / not available hours hours Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. Target achieved overall - target (incl\. % exceeded in Calabar (107% of target), and nearly achieved in other Cross River State achievement) systems (99% of target)\. 1Closure of IDA project was May 31, 2016\. The AFD co-financing closed on December 31, 2017\. Due to the joint-results framework, the latter date was thus used for the evaluation of indicators (see Paragraphs 25 and 26) vi  Number of connections in Cross River State increases from 1,000 to 50,000-by Project Indicator 4 : end Value quantitative or 1000 50,000 75,000 75,271 Qualitative) Date achieved 05/19/2005 06/30/2011 05/31/2016 12/31/2017 Comments PDO formulation was adjusted to "Number of new active connections in Cross River (incl\. % State attributable to the project"\. Value at completion achieved 100% of revised target\. achievement) Indicator 5 : Number of new active connections in Lagos State attributable to the project Value quantitative or 0 24,000 26,115 Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. Value at completion achieved (incl\. % 109% of target\. achievement) Indicator 6 : Direct beneficiaries Value More than quantitative or 10,000 990,000 1,000,000 Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. At least 100% achieved by (incl\. % project closure\. achievement) Indicator 7 : Female beneficiaries Value 50% 50% 50% quantitative or Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. Reported achievement of (incl\. % indicator is 100% of target\. achievement) 90% of Lagos treatment costs recovered from sales to Distribution Operator / 90% of Indicator 8 : O&M costs recovered from revenue in Calabar-by Project end Value quantitative or 20% / 65% 90% / 90% Dropped / 100% Dropped / 41\.4% Qualitative) Date achieved 05/19/2005 06/30/2011 05/31/2016 12/31/2017 Comments First part of indicator dropped at additional financing, second rephrased as "% of O&M (incl\. % costs recovered from revenue in Calabar" with an achievement of 41\.4% of target in achievement) final year prior to closure\. Indicator 9 : % of O&M costs recovered from revenue in Lagos Value 25% 90% 54\.4% quantitative or vii Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator only introduced at Additional Financing stage\. Achievement of 54\.4% of O&M (incl\. % cost recovery in final year prior to closure (60% of target)\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : 5 Distribution Districts in Lagos are rehabilitated- by Project end\. Value (quantitative 0 5 4 4 or Qualitative) Date achieved 05/19/2005 06/30/2011 05/31/2016 12/31/2017 Comments Indicator rephrased as "Distribution districts of Lagos for which the network is (incl\. % rehabilitated" at additional financing\. Target 100% achieved by closure of project\. achievement) The existing distribution network in Calabar reaches 90% of the city’s population-by Indicator 2 : Project end Value (quantitative 0% (Revised: 20% / 10%) 90% 90% / 90% 54% / 23 % or Qualitative) Date achieved 05/19/2005 06/30/2011 05/31/2016 12/31/2017 Comments Indicator amended at additional financing to: "% of Calabar's / other Cross River State (incl\. % towns' population covered by the distribution network"\. Achievement of 54% coverage achievement) (60% of target) and 23% coverage (26% of target) by project end\. New piped household water connections that are resulting from the project Indicator 3 : intervention (number) Value (quantitative 0 55,000 100,386 or Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments (incl\. % Indicator added at additional financing\. 183% of target achieved at project closure\. achievement) Piped household water connections affected by rehabilitation works undertaken under Indicator 4 : the project (number) Value (quantitative 0 44,000 111,092(at least) or Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator added at additional financing\. Achieved 253% of target value at project (incl\. % closure\. viii achievement) Indicator 5 : Number of meters installed Value (quantitative 0 55,000 90,000 (at least) or Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator added at additional financing\. Achieved at least 163% of target value at project (incl\. % closure\. achievement) Indicator 6 : 1 PS contracts for operation of the treatment works in Lagos - by MTR Value 0 1 0 (quantitative or Qualitative) Date achieved 05/19/2005 10/09/2009 12/31/2017 Comments 0% of target achieved\. At additional financing the "by MTR" deadline was dropped in (incl\. % favor of the revised project end date\. achievement) Indicator 7 : PSP model piloted for 1 smaller urban town in Cross River - by MTR Value 0 1 Dropped 0 (but dropped) (quantitative or Qualitative) Date achieved 05/19/2005 10/09/2009 05/31/2016 12/31/2017 Comments (incl\. % Indicator was dropped at additional financing, but would not have been achieved\. achievement) Lagos treatment plants increase capacity from 60 million m3/year to 180m m3/year by Indicator 8 : project end Value (quantitative 60 m3/year 180 m3/year 200 m3/year or Qualitative) Date achieved 05/19/2005 06/30/2011 12/31/2017 Comments Original PAD baseline/targets slightly inconsistent\. Indicator rephrased to "Lagos (incl\. % treatment plants capacity attributable to the project" at additional financing\. At closure, achievement) 111% of target achieved\. MDG tracking system for access to potable water & sanitation established and Indicator 9 : operational in the FMWR - by MTR Value 0 1 1 (quantitative or Qualitative) Date achieved 05/19/2005 10/09/2009 12/31/2017 Comments 100% of target achieved\. Indicator deadline extended at additional financing from "by (incl\. % MTR" to extended project end\. achievement) Indicator 10 : National utility training plan conceived and implemented by project end Value 0 1 1 ix (quantitative or Qualitative) Date achieved 05/19/2005 06/30/2011 12/31/2017 Comments (incl\. % 100% of target achieved\. achievement) Indicator 11 : Billing collection rate of LSWC Value (quantitative 38% 80% 69% or Qualitative) Date achieved 03/30/2012 05/31/2016 12/31/2017 Comments Indicator added at additional financing\. Achievement of 69% at closure of project (incl\. % represents 86% of target value\. achievement) Indicator 12 : Billing collection rate of Cross River State Water Board Limited (CRSWBL) Value 80% 95% 33% (quantitative or Qualitative) Date achieved 03/30/2012 05/31/2016 12/31/2017 Comments Indicator added at additional financing\. Achievement of 33% at closure of (co-)financing (incl\. % represents 35% of target value\. achievement) Indicator 13 : Water utilities that the project is supporting (number) Value 0 6 2 (quantitative or Qualitative) Date achieved 05/19/2005 05/31/2016 12/31/2017 Comments Indicator added at additional financing\. The project only supported two SWAs/utilities, (incl\. % and never intended to support more\. It is not clear why this indicator was set to six in achievement) the results framework, possibly to capture the number of towns targeted\. Communications and consumer outreach programs operational in 2 SWAs - by Project Indicator 14 : End Value 0 2 "Yes" Yes (quantitative or Qualitative) Date achieved 05/19/2005 06/30/2011 05/31/2016 12/31/2017 G\. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No\. DO IP Archived (USD millions) 1 12/06/2005 Satisfactory 0\.66 2 03/07/2006 Satisfactory Satisfactory 2\.16 3 09/08/2006 Satisfactory Satisfactory 6\.96 4 10/11/2006 Satisfactory Satisfactory 7\.37 5 04/19/2007 Moderately Satisfactory Moderately Satisfactory 11\.79 x  6 11/27/2007 Moderately Satisfactory Moderately Satisfactory 17\.25 7 05/27/2008 Moderately Satisfactory Moderately Satisfactory 26\.95 8 11/30/2008 Moderately Satisfactory Moderately Satisfactory 36\.83 9 05/21/2009 Satisfactory Moderately Satisfactory 47\.91 10 11/30/2009 Satisfactory Satisfactory 65\.59 11 06/14/2010 Satisfactory Satisfactory 79\.65 12 03/22/2011 Satisfactory Moderately Satisfactory 104\.39 13 12/13/2011 Moderately Satisfactory Moderately Satisfactory 120\.18 14 07/01/2012 Moderately Satisfactory Moderately Satisfactory 134\.86 15 01/14/2013 Moderately Satisfactory Moderately Satisfactory 151\.66 16 10/27/2013 Moderately Satisfactory Moderately Unsatisfactory 173\.71 17 05/17/2014 Moderately Unsatisfactory Moderately Unsatisfactory 194\.53 18 12/25/2014 Moderately Unsatisfactory Moderately Unsatisfactory 224\.75 19 06/14/2015 Moderately Unsatisfactory Moderately Unsatisfactory 240\.12 20 12/30/2015 Moderately Unsatisfactory Moderately Unsatisfactory 265\.83 21 06/30/2016 Moderately Satisfactory Moderately Satisfactory 301\.23 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved Date(s) Restructuring in Changes Made PDO Change DO IP USD millions 03/31/2011 S MS 104\.39 Extension of the closing date to 31st May 2013, and re-allocation of credit proceeds between categories\. 06/19/2012 Y MS MS 134\.39 Additional Financing to achieve original project targets and expand the project scope with an extended closing date\. xi I\. Disbursement Profile xii 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. At appraisal of the Second National Urban Water Sector Reform Project (NUWSRP2) in 2005, Nigeria was consolidating its transition from military to democratic rule\. Since the end of dictatorship in 1999, two elections had been held and the economy was expanding at an average annual pace of over six percent of GDP per capita, aided by economic reforms and rising oil-prices\. Yet despite this political opening and resurgent growth, Africa’s most populous nation was still home to more than 70 million poor people and continued to exhibit structural constraints to its socio-economic development\.1 The World Bank diagnosed “a turning pointâ€? that “requires a significant, consistent response…if the economy’s enormous infrastructure needs are to be metâ€?\.2 2\. Urban water infrastructure had been under particular pressure in the period leading up to NUWSRP2\. Public piped water supply, once the dominant form of provision in Nigeria’s cities, had not kept pace with population growth\. Between 1990 and 2005, access to piped water dropped from over 63 percent to barely 20 percent as Nigeria’s urban population grew by over 25 million\.3 The poor were disproportionately affected by the decline in public water, living in areas with low piped access, and relying on unsafe, expensive sources such as water trucks and wells\. 3\. The decline in public water supply was attributed to institutional challenges and an associated lack of investments\. The operational efficiency of State Water Agencies (SWAs), responsible for urban water supply, has been low, marked by political tariff setting, service interruptions, high non-revenue water (NRW) and poor commercial practices\. The resulting low cost-recovery led to underfunding of maintenance and capital investments\. A lack of appropriate regulation has stifled private investment\. In 2005, the investment gap in urban water was US$6\.8 billion with an additional US$100 million annual deficit in maintenance (World Bank, 2005)\. 4\. The higher-level development objectives of the government and World Bank thus stressed not only the importance of better water infrastructure, but a need for sector reform\. The 2004 National Economic Empowerment and Development Strategy (NEEDS) declared water supply “a primary focusâ€?, set access targets and called for a “fundamental reorientationâ€? of SWAs and reform of “institutional and regulatory frameworksâ€? towards “more autonomyâ€?, “increasing commercializationâ€? and private sector participation (NPC, 2004, p\. 64)\. The World Bank Country Partnership Strategy (CPS) reflected this in its results framework, not only aiming to rehabilitate water infrastructure, but to establish a “model to improve water managementâ€? through a focus on “financial sustainabilityâ€? and “perfecting public-private partnershipsâ€? (World Bank, 2005)\. 5\. The rationale for Bank assistance centered on the promise of NUWSRP2 to deliver on both infrastructure and reform objectives\. The appraisal noted that “major structural reform is neededâ€? and aimed to create a replicable reform model in pilot states combining infrastructure rehabilitation with reforms to improve SWA’s operational efficiency and draw in the private sector\.4 The World Bank had a particular ability to lead policy dialogue and make the at-scale, long-term investments needed to achieve significant results using its specialized staff and long experience both in Nigeria’s urban water sector and with reforms involving the private sector\. NUWSRP2 was preceded by eight Bank water projects in Nigeria and succeeded by NUWSRP3\.5 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 6\. The original credit’s PDOs were to “(i) improve the reliability of water supply produced by the water treatment works in Lagos State; (ii) increase access to piped water networks in Cross River State; and (iii) improve the commercial viability of urban water utilities in Participating States\.â€?6 1 7\. Progress was to be measured by “(i) the increase in operating capacity and hours of operation for the Lagos treatment works; (ii) the increase in the number of connections to the piped water system in Cross River State; and (iii) the degree to which operating costs are recovered from water sales revenues in Cross River and Lagos Statesâ€? (World Bank, 2005)\. Details are given in Table 1\. 1\.3 Revised PDO and Key Indicators, and reasons/justification 8\. The original PDO and indicators were revised in the course of an additional financing dated 9th September 2013 and consisting of an additional credit as well as parallel co-financing by the Agence Française de Développement (AFD)\.7 The updated PDO and indicators captured all activities funded by the World Bank and AFD in a shared results framework, which is also the reason this ICR rates overall outcomes of both IDA and AFD investments under the project\. 9\. The PDO and key indicators were adjusted to reflect the expanded scope and timeline of the additional financing as well as to correct some original indicators considered to be unclear or incomplete\. At the PDO level, the most important changes were the inclusion of Cross River State in the reliability objective (PDO 1) and the extension of the access objective to include Lagos and, explicitly, seven cities in Cross River State (PDO 2)\. 10\. The key indicators were comprehensively revised and expanded from four to nine, simplifying the operational capacity indicator, adding an indicator for connections in Lagos and for reliability of supply, including new Bank core indicators and dropping one due to a change in project design\. Aside from the dropped indicator, targets were generally made more ambitious in line with added financing\. Table 1 gives a detailed overview of original and revised PDOs and key indicators\. 1\.4 Main Beneficiaries 11\. The main beneficiaries of this project were the target populations in Lagos and Cross River states\. These were to obtain new access to piped water and more reliable service with better water quality due to the infrastructure and operational improvements funded by the project\. At appraisal the number of beneficiaries was implicit in the objectives to increase water production, rehabilitate distribution and add connections\. At additional financing these targets were expanded and the targeted number of beneficiaries was explicitly specified to be 990,000 (Table 1 and 2)\. 12\. At state level the implementing agencies, that is, the Lagos State Water Corporation (LSWC) and Cross River State Water Board Limited (CRSWBL), were also to benefit\. These were to receive extensive support for training, capacity building, Project Implementation Units (PIUs), improved operational systems (e\.g\. asset register, IT updates) and by way of rehabilitated infrastructure expected to improve production, cost recovery and thus financial independence\. 13\. At national level, the Federal Ministry of Water Resources (FMWR), as the executing agency of the federal component, was also to benefit, through support to a PIU, equipment and staff training, as well as financing for institutional development and policy reform tasks\. 1\.5 Original Components 14\. Component 1 - Rehabilitation and Network Expansion (US$155\.55 million): This component focused on civil works and funded the restoration of treatment plants and the distribution network in Lagos\. In Cross-River state, the aim was to significantly increase metered connections in Calabar city, where production capacity exceeded demand from connected customers\. Moreover, component 1 was to fund the rehabilitation of the water systems in the towns of Ikom, Ogoja and Obudu, as well as assessments and civil works to ensure safety of dams in Cross River\. 2 Table 1: Original and Revised Project Development Objectives and PDO Indicators, and outcome values at closure of IDA credits Original PDO Indicators Original PDOs Revised PDO Indicators (World Bank, 2012, pp\. 20-24) (World Bank, 2005, p\. 20) Revised PDOs Value at (IDA, 2005, p\. 26) (IDA, 2013, p\. 6) Revised Revised Evaluation Description Base Target Revised Description Base Target 1\. Improve the (1a) Lagos Revised Revised Revised9 Revised reliability of Treatment 33% / 85% / 1\. Improve the (1a) Lagos Treatment Works operation capacity 33% / - 85% / - 81\.3% 46 water supply Works operate 40% 80% reliability of (water produced / water that would be produced produced by the at 85% water supply if using the plant at 100% capacity 24/7) water treatment capacity for produced in the New New New works in Lagos 80% of the Participating (1b) Number of hours of water supply per day in 6 18 > 23 State time-by June States Lagos State 30,2008\.8 New New New (1c) Number of hours of water supply per day in 6 / NA 18/18 19\.3 / 17\.8 Calabar / other Cross River State Towns 2\. Increase access (2a) Number of Revised Revised: Identical Revised to piped water connections in 1000 50,000 2\. Increase (2a) Number of new active connections in Cross 1000 75,000 75,271 54 networks in Cross Cross River access to piped River State attributable to the project River State State increases water networks New New New from 1,000 to in Lagos (2b) Number of new active connections in Lagos 0 24,000 26, 115 55 50,000-by State and in State attributable to the project Project end\. seven cities in New New New Cross River State >1,000,000 56 (2c) Direct beneficiaries 10,000 990,000 New New New 50% (2d) Female beneficiaries 50% 50% 3\. Improve the (3a) 100% of Identical commercial Lagos 20% 90% 3\. Improve the viability of urban treatment [sic]10 commercial Dropped first part of original indicator Dropped, but did water utilities in costs viability (3a) “100% of Lagos treatment costs recovered Dropped Dropped not occur / not Participating recovered of urban water from sales to Distribution Operator\.â€? achieved States from sales to utilities in the Distribution Participating Operator\. States\. (3b) 100% of Revised 41\.4% O&M costs 65% 90% (3b) % of O&M costs recovered from revenue in Revised Revised [73\.8% with recovered [sic] Calabar 55% 100% salary subsidies]58 from revenue New New New 54\.4% in Calabar-by (3c) % of O&M costs recovered from revenue in 25% 90% [74\.3% with Project end\. Lagos salary subsidies]61 3 15\. Component 2 - Public-Private Sector Partnership (PSP) Development (US$7\.45 million): For (i) support to the tendering process for a PSP to advise on and subsequently operate the rehabilitated Lagos treatment works; (ii) the establishment of help-desks to support the private operators (POs) expected to operate LSWC’s distribution system; (iii) the majority of fees for the PO of the Lagos treatment works, and a provision for a PO expected to manage one secondary- town system in Cross-River; (iv) technical and financial auditors to certify PO performance\. 16\. Component 3 - Service Sustainability and Project Management (US$14\.55 million): This component funded key project expenses, in particular (i) operating costs for PIUs; (ii) office equipment, cars and trucks for the utilities; (iii) subsidies for electricity, chemicals and diesel until the utilities in both cities can be self-financing following improvements in water production (in Lagos) and customer base (in Cross River); and (iv) funding for customer outreach\. 17\. Component 4 - Policy Reform and Institutional Development (US$10\.95 million): This component was to finance technical assistance to the utilities and FMWR on management, commercial and technical issues, establish and support a regulator in Lagos, studies on a regulatory framework in Cross River, as well as a national utility training program\. The component was also to fund a national system to track progress towards the Millennium Development Goals (MDGs)\. 18\. Progress was originally to be tracked by eight intermediate results indicators (Table 2)\. 1\.6 Revised Components 19\. The additional financing retained the four original components, but significantly changed their funding, scope, geographic focus, timeline and thus intermediate results indicators (Table 2)\. 20\. Revised Component 1 (110% increase to US$327\.25 million, of which US$75\.7 million AFD co-financing): Additional funding was required to compensate for excess costs of US$ 66\.7 million in the cities of Ikom and Ogoja, as well as for added works in Itigidi, Obubra and Okpoma in Cross River, thus expanding geographic scope\. Additional allocations were made to fund the rehabilitation of two distribution districts in Lagos, reducing the original target from five to four\. 21\. Revised Component 2 (67% increase to US$12\.45 million, of which none from AFD): The original intermediate result target of piloting a PSP model in one secondary city in Cross River was dropped, while the second target of a private sector contract for the Lagos treatment works was retained in revised form and with additional funding to achieve it by the new closing date\. 11 22\. Revised Component 3 (28% increase to US$18\.55 million, of which none from AFD): Only minor revisions in wording were made to results indicators under this component, but additional funds were made available for PIU operating costs, IT equipment and trainings\. 23\. Revised Component 4 (155% increase to US$27\.95 million, of which US$2 million from AFD): Significant additional funds were made available to achieve the MDG tracking system, additional support to LSWC and new studies on water governance and investment planning in selected states\. 1\.7 Other significant changes 24\. Implementation Arrangements: The World Bank, through its International Development Association (IDA), and AFD entered into a parallel co-financing agreement on March 20, 2013\. In a fee-for-services arrangement, IDA agreed to manage the project including the AFD co-financed activities in accordance with IDA’s policies and procedures\. While the World Bank thus continued to manage the project under IDA rules, some procedures became more complex as AFD joined as 4 a financing partner (e\.g\. reporting, disbursement administration)\. The borrower’s implementation arrangements were not changed and the results framework was not separated by funding source\. 25\. Timeline:The closing date of the original credit (4086) was first extended in 2011, from June 30, 2011 to May 31, 2013\.12 At additional financing, the new IDA project closing date was set as May 31, 2016\. The AFD co-financing credit (CNG1007 01) originally had a closing date of November 30th, 2016, but this was subsequently extended to December 31, 2017\. 26\. The delivery date of this Implementation Completion Report (ICR) was first extended by six months to May 30, 2017, and subsequently to May 30, 2018, in order to allow a better evaluation of the joint results-framework given that AFD financing only concluded on December 31, 2017\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 27\. An initial project concept review took place in 2001, but preparation only started after renewed government interest in July 2004\. Cross River state was added to the project relatively late, a few months before the decision meeting and negotiations in March 2005, and Board approval in July 2005\. The project’s strategic analysis of sector challenges was adequate and the government’s initial commitment strong, but quality at entry suffered from the paucity of baseline data, a lack of specific reform objectives, and the underestimation of the severity of identified risks, and thus unrealistic expectations about the project’s timeline and financial viability\. 28\. The project’s analysis contained an adequate assessment of the strategic sector challenges and a sensible overall strategy incorporating some lessons from earlier operations\. Given high investment deficits and widespread utility underperformance, the strategy to concentrate scarce resources on two relatively well-performing states to create replicable reform models was well justified and a clear lesson from earlier projects\.13 The project correctly identified not just policy reform, but improvements in utility operations as critical to make infrastructure investments sustainable\. Although ultimately unsuccessful, the ambition to draw in private participation was justified given disappointing results in earlier projects more focused on public sector strengthening\. 29\. A wide range of stakeholders were consulted during preparation and government buy- in was initially strong\. Numerous NGOs were met in both states to explain project objectives\. A communications audit and media campaign was undertaken to allay concerns about PSP\.14 Government strongly supported the project and pledged US$10\.5 million in counterpart funds\. 30\. The scope of the project was sufficient to significantly impact identified sector challenges\. The investments planned at appraisal addressed the key service bottlenecks in the selected sites, specifically, the lack of production capacity in Lagos and the inadequate size of the distribution network in Calabar\. Moreover, given the size and economic importance of Lagos, a successful reform model would have set an example for other urban areas of Nigeria\. 31\. While problem analysis and stakeholder engagement were adequate, project design suffered from limited baseline data and struggled to formulate an effective reform response\. The widely professed need for policy and institutional reform to achieve the project objectives was not translated into a clear roadmap for such reforms (e\.g\. operational efficiency gains; PSP regulation, tariff autonomy)\. This is reflected in the near absence of reform-related indicators in the results matrix (Section 2\.3\.1)\. Moreover, the paucity of baseline data led to unrealistic targets, and under-estimation of funding needs which had to be corrected at additional financing\. This was noted at mid-term review which was critical of the quality of appraisal (World Bank, 2010, p\. 2)\. 5 Table 2: Project Components with Original and Revised Intermediate Results Indicators, and outcome values at closure of IDA credits15 Project Original Intermediate Results PAD PAD Revised Intermediate Results Indicators Revised Revised Value at Revised Components Indicators Base Target (AF Project Paper 2012, pp\.25-27) Base Target Evaluation Component (PAD 2005, pp\.21-22) (2011) (2016) Allocation16 Component 1: (1a) 5 Distribution Districts in Lagos n/a Revised Identical Revised Rehabilitation are rehabilitated- by Project end\. (i\.e\. 5 (1a) Distribution districts of Lagos for which the network is 0 4 4 17 and Network 0) rehabilitated Expansion (1b) The existing distribution network Revised Revised Revised in Calabar reaches 90% of the city’s 0% 90% (1b) % of Calabar’s / other Cross River State towns’ 20%/10 90%/90% $327\.25m 54 % / 23% 18 population-by Project end\. population covered by the distribution network % (of which `New: (1c) New piped household water connections that are New New $75\.7m from 100,386 20 resulting from the project intervention (number) 0 55,000 19 AFD) New: (1d) Piped household water connections affected by New New 111,09221 rehabilitation works undertaken under the project (number) 0 44,000 New New New > 90,000 22 (1e) Number of meters installed 0 55,000 Component 2: (2a) 1 PS contracts for operation of Revised (Time Extension) Identical Identical $12\.45m 0 1 0 Public-Private the treatment works in Lagos - by MTR (2a) PS contracts for operation of the treatment works in Lagos 0 1 (none of Partnership (2b) PSP model piloted for 1 smaller Dropped, but which from 0 1 Dropped (2b) Dropped Dropped Development urban town in Cross River – by MTR not achieved AFD) Component 3: (3a) Lagos treatment plants increase 60m 180m Revised Identical Identical $18\.55m 200 Service capacity from 60 million m3/year to m3/y m3/y (3a) Lagos treatment plants capacity attributable to the 60m 180m m3/y 24 Sustainability 180m m3/year by project end 23 23 project m3/y m3/y (none of & Project (3b) Communications and consumer n/a Identical (Rephrased) which from Identical Identical Management outreach programs operational in 2 (i\.e\. 2 (3b) Communications and consumer outreach programs Yes 25 AFD) No Yes SWAs – by Project End 0) operational in Cross River and Lagos Component 4: (4a) MDG tracking system for access Revised (Time Extension) Institutional to potable water & sanitation Identical Identical 0% 100% (4a) MDG tracking system for access to potable water & Development established and operational in the 0 1 1 26 sanitation established and operational in the FMWR & Policy FMWR – by MTR Reform $27\.95m (4b) National utility training plan Revised (Time Extension) Identical Identical conceived and implemented by 0% 100% (4b) National utility training plan conceived and Yes 27 (of which No Yes project end implemented $2m from - New: AFD) New: Billing collection rate of LSWC New: 80% 69% 28 38% New: Billing collection rate of Cross River State Water Board New New 33% 29 Limited (CRSWBL) 80% 95% New: Water utilities that the project is supporting (number) New: 0 New: 6 2 30 6 32\. Key risks were correctly identified at entry, but their severity was under-estimated\. The only risk rated “substantialâ€? at appraisal was availability of electricity, which indeed was to pose a major challenge in the achievement of PDO indicators (Section 3\.2)\. Risks relating to reform objectives, in particular, lack of utility autonomy and hesitancy by the private sector to engage, were rated “moderateâ€?, but turned out to be more severe than expected as neither autonomy nor private participation was achieved\. The complexity of factors opposing policy reform and a successful PSP – including the underdeveloped legal framework, infrastructure delays, lack of interest by POs for marginal systems, resistance from public-sector unions, opposition by NGOs and a resulting lack of political commitment – was not sufficiently understood or mitigated\. The other two risks identified at entry – civil works delays and financial management risks – were also rated “moderateâ€?, but also led to substantial issues (see Sections 2\.2 and 2\.4)\. 33\. Reform and risk-related challenges had a significant impact on the project’s financial viability\. Delayed completion of infrastructure, challenges in maintaining production, insufficient gains in operational efficiency and political constraints on tariff increases undermined the financial benefits expected at entry and left ambitious cost-recovery targets out of reach (Section 3\.3\.3)\. 2\.2 Implementation 34\. Implementation progress ratings trended downwards from satisfactory to moderately unsatisfactory over the course of the IDA project (Annex 9), but implementation improved significantly in the final 18 months of the project\. Implementation was delayed, more expensive, and, with respect to reform related targets such as private sector participation and cost-recovery, less impactful than originally expected\. However, at least in the implementation of infrastructure works, the project overcame earlier challenges through a determined effort in the final project phase and achieved or nearly achieved PDO targets related to access and supply reliability (see Table 1)\. Due to the closure of the IDA component, no Implementation Status Reports (ISRs) were filed in this final phase from mid-2016 to December 2017, but improvements were captured in Aide-Memoires and certificates of completion by supervisory firms hired by the project\.31 35\. NUWSRP2 was implemented at both Federal and State level\. A Federal Project Implementation Unit (FPIU) was responsible for overall oversight, dam related tasks, national policy reform and overall training, a water resources management initiative and the MDG tracking system\. State Project Implementation Units (SPIUs) managed the implementation of the state-level components, that is, the bulk of infrastructure works and tasks such as the attempted PSP\. The SPIUs were primarily staffed with utility employees thus promoting long-term capacity building\. 36\. Due to the late availability of feasibility studies, SPIU capacity constraints, staff turnover and political-economic challenges, implementation had been delayed by nearly a year in 2007, causing a downgrade to “moderately satisfactoryâ€?\. Although a Project Preparation Facility of US$ 2m was in operation by late 2004 (World Bank, 2014), detailed feasibility studies only became available well into the project\. For instance, final studies for Cross- River were only received in November 2006, and significant works did not start before 2008\. Shortly before mid-term review, the Bank noted that “disbursements of 24% are low considering the project time elapsedâ€? (World Bank, 2009)\. Targeted interventions in Ikom, Ogoja and three service areas in Lagos could not be processed under the original credit due to excess costs\. 32 37\. Planning issues were aggravated by procurement delays as SPIUs at first struggled to conform with World Bank standards (see Section 2\.4)\. In 2007 a World Bank supervision mission noted that “procurement is not moving well in either stateâ€? (World Bank, 2007)\. The initial 7 capacity constraint was due to understaffing, lack of training and basic technical challenges such as a lack of internet connectivity (World Bank, 2006, pp\. 3-4)\. SPIU capacity was also undermined by staff turnover which the Borrower Completion Report (BCR) noted “remained a big issue throughout the projectâ€? creating “instability in project managementâ€? (VIPCG, 2016, pp\. 99-102)\.33 Political changes over the project duration (three Governors in Cross River, three Governors in Lagos, and three national presidents) contributed to staff turnover and also led to other constraints, such as changing bureaucratic procedures causing disbursement delays (Section 2\.4)\. 38\. The mid-term review in October 2009 focused on actions to boost the pace of implementation\. Exhortations for PIUs to be “more proactive in the project implementationâ€? were combined with specific planned actions such as improving the “communication gap between the states and the Federal PIUâ€?, a workshop to accelerate the PSP component, a re-allocation of original funds and early planning for additional financing (World Bank, 2010)\. 39\. Implementation of infrastructure progressed better following additional financing, but still fell short of most access and supply reliability targets in mid-2016\. The additional financing in 2013 had augmented the original credit (4086) of SDR 132\.7 million (US$ 200 million equivalent) by an IDA credit (5129) of SDR77\.5 million (US$120 million equivalent) with parallel co-financing of US$77\.73 million by AFD (CNG1007 01)\. Implementation of infrastructure was buoyed by more adequate funding, better planning documents, increasing experience of PIUs, and a relatively stable macro-environment\. Nevertheless, in May 2016, the majority of PDO targets had been missed71, not least due to a difficult period in 2015-16 marked by energy shortages, maintenance issues, incomplete works and disruptions due management changes (see Section 3)\. 40\. In the final project phase, a greatly improved, pro-active implementation performance led to the nearly full achievement of infrastructure related targets\. Driven by an intensive supervision effort of a new Bank task leader, amendment of contracts to improve outcomes (e\.g\. more connections, see Section 3\.2), new commitment by the government (as shown e\.g\. by payment of energy bills) and more efficient procurement performance by the PIUs, PDO targets relating to supply reliability and access were achieved or nearly achieved by final closure in December 2017 (see Table 1)\. This commendable turn-around with respect to access and reliability PDOs leaves the project in a significantly better state than it was just 18 months prior to closure\. 41\. By contrast, non-infrastructure components continued to struggle and PSP and commercial viability targets remained out of reach\. In May 2014 the overall project progress indicator was downgraded to “moderately unsatisfactoryâ€? due to a lack of progress on commercial viability and PSP targets (World Bank, 2014)\. The lack of a clear roadmap for improving commercial operations and waning political commitment to the privatization approach undermined implementation of the project’s nominal reform agenda\. At restructuring, the PSP related PDO indicator was dropped, though the project lacked the foresight to also adjust its cost-recovery PDO target to more realistic levels\. In the final project phase following closure of IDA financing, externally supported performance improvement programs made some progress in addressing the entrenched issues with metering and billing in both utilities, achieving a turnaround in trend, though still falling far short of commercial viability targets (see Section 3\.2)\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2\.3\.1 M&E Design 42\. The M&E design set adequate indicators to monitor progress towards improving water supply reliability, access and commercial viability\. This is particularly true after a revision at 8 additional financing which clarified, corrected and extended the original indicators to measure PDOs across both states more precisely\.34 Reliability was measured not just by realized plant capacity but hours of supply; access extension not just by new active connections, but also overall beneficiaries; cost-recovery and bill collection captured two key aspects of commercial viability gains made possible by higher capacity and new connections (Tables 1 and 2)\. 43\. The M&E design, however, was weak with respect to reform targets\. The results framework contained no PDO reform indicators, despite the appraisal’s “clear conclusion that major structural reform is neededâ€? and that the “government is thus seeking to provide replicable models for other reform minded statesâ€? (World Bank, 2005)\. The project did include a “Component 4: Institutional Development & Policy Reformâ€?, but no associated PDO level indicators, and related output indicators also did not target specific reforms\. There were no indicators for two policy improvements the project did achieve, that is, the establishment of a regulatory institution in Lagos and development of a water resources policy – a missed opportunity for formally recognizing project achievements\. More generally, the absence of reform targets in a project named “Second National Urban Water Sector Reform Projectâ€? weakened the intervention’s focus on and direction for reforms which could have supported its ultimate objectives\. 44\. The M&E design would also have benefited from a more precise, qualitative formulation of institutional development targets\. Indicators for key tasks – in particular, the implementation of a “national utility training planâ€?, “communications and consumer outreach programsâ€? and “MDG tracking systemâ€? – were binary (i\.e\. achieved or not achieved)\. Monitoring of quality of outputs (e\.g\. how many utility staff were trained; how was consumer outreach improved etc\.) was lacking\. For example, the MDG tracking system was formally established and is operational, though its longer-term purpose and sustainability remains uncertain (see Annex 2 for details)\. 45\. The institutional design of project M&E was fair overall and well-funded by Component 3, though its multi-tier structure made it vulnerable to communication and supervision gaps\. The FPIU was responsible for overall project M&E while local supervision was devolved to the SPIUs which in turn sourced data from technical units within the utilities\. Monitoring of financial aspects also involved the Project Financial Management Units (PFMU), which in Lagos were part of the Finance and Accounts Department of LSWC and in Cross River State located in the State Accountant General’s office (World Bank, 2005)\. The resulting multi-tier structure reasonably devolved M&E to implementation level, but also made it reliant on clear communication and local quality control as the Abuja based FPIU could not systematically verify progress independently\. 2\.3\.2 M&E Implementation 46\. The quality of the implementation of M&E was modest\. The strong reliance on the SPIUs and utilities for data gathering proved a source of weakness\. As the BCR noted, SPIUs initially considered M&E as less important and more of a threat than an opportunity (VIPCG, 2016, p\. 71)\. The FPIU in Abuja was generally too remote to verify field reports\. The mid-term review noted the “need for the FPIU to put in place a robust M & E strategyâ€? (World Bank, 2010), but even after additional financing M&E was “not being followed up on as and when it is requiredâ€? and the M&E rating was temporarily downgraded to “Moderately Unsatisfactoryâ€? (World Bank, 2013)\. 47\. Steps to improve M&E were taken in the final years of the project, but key M&E data remained unclear and even contradictory for most of the project\.35 To improve M&E the FPIU facilitated trainings and in 2016 put in place an online M&E platform for SPIUs to upload and track M&E data (World Bank, 2016, p\. 18) though even at project end, data was typically shared in an ad-hoc manner\. Obtaining reliable, unambiguous and well-documented M&E data remained 9 a challenge, which hindered a clear understanding of progress during much of the project and necessitated considerable effort at ICR stage to verify final outcomes (see Endnote 35)\. 2\.3\.3 M&E Utilization 48\. The utilization of M&E was limited initially, but did positively inform decision making in the project’s final phase as well as provide information for follow-up analyses\. In the first phase of the project, M&E data was not utilized very effectively, as illustrated by the missed opportunity of adjusting cost recovery targets to realistic levels during restructuring (Section 5\.1)\. Although M&E data remained imperfect (Section 2\.3\.2 and Endnote 35), the eventual recognition of significant shortfalls in objectives did play a key role in motivating and directing the improved implementation performance of the final project phase, which led to the achievement of infrastructure objectives (Sections 2\.2 and 5\.1(b))\. 49\. Data generated by the project’s MDG tracking system was also used in the World Bank funded Nigeria WASH Poverty Diagnostics (P158634) and Review of Rural Water Supply and Sanitation Sector in Nigeria (P165662)\. 2\.4 Safeguard and Fiduciary Compliance 50\. Safeguard compliance was moderately satisfactory\. The environmental category of original and additional financing was Category B\. Safeguard policies triggered were Environmental Assessment (OP/BP 4\.01), Involuntary Resettlement (4\.12), Safety of Dams (4\.37) and Projects on International Waterways (7\.50) and also applied to the tasks co-financed by AFD\. The major required safeguard documents were compiled, approved and disclosed in time and no major violations are on record\. Notable efforts at stakeholder engagement were undertaken through radio and television, the creation of helpdesks and civil-society driven community campaigns\. 51\. Environment Assessment (OP/BP 4\.01)\. The project prepared and disclosed a project level Environmental and Social Management Framework (ESMF) in 2005, as well as subsequent site specific Environmental and Social Impact Assessments (ESIAs)\. Compliance has been moderately satisfactory as there were no major safeguards violations as documented in the ISRs (Annex 9)\. However, some delays and inconsistencies in the preparation, disclosure and compliance with site specific safeguard measures were noted by World Bank missions (World Bank, 2015, pp\. 28-33) and the BCR (VIPCG, 2016, p\. 93)\. Such issues were partly due to the lack of a dedicated safeguards officer in Cross River and Lagos for significant periods leading the BCR to conclude that “the impact of the [safeguards] function has not been significantly feltâ€? and “documentation of safeguards implementation activities was weakâ€? (VIPCG, 2016, p\. 62; p\.105)\. 52\. Involuntary Resettlement (4\.12)\. A Resettlement Policy Framework (RPF) was prepared in and disclosed in 2005, followed by site specific Resettlement Action plans (for the additional sites after restructuring in March 2012)\. Delays in payments to Project Affected People in Lagos led to a brief suspension of works in February 2017, but this was quickly resolved by April 2017\. 53\. Safety of Dams (4\.37)\. A Dam Safety Report completed and disclosed in May 2005 and a Dam Safety and Remedial Study completed in July 2006 for the project financed Obudu Dam\. No irregularities or violations were recorded by the project M&E and safeguards documentation\. 54\. Projects on International Waterways (7\.50)\. A formal riparian notification under OP/BP 7\.50 was sent to the Government of Cameroon in March 2005 as required\. 10 55\. Procurement functions were moderately unsatisfactory overall\. While the FPIU performed well, state-level procurement was cited as a key source of implementation delay in early Aide-Memoirs (World Bank, 2006) and the “poor quality of bidding documents and evaluation reportsâ€? was noted at mid-term (World Bank, 2010)\. The credit funded procurement trainings, but high staff turnover undermined such capacity building\. Supervision missions persistently flagged issues such as unretired advances, inadequate documentation and unavailable payment vouchers, in particular in Lagos (World Bank, 2016, p\. 15) (World Bank, 2016, p\. 28) (VIPCG, 2016, p\. 65)\. Such problems were likely aggravated by the lack of a computerized accounting system to minimize human error –at FPIU level until 2015 and in Lagos until IDA project closure\. No fraud or corruption issues were identified during the project\.36 Procurement performance improved in the final phase of the project, contributing to the turn-around in key indicators (Section 3\.2)\. 56\. Financial management was moderately unsatisfactory overall\. The last financial management supervision reports noted that project activities were generally based on approved work plans, books and records were up to date, that audit quality had improved by project end and that project closure related activities were being implemented satisfactorily (World Bank, 2016, p\. 3) (World Bank, 2016b, p\. 2)\. However, the project has not been without financial management challenges, including delayed or low-quality audits37, error-prone and delayed payment processing, and a shortfall in counterpart funds\. Moreover, the project over-committed funds, and expenditures in excess of USD200,000 had to be declared ineligible for financing from the World Bank credits and the government has been asked for a refund (World Bank, 2018)\.38 2\.5 Post-completion Operation/Next Phase 57\. At federal level the FPIU will remain in place post-completion to manage the successor project NUSWRP3 (targeting other states), while SPIUs will be absorbed by the state utilities\. The continuance of the FPIU under NUSWRP3 is an opportunity to pursue national reform efforts attempted by NUSWRP2 such as regulatory development, water resources legislation and the MDG tracking system\. As the SPIU members were utility staff, a smooth re-absorption is expected\. 58\. The NUWSRP3 follow-up project has benefited from and been informed by NUWSRP2\. The FPIU of NUWSRP3 benefited from extensive capacity building under NUWSRP2\. Although the NUSWSRP2 states are not targeted by the successor project, NUWSRP3 states have benefited from action plans, guidelines on sector regulation, financial modeling and the national utility training plan developed under NUSWRP2\. Considering the unsatisfactory results on private-sector participation under NUSWRP2, the results framework of the successor project does not include PSP targets\. Data collected during NUWSRP2 was used in the Nigeria WASH Poverty Diagnostic\. Notably, participation of AFD as co-financer in NUWSRP2 led to its further engagement in urban water in Nigeria in Ogun as well as interventions in the states of Plateau, Ondo, Enugu and Kano\. 59\. Beyond Nigeria, the co-financing arrangement of NUWSRP2 has inspired a similar cooperation between the World Bank and AFD in Angola (P151224)\. The NUWSRP2 may thus be seen as a model for the World Bank leveraging its resources through substantial co- financing and the provision of fees-based services in project management\. 3\. Assessment of Outcomes 60\. As the PDOs of NUWSRP2 were formally revised, outcomes are assessed against both the original and revised objectives\. In light of the reviewed evidence, and as the additional financing did not significantly amend the PDO beyond expanding its geographic scope, as well as specifying 11 and scaling-up associated indicators, most pre- and post-revision ratings have been found to coincide as outlined below\.39 An overview of the ratings is given in Table 5\. 3\.1 Relevance of Objectives, Design and Implementation 3\.1\.1 Relevance of Objectives: Substantial (Pre- and post-restructuring) 61\. The Project Development Objectives remain substantially relevant for Nigeria’s development objectives\. Nigeria’s economic development strategy Vision 2020 highlights “sustainable access to potable waterâ€? as a basic objective and calls for “key initiativesâ€? including “rehabilitating, constructing and modernizing existing water supply and sanitation schemes, distribution networks and facilities for optimal operationâ€? (NPC, 2009)\. This prioritization echoes Nigeria’s NEEDS strategy at project start\. Both original and revised PDOs directly reflect this strategy of extending access and optimizing operations\.40 62\. The original and revised PDOs are substantially consistent with the World Bank’s latest Country Partnership Strategy (CPS) for fiscal years 2014-17/19\.41 The CPS results matrix lists “coverage and efficiency of water supply servicesâ€? as a key engagement area and cites “improved coverage and efficiency of water supply service in selected statesâ€? as a targeted CPS outcome\. The CPS highlights the “lack of financial autonomyâ€? as at “the heart of the poor performance of all water utilitiesâ€?, notes the “still unreliable and…poor qualityâ€? services as a key development challenge, and proposes the number “of people with access to improved water supplyâ€? and an increase in “cost recovery for operation and maintenanceâ€? as specific indicators (World Bank, 2014, pp\. 36; pp\.58-9)\. The original and revised PDOs aimed at improving reliability of supply (PDO 1), access to improved water (PDO 2) and commercial viability of utilities (PDO 3), as well as NUWSRP’s strategic focus on selected states, are thus fully in line with the CPS\.42 63\. The PDOs are substantially aligned with the Bank’s goal of ending extreme poverty and promoting shared prosperity\. The utility-reform focused approach in Lagos could be reasonably expected to improve supply to the poor43, and in Cross River, the results framework includes a near-universal (90%) access target that makes this ambition explicit (Table 2)\. 3\.1\.2 Relevance of Design and Implementation: Modest (Pre- and post-restructuring) 64\. The project design clearly linking PDOs to intermediate infrastructure outputs and capacity building activities to achieve them\. The causal chain between funding and final outcomes was well established and not diluted by irrelevant or extraneous activities\. The objective to “improve the reliability of water supplyâ€? (PDO1), “increase access to piped water networksâ€? (PDO2) and “improve commercial viabilityâ€? (PDO3) were prioritized through important infrastructure investments by Component 1 which was allocated nearly 75% of original funds and more than 80% of additional financing\. The infrastructure improvements were a necessary activity to achieve PDO targets (e\.g\. by increasing water available for sale)\. Activities foreseen under Components 2-4 were also consistent with the PDOs, supporting attempts to achieve targeted outcomes through consumer outreach, better data, utility training, and the involvement of the private sector, though the latter core element ultimately had to be abandoned (see Tables 1 and 2)\. 65\. The design and implementation of the project, however, was relatively weak in terms of sector reform, which undermined the achievement of key stated project objectives\. While the importance of sector reforms to achieve more reliable, accessible and commercially viable water supply is emphasized in the appraisal, the CPS and the government’s NEEDS strategy (World Bank, 2014, p\. 22; p\.36) (NPC, 2004, p\. 64)44, and explicit in the name of this National Urban 12 Water Sector “Reformâ€? project, the design contained no effective sector reform agenda\. There was a lack of realistic intermediate reform targets (e\.g\. an adequate policy on PSPs, or utility autonomy) linked to overall project objectives (e\.g\. commercial viability)\. Private sector participation, as designed, turned out not to be an effective, politically viable strategy in the given sector context, and associated targets were either dropped at restructuring or missed\.45 Other reforms such as utility autonomy over tariffs, though emphasized as important at appraisal (World Bank, 2005, p\. 1), found no political support and were not effectively realized\. An approach to cost recovery that relied on “regular tariff increases after the year 2010â€? (World Bank, 2005, p\. 53) was thus not successful\. Indeed, the demanding commercial viability targets and ineffective approach to PSP and tariff autonomy may even have distracted from an earlier and potentially more productive direct focus on operational efficiency gains as undertaken in the final project phase\. 66\. In the final phase, the project sought to compensate for a lack of sector reforms with capacity building measures, but these efforts ultimately fell short in key respects\. Capacity building measures aimed to deliver objectives within the existing institutional set-up\. This included extensive support for externally guided performance improvement programs and management advice, new metering and billing systems, a tariff study and the creation of a regulatory institution in Lagos\. Though reversing a negative trend, these late efforts unfortunately fell short of making a decisive difference to achievement of the commercial viability objective (Section 3\.2\.3)\. 67\. The Modest rating for Relevance of Design and Implementation thus reflects the failure of the project to live up to its ambition of effective sector reform and financial autonomy\. According to the most recent Nigeria CPS, the continued lack of financial autonomy is “at the heart of the poor performance of all water utilitiesâ€? (World Bank, 2014, p\. 36)\. Design and implementation fell short insofar as the chosen approach to sector reform was inconsistent with achieving stated project objectives in this respect, especially the missed commercial viability PDO 3 (see Section 3\.2)\. The continued lack of commercial viability at project closure, in turn, poses substantial risks to the other development outcomes (see Section 4)\. 3\.2 Efficacy - Achievement of Project Development Objectives Efficacy Rating: Substantial (Pre- and post-restructuring) 68\. The efficacy rating for the achievement of PDO pre- and post-restructuring is Substantial\. The Substantial rating recognizes that the operation successfully completed major infrastructure works, greatly improving supply capacity and reliability in line with the first and second PDOs\. This is a significant achievement that benefited more than a million Nigerians\. The project fell short of achieving the third PDO on cost recovery and dropped PDO level PSP targets, a shortcoming that occurred in the context of partly exogenous political decisions on subsidy-, tariff- and PSP policies and the impact of political instability on energy supplies (Section 3\.2\.3)\. 69\. Specifically, the pre-restructuring rating of Substantial is based on High achievement of the sole original PDO 2 target, which was significantly exceeded, and Substantial achievement of the original PDO 1 target, though achievement of the original PDO 3 on cost-recovery and PSP was negligible\. The post-revision rating of Substantial reflects the fact that most objectives and outcomes (i\.e\. PDO 1 and 2) warrant a Substantial rating even though the PDO 3 was missed\. Table 1 gives an overview of PDOs, indicators and outcomes\. Further details on the outputs under each component are given in Table 2 and Annex 2\. 70\. Ratings are based on M&E data as of the closure of the project on December 31, 2017\. As noted in Section 1\.3, the project used a shared results framework for the overlapping activities 13 financed by the two IDA credits and the AFD co-financing\. The final ratings thus assess the total outcomes of the combined IDA and AFD financing for the project at the closure of the latter\. 3\.2\.1 PDO 1 to Improve the Reliability of Water Supply Overall PDO 1 Rating: Substantial (Pre- and post-restructuring) 71\. The rating for PDO 1 to “improve the reliability of water supplyâ€? is rated Substantial pre- and post-restructuring\. In Lagos, the final project month of December 2017 saw the completion of critical repairs that raised realized operation capacity to 81\.3% just below the target of 85%\.46 47 Supply reliability in Lagos reportedly surpassed 23 hours per day on average by the end of 2017, thus significantly exceeding the target of 18 hours\. 48 The third PDO 1 indicator targeting 18 hours of water supply in both Calabar and other Cross River State Towns was achieved in Calabar with 19\.3 hours, and also effectively achieved in the secondary systems which averaged 17\.8 hours of supply (Table 1)\.49 Thus, the sole pre-revision indicator, which targeted Lagos, was nearly achieved (within five percent of target), justifying a substantial rating\. Post-revision, the substantial achievement of objectives justifies an overall substantial rating\. 72\. The (near) achievement of supply reliability targets in Lagos in the final project months was due to a major successful turnaround during the final phase of the project\. In Lagos, the BCR had reported a realized operational capacity of only 35\.6 percent and 15 hours of supply in the first quarter of 2016 due to a combination of endogenous factors (e\.g\. lack of maintenance, vulnerability to shocks due to lack of cost recovery) and exogenous impacts, especially power shortages\.50 These problems were addressed through a number of pro-active measures initiated by the Bank task leader and PIU, in particular intensive additional repair works at key water plants, an externally guided performance improvement program and a restoration of more regular power supply both from Independent Power Plants (IPPs) and grid electricity\.51 73\. In Cross River state, the outcomes are due both to pro-active steps by the PIU as well as its topographical advantages\. The utility has undertaken pro-active steps to ensure the steady supply of energy in Calabar, specifically by obtaining partial payment of power arrears by the Cross River State Government and agreeing on a payment plan with the power utility PHEDC that allowed reconnection to the grid\. The project also funded the repair of electromechanical equipment at the Calabar water treatment plant to relieve constraints on its production capacity\.52 The state also benefits from a natural topography that allows the use of elevated reservoir tanks and gravity in many locations to temporarily supply the network even in case of power outages\. 3\.2\.2 PDO 2 to increase Access to Piped Water Networks Overall PDO 2 Rating: Substantial Pre-restructuring: High Post-Revision: Substantial 74\. The second PDO to “increase access to piped water networksâ€? is rated High pre- restructuring and Substantial post-restructuring\. The sole original indicator was limited to Cross River state at entry and targeted an increase in the number of connections to 50,000\. This was exceeded by 50 percent by the closure of the project, thus justifying a High rating against the original PDO 2\. At restructuring, the Cross River objective was raised to 75,000 active connections and complemented by three additional indicators, including for Lagos\. All four revised indicators were achieved (Table 1), thus resulting in a Substantial rating against the revised PDO 2\. 75\. The achievement of the revised PDO 2 indicator target of 75,000 new active connections in Cross River State (Table 1, 2a) was a major success of the final year of the project\. The network densification was financed from the IDA credits in five towns, and from AFD proceeds 14 in two, though AFD also contributed to repairs, reconnections and registrations across sites in the final year\. In mid-2016, an estimated 50,201 active connections were in place\.53 By final project closure 18 months later, the utility had managed to raise this to 75,271 active connections by repairing and constructing connections, reactivating suspended connections and entering existing informal connections into their billing database through a performance improvement program supported by external consultants\. Specifically, the increase was driven by the construction of 8,000 new connections in Okpoma and Obubra, as well as the registration of over 2000 informal connections in the other towns\. In Calabar, the utility also repaired 3,798 out of 4,747 connections earlier destroyed by roadworks, and re-activated 10,402 suspended connections made under the project by waiving penalty and reconnection fees\. 54 76\. In Lagos, achieving the revised PDO 2 target of 24,000 new active connections (Table 1, 2b) can also be credited to pro-active improvements during the final project phase\. The network rehabilitation and connections were financed directly from IDA in two service areas and AFD credits in two others\. This included over 185 kilometers in new pipelines, in addition to the actual house-connections targeted by this indicator\. In mid-2016, only 6,544 active connections attributable to the project had been put in place\. Since then, LSWC nearly quadrupled the household connections attributable to the project for a total of 26,115\. The late surge is explained both by the sequencing of works which started with plant and network expansion before prioritizing connections, as well as a special effort by the Bank and PIU to achieve targets in the final year that included frequent supervision missions, the hiring of external technical assistance and contract amendments to allow the needed additional connections to meet targets\. 55 77\. The third indicator of the revised PDO 2 was the total number of Direct Beneficiaries (Table 1, 2c), with a target of 990,000, which was successfully exceeded\. This figure estimates the number of persons benefiting from the investments made by the project in treatment capacity, water quality and new connections\. Using conservative assumptions, the number of beneficiaries was estimated to be at least 1,000,000\. 56 78\. The fourth indicator of the revised PDO 2 (Table 1, 2d) was the number of Female Beneficiaries across project sites, with a target of 50 percent, which was reportedly achieved\. This outcome is a derivative of the third indicator rather than independently measured\. 57 3\.2\.3 PDO 3 to Improve Commercial Viability of the Urban Water Utilities Overall PDO 3 Rating: Negligible (pre- and post-restructuring) 79\. The third PDO aimed to “improve the commercial viability of urban water utilities in the Participating Statesâ€?\. All original and revised indicators for this objective were missed and/or dropped, and a pre- and post-restructuring rating of Negligible was thus assigned for PDO 3\. As will be outlined below, this was not only due to persistent operational problems, but also political decisions with respect to tariff autonomy and subsidy policies\. 80\. The PDO 3 indicator for commercial viability in Cross River State was the percentage of operations and maintenance (O&M) costs recovered from revenue in Calabar (Table 1)\. To attempt to achieve this target, the project had financed the construction of tens-of-thousands of household connections to extend the utility’s revenue base (Table 1, 2a), and allocated over US$2m in IDA funds for trainings, workshops, study-tours and information technology to improve revenue performance (Sections 1\.5 and 1\.6)\. PSP was also meant to improve commercial performance\. However, cost recovery from water revenues never rose above 60% during the project\. As noted (Sections 2\.2 and 5\.1), the ambitious indicator target of 100% cost-recovery was 15 retained at additional financing despite limited progress\. In the final project year, the reconciled income and expenditure data shared by the CRSWBL indicates a cost-recovery of 41\.4 percent\.58 81\. The Project Appraisal Document specified collections from “revenueâ€? to mean “water sales revenueâ€? (World Bank, 2005, p\. 4), thus not counting subsidies in line with the objective of “commercial viabilityâ€?\.59 For consistency, this original definition was retained in evaluating project outcomes\. However, it should be noted that the low cost-recovery from water sales revenue is partly due to a decision by the State Government to retain lower tariffs in exchange for regular subsidies to the utility\. From this perspective, subsidies may be considered as a de-facto substitute for foregone revenue collection\. CRSWBL has indeed received a steady subsidy for staff salaries\. If counted towards cost-recovery, this would raise the result from 41\.4 percent to 73\.8 percent for 2017, though even this remains below target (the remaining gap is due to other direct and indirect subsidies such as for power and chemicals, and debt accumulation)\. 82\. An identical cost-recovery indicator was added for Lagos at additional financing with an only slightly less ambitious target of 90% by project end\. However, cost recovery never rose above 65 percent in Lagos during the project (Figure 1)\. Available data indicates O&M cost recovery of 54\.4 percent in 2017\. In Lagos, the current State Government also committed to “subsidize the various categories of water tariffsâ€? as “part of social responsibilities of the State Governmentâ€?\.60 Including salary subventions would result in 74\.3 percent cost recovery and including chemical and energy subsidies would lead to a positive net income for 2017\.61 Subsidies to LSWC are reflected in Lagos state budget allocations for 2016-18, but may change in the future\. 83\. In both Cross River and Lagos State, political decisions to constrain tariffs in return for subsidies thus contributed to the missed commercial cost-recovery targets\. While this exogenous political constraint should be acknowledged, tariff decisions are clearly not the only reason why cost recovery targets were missed\. In Cross River, at least one significant tariff increase did occur in 2012-13 and the very low bill collection rate of just 33 percent in 2017 is likely a more important factor\. A key reason for the low bill collection at CRSWBL appears to be the disruptive effects of Calabar’s change of private operator and subsequent de-privatization in 2015-16 (see Annex 2)\. The repeated change in management and high staff-turnover compromised an already sub-optimal metering and collection performance\. In Lagos, the persistently high NRW is a key reason for the low cost-recovery outcomes (VIPCG, 2016, p\. 84)\. In both states, a performance improvement program initiated in the final project year reversed a previously negative cost-recovery trend (Figures 1 and 2, Section 4), but was insufficient to achieve targets by project closure\. 84\. At appraisal, the involvement of the private sector was seen as a core part of the strategy to improve commercial viability in line with government and Bank priorities (see Section 1)\. As noted in Section 3\.1, the PSP approach did not turn out to be an effective strategy in this project\. The PDO 3 indicator for PSP for Lagos State was not achieved by the original deadline and dropped at additional financing\. Of the two PSP-related intermediate results indicators, one was dropped at additional financing while the second was retained but missed (Annex 2)\. The fact that the project failed to implement a successful PSP approach, even though it was originally conceived as central to attaining commercial viability, contributes to the Negligible rating for PDO 3\. 3\.3 Efficiency Efficiency Rating: Modest (pre- and post-restructuring) 85\. The overall efficiency rating for the achievement of project development objectives is Modest\. Costs were higher, financial benefits lower and the implementation period longer than 16 originally anticipated\. The project did undertake serious efforts to achieve an efficient use of resources, but some weaknesses in cost-control occurred\. While optimistic efficiency expectations at entry were not met, non-financial economic benefits of the project and longer asset lifetimes than originally assumed should be considered in assessing overall project efficiency\. 86\. The economic and financial analyses at entry over-estimated net-present value of the project\. Costs turned out to be significantly higher and benefits lower than expected\. The investment case for Lagos, which eventually absorbed more than US$ 165 million of IDA and AFD financing, rested on a positive net-present value (NPV) of only NGN 136 million – barely US$1 million at the time\. In fact, the original model for Lagos contained an inaccuracy which, if corrected, would have caused a negative NPV\.62 The NPV for Cross River, which eventually absorbed over US$180 million (of which over US$135 million from IDA), was similarly narrow at NGN 406 million – just above US$3 million at the time (World Bank, 2005)\. The expected positive financial outcomes were not realized in the expected timeframe of 2005 to 2019\. 87\. Achieving the narrowly positive NPV expected at entry would have required a number of strong assumptions about cost and benefits to hold, which did not occur\. For example, the “importance of regular tariff increasesâ€? was stressed at appraisal as “very important for the Project’s long-run sustainabilityâ€? along with “the reliability of electricity suppliesâ€? (World Bank, 2005, p\. 53)\. The original model for Lagos thus assumed a gradual increase in the tariff from 2011 onwards, but in fact the tariff remained unchanged by the closure of the IDA credits in 2016, though in 2017 higher tariffs for pre-paid meters were introduced\. The original model also assumed non-revenue water (NRW) of only 35 percent at outset, declining to 28 percent by 2014, while data from the IBNET database suggests an actual value above 50% at the time\. Lower than expected billing collection rates further reduced financial benefits, which was aggravated by higher than anticipated costs\. Capital investment costs rose across all project components and on a per- output basis compared to estimates at-entry\. Disbursement delays necessitated time extensions and meant that benefit streams from project funded works started later than originally anticipated\.63 88\. An ex-post re-estimation of the financial model thus results in a negative net-present value (NPV) and Financial Internal Rate of Return (FIRR) at entry, in other words, the project does not appear to have been financially viable within the original timeframe\. The incremental cash-flows from the project were negative for the majority of years in both investment sites and thus investment costs were not recouped within the original target of 15 years as the financial estimation at entry had predicted\. Even using permissive assumptions, NPV and FIRR at ICR are negative in both main project sites in the ex-post estimate at ICR (Table 3, Annex 3)\. 64 Table 3: Net-Present Value and FIRR as estimated at entry in 2005 & ICR recalculation * Site Lagos Calabar (Cross River) 65 NPV at Appraisal (at 10% discount rate) NGN 136 m NGN 406m NPV at ICR (at 10% discount rate) - NGN 8\.5 bn - NGN 871m Financial IRR at Appraisal + 10 % + 13% Financial IRR at ICR -12% -3\.5% 89\. While the original model was too optimistic in terms of financial benefits accruing in the original timeframe, it was too pessimistic in ignoring non-financial economic benefits\. At entry, the only expected benefits beyond direct financial revenue of utilities modelled were tax payments made by the project (World Bank, 2005, p\. 52)\. EIRR outcomes at ICR would be negative if this narrow definition of economic benefits was retained\. However, this underestimates the full economic benefits of the project by excluding effects such as gains in productive time due 17 to reduced water fetching distances and lower rates of diarrheal disease, or the value of reduced morbidity\. Such benefits are likely to have substantially improved the economic returns to the project given the over 1,000,000 project beneficiaries (WHO, 2012)\. 90\. An ex-post estimation of EIRR that includes additional economic benefits that were not captured in the model at entry leads to positive EIRRs for the project (Table 4)\. As detailed in Annex 3, these ex-post estimates underline the scale of likely economic benefits of the project, but depend on critical assumptions such as the approach to valuing reduced mortality or which economic benefits and beneficiaries are included\. For example, the estimate in Table 4 may be higher if benefits accruing to illegally connected customers were also counted or if available data allowed for valuing intangibles such as quality of life improvements\. Despite such remaining uncertainties, the ex-post estimation clearly shows that economic benefits of the project are likely significant, especially in Calabar which was allocated more project financing than Lagos and connected more new customers, with associated directly attributable economic benefits\. Table 4: EIRR as estimated at entry in 2005 & ICR recalculation * Site Lagos Calabar (Cross River) Economic IRR at Appraisal + 13 % + 15 % Economic IRR at ICR [ex-post model including wider range of benefits] +1% +21\.7 % * Positive EIRR at Appraisal rested on strong financial benefit streams, which did not materialize as expected (Section 3\.2\.3); EIRR at ICR presented here takes a wider range of economic benefits into account than at appraisal (see Annex 3 for details) 91\. The original estimation period for NPV and FIRR (2005-19) was also arbitrarily short, which may underestimate financial and economic viability of the project\. A strong argument can be made that a model period longer than at entry (i\.e\. beyond 2019) should be used to assess financial and economic returns of the project, given the later completion of major works in 2015- 17 and assuming a typical useful lifetime of plant and network assets of at least 10-15 years if maintained\. In other words, even if financial viability is missed by the original target date, it remains possible given that assets constructed by the project will create benefits beyond 2019\. 92\. Sensitivity analysis confirms the importance of tariffs, water losses and energy supply for the project’s financial viability, as well as the significant effect of the model period\. In Lagos, a tariff increase to the level of Calabar in 2013 would have led to a positive NPV assuming collection of the additional billings, supply reliability and NRW in line with original assumptions\. As detailed in Annex 3, lower than expected NRW and steadier supply would also have had significantly positive effects on financial viability\. The significant effect of these variables indicates that exogeneous political constraints on raising tariffs and disruptions in electricity supply, and thus production, due to political violence and a macro-economic crisis (IMF, 2016), worsened financial outcomes significantly and, arguably, beyond what can be reasonably attributed to utility performance alone\. In Calabar, the decline in revenue collection accompanying the disruptive changes in management (Annex 2) played a key role in limiting financial benefits, but even with ideal collections performance, the project would have struggled to be financially viable in the original timeframe due to higher than expected investment and production costs\. 93\. At entry, no economic and financial analysis was carried out for the secondary systems in Cross River, though NPV and EIRR estimates were provided for some at restructuring\. As detailed in Annex 3, the ex-post analysis at ICR shows that these systems were not consistently operational prior to 2016 and at project closure none of the secondary systems were recovering production costs through collections\. A positive NPV and FIRR can thus be ruled out unless a turnaround in financial viability is achieved going forward\. 18 94\. The project did undertake serious efforts to achieve an efficient use of resources, though some weaknesses in cost-control persisted\. Procurement and financial management teams were active in each state and in a supervisory role at federal level, with direct support from the World Bank office in Abuja and regular supervision missions\. Supervisory consultancies were hired in line with best practice to ensure infrastructure works were delivered efficiently and on time\. Though initial estimates of project costs were too low and necessitated additional financing (Sections 2\.1 and 2\.2), this was primarily due to lack of detailed pre-feasibility planning, exogenous global price increases and an expansion of project scope, rather than an inefficient use of resources or endogenous cost-escalations\.66 Some weaknesses in cost control must be highlighted, however: An adequate system for monitoring actual versus budgeted expenditures at federal level was still lacking at project end suggesting vulnerabilities in cost-control\. In Lagos, internal controls were rated “weakâ€? as late as 2016 (World Bank, 2016, p\. 28), with missing internal audits, manual accounting and a lack of a fixed asset register even by IDA closure (see Section 2\.4)\. These weaknesses did not lead to documented wasteful use of resources, though do make it more difficult to fully and confidently evaluate the overall cost-effectiveness of the project\. 3\.4 Justification of Overall Outcome Rating 95\. The overall outcome rating is Moderately Unsatisfactory due to only modest relevance, and efficiency, though efficacy was substantial\. The rating does recognize the substantial efficacy due to the completion of major infrastructure works that achieved or nearly achieved two out of three PDOs\. The resulting significant increase in the quantity and reliability of water supply in the megacity of Lagos as well as in key cities of Cross River state, benefiting over a million Nigerians, is a substantial achievement even if – in retrospect over-ambitious – cost-recovery targets were missed\. These achievements, however, are qualified by modest efficiency, given lacking financial viability relative to expectations at entry, as well as modest overall relevance given the weakness of design and implementation in reflecting the project’s ambition for sector reform\. In brief, the project outcome is Moderately Unsatisfactory, because even though the intervention achieved impressive infrastructure works, it fell short of its larger ambition to reform the urban water sector and put it on a more sustainable basis\. Without cost recovery, other project achievements remain vulnerable to political circumstances and exogenous shocks (see Section 4)\. Table 5: Overall Outcome Rating and weighted sub-ratings Pre-Restructuring Post-Restructuring Overall Rating Relevance of objectives Substantial Substantial Relevance of design/implementation Modest Modest Relevance (Overall) Modest Modest Efficacy Substantial Substantial Efficiency Modest Modest Moderately Moderately Rating Unsatisfactory Unsatisfactory Rating value 3 3 Weight (% disbursed before and after) 34\.96% 65\.04% Weighted value 1\.05 1\.95 3 Final rating Moderately Unsatisfactory 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 19 96\. Poverty rates are significant in Lagos (40\.3 percent) and Cross River State (60\.4 percent) (NBS, 2017)\. 67 Although results of a beneficiary survey suggest a relatively elevated socio- economic profile of direct beneficiaries68, the successful expansion of access in project sites, including public stand-posts, can be expected to have had a positive impact on poverty in target areas through reduced water costs, time and health savings\. A recent study of poverty in Nigeria found that “access to basic infrastructureâ€? such as water was of “crucial importanceâ€? for poverty outcomes in Nigeria (World Bank, 2016b)\. In Calabar, the high rate of access achieved (> 70%) is particularly likely to have had a positive impact that extends to significant sections of the poorer population\. The project did not specifically target gender, however, it may be deduced that the female population benefits particularly from an extension of access and more reliable supply, as in Nigeria the responsibility to fetch water falls onto female members in the majority of households in urban areas, and female children more than twice as often than male children\.69 (b) Institutional Change/Strengthening 97\. The project supported a number of longer-term capacity building and institutional strengthening initiatives, including the performance improvement programs of the final project year\. At utility level, the project financed a wide array of short-courses both within and outside Nigeria, including on management leadership, procurement, accounting, water quality testing, customer service and work ethics\. The project also financed the National Water Resources Capacity Building Network (NWRCBNet), a partnership between the FMWR and six Federal Universities to offer courses in post-graduate water related courses\.70 A further aspect of institutional strengthening was the creation of an incipient “MDG tracking systemâ€? (Annex 2)\. 4\. Assessment of Risk to Development Outcome 98\. The risk to the Development Outcome is Substantial\. The capacity of Lagos and Cross River utilities to sustain achievements post-completion remains vulnerable to institutional weaknesses, external shocks and the continued lack of financial autonomy\. The failure to achieve cost-recovery targets limits the utilities’ scope of action and undermines their ability to guarantee operations and maintenance independently of subsidies\. Performance declines such as the one observed as recently as 2015-16 thus remain a substantial risk\. 99\. The technology of the rehabilitated plants and network is of standard complexity and does not pose particular risks per se, though maintenance is a key vulnerability\. A lack of adequate maintenance and operational standards remain a risk to the technical integrity and long- term sustainability of outcomes\. As the 2016 Borrower Completion Report pointed out, “poor maintenance culture was allowed to persistâ€? (VIPCG, 2016)\. Since then, maintenance risks were mitigated to some extent by the performance improvement programs implemented by both utilities over the final project year\. These programs included a variety of aspects likely to improve utility performance such as an assessment of technical and commercial operations, training of utility managers on issues including inventory management, plant maintenance and non-revenue water reduction, as well as a reorganization of business zones and better incentivization of managers (2ML Consulting Ltd, 2018)\. At project closure it is difficult to distinguish the effect of such capacity building from project financed direct repairs\. The long-term impact remains to be seen\. 100\. Financial risks to the utilities remain significant as cost recovery was not attained either in Lagos or Cross River State\. The performance improvement programs of the final project year were successful in reversing a multi-year downward trend, but cost recovery remains far below targets\. In Cross River state, the most reliable data indicates a peak of cost-recovery at 53 percent 20 in 2012, followed by a gradual decline to below 40 percent in 2016, with a modest trend reversal at project closure\. In Lagos, a reported achievement of 60 percent cost recovery in 2012 was followed by a steady decline below 40 percent by 2016 and a recovery to above 54 percent in 2017 (Figures 1 and 2)\. The utilities are on the right path, but there is still a considerable way to go\. 101\. Until cost-recovery is achieved, recent achievements in supply reliability will remain vulnerable to a repetition of performance declines such as occurred in 2015-16\. After the original rehabilitation of Lagos treatment works by the project, up to 23 hours of supply were reported in 2012-15, as well as a peak realized plant capacity of 77 percent in 2014 (VIPCG, 2016, p\. 82)\. This initial achievement faltered in 2015-16 due to lack of maintenance impacting plant capacity, as well as irregular payments for power and political instability disrupting energy supply (Section 3\.2\.1)\. A decline in production capacity due to lack of funding for maintenance was also reported for Calabar prior to project-financed repairs in 2017\. The persistent lack of cost-recovery from water sales makes the utilities particularly vulnerable by undermining their capacity to independently maintain infrastructure, hire and retain qualified staff, purchase inputs, pay for grid- electricity and compensate for power outages with generators when necessary\. More generally, it makes supply reliability dependent on subsidies and thus changing political circumstances\. 102\. Political change and economic shocks have negatively impacted the project, especially towards the end, and remain a substantial risk going forward\. As the utilities remain financially dependent on state subsidies and non-autonomous (e\.g\. with respect to staffing or tariffs), political change remains a direct risk to their income and management stability\. As the BCR noted, there was “a lot of political interference…at the State levelâ€? during the project which “resulted in loss of time…knowledge gaps and discontinuityâ€? (VIPCG, 2016, p\. 102)\. Other risks include the impact of political violence on oil and gas supplies and thus energy availability as well as state budgets\. Currency risks may also impact reliability of supply and commercial viability as key inputs such as chemicals and spareparts, are imported\. The Naira has depreciated significantly over the past decade and utility budgets leave little room for further exchange rate shocks\. Figures 1 and 2: O&M Cost Recovery – Cross-River left, Lagos right (different sources) 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% Target ISRs (averaged) Target ISRs (averaged) CRSWB / ICR Data BCR LSWC / ICR Data BCR 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance Overall Rating: Moderately Unsatisfactory (a) Bank Performance in Ensuring Quality at Entry 103\. Bank Performance in ensuring quality at entry was moderately unsatisfactory\. While the project was consistent with the strategic goals of the Bank and Nigeria, integrated some lessons 21 from previous projects, and carried out consultations at federal, state and civil society level, there were nevertheless significant shortcomings in the quality of the project preparation and appraisal\. 104\. Shortcomings in preparation and appraisal occurred with respect to three specific aspects: The delayed completion of detailed baselines and prefeasibility studies led to a suboptimal funds allocation and implementation delays in both sites which the mid-term review explicitly ascribed to a “weak project appraisalâ€? (World Bank, 2010, p\. 2)\. Moreover, while the analysis at entry recognized the importance of institutional and policy reform, this was not translated into a well-defined, realistic reform agenda linked to project development objectives such as commercial viability (e\.g\. PSP, utility autonomy and tariff reform were seen as critical for commercial viability at entry, but the project’s approach proved ineffective)\. PDO targets on cost- recovery were unrealistically ambitious\. Finally, although key risks such as electricity supply and difficulties in realizing a PSP were correctly identified, their severity and required mitigation measures were underrated (see Sections 2\.1 and 3\.1), which also led to an over-estimation of financial benefits and thus of the project NPV (Section 3\.3) leading to only Modest efficiency\. (b) Quality of Supervision 105\. Bank Performance in ensuring quality of supervision was moderately satisfactory\. While supervision was weak initially, it improved significantly in the final project phase\. While ISRs, Aide-Memoires and the mid-term review in October 2009 reflect a focus of Bank supervision on development impact and contain at times candid assessments of bottlenecks in project management (World Bank, 2010), monitoring of project indicators suffered from significant quality issues (see Section 2\.3\.2 and Endnote 71), a concern also raised by the CMU (World Bank, 2013)\. A better Bank supervision performance would have been more meticulous in verifying project results independently, which could have led to a timelier reaction to shortfalls and better project outcomes\. A further shortcoming in supervision was the fact that Bank missions were not always fully documented with no Aide-Memoires filed for four fiscal years\. The opportunity of additional financing was also not used to restructure the project with more realistic objectives for PDO 3 on commercial viability even though commercial viability had been highlighted as a concern in a number of ISRs prior to additional financing (World Bank, 2012b)\. 106\. Bank supervision performance, however, greatly improved in the final two project years\. As noted in Sections 2\.2 and 3\.2, in 2016-17 frequent supervision missions, the initiation of performance improvement programs and a pro-active role of the Bank team in the amendment of infrastructure contracts were critical for substantially achieving supply reliability and access objectives\. Project documentation during these final years was also detailed and complete\. (c) Justification of Rating for Overall Bank Performance 107\. The overall rating for Bank performance is moderately unsatisfactory\. This is an aggregate rating of Bank Performance in Ensuring Quality at Entry (moderately unsatisfactory) and quality of supervision (moderately satisfactory), also noting Outcome (moderately unsatisfactory)\. 5\.2 Borrower Performance Overall Rating: Moderately Unsatisfactory (a) Government Performance 108\. Government performance was moderately satisfactory\. Three levels of government are assessed in aggregate – the federal government as well as state level governments in Lagos and 22 Cross River State\. The project enjoyed the support of the federal and state governments and cooperation between the various government institutions – including FMWR, Federal Ministry of Environment, River Basin Development Authority, State Environmental Protection Agencies and the Federal Ministry of Finance – was effective (VIPCG, 2016, p\. 99)\. Some policy achievements of the project testify to the government’s willingness to engage with the project agenda, for example the creation of a State Water Regulatory Commission and Office of the Public Private Partnerships (OPPP) in Lagos, or approval of a water resources policy by the Federal Executive Council\. The FMWR was reportedly prompt and professional in responding to implementation issues in cooperation with the Bank and SPIUs\. 109\. Some moderate shortcomings in government performance must be noted, however: Firstly, counterpart funds were disbursed only partially and with delay\. The initial project design anticipated “counterpart financing of US$10\.5 millionâ€? to be “shared by the states and the federal governmentâ€? (World Bank, 2005, p\. 32)\.72 The borrower did not make these contributions in full and counterpart requirements for the IDA credit were unceremoniously dropped during a reallocation of credit proceeds in 2011 (World Bank, 2011)\.73 The additional IDA financing compensated for the loss in government contributions, thus preventing a direct impact on project results\. A second problematic aspect was that “interference on project staffing matters resulted in excessive staff turnover, most of the time without consulting the Bank or the FPIUâ€? which created instability and delays in project management (VIPCG, 2016)\. Finally, changes in government also led to sudden amendments of disbursement rules at state level in 2015, delaying implementation\. 110\. Government performance improved in the final phase of the project, contributing to the achievement of supply reliability and access objectives\. There were no more changes in key PIU staffing that occurred, as well as payments of power bills for utilities played a key role in improving supply reliability and disbursement were authorized on time\. (b) Implementing Agency or Agencies Performance 111\. Overall implementing Agency performance was moderately unsatisfactory, though it varied widely between PIUs and improved significantly in the final project phase\. The FPIU and SPIU in Cross River State were comparatively effective\. The FPIU implemented its activities smoothly as reflected in World Bank Aide-Memoires\. In early 2012 the supervision mission noted that it was “very pleased at the rate at which the Federal component has progressedâ€? and FPIU related tasks such as the dam related activity and capacity building tasks were concluded on time\. Shortcomings of the FPIU primarily relate to its monitoring role, in particular the “communication gapâ€? between FPIU and SPIUs which was noted at mid-term (World Bank, 2010) and only partially addressed as shown by the M&E challenges and the belatedly discovered procurement issues\. 112\. While the SPIU in Cross River State was commended from early on, concerns about the performance of the SPIU in Lagos have persisted from the beginning of the project (World Bank, 2007)\. An Aide-Memoire noted the limited integration of the SPIU in LSWC in 2009 (World Bank , 2009, p\. 8), and at mid-term that “the Lagos PIU should be more proactive in the project implementation to enable the State achieve the project objectives (World Bank, 2010, p\. 5)\. The BCR judged staff turnover to be particularly “excessiveâ€? in Lagos with five changes in project coordinators (VIPCG, 2016, p\. 103)\. Serious financial management and procurement challenges occurred in Lagos, including ineligible expenditures and over-commitments (Section 2\.4)38\. The Lagos SPIU thus appears to have under-performed relative to the FPIU and Cross River SPIU\. 23 113\. In line with general project performance, however, implementing agency performance improved significantly in the final phase of the project\. This improvement was instrumental in allowing achievement of infrastructure related supply reliability and access targets as outlined in section 3\.2\. The implementing agency performance rating should thus be understood as an overall rating since project start, not of performance by PIU staff at closure, which was greatly improved\. (c) Justification of Rating for Overall Borrower Performance 114\. The overall rating of borrower performance is moderately unsatisfactory\. This is the aggregate of Government Performance (moderately satisfactory) and Implementing Agencies’ Performance (moderately unsatisfactory), noting the Outcome rating (moderately unsatisfactory)\. 6\. Lessons Learned 115\. A first lesson of NUWSRP2 is that successful sector reform requires a clear agenda and a project design directly addressing political economy constraints and stakeholder incentives\. Reforms are socially, economically and politically interconnected and stakeholders face complex, often contradictory motivations\. The NUWSRP2 did not sufficiently recognize and reconcile legitimate stakeholder incentives (e\.g\. political resistance to tariff increases prior to service improvements) with project goals (e\.g\. ambitious cost-recovery targets)\. Future projects with the ambition for “urban water sector reformâ€? must have the clarity of purpose to not only set basic objectives (e\.g\. cost recovery), but also define a reform agenda with realistic intermediate steps mapped to stakeholders that are incentivized and accountable for achieving them\. In NUWSRP2, financing was primarily determined by the progression of infrastructure works, independent of reform progress\. This signalled that reform is secondary by focusing financial incentives on disbursements on infrastructure\. Tying funding more directly to reform could realign incentives and improve outcomes\. New financing mechanisms like the Multiphase Programmatic Approach may offer tools to create clearer incentives\. When the primary objective is policy and institutional reform, Development Policy Financing (DPF) should be considered\. 116\. A related lesson of the project is the importance of pro-actively managing political support to sustain buy-in and mitigate governance dynamics, including at the local level\. As the project has shown, ensuring political buy-in at entry is necessary, but not sufficient\. Changes in key stakeholders can undermine support for key aspects of a project (e\.g\. PSP), increase risks (e\.g\. to energy supply if subsidy dependent) or cause disruptions to implementation (e\.g\. due to PIU turnover, see Section 2\.2)\. To ensure a stable and successful project, political support should be understood as an ongoing concern that must be pro-actively managed\. This is particularly so in reform-related projects that require long-term commitment beyond one election cycle to achieve lasting change\. Political ownership should also go beyond nominal commitments at national level\. Incentives of local stakeholders must be clearly understood, explicitly considered in building coalitions and directly addressed in project design\. A continual and pro-active communication strategy targeting stakeholders at local, regional and national level is critical to achieve this\. 117\. Thirdly, NUWSRP2 highlighted the centrality of a realistic approach to cost-recovery that allows for long-term operational efficiency gains and service improvements\. As the project experience has shown, overly ambitious commercial cost-recovery targets are at high risk of remaining elusive and may even impair long-term reform\. Early pressure to withdraw subsidies and meet demanding commercial cost recovery targets may undermine the ability of reforming utilities to invest in improvements in operational efficiency that lower costs and improve service outcomes in the long-term\. If not backed by such operational improvements, short-term revenue 24 measures such as tariff increases will impose the costs of inefficiency on consumers; this can lead to political deadlock as political representatives resist commercialization while service quality is still lagging\. Utilities can then become trapped in a situation of high costs, low revenues and declining performance\. A key reason for the performance decline observed in 2015-16 was just such a vicious cycle of low revenue and low performance, aggravated by external shocks (Section 3\.2\.1)\. As the performance improvement program in the final project year has shown, a comprehensive approach focused on operational efficiency was needed to reverse such cycles: targeted repairs to restore production capacity; proper incentivization of managers and field staff; introduction of modern metering and billing tools; efforts to instill a culture of payment for water services in clients; and as long as needed, subsidies that are regular and reliable, not arbitrary and unpredictable\. PSP may remain part of such reforms under the right circumstances (World Bank, 2017, p\. 110), however, this project is a cautionary tale that a more conditional approach to PSP is required – conditional on inclusive local support; on regulation that accounts for equity and quality of supply concerns; and on a legal framework that gives private firms confidence to invest\. 118\. Fourthly, if major infrastructure projects proceed to Board without detailed designs, this should be acknowledged at appraisal as a key risk for initially slow disbursements\. In NUWSRP 2, the completion of engineering and baseline studies well after signing of the project agreement caused significant delays versus timelines anticipated at entry, and was the main reason for the major underestimation of costs\.74 While emergency needs or strong credit demand may justify a rapid progression towards approval and effectiveness, the lack of detailed designs is a major risk in terms of duration, cost and scope of infrastructure project that should be highlighted to Bank management and the Board\. 119\. A fifth lesson is that World Bank tools to track project commitments and disbursements have considerable room for improvement\. Over-commitments occurred in NUWSRP2 despite similar problems in the predecessor project and explicit warnings by the Country Management Unit prior to closure of the project\. This was partly because the World Bank’s client connection does not offer useful tools to track uncommitted undisbursed funds\. Such tracking is only done offline and some PIUs clearly struggle to do so accurately in complex environments with multiple credits, multiple PIUs and shifting exchange rates between SDR, USD and local currency\. Bank systems also do not capture and summarize disbursements carried out under co-financing effectively, making it difficult to track overall project allocations by categories\. 120\. A sixth lesson from NUWSRP 2 is that M&E in complex projects could be enhanced by independent technical audits\. The ICR observed considerable differences in reported values for key project indicators\.35, 71 As the BCR noted, M&E can be seen as unnecessary or even a threat by implementers, thus disincentivizing accurate results reporting\. Independent technical audits at project baseline, mid-term and closure could improve data availability, consistency and accuracy and set clear standards for Bank and PIU monitoring\. This would improve the ability of the Bank and client to identify lack of progress and to react appropriately, as well as facilitating the ICR\. To ensure neutrality, such technical audits would ideally not be financed from project funds as this can skew incentives of contracted firms in case of controversial or borderline results\. 121\. A final lesson is that gender and institutional development objectives should aim for more meaningful, qualitative targets\. The target of “50% female beneficiariesâ€? used in NUWSRP2 is common in Bank projects, but does not measure gender specific impacts in a meaningful manner\. The objective was met simply by women making up half of the households in Nigeria\. This adds no valuable information to the results framework, nor does it encourage 25 specific gender sensitive actions\. Similarly, the simple binary indicators of NUWSRP2 (i\.e\. “achievedâ€? or “not achievedâ€?) for institutional development objectives such as a “national utility training planâ€? can be formally met without clarity on the quantity (e\.g\. persons trained), cost- effectiveness or quality of such activities (Annex 2)\. This could be mitigated by breaking such objectives down into annual intermediate steps with a clear description of the conditions to be met\. Capacity building for staff, in particular, should be part of cohesive programs with qualitative targets that hold “trainees…accountable for using new skills in their day-to-day activitiesâ€? (World Bank, 2015b)\. The performance programs of the final project year are examples in this respect\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 122\. Comments on the draft ICR were received from Lagos State Water Corporation (LSWC), the PIU of Cross River State Water Board Limited (CRSWBL), the federal PIU in the Federal Ministry of Water Resources (FMWR) as well as the co-financier, AFD\. The comments were addressed and integrated into the present version of the report\. Key comments and responses by the ICR team are summarized in Annex 7\. 26  Annex 1: Project Costs and Financing Original and Actual Allocations by Category (US Dollars) Additional Total Original Actual IDA PAD Categories Financing IDA (Historic Allocation Allocation Allocations ** Exchange Rates) Works $ 128\.9m $ 81\.6 m $ 210\.5 m $ 230\.8 m Goods $ 4\.5 m $6m $ 10\.5 m $ 14\.9 m Consultants $ 36\.4 m $ 19\.3 m $ 55\.7 m $ 39\.2 m Trainings, workshops, and study tours $2m $2m $ 4\.0 m $ 6\.1 m Operating Costs $ 2\.6 m $ 1\.5 m $ 4\.1 m $ 7\.2 m Critical Treatment Plant Inputs $ 4\.8 m $0m $ 4\.8 m $ 8\.0 m Repayment of PPF $2m $0m $2m $ 0\.3 m Unallocated $ 18\.9 m $ 9\.6 m $ 28\.5 m Undisbursed / Cancelled $ 7\.1 m Total $ 200 m $ 120 m $ 320 m $ 313\.6 m Total disbursed * (excluding undisbursed/cancelled) $ 306\.5 m Original AFD Total Original Allocations Final Expected Total Categories Allocation (IDA & AFD)** (Final IDA and AFD)*** Works $ 64\.6 m $ 275\.1 m $ 295\.4 m Goods $ 0\.2 m $ 10\.7 m $ 15\.1 m Consultants $ 5\.5 m $ 61\.2 m $ 44\.7 m Trainings, workshops, and study tours $ 4\.0 m $ 6\.1 m Operating Costs $ 4\.1 m $ 7\.2 m Critical Treatment Plant Inputs $ 4\.8 m $ 8\.0 m Repayment of PPF $ 2\.0 m $ 0\.3 m Unallocated $ 7\.4 m $ 35\.9 m $ 7\.4 m Undisbursed / Cancelled na $ 7\.1 m Total $ 77\.7 m $ 397\.7 m $ 391\.3 m Total Disbursed (excluding undisbursed/cancelled) $ 384\.2 m * The difference between original USD allocations and the final USD Disbursements are the undisbursed/cancelled amount, as well as SDR-USD exchange rate losses on credit 51290 which were only partly compensated by gains on the credit 4086 which commenced earlier ** Original PAD and AF allocations, not taking into account the 2011 re-allocation *** Information on actual final AFD disbursements per category not available in Bank systems\. A full 100% of AFD financing had been disbursed at project closure\. At the time of writing of the ICR, the AFD team anticipated that a pending final audit of AFD financing may find additional funds not exceeding $2\.214 million ineligible and subject to cancellation and reimbursement\. 27  Annex 2: Outputs by Component 1\. This annex describes the achieved outputs by component, following the revised intermediate results indicators (see concise overview in Table 2 of the main text), and including relevant information about contributing outputs\. Details about the sources of reported achievements are given in some cases where M&E information was not unambiguous\. 2\. Component 1: Rehabilitation and Network Expansion - Distribution districts of Lagos for which the network is rehabilitated (Table 2, 1a): The original target of five districts was revised down to 4 at additional financing due to higher than expected costs\. Rehabilitation and expansion works of 163\.81km were completed with IDA financing in service area 1 (Lagos Island & Ikoyi) and 4 (Ikeja I & II and Oshodi) by May 2016 (World Bank, 2016, p\. 4) (LSWC, 2016, p\. 5) (VIPCG, 2016, p\. 15; p\.77; p\.109); works on two additional service areas (Victoria Island, Surulere) under AFD funding were substantially completed in November 2017 according to the completion certificates issued by the supervisory consultancies\. - Percent of Calabar’s / other Cross River State towns’ population covered by the distribution network (Table 2, 1b): An independent calculation by the ICR author based on reported connections yields a best estimate of 54 percent and 23 percent of the population covered for Calabar and other Cross River State towns, respectively: The 2014 UN Urbanization Prospects estimated the population of Calabar at 525,000 at the time of project closing\. This implies an urban growth rate of approximately 3\.5 percent annually from the last census in 2006 which reported 375,196 inhabitants\. This is likely a conservative estimate given that the World Bank World Development Indicator database reports an average annual urban population growth of 4\.6% in Nigeria during the period\. Out of the total of 75,271 active connections reported by CRSWBL, 42,303 were in Calabar and connected sub-stations, alongside up to 356 kiosks\. Given an average household size of 4\.2 and an estimated average number of 300 persons served per kiosks, this results in 284,472 beneficiaries or 54 percent of the population covered (284,473 /525,000)\. If it was assumed that each account is, on average, used by two households, this would lead to a coverage of 88%\. At IDA closure in 2016, the Beneficiary Impact Assessment Report Survey had found "63% of the beneficiaries’ get water supply from the water boardâ€? (VIPCG, 2016b, p\. 25)\. Full population data for all smaller cities is not available, but the 2006 census found a combined population of 666,834 in the Local Government Areas of Obubra, Ikom, Ogoja and Obudu\. Even assuming no further growth in population since 2006, and given 32,968 individual connections and 58 kiosks, and using the same assumptions on household size and kiosk users, this would yield 155,866 beneficiaries in smaller towns, or 23 percent population coverage (155,866/666,834)\. Note that LGAs are not necessarily identical with the towns, but have been used as proxies in absence of more specific population data\. See Endnote 56 for calculation of Lagos Beneficiaries\. - New piped household water connections that are resulting from the project intervention (number), (Table 2, 1c): In Cross River, at least 74,271 new connections are attributable to the project (i\.e\. 75,271 active connections reported under the PDO 2 indicator minus the baseline of 1,000 connections), and 26,115 in Lagos\. This means at least 100,386 new piped household water connections that are resulting from the project 28  intervention, easily meeting the target of 55,000\. 54,55 Note that this component intermediate results indicator was considerably less ambitious than the related PDO indicators (Table 1, 2a and 2b) which have both higher targets and explicitly refer to active rather than total connections\. - Piped household water connections affected by rehabilitation works undertaken under the project (number), (Table 2, 1d): The target of 44,000 affected household connections was comfortably met\. In Lagos, rehabilitation works included major restorations of Adiyan and Iju treatment works, along with the rehabilitation and construction of a number of smaller water works (VIPCG, 2016, pp\. 121-23)\. This affected at least 35,821 accounts that were active as of December 2017 (2ML Consulting Ltd, 2018)\. In addition, capital investments also improved supply to at least 75,271 connections in Cross River state (see PDO 2 outcome), for a total of at least 111,092\. - Number of meters installed (Table 2, 1e): The target of 55,000 was significantly surpassed\. In general, all connections made in Cross River state under the project are metered, as confirmed by utility management during the ICR field mission\. This seems backed by the survey carried out as part of the beneficiary impact study which reported that "95 percent of the beneficiaries [in Cross River] have meters that were installed during the course of the project, four percent do not have meters, 1% have meters that were installed pre-projectâ€? (VIPCG, 2016b, p\. 29)\. Given a final number of at least 74,271 connections attributable to the project, of which at least 95 percent metered, would yield 70,557 meters installed in Cross River State alone\. In Lagos, the beneficiary impact study noted at least 29 percent of “beneficiaries… have meters that were installed in the course of the projectâ€? i\.e\. at least 1,898 out of the 6,544 connections installed at closure of the IDA component (VIPCG, 2016b, p\. 29)\. Supervisory consultancy reports for the 17,811 AFD financed connections made since confirm that these are all metered, and the utility also provided detailed lists with meter numbers and GPS coordinates\. Thus, at least over 90,000 meters have been installed, easily surpassing the indicator target\. 3\. Component 2: Rehabilitation and Network Expansion - PS contracts for operation of the treatment works in Lagos (Table 2, 2a): The PSP component was not achieved in spite of a serious initial effort by LSWC management\. In 2009 a multi-day workshop event was held to review possible models, and management resolved on a PSP management model which would contract out both the operation of LSWC Major waterworks (Iju, Adiyan, Akute) as targeted by the project, and in addition the 10 distribution network service areas\. However, in spite of a roadmap developed at the time, the PSP contract never came to fruition due to a number of inter-related factors75: o It proved very difficult to technically delineate the 10 service areas, and thus the idea of contracting out the network services areas under a PSP scheme was eventually abandoned; there was disagreement about the practicality of down- vs\. upstream PSP, and ultimately it was felt that without an efficient private operator of downstream activities, not enough revenue would be generated through sales to pay the fees required for the upstream PSP contract(s) either; o Lack of a clear legal framework for PSP involvement; the 2004 water law was not updated as the PSP roadmap had required 29  o Resistance by staff union fearful of job losses; o Political decision to shift responsibility for PSPs to new Office of Public Private Partnership (OPPP) at state level complicated bureaucratic procedures and authorizations, in particular in the absence of clear political will to proceed with PSP; o Delay in infrastructure works completion delayed beginning of attempts to find operator ;and o NGO/Civil society campaign in 2015-16 further heightened pressure against PSP\. - PSP model piloted for 1 smaller urban town in Cross River – by MTR (Table 2, 2b): At additional financing stage, the project paper noted that "In the lifespan of the project the physical investment will be feasible, but not the PSP participation which may come at a later stage" (World Bank, 2012)76\. While the delay in infrastructure investments certainly played an important role in preventing a PSP model for one smaller urban town in Cross River as originally targeted by the project, another factor was the increasingly negative development of the PSP contract in Calabar which had been in place prior to the IDA investments\. The Calabar PSP model was effectively given up (deprivatized) in mid-2016, contributing to hesitancy of utility management to retry in a small-town location a model perceived to have failed in Calabar\. The original private operator (Ortech) never managed to achieve cost recovery during its period of operation 2005-15 and remained dependent on government subsidies\. A decline in these subsidies and change in government led to the hiring of a new operator ("Techvibes") in 2015\. The new operators fell short of expectations and the utility effectively took over production in February 2016 followed by commercial operations in April-May 2016, leading to the de-privatization of water supply in Calabar\. The utility management has taken a dim view of the contributions of private operators which not only did not achieve cost-recovery, but also failed to maintain infrastructure\. While this may be related to sub-optimal contract design (reportedly flat- fees without profit targets and maintenance obligations), the SWA management nevertheless felt hesitant to retry a PSP model and is instead committed to improving performance in a public-sector context\. The frequent changes of operators towards the end of the project played a key role in the utility’s low operational performance (e\.g\. with respect to the PDO 3 indicator on cost-recovery)\. 4\. Component 3: Service Sustainability & Project Management - Lagos treatment plants capacity attributable to the project (Table 2, 3a): The target of 120m m3/year in "Lagos treatment plants capacity attributable to the project" (i\.e\. an increase from a baseline of 60m3/year to 180m3/year) was achieved by the closure of AFD co-financing in December 2017\. Following completion of project financed repairs, LSWC reported an available capacity of 118 million gallons per day from the Adiyan, Iju and Isashi plants, equivalent to over 16 million m3 per month, or approximately 200 million m3 per year, assuming the rehabilitated plants can sustain production at this level\. - Communications and consumer outreach programs operational in Cross River and Lagos (Table 2, 3b): This target was formally met\. In Lagos LSWC conducted a "Citizens Financial Responsiveness Project" implemented by the "Nigeria Network of NGOS (NNNGO) between July-October 2014\. This project organized a roadshow in various 30  locations in Lagos with "a master of ceremony, music, a mascot and a float in tow" (NNNGO, 2016, p\. 5) with an MC addressing residents "on issues like the importance of water conservation and prompt payment of bills, the need to report leaking pipes\.and of the financial and health disadvantages of providing their own water"\. Complaints from residents were also taken, and Flyers with contact numbers of local LSWC managers distributed\. Some 54 locations within Lagos were reached in a series of one-off events rather than a sustained effort\. However, LSWC has also set up 11 customer service helpdesks in its distribution zones\. At least two such helpdesks were visited during the ICR mission and unannounced calls to the helpline numbers in January 2017 were answered\. It should be noted, however, that the customer care system remains very basic\. There is no central help-line but instead various individual mobile numbers of helpline staff, complaints are recorded manually and there is only a very basic capacity to track their resolution even after transferring them into a central database (which is not accessible from the service areas, and does not produce standard reports)\. In Cross River State, the project financed a "stakeholder's perception study" in 2010 which carried out focus group discussions, interviews and a survey in Calabar to understand attitudes of customers\. A "Public Communications Programme Action Plan" was subsequently written, though the extent of its implementation is not clear from project documentation\. 5\. Component 4: Institutional Development & Policy Reform - MDG tracking system for access to potable water & sanitation established and operational in the FMWR (Table 2, 4a): This target was formally met, though arguably at excessive cost and without a strategy for sustaining it\. The original Project Appraisal Document had not defined what was meant by an "MDG Tracking system"\. National MDG targets were already tracked by the WHO/UNICEF Joint Monitoring Programme, which provides official statistics on JMP targets at the national, urban and rural level based on existing national household survey programmes such as DHS which are available for Nigeria\. The NUWSRP2 appears to have interpreted its role relative to JMP as carrying out a more geographically detailed survey of water access across Nigeria, combined with the procurement of dedicated server infrastructure at FMWR to host the resulting data and other relevant sector information, and making it accessible through a custom designed interface\. By the end of the project, the survey had been completed, the server infrastructure installed (it was visited by the ICR mission), and templates for continued water data collection had been prepared thus formally meeting the project target\. While the project target was thus nominally met, a number of weaknesses in the approach should be pointed out\. Firstly, physical server infrastructure was procured at the cost of over USD 1million\. It is not clear why the proposed database was not hosted by a domestic or international commercial provider instead, which would have cost less than USD 10,000 per year including maintenance and likely be more stable due to its independence of local power supply (additional costs for workstations and software may occur, but still remain far below the costs of a dedicated server-room)\. Secondly, while templates for future data collection were prepared (e\.g\. Dams & Reservoirs, Irrigation & Drainage, Water Quality), no clear plan was developed on how the collection of this water related data would be financed and implemented in the longer-term\. The assumption appears to be that existing 31  FMWR staff would collect this data as part of regular work plans, but given the extensiveness of the data collection requirements and additional work and necessary diligence for transferring such data from paper to digital forms, it is not likely this will be feasible without dedicated funding and management at least in the beginning\. Thirdly, it is not clear from the available documentation what the database will be used for beyond a general understanding that having detailed water-related data would be useful to various stakeholders\. A use-case has never been clearly defined\. Finally, the baseline household survey financed by NUSWRP2 was expensive yet used a weak methodological approach that undermined the quality of the resulting data\. The survey involved 13 firms (12 local firms for surveying and one international firm for IT support) and cost approximately USD 4\.5m\. Selection of households was not randomized or weighted by population, instead a pre-determined number of approx\. 22 houses was to be sampled per ward (with slight variations)\. Households were selected based on the judgement of local surveyors, which may vary greatly across 12 firms and 37 states\. While instructions guided firms to aim for representativeness, in one evaluated state enumerators were simply told to “go until you have 22 householdsâ€?\. Training of surveyors was carried out by firms with little to no external supervision or quality control\. Moreover, even if approximate random selection is assumed, a sample size of just 22 households will likely not suffice to achieve sufficient representativeness at ward level as the initial survey aim had been\. The average ward holds as many as 3,800 households, which implies an average margin of error as high as 20% at 95 percent confidence level at ward level\. In other words, if the survey result in an average ward showed that safe water access was 50 percent, one could assume the real figure was somewhere between 30 percent and 70 percent, a margin of error too large to be useful for policy decisions\. Thus, it is unlikely that this household survey yielded data that truly reflects the situation at ward level, though estimates may be more accurate at LGA level\. It should be noted that representative data on water and sanitation access at state level is already available from the DHS2013 survey\. It should be noted, however, that it provided useful data at a higher geographical level that was used for the Nigeria WASH Poverty Diagnostic\. - National utility training plan conceived and implemented (Table 2, 4b): This target was formally met\. According to the Borrower’s Completion Report, a National Water Resources Capacity Building Network (NWRCBNet) has been operationalized and been coordinated by the National Institute of Water Resources and six federal universities across the geopolitical zones of Nigeria\. These appears to have consistent of agreeing with universities on water-related courses, as well as financing infrastructure for NWRCB offices in the regions\.77 However, the quality, content or number of beneficiaries of these courses is not clear from project documentation\. In addition, NUWSRP2 funds were used to finance largely ad-hoc trainings of utility staff in Lagos and Cross River (e\.g\. courses in "Leadership & Project Team Management" in Montreal, or "High Performance People Skills" at LBS in the UK)\. The BCR did note that some “officials of the SWAs were of the opinion that the training programs were not properly targeted…not strategic or need-basedâ€? (VIPCG, 2016, p\. 103) - Billing collection rate of LSWC (Table 2, 4c): This target was missed on an annual basis, though higher values were achieved in the final project months\. For 2017, the utility has reported total collections of Naira 1,630,343,778 compared to total billings of Naira 32  2,356,347,680 i\.e\. a billing collection rate of 69 percent\. Note that this constitutes an improvement relative to the of the figure of 53\.52 percent reported for 2015 (VIPCG, 2016, p\. 18; 137) (World Bank, 2016), and of only 37 percent reported for the first half of 2016 (LSWC, 2016, p\. 14), a decline that was explained as a result of the intermittent production at the time which reduced willingness of consumers to pay for the less reliable services\. The improvement since then is due not only to the more regular supply, but also a performance improvement program led by an external consultancy firm financed by the project (2ML Consulting Ltd, 2018)\. This technical assistance both reduced spurious billings by removing inactive accounts (average monthly billings declined from NGN 252 million in the first half of 2017 to only NGN 140 million in the second half), and increasing collections (average monthly collections increased from NGN 106 million in the first half of 2017 to NGN 165 million in the second half), thus improving the collection efficiency statistic\. As these figures indicate, the billing collection rate exceeded 100 percent in the second half of 2017 due to the successful collection of arrears\. As the effect of arrears collection is only temporary, and to provide a view of average performance during the year, the annualized figure was used as outcome\. - Billing collection rate of Cross River State Water Board Limited (Table 2, 4d): This target was missed\. In response to ICR data request, CRSWBL reported a billing collection rate of 33 percent in 2017 with total collections of NGN 272,771,339 compared to billings of NGN 828,305,265\. Note that this constitutes an improvement relative to a collection rate of only 21% in the first half of 2016 i\.e\. by closure of the IDA financing as reported by the utility and similarly in the BCR (VIPCG, 2016, p\. 19)\. The billing collection rate never reached the 95% target, though it briefly came close in 2013, subsequently declining steadily esp\. after the disruptions caused by the leaving original private operator, and brief failed take-over of a second private operator in 2015-16\. The figure of 60 percent reported in the final ISR (World Bank, 2016) appears to stem from 2014-15 according to figures provided by CRSWBL, but is also below target\. - Water utilities that the project is supporting, number (Table 2, 4e): The project only supported two SWAs/utilities, and never intended to support more\. It is not clear why this indicator was set to six, but as it is, it was not achieved\. 33  Annex 3: Economic and Financial Analysis 1\. The original analytical models for Lagos and Calabar at entry focused nearly exclusively on financial costs of and benefits to the respective utilities and thus the financial net-present value (NPV) and financial internal rate of return (FIRR)\. The only economic benefits considered in the calculation of the Economic Internal Rate of Return were tax payments made by the project (World Bank, 2005, p\. 52)\. This disregarded the full socio-economic gains of the project as it ignores wider socio-economic benefits such as gains in productive time due to on-premises supply of safe water, reduced incidence of diseases and the value of reduced child mortality rates\. Such benefits are likely to have substantially improved the economic returns to the project given the over 1,000,000 project beneficiaries\. At entry, no financial or economic analysis was undertaken for the secondary towns of Obudu, Ogoja and Ikom “as there was insufficient information to model the three smaller cities\.â€? (World Bank, 2005, p\. 52)\. 2\. At additional financing, the analyses for Lagos and Calabar were not explicitly revised\. Economic analyses for some secondary towns were undertaken, but not for Obudu (World Bank, 2012, pp\. 15-16)\. Except for the overall results captured in the project paper, none of the model calculations or detailed assumptions have been archived and were also not available from the World Bank task leader managing the project at the time upon request by the ICR team\. 3\. The ex-post financial and economic analysis undertaken for this Implementation Completion Report has thus involved the following key tasks:  Financial Analysis for Lagos and Calabar in line with the framework of the original model at appraisal\. This allows conclusive judgement of financial viability of the project at closure in relation to expectations at entry;  Economic Analysis for Lagos and Calabar, including an estimation of socio-economic benefits disregarded at appraisal\.  Summary analysis of economic and financial impact in the secondary towns\. Given the original models were not archived, a comparison within the original model framework was not possible\. Nevertheless, this ICR has carried out a summary analysis to put likely financial and economic performance of the secondary sites into context\. Financial Analysis for Lagos and Calabar 4\. Lagos: The original financial model was re-estimated using actual disbursements on investments, incremental water production and sales\. Model input data was provided directly by the utility LSWC as well as taken from project documentation (Aide Memoires, Implementation Status Reports, Completion Certificates, Client Connection for investment costs)\. In particular:  Modelled costs include the total investment costs as captured by disbursements for Lagos in World Bank Client Connection supplemented by allocations of AFD co-financing (see table A3\.1)\. Moreover, costs also include incremental costs of production estimated as incremental water production times cubic meter costs for Energy, Chemicals and Maintenance\. These were N23\.4/m3 as per the original model, and from 2017 slightly higher at N27\.8/m3 as per the data provided by the 2ML consultancy report (2ML Consulting Ltd, 2018)\.  Benefit streams are based on estimated incremental water sales, that is, water sales attributable to the project, based on known incremental production and tariffs; 34 5\. The Net Present Value (NPV) and Financial Internal Rate of Return (IRR) results cited in Section 3\.3 are the output of the model reproduced in shortened form in Table A3\.1 below and compared to original model outcomes in Table A3\.2\. The primary reason for the negative NPV and Internal Rate of Return are incremental revenues that were lower than anticipated, combined with higher than anticipated investment costs (see Sections 1\.6 and 2\.2)\. When multiple data sources were available, or assumptions had to be made to substitute for data gaps, an optimistic scenario was chosen\. The overall negative financial outcomes are thus relatively robust, as further confirmed in the sensitivity analysis\. In particular:  The lowest cited pre-rehabilitation capacity (60 m m3/year as per the PAD) was used as base, resulting in relatively higher incremental water production and revenues than if a higher base was used e\.g\. 84m m3/year documented in a 2009 Aide-Memoire (World Bank, 2009)\.  Production for 2018-2019 assumes the peak production achieved in December 2017 can be sustained at this level going forward, and no further declines as in 2015-16 occur;  In the absence of reliable non-revenue water (NRW) data, the NRW assumption was set low (30%) in all years except for when an actual value is documented in IBNET;  Billing collection rates were assumed in line with the original model;  Every additional cubic meter of water produced was counted as project related revenue, rather than only those sold in the districts that were targeted by the intervention; this is justifiable as treatment plant improvements generally served to improve supply across the entire network;  The production costs of the original model were retained for the period 2005-16 rather than using production costs per cubic meter from the IBNET database which are higher; for 2017 and onward, actual production costs documented by the utility were used;  Average realized tariffs per m3 was assumed to increase in 2018-19 (too NGN100/m3 and NGN150/m3 respectively) driven by an assumed continued and successful adoption of higher tariffs for pre-paid connections; Table A3\.1: Summary of Re-estimated Model for Lagos NPV (NGN 8,482,214,485) Discount Rate 10% IRR -12% ACTUAL 2005 2006 2007 2008 2009 2010 2011 2012 2013-19* Incremental Water Production (m3/yr) 0 0 0 0 65,000,000 65,000,000 65,000,000 102,500,000 652,982,493 NRW Assumption (%) 0\.3 0\.3 0\.3 0\.3 0\.3 0\.3 0\.4734 0\.4452 0\.384871429 Incremental Water for Sale 0 0 0 0 45,500,000 45,500,000 34,229,000 56,867,000 376,207,179 Tariff (NGN) 50 50 50 50 50 50 50 50 71\.42857143 Incremental Revenue 0 0 0 0 2,275,000,000 2,275,000,000 1,711,450,000 2,843,350,000 29,681,694,366 Incremental Expenses 0 0 0 0 1,521,000,000 1,521,000,000 1,521,000,000 2,398,500,000 16,266,183,657 IDA Investments in Lagos (NGN) 0 20,690,801 345,964,896 1,301,138,285 3,147,592,954 3,623,407,746 2,795,733,546 3,530,720,198 6,117,257,274 AFD Investments in Lagos (NGN) 0 0 0 0 0 0 0 0 7,359,522,526 Total Investments in Lagos (NGN) 0 20,690,801 345,964,896 1,301,138,285 3,147,592,954 3,623,407,746 2,795,733,546 3,530,720,198 13,476,779,800 Net incremental flows from Project 0 -20,690,801 -345,964,896 -1,301,138,285 -2,393,592,954 -2,869,407,746 -2,605,283,546 -3,085,870,198 -61,269,091 * Column for 2013-19 provides sums (averages for tariff and NRW assumption)\. Note that non-linear tariff increase assumed for 2017-19 Table A3\.2: Results of Ex-Ante and Ex-Post Financial Cost-Benefit Model Lagos NPV at Appraisal (at 10% discount rate) NGN 136 m NPV at ICR (at 10% discount rate) - NGN 8\.5 bn Financial IRR at Appraisal + 10 % Financial IRR at ICR -12% 35 6\. Calabar: The original model was re-estimated for Calabar with actual investment costs and the best available information on incremental revenues and costs over the period provided by the utility and project documents (Tables A3\.3 and A3\.4)\. 7\. At appraisal the Cross River model was limited to Calabar\.66 Note that the re-estimated model is based on directly reported (incremental) production and revenues and exchange-rate adjusted Client Connection data on investment costs, rather than an estimate of sales based on active connections and tariffs (though these are listed below for information purposes), because data on the latter is incomplete and would likely lead to less precise estimates of actually realized incremental benefits and costs than the data captured in financial M&E statements\. 8\. As in the case of Lagos, this model made relatively permissive assumptions\. In particular, following the example of the original model, billed revenues were used for the benefit stream, rather than actual collections, which were significantly lower and would lead to reduced NPV and IRR values\. Table A3\.3: Re-estimated model for Calabar NPV (NGN 871,035,151) Discount Rate 10% IRR -3\.5% ACTUAL 2005 2006 2007 2008 2009 2010 2011 2012 2013-19* Incremental Water Production (m3/yr) 0 0 0 0 0 3,520,000 3,095,000 6,478,000 42,607,272 Incremental Private Connections (Calabar incl\. sub-systems) 0 0 0 8,250 17,500 21,500 19,584 22,244 Up to 42,300 NRW Incremental Water for Sale Tariff (NGN) - Private 100 100 100 100 100 100 100 150 Connection fee (NGN) 2000 2000 2000 2000 2000 2000 2000 2000 Tariff (NGN) - Commercial 125 125 125 125 125 125 125 200 Tariff (NGN) - Kiosks 55 55 55 55 55 55 55 120 Incremental Revenue (Billings) 0 0 0 135,051,163 270,102,326 331,840,000 236,000,000 433,770,000 4,372,071,298 Incremental Expenses (Actual) 373,500,000 268,500,000 192,700,000 1,209,496,903 IDA 4086 in CR (NGN) - Primarily Targeting Calabar 0 188,402,478 408,499,232 1,221,710,417 969,815,045 957,732,698 573,818,457 612,958,890 3,660,421,858 IDA 5129 in CR (NGN) - Primarily targeting Ogoja and Ikom 0 0 0 0 0 0 0 0 18,126,581,207 AFD Investments in CR -Obubra & Okpoma (NGN) 0 0 0 0 0 0 0 0 9,486,522,452 Total Investments in CALABAR (NGN) 0 94,201,239 204,249,616 610,855,209 484,907,523 478,866,349 286,909,229 306,479,445 1,830,210,929 Net incremental flows from the Project 0 -94,201,239 -204,249,616 -475,804,046 -214,805,197 -520,526,349 -319,409,229 -65,409,445 1,332,363,465 * Column for 2013-19 provides sums (average for tariff); Note that this is for Calabar connections only, excluding secondary towns Table A3\.4: Results of Ex-Ante and Ex-Post Financial Cost-Benefit Model Calabar (Cross River) NPV at Appraisal (at 10% discount rate) NGN 406m NPV at ICR (at 10% discount rate) - NGN 871m Financial IRR at Appraisal + 13% Financial IRR at ICR -3\.5% 9\. Sensitivity analysis: Sensitivity Analysis confirms the importance of tariffs, water losses and electricity supply for the financial viability of the project, as well as the key role of the assumed asset lifetime (i\.e\. the model timeframe for estimated net benefit streams)\. 10\. In Lagos, a tariff increase to the level of Calabar in 2013 (NGN 150 per m3) would have led to a positive NPV assuming collection of the additional billings, supply reliability and NRW in line with original assumptions (Scenario A, Table A3\.5)\. This indicates that exogeneous political constraints on raising tariffs worsened financial outcomes significantly\. 36 11\. Financial outcomes would also have been significantly better with lower than expected non- revenue water and without the 2015-16 supply disruptions (Scenario B, Table A3\.5), illustrating the negative effect of energy and thus production shortfalls during that period\. Finally, the positive effect of allowing for longer asset lifetimes by extending the model period by ten years is shown in Scenario C\. An analogous effect is illustrated for Calabar (Scenario D)\. Table A3\.5: Results of Ex-Ante and Ex-Post Financial Cost-Benefit Model Site Lagos* NPV at Appraisal NGN 136 m NPV at ICR – Base Scenario - NGN 8\.5 bn Scenario A: NPV with Tariff Adjusted to NGN 150/m3 in 2013, +NGN 1\.06 bn ceteris paribus Scenario B: NPV with NRW at 50% of base scenario and peak - NGN 992 m 2014 production sustained without interruption Scenario C: NPV with model timeframe expanded from 2019 to +NGN 3\.27 bn78 2029, ceteris paribus Site Calabar (Cross River) * NPV at Appraisal NGN 406m NPV at ICR - NGN 871m Scenario D: NPV with model timeframe expanded from 2019 to + NGN 19 m 2031, ceteris paribus Scenario E: NPV with Discount Rate at 5%, ceteris paribus - NGN 846 m * Scenarios retain other baseline assumptions to illustrate the sensitivity of financial returns to variation in key variables Economic Analysis for Lagos and Calabar 12\. The ex-post model of economic costs and benefits builds on the financial model outlined above\. 13\. Economic costs: Economic costs are taken to be the cost of water investments and the incremental operation and maintenance (O&M) costs associated with the increased access and water consumption\. 14\. Economic benefits: At entry, modelled economic benefits beyond financial utility revenue were limited to tax payments made by the project\. A re-estimation of EIRR in which economic benefits are similarly limited to tax payments by the project results in negative or near-negative values\. However, this would be too narrow and pessimistic a view of project outcomes as it excludes other positive economic benefits likely to have accrued to the over 1,000,000 project beneficiaries\. A wide range of economic benefits can result from improved water access as outlined in Table A3\.6 below\. Table A3\.6: Range of Benefits of improved drinking water supply (WHO, 2012, p\. 26) Benefit Category Description Health (direct) - Averted cases of diarrheal disease - Averted malnutrition-related diseases - Averted health related quality of life impacts Health (indirect) - Averted costs related to diseases such as health care, productivity, mortality Time value - Travel and waiting time averted for collecting water 37  Education - Improved educational levels due to higher school enrolment and attendance rates - Impact of childhood malnutrition on education Leisure and quality of life / intangibles - Leisure and non-use values of water resources and reduced effort of averted water hauling and gender impacts Property - Rise in value of property Income - Increased incomes due to more business opportunities / productive uses of clean water 15\. The ex-post economic analysis undertaken at ICR stage has thus modelled core benefits resulting from the project to better reflect its actual economic impacts and thus project efficiency\. Estimating these benefits with precision is challenging in the absence of representative surveys of the cities and beneficiary populations targeted by the project to obtain accurate estimations of data such as willingness to pay, pre- and post-intervention water quality and disease incidence, cost of care, and so on\. The ex-post model has used the following data sources and assumptions for modelling core economic benefits:  Utility revenues: These were part of the original model and are identical to the values in the financial analysis (see Tables A3\.1 and A3\.3)\. Revenues reflect the producer surplus (after operational costs), as well as part of the economic value of potable water consumption accruing to consumers\.  Value of productive time saved fetching water: Using data from the Nigeria Demographic and Health Survey 2013 (NPC and ICF International, 2014), the model estimates savings in water fetching time as the difference between fetch-time for households without and with on-premises water supply in urban areas of the project region\. For households that switched from the former to the latter due to the project, time savings are valued at 30 percent of the Gross Domestic Product per capita for adults, 15 percent for children over 5 years of age, in line with similar calculations by WHO (WHO, 2012, p\. 30)\. GDP per capita values were based on World Bank World Development Indicator dataset (Series NY\.GDP\.PCAP\.CN), and adjusted for the urban economies of Lagos and Calabar, respectively, using city specific GDP estimates (Canback, 2018)\.  Value of productive time saved due to lower diarrheal disease incidence: This benefit was calculated as the value of the reduced time caregivers have to spend with children sick with diarrhea due to contaminated water\. The number of affected children was derived based on project beneficiaries (see Table 1 and associated footnote) and data from the DHS 2013 survey\. Only the percentage of children beneficiaries likely to have switched from unimproved sources were used for the estimate (i\.e\. not those who had improved, non-piped sources such as covered wells prior to obtaining piped connection under the project)\. Background diarrhea incidence was calculated taking into account data on average episodes per year (Walker & Perin, 2012) and average duration per episode for children under and above five years of age (Lamberti, Walker, & Black, 2012)\. Expected reduction in diarrhea due to connection to improved piped water was then estimated based on data from a recent randomized controlled trial in neighboring Ghana (Cha, et al\., The Effect of Improved Water Supply on Diarrhea Prevalence of Children under Five in the Volta Region of Ghana, 2015)\. Following earlier work by the World Bank Water and Sanitation program, it was assumed 38  that child sickness leads to diversion of carers from other activities at a rate of two hours per work day (WSP, 2012)\. The time value was then assigned at 30 percent of equivalent, regionally adjusted GDP per capita as above\.  Value of Reduced Child Mortality: This estimate uses as Value-of-Statistical life approach, previously used by the WHO in the context of WASH benefits estimation (WHO, 2012, p\. 30) to model the value of reduced child mortality\. Using WHO data on deaths of children under five due to diarrhea in Nigeria (WHO and Maternal and Child Epidemiology Estimation Group - MCEE, 2015), the implied number of child deaths among the beneficiary population was derived\. Mortality was then assumed to decline proportionally to the reduction in diarrhea incidence\. The child deaths prevented were then valued using a Nigeria specific “Value of Statistical Lifeâ€? estimation for 2012 (Yaduma, Kortelainen, & Wossink, 2013) that was adjusted by a GDP deflator for other years, as well as for regional GDP differences drawing on Lagos and Cross River specific GDP estimates (Canback, 2018)\. 16\. These benefits were estimated for all households benefiting from new connections financed directly by the project\. Aggregating these costs and benefits and using the original discount rate of 10 percent yields, the following Economic Internal Rates of Return for Lagos and Calabar, respectively: Table A3\.7: Results of Ex-Ante and Ex-Post Economic Cost-Benefit Model Site Lagos Calabar (Cross River) Economic IRR at Appraisal + 13 % + 15 % Economic IRR at ICR [ex-post model including wider range of benefits] +1% +21\.7 % 17\. Results are more positive for Calabar, which received more project funding than Lagos, in the ex-post model due to benefit estimates deriving from the number of connections directly attributable to the project, which were significantly higher in Calabar than Lagos (though the latter system has more customers over all)\. 18\. It is important to recognize that these estimates provide a sense of the dimension of likely economic benefits, however, are subject to wide estimation intervals in line with the underlying assumptions and quality of available data\. For example, economic benefits may be significantly higher if one would account for illegal connections (i\.e\. beneficiaries who are de-facto deriving benefits from the improved safe water supply, but not paying regular tariff and not officially captured in utility databases), if one assumed more than one household benefiting per connection, as is often the case in sub-Saharan Africa, or if the available data allowed capturing other economic benefits outlined in Table A3\.6\. On the other hand, for example, different methods of valuing mortality reduction (e\.g\. a human capital instead of a value-of-statistical life approach) may lead to lower economic benefit estimates\. Despite these possible variations in estimates of economic benefits, it is clear that economic benefits of the project accruing to the project beneficiaries are likely to be significant\. This justifies a Modest rating for Efficiency, even if financial returns, and the narrowly defined economic returns of the original model, were significantly less than anticipated at entry\. 39 Summary Analysis - Cross River Secondary Towns (Ikom, Ogoja, Itigidi, Obubra, Okpoma) 19\. While it was possible to carry out an ex-post analysis comparable to the model at entry in the case of Lagos and Calabar, this is not feasible for the secondary cities in Cross River state\. Neither at restructuring nor at entry were Financial IRRs calculated\. NPV and EIRR estimates were given in the project paper at restructuring (Table A3\.8), however, the model containing the underlying calculations and detailed assumptions was not archived\. Table A3\.8: Results of Economic Analysis as presented at Restructuring (World Bank, 2012) Cross River Secondary Cities NPV ($m) EIRR (%) Ikom 3\.2 12\.1 Ogoja 16\.1 18\.8 Itigidi -4\.9 6\.2 Obubra 1\.3 11\.2 Okpoma 11\.5 19\.1 Obudu - - 20\. Moreover, project monitoring did not provide routine detailed and consistent data disaggregated by secondary towns, as these were treated as an aggregate in the results framework\. It is thus not feasible to re-run a comparable analysis at ICR\. However, the key facts can be surmised: 21\. Production only (re)started in the secondary towns in 2016\. By the end of 2017, water production volume and billings across all secondary cities amounted to 16 percent and 15 percent of the capital Calabar, respectively (see Table A3\.9)\. In terms of revenue, the secondary cities generated billings amounting to 68% of estimated production costs, but actual collections were only 15 percent of costs on average, that is, even lower than in Calabar\. In other words, none of the small systems generated sufficient collections to pay for production in 2017 with an average cost recovery gap of 85 percent\. Table A3\.9: Results of Economic Analysis as presented at Restructuring (World Bank, 2012) Cross River Accounts Production Production Cost Billings Collections Billings- Cost- Secondary Cities (2017, m3)79 (2017, NGN) (2017, NGN) (2017, Costs Recovery (2ML Consulting NGN) Ratio (Collections) Ltd, 2017) Itigidi 5,294 92,705 17,171,184 13,363,304 4,928,482 78% 29% Obubra 5,000 191,125 13,617,144 13,722,846 1,486,250 101% 11% Ikom 10,520 205,309 29,267,760 21,542,902 4,011,176 74% 14% Ogoja 4,122 354,158 51,177,864 26,442,397 5,193,020 52% 10% Okpoma 3,000 77,191 13,758,480 8,234,076 5,033,188 60% 37% Obudu 5,032 169,698 27,115,620 20,139,308 2,840,955 74% 10% TOTAL 32,968 1,090,186 152,108,052 103,444,833 23,493,071 68% 15% 22\. It is clear from this data that continued operation at loss of these systems will not attain a positive net present value or FIRR in light of capital investment allocations of nearly US$140 million to these small towns (World Bank, 2012)\. Net benefit streams cannot be positive as required for financial viability unless there is a major improvement in billing and collection efficiency in the future\. There is a high risk that the utility will struggle to do so in light of its past performance on cost recovery even in its main site in Calabar\. 40  Annex 4: Bank Lending and Implementation Support Processes (a) Task Team members LENDING (to FY2006) Names Title Unit Lead Water Supply and Sanitation Specialist (TTL Alexander McPhail until 2007) AFTU2 Hassan Kida Sr Water and Sanitation Specialist (TTL 2011-2016) AFTU2 Lars Rasmusson Engineer AFTU2 Arthur Swatson Engineer AFTU2 Karen Hudes Country Lawyer LEGAF Jan Franck Financial Advisor AFTU2 Wole Afolabi Financial Advisor AFTU2 John Boyle Environmental Specialist AFTS 1 Tony Chen Disbursements Officer LOAG2 Nike Mustafa Financial Management Specialist AFTFM Edward Olowo-Okere Financial Management Specialist AFTFM Bayo Awosemusi Procurement Specialist AFTPC Jan Janssens Program Manager EWDWS Daniele Calabrese Communications Officer EXTCD Massimiliano Giamprini Communications Officer EXTCD Esther Monier-Illouz Stakeholder Specialist AFTU2 Comfort Onyej e Olantunj i Project Support AFTU2 Maya El-Azzazi Project Support AFTU2 Modupe Day0 Olorunfemi Project Support AFTU2 SUPERVISION / ICR (FH2006-FY2018 Names Title Unit Camilo Lombana Cordoba Sr Water and Sanitation Specialist (TTL since 2016) GWA8 Hassan Madu Kida Sr Water and Sanitation Specialist (TTL 2011-2016) GWA07 Adebayo Adeniyi Procurement Specialist GGO01 Bayo Awosemusi Procurement Specialist GGODR Akinrinmola Oyenuga Akinyele Financial Management Specialist GGO25 Joseph Ese Akpokodje Environmental Specialist GEN07 Amos Abu Senior Environmental Specialist AFTN1 Michael Gboyega Ilesanmi Safeguards Specialist GSU01 Ruth Adetola Adeleru Team Member AFCW2 Caroline Mary Sage Senior Social Development Specialist EASID Chukwudi H\. Okafor Senior Social Development Specialist ECSS4 Belinda Lorraine Asaam Program Assistant AFTU1 Andrew Makokha Sr Water and Sanitation Specialist (TTL 2009-11) AFTUW Thomas Kwasi Siaw Anang Senior Procurement Specialist AFTPC Armele Vilceus Senior Program Assistant LCC3C 41 Sunday Achile Acheneje Procurement Specialist GGO01 Joyce Chukwuma-Nwachukwu Procurement Assistant AFCW2 Mary Asanato-Adiwu Senior Procurement Specialist GGOGI Oluwole Temiloluwa Afolabi Local Consultant ST GWA07 Mary Oluseyi Zackius-Shittu HR Business Partner HRDPR Joseph A\. Gadek Consultant (TTL 2007-2009) GSU13 Jan Franck Consultant MNSSD Africa Eshogba Olojoba Lead Environmental Specialist GEN05 John A\. Boyle Senior Environmental Specialist AFTS 1 Lead Water Supply and Sanitation Specialist (TTL Alexander A\. McPhail until 2007) - Lars A\. V\. Rasmusson Consultant AFTU2 Maya El-Azzazi Operations Analyst GSP05 Arthur Majoribanks Swatson Water & Sanitation Specialist - Adenike Sherifat Oyeyiola Practice Manager - Maximilian Hirn Economist / ICR Author GWA08 Elisha John Soni Consultant GWA08 42 (b) Staff Time and Cost Number of Staff Weeks Costs including travel and consultants (USD) LEN SPN SPNE SPNS Total LEN SPN SPNE SPNS Total FY01 11\.23 11\.23 117,082\.5 117,082\.5 FY02 10\.10 10\.10 154,066\.3 154,066\.3 FY03 8\.67 8\.67 22,979\.9 22,979\.9 FY04 15\.85 15\.85 81,190\.5 81,190\.5 FY05 42\.65 42\.65 312,898\.1 312,898\.1 FY06 16\.53 29\.07 45\.60 62,144\.1 174,602\.9 236,747\.0 Subtotal LEN 105\.03 134\.10 750,361\.26 750,361\.3 FY07 35\.00 35\.00 179,586\.7 179,586\.7 FY08 39\.38 39\.38 154,803\.0 154,803\.0 FY09 30\.41 30\.41 141,924\.2 141,924\.2 FY10 20\.47 20\.47 115,187\.4 115,187\.4 FY11 21\.80 21\.80 127,417\.2 127,417\.2 FY12 38\.00 38\.00 196,724\.3 196,724\.3 FY13 20\.91 20\.91 103,914\.6 103,914\.6 FY14 19\.39 19\.39 121,547\.7 121,547\.7 FY15 28\.73 28\.73 211,934\.5 211,934\.5 FY16 20\.26 0\.50 1\.40 22\.16 145,206\.3 1278\.4 10709\.19 157,193\.9 FY17 44\.08 0\.38 0\.25 44\.71 299,173\.3 958\.8 9807\.48 309,939\.6 FY18 10\.12 10\.12 116,570\.2 116,570\.2 Subtotal SPN 357\.62 0\.88 1\.65 360\.15 2,088,592\.23 2,237\.20 20,516\.67 2,111,346\.10 Totals 105\.03 357\.62 0\.88 1\.65 465\.18 750,361\.26 2,088,592\.23 2,237\.20 20,516\.67 2,861,707\.36 43  Annex 5: Beneficiary Survey Results 1\. The Borrower submitted a Beneficiary Impact Study Report summarizing the results of a Beneficiary Survey in July 2016 after the closure of the IDA credits IDA-40860 and IDA-51290\. 2\. The primary purpose of the Beneficiary Impact Study was to evaluate the level of impact the project achieved for the beneficiaries in line with the agreed PDOs and the Performance Indicators\. The study report described its methodology as follows: “The methodology employed included one- on-one interview of water utility officials, observation of facilities and locations, and administration of survey questionnaire to businesses, institutions, and residents of the various locations\. A survey questionnaire was developed and presented to the National Project Office for review, input and approval\. Thereafter visits were scheduled to the various Water Boards/Corporations in the two States\. 3\. Surveyors visited every location in each State, interviewed, and administered the questionnaires to as many as 250 people per location\. The Surveys were administered by a minimum of four surveyors per location\. Forty-four (44) surveyors conducted the surveys over a period of 5 – 7 working days\.â€? (VIPCG, 2016b, p\. 3) 4\. The report summarized the findings of the survey as follows: “Our findings indicate that the impact of the project is yet to be fully felt in both States\. The achievement of the project was highest in the middle of the project period, but began to regress towards the end\. The achievement and the impact in Cross River State though not outstanding, out paces Lagos State\. Though much work was done to improve the infrastructure, unavailability of power to run the equipment is a major hindrance to improved performance\. On inspection, it was noticed that in Lagos State some plants were idle not just because of inadequate power supply, but because of frequent break-down and lack of regularly scheduled maintenance\. 5\. The beneficiaries attested to the fact that the service received has improved in terms of quality, quantity, regularity and pressure\. In Lagos, there was a significant regression in the improvement, such that the level of service is practically at pre-project levels\. In Cross River State where there was significant improvement, in the last year of the project, there is clear evidence of regression that could erode the gains of the project if not checked\. 6\. Service quality is highly dependent on rate of O&M recovery\. Change in government as well as change in government financial policy regarding revenue has impacted operational performance and by extension O&M recovery\. Furthermore, in Cross River, the PPP arrangement which is in danger of been abandoned, is a major threat to the result achieved by the project\.â€? (VIPCG, 2016b, p\. 11)\. 7\. It should be noted that the Beneficiary Surveys were carried out at the conclusion of the IDA credits in 2016 and therefore do not fully reflect the significant achievements of the final years of AFD co-financing in 2016 and 2017\. 44  Annex 6: Summary of Borrower’s ICR and Comments on Draft ICR 1\. The Borrower submitted a Borrower Implementation Completion Report (BCR) for the credits IDA-40860 and IDA-51290 in the amount of XDR 210\.2 million in July 2016 after the closure of the IDA credits\. The report was compiled by a local consultancy firm (VIPCG) on behalf of the Federal Ministry of Water Resources\. The BCR returned an overall outcome rating of Moderately satisfactory, with the following key performance ratings: Performance Rating by Borrower Outcomes: Moderately Satisfactory (VIPCG, 2016, p\. 84) Risk to Development Outcome: Moderate (VIPCG, 2016, p\. 93) Bank Performance: Satisfactory (VIPCG, 2016, p\. 97) Borrower Performance: Satisfactory (VIPCG, 2016, p\. 100) Detailed Ratings of Bank and Borrower Performance by Borrower Bank Performance Bank Performance in Ensuring Quality at Entry Satisfactory (VIPCG, 2016, p\. 98) Quality of Supervision Moderately Satisfactory (VIPCG, 2016, p\. 98) Borrower Performance Government Performance: Satisfactory (VIPCG, 2016, p\. 100) Implementing Agency or Agencies Performance: Moderately Satisfactory (VIPCG, 2016, p\. 99) 2\. The overall Moderately Satisfactory outcome rating was justified as follows in the BCR: “Overall Outcome rating of “Moderately Satisfactoryâ€? is reasonable for the following reasons: i\. Based on available data, some of the PDOs were achieved, while others were achieved half way; ii\. The project was close to achieving some of the KPIs (see Annex 2); iii\. Project direction meetings and supervision missions led to timely resolution of some implementation issues which could have delayed the project; iv\. Technical assistance and active participation of the FPIU in the resolution of implementation issues; v\. PIUs adherence to implementation arrangement; vi\. PIUs adherence to the Bank’s Policies and Procedures; vii\. 100-day Performance Improvement Program (PIP) in Cross River State; viii\. High levels of innovation and creativity on the part of the FPIU, the SWAs and SPIUs especially the development of financial modelling as a management tool for SWAs and PIUs for tracking achievement of project target; ix\. High potential for financial sustainability and quality service delivery, once issues of availability of power is resolved; x\. Post implementation sustainability plans to sustain the gains of the projectâ€? (VIPCG, 2016, p\. 85) 45  Annex 7: Comments of Borrower, Co-financier and Other Partners Comments from the Borrower/ Implementing Agency Comments by Federal PIU / Federal Ministry of Water Resources (received 7th May 2018): The FPIU noted that it had “reviewed the report and the achievements recorded for the FPIU of FMWR on 2NUWSRP is acceptedâ€?\. Comments by PIU of CRSWBL (received 5th May 2018): The PIU of CRSWBL had no specific comments, but noted in general terms that: “we generally observe that the report is practical and thoroughly exceptionally professional … Furthermore, I must mention the tremendous support and oversight of the World Bank team, especially of the task team leaders starting with Engr\. Hassan Kida and Mr\. Camilo, including but not limited to the PFMU under Engr\. Benson himself\. We appreciate the effort and sacrifice of each one towards coming to this point…\.Finally, we may need to place on record that from our team review we have no crucial or significant comments or remarksâ€? Comments by LSWC (received 7th May 2018): The LSWC both commented on the ICR in general, and provided specific feedback on the issues of cost recovery, the Public Private Partnership related project component, and an audited financial report\. Specifically: “Having carefully perused the draft ICR submitted […] we wish to express our appreciation for the professionalism and the level of details demonstrated in the report\.â€? Regarding the O&M Cost Recovery, LWSC noted that: “From the report the % O&M cost recovered from revenue evaluation performance rating was 54\.4% (but 74\.3% with salary subvention) […] However, we hereby re-emphasize the need to reconsider inclusion of the Lagos State Government subventions in the calculations\. You may recall that a letter signed by the Honorable Commissioner for Budget and Planning (Lagos State) was sent to the Bank technical support team which indicated the reason for the subvention\. It is partly to cater for revenue loss to LWC due to lower tariff i\.e\. inability to charge cost-reflective tariff in view of the social responsibility of the Government […] The distribution network rehabilitation works executed under the project covers about four (4) Regions, representing about 35% of network service coverage of Lagos Metropolis\. The lesson learnt is that there should have been a specific program for reducing the technical losses, as a project component\. This will directly impact on percentage coverage area as well as revenue collection\.â€? Bank Response: The comments are well received and the ICR explicitly acknowledges the impact of the State Government’s decision to constrain tariffs in exchange for subsidies in Paragraphs 82 and 83\. As noted in Section 3\.2\.3, the definition of “cost recoveryâ€? in the Project Appraisal Document clearly specifies “revenueâ€? to mean “water sales revenueâ€? (World Bank, 2005, p\. 4) thus excluding subsidies in line with the project’s declared “commercial viabilityâ€? objective\. This definition was not adjusted at restructuring\. For coherence with definitions at appraisal, restructuring and implementation monitoring as captured in the Implementation Status Reports, subsidies were thus not included for rating the cost-recovery outcome\. As further outlined in Section 3\.2\.3, and as acknowledged in the feedback by LSWC, the tariff decisions were also not 46 the only factor in explaining the missed cost-recovery target\. For example, persistently high non- revenue water was a key contributing factor in Lagos\. Regarding the PPP Project Components, LWSC noted that: “It is pertinent to mention that the Project made significant effort towards developing a Public Private Partnership (PPP) framework which was shared with the Bank on 2 different occasions\. It was reviewed but considered too ambitious for implementation\. However, the specific aspect of the PPP framework achieved, in collaboration with the Lagos State Government, was the establishment of Lagos State Water Regulatory Commission (LSWRC) and Office of the Public Private Partnerships (OPPP) […\.] With regards to the PPP project component, it is noted that we may have missed it at that point of developing criteria for the rehabilitation of the major waterworks of Adiyan and Iju waterworks, including the intakes\. Although the criteria for the pre-qualification exercise focused on engaging experienced and qualified contractors for the rehabilitation works\. Perhaps, we should have crafted it to targeted reputable firms/consortia with plant rehabilitation and water operation/management experience to be engaged under a PPP arrangement either – Service or Management contracts for five (5) years duration\.â€? Bank Response: Thank you for these additional contributions\. Note that the LSWRC and OPPP are explicitly acknowledged in the present version of the ICR in paragraphs 43 and 109\. Further, LWSC noted that contrary to an Endnote in the draft ICR, an Independent Audited Financial Report for 2017 was available\. This has been corrected in the present version of the ICR\. Comments by the Co-financier - AFD (received 4th May 2018): AFD commented on the report quality as a whole, highlighted the relevance of one of the ICR lessons for ongoing AFD operations in Nigeria and provided further comments within the draft document\. Specifically, AFD noted in its summary email: “Thank you very much for this detailed and objective report\. Except very few comments and questions that you will find in the document attached, please note that AFD has no particular comments\. Among the lessons learned from the program, we have noticed the recommendation about the need to define a realistic reform agenda along with the project activities\. We have discussed this matter with Kano during the appraisal of the funding for this State\. The Kano government and its water utility agreed to tie the disbursements with the achievements of institutional reform\. The operationalization of this proposition shall be further discussed at the project inception\. We will share information with the WB in due time\.â€? Bank Response: All comments and corrections provided by AFD within the draft document were addressed and integrated into the present version of the ICR\. 47  Annex 8: List of Supporting Documents 2ML Consulting Ltd\. (2017, August)\. 100 Days Performance Management Programme (PMP) - 1ST Monthly Evaluation Report\. 2ML Consulting Ltd and CRSWBL\. 2ML Consulting Ltd\. (2018)\. Performance Completion Report (Lagos)\. Kampala: 2MLConsulting Limited, PO Box 31456, Kampala, Uganda\. AFD\. (2016, December)\. Fiche Projet - CNG 1027 FR - Eau et assainissement\. Agence Française de Développement\. Retrieved 2 18, 2017, from http://www\.afd\.fr/webdav/site/afd/shared/PORTAILS/PAYS/NIGERIA/Fiches%20projets/AFD%2 0-%20Fiche%20projet%20-%20CNG%201027%20fr%20-%20Eau%20et%20assainissement%20- %20Nigeria%20-%20AP%20revue%20%282%29\.pdf AIM Consultants Limited\. (2017, April)\. MONTHLY PROGRESS REPORT NO\. 21 - CONTRACT NUMBER: CR/2NDNUWSRP/OBUCWKS/ICB/2014/001\. Lagos, Nigeria\. Canback\. (2018, 3 16)\. Data Series "GDPcuL = GDP in current local currency unit (LCU)" and "Total Population"\. Canback Global Income Distribution Database (C-GIDD)\. Cambridge, USA\. Retrieved 3 16, 2018, from https://www\.cgidd\.com/ Cha, S\., Kang, D\., Tuffuor, B\., Lee, G\., Cho, J\., Chung, J\., \. \. \. Lee, H\. (2015)\. The Effect of Improved Water Supply on Diarrhea Prevalence of Children under Five in the Volta Region of Ghana: A Cluster- Randomized Controlled Trial\. Int J Environ Res Public Health, 12127-12143\. Retrieved 2 8, 2018, from https://www\.ncbi\.nlm\.nih\.gov/pmc/articles/PMC4626959/ Cha, S\., Kang, D\., Tuffuor, B\., Lee, G\., Cho, J\., Chung, J\., \. \. \. Oh, C\. (2015)\. The Effect of Improved Water Supply on Diarrhea Prevalence of Children under Five in the Volta Region of Ghana\. International Journal of Environmental Research and Public Health, 12127-12143\. doi:10\.3390/ijerph121012127 CIWAT Engineering Consultants\. (2017)\. Completion Reports - CONTRACT NOs: LSWC/2NUWSRP/ICB/WKS/89A / 89B / 89C\. Completion Report\. Abuja, Nigeria\. CKW Environment Ltd\. (2017, November)\. Completion Report - Contract No\.: LSWC/2NUWSRP/ICB/WKS\.090\. Enviplan\. (2017)\. Final Completion Report for CONTRACT No\. LSWC/2NUWSRP/LIB/WKS/093\. Kaduna: Enviplan, 12A Degel 2 Road, P\.O\. Box Ungwan Rimi Gra\. Federal Government of Nigeria\. (2006, August)\. Model Water Supply Services Regulatory Law (WSSRL)\. Abuja: Federal Ministry of Agricutlure & Water Resources\. Guy Hutton\. (2012)\. Global costs and benefits of drinking-water supply and sanitation interventions to reach the MDG target and universal coverage\. Geneva: World Health Organization\. Retrieved 2 8, 2018, from http://www\.who\.int/water_sanitation_health/publications/2012/globalcosts\.pdf IDA\. (2005, July 15)\. Development Credit Agreement - Credit Number 4086-UNI\. Development Credit Agreement (Second National Urban Water Sector Reform Project) between Federal Republic of Nigeria and International Development Association\. IDA\. 48 IDA\. (2013, September 9)\. Financing Agreement - Credit Numbers 4086-UNI and 5129-NG\. Financing Agreement (Amending and Restating the Development Credit Agreement) (Second National Urban Water Sector Reform Project) between Federal Republic of Nigeria and International Development Association\. IMF\. (2016, April)\. 2016 Article IV Consultation\. Press Release; Staff Report; and Statement by the Executive Director for Nigeria\. Retrieved 2 3, 2017, from https://www\.imf\.org/external/pubs/ft/scr/2016/cr16101\.pdf IMF\. (2016)\. IMF Country Report No\. 16/101 - 2016 Article IV Consultation\. Retrieved 1 27, 2016, from https://www\.imf\.org/external/pubs/ft/scr/2016/cr16101\.pdf Lamberti, M\., Walker, C\., & Black, R\. (2012)\. Systematic review of diarrhea duration and severity in children and adults in low- and middle-income countries\. BMC Public Health, 12, 276\. LSWC\. (2016, September 30)\. Presentation for AFD Mission - 2nd National Urban Water Sector Reform Project\. Lagos, Nigeria\. NBS\. (2017)\. National Poverty Rates for Nigeria: 2003-04 (Revised) and 2009-10\. Nigerian National Bureau of Statistics\. Retrieved 2 8, 2018, from http://nigerianstat\.gov\.ng/download/544 NNNGO\. (2016)\. Citizen Financial Responsiveness Project - Final Report\. Lagos: The Nigeria Network of NGOs\. NPC\. (2004)\. Nigeria: Poverty Reduction Strategy Paper - National Economic Empowerment and Development Strategy\. National Planning Commission\. Abuja: Federal Government of Nigeria\. NPC\. (2008)\. Nigeria Demographic and Health Survey\. Abuja: National Population Commission - Federal Republic of Nigeria\. NPC\. (2009)\. Vision 20:2020 - Economic Transformation Blueprint\. National Planning Commission\. Abuja: Federal Government of Nigeria\. NPC and ICF International\. (2014)\. Nigeria Demographic and Health Survey 2013\. Abuja, Nigeria and Rockville, Maryland: National Population Comission (NPC) and ICF International\. Retrieved 3 16, 2018, from https://dhsprogram\.com/what-we-do/survey/survey-display-438\.cfm SGI Consulting Engineers\. (2017, May)\. Final Report - CONTRACT NUMBER: /IINUWSRP/OKPCWKS/ICB/2014/001\. Ibadan, Nigeria\. VIPCG\. (2016)\. Borrower Implementation Completion Report (IDA-40860 and IDA-51290)\. Abuja: Federal Ministry of Water Resources\. VIPCG\. (2016b)\. Beneficiary Impact Study Report - Second National Urban Water Sector Reform Project\. Abuja\. Walker, C\., & Perin, J\. (2012)\. Diarrhea incidence in low- and middle-income countries in 1990 and 2010: a systematic review\. BMC Public Health, 5\. WHO\. (2012)\. Global costs and benefits of drinking-water supply and sanitation interventions to reach the MDG target and universal coverage\. Geneva: World Health Organization\. 49 WHO and Maternal and Child Epidemiology Estimation Group - MCEE\. (2015)\. Estimates of child cause of death, diarrhoea 2015\. Retrieved 3 15, 2018, from http://apps\.who\.int/gho/data/node\.main\.ChildMort?lang=en World Bank \. (2009, August 7)\. Nigeria, P071391 Second National Urban Water Sector Reform Porject, Cr\.4086 UNI - Supervision Mission: June 14 - 22, 2009\. Aide Memoire\. Abuja\. World Bank\. (2001)\. Project Concept Document - Lagos Water Sector Restructuring Project (P071391)\. World Bank - Africa Regional Office\. World Bank\. (2005)\. Country Partnership Strategy for the Federal Republic of Nigeria (2005-2009)\. World Bank and DfID\. World Bank\. (2005)\. Project Appraisal Document On A Proposed Credit in the Amount of SDR 132\.7 Million to the Republic of Nigeria for a Second National Urban Water Sector Reform Project\. Washington DC: The World Bank\. World Bank\. (2006)\. Aide Memoire - Supervision Mission Jan 17 to Feb 1, 2006\. World Bank \. World Bank\. (2006)\. Aide Memoire: July 2006 - P071391, CR\.4086, Supervision mission\. Aide Memoire\. Washington\. World Bank\. (2006)\. Implementation Completion and Results Report Guidelines\. OPCS\. World Bank\. (2007)\. Implementation Status Report - Sequence 5\. World Bank\. World Bank\. (2008)\. Implementation Status Report - Sequence 8\. World Bank\. World Bank\. (2009, August 7)\. Aide-Memoire: Nigeria, P071391 Second National Urban Water Sector Reform project Cr\. 4086 UNI, Supervision Mission: June 14-22, 2009\. Aide-Memoire\. Abuja, Nigeria\. World Bank\. (2009)\. NUWSRP II Implementation Status - Post MTR of November 2009\. World Bank\. (2010)\. Implementation Status Report - Sequence 11\. World Bank\. World Bank\. (2010)\. Summary Mid-Term Review (2009) - 2nd National Urban Water Sector Reform Project\. Supervision Report\. World Bank\. (2011, March 31)\. Letter - Second National Urban Water Sector Reform Project (Credit No\. 4086-UNI) - Notice of Extension of Closing Date and Reallocation of Credit Proceeds\. World Bank\. (2012)\. Project Paper on a proposed additional credit in th eamount of SDR 77\.5 million (USD 120 million equivalent) to the Federal Republic of Nigeria for a Second National Urban Water Sector Reform Project\. Washington DC: World Bank\. World Bank\. (2012b)\. Implementation Status and Results Report - Seq No\. 15\. Washington DC: World Bank \. World Bank\. (2013)\. Implementation Status and Results Report - Seq No\. 16\. World Bank\. World Bank\. (2014, September)\. Aide Memoire - September 2014\. Federal Republic of Nigeria - Proposed Lagos urban Water Project - Aide Memoire\. 50 World Bank\. (2014)\. Country Partnership Strategy for The Federal Republic of Nigeria For the Period FY2014-FY2017\. Washington DC: World Bank\. World Bank\. (2014, August 1)\. Guidelines for Reviewing World Bank Implementation Completion and Results Reports - A Manual for Evaluators\. Washington DC: IEG - Independent Evaluation Group\. World Bank\. (2014)\. Implementation Completion and Results Report (IDA-39240, IDA-47840)\. Washington DC: World Bank\. World Bank\. (2014)\. Implementation Status and Results Report - Sequence 17 (Archived May 2014)\. World Bank\. World Bank\. (2015)\. Aide-Memoire - Nigeria: Second National Urban Water Sector Reform Project (IDA Cr\. No\. 4086 and 5129)\. World Bank\. World Bank\. (2015)\. Aide-Memoire - Nigeria: Second National Urban Water Sector Reform Project (IDA Cr\. No\. 4086 and 5129)\. World Bank\. World Bank\. (2015)\. Implementation Status and Results Report - Sequence 20\. World Bank\. World Bank\. (2015b)\. Delivery Case Study - Against the Current: How to Shape an Enabling Environment for Sustainable Water Service Delivery in Nigeria\. Abuja: Global Delivery Initiative (World Bank)\. World Bank\. (2016, May)\. Aide Memoire - Nigeria: Second National urban Water Sector Reform Project (IDA Cr\. No 4086 and 5129) with AF Loan No\. CNG 1007 01 L\. May 7-17, 2016\. World Bank\. (2016, February)\. Consolidated Financial Management Supervision Report (Period March 2015 to January 2016)\. World Bank\. (2016, May 31)\. Implementation Status and Results Report - Seq No\. 21\. World bank\. World Bank\. (2016)\. Providing Water to Poor People in African Cities Effectively\. Washington DC: Water and Sanitation Program\. Retrieved 1 21, 2017, from http://documents\.worldbank\.org/curated/en/316751472482999236/Providing-water-to-poor- people-in-African-cities-lessons-from-utility-reforms World Bank\. (2016)\. Second National Urban Water Sector Reform Project - Redacted Report\. World Bank\. (2016b, November)\. Financial Management Supervision Report - Federal Ministry of Water Resources (Period February 2016 to closure September 30, 2016)\. World Bank\. (2016b)\. Poverty Reduction in Nigeria in the Last Decade\. Washington DC: World Bank\. Retrieved 2 9, 2018, from http://documents\.worldbank\.org/curated/en/103491483646246005/pdf/ACS19141-REVISED- PUBLIC-Pov-assessment-final\.pdf World Bank\. (2017)\. A Wake Up Call : Nigeria Water Supply, Sanitation, and Hygiene Poverty Diagnostic\. WASH Poverty Diagnostic\. Washington DC: World Bank Group\. Retrieved 4 11, 2018, from https://openknowledge\.worldbank\.org/handle/10986/27703 World Bank\. (2017, December)\. Aide Memoire - December 2017\. Federal Republic of Nigeria - Second National urban Water Sector Reform Project (P071391) - Implementation Support Mission (December 11-13, 2017)\. Washington DC\. 51 World Bank\. (2018, 1 22)\. Letter to Mrs\. Kemi Adeosun (Honorable Minister of Finance, Federal Ministry of Finance)\. Abuja\. WSP\. (2012)\. Economic Impacts of Poor Sanitation in Africa - Nigeria\. Nairobi: Water and Sanitation Program\. Retrieved 3 18, 2018, from https://www\.wsp\.org/sites/wsp\.org/files/publications/WSP- ESI-Nigeria-brochure\.pdf Yaduma, N\., Kortelainen, M\., & Wossink, A\. (2013)\. Estimating Mortality and Economic Costs of Particulate Air Pollution in Developing Countries: The Case of Nigeria\. Environmental Resource Economics, 54, 361-387;\. 52  Annex 9: ISR Ratings over Project Duration Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Overall Implementation Progress Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Project Management Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Financial Management 53  Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Counterpart Funding Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Procurement Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Monitoring & Evaluation 54  Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Overall Safeguards Rating ISR Ratings of Project Components Highly Satisfactory Highly Unsatisfactory Progress towards achievement of PDO Component 1: Rehabiliation & Network Expansion Component 2: Public-Private Partnership Development Component 3: Service Sustainability & Project Management Component 4: Institutional Development & Policy Reform 55  ENDNOTES 1 World Bank WDI, Data series "SP\.POP\.TOTL" and SI\.POV\.DDAY (Poverty headcount ratio at $1\.90 a day (2011 PSP) 2 World Bank and DfID, Country Partnership Strategy for the Federal Republic of Nigeria, June 2005; p\.vi, p\.3; 3 WDI, Data series "SP\.URB\.GROW", "SP\.URB\.TOTL\.IN\.ZS", "SP\.POP\.TOTL"; WHO / UNICEF, JMP; DHS1990, DHS2008\. 4 Ibid\.; p\.2; 5 The approach of NUWSRP2 was informed by eight predecessor projects financed by the World Bank, of which seven were rated unsatisfactory or moderately unsatisfactory, and only the immediate predecessor (NUWSRP1) as moderately satisfactory\. From the late 1970s, the World Bank invested over US$ 700 million in urban water supply projects in Nigeria with largely unsatisfactory results\. An early focus on infrastructure investments at state level gradually gave way to attempts to combine infrastructure with institutional reform at national and state levels\. The NUWSRP2 is not only an important bellwether of the Bank’s ability to learn from past mistakes, but also a critical guide to its successor project NUWSRP3, a new IDA credit of SDR 161\.6 million signed on 7th November 2014 and expected to close in 2020\. 6 World Bank, Development Credit Agreement, July 15, 2005; Schedule 2, p\.26; Credit Nr\. 4086\. Note that the PDOs in the PAD (Report 31475-NG, 2005; p\.4) differ in minor fashion from the Credit Agreement by removing filler words (“theâ€?, “stateâ€?), adding the specification “in four citiesâ€? to objective (ii), and replacing “in Participating Statesâ€? with the more specific “in Cross River and Lagos Statesâ€? under objective (iii)\. The summary description of the PDO and key indicators on the PAD cover sheet differ slightly from the definite form in the main text and technical Annex 3\. 7 Number of additional IDA credit was 5129\. Note that an earlier extension of the original credit closing date from June 30, 2011 to May 31, 2013 was carried out without changes to the PDOs or key indicators\. 8 Note that there is an inconsistency as page 20 of the Project Appraisal Document states this target is to be achieved “by June 30,2008\.â€?, yet on page 21 in the results matrix achievement of target is scheduled for year 5\. 9 While at first glance base and target of this indicator appear to be the same as in the original PAD, effectively these were revised upward by replacing the “for 80% of the timeâ€? indicator with “at 100% capacity 24/7â€? while retaining nominal 85% capacity target 10 Note that this is a discrepancy in the original PAD document which cites 100% targets in the Results Framework on page 20, but 90% in the overview table on page 21 11 The Additional Financing paper is inconsistent on this point as even though the Cross-River IRI is dropped (p\.21), additional funds to support a PSP in Cross River were allocated (p\.9,p\.11)\. 12 At the time, a disbursement category reallocation was made, but no changes to the results framework\. 13 In particular the “National Water Rehabilitation Fund Projectâ€? which closed in 2001 with an “unsatisfactoryâ€? rating and had targeted 22 SWAs\. 14 This appears to have been successful at first, though did not present a re-emergence of civil society resistance in 2014-16, when an NGO campaign opposed water PSPs in Lagos\. This campaign was led by Environmental Rights Action/Friends of the Earth Nigeria with key support from the American NGO Corporate Accountability International, and gained some local union support\. See press reports here: https://goo\.gl/sQItlP, https://goo\.gl/jePsSC \. Project stakeholders viewed this as a contributing though not decisive factor in the ultimate failure of PSP deals to materialize\. 56 15 Note that Components 1,3 and 4 had funding allocations for tasks to be implemented by the federal FMWR which generally contributed to the overall objectives (e\.g\. dam maintenance, state technical assistance) but were not captured with separate results indicators 16 Does not include unallocated amount which would bring the total allocation in US Dollars at Additional Financial stage to USD 400\.729m, see AF Project Paper 2012, p\.14\. 17 Confirmed by completion certificates of supervisory consultancies for works in Victoria Island, Surulere, Lagos Island / Ikoyi, and final report for works in Ikeja / Oshodi\. 18 See Annex 2 for detailed calculation\. 19 Note that this revised intermediate target of 55,000 new connections is significantly below the revised PDO level target of 99,000 (75,000+24,000) new active connections 20 In Cross River, at least 74,271 new connections are attributable to the project (i\.e\. 75,271 active connections reported under the PDO 2 indicator minus the baseline of 1,000 connections), and 26,115 in Lagos\. This means at least 100,386 new piped household water connections that are resulting from the project intervention, easily meeting the target of 55,000\. 54,55 21 In Lagos, rehabilitation works included major restorations of Adiyan and Iju treatment works, along with the rehabilitation and construction of a number of smaller water works (VIPCG, 2016, pp\. 121-23)\. This positively affected at least 35,821 accounts that were active as of December 2017 (2ML Consulting Limited, 2018)\. In addition, capital investments also improved supply quantity, quality and continuity to at least 75,271 connections in Cross River state, for a total of at least 111,092 household water connections affected by rehabilitation works undertaken under the project\. 22 See Annex 2 for the detailed calculation for this indicator\. 23 The PAD contained an inconsistency here as the first part of the component 3 outcome indicator stated a baseline of “60 million m3/yearâ€? but the “Baseline Valueâ€? given just next to it was “65Mâ€? (World Bank, 2005, p\. 21)\. Similarly the target in writing is 180 million m3/year, but in the results monitoring table it is given as 181 million m3/year\. 24 LSWC provided production figures indicate that after the completion of project financed repairs in November 2017, available capacity had been restored to 118 million gallons per day from the Adiyan, Iju and Isashi plants, equivalent to over 16 million m3 per month, or equivalent to 200 million m3 per year\. The completion of the required repairs is confirmed in the supervisory consultancy report (Enviplan, 2017)\. 25 See Annex 2 for details on "Citizens Financial Responsiveness Project" implemented by the "Nigeria Network of NGOS (NNNGO) in Lagos, LSWC helpdesks and Cross River "Public Communications Programme Action Plan" 26 Yes as per ICR visit and BCR (VIPCG, 2016, p\. 17)\. See Annex 2 for additional details\. 27 Yes as per BCR (VIPCG, 2016, p\. 17)\. See Annex 2 for additional details\. 28 As per data shared directly by LSWC with the ICR team (Excel file “Utility Data and Information (UPDATED sunny 2)\.xlsxâ€?)\. For 2017, the utility has reported total collections of Naira 1,630,343,778 compared to total billings of Naira 2,356,347,680 i\.e\. a billing collection rate of 69%\. See Annex 2 for additional details\. 29 As per revenue data for January to December 2017 shared by CRSWBL (Excel file “Utility 2017 M&E UPDATED DATA\.xlsâ€?)\. See Annex 2 for additional details\. 30 The project only supported two SWAs/utilities, and never intended to support more\. It is not clear why this indicator was set to six, possibly due to confusion of “townsâ€? with “utilitiesâ€?, but nominally, as it is, the indicator was not achieved\. 57 31 See for instance (AIM Consultants Limited, 2017), (Enviplan, 2017), (2ML Consulting Ltd, 2018), (2ML Consulting Ltd, 2017), (CIWAT Engineering Consultants, 2017), (CKW Environment Ltd, 2017), (World Bank, 2017)\. 32 Cost overruns in Ikom and Ogoja alone amounted to an estimated US$ 66\.7 million at additional financing stage (World Bank, 2012, p\. 8) 33 Project stability and continuity was not helped by frequent changes in the World Bank team, with five different Task Team Leaders over the project duration: Alex A\. McPhail (preparation to 2007), Joseph A\. Gadek (2007 to 2009), Andrew Makokha (2009 to 2011), Hassan Kida (2011 to mid-2016), Camilo L\. Cordoba (since mid-2016)\. 34 The revision at additional financing corrected a lack of balance in the original PDO indicators as the Cross River site was originally not included under the first PDO ("reliability of water supply"), while Lagos was not included under the second PDO ("increase access to piped water")\. The revision also simplified a PDO indicator deemed to be unclear (1a in Table 1), dropped two indicators viewed as not achievable (3a Table 1 and 2b in Table 2) and corrected an inconsistency in the original PDO targets (see Endnote XIV)\. A set of Bank core indicators was also added\. 35 An example of unclear or contradictory information provided by project M&E at IDA project closure is when the final ISR reported a value of 85% for PDO indicator Lagos Treatment Works Operation Capacity on 31st May 2016 (World Bank, 2016, p\. 11), but a presentation by LSWC reported only 60% in the first half of 2016 (LSWC, 2016, p\. 11), while the final Borrower Completion Report (BCR) recorded a value below 36% for the first half of 2016 (VIPCG, 2016, p\. 112)\. Note that this was prior to the major project funded repairs in 2017 that did restore operation capacity to above 80%\. Similarly, the final number for the PDO indicator of “direct beneficiariesâ€? (Table 1, 2c) was variously given as 1,200,000 (World Bank, 2016, p\. 9), 4,866,836 (VIPCG, 2016, p\. 15) and 2,931,356 (VIPCG, 2016, pp\. 140- 41)\. Similarly, earlier in the project inaccurate figures were reported\. For example, the Implementation Status Report Sequence 14 reported 82,000 “New piped household water connections that are resulting from the project “intervention" as “Currentâ€?, of which 50,000 in Lagos, although even at project end the Lagos figure was less than 30,000 (see Table 1 and associated references)\. Concerns about M&E quality were raised in ISRs by the Country Management Unit immediately prior to IDA closure (World Bank, 2015, p\. 14)\. To evaluate final outcomes of this ICR, the team had to undertake considerable effort to verify data directly from sources and recalculate unclear figures as the project M&E framework itself often yielded contradictory results\. 36 However, following an INT review, one company was debarred due to submitting false documentation in a bid (World Bank, 2016) 37 For example the external audit for 2015 was judged “less than satisfactory as most figures in the report did not reconcile with any of the financial records in the projectâ€? (World Bank, 2016, p\. 6)\. 38 Specifically, NGN 53,874,965\.62 (US$176,639\.23), US$11,650 and Euro 40,000\. A budget over-commitment had occurred during the predecessor project NUWSRP1, a lesson that appears to not have been learned in spite of explicit warnings by the CMU in ISR comments prior to closure (World Bank, 2014, p\. 9) (World Bank, 2015)\. In the penultimate ISR in late 2015, the Country Program Coordinator noted: “it is important that the project’s closure is not hampered by issues related to Financial Management or Procurement\. We would like to be absolutely clear on any cases of unretired expenditure, ineligible expenditures, efficiency of the internal control systems etc\. In particular, the project team is kindly asked to ensure that the Lagos and CR state governments take full responsibility for paying due balance for all contracts that will not be completed by the project closing date\. This is to avoid the risk of state governments not paying contractors after project closure, as has been the case on several other projects\.â€? At the time of writing of the ICR, the AFD team anticipated that a pending final audit of the AFD financing may find additional funds not exceeding $2\.214 million ineligible and subject to cancellation and reimbursement\. 39 Due to the near identical pre- and post-revision ratings, there is no practical impact of weighting of ratings\. Nevertheless, it can be noted that the additional financing was approved on 19th June 2012 at which point 35% of the total credits (4086, 5129, CNG1007 01) had been disbursed (historic and final disbursements of IDA credits 40860 and 51290 as per Client Connection\. As the AFD credit CNG1007 01 was not closed at the time of writing, the original credit allocation was used US$ 77,730,000)\. 58 40 The Vision 2020 also emphasizes “encouraging…Private Sector Participation (PSP) and Public Private Partnership in the provision of water supplyâ€? which, though not captured in the PDOs of the project, was a core part of the project strategy at appraisal and captured as intermediate results indicators (Table 2) 41 The CPS for FY14-FY17 is in the process of being extended to 29th June 2019 with an expected board date in May 2018 as confirmed by the office of the Country Program Coordinator, AFCNG\. 42 See Table 1 for a precise list of PDOs and associated indicators 43 A recent World Bank study on “Providing Water to Poor People in African Cities Effectivelyâ€? showed that in “the cities where the poor are served well, traditional utilities are the main service providers to the poor…These utilities have in common that they are effectively managed, having high operating cost coverage ratios and scoring well on other measures of efficiency and cost effectivenessâ€? (World Bank, 2016)\. 44 The appraisal analysis had clearly highlighted that “major structural reform is neededâ€?, as did the CPS which sees the Bank’s role as a “main interlocutor with the authorities on … water sector reformâ€? to “promote synergies between state level reforms and federal awards of investment support\. The government’s NEEDS strategy had also emphasized the need to “reformâ€? and “fundamentallyâ€? reorient the “provision of servicesâ€? to allow state utilities “more autonomy and increasing commercialization through service, management, and lease contracts with private firmsâ€?\. 45 Though the main PDO-level PSP objective for Lagos was dropped (as well as an intermediate indicator for Cross River state), additional funds were allocated to support a PSP unit at the Federal Ministry of Water Resources and an intermediate results indicator related to PSP in Lagos was retained (see Table 2)\.Note that, inconsistently, the Project Paper allocated funds to “Cross River PPP operator feesâ€? even though the associated Cross River PSP indicator was dropped at restructuring (only for Lagos a PSP intermediate indicator was retained, see Table 2) The project, however, ultimately did not disburse for Cross River operator fees (there was a private operator in Calabar, however, not project supported, see Annex 2)\. 46 Source: Available capacity and production data for the project-supported water plants of Adiyan, Iju and Ishasi for the year of 2017 were provided directly by LSWC in Excel files\. A report by the consultancy firm 2ML, which led a performance improvement program in Lagos, also confirms these figures for the second half of 2017 (2ML Consulting Ltd, 2018, p\. 24)\. Conflicting lower water production figures in a different section of the same 2ML report were explained as a mistake upon questioning by the ICR TTL\. Note that the aggregate realized operational capacity figure was calculated by dividing total actual production of all three plants by total actual design capacity of all three plants, not by calculating realized operational capacity for each plant separately and then averaging it (as done in the 2ML report on page 25) which would unduly over-emphasize the relatively weaker performance in the Ishasi plant, which is by far the smallest, contributing only 3\.3% of the total design capacity of all three plants\. The completion of the repair works that justify the rapid increase of realized operational capacity in the final month of AFD co-financing (December 2017) are confirmed in the report of the supervisory consultancy (Enviplan, 2017)\. 47 Note that the original PDO 1 capacity realization target was slightly different, aiming for at least “85% capacity realization 80% of the timeâ€?\. The PAD did not specify a clear interpretation of “80% of the timeâ€?, but if looked at on a day-by-day basis, then in the final month of 2017, the three project supported plants reached a realized operational capacity above 85% on 15 out of 31 days i\.e\. “48% of the timeâ€?, and above 75% on 25 days i\.e\. “80% of the timeâ€?\. All of the days above 85% are in the second half of the month following conclusion of repair works\. Thus, the project nearly achieved its original objective or is at least likely to do so going forward\. 48 Source: Hours of supply data for Adiyan, Iju and Ishasi for the year of 2017 were provided directly by LSWC in Excel file upon request of the ICR TTL\. As with the reported matching improvement in realized operational capacity, the key reason are the repairs confirmed completed in the supervisory consultancy report (Enviplan, 2017)\. Earlier horus of supply data from 2016 reported in the BCR (VIPCG, 2016, p\. 14; p\.82) have thus become outdated\. 49 Source: The Excel sheet with calculation of hours of water supply provided by utility in December 2017 indicates an average of 19\.28 hours of supply in Calabar and an average of 17\.76 hours in the other Cross River towns and subsystems supplied by the utility\. Note that this was confirmed by a World Bank consultant who inspected the secondary sites in an email dated Tuesday, March 13, 2018\. 59 50 Source: BCR (VIPCG, 2016, p\. 82; p\.108)\. 51 The repair contract was STEP activity No\. LSWC/2NUWSRP/LIB/WKS/93 with a volume of USD 2\.58 million\. The final report and completion certificate by the supervisory consultancy were available (Enviplan, 2017)\. The performance improvement program was guided by the specialized consultancy firm 2ML\. The restoration of regular energy supply in Lagos in the second half of 2017 was possible due to three factors: Firstly, the Adiyan water plant was reconnected to the power grid in October 2017 after payment of power bills\. Secondly, the State Government has met its financial obligations to the “Independent Power Plantsâ€? (i\.e\. separate from the electricity grid), which also supply the major treatment works\. Thirdly, improved political stability in southern Nigeria has reduced militant attacks on pipelines which had disrupted gas supply to the IPPs in 2015-16\. Lagos State Government payment of arrears to the public energy supply company IKEDISCO and the IPP provider was stated directly by LSWC to the ICR author by email and is also confirmed in the Aide Memoire of the December 2017 implementation support mission (World Bank, 2017, p\. 3)\. A signed internal LSWC memo (Ref\. No: ADYW/9/S\.2/297) confirming grid-reconnection of the Adiyan plant and partial arrears payment was also provided\. 52 Signed letter of commitment to power utility PHEDC shared with ICR team\. Payment and reconnection confirmed in Aide-Memoire of last supervision mission (World Bank, 2017, p\. 5)\. Repair activity in Calabar was done under Activity No\. CR/II NUWSRP/NCB/SWKWTPRE/2017/001\. 53 The utility reported only 65,350 connections to the ICR mission in November 2016 (the shared data has a range of 63,720-65,350, but the higher figure was used), and accounting for 10,402 suspended connections and 4,747 connections destroyed by roadworks, the best estimate of active connections at the time was 50,201\. 54 Sources: Final overall figure of active connections reported by utility in Excel sheet shared directly by CRSWBL in January 2018 (“Utility 2017 M&E UPDATED DATA\.xlsâ€?) as well as screenshots of internal customer databases for each site\. Progress was also confirmed by Aide-Memoires of supervision missions in July and December 2017 as well as an August 2017 report co-authored by the 2ML consultancy firm (2ML Consulting Ltd, 2017)\. The new Okpoma connections are further confirmed in SGI supervisory consultancy report (SGI Consulting Engineers, 2017, p\. 5); Obubra connections confirmed in AIM supervisory consultancy report which notes a slightly lower number of 3,850 at the time of report publication, but points out that final works are still ongoing; hence the full number was used, which was also confirmed by the utility (AIM Consultants Limited, 2017, p\. 26)\. The repair of connections destroyed by roadworks and “regularizationâ€? of connections suspended earlier in Calabar are reflected in a signed internal memo of CRSWBL dated 14th November 2017 that was shared with the ICR team\. Most connections in Ikom were included in the 50,201 figure already\. 55 Source: As reported by the utility\. To verify the figures, the ICR author also reviewed supervision consultancy reports and completion certificates for AFD financed Lots 1 to 4 (a total of 17,811 connections) for which Excel files with addresses and GPS locations were also provided (CIWAT Engineering Consultants, 2017) (CKW Environment Ltd, 2017)\. The original 6,544 connections financed by IDA were confirmed in the BCR (VIPCG, 2016, p\. 13)\. The additional connection of 1760 meters by LSWC is at least significantly attributable to the IDA project as it used meters procured by the project and was informed by the project financed 2ML performance improvement consultancy\. The utility reported these meters as active, and provided at least partial billing system extracts as proof\. The 2ML Consultancy report stated a total of 35,821 active household customers in December 2017, though not all due to the project (2ML Consulting Ltd, 2018, p\. 15)\. 56 Source: Beneficiary figures in the last ISR (World Bank, 2016), which cites 1,200,000 beneficiaries, and the BCR which gives up to 4,866,836 (VIPCG, 2016, p\. 15) both exceeded the target even prior to the AFD financed improvements in the last project year\. However, neither source discusses how these figures were calculated\. For confirmation, the ICR thus re-calculated the number based on the minimum known number of active connections that could have conceivable benefited (i\.e\. new connections and more reliable service on old connections)\. In Cross-River, active individual connections were 75,271 (see table 1, Endnote 54), in addition the project also constructed 414 public water kiosks\. With an average urban household size of 4\.2 (DHS 2013), and each kiosk serving 300 persons on average, this yields 418,794 beneficiaries\. In Lagos, the total number of active individual accounts is reported to be 35,821 (see Endnote 55) and the utility also reported at least 866 water vendors, 9,227 commercial/industrial and 1,975 government/academic/hospital accounts (not constructed by project; reported in database extract 2016)\. Assuming 4\.2 beneficiaries per household, 300 per water vendor, and 20 per commercial or government account, we obtain a total of 690,298 beneficiaries in Lagos, and 1,074,626 overall\. This figure may be considerably higher in practice due to common account-sharing between households, or illegal reselling of the substantial non-revenue water, 60 which would also lead to additional "beneficiaries" of improvements in water quantity, quality and continuity attributable to the project even if these are not formal customers\. 57 The percentage of female beneficiaries as reported in the ISR (World Bank, 2016) and BCR (VIPCG, 2016) was not measured\. It appears to have been simply assumed that at least 50% of beneficiaries are female in line with 51% women in the general population (DHS 2008)\. Note that the Beneficiary Impact Survey found only 45% of beneficiaries were female in either location (VIPCG, 2016b, p\. 5), but as the survey’s sampling methodology is not well explained, and no confidence intervals given, this is likely to be statistical error, and the ISR/BCR figures are thus used\. As households were the primary beneficiaries of the intervention, and because women are typically more likely to be tasked with water collection, it is sensible to assume that at least 50% of beneficiaries were female in light of DHS (Demographic and Health Survey) statistics on the general distribution of gender in households\. 58 The reconciled revenue and expenditure sheet for 2017 shared by CRSWBL shows total revenue collection from water sales of NGN 272,771,339 compared to NGN 658,242,715 in total expenditures in 2017 (note that the original data shared had wrongly summed billings and expenditures, which the ICR corrected)\. The BCR had cited 36% cost recovery in mid-2016 (VIPCG, 2016, p\. 108)\. The last ISR cited 45% in May 2016 (World Bank, 2016), though without providing clear documentation\. In all scenarios, the target was clearly missed\. As outlined in the main body, the utility received regular subsidies from the state for salaries – a total of NGN 213,020,192 over 2017, which rises to NGN 244,020,192 if chemical and power subventions are considered\. If these subsidies are understood as fixed, regular income that counts towards cost-recovery, it would raise cost recovery to 73\.8% and 78\.5% respectively\. 59 Note further that cost-recovery was assessed on the basis of actual revenue collections, not billed revenue as the PAD clearly refers to costs “collectedâ€? from revenue (World Bank, 2005, p\. 6)\. This is also in line with reporting practice by the utilities and in the ISRs throughout the project duration and with the related intermediary results indicator relating to the billing collection rate\. Moreover, it is clearly the meaning of the underlying commercial viability objective, which cannot be achieved on uncollected billings\. 60 Letter by the Lagos State Government (Permanent Secretary, Ministry of Economic Planning and Budget) to the project Task Team Leader\. Reference number MEPB/B\.2016/S\.20B/XXXIV/98\. 61 Cost-recovery figures from utility data sheet shared by LSWC\. For reasons outlined in Paragraph 81 and Endnote 59 only water revenue collections were considered, not billings or subsidies\. With salary subsidies by the state the cost-recovery figure would be 74\.3%, and counting chemical and energy subsidies, 134%\. Mid-2016 cost-recovery figure from Income-Expenditure sheet shared by LSWC for January-June 2016\. Matches BCR figure (VIPCG, 2016)\. 62 The positive NPV for Lagos seems to have been partially a result of a calculation error\. Incremental expenses were calculated on the basis of “incremental water available for saleâ€? instead of “incremental water producedâ€? (prior to unaccounted for water losses)\. The cost of incremental production, however, primarily depends on the incremental volume of water produced, rather than the incremental volume of water actually sold, because even the production of non-revenue water attracts costs\. If incremental expenses are calculated on the basis of incremental water production costs, NPV in the original base model is negative ceteris paribus\. 63 See Section 1\.6 and Tables 1 and 2\. Per-output costs rose for key indicators captured both in pre- and post-revision results-framework\. For example, while the connections target for Cross River state was raised from 50,000 to 75,000, funding allocations rose disproportionately from an original Cross-River allocation of US$ 50 m (World Bank, 2005, p\. 31) to an actual disbursement of US$ 137m from IDA funds alone (as per Client Connection data) i\.e\. from approx\. US$ 1,000/connection to over US$1,800 per connection\. Per connection costs would be higher still if AFD funds are taken into account which constituted an additional allocation of US$ 43\.9m (World Bank, 2012, p\. 11)\. In Lagos, the attributable capacity improvement target rose slightly from 116m m3/year to 120m m3/year (see Table 2), but allocations to Lagos rose from an original US$150m (World Bank, 2005, p\. 31) to approx\. US$170m including AFD allocations i\.e\. from $1\.3m per million m3/year to $1\.4m, while the number of distribution districts to be rehabilitated in Lagos was reduced from five to four\. Allocations to other activities (e\.g\. the MDG tracking system under Component 4) also rose significantly (in the case of the tracking system US$ 5m) without a change in the target\. 64 As detailed in Annex 3, a negative net-present value is obtained even if data gaps are filled using optimistic assumptions such as 30% non-revenue water, the lowest available figure for pre-rehabilitation production (i\.e\. 61 maximum incremental production), tariff increases from 2017 and the low original assumptions for cost per cubic meter, and using permissive assumptions of the original model such as perfect revenue collection\. 65 Note that at entry the model for Cross River was limited to Calabar\. This NPV calculation at ICR is also done for Calabar, though production and revenue data is from all sites due to the lack of disaggregated data\. Until 2016 the entire incremental revenue came from Calabar as confirmed by M&E data shared by the utility\. At additional financing, the original financial model for Lagos and Calabar was not explicitly revised, but complemented by estimates for five towns in Cross River for which additional funds were allocated\. A comparable ex-post re-estimation is not possible for these as the financial models and assumptions were not archived WBDocs and could not be traced by former project team members upon request\. However, as over 70% of investment costs in Cross River were concentrated on these towns, while virtually no revenues were collected there prior to 2016, a negative financial NPV in the original timeframe can be assumed\. 66 This is also illustrated by the fact that additional financing was already being considered necessary before major works even started see e\.g\. ISR Sequence 8 (2008)\. See also post-MTR status report (World Bank, 2009)\. 67 It should be noted that the Nigerian National Bureau of Statistics figures used here (NBS, 2017, p\. 5) are slightly outdated (from 2009-10)\. A more recent World Bank report using data up to 2012-13 found slightly lower rates for consumption poverty in Cross River (51%) and particularly Lagos (13%), though noted that even Lagos concentrates hundreds of thousands below the poverty line due to its high overall population (World Bank, 2016b, pp\. 45-46)\. 68 The beneficiary survey carried out as part of the Beneficiary Impact Study Report suggests an elevated socio- economic profile with 53% and 64% of beneficiaries reported to have tertiary education in Lagos and Cross River State, respectively, compared to less than 30% and less than 15% in the general population of the states, respectively (NPC, 2008)\. In both states a majority of the beneficiaries were reported to earn more than Naira 50,000 per month (VIPCG, 2016b, p\. 25)\. 69 Author’s calculation; DHS 2008\. 70 The universities were the Ahmadu Bello University Zaria, Federal University of Agriculture, Abeokuta, University of Calabar, University of Ilorin, University of Maiduguri, University of Nigeria Nsukka\. Comprehensive information on course particulars or student numbers were not available\. 71 Note that at closure of IDA financing in mid-2016, the majority of PDO targets had been missed, but this was not accurately reported by Bank M&E at the time\. Some key PDO indicator values were inaccurately and pre-maturely reported to be met, contributing to a problematic upgrade of the ISR project rating\. In the very last ISR Sequence 21 (archived after project closure in June 2016) the overall project ratings were upgraded from “moderately unsatisfactoryâ€? (the rating of last ISR before before Closing/Inactive status) to “moderately satisfactoryâ€?\. This was done primarily on the strength of allegedly fully meeting targets for realized operational capacity, hours of supply and new active connections in Cross River state\. The best available evidence, however, suggests these were not in fact met at the time as this was only achieved later in 2017 (see Section 3\.2 and associated notes)\. Note that in the preceding ISR Sequence 20, the Country Program Coordinator had suggested that if these indicators were not met a downgrade of the overall rating to unsatisfactory rather than an upgrade to moderately satisfactory may be in order: “The reported progress on the number of hours of water supply per day in CR and Lagos, however, suggests that the first sub- objective (reliable water supply) may also not be achieved\. We would please ask the team to clarify as that may influence the rating for PDO (if two out of three are not likely to be achieved, it may be difficult to sustain MU rating for PDO)\.â€? (World Bank, 2015)\. Note also that there appears to have been confusion about the indicators among the Bank team at times – for example, a filed Aide-Memoire from May 2016 claims with respect to Calabar that “Now that the works are completed we have achieved the target of this indicator having connected 71,720 house connectionsâ€?\. However, the PDOs explicitly referred to new active connections, which were lower due to disconnections and connections destroyed by roadworks, and in any case, the target was 75,000\. 72 This was reflected in the original credit agreement Article III as well as Schedule 1 specifying that only 95% of expenditures would be financed by IDA (IDA, 2005) 62 73 The reallocation notice makes no specific mention of this, but the percentage of activities to be financed out of the proceeds of the credit was raised to 100% from the 95% in the original credit agreement, thus implicitly eliminating the borrower contribution\. This was subsequently upheld in the amended credit agreement (IDA, 2013)\. 74 For instance, the original target of rehabilitating the network in five distribution districts in Lagos had to be reduced to four even with additional financing\. 75 Sources; ICR field mission interviews with VIPCG (authors of BCR), former TTL of project, LSWC staff and management, and ISRs; 76 It should be noted that the Project Paper for additional financing inconsistently allocated $2\.5m for "Cross River PPP operator fees" (p\.11) even though the IRI to have an operator was dropped in the same document\. 77 See e\.g\. here: https://nwri\.gov\.ng/nwrcbnet (2/7/2017) 78 Note that the positive result is possible despite the overall lack of cost-recovery in the projection of 2017 performance forward due to the model only considering incremental costs and revenues, thus excluding substantial overheads (e\.g\. existing staff costs) 79 Data provided directly by CRSWBL in an Excel sheet in January 2018 (Utility 2017 M&E UPDATED DATA\.xls) 63

REVIEW

P066153

 ICRR 11069 Report Number : ICRR11069 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 10/31/2001 PROJ ID : P066153 Appraisal Actual Project Name : Programmatic Structural Project Costs 40\.41 40\.41 Adjustment Loan I US$M ) (US$M) Country : Latvia Loan/ US$M ) 40\.41 Loan /Credit (US$M) 40\.41 Sector (s): Board: PS - Central Cofinancing 0 0 government administration US$M ) (US$M) (47%), General industry and trade sector (35%), General finance sector (6%), General energy sector (6%), General transportation sector (6%) L/C Number : L7007 Board Approval 00 FY ) (FY) Partners involved : Closing Date 12/31/2000 12/31/2000 Prepared by : Reviewed by : Group Manager : Group : Yvonne D\. Jones Laurie Effron Ruben Lamdany OEDCR 2\. Project Objectives and Components a\. Objectives Improve governance by strengthening public accountability, improving the efficiency and effectiveness of public sector operations, and raising the transparency of the Latvian state's interactions with the private sector, including civil society\. This is the first of three envisaged loans, using the programmatic loan as the framework for lending \. b\. Components (a) Correcting macroimbalances (i) Correcting macroimbalances that emerged after the Russia crisis (ii) Ensuring the financial viability of the pension system (b) Strengthening the credibility of the public sector (i) Reducing risks and opportunities for corruption in government and in the judiciary (ii) Strengthen transparency and reporting of the ministries and bodies subordinated, supervised or managed by government and by the judiciary (c) Improving the institutional capacity to deliver public services (i) Streamlining the structure of the public sector and increasing its administrative efficiency and transparency (ii) Strengthen human resource management by improving incentives for recruitment and retention of high quality staff (iii) Improving public expenditure management (d) Rationalizing a transparent relationship with the private sector (i) Privatizing five remaining commercial state firms and develop and announce governance structures and regulatory regimes (ii) Energy sector regulation and privatization (iii) Telecommunications sector privatization and regulation (iv) Achievement of a uniform approach to supervision of financial markets and strengthening of financial supervision system, especially for non -bank financial institutions (v) Strengthening legal and regulatory processes to improve efficiency of regulation and to reduce costs of abuse of regulatory power by public institutions c\. Comments on Project Cost, Financing and Dates No major changes were made\. This is an adjustment operation \. This loan was a one tranche operation where funds were disbursed at effectiveness \. 3\. Achievement of Relevant Objectives: (a) Correcting macroimbalances\. (i) Most benchmarks were met under the concomitant IMF Standby Arrangement \. But the external current account deficit declined from just below 10 percent in 1999 to 7 percent in 2000\. The fiscal deficit reached 3\.2 percent in 2000, but exceeded the IMF target of 1\.9 percent set in the Standby \. Domestic investment and national savings growth recovered in 2000\. Overall growth improved from 1 per cent in 1999 to 6\.6 percent in 2000\. (ii) Benchmarks for the pension reform were met \. The Parliament passed legislation to adopt a second tier, the establishment of individual pension accounts, and the implementing ministries have met loan benchmarks \. (b) Strengthening the credibility of the public sector \. (i) Anti-corruption measures\. The Government did not fulfill its agreement to establish a strong mechanism to monitor and to report on corruption \. After much delay, procedures were developed to identify conflicts of interest for high level executive and legislative branch officials \. Progress has been slow in drafting manuals to train public sector employees on conflicts of interest and illicit enrichment \. (ii) In the judiciary, assignment of judges to cases on an impartial basis has improved and the Ministry of Justice has issued instructions on ex parte communications between judges and litigants \. All court decisions are not yet electronically published\. (iii) Some improvements in the legislative framework for public sector agency operation have occurred \. The Law on Public Sector Agencies was passed by Parliament, but the Administrative Framework Law is now being integrated with another Law on Executive Powers which has been submitted to Parliament \. (c) Improving institutional capacity to deliver public services (i) Government had agreed to prepare a program and action plan to implement reform of the public administration \. A blueprint was prepared, but did not contain a timetable or actions \. Thus the required reporting to Cabinet of the changes in public sector management and performance has not occurred \. (ii) Strengthen human resource management As a Board presentation condition, the Cabinet of Ministers adopted the concept of a broad banded, transparent, uniform pay-scale for the public sector \. The Law on Civil Service was adopted by Parliament \. However, the survey of the existing pay structure has not been executed \. (iii) Improving public expenditure management \. As Board presentation conditions, all accounts of budget -financed operations have been brought into the budget \. Also, all state-budgeted institutions are to submit annual audited reports to the State Treasury as of 2001\. The recommendation to Parliament to establish a Public Accounts committee has not been implemented \. For development of performance-oriented budgets, a draft fiscal strategy document is now being discussed in the Cabinet\. The Cabinet will review new policy proposals from ministries \. The Cabinet has agreed to discuss and disseminate a medium term fiscal framework, leading to a medium term budget \. Work has begun on developing integrated financial and reporting procedures for local government \. A pilot to implement and to test the introduction of social assistance benefits targeted at the poorest households is in progress \. The Cabinet adopted an implementation plan to introduce a national benefit targeted at the poorest households\. (d) Rationalizing a transparent relationship with the private sector (i) The objective of privatizing the five large commercial state firms was not achieved\. (ii) The energy company was not privatized\. A law was passed to create a Public Services Regulatory Council which will produce energy sector regulation\. (iii) The telecommunications privatization is in arbitration with the assumed buyer of the company\. A telecommunications law has been submitted to Parliament\. (iv) More has been achieved in strengthening financial sector supervision\. A Law on a Unified Financial Supervision Agency was passed by Parliament\. (v) Improving the efficiency of regulation and reducing costs of abuse of public sector regulatory power\. The Secretariat of the Ministry of Public Service Reform and the Cabinet have adopted new rules for inspection of ministries\. A council of inspectorates has been established to implement the reform program\. 4\. Significant Outcomes/Impacts: (a) Correcting macroimbalances\. GDP growth improved from 1 percent in 1999 to 6\.6 percent in 2000\. Parliament passed a law creating a second tier for the pension system \. (b) Strengthening public sector credibility \. The Law on Public Sector Agencies was passed \. The Law on the Institutional Framework for Public Administration was submitted to Parliament \. Annual declarations of potential conflict of interest are now required of high level Government and parliamentary officials \. A system for monitoring implementation of the Law on Openness of Information was designed \.The Cabinet adopted regulations requiring issuance of annual reports by public sector institutions requiring improved disclosure of information \. (c) Improving institutional capacity to deliver public services \. A new civil service law was passed \. Cabinet has adopted concept of a broad -banded, transparent uniform pay scale for the public sector which rewards merit and minimizes ad hoc bonuses\. Parliament passed amendments to the Law on Budget and Financial Management bringing all accounts of budget -financed institutions under the budget \. All state institutions must now submit annual audited reports to the Treasury \. (d) Rationalizing a transparent relationship with the private sector \. A Law on Public Service Regulators was adopted by Parliament\. A Law on Unified Financial Supervision Agency passed by Parliament \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): At the completion of the ICR, the following shortcomings were noted \. Macroeconomic imbalances were partially corrected under the IMF Standby agreement, although imbalances remain in the external current account and in the fiscal deficit \. A second Standby arrangement has been signed with the IMF\. The Programmatic Adjustment Loan approach to public sector reform in Latvia was probably the correct approach given the large number of fundamental changes required in the Latvian public administration, but too many objectives were loaded into the first year of a three year program \. The multiyear flexibility of the instrument was not fully used, which is a design flaw\. At least a five year implementation period would have been more realistic \. An illustration of this phenomenon is that while important preliminary measures were taken, like the passage of laws or the creation of agencies, it proved impossible to effect the follow -on institutional development or implementation steps which were promised\. Government capacity and ability to build political consensus both in the Parliament and in the electorate appears to have been badly overstretched due to the number and complexity of objectives loaded into year one of the program \. No technical assistance appears to have been provided to the Government to implement this complicated program; 101 difficult actions were to have been completed in year one of the program, including passage of Laws, revision of regulatory agencies and frameworks, censuses, and reorganizations \. Of the total actions promised, 28, of varying degrees of importance, were accomplished \. This suggests that technical assistance would have been helpful \. A purely numerical comparison of goals versus achievements does not take into account the varying importance of goals and achievements, but the Government experienced significant policy and institutional setbacks in all components\. Both the anti-corruption and the privatization components suffered major delays \. It appears that both the Government and the Bank overestimated the degree of public consensus supporting privatization of the energy and telecommunications companies\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory The project is rated satisfactory, however, it should be noted that the design of this project is overambitious \. Had project design better taken into account both the complexity of the objectives to be achieved and the government's capacity, and programmed loan actions to be achieved in accordance with these two parameters, a more realistic set of targets would have resulted\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory The satisfactory rating is retained because of the quality of the project's objectives, but there was a significant weakness which was the overloading of the loan with too many actions to be taken in a one year framework\. This was an unrealistic timeframe, even for an experienced borrower\. Additionally, very little conditionality was included in the Loan Agreement on institutional development goals to be accomplished during implementation\. Borrower Perf \.: Satisfactory Satisfactory The Government is an experienced borrower, and it made significant program progress\. However, it agreed to an unrealistic number of actions to be taken during the first year of program implementation\. What it accomplished is  reasonable in one year\. What is not clear is why it agreed to so many difficult activities to be accomplished in such a short timeframe\. Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Overambitious loan goals to be accomplished in a short time led to unnecessarily high expectations on the part of the Government and the Bank\. Lack of goal attainment leads to criticism of the Government and the Bank which would not have been necessary except for overambitious goal definition during loan design \. When Governments undertake medium term complex institutional transformation, they need technical assistance during implementation, not only during design \. When undertaking controversial goals like the privatization of utilities, adequate time has to be programmed to deal with unexpected delays and to build adequate political consensus \. 8\. Assessment Recommended? Yes No Why? This is one of the first programmatic PSALs done by the Bank \. A review of the use of the new instrument is warranted\. Furthermore, despite having a quality enhancement review, it is a very complicated operation which significantly overestimated Government capacity to achieve first year goals \. This is particularly striking since Latvia is a strong performer along many economic management dimensions and has maintained a stable and positive dialogue with the Bank \. The operation also benefitted from high continuity in the country team and from previous lending and analytical work \. Thus, the circumstances which led to the overestimate of country capacity need investigation \. 9\. Comments on Quality of ICR: While well written, the ICR does not discuss a number of issues which are pertinent to evaluating the design and implementation of this loan\. There is a disconnect between Bank staffs' extensive knowledge of the project and the institutional development goals set for the first year of program implementation and Government capacity \. The ICR does not explain why was the program so front -loaded with difficult institutional targets? The report is also not very clear on what was and was not implemented after Board presentation \. Why was there little conditionality on institutional goals? Finally, the report would have been stronger if it had included a table showing how the Government's main macroeconomic indicators changed over the course of the program \. It should also be noted that the Government's ICR contains more information than does the Bank ICR \. It would have been helpful if the Bank's section of the ICR had cross -referenced the relevant items in the Government's submission \.

REVIEW

P059763

 ICRR 12249 Report Number : ICRR12249 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/15/2005 PROJ ID :P059763 Appraisal Actual Project Name :Cultural Heritage Pilot Project Costs 15\.5 12\.0 US$M ) (US$M) Country :Bosnia-Herzegovina Loan/ US$M ) Loan /Credit (US$M) 4\.0 4\.1 Sector (s):Sub-national ): government US$M ) Cofinancing (US$M) 5\.2 6\.3 administration; Other social services L/C Number :C3269 FY ) Board Approval (FY) 99 Partners involved : UNESCO, Aga Khan Closing Date 12/31/2002 12/31/2004 Foundation, World Monument Fund, Governments of Italy, Netherlands, Croatia, EU\. Evaluator : Panel Reviewer : Group Manager : Group : John R\. Heath Ridley Nelson Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives According to the PAD, the objective was to "Improve the climate for reconciliation among the peoples in Bosnia-Herzegovina through recognition of their common cultural heritage [in Mostar]"\. The ICR notes that "a special dimension of the stated objective was that it was 'to be pursued through a unique cultural support partnership that includes the local community, national and regional governments, UNESCO, the World Monuments Fund, and the Aga Khan Trust for Culture'"\. b\. Components (or Key Conditions in the case of Adjustment Loans ): (i) Investments, including reconstruction of the Old Bridge in Mostar, restoration of monuments in the historic districts of the city, upgrade of neighborhood infrastructure (Estimated cost, US$10\.5 million; Actual cost, US$8\.6 million)\. (ii) Geological Investigations (Estimated, US$0\.3 million; Actual, US$0\.6 million)\. (iii) Technical Assistance (Estimated, US$2\.4 million; Actual, US$1\.4 million)\. (iv) Office Equipment (Estimated, US$0\.1 million; Actual, US$0\.1 million)\. (v) Salaries and Operating Costs of Project Coordinating Unit (Estimated, US$0\.9 million; Actual, US$1\.3 million)\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The final project cost was 77 percent of the appraisal estimate, owing to savings arising from the efficiency with which contracts were competitively tendered \. The borrower's contribution was US$ 1\.5 million, compared to the US$2\.0 million forecast at appraisal\. There was a two-year completion delay because it took longer than expected to mobilize funds from the many donors, each of whom had different budget cycles; also, the pre -investment studies needed proved to be more extensive than anticipated at appraisal \. 3\. Relevance of Objectives & Design : Relevance is rated substantial \. The reconciliation objective was appropriate for a region emerging from a devastating war\. The need to coordinate multiple donors resulted in a challenging project design but including so many partners was justified because it helped to build international consensus and to raise the profile of Bosnia -Herzegovina\. For example, setting up an international expert committee under UNESCO auspices helped to ensure that the highest standards were brought to bear in restoring the Bridge and Towers complex \. 4\. Achievement of Objectives (Efficacy) : Efficacy is rated substantial \. The ICR states that the the objective is abstract, making it difficult to derive appropriate indicators and targets\. It suggests that this problem be tackled, in part, by referring to measures of "economic revitalization", given that reconstruction of the Old Bridge (a key project output) was, according to the PAD, a pre-requisite for revitalization\. The increase in tourist arrivals is cited as evidence of revitalization \. Arrivals rose from 50,000 in 2003 to to 220,000 in 2004; five years earlier almost no tourists visited \. This has helped to stimulate local business\. But there are other, if somewhat disparate, indications that the prime objective of reconciliation was achieved\. Support for the project cut across ethnic groups; the Project Coordinating Unit was held up by various people as a model of cooperation; there was apparently no ethnic favoritism in the awarding of contracts; a permanent multi-ethnic institution arose from the project; surveys in 2003 and 2004 showed growing optimism among local people (significant even if this cannot be directly attributed to the project )\. At project end, all the physical assets and some of the staff of the Project Coordinating Unit were taken over by a city -level agency that would be responsible for continuing to maintain project investments and for preserving the cultural integrity of the city \. The project contributed to Mostar's scheduled inclusion in UNESCO's list of World Heritage Sites 5\. Efficiency : Efficiency is rated substantial , mainly because project outputs were substantially completed and for a lower-than-expected cost\. No economic rate of return was estimated ---it would not have been appropriate or useful \. Competitive tendering arrangements apparently enhanced efficiency \. 6\. M&E Design, Implementation, & Utilization: The M&E framework was limited\. The PAD proposes as an indicator the extent to which the local population perceived an improvement in working relations and social cohesion \. This could have been measured by survey but was not\. On the other hand, the small size of the project and the self -evident linkage between the project outputs and community wellbeing suggest that a large monitoring effort was not justified \. More perhaps could have been made of the scope for using small-scale attitude surveys to measure the level of reconciliation achieved \. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Substantial The multiethnic nature of the project coordinating unit helped to further reconciliation; and the unit left a permanent legacy in the shape of a city-level agency which will continue to protect Mostar's cultural heritage \. Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: If the Bank is to contribute successfully to cultural heritage projects it needs to form partnerships with agencies strong in the skills that it lacks \.  Renovating community spaces in historic cities is as important as restoring large, world -famous monuments\. When several donors are involved in funding, delays in project startup should be anticipated in the implementation schedule\. 10\. Assessment Recommended? Yes No Why? In order to explore more fully the reasons for the success of this project and to verify the sustainability rating\. 11\. Comments on Quality of ICR: The ICR is concise and clearly presented \.

REVIEW

P008515

Document of The World Bank FOR OFFICIAL USE ONLY Report No\.: 20971 IMPLEMENTATION COMPLETION REPORT (IDA-26430; COFN-03330; TF-26206) ON A CREDIT IN THE AMOUNT OF SDR 12 MILLION TO THE KYRGYZ REPUBLIC FORA SOCIAL SAFETY NET PROJECT Human Development Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their I official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective September 27, 2000) Currency Unit = Som 1 Som = US$ 0\.02 US$ 1 = Som 48 FISCAL YEAR January December ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CAS Country Assistance Strategy CDF Comprehensive Development Framework DTWE Department of Training of Workers and Entrepreneurs ERR Economic Rate of Return ES Employment Services ESW Economic and Sector Work EU European Union FINSAC Financial Sector Adjustment Credit GDP Gross Domestic Product GOK Government of Kyrgyzstan GTZ Gesellschaft fur Technische Zusammenarbeit ICB International Competitive Bidding ID Institutional Development Impact IDA International Development Association IMF International Monetary Fund IPS Institute for Policy Studies IT Information Technology MLSP Ministry of Labor and Social Protection MOF Ministry of Finance MTBS Means Tested Benefit System NATSTATKOM National Statistical Committee PCU Project Coordination Unit PRSP Poverty Reduction Strategy Paper SOSAC Social Sector Adjustment Credit SSNP Social Safety Net Project TA Technical Assistance UMB Unified Monthly Benefit USAID United States Agency for International Development Vice President: Johannes H\. Linn Country Manager/Director: Kiyoshi Kodera Sector Manager/Director: Annette Dixon Task Team Leader/Task Manager: Philip Goldman/Carol Hoppy  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT KYRGYZ REPUBLIC: SOCIAL SAFETY NET PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 5 6\. Sustainability 6 7\. Bank and Borrower Performance 7 8\. Lessons Learned 8 9\. Partner Comments 14 10\. Additional Information 14 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 21 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6\. Ratings of Bank and Borrower Performance 24 Annex 7\. List of Supporting Documents 25 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: P008515 Project Name: SOCIAL SAFETY NET Team Leader: Philip S\. Goldman TL Unit: ECSHD ICR Tvpe: Core ICR Report Date: September 28, 2000 1\. Project Data Name: SOCIAL SAFETY NET L/C/TF Number: IDA-26430; COFN-03330; TF-26206 Countiy/Department: KYRGYZ REPUBLIC Region: Europe and Central Asia Region Sector/subsector: SA - Social Assistance KEY DATES Original Revised/Actual PCD: 02/22/93 Effective: 10/05/94 Appraisal: 03/02/94 MTR: 10/15/96 Approval: 07/05/94 Closing: 03/31/99 04/30/2000 Borrower/Implementing Agency: GOVT\. OF KYRGYZSTAN/MIN\.LABOR & SOC\.PROT Other Partners: STAFF Current At Appraisal Vice President: Johannes Linn W\. Thalwitz Country Manager: Kiyoshi Kodera R\. Cheetham Sector Manager: Annette Dixon R\. Liebenthal Team Leader at ICR: Carol Hoppy B\. Dahlberg ICR Primary Author: Elliott Hurwitz 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, Hl=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes Introduction After independence in 1991, the Kyrgyz Republic faced enormous challenges in the economic sphere, and its system of social protection and social services was inadequate to an emerging market economy\. There was a lack of distinction between social insurance and social assistance, and wide eligibility for social assistance benefits which were allocated with no targeting of  assistance to vulnerable groups\. Many benefits were excessively generous, causing an unsustainable burden on the state budget\. Other aspects of the social safety net were also insufficient\. The data and analytical capabilities to monitor poverty and unemployment were inadequate\. And the employment service did not actually focus its efforts on identifying job opportunities for unemployed workers\. Finally, the vocational training system, although extensive, was inadequate for the requirements of the transition the Kyrgyz Republic was going through\. The Social Safety Net Project was IDA's first investment operation in the Kyrgyz Republic\. It was a capacity-building operation intended to improve mechanisms to identify the poor and make social programs more effective and efficient in targeting and delivering social assistance\. 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Statement of Objectives The project was a capacity building operation to improve mechanisms to identify the poor and make social programs more effective and efficient in targeting and delivering social assistance, especially to the most vulnerable groups\. The project was also intended to make employment services and training more efficient and effective in assisting the unemployed, particularly through an improved capability to deliver unemployment benefits, and by promoting the redeployment of labor\. Evaluation of Objectives The objectives were clear, consistent with the Bank's goals as stated in the CAS, and important for the development of the country\. Project design was consistent with best practice at the time of project inception\. While the social assistance and poverty monitoring objectives were realistic, the assumptions underlying the employment service and training components--while they appeared reasonable given the Bank's knowledge at the time and consistent with the consensus view among donors of Kyrgyz growth prospects--turned out to be unrealistic in hindsight\. This was because the Kyrgyz Republic (1) did not actually experience mass layoffs as had been believed, and (2) the country experienced a severe recession during the period of the SSNP, so fewer new jobs were available\. Real GDP fell around 45% from 1991-95, and had only partially recovered by 1999 (see Figure 2)\. 3\.2 Revised Objective: N/A 3\.3 Original Components: The Project involved four components\. The Social Assistance Component provided equipment, technical assistance and training intended to strengthen the capacity of the Ministry of Labor and Social Protection (MLSP) to provide targeted social assistance, including cash and in-kind benefits, and mobilize community organizations to enhance such assistance\. (Among the -2 -  component's key indicators were: the establishment of a means testing benefit system (MTBS); establishment of a Special Grant Unit; and reorganization of the MLSP)\. The Poverty Monitoring Component provided equipment, technical assistance and training aimed at strengthening the capacity of the National Committee for Statistics (Natstatkom) to carry out representative surveys, especially for poverty and unemployment, in order to provide enhanced information and guidance to social agencies for improving the targeting and delivery of support services\. (Included among this component's key indicators: carrying out 4 household surveys; analysis of data and formation of a users' committee; training of personnel in field work, sampling and analysis)\. The Employment Services Component provided equipment, technical assistance and training intended to strengthen the capacity of the Employment Service under the MLSP\. (Included among this component's key indicators: strengthening ES delivery system including the establishment of model offices; strengthening systems for delivery in rural areas; strengthening the Deparment of Employment and management systems including policy analysis, program planning and financial management)\. The Training Component provided technical assistance, training equipment and materials to ensure a minimum capacity to respond to market demand for training in skills required for a market economy\. Specifically, the component activities were designed to (a) develop and implement a demand driven training system; (b) develop and implement a comprehensive strategy for adult training and retraining; (c) strengthen the Department of Training of Workers and Entrepreneurs (DTWE); (d) establish a modem training capacity in the Information Center and 9 retraining centers\. (Included among this component's key indicators are: strengthening the DTWE central functions; systemic curriculum development for 9 model retraining centers and equipping and expanding the centers; establishing and equipping an information center; and supporting demand driven training in centers) Component Cost EMPLOYMENT SERVICES 3,700,000\.00 POVERTY AND UNEMPLOYMENT MONITORING 2,900,000\.00 SOCIAL ASSISTANCE REFORM 7,400,000\.00 PROJECT MANAGEMENT 1,000,000\.00 TRAINING 5,700,000\.00 3\.4 Revised Components: N/A 3\.5 Qualitv at Enti: Quality at entry was satisfactory\. The project was consistent with the CAS and with government priorities at the time\. While the design of the poverty monitoring and social assistance components was sound, as noted earlier the employment services and training components were based on the assumptions (1) that mass layoffs would occur, and (2) that the Kyrgyz economy would produce enough new jobs to justify bolstering training and employment services\. These -3-  assumptions were considered reasonable at the time--and were the consensus view of providers of foreign assistance--but turned out to be overly optimistic regarding growth and overly pessimistic on layoffs\. Finally, the training component did not take adequate account of the deteriorated physical condition of most of the schools, and the required rationalization of facilities and staff\. In general, the project design paid insufficient attention to sustainability, i\.e\., how the Kyrgyz Republic would be able to sustain, using its own budgetary resources, the systems and changes implemented under the SSNP\. The availability of budgetary funds was extremely limited during the SSNP\. (See Figure 1)\. The Bank made extensive efforts to involve and inform the government during project identification and appraisal\. While key Kyrgyz counterparts at middle levels of Government were heavily involved in the project and knowledgeable about its goals, turnover in government, as well as the lack of Kyrgyz experience or project ownership by senior officials negated this to an extent\. Consequently, as the project proceeded, Kyrgyz knowledge and ownership of the project fluctuated -- the view was expressed by one counterpart that the Kyrgyz "saw the project as something that was happening to them, rather than something they were themselves undertaking (with foreign assistance)\." Assessment of Design The project design was complex, with four components involving different disciplines and expertise, but with 3 of the 4 components related to one agency (Ministry of Labor and Social Protection)\. The project had been streamlined from an initially larger design, and in hindsight colexity is not seen as a factor that hindered project progress (though technical inputs during supervision proved inadequate to handle the complexity)\. The components were clearly related to achieving the project objectives, and there was substantial technical assistance and contractor support for each component, which was appropriate\. Because the SSNP involved several governmental agencies, the PCU was designed as a strong, independent implementing agency reporting through a Project Policy Council to a First Vice Prime Minister (in practice, the Council very seldom met after the first two years)\. Each component had a coordinator who was an employee of the participating agency\. The independent PCU was, on balance, an effective mechanism for project implementation\. Its independent status insulated it to a substantial degree from Ministerial pressures regarding, e\.g\., procurement\. There had been one prior operation, a Rehabilitation Credit which became effective in July 1993, in the Kyrgyz Republic prior to the initiation of the SSNP\. And there had also been limited Bank experience in targeted social assistance programs in transition economies\. Consequently, in designing the project, most of the experience drawn upon was necessarily from non-FSU countries facing different development challenges and at a higher income level than the Kyrgyz Republic\. 4\. Achievement of Objective and Outputs 4\.1 Outcomelachievementof objective: On balance, outcome overall was marginally satisfactory, with positive accomplishments - 4 -  modestly outweighing shortcomings\. The SSNP achieved most of its relevant objectives, implemented important reforms, and laid a foundation for future progress in the social sector\. The Kyrgyz Republic is now collecting reliable data on living standards which it can use to monitor trends in living standards and household behavior, and to formulate policy\. However, the project had significant deficiencies, especially in the employment services and training components\. In these two areas, the extent to which expected development benefits were achieved was diminished by the severe lack of available jobs, lack of Kyrgyz budgetary resources, and ineffective implementation and supervision of some important aspects of the project\. 4\.2 Outputs by components: Poverty Monitoring Achievement was highly satisfactory\. The capacity of the National Committee for Statistics (Natstatkom) to undertake household surveys and analyze data was greatly strengthened, especially efforts focused on poverty and unemployment\. This was done by means of technical assistance in sampling, survey design, and data analysis\. Natstatkom carried out a number of household surveys to provide better information to social agencies which contributed greatly to improvement of the targeting and effectiveness of assistance\. Social Assistance Achievement was marginally satisfactory\. A means-tested benefit system was introduced and implemented on a national level-with general support by the borrower-a substantial improvement over the earlier system\. The Ministry of Labor and Social Protection was reorganized, and the benefits administration system was modernized and automated on a nation-wide basis, with the SSNP providing 500 computers\. (However, unreliable electric power, viruses, turnover in key staff, and a lack of funds for maintenance and repair has reduced the extent to which automation has contributed to agency capacity\.) There was a decline in the number of individuals receiving social assistance, and a modest increase in the monthly benefit\. The Kyrgyz Republic also passed a new law on social benefits, effective in January, 1998, which codified the reforms noted above\. As a result of the SSNP, it is clear that the country has had substantial experience in improved ways to identify and support the poor during the transition process\. However, an assessment of the implementation of the social assistance reforms, completed in early 2000, found significant errors of exclusion and inclusion (and significant reliance on in-kind benefits) that are now being discussed under the framework of the Poverty Reduction Strategy Paper dialogue\. Employment Services Achievement was unsatisfactory\. A computer-based system was installed that allowed profiles of job-seekers to be matched against vacancies reported by employers--an improvement over the earlier arrangement\. The information system could also calculate unemployment benefits\. The ES also implemented a regional planning and performance review system that improved management and accountability of local units\. And important reforms were implemented regarding eligibility for benefits\. -5 -  However, while agency capacity was modestly enhanced, much of it is dependent on an aging computer system\. As with the other components, funding for repair, maintenance, and replacement is inadequate\. Taking into account the substantial turnover of skilled personnel (especially those with information technology skills), lack of adequate agency computer training, and shortfalls in agency budgets, it is questionable whether the computer system installed is well-suited to agency circumstances or sustainable\. The system is becoming outdated, is afflicted with viruses, and is not fully-functional\. Additionally, the lack of funds: prevents the ES from encouraging self-employment and retraining, and-due to the low benefit level-provides little incentive for the unemployment benefit to be used as insurance against unemployment or as an incentive for people to be active in the labor market\. Finally, given the very limited number of new employment opportunities, it seems likely that the effort to enhance ES capacity was of limited relevance, and that this component consequently made little contribution to Kyrgyz economic development\. As a March 1998 Institute for Policy Studies (IPS) mid-term evaluation of the component stated, "The ES is dependent on improvements in the economy that will increase demand for trained workers\. It can contribute to economic regeneration by its work in increasing the skills of the workforce\. If these measures cannot be achieved, the project will merely have made an ineffective system more efficient\." (emphasis added)\. This last point also applies to unemployment benefits; while the system itself may have been made somewhat more efficient, in the project's latter stages roughly three quarters of employment benefits were paid in-kind (i\.e\., flour and sugar)\. Training Achievement was highly unsatisfactory\. On the positive side, the Department of Training of Workers and Entrepreneurs (DTWE) was somewhat strengthened by development of a comprehensive strategy for adult training and retraining, systematic curriculum development for 9 model training centers, establishment of an Information Center, and an effort to make training centers more demand-driven\. Nine centers were physically renovated, and the SSNP also provided a large amount of equipment for vocational training\. However, many critical reforms urged by the SSNP-including consolidation of the network of 1 15 vocational training schools-were not implemented\. As noted earlier, most training facilities were decrepit, a factor that was not adequately taken into account in the project design\. (No funds for civil works for schools were initially included in the Credit\.) The Bank should have taken into account that many facilities had leaky roofs, inadequate security, no heating, etc\., before proceeding with other aspects of this component including the ordering of equipment for vocational training\. Only after equipment had started to arrive was a decision made to re-program some project funds to renovate 9 vocational training facilities\. A February, 1999, final evaluation of the performance of the training component by IPS found achievement of nearly all of the component's objectives as "below standard" or "poor\." Only a handful were "standard" and none higher\. While much of the SSNP procurement went smoothly, there were severe problems in the procurement of equipment for vocational schools: - 6 -  Some equipment was ordered from Europe that is generally not found in the Kyrgyz Republic Some items ordered arrived as much as 2 years late or not at all, and thus training could not be coordinated with the equipment involved * One occupation received 50% of the equipment budget for the entire training component\. However, some key occupations for Kyrgyz economic development-food processing, tourism, and hotel-were addressed inadequately\. * Some materials supplied were obsolete or of substandard quality * Many items were substantially over-priced or "gold-plated\." For example the project purchased printer cables for US$4,900 that were available locally for US$30, and also bought a used automobile engine for US$20,000 that was available locally for US$100\. In addition, there was a lack of spare parts and consumables, slow and incomplete translation of equipment instruction manuals, and a lack of set-up and training by equipment suppliers\. These deficiencies substantially diminished component achievement\. The reasons for the procurement shortfalls included: The lack of sufficient attention to procurement in the project design, including a detailed procurement plan Procurement was performed by agency staff without prior experience in international tenders, and with little or no input from end-users; consequently, procurement specifications were poorly-developed There was little or no guidance on scheduling or sequencing of procurement, resulting in major delays and discontinuities in training; some equipment items continued to arrive in 1998 ICB procurement efforts produced only limited response, necessitating LIB re-bids, and in some cases, direct contracting to procure the thousands of items required for the nine schools\. 4\.3 Net Present Value/Economic rate of retutrn: It was not possible to compute an ERR, and a measure of cost-effectiveness was not practical\. 4\.4 Financial rate of r eturn: N/A 4\.5 Institutional development impact: Institutional Development Impact (ID) is defined as the extent to which the project resulted in an improvement in the country's ability to effectively use its human, organizational, and financial resources\. For the SSNP as a whole, institutional development impact was assessed as modest, with progress in the individual components summarized in the table below and described in the sections that follow\. -7 -  Institutional Development Impact Component High Substantial Modest Negligible Poverty\. Monitoring x Social Assistance x Vocational Training x Employment Service x Overall IDI-SSNP x For the Poverty Monitoring Component, while ID progress at first was slow-in part due to less than expected knowledge transfer by the consultant-by project close it is judged that there had been a substantial increase in Natstatkom capabilities: household surveys were being undertaken by Natstatkom, sampling and data analysis capacity had been substantially strengthened, and policy-makers acknowledged the value of the living standards data\. In the Social Assistance and Employment Services areas, capabilities were improved as noted earlier\. A means-tested benefit system was introduced, the MLSP was reorganized, and IT systems were established\. However, judged overall, the extent of the increase in these areas was modest\. Factors that acted to diminish ID included: Considerable tumover among staff and policy-level officials (thus losing institutional memory) Lack of funds to sustain computer systems Less success than envisioned on the part of the Technical Assistance contractors in transferring knowledge; some of the models and concepts utilized were unsuitable for the Kyrgyz environment In the initial phases of the project, less success than foreseen in Kyrgyz absorption of new concepts and knowledge (this was mainly because the country had only recently emerged from a centrally planned economic system, and at first had difficulty absorbing concepts and systems more suitable for a market system\. However, absorption capacity improved substantially as the project progressed) In the Vocational Training area, ID was modest\. While nine training centers were physically rehabilitated, and new equipment was acquired, the reluctance of the GOK to implement policy reforms presented a significant obstacle to effective ID\. 5\. Major Factors Affecting Implementation and Outcome 5\. 1 Factors outside the control of governinent or implementing agency': - 8 -  * Failure of Mercury Bank-Mercury Bank, in which the Special Account for the Poverty Monitoring Component was held, was closed in 1999, and the US$470,000 in the account was frozen\. This caused a temporary shortage of project funding which led to component delays\. * Termination of the Contract for the Poverty Monitoring Component-The GOK believed that the contractor on this component was not complying with all aspects of the contract\. Because the differences could not be reconciled, after a long dispute the government terminated the contract in March, 1998\. Unspent funds were reallocated to support completion of the remaining tasks, but these circumstances required substantial effort in supervision: caused considerable delays in this component: and required extension of the project closing date\. Severe Recession-During most of the period of the SSNP, the Kyrgyz Republic endured a severe recession\. Figure 1 illustrates the severity of the fall in income; with 1991 set at 100, real GDP reached a low of 55\.0 in 1995, and had only recovered to 68\.3 by 1999\. This had the effect, noted earlier in the text, of decreasing the number of jobs available, increasing the demand for unemployment benefits, and decreasing government revenues\. The Borrower Contribution, appended to this report, acknowledges the assistance of the Bank in resolving this issue, as well as the Mercury Bank issue\. 5\.2 Factors generally subject to governnment control: Substantial Turnover in Government Ministers-Ministers supervising participating agencies changed frequently\. For example, from 1994-98, the leadership of the MLSP changed 5 times (one individual served twice)\. New Ministers often changed many agency managers and staff, causing significant delay and turbulence for the SSNP\. As noted earlier, this reduced effective Kyrgyz ownership of the project\. Substantial Tumover of Civil Servants-There was considerable turnover of agency staff at all levels, especially those with computer and information technology skills\. This was in large part caused by low government salaries compared with the private sector, and also caused significant delay and disruption\. 5\.3 Factors generally subject to implementing agency control: None 5\.4 Costs and financing: While total project financing comprised US$ 20\.8 million, US$ 2 million of savings were cancelled during the mid-term review\. Except for the poverty monitoring component, the original five-year project was largely completed in accordance with the original schedule, on December 31, 1998\. The poverty -9-  monitoring component was delayed due to a contract dispute resulting in the Government's 1998 cancellation of the foreign firm's contract, causing the closing date to be extended until December 31, 1999 to allow for completion of this component\. Subsequently, it was decided to conduct an assessment of the effectiveness of the SSN-supported social assistance program at reaching the poor -- this study was made a condition of the Social Sector Adjustment Credit (SOSAC) program, and the SSNP was used to finance the related technical assistance\. This activity led to a further extension of the project closing to April 30, 2000\. During this period, although it had not been previously planned, SSNP provided six updated servers, software, and $120,000 to retrofit MLSP personal computers originally procured in 1995 under SSNP, to meet Y2K requirements\. These activities were financed from savings in procurement of goods and services, and while not initially envisioned, were highly supportive of project objectives\. Supervision activities for the last two years were focused on monitoring the status of the completed major TA contracts and goods financed under the Credit, and assisting in the completion of these new activities\. 6\. Sustainability 6\.1 Rationale for sustainability rating: For the overall SSNP, sustainability is unlikely\. For the Poverty Monitoring component, sustainability is likely\. For this component, agency capacity has been enhanced substantially, many policy-makers and other users value the data and analytic outputs, and funding problems were not noted\. However, capacity created in Natstatkom is narrowly-focused, and the agency is likely to require additional assistance to sustain the household surveys\. For the Social Assistance component, sustainability is unlikely\. While the new law is in place, and changes in agency policies and procedures have been made, the durability of the reforms is uncertain, and a recent assessment of beneficiaries has found many classification errors\. For the Employment Service component, sustainability is highly unlikely\. While agency capacity has been enhanced, much of it is dependent on an outdated computer system\. Budgetary funding for computer repair, maintenance, and replacement is inadequate\. Inadequate funding also diminishes agency internal training and use of active measures to stimulate employment\. Salary levels are low, staffing levels are down, and turnover is high\. For the training component, while some benefits will endure, overall sustainability is judged as highly unlikely\. SSNP recommendations to consolidate the number of vocational schools were not imnplemented, so budgetary resources continued to be stretched by the existing system\. Many physical facilities-including those renovated as well as remaining centers-are decaying, and funding to repair, maintain, and replace equipment provided by the SSNP is not likely to be adequate\. 6\.2 Transition arrangement to regullar operations: Continued progress in the areas covered by the SSNP was facilitated by implementation of the Social Sector Adjustment Credit (SOSAC), approved in December, 1998, and completed in April, 2000\. - 10-  The main thrust of SOSAC was to help the Government establish a fiscally sustainable pension scheme\. However, concerning the poverty monitoring component, SOSAC provided support to Natstatkom to assure that the current sample size was maintained and provided technical advice on data management and analysis\. The SOSAC also supported an assessment of the effectiveness of the targeting mechanism under the Unified Monthly Benefit (UMB) that had been developed under the SSNP program (noted above)\. In the area of active labor market measures, SOSAC supported an assessment of the effectiveness of active labor market programs, closed those programs that were deemed least effective, and also assisted the Government to formulate an action plan to improve program implementation and monitoring\. Technical assistance supported by the Government of Switzerland was made available to the MLSP and Social Fund to pursue studies on related social sector topics (i\.e\., disability certification procedures and Social Fund accounting)\. The above-mentioned SOSAC targeting study and active labor market study will be critical inputs into IDA's dialogue with the government on the forthcoming Poverty Reduction Strategy Paper (PRSP), as well as the CDF\. Since 1998, IDA has also been supporting an annual Poverty Update that assesses household income, consumption and behavior drawing on the SSNP-supported household surveys, and this ESW has also been a critical input into the IDA dialogue with the country\. 7\. Bank and Borrower Performance Bank 7\.] Lending: Bank performance in lending was satisfactory\. On the positive side, Bank coordination with other financiers was excellent\. Meetings in Europe, Washington, and in Bishkek with the Fund, EU/TACIS, GTZ, and other financiers were very effective in coordinating assistance\. The one exception to this was the position taken by TACIS early in the project disagreeing with the Bank on the need to raise the pension age\. And the independent PCU was, on balance, an effective mechanism for project implementation\. Its independent status insulated it to a substantial degree from Ministerial pressures regarding, e\.g\., procurement\. No problems were identified on the financial audits, however, the last one is as yet incomplete\. However, as noted earlier, the project design was complex, with four components involving different disciplines and expertise\. In retrospect, supervision resources were inadequate, especially considering the additional supervision burden caused by the failure of the bank holding the project funds and the Government's termination of the contract supporting the poverty monitoring component\. Also, as noted earlier, insufficient attention was paid during project identification and appraisal to the decrepit condition of most of the vocational schools\. 7\.2 Supervision: Supervision was unsatisfactory\. Supervision of the project according to the original design was adequate, but supervision was not flexible and proactive in adapting to changing country circumstances, expanding Bank knowledge of this transition economy, and feedback from project - 11 -  implementation experience: SSNP supervision resources were not effectively allocated\. As noted earlier, project design was complex, with four components involving different disciplines and expertise\. Resources were stretched thin, especially toward the end of the project (even as the team dealt with the failure of Mercury Bank and termination of the consultant contract in the Poverty Monitoring component)\. However, supervision resources were overly-concentrated in project management and operational specialists, with insufficient resources for specialist supervision of the four components\. As the project progressed, the Bank teams noted increasing difficulty in mobilizing technical resources to support the four components\. Bank management did not effectively address these issues\. * Bank supervision did not adequately address the need flexibly to redirect the project in accordance with the assessment of the effectiveness of project components\. In particular, a 1996 supervision mission rated the project as unsatisfactory, and detailed significant problems, but there was little in the way of follow-through\. While numerous missions--most notably the October, 1996, mid-term review--identified sustainability as "the major issue," progress was not made in this area, and at project close overall sustainability is rated as unlikely\. The employment service component was based on the assumption that the Kyrgyz economy would produce enough new jobs to justify bolstering training and job counseling services\. This turned out to be unrealistic, severely limiting the extent to which an enhanced ES capacity could contribute to Kyrgyz economic development\. However, Bank supervision was not flexible and pro-active in seeking to restructure the project in accordance with these realities\. Supervision of the training component was weak\. Missions repeatedly made recommendations regarding system consolidation and streamlining and the implications for sustainability, but little or no progress was made\. The December, 1998, IPS evaluation noted numerous recommendations from earlier IPS evaluations that had not been implemented\. * As noted earlier, there were major deficiencies in procurement concerning the training component\. Although most project procurement was conducted satisfactorily, these deficiencies constitute a significant project shortcoming\. There was inadequate attention to maintaining a policy dialogue with the government, which could have enhanced the achievement of development benefits\. It should be noted that the Borrower contribution asserts that the Bank showed adequate flexibility duning implementation\. This ICR concurs that there was reasonable operational flexibility (e\.g\., project extensions, administrative matters) but notes that there was insufficient substantive flexibility with respect to implementing project strategies and achieving development objectives\. 7\.3 Overall Bankpeiformance: Overall Bank performance is judged to be unsatisfactory\. Although many dedicated staff worked diligently and with determination on the SSNP, the project implementation nevertheless had many - 12 -  deficiencies\. Borrower 7\.4 Preparation: Borrower performance in project preparation was marginally satisfactory\. Kyrgyz agencies worked diligently with Bank staff and the TA teams working on the project\. Preparation was better in the Poverty Monitoring and Social Assistance components than in the Training and Employment Service\. Fluctuating Borrower ownership of the project can be attributed to the fact that this was a new post-Soviet country, with counterparts that were learning policy-making skills for the first time\. Project preparation workshops were well-attended, but participation was passive--officials were grappling with new concepts such as "technical assistance" and "project monitoring," some of which had no meaningful translation into the Russian or Kyrgyz languages\. It is useful to note that Kyrgyz attitudes and knowledge have changed substantially, and capacity has grown significantly, over the period of the SSNP\. 7\.5 Govern,nent implementation peiforniance: Implementation performance was marginally satisfactory\. The main deficiency was the turbulence in personnel at all levels-a factor that hindered performance throughout the project\. New ministers and component coordinators had to learn and relearn the SSNP\. However, the government did pass necessary legislation, including a new law on social benefits, effective in January, 1998, as well as implementing regulations\. New regulations establishing benefit levels for social assistance, and new eligibility criteria for unemployment compensation, were promulgated as agreed\. Cooperation in the poverty monitoring component was excellent\. Agreed-upon counterpart funds were provided, albeit with a delay\. However, most agreed-upon reforms in the training component were never implemented, hindering progress in this area\. 7\.6 Implementing Agency: Performance of the implementing agency was highly satisfactory\. Financial management, staffing, and overall project management were managed in a highly professional and effective manner\. Procurement (other than the training component) was handled in an effective manner, especially considering the Borrower's lack of experience and geographic isolation\. (A great deal of equipment was ordered from foreign suppliers) All reporting, financial audits, and other requirements were handled efficiently, and with no hints of the influence of corruption\. Implementation was achieved on a timely basis, with the exception of the poverty monitoring component, whose performance was delayed by the collapse of Mercury Bank and the termination of the contract with the consultant\. 7\.7 Overall Borrower peilborrance: Borrower performance overall was marginally satisfactory\. While as noted earlier there were clearly shortfalls in performance, on balance--and considering the Kyrgyz level of capacity during the period of the SSNP--it is judged that performance was marginally satisfactory, with positive accomplishments modestly outweighing shortcomings\. - 13 -  8\. Lessons Learned Supervision Should have been More Flexible and Proactive--Several years into the project, it had become evident that some components were not performing as envisioned\. Bank management should have taken a more proactive approach, and restructured the project to fit the emerging realities\. Greater Attention Should have been Paid to Sustainability-As shown in Figure 1, Kyrgyz budgetary resources were extremely limited, and this raises substantial doubts concerning the sustaimability of all four SSNP components\. Both in design and execution, the project should have placed greater emphasis on how the benefits could be sustained in the uncertain macroeconomic climate\. Greater Attention Should have been paid to Policy and Structural Reform--The SSNP was not linked to any adjustnent operations and had no mechanisms for conditionality\. In hindsight, it would have been more effective to analyze more fully and address existing policy and structural weaknesses, linking the approach taken in each component to ongoing improvements in the policy framework\. An Independent PCU was Sensible-On balance, the decision to locate the PCU outside of any individual Ministry was wise, and probably avoided undue influence on, e\.g\., procurement\. Better Procurement Planning was Needed-In some instances, procurement actions were taken without a firn understanding of conditions on the ground\. The project should have developed and then rigorously implemented systematic, detailed, and carefully-phased procurement plans for each component (including substantial input from end-users), based on an objective understanding of the realities in that area\. 9\. Partner Comments (a) Borrower/implemnenting agency: See attached hard copy\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information - 14 -  Figure 1 State Government Finance 40\.0 31\.2 30\.0 -- 2& B- __ - ----- 30\.0 22\.9 23\.4 22\.2 211 1\. 20\.0 - -10\.0 -10\.0 op~~~~~~~-1\. -13\.9 -20\.0 *Revenue *Expenditures 3Deficit - 15-  Figure 2 Kyrgyz GDP, 1990-2000 1990 = 100 100 86\.1 80 72\.8 72\.0 64\.7 65\.9 3 58\.1 58\.9 60 20, 2 33 1995 1996 1997 1998 1999 2000 -20 9b -15S-b__ -20\.1 0 I-Real GDP aowth rate Real GDP 1991=100 - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: tn4tcat\."Matmtx Prgject\.d in last Is8R AcUw0Labst \.Ituaft SOCIAL ASSISTANCE COMPONENT Achieved Establish means testing benefit system (MTBS) Establish Special Grant Unit (SGU) Unit is operational Reorganize MLSP Done Study tours for MLSP staff Done Computerization and Office Automation, Partially done including purchasing computer equipment for Bishkek, and6 oblasts, upgrading 70 offices and training of 6systems analysis staff, 15 support staff and 1Otrainers to provide computer training to 200 staff\. POVERTY MONITORING Carry out 4 household surveys \. Analysis of survey data including forming a Ongoing\. users committee and holding seminars on survey results Training of staff in field work, sampling, and Ongoing\. analysis\. Data being used by other relevant ministries\. Being done on an ongoing basis Plans for post-project monitoring including \. decision on combining with FBS or eliminating FBS EMPLOYMENT SERVICES Strengthening Employment Service Delivery Done system including the establishment of model offices\. Offices to be established in Bishkek and replicated in Chui and other major labor markets\. Strengthening systems for delivery in rural \. areas Strengthening Department of Employment Requires further strengthening management system Including policy analysis, program planning and financial management\. Develop relevance of training provided through EF funding Lack of sufficient data collection capacity precludes assessment\. Output Indicators: IndlcaOW/A4trf P"40111141 In las PSR1 6$HWts ~tM&W End of project -17 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Ap1praisal ActWailLates oretso ProjetCot* COrni;414 US$ millo US$ million S/A 7\.26 6\.20 85\.49 E/S 2\.31 1\.83 79\.57 Training 5\.53 4\.52 81\.86 P/M 3\.43 2\.21 64\.48 Adminstration 6\.63 1\.11 168\.75 Evalution 0\.00 5\.46 0 Audit 0\.00 6\.22 0 Divestiture 5\.00 0\.00 0 Total Baseline Cost 30\.16 27\.55 Total Project Costs 30\.16 27\.55 Interest during construction Front-end fee Total Financing Required 30\.16 27\.55 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Expendfturi Categr G NBNBF TtlCs 1\. Works 0\.00 8\.90 0\.00 0\.00 8\.90 (0\. 00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 3\.70 0\.00 3\.03 0\.00 6\.73 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 3\. Services 0\.00 0\.00 1\.15 0\.00 1\.15 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Miscellaneous 0\.00 0\.00 5\.00 0\.00 5\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 ______ __ (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 3\.70 8\.90 9\.18 0\.00 21\.78 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent ExpeEnditureCateory I 1|; GB P rocurement Mbth' I Ct 4*0001tu j Category NCB Other2 N\.BF\. totia- cost -18 -  1\. Works 0\.00 1\.06 0\.00 0\.00 1\.06 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 2\.63 0\.00 3\.10 2\.83 8\.56 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 3\. Services 0\.00 0\.00 6\.85 2\.56 9\.41 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 2\.63 1\.06 9\.95 5\.39 19\.03 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. D Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equi lent) t _ ___ ___ ~~~~~~~~~~~~~~~~~Percentage of Appraisat Ca{Wrtenuflt Apprisal Estlmaft AetuaVLats Estimate Pretg fApas Baok Govt\. CoF\. Bank 7Govt\. CoF\. Bank Govt CoF\. S/A 7\.26 2\.34 0\.00 6\.21 0\.00 85\.5 0\.0 0\.0 E/S 2\.31 8\.40 7\.00 1\.83 9\.56 79\.2 0\.0 136\.6 Training 5\.53 2\.33 2\.00 4\.52 1\.81 1\.88 81\.7 77\.7 94\.0 P/M 3\.40 2\.33 0\.00 2\.21 1\.41 0\.00 65\.0 60\.5 0\.0 Administration 6\.63 2\.85 0\.00 1\.11 4\.12 0\.00 16\.7 144\.6 0\.0 Evaluation 0\.00 0\.00 0\.00 5\.46 0\.00 0\.00 0\.0 0\.0 0\.0 Audit 0\.00 0\.00 0\.00 6\.22 0\.00 0\.00 0\.0 0\.0 0\.0 - 19-  Annex 3: Economic Costs and Benefits N/A\. - 20 -  Annex 4\. Bank Inputs (a) Missions: Se of Project Cycle No\. of Persons and Specialty Performance Rating (c\.g\. 2 Economists, I EMS, ctc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 05/93 17 TM, ES Specialist, Procurement Specialists, Social Assistance Specialist, Operations Specialists, Training Specialists, 01/94 7 TM, ES Specialist, Procurement Specialists, Social Assistance Specialist, Operations Specialists, Training Specialists Appraisal/Negotiation 03/94 8 TM, ES Specialist, Employment Specialist, Operations Specialists, Social Assistance Specialist, Procurement Specialist, Training Specialist Supervision 07/94 7 TM, TM Designate, Social S Assistance Specialist, Operations/Implementation Specialist, Employment Specialist, Procurement Specialist 11/94 6 TM, Social Assistance S S Specialist, Operations/ Implementation Specialist, Employment Specialist, Procurement Specialist, Training Specialist 05/95 2 Social Assistance Specialist, S S Procurement Specialist 03/96 7 Economist, Training Specialist, U S Poverty Specialist, Social Assistance Specialist, Operations/Implementation Specialist, Procurement Specialist, Employment Specialist 07/96 7 TM, Social Assistance U S Specialist, Procurement Specialist, Training Specialist - 21 -  10/96 6 TM, Social Assistance S S Specialist, Operations/ Implementation Specialist, Poverty Specialist, Procurement Specialist, Training Specialist, Project Assistant 4/97 6 TM, Social Assistance S S Specialist, Operations/ Implementation Specialist, Poverty Specialist, Procurement Specialist, Training Specialist 10/97 3 TM, Social Assistance S S Specialist, Operations/ Implementation Specialist, Poverty Specialist, Procurement Specialist, Training Specialist 04/98 5 TM, Operations/ S S Implementation Specialists, Procurement Specialist, Training Specialist 10/98 5 TM, Operations/ S S Implementation Specialists, Employment Specialist, Procurement Specialist 07/99 4 TM, Operations/ Implementation S S Specialists, Procurement ICR 03/2000 1 Consultant It should be noted that the following supervision activities were also undertaken: Visit of Division Director, 10/95; Informal mission, 2/98: TM, 2 operations/implementation specialists; Fall 1998, NatStatkom staff came to Washington for training\. (b) Staff | Stage of Project Cycle Actual/LEst Estimaei :_________________ No\. Staff weeks US$ 4o0) Identification/Preparation 80\.1 242\.7 Appraisal/Negotiation 80 242\.7 Supervision 242\.5 700\.3 ICR 4 23\.0 Total 406\.6 1,208\.7 - 22 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Z Macro policies O H OSUOM O N * NA Sector Policies O H OSUOM O N O NA Physical OH OSUOM ON ONA E Financial O H O SU O M O N * NA z Institutional Development 0 H O SU 0 M 0 N 0 NA Environmental O H OSUOM O N * NA Social IPoverty Reduction O H OSUOM O N * NA ZGender OH OSUOM ON *NA D Other (Please specify) O H OSUOM O N O NA F Private sector development 0 H O SU O M 0 N 0 NA • Public sector management 0 H O SU 0 M 0 N 0 NA M Other (Please specify) O H OSUOM O N O NA policy/regulation/procedures - 23 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating ? Lending OHS OS OLU OHU X Supervision OHS OS *U OHU X Overall OHS OS * U O HU 6\.2 Borrowerperformance Rating F Preparation OHS OS O U O HU • Government implementation performance O HS OS O U 0 HU S Implementation agency performance O HS OS 0 U 0 HU Z Overall OHS OS O U O HU - 24 -  Annex 7\. List of Supporting Documents * Employment Services Component: Final Impact Evaluation, IPS, March, 1998 * Social Assistance Component: Final Impact Evaluation, IPS, February, 1999 * Training Component: Final Impact Evaluation, IPS, February, 1999 * Wolfgang Schwegler-Romeis, "Review of Active Labour Market Policy in Kyrgyzstan," Report to the World Bank, December, 1999 - 25 -  Borrower Contribution The section following this page contains the Borrower Contribution, which was -prepared in the following sections: 1\. Assessment of PCU Director, pages 1-6 2\. Assessment of Poverty Monitoring Component, pages 7-15 3\. Assessment of Training Component, pages 16-17 4\. Assessment of Social Assistance Component, page 18 5\. Assessment of Employment Service Component, pages 19-20  FINAL REPORT WORLD BANK CREDIT FOR MODERNIZATION OF THE SOCIAL SAFETY NET IN THE KYRGYZ REPUBLIC Amount: 12 million SDR (equivalent - 17 million US Dollars) Terms: 25 years, 10 year pay off deferral; From October 15, 2004 to April 15, 2014- 1\.25 %; From April 15, 2014 to April 15, 2029 - 2\.5 %; Within the bounds of co-financing of this credit agreement, Swiss Government issued 4 million Swiss Francs (equivalent - 2\.7 million US Dollars) as a grant\. Project Objective: Improvement of efficiency of mechanism for search of poor people of the address social programs and in delivery of the social assistance, especially for the most vulnerable strata of population\. This project will also improve efficiency of employment service and traiiing system, providing help to the unemployed, especially with the help of improved possibility of unemployment benefits provision and creation of the favorable conditions for redistribution of workforce\. Project consists of four main components: ((Social Protection> (Ministry of Labor and Social Protection, MLSP), ((Employment Service)> (Head Administration of Employment, HAE), (<Training)) (Head Administration of Professional Technical Education, HAPTE) and ((Poverty Monitoring>) (National Statistic Committee, Natstatcom)\. The fifth <(Evaluation)) component is included into the project before signing of credit agreement between the Government of the Kyrgyz Republic and World Bank to conduct project evaluation of three components, belonging to MLSP\. In order to achieve objectives of the project, it was foreseen in the credit agreement to conduct procurements on four categories: <(Technical Assistance>), (<Equipment)>, <(Civil Works)) and <Social Assets' Taking)>\. Responsibility on solving matters of project policy- lays on managers of MLSP, HAE, HAPTE and Natstatcom\. In order to solve problems on procurements and payments on all contracts, according procedures and requirements of World Bank, Project Coordination Unit for ((Social Safety Net Project)> (PCU SSNP) was established\. General control on project monitoring was conducted by Supervisory Board, headed by the first vice-prime minister of the Kyrgyz Republic, and which members were managers of components, chairman of the Social Fund and representatives of Administration of the President and Government\. Director of PCU was the secretary of the Supervisory Board, provided its conduction during whole project implementation and provided quarterly reports about project implementation to the Ministry of Finance and Goscominvest of the Kyrgyz Republic and World Bank\. Information on purchasing works:  During project implementation, from the moment of creation on April 29, 1995, PCU SSNP concluded six contracts on the category for training assistance: * Project monitoring with <(Crown Agentso company (Great Britain), contract amount: USD 913,646\.00; * Witl ((British Council)) company (Great Britain) on Social Protection Component, contract amount: USD 3,556,046\.00; * With <<DEET>> company (Australia) on Employment Service Component, contract amount: USD 1,130,806\.00; * With ((AMU)) company (Sweden) on Training Component, contract amount: USD 1,958,884\.00; * With (<RTI>) company (USA) on Poverty Monitoring Component, contract amount: USD 2,436,626\.00; * With <4IPSo company (Great Britain) on Evaluation Component, contract amount: USD 607,115\.00; During project implementation, when one year passed, Supervisory Board accepted corrections to the concluded contracts because of different reasons\. It was decided to speed up implementation of the technical assistance on Social Assistance Component, amount decreased in this respect within the limits of USD 60,000\.00\. Than, according to requirement of Chairman of the Supervisory Board, it was decided to include development of feasibility studies to create non-governmental pension fimds, and in this respect amount was increased again for USD 59,000\.00 in the second addition to the contract\. Because of reduction of the technical assistance on the Training Component, addition was included into the contract and its amount was decreased within the limits of U-JSD 100,000\.00\. Also because of decreasing training abroad for the local specialists, contract amount on Evaluation Component was reduced within the limits of USD 50,000\.00\. During four years four additions to the contract on project monitoring were issued because of some reasons\. They were connected with increasing of volume of work with foreign consultant, than his work continuing to provide initial assistance on "Social Safety Net Project", and continuing further procurements at the expense of saved funds\. In connection with these additions, total contract amount was increased for USD 235,000\.00\. All mentioned changes and additions were in correspondence with World Bank during project implementation\. PCU provided the following on "Equipment" category: Through the procedure of International Auction (IA), office equipment for Poverty Monitoring Component was purchased at the amount of USD 248\.728\.00, and for the other Components at the same time at the amount of USD 2,520,789\.00\. Also training equipment on Training Component was purchased at the amount of USD 2,317,919\.00 through the procedure of Restricted Intemational Auction (RIA)\. First tender through the IA procedure was delayed because there were no offers from suppliers)\. 12 automobiles "Gyp" were purchased through International Shopping procedure (IS) for Poverty Monitoring Component at the amount of USD 324,995\.00\. PCU conducted procurement on category "Civil Works" through National Shopping procedure (NS) and conducted repairing and construction works for the  following Components: Social Protection, Employment Service and Training in the total amount of USD 855,390\.00\. During project implementation\. Supervisory Board decided to eliminate from the project the experiment on taking funds from the balance of the social assets, and transfer the amount of USD 500,000\.00 for the other requirements, corresponding tasks and objectives of the project\. There was also decided to decrease foreign help within some contracts on the following Components: Training, Social Protection and Evaluation\. Having finished all above mentioned procurements in accordance with project design, PCU saved funds in the amount of USD 2,950,000\.00, where were included funds, taken from the social assets\. Detailed tables on procurement attached In this respect, Government decided to transfer the part of funds in the amount of USD 2,000,000\.00 for Health Sector Reform Project, starting in the Kyrgyz Republic\. And conduct the following additional procurements in the amount of USD 950,000\.00: * Equipment - USD 400,000\.00 (including feasibility studies to establish non- governmental pension fund); * To establish compatible software , consumables and one year warranty servicing of the procured equipment - USD 200,000\.00; * To continue repairing and construction works - USD 250,000\.00; * To extend contract with the foreign consultant on purchases - USD 100,000\.00\. World Bank satisfied this requirement, and PCU continued purchases on the above-mentioned measures, basing on applications of managers of Components\. Further purchases were mainly conducted through International Shopping procedure (IS) and bidding amounts varied from USD 10,000\.00 to USD 100,000\.00\. Cumulated table on all procurements attached In connection with the fact, that because of different reasons, contract with RTI institute (USA) was canceled\. And this institute assisted Natstatcom in project implementation, it was agreed with World Bank to continue work independently and use USD 665,632\.00, taken from unused amount of USD 861,109\.73 on the contract with RTI, for separate contract with Natstatcom till the end of 1999\. Thus, Social Safety Net Project was finished on December 31, 1998 on three Components: Employment Service, Social Protection and Training; and total saved funds made up USD 1,558,278\.82 as of April 1, 1999, this amount includes saved funds on all technical assistance contracts, considering above mentioned changes and additions: * "British Council" - USD 205,590\.04 unused; * "DEET" - USD 28,923\.00 unused; * "AMU/Ohio" - USD 253,959\.83 unused; * "RTI" - USD 861,109\.73 unused, USD 665,632\.00 of this amount were allowed to be used by Natstatcom till the end of 1999, i\.e\. USD 195,477\.73 stayed unused; * "Crown Agents" - USD 73,608\.94 unused; * "IPS" - USD 9,616\.00 unused\. Considering the fact, that USD 82,727\.55 should be paid in 1999 for equipment, connected with the last procurement of equipment on Y2000 problem, and also for audit for 1998 and 1999, considering the contract of Natstatcom, USD 794,919\.27 will stay unused as minimum\. It shows that from the total amount of USD 17,000,000\.00 on credit  agreement between Govermnent of the Kyrgyz Republic and Intemational Development Association, there were factually spent USD 16,205,000\.00\. It will be possible to clarify more detailed amount only after finishing Poverty Monitoring Component implementation and the last payment for audit, which will be conducted in the end of 1999\. Complete table on financial situation as of April 1, 1999 attached GENERAL CONCLUSIONS Reports, composed by beneficiaries, about finishing of three Components of Social Safety Net Project enclosed to this explanatory note\. As it was mentioned above, results on achievement of tasks and objectives were fully depended on managers of the Components and their staff, involved into project implementation\. PCU would like to mention that high staff turnover and change of managers of the Components influenced negatively to the project implementation\. For example, manager of the major Social Protection Component was replaced five times\. Minister Shustikov started project design development in cooperation with specialists attracted by World Bank\. Minister Khakimov managed during project implementation\. Than there were three more replacements during two years: Ms\. Abdurekhmenova, Mr\. Rysaliev; final report was composed by the last Minister, Ms\. Dzhangaracheva\. Considering the fact, that each new Minister attracted new specialists, no specialists, who started project implementation, left\. Component coordinator was replaced four times, and it is key position in achievement of objectives, working in cooperation with foreign consultants\. Analogous situation was on all components\. Manager of Employment Service Conmponent was replaces three times, and it was one year Component, i\.e\. Mr\. Runiyantsev and Ms\. Sayakbayeva do not work for a long time, and new manager of department, Ms\. Ryskulova, who works during the last six months, does not know everything\. Coordinator of the Component also was changed four times, and coordinator did not compose final report, specialist, who was not involved into the project earlier, composed it, what makes doubtful complete evaluation of positive results received\. Manager of Training Component also was replaced three times (Mr\. Kasendeev, Mr\. Toktogulov, Mr\. Askarov), and there were two coordinators\. Chairman of the Supervisory Board was replace four times, during project implementation First Vice- Prime Ministers were A\.M\. Matubraimov, A\.T\. Tagaev, K\.K\. Nanaev, B\.I\. Silaev\. That is why staff turnover and permanent replacement of managers influences success receiving during project implementation, i\.e\. initial directions of the end objectives were lost, and sometimes each new manager of Component had no full understanding of implementation of measures included according to project design\. Also it should be mentioned, that there were some replacements in World Bank\. Project managers were Mr\. B\. Dalborg and Ms\. C\. Hoppy, and several consultants of the project were replaced\. But in spite of replacements in World Bank, there was continuity of project management and implementation of objectives, what can not be said about our replacements\. The other problem was the lack of exact mutual understanding on planned measures, defined by project design and receiving results\. After one and a half year during project implementation, some high authorities both in Government and President Administration wondered\. why some measures (procurements) should be done, 4  -and demanded to pay pensions and benefits from the credit funds\. These misunderstandings show that inexperienced or accidental people participate in World Bank project design from our side, or there is absolutely no mechanism of project objectives' definition between institutions involved into the process of receiving of credit lines\. May be governors of the Republic also do not know about the final project design and measures within the project, including the package of planned procurements\. Further, when new specialists come at all levels, situation is aggravated and the same misunderstandings appear\. Of course, there were objective reasons, political and economical situation changes and requires to correct both real life of the country in general and some projects in particular, but these changes should be valid and correspond final objectives, and should not brake concluded agreements\. Moreover, it should not be forgotten that World Bank is bureaucratized enough, and it is practically impossible to change strategic objectives and particularly the major objective\. Nevertheless, it is possible to include some tactical changes on some measures, because World Bank is able to be "flexible" in some degree\. The only required thing was to explain suggestion precisely\. But some our managers of the components wanted to buy anything, no matter what for their Ministry, what caused slowing of project implementation in general, because offers did not satisfied project managers of World Bank\. All this means that it can be equally concluded that: A\. There was no need in Social Safety Net Project, because these objectives can not be achieved in present situation, or project tasks were defined wrong; B\. Social Safety Net Project proved fully to be essential and required results were achieved; C\. Social Safety Net Project was useful for the Republic very much and certain base was created to continue work in this sector\. I suppose, that general objectives are achieved, and if there were no above mentioned problems, project success would be felt more\. Specialists gained experience on mechanism of population social address development, and material base (office and training) equipment was procured, what is most important, because work in this direction can be continued with this base\. The most important thing now is to save all procured equipment, and it is required that financing will be planned for maintenance, purchasing of consumables and equipment safety at places, because a lot of equipment was procured, installed and spread in the territory of the Kyrgyz Republic\. The other negative moments are that there is turnover of specialists, trained with this equipment, especially in countryside, and it is impossible to use the full power of the equipment (computers, copy machines) and provide its safety because of different reasons - lack, increasing or decreasing of electric energy, insufficient quality of the new specialists, insufficient control of MLSP officers for the right usage of equipment on the places\. Any way new experience gained during project implementation in the social sphere and with World Bank credit funds gave positive knowledge for all sides participated in its implementation and especially to the local specialists\. Considering made mistakes, and accept some recommendations of received project evaluation, it will be possible to fulfill tasks underdone by this project and prepare better for implementation of such projects in future\. It should be added, that experience received  during project implementation, allows PCU to continue successful work without assistance of the foreign consultants on the other project - Health Sector Reform Project form the credit finds of World Bank\. More detailed information on each component is attached\. B\. Sarbanov Director, PCU Attachment 1 (Reports of managers and coordinator of Components) Attachment 2 A\. General expenses on components\. B\. Expenses on equipment\. C\. Plan investments D\. Construction works\. 1-2 phases\.  FINAL REPORT THE "POVERTY MONITORING" COMPONENT INITIAL SUM: 2\.436\.626,00 USD SECOND SUM (After the Contract termination with the RTI Consultative firm): 665\.632,00 USD THE PROJECT OBJECTIVE The collection of the accurate information is an important tool in monitoring the processes of economy reform, in particular at determination of their influence on the poverty and unemployment, as well as in social programme development directed at the efficient social protection of the population\. The Project priority task was to introduce changes to the system of the household budget survey and undertake its reforming\. The necessity in significant changes for the present household budgets survey system caused by the change in the data collection methodology change and\. study of transition from the command economy to the market oriented one\. New social indicators, such as health, education, as well as income, employment, consumption, nutrition and others were to establish for the new survey system a possibility to meet requirements in the information of all the ministries and agencies interfacing with the social sector\. In this way it would be possible to avoid unnecessary duplication of the same data collection by the other establishments, that is available at the National Statistical Committee\. It was intended to undertake the population living standards information collection among the same households that were involved at the income and expenditure surveys for the analysis of the social indicators changes, taking place at the economic reforms period\. The main components of the Living Standards Measurement Program were: 1\. Versatile survey of the household, covering the structure of the economy and family members responsibilities, housing conditions, education level of family members, health status, employment, unofficial occupation in the agriculture and other branches of the economy, migration, expenses and other sources of income, nutrition and anthropometric features; 2\. Application of the questionnaires with the step and probe questions and questions mainly coded beforehand\. As a rule, questions related to the respondents' habitation place, a questionnaire date etc were not coded; 3\. Application of the direct questions across all the Questionnaire data to the respondents above 14 years living at the family; 4\. The high control level, attitude of controllers to the respondents; 5\. Simultaneous data entry; 6\. Additional data on social services, infrastructure, economic possibilities; 7\. The price data, determination of the regional prices variation\.  THE "POVERTY MONITORING" PROJECT TASKS AND WAYS OF THEIR IMPLEMENTATION The Project was to assist the National Statistical Committee (NSC) to establish conditions needed for the new system of the household's survey\. The new system for the household survey was to be based on the former NSC experience as well as on the World Bank accumulated experience in the monitoring development and the basic survey review, undertaken at the Kyrgyz Republic in 1993\. The Project task is of important meaning for the National Statistics development, the Republican population living standards measurement during the planned economy transition period towards the market oriented one\. To achieve the main Component tasks in accordance with the Credit Agreement for the "Social Safety Net" Project signed in 1995 the Project Co-ordination Unit on behalf of the KR Government concluded a contract for a Technical Assistance with the "RTI" Firm (USA) to the amount of 2\.436\.626,00 USD\. To assist works on the "Poverty Monitoring" Component the Project Co-ordination Unit (PCU) concluded two additional separate contracts\. The first contract was for purchase of 64 computers, that to be installed at the NSC and at the Oblast and Raion Statistical Committees for entry and analysis of the survey data, and the office equipment to the amount of 248\.728,00 USD\. The second contract was for purchase of 12 "Jeep" automobiles to the amount of 324,995,0 USRS for the Oblast Statistic Committees to undelake surveys\. These Contracts were of significant importance for the successful works of the "Poverty Monitoring" Component\. THE "POVERTY MONITORING" COMPONENT ACTIVITIES IMPLEMENTATION BY THE KR NSC AND THE CONSULTATIVE FIRM FROM THE NORTH CAROLINE STATE (RTI) In July 1995 the appointed Project Director and the representative from the North Caroline Research Institute (RTI) Contract Department arrived to Kyrgyzstan to undertake negotiations with the "Social Safety Net" Project Co-ordination Unit (PCU), to conclude the four year technical assistance provision contract for the "Poverty Monitoring" Component works\. This Component aimed at undertaking of Kyrgyzstan population annual surveys during 4 years, from 1996 to 1999\. The implementation of the Contract was intended in cope with the KR National Statistical Committee\. After successful negotiations and approvement of the Conditions by the World Bank, the official date for the Contract in force was set up for the July 24, 1995\. The management of the Scientific Institute from the North Caroline State (RTI) immediately started planning works on the Contract and preparation of the Project Director's arrival to Bishkek\. It was necessary to provide the Government with the information base on the Republican population living level status, because the main goal of the "Social Safety Net" Project was the improvement of the most vulnerable layers of population determination mechanism and improvement of the social programs efficiency\. That is why at once after the Project works started, the management of the NSC, responsible for the "Poverty Monitoring" Component works co-ordination, due to the acute necessity in the poverty data, expressed an intention to move the survey start to the winter period of 1995-1996, instead of the planned terms in spring/summer 1996\. Considering time limitations for the preparation and the survey itself, RTI and NSC were to use practically same method in the sample construction and same questionnaire program that were used at the basic survey in 1993 conducted with the  help of Moscow specialists\. This plan was most appropriate to receive the survey data as earlier as possible\. The representative of the RTI, being a Project Director, on arrival to Bishkek at the beginning of the September 1995, started preparations at once for the first survey\. At the initial stage of the Project there was intended to include to the modification of the survey the review and establishment of the sample plan, representing the total population of the Republic\. The NSC used sample methods developed in 50-ies for the survey of the household budget until 1997\. Such sample in the history of the soviet statistics of the population budget surveys is called the territorial-branchial sample\. Evaluating results of the selected survey of households at the transition period towards the marked oriented economy, it is worth to note, that in the past under the conditions of state regulating the population income, the even distribution of many material goods in the society, the survey on the basis of the territorial-branchial sample was mainly satisfying state organs and economic institutions needs with the according information\. The sharp changes in distribution of goods are noted at present transition period \.codditions\. The new social groups of population with the different income sources a,e appearing; their consumption level differs strongly\. Under present situation the methods of organising the selected surveys of households require serious improvement by applying more perfect sampling methods, that would provide representative data on the living standard in total across the Republic and its regions\. In the many countries of the world there accumulated a rich experience in the social information collection, related to all the population by applying the territorial samples of households\. Studying this experience, the NSC in co-operation with the consultants-economists from the Institute of North Caroline state (USA), have come to the conclusion that the representative data could be received by applying the method of the territorial sampling of the survey items - households, from their sample frame build by the random sampling\. The data of the household survey, based on the random systematic sample method enabled to present the information for the different issues: * The Republic poverty and unemployment characteristics; * The sources and importance of the poor layers of population income at different regions, type of property owned by poor; * The consumption character and type among low income population across different urban and rural regions; * Social service and infrastructure access for poor, etc\. The data received is effectively utilised in the process of the state regulating the life of society, and in assessment of managerial decisions' impact\. The important component of the 4-year contract between RTI and NSC was the work with Users Group, who acted as an Observation Council at the survey results utilisation issues\. 9  The Users' Group consisted of representatives from the KR President's Administration, KR Government Administration, KR Ministry of Finances, Ministry of Labour and Social Protection, Healthcare Ministry, Education Ministry, Ministry for Agriculture and Water Economy\. The primary task of this Group is an assistance at development of questionnaires for the annual surveys and familiarisation with the every survey data, as well as presentation of data to the according ministries\. This Group was to present requests for the needed tables and assist in their development, aiming to avail latter to the ministries and the Government\. There were concluded agreements with the mentioned ministries on co-operation and appointment of ministries' representatives to the Users' Group\. The Users were given an information about what analytical tables and materials would be needed for the ministries on the survey end and the times of their publishing\. However, there should be noted that often replacement of the ministries and agencies heads brought a negative influence on the successful co-operation within the Users' Group\. The Users' Group initial staff has been always changing, and the National Statistics Committee had to constantly undertake an additional work on familiarisation of the Group representatives with their role in the Group activity\. The meetings with the Users' Group were held mainly after receiving the first results of a survey\. At those meetings there were considered and discussed in details the iasults of the household survey data analysis\. The Users' Group representatives were to carefully study and utilise the survey data during an agency's activity\. The National Statistical Committee sent the Final Reports with the survey analysis results to the entire Republican Ministries and agencies\. The most important goal of the TA Contract was an education and involvement of the NSC employees in the development and undertaking of such national investigations in future\. The priority in this case is the change of existing in the NSC survey system, as well as the data collection and analysis of changes methodology, taking place at the transition period from the planned system towards the marked relations in developing the economy of the state\. The training of the NSC specialists was also a main task\. These specialists would be responsible for such survey components as: sampling, questionnaire development, preparation of surveys, co-ordination of surveys, data entry, data processing, data analysis and development of reports\. These specialists were greatly involved in the survey work and have been continually trained during the Contract period\. Besides that, they took part at the special training programmes, developed by the World Bank and RTI specialists and consultants\. The training took place as well as in Kyrgyzstan and in USA, and availed the NSC to dispose with the educated specialists able to undertake the all aspect surveys\. In the relation to the Kyrgyz Government's request to reduce the foreign Technical Assistance, the "Poverty Monitoring" Component Co-ordinators applied all the possible efforts to maximally involve local specialists in the annual surveys\. But it was necessary to involve foreign consultants in the component work to train the NSC specialists the survey organisation and undertaking methods\. Probably the participation of the foreign consultants would be to the lesser extent, then it was described in the Contract Conditions\. The accumulated experience will help the NSC to continue surveys on the living standards of population at the Republic using the international experience\. /0  THE POPULATION LIVING STANDARDS SURVEY CONTINUATION WITH THE RETENTION OF ACHIEVED RESULTS ON THE COMPONENT AND PROVISION OF ITS STABILITY Aimed at the improvement of organisation on the scientific basis the statistics of the Republican population welfare study, provision of "Poverty Monitoring" Project stable continuation, and considering all the positive and negative moments at the local and international practice, the National Statistical Committee developed a plan to merge two surveys (the survey for the "Poverty Monitoring" Project and systematic survey of the household budgets, being undertaken by the NSC since 1952) and approved by the Decision at its February 1998Collegium\. The execution of all the planned activities in accordance with the Two Surveys Merge Plan enabled to receive a new quality survey that would include all the best methodology\. Using this Plan as Guidance, the NSC specialists have undertaken the preparatory work, consisted of the following stages: * Review of the Questionnaires, used earlier; * Forming of the new network of the selective aggregation of households, because starting with 1997 the Government allocated funds for the extension of the surveyed households net up to 2030, to enable the sample size to be same with the "Poverty Monitoring" Project; * Development of the set of tasks for the primary information entry; * Development by the programmists of the software for the data entry at oblasts; * DataBase Processing and preparation of analytical materials on the request of users will be undertaken using the "SPSS" program\. The first results of the survey with consideration of changes in questionnaires and methods of sampling are already received on the totals of 1998\. The received DataBase was transferred to the SPSS program formats and sent in February 2000 to the World Bank for consideration\. It is worth to note here, that the sample size of 2000 households, determined at the initial action stage of the "Poverty Monitoring" Project, proved to be insufficient, i\.e\. some indicators, received during the survey, could not be constantly reliable and reflect changes, taking place in the economy of the Republic\. That is why, at the 1997 survey there was decided to increase the sample size from 2000 to 3000 households\. The results of the entire republican population living standards investigations, received during study of 3000 households at 1997-1998 proved to be more representative\. The NSC made Presentations of these data for the Users' Group on the survey results\. The Republican Government, understanding the role of constant surveys of changes at the living standards of population and social protection of the most vulnerable layers of population, issued for the NSC funds to undertake a survey of 3000 households in the year 2000\. THE MAIN FACTORS INFLUENCED THE PROJECT REALISATION In April 1998 after the long correspondence the co-operation under the Contract between the National Statistical Committee and the Consultative Firm of the state North Caroline (RTI) was terminated\. 'if  At the moment of Contract termination with the RTI firm there were about 877\.594,00 USD left as not allocated yet\. The NSC in May 1998 turned to the World Bank with the request to consider the possibility of access to the left sum and assist in introduction of changes in the Budget lines, stipulated by the Contract earlier the proposal on the new Budqet was to te su of 665i632,00 The World Bank satisfied the request of the NSC regarding the independent continuation of the Project realisation\. Achieving an access to the left means enabled to continue the Actions Plan on the successful completion of the "Poverty Monitoring" Project\. Within the new budget under the permission of the World Bank the Government Commission on the Co-ordination of Projects purchased new techniques and office furniture to the amount of 63\.500 USD (ihe necessity in commissioning the more powerful technology raised with utilisation of the new software)\. After the Contract termination with the RTI Firm the Kyrgyz Republic National Statistical Committee developed the Action Plan for the successful continuation of the Project\. According this Plan the NSC was to use practically the same method of the sample construction and the same Questionnaire program, that were used at autumn 1996 and 1997 household surveys\. This Plan was composed under time limits that did not avail to introduce any changes, aimed also at the earliest survey data\. In the accordance with this plan there were undertaken following activities: * Continuation of the NSC specialists training the practical skills for the data processing and the survey results analysis; * Acquisition of computers; * Preparation and undertaking the fourth survey; * Training specialists on the household sampling methods\. Training the NSC specialists abroad ,\.2  The NSC personnel were not trained the practical skills for the data processing, composition of the complicated variables for analysis and etc because the results of the first two surveys were processed by the specialists of the Research Institute of the North Caroline State in USA\. That is why within the TA it was required to undertake a practical training for NSC specialists on the methods of living standards of population data analysis, this was organised through training the NSC specialists on the basis of the present experience of foreign countries: * On the sample construction; * On development of the survey results with skills on composition of complicated variables; * On the data analysis and their review\. Such training established conditions for the successful continuity of the foreign countries' experience and its utilisation in Kyrgyzstan\. This experience enabled to continue planned activities for the third survey and prepare and undertake the fourth survey on the "Poverty Monitoring" Component\. The acquisition of new hardware\. Because the software used since 1995 in the NSC system become morally outdated (WINDOWS 3\.11) there raised a necessity to utilise new improved software products (WINDOWS-95, SPSS 8\.0 and others)\. But the capacity of the earlier commissioned computing techniTires was insufficient for the new software utilisation during the development of survey results\. It is worth to note that at the same time the Kyrgys Government requires the poverty information presentation not only nationally but across regions as well\. Relating to this, the sample size was extended from the 2000 households to the 3000 to ensure the representativeness\. As a result the amount of the database grew, and this required a change of the available techniques to the more powerful computers\. PROBLEMS INFLUENCED ON THE PROJECT REALISATION AND LEARNED LESSONS As mentioned above, the Contract on the co-operation between NSC and Consultative Firm RTI was terminated before the end of the Project itself\. The reason for this was refusal of the Firm representatives to train and transfer their working experience to the NSC staff\. The requirements of the NSC were grounded, because the Project goal was in establishment of the new survey system for the living standards measurement, where the international experience would be applied\. The co-operation problems between the NSC and Consultative Firm directly influenced the timely completion of the Component in the terms set up by the "Social Safety Net' Project (the end of 1998)\. As a result of this the NSC had to turn to the Kyrgyz Government with the request to prolong the Project terms\. The second problem, that caused additional prolongation of the Project terms, was the "Mercury" Bank bankruptcy, where the accounts of the "Social Safety Nef' Project were allocated\. Because of the Bank bankruptcy many of activities, planned for the 1999, were fallen through\.  Training of the Users' Group The information on the population living standards survey, especially new poverty terms, are of significant importance for our Republic\. That is why it is necessary to train specialists of Kyrgyzstan (Users' Group), using the experience of the Western Countries and Europe on the poverty problems investigation (survey), utilisation of the received information to undertake monitoring of different economic reform processes at development of effective decisions on the social protection of the population\. It was intended to undertake a week training for the Users' Group (10-12 people) based on the foreign colleagues' experience\. But because of problems caused by the "Mercury" Bank bankruptcy, where the finances of the Project were installed, the training failed\. ACHIEVED RESULTS The main goal of the Project on utilisation of the international experience was achieved\. At present time there are experienced specialists at the National Statistical Committee, they can organise and undertake any selective surveys using received experience\. The World Bank experts played an important role in achievement of these goals\. The NSC received good consultations regarding the "SPSS" program utilisation for the data an4sl\.s\. The NSC-specialists had three weeks training for the data analysia at thie World Bank in Washington\. The gained working skills enabled the NSC specialists develop a final report on the "Poverty Monitoring" survey results for 1997, and publish them, also to continue analysis of the households survey results, undertaken by the NSC in autumn 1998 independently from international experts participation\. Besides that, the NSC put a lot of efforts to provide stabilisation of the population living standards survey\. This resulted in the above-mentioned merge of two surveys\. LEARNED LESSONS During the "Poverty Monitoring" Component realisation the NSC staff gained good skills on organisation and undertaking of surveys, forming a sample, development of questionnaires, data analysis and so on\. The most important skill for the NSC is a development of Projects, Terms of References for the entire Project and consultants, and ability to estimate correctly cost of certain activities implementation\. All the problems met during the "Poverty Monitoring" Component realisation served as good possibility to assess positive and negative moments of the Project Conditions\. The gained experience will help the NSC in future to make up more literal Contracts with consideration of the according financing size and efficient involvement of international and local experts\. THE WORLD BANK EXECUTION OF THE PROJECT CONDITIONS The realisation of the "Poverty Monitoring" Component was the most complicated issue compared to the other components of the "Social Safety Net" Project\. The NSC successfully solved met problems thanks to the good understanding of the World Bank management and its employees\. The National Statistical Committee always received good support from the World Bank management in solution of issues related to the successful continuation of the "Poverty Monitoring" Component realisation\. The /e'  consideration of all the requests from the Kyrgyz Government side and taking decisions on introduction of changes into the Contract Conditions once again prove existing flexibility in the World Bank work\. The National Statistical Committee avails itself a possibility to express a special gratitude to the World Bank staff, who provided every possible support at solving problems with the Consultative Firm from the North Caroline State (RTI) and the bankruptcy of the "Mercury" Bank\. This support enabled to continue successfully the Project realisation\. The National Statistical Committee expresses its gratefulness for the close co-operation and provided support to Mr\. Mr\. Kieshi Kodera, Mohinder Muddahhar, Mrs\. Carol Hoppy, Mr\. Anthony Lim, Mrs\. Kinnon Scott, Mr\. Salman Zaidi and Mrs\. Dinara Djoldosheva\. The "Poverty Monitoring" Component Co-ordinator quarterly presented reports on the "Project Realisation Process" during all the period of the Project activity\. The more detailed information on the surveys organisation and undertaking are enclosed in the form of the final reports\. "Poverty Monitoring" Component Co-ordinator Mrs\. Sh\.lbragimova /D  MINISTRY OF LABOR AND SOCIAL PROTECTION OF THE KYRGYZ REPUBLIC HEAD ADMINISTRATION ON PROFESSIONAL TECffNICAL EDUCATION Government of the Kyrgyz Republic together with the World Bank developed the Social Safety Net Project\. The main objective of this project was to increase effectiveness of the social assistance, provided to the population by the government\. One of the major aspects of the social assistance is the professional training of population\. System of professional training, using the mechanism of the self- employment of population, can decrease substantially the tense in the labor market\. With the current economical situation it would be impossible to expect solution of all problems put to the Training Component of WB Project in the sphere of professional training\. But having developed the WB Credit, republican system of professional training, received impulse for the further development basing on the clear understanding of its strategic objectives and tactical aims\. The main objectives of the component were: I\. Development and implementation of adults' professional training and retraining strategy, based on the real requirements\. of the labor market of the Republic; 2\. Reinforcement of the Head Administration on Professional Technical Education (HAPTE); 3\. Informational Center establishment; 4\. Implementation of the module system of training; 5\. Nine module centers establislhment\. In order to achieve the objectives, it was planned to renew material resources and computerize all professional training system branches, used in the project and provision of technical consultations on the whole range of problems put\. Procurement of equipment was made by PCU, technical consultations were made by the Swiss Company AMU Gruppen together with the University of Ohio State, USA\. During implementation of Training Component, the following results were achieved: * Strategy of policy in the sphere of professional training, including both initial professional training of youth and training of adults, was developed; * Cooperation of HAPTE and Employment Department was achiieved (90% of unemployed adults are trained on the basis of vocational schools); * System of marketing research and job placement monitoring of vocational sclhools graduates was developed; * HAPTE and module centers personnel was trained in the sphere of marketing, management and economy; * Vocational schools were given independence in placing incomes from provision of paid services and product sales; * Informational Center, attaclhed to HAPTE, was establislied;  * Nine Module Centers were established on the following specialties: agriculture, printing, constructioni, tourism, tracks repairing, cats repairing, restauralit and hotel business, computer technologies, electrical engineering; * Republican Scientific-Methodological Center tagether witlh pedagogical personnel of the module centers developed and impternented the system of module training, allowing to spread it further arnong vocationial schools; Problems and difficulties appeared during project implementation: * Unjustified staff reduction and low level of salaries, causing its fluctuation; * Four Ministries of Labor and Social Protection and three 14APTE directors were changed during project implementation, what influenced the effectiveness of project implementation; * Long deiay in supply of equipmnent (till 18 monthls on some kinds of equipment) caused frustration of terms in some project objectives; i Major part of equipment mnanuals were translated poorly or tlere were no translations at all; * Suppliers of equipment did not provide its certification in the State Standard of the Kyrgyz Republic, what caused large expenses for certification of equipment at the expense of module centers; * Many foreign consultants had no experience in CIS countries; a Total time reduction for technical consultations\. Despite separate troubles, project was implemented successfully enough, especially considering that negative experience has rational elements, which will be taken into account in the course of the other project implemetitatioi\. HAPTE of MLSP of the Kyrgyz Republic expresses gratitude for WB for the performed credit, which development widened possibilities of professional training system in the Republic and was a powerful stimulus for the further reforming of the whole system for the welfare of Kyrgyz economy development\. N\. Asskarov Director, HAPTE Afarhd, 1\. MOO /7  IMPLEMENTATION COMPLETION REPORT SOCIAL"ASSISTANCE COMPONENT SOCIAL SAFETY NET PROJECT The main objective of the Component was social safety net reform by implementation of the poverty detecting mechanism, providing address social assistance to the poor fanmilies and persons\. The following objectives were achieved within the frames of the Project: * The new model of address social safety system of the poor sirata of the population was implemented; * Pernanently actitng experimental centers were establislied in thie social service, providing approbation, evaluation of live activity and mnanagement, structure of any innovations in the sphere of the social protection; * Departmnental structure of incompetent payments detectiont and struggle with machinationis in the sphere of the social protection was developed; * New model of the address social protection was computerized; * Training departmental structure was implemented\. The main component objective was achieved: personal model of the govemnmental social protection functions, combining status of the republican economy and the real evaluation of poverty, promoting the increase of citizens' and faamilies' responsibility for their financial condition\. Expenses for social paymentts were reduced for 30%, number of receivers - for 50% (in comparison witll 1995)\. Componetnt proved itself fully and required objectives were achieved\. Major factors influenced lthe project implementation and its result: I\. Untimely and incomplete financing of all kinds of social paynients\. All preconditions made by this project to improve management of the social splhere may cause further problems\. 2\. Problem of personnel, often change of managing personnel (ministries) and, as a result, key persons, influenced the project negatively\. Stability\. Law About Governmental Benerits in the Kyrgyz Republic, providing legislative base of the new model of the social protection, was accepted\. System is stable, the Law and sublegislative acts, regulating and providing its viability, evidences tlhis\. Performance\. World Bank was flexible enough in project inmplementation\. Regular visits of the evaluation mission of the World Bank provided strong coiitrol and optimal mutual understanding while solving the main objectives (correcting objectives on computerization and training)\. Borrower achieved the main aims and objectives of project in the full schedule\. While eliminating above-mentioned reasons, influenced negatively the project implementation, more substantial results were expected\. Major lessons learned\. Analysis of received experience on project implementation showed the importance of the following factors: * Exactness of aims and target settings to consultatits; * Permanent control and to avoid large changes included, if it is possible; * Transparence provision; * Envisage necessarily an informational campaign in the project\. Report IJ prepared by Ms\. G MAarktrmova, fformer coordinator\. Aarchn U\. 2000  MINISTRY OF LABOR AND SOCIAL PROTECTION STATE EMPLOYMENT DEPARTMENT During evaluation of the Implementation Completion Report oii Social Safety Net Project in the middle of the March of the current year, meeting of Ms\. Ryskulova, Head of State Employment Department, held with the representative of the World Bank, Mr\. E\. Hurwitz\. There was agreed to provide Ms\. Joldosheva information about this meeting\. Ms\. Ryskulova mentioned that she did not work during this project implementation and is unable to give evaluation unbiased enough, as it would be if she worked directly during above-mentioned period\. But she said that project activity results are effective enough\. She emphasized that thanks to the project, state employment service was the first who was provided with the office equipment, measures on computer system Trud implementation were made, directed for labor automation of employment service specialists of all levels\. System implementation allowed having computer registration of unemployed citizens\. It was further planned to combine MLSP computer system and implement it into the state computer network of the Republic\. But in connection with the unstable work of phone lines and the lack of funds for payment of communication service, the final objective was not achieved now\. But existing database gives the opportunity to exchange computer information with such organizations as Social Fund and Compulsory Medical Insurance Fund, react operatively for all changes on the regional labor markets\. Besides, it reduces time of unemployed servicing\. Ms\. Ryskulova informed Mr\. Hurwitz that one of Credit circumstances was to increase staff of State Employment Department (former Head Administration of Employment) up to 61 persons, and she supposed that it was a mistake and there was no need in this\. For example: now the staff of department makes up 38 persons, and the level of work staid the same and even higher\. According to Ms\. Ryskylova, the project -objective was put incorrect initially\. She thinks, that it was a mistake to implement the Australian system of employment service in our Republic, having the present social-economical situationi formed in our Republic during last years, because it achieved no results for unemployed to look for work by visiting employers with declarations about benefits receiving and work searching\. Ms\. Ryskulova also mentioned that the idea of model centers establishment in all regions of the republic, planned in the project, was not implemented mainly because of the lack of professional skills of employment service specialists and their aversion of new working standards (together with system computerizing, all data are manually processed)\. It was mentioned as positive that 14 offices weTe repaired at the expense of project funds practically in all regions of the Republic in the amount of 914 tllousand Kyrgyz soms\.  It is also positive, thiat WB recommended the toughening of terms of unemployment benefits payment in 1996, and experts recommended that onily unemployed, whio made contributions into the fund (Employment Assistance Fund), slhould receive unemployment benefits\. In the process of Project implementation, system of uiemployinmet benefits payment was reviewed for unemiiployed, who live far and in high mountainous regions of thie Republic\. The new inechanism, envisaging altemative ways of benefits payment was impletnented\. Positions of agents servicing unemployed people living far and in high mountainous regions were established\. During the period from 1993 to 1996, 123 agents worked in the system of employment service, more than 70 tlhousands of unemployed used their service; At the end Ms\. Ryskulova mentioned that project implementation allowed developing and strengthening of systems, providing services lo unemployed, of Governmental Employment Department, analysis and development of employment politics, audit and financial management made by the Employment Assistance Fund, etc\. O\. Tsoi Coordinator of the International Projects  KIlPrbl3 PECnYEJlUKACWHbiH rOCYaAPCTBEHHbIiI KOMHTET xMET eJIKeJIYK HHBECTW1UHAIAP ic KbIPrbI3CKOR PECrIYnJIMjCIc XCAHA 3KCOHOMXKAJIbIK 1\.0no HOCTPAHHhJM OHYICTYPYY BOIOH'IA HHBECTIfXUUlM H MAMJKEq TE}TK ICOMHTETH 3c3KOHOM1ECKOMY PA3BUUTITO STATE COMMITTEE OF THF KYRGYZ REPUBLIC ON FOREIGN INVESTMENTS ANID ECONOMIC DEVELOPMENT 720H74\. Ko\.pro pm 71(-720 \. Kspam P,&\. \. I 1r t,L 5,iL fli,, 5 - l \. \.3P \. A,\. 6yr-P- 5K A]*i Gns y-nbp Dp-wUse SU KyLyrx A\.Nbllie 72Ds74 Trp\. (312) 22-32-92 Ten\.; (312)2)2\.3292 M\.- (312) ?2-1\.-\. 2 *Oac (322) 6,lQ75 *'c; (J12))661075 F x (312j661075 2000 X2 / 6f-/1 To: -Ivr\. Kiyoshi Kodera C ountry Dixctor for the Kyrgyz Republic Europe and Central Asia Region The World Bank 28\.09\.00 Dear Mr\. Kodera RK: Implementation Completion Report (IDA-26430; COFN-03330; TF-26206) Social Safety N,et Project We have carefuJly revised the lmnplementation Completion Report on the above Project, and would like to note the importance of the conclusions and recommendations made in the Report as weIl as information on the project's implementation and outcome evaluation\. In addition to the comments and remarks that were sent earlier in our Contribution we would like to draw your attention to the following\. The Social Safety Net Project was the first investment project that has been carried out by the IDA in the Kyrgyz Republic\. There had been only very limited experience in such targeted social assistance programs\. Considering the nature and the complex design of the Project we would like to note that the Bank showed sufficient adequate flexibility during implementation and the Project achieved its main objectives due to the cooperative efforts and mutual understanding of the Bank's management team and the Kyrgyz authorities to solve the emerging problems\. Despite lack of experience with such operation in the Kyrgyz Republic the Bank performed satisfactorily and the Bank's staff provided every possible support at solving problems\. Accordingly we would like to confirm our comments sent earlier once again\. Sincerely yours, Sabyrbek Moldolculov first Deputy Chairman ECCKG - lNCOM!NG DATE RFCEIVFD CJ7\. -/,? I _ ASSIGNED TO ___ CC's x0 AClION F37\.2L) RESf/S_Z u: £ Y'\.V ____  -2- {Date} Re- ion Cooke (Rm\. H 4-133, Ext\. 38727) Mudahar Bernard (Rm\. H 5-383, Ext\. 85175) Blanc (Rm\. H 5-381, Ext\. 37299) Hegarty (Rm\. H 5-393, Ext\. 34454) Westin (Rm\. H 5-391, Ext\. 38261) Bankwide Ingram (Rm\. H 3-155, Ext\. 31052) Lamb (Rm\. Q 4-127, Ext\. 85522) Rajasingham (Rm\. Q 4-107, Ext\. 32068) Bhatnagar (Rm\. H 3-160, Ext\. 80386)

REVIEW

P003598

 ICRR 11864 Report Number : ICRR11864 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/01/2004 PROJ ID : P003598 Appraisal Actual Project Name : Liaoning Environment Project Costs 350\.8 229\.3 Project US$M ) (US$M) Country : China Loan/ Loan US$M ) 110\.0 /Credit (US$M) 101\.2 Sector (s): Board: WS - General water Cofinancing Liaoning Provincial Liaoning Provincial sanitation and flood US$M ) Government, (US$M) Government, protection sec (69%), Municipal Municipal Mining and other extractive Governments, and Governments, and (16%), Sub-national Enterprises: 240\.8 Enterprises: 128\.1 government administration (7%), District heating and energy efficiency services (7%), Other social services (1%) L/C Number : L3781 Board Approval 95 FY ) (FY) Partners involved : Closing Date 06/30/2001 12/31/2003 Prepared by : Reviewed by : Group Manager : Group : Trond H\. Augdal George T\. K\. Pitman Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives The project had three objectives : 1\. Protect the main water resources in Liaoning Province, including the Hun -Taizi River Basin to allow their sustained economic and safe use for drinking, industrial, and agricultural purposes; 2\. Strengthen pricing policies and institutional arrangements for environment protection, water pollution control, wastewater and municipal solid waste management; and 3\. Institute measures for air pollution control and cultural heritage asset management \. The wording of the objectives in the legal documents varied somewhat from those stated in the SAR, MOP, and ICR, but the objectives were nevertheless essentially the same \. This ICR Review considers the objectives as stated in the SAR, MOP, and ICR\. b\. Components There were seven main components : 1\. Wastewater Management in Anshan and Fushun (US$92 92 \.8 million at appraisal /US$72 US$ 92\. 72 \.4 million actual ), US$ 72\. including sewers, pump stations, wastewater treatment, and effluent reuse facilities \. 2\. Wastewater and Air Quality Management in Benxi (US$112 112 \.1 million at appraisal /US$53 US$ 112\. 53 \.9 million actual ), US$ 53\. comprising i) sewers, pump stations, and primary wastewater facilities; ii ) an air quality management program, including equipment and facilities to reduce emissions from two blast furnaces and three coke ovens and increase their energy efficiency; and iii ) district heating to serve some 20,000 households over an area of about 300 hectares\. 3\. Wastewater, Municipal Solid Waste, and Water Conservation Management in Dalian US$ 78\. (US$7878 \.7 million at US$ 47\. appraisal /US$47 47 \.8 million actual ) including i) investments in sewers, secondary wastewater treatment, and effluent reuse facilities; ii) a pilot water conservation and clean technology program; and iii ) solid waste management investments comprising upgrading of the municipal collection, transfer, and transportation systems, modernization of the existing disposal facility to sanitary landfill standards, and providing for future landfill gas utilization \. 4\. Water Supply System Enhancement and Protection in Jinzhou (US$38 38 \.7 million at appraisal /US$33 US$ 38\. 33 \.4 million US$ 33\. actual ), including i) groundwater development and trunk supply; ii ) treatment plant modernization; and iii ) distribution system strengthening, supported by a major pollution reduction and water conservation program at the nearby Jincheng Paper Mill\. 5\. Environmental Rehabilitation and Reconstruction (US$2 US$ 1\.7 million actual ), including US$ 2\.2 million at appraisal /US$1 the recording, rehabilitation, conservation, protection, restoration, and presentation of prioritized cultural heritage assets\. 6\. Liaoning Environmental Fund (US$4 US$ 6\.3 million actual ) to provide short-term financing US$ 4\.0 million at appraisal /US$6 of high environmental impact investment of in -plant clean technology process change, supporting the core investments in air and wastewater management \. 7\. Institutional Strengthening through Technical Assistance and Training (US$9 US$ 6\.3 US$ 9\.6 million at appraisal /US$6 million actual ) for supporting and strengthening environmental, financial, and utility management and performance monitoring, training, feasibility studies, and future project preparation \. c\. Comments on Project Cost, Financing and Dates Project closing was delayed by 2\.5 years for the following reasons : Difficulties of raising counterpart funding that was partly due to general economic slowdown in the area and to the impact of the Asian financial crisis \. Moreover, financial difficulties at the Benxi steel plant delayed the Benxi Air Quality component, and the implementation of new environmental standards in China meant that some project components had to be modified, hence causing further delays\. Severe flooding in the summer of 1996 caused construction delays and a loss of about US$ 400,000 for the Fushun wastewater component \. Finally, the requirement of an additional layer of review of contracts for imported plant and equipment by the state government led to significant delays in project implementation \. The total project costs were reduced from US$ 350\.8 million to US$229\.3 million (equivalent to a reduction of about 35%), while the IBRD loan was reduced from US$ 110\.0 million to US$101\.2 million\. The large reduction in total project cost was partly caused by too high estimates at appraisal, as physical and pricing contingencies were included twice in the estimates and the schedule of rates may not have been based on current market prices \. Furthermore, several of the project components were reduced in scope after appraisal in response to changing circumstances\. 3\. Achievement of Relevant Objectives: 1\. Protect the main water resources in Liaoning Province, including the Hun -Taizi River Basin to allow their sustained economic and safe use for drinking, industrial, and agricultural purposes \. This objective was substantially achieved with few shortcomings \. The Anshan wastewater facility operates successfully, as does the Fushun Wastewater component \. The Benxi Wastewater component was reduced in size, but the wastewater treatment process was upgraded and works well \. All works at the Dalian Wastewater component are operational and are functioning at or above expected levels \. The Jinzhou Water Supply component provides drinking water for the city of Jinzhou\. Moreover, investments in the Jincheng Paper Mill led to a significant reduction of pollutant discharge into the Daling River\. 2\. Strengthen pricing policies and institutional arrangements for environment protection, water pollution control, wastewater and municipal solid waste management \. This objective was partially achieved with some shortcomings \. Companies and agencies responsible for operating the facilities are fully aware of the future managerial and technical requirements, including the need for systematic maintenance and equipment replacement \. However, the municipalities have yet to approve the wastewater tariffs required for the financial viability of the project wastewater companies, and the financial management services and training package did not have the expected impact as it took place before the neccessary institutional changes had been made \. 3\. Institute measures for air pollution control and cultural heritage asset management \. This objective was substantially achieved (but not mainly as a consequence of this project )\. Benxi Iron and Steel Company replaced obsolete blast furnaces and coke ovens using its own funds, thus making the Benxi air quality component as envisaged in the SAR largely irrelevant \. The IBRD instead financed the installation of equipment to reduce dust emissions from electric furnaces, and this contributed to the overall improvement in the city's air quality \. The ICR states that the overall air quality in Benxi was dramatically improved, but it does not provide any evidence to substantiate the claim\. It would have been particularly beneficial to provide data on the concentrations of airborne particulates and sulfur dioxide as these were identified in the SAR as the main problems for the air quality in the Liaoning Province and particularly in Benxi \. The level of awareness and management of conservation of Liaoning's cultural heritage has been raised as a consequence of the project \. 4\. Significant Outcomes/Impacts: * Five new public utilities were created under the project : The Anshan wastewater facility's treatment of wastewater exceeds the 37% indicated in the SAR, the intended 200,000 cubic meters per day (m3/d) is provided for reuse, and the quality of the treated wastewater is consistent with Chinese Class II discharge standard \. The Fushun Wastewater component meets the design capacity of 250,000 m3/d and uses an upgraded secondary treatment process that exceeds the expectations of the SAR \. The Benxi Wastewater component was reduced in size (based on a recalculation of the quantity of water to be treated ), but the wastewater treatment process was upgraded \. All works at the Dalian Wastewater component are operational and are functioning at or above expected levels \. The Jinzhou Water Supply component provides an additional 100,000 m3/d of drinking water for the city of Jinzhou, raising the service level in the city from three to 24 hours a day\. * Investments in the Jincheng Paper Mill led to a 70% reduction of pollutant discharge into the Daling River \. * The level of awareness and management of conservation of Liaoning's cultural heritage has been raised as a consequence of the support the project provided for four initiatives for museums and site conservation \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): * The total project cost were erroneously overestimated at appraisal due to the inclusion of physical and pricing contingencies twice and the use of a schedule of rates not based on current market prices \. * Liaoning Environment Fund's institutional arrangement to ensure viable sub -projects was not fully effective \. * The current wastewater tariffs are too low to ensure the financial viability of the project wastewater companies \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely The sustainability could be threatened by the low tariff increases allowed by local authorities\. Bank Performance : Highly Satisfactory Satisfactory There were errors in project cost estimates at appraisal\. The Bank should have recognized that the financial management services and training package was timed poorly and consequently would be of limited use, as the work was finished before the wastewater utilities began to function as independent companies\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: * Disbursement ratio of twenty percent is too low for the civil works category to sufficiently encourage the borrower to work with Bank procurement guidelines \. * Cost estimation methodologies for China urban projects need be improved and be based on current market prices \. * Institutional Development Assistance must be carefully timed to ensure that the agencies receiving training have sufficient capacity to absorb it \. More specifically, it is important that institutional restructuring has been implemented so that the staff with appropriate incentives receive the assistance \. * Successful implementation of financial covenants for cost recovery requires on -going dialogue with provincial and municipal governments throughout the project cycle, and should not be left to the later stages of project implementation\. 8\. Assessment Recommended? Yes No Why? It would be very relevant to analyze a major environmental project in China in detail as the demand for environmental protection (and projects) in China will likely increase with a higher standard of living (and greater environmental degradation due to economic growth )\. In particular, it would be beneficial to study the actual results on the ground of this project in greater detail\. 9\. Comments on Quality of ICR: The quality of the ICR is rated as Satisfactory \. However, the analysis in the ICR would have benefited from actual data on water and city air quality before and after the project to substantiate the claims that their quality has improved as a consequence of the project \. Also, the data presented on performance indicators are not easily comparable with those presented in the SAR\.

REVIEW

P094315

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) Report Number : ICRR0020275 1\. Project Data Project ID Project Name P094315 BR Municipal APL4: Sao Luis Country Practice Area(Lead) Brazil Water L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-75780 31-Dec-2013 59,400,000\.00 Bank Approval Date Closing Date (Actual) 17-Jul-2008 30-Oct-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 35,640,000\.00 0\.00 Revised Commitment 35,640,000\.00 0\.00 Actual 23,440,232\.03 0\.00 Sector(s) Other Water Supply, Sanitation and Waste Management(58%):Sub-National Government(13%):Waste Management(9%):Other Transportation(8%):Other Public Administration(8%):Social Protection(4%) Theme(s) Urban services and housing for the poor(29%):City-wide Infrastructure and Service Delivery(29%):Urban Economic Development(14%):Other environment and natural resources management(14%):Improving labor markets(14%) Prepared by Reviewed by ICR Review Coordinator Group Ebru Karamete John R\. Eriksson Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives The project development objectives stated in the Loan Agreement (p\. 5) is: "to improve the Borrower’s capacity in the managerial, financial, urban, environmental and service-delivery areas with a view to promoting local economic development and improving the quality of life of the population living in the Bacanga River Basin"\. The Project Appraisal Document statement of objectives is (p\. 14):  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) "to improve public service in the Bacanga Basin of Sao Luis Municipality, and enhance the capacity of the city government in promoting local economic development and municipal management"\. This Review uses the Loan Agreement version of the objectives\. b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Components The project had three components: A \. Local Economic Development and Municipal Management Strengthening (Appraisal Estimate: US$6\.3 million, Revised: US$3\.98 million, Actual: US$3\.8 million)\. The component aimed to support the development of a Local Economic Development and Competitiveness Strategy, capacity building for job and income generation, technical assistance for financial enhancement, and technical assistance for project implementation\. The Local Economic Development and Competitiveness Strategy planned to include a Local Economic Development (LED) plan that comprised strategic directions for economic development; an upgrading strategy for the critical clusters such as tourism and cultural heritage preservation and simplification of business processes (Doing Business) and the Municipal Balance Scorecard\. Capacity building for Job and income generation included activities such as training and facilitation of access to existing microfinance programs, and providing technical assistance support to the Deputy Secretariat of Employment and Income Generation\. Financial Management Enhancement aimed to support the strengthening of the municipal procurement system\. Project implementation support financed activities on project management, monitoring and evaluation, public service satisfaction survey, community outreach, communication and dissemination activities for the project\. Restructuring\. Through the restructuring in December 2013, simplification of the Business processes was dropped\.in favor of activities under LED strategy\. B\. Sanitation and Water Improvements (Appraisal Estimate: US$34\.0million, Revised: US$50\.1 million, Actual: US$13\.45 million\. This component aimed to improve the storm water drainage, sewerage and water supply systems as well as develop and pilot solid waste management measures in the targeted areas of the Bacanga Basin\. Specifically, sewerage system improvements included construction of a sewage collection system for the entire area of the left bank that feeds into the existing Bacanga Sewerage Treatment Plant (ETE), completion of the wastewater collection system in the targeted areas of the basin; and implementation of a mechanical sludge drying system at ETE Bacanga\. Storm drainage system improvements concentrated on micro and macro-drainage for the Canal do Coroado and Rio das Bicas and include constructing storm drain networks; improving the hydraulic operation of the urban drainage canals by cleaning up the canals, rehabilitating areas of environmental value so as to improve the quality of the waters that flow to Bacanga Lake; and preparing a Solid Waste Management Plan and a pilot to be carried out in the Bacanga Basin\. Water supply system improvements focused on reducing the number of deep tubular wells; increasing the number of metered connections; purchase of equipment to control unaccounted-for water; and rehabilitating the concrete structure and the metallic bridge that supports the 900 mm distribution pipes in the Bacanga Dam\. Funds also supported technical assistance activities for the strengthening of sanitation management and supervision of construction works, including technical assistance to Municipal Government of Sao Luis (PMSL)for regulating water and sanitation services, improving operations and maintenance of drainage services, and development of a solid waste management plan\. Restructuring\. Through the restructuring in December 2013, the following activities were dropped: investments in a sludge-drying system in the ETE; pilot for solid waste management (this was transferred to the Municipal Secretariat for Infrastructure and Public Services (SEMOSP)); rehabilitation of water distribution infrastructure connected to the Batatã Dam; and finally Borrower’s responsibility to regulate, operate and maintain the WSS and drainage services and Borrower was to focus on implementing project civil works and developing an  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) Integrated Municipal Plan for WSS, drainage and solid waste\. C\. Urban and Environmental Improvements (Appraisal Estimate: $US 15\.8 million, Revised: US$32\.3 million Actual: US$28\.8 million)\. The component aimed to support informal area upgrading and resettlement, rehabilitation of the Bacanga Dam, and municipal environmental management\. Specifically Informal area upgrading and resettlement included financing studies for the establishment of the legal limits of urban occupancy in the Basin and addressing the issue of accommodating future migrants to the city; financing the cost of resettlement for families living in risk-prone areas; construction of local roads, public spaces and community facilities in resettlement locales in the project area; technical assistance for land tenure regularization for part of the population\. Rehabilitation of the Bacanga Dam comprised rehabilitation of the dam’s structure and the electro-mechanical equipment; development of operational rules for the dam\. Municipal Environmental Management Support aimed to fund implementation of the municipal environmental policy; formulation and implementation of an environmental education plan for the Bacanga Basin; and support in the implementation of the management plan for Bacanga state park\. Restructuring\. Through the restructuring in December 2013, the environmental plan for the Bacanga State Park was dropped as the State Government had already developed such Plan using its own resources\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: Total project cost at appraisal was estimated at US$ 59\.4 million, then it was revised to US$ 86\.4 million during the restructuring in 2010, due to substantial increase in cost of individual projects after detailed designs as well as increase due to inflation\. However, the actual costs were US$ 31\.0 million, or 52 % of the appraisal estimate and 36 % of the revised estimated\. The underspending was because of slow implementation due to design complexity, capacity and commitment issues\. Financing: The IBRD loan (IBRD-75780) of US$ 35\.6 million disbursed US$ 23\.4 million and US$ 12\.3 million was cancelled at closing in 2015\. Borrower Contribution: At appraisal, the Borrower planned to contribute US$ 23\.8 million; this was increased to US$50\.8 million, but the actual contribution was only US$ 3\.2 million\. The cost increase after detailed design was reflected in the Borrower’s contribution through an increase in counterpart funding during the restructuring in 2010, as a significant body of investments were funded exclusively by Municipal counterpart funds\. However, the Borrower contribution proved to be very limited due to inefficient management of the Government’s Growth Acceleration Program (PAC) that funded investments under this project, as well as diminished resource availability for this Program as implementation progressed\. The ICR reported that (p\.9) funds flowed well initially but then became erratic due to the inefficiency of PAC’s main financial intermediary and in the final year, the Federal Government delayed transfer of approved PAC funds as its fiscal situation worsened\. Dates: The closing date of the operation was extended for 22 months to end-October 2015 via a Level II restructuring in December 2013\. This extension was necessary to enable the completion of some of the delayed activities\. Restructuring: The project went through two Level-II restructurings on September 2, 2010 and December 10, 2015\. The first restructuring in 2010 aimed to allow the Municipal Government to access additional counterpart funding, as well as to accelerate disbursement of the Loan by increasing the Bank’s share of all procurement Categories from 55 % to 100 %\. The second restructuring in 2013, revised the results framework by changing some of the outcome and intermediate outcome targets, extended the project closing date by 22 months, reduced the project scope, reallocated some funds, and revised the financing plan\. Although the project scope was reduced and outcome indicators and targets revised to reflect these changes, no split rating was conducted, as a split rating would not change the overall outcome rating\. With the exception of one outcome target indicator (# 6), other revised indicators for which the targets were reduced could not be achieved\. The major revisions in 2013 of the PDO indicators are as follows: (i) A new Core Indicator was included “Direct project beneficiaries (#) of which female (%)”; (ii) Indicator #3 was revised to “increased consumer satisfaction with water, sanitation, drainage and urban services” and associated targets were modified to be more logical and measurable; (iii) Indicator #4 target was reduced to reflect then-current implementation status; (iv) Target for “sewage treated” under Indicator #5 was reduced from 80 percent to 40 percent as more realistic/achievable; and, (v) Indicator #6 target was reduced from 750 families to 595 consistent with the approved Resettlement Action Plan and 2012 updated beneficiary survey\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) 3\. Relevance of Objectives & Design a\. Relevance of Objectives Substantial The original project development objectives were substantially relevant to the country, region and sector strategies and needs\. The focus of Project activities, the Bacanga Basin is a large catchment area of 132 km2, important to economic activity, and housing a large percentage of the Sao Luis Municipality’s low-income, peri-urban population in settlements which successive municipal governments have targeted for urban upgrading\. The Bacanga Basin dam was constructed in the 1970s in order to reduce large tidal variations in the Basin and permit the consolidation of upstream urban infrastructure, however the land around the basin lake was subsequently occupied by informal housing settlement that prone to extreme drainage and wastewater problems\. The dam’s floodgates were in disrepair and poorly-operated, leading to flooding in the informal border settlements, degraded water quality from uncontrolled domestic and industrial pollution and a range of other environmental hazards\. During project preparation, São Luís Municipality had a population of 900,000 people and is the capital of the State of Maranhão, one of Brazil’s poorest and least-developed states, ranked last regarding per capita household income and regarding access to services and health indicators (ICR p\. 1)\. The settlements around the Bacanga basin were particularly low income and risk-prone settlements with inadequate housing, water supply, sanitation, drainage and solid waste management services\. The Project was one of eight similar Bank-supported municipal operations under the Brazil Municipal Lending Program APL approved by the Board in April 2007 and designed to implement local level policies to improve the lives of the urban poor, and promote sound local governance and economic competitiveness\. The Project reflected three of the four pillars of the Bank’s Municipal and City Strategy for Brazil: improving municipal, fiscal and administrative management; increasing competitiveness through local economic development; and, strengthening municipal service delivery\. Support to São Luís was strategically important for the Bank given it was the capital of Brazil’s poorest state\. The Project was in line with the Government’s Multi-Year Plan, and supported the Municipal Government of Sao Luis’ strategy to improve public services, quality of life of the poorest and the Municipality’s economic competitiveness\. It was also aligned to the Bank’s 2004-2007 Country Assistance Strategy (CAS) – recognizing the importance of the sub-national level in economic growth and social equity, as well as relevant to Bank Country Partnership Strategies (CPS, 2008-2011 and 2012- 2015), that called for: continued lending to sub-national governments; enhanced implementation of strategic social and infrastructure investment programs; improved quality and expanded provision of public services for poor households; and, increased efficiency of public (and private) investments\. However, the PDO was quite ambitious relative to the institutional capacity of the Municipality\. Rating Substantial b\. Relevance of Design Modest The project design logic was weak\. Objectives were unclear, not realistic and not supported by relevant project activities\. (i) The project activities were not aligned sufficiently with the over-ambitious project development objective “to improve the Borrower’s capacity in the managerial, financial, urban, environmental and service-delivery areas with a view to promoting local economic development and improving the quality of life of the population living in the Bacanga River Basin\." Particularly the scale and type of activities could not capture the high level of the capacity-building objective which spanned five sectors of government\. It was also difficult to capture the causal chain between the actual capacity growth objective and improvements in the two sub-objectives – local economic development and quality of life”\. The activities under Component 1 were intended to leverage the implemented managerial reforms to lead to capacity development as well as local economic development, but the link between the activities and the outcomes was weak\. The same issue held for Component 3 activities on Bacanga dam that was to lead to local development but again with insignificant linkages\. On the other hand, the alignment between Component 2 investments and the objective of improvement of quality of life was more direct and clear\. (ii) The Project’s physical design was too demanding in practice for a single, five-year operation and existing capacity\. The activities were too numerous, complex and inflexible to ensure that the objectives and intermediate outcomes would be achieved\. Multiple, linked activities/institutions required exceptional technical and coordination capacity/arrangements, firm commitment and flawless execution to finish on time\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) (iii) The project had an integrated design that correlated inter-dependent activities, institutions, financing and contracts into a framework where unforeseen difficulties or the delay/failure of one element could compromise others in practice\. Also, there was no sequencing of activities as the project was intended to advance on all fronts simultaneously\. Infrastructure investment activities were wholly counterpart-financed and needed to source funding from Federal Government/other programs that brought significant risk due to lack of control/influence if those resources were restricted for any reason or the institutions involved did not perform\. The quality of the Results Framework was uneven: outcome indicators were not adequately aligned to the capacity building or LED objectives; however, quality of life indicators were more clearly aligned\. Rating Modest 4\. Achievement of Objectives (Efficacy) PHREVISEDTBL Objective 1 Objective To “ improve the Borrower’s capacity in the managerial, financial, urban, environmental and service-delivery areas with a view to promoting local economic development and improving the quality of life of the population living in the Bacanga River Basin"\. Based on this statement, this Review considers three objectives (i) "improving the Borrower’s capacity in the managerial, financial, urban, environmental and service-delivery areas (ii) promoting local economic development and (iii) improving the quality of life of the population living in the Bacanga River Basin (i) Improving the Borrower’s capacity in the managerial, financial, urban, environmental and service-delivery areas, rated\. Negligible\. Rationale Outputs: • Technical Assistance Training to Municipal public service staff on employment and income generation\. • Training to Permanent Procurement Center (CPL) on systems for fiscal information disclosure was provided\. • Project financed consultancy resulted in a diagnosis and recommendations for tax aspects and management of key sectors for the Municipality\. • Project Management Unit staff received training on project management and M&E\. • Communication activities with communities were executed\. • Improved fiscal policy was dropped\. • Simplification of business processing was dropped\. • Technical assistance on sanitation and O&M of drainage services was limited overall\. • Technical assistance on development of solid waste program was implemented through development of an Integrated Sanitation Plan\. • Studies for establishing legal limits of urban occupancy were not executed\. • Plan for resettlement of families was partially implemented\. • Financing for the Municipal Environment Policy was not implemented\. • A technical consultancy for development and installation, training of service providers and technology transfer to form an Information System for Environmental Management for Sao Luis (SIGA): The system was implemented and staff were trained\. It is currently in the testing phase by SEMA\. SIGA is designed to accelerate the environmental licensing process as well as Municipal environmental enforcement/oversight\. • Environmental education plan was not implemented, although there were two unsuccessful tenders\. • Plan for Managing the Bacanga State Park was dropped\. • Construction of a sewerage collection system, in Left Bank was not executed due to engineering design issues (ICR p\. 33)\. • Completion of a wastewater collection system in targeted areas not covered by State Water and Sewerage Utility’s project, was also not executed due to engineering design issues (design was inappropriate for the area planned-ICR p\. 33)\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) • Diagnostic studies were completed on municipal integrated sanitation plan\. • Mechanical sludge drying system was dropped\. • Water Supply Systems: • Expansion of network distribution system and installation of metered connections in left bank was not executed as they were counterpart financed\. The systems were built but meters were not installed due to lack of water flow (ICR p\. 35)\. • Rehabilitation of distribution infrastructure linked to Batata Dam was dropped\. • Rehabilitation of the concrete structures and metal bridge supporting 900 mm of distribution pipes at the Bacanga Dam was implemented\. • Storm drain networks on the right bank of Bacanga area were not completed\. However macro-drainage works on the Coroado and Rio Das Bicas Canals were completed\. • Canals were renovated and cleared of debris\. Project financed heavy equipment for O&M and vehicles\. Outcomes: The ICR did not provide any direct evidence on the nature and depth of Borrower’s capacity improvements on different areas, and whether such improvements can be attributed to the Project\. It was not clear how effective the TA and training services financed by the project in terms of improving borrower’s capacity\. The ICR did not provide any beneficiary assessment on this matter from the borrower side, nor provided any direct evidence on the improvement of any service delivery mechanism\. There were two PDO indicators (i) The ICR did not provide achievements regarding the PDO Indicator 1: “Increase consumer satisfaction with water, sanitation, drainage and urban services”, reporting that (p\. 17) consumer satisfaction with service delivery could not be formally assessed due to lack of evidence\. There was very limited achievements regarding planned investments: The planned water and sanitation works were not completed and urban services were done only partially\. The ICR reported that (p\. 17), the Rio das Bicas and Coroado macro-drainage canals were renovated to a high standard\. Paving works were completed\. Target population impacted by the services and works was 92,500 people (77,500 from WSS and 15,000 from drainage)\. Only drainage target (15,000 people)exceeded (actual beneficiaries were 19,513) and there was zero WSS beneficiaries\. Sewerage works completion was very limited (See below)\. ii) The 2nd PDO Indicator was: Increase the percentage of sewage collected and treated in targeted areas”\. Works in the left bank were stalled at closing\. The system on the right bank reached only 30 percent progress\. The sludge drying facility was dropped\. So, no outcome could be reported by the ICR on this indicator\. Rating Negligible PHREVISEDTBL Objective 2 Objective (ii) Promoting local economic development, rated Substantial\. Rationale Outputs: • Formulation of Local Economic Development (LED) and Competitiveness Strategy, including a LED plan\. This was implemented\. A socio-economic portal for Department of Information and Economic Intelligence, Municipal Plans for Professional Qualification and Government Suppliers and Purchasing were developed\. • Competitive Upgrading Strategy for critical clusters such as tourism and cultural heritage and a resource based cluster focused on two major enterprises in the City of Sao Luis were implemented\. • Management committee was established, tourist map was prepared and disseminated, tourism managers were trained, a plan for the development and coordination of the tourism cluster was prepared and the execution plan with specific projects was executed\. • Innovation Plan: • Project for Labor Insertion:676 people were trained, 59 % female; • Entrepreneurship training: 540 small enterprises in 17 districts of Sao Luis were trained; • Project to identify, train and provide entrepreneurial assistance to potential micro and small enterprises : 1,150 participants were trained; • Courses offered on Strategic Partnerships in 17 districts; • Environmental Management Plan under Innovation Plan: 44 people were trained on solid waste collection, recycling and 100 drivers were  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) trained on collection/treatment of solid waste\. Outcomes: The ICR reported the following achievements (p\.18): (i) PDO indicator: “Develop local economic development strategy, and budget allocated to undertake main actions from the strategy” was achieved\. The project helped prepare a Local Economic Development (LED) strategy which became the key analytical instrument supporting the PMSL’s short and medium-term planning instrument; and also supported development of managerial tools, i\.e\. portals and databases\. Associated with the LED Strategy, the Innovation Plan and its Action Plan was prepared and micro- and small scale entrepreneurs were trained\. (ii) PDO indicator: Develop a competitiveness-enhancement plan for one economic cluster by 2010 and implement recommended short- term actions from the plan in 2011” was achieved\. The target cluster selected was tourism and the project helped preparing tourism cluster development studies and carried out various tourism marketing activities\. Rating Substantial PHREVISEDTBL Objective 3 Objective (iii) Improving the quality of life of the population living in the Bacanga River Basin, rated Negligible Rationale Outputs • Rehabilitating areas of environmental value to improve quality of water flowing to the Bacanga Lake and to reduce decayed areas on the right bank of the river was partially executed\. Consolidation of Bacanga State Park through a Management Plan: the plan was part of the Environmental and Social \Management Plan (PGAS) but due to political and institutional difficulties there was inadequate coordination with the State Secretary of Environment\. Also, implementation of programs to recuperate protected areas on the Lake margins (30 meter protection strip) was not implemented; the area continued to be occupied by people after the project resettled people off this area\. (ICR p\. 34)\. • Informal Area Upgrading and Resettlement: • Plan for resettlement of families was partially executed\. A contract prepared an Involuntary Resettlement Plan for the Left Bank defining a map of those affected by flooding, and by project works, based on a survey/cadaster of families compared to a baseline\. Contracting of an engineering firm to execute the Plan did not proceed\. It was not possible to construct the building at the Carneiros site and thus an alternative strategy was developed to transfer families voluntarily to the Piancó site\. • Financing resettlement of families in risk-prone areas was partially executed\. 108 families from flood risk and other sites were resettled and another 260 families would be resettled in May 2016\. • Construction of housing units for resettlement of families affected by project works on the Right Bank, was partially executed\. At project closing some 12 families out of 33 had been physically resettled and another 21 were waiting for the delivery of their homes\. • Construction of local roads to facilitate access to better public services in the area, drainage and paving of 39 km, was also partially executed\. Some 4\.7 km was paved on the left bank, no activity was done on the right bank\. The ICR reported that the contract was problematic during execution due to inconsistencies in design (ICR p\. 37)\. • Hydraulic landfill in left bank and hydraulic landfill and road paving in the right banks was dropped post Midterm Review (MTR)\. • Construction of sports and culture plaza in the neighborhood of Coroado and acquisition of buildings/equipment in the right bank stalled after 70 percent completion\. • Executive Projects, Environmental Studies and works for the Rio das Bicas Urban Park located on the • Right Bank of the Bacanga Lake, was partially executed\. Designs were completed, but works were only partially implemented\. • Executive Projects and Environmental Studies for Requalification of the Left Bank of the Bacanga Lake was finished\. • Works for Requalification of the Left Bank of the Bacanga Lake – Lot 1 in Sao Luis, was designed to establish the legal limits for urban occupancy in the Bacanga Basin as a way of preserving and allowing re-vegetation of areas of environmental interest, was partially executed\. At final implementation stage, it was decided that only Lot 1 would go ahead due to lack of time\.Then at project closing Lot 1 was completed by 60 percent\. • Final engineering designs for urbanization, public spaces and community equipment for the Rio das Bicas Urban Park located on the Right Bank of the Bacanga Lake were completed\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) • Technical assistance to regulate land regularization for part of the population was not done\. • Land regularization activity that was planned to occur in the left bank was not implemented due to complex tenure situation involving multiple agencies (ICR p\. 40)\. • Construction of public spaces and community facilities/equipment in project resettlement areas, was partially executed: a) Originally 9 areas were planned, only 1 was completed another 4 did not start due to land indemnification problems; b) Final engineering designs to develop the second phase were contracted but not completed due problems with the construction firm\. • Rehabilitation of the Bacanga dam was not executed\. Outcomes Assessment of quality of life improvements is based on a limited set of investments, partially concluded for mainly resettlement activities\. No impact evidence is available to measure the impact of the investments\. The project did not provide wastewater sanitation works, and rehabilitation of the Bacanga dam couldn’t be implemented\. As a result, water quality in the Bacanga Lake was not very favorable (: Four collections were made and cadmiums and heavy metals in significant amounts were not detected\. However, the ICR noted that (p 41) monitoring between August 2014 and August 2015 showed eutrophication and plankton ecology consistent with deterioration of water quality; continued pollution of the Lake with untreated sewage; and, inadequate operation of the Dam compromising the hydro-dynamic flow/flushing of the Lake\. These results clearly did not help achieve the objective)\. In addition, despite the social and environmental hazards presented by the Dam in its deteriorated condition, and the body of technical studies, recommendations and detailed designs available to the State, it was/is not a State Government priority and the prospects for its rehabilitation are uncertain\. The Project could not comply with OP 4\.37, Safety of Dams\. The ICR noted that (p\. 14) political interference/rivalry played a major role in this outcome\. On the other hand, completion of canal works was a positive achievement that helped prevent floods (there is anecdotal evidence on flood effects but no direct/concrete evidence)\. The ICR noted that (p\. 19) canal maintenance needed to continue to sustain the benefits\. The relocation of flood-risk families was the biggest achievement\. Although, no beneficiary satisfaction survey was carried out on that, the ICR reported visibly improved living conditions in the new areas\. However, it was also noted that, implementation of programs to recuperate protected areas on the Lake margins (30 meter protection strip) was not implemented; the area continued to be occupied by people after the project resettled people off this area\. (ICR p\. 34\. Therefore, what the project achieved in terms of relocating people, was diminished by other people continuing to live in these flood-risk areas\. Rating Negligible 5\. Efficiency Economic and Financial Efficiency: The ex-ante analysis included a cost-benefit analysis that was conducted for the water supply investment\. The results of the cost benefit analysis for the water supply component indicated that, the present value of net benefits would be R$ 41\.5 million, implying an internal rate of economic return of 40\.5%\. For sanitation investments, while the economic benefits are huge with their impacts on public health, environment and economic development, most of them are usually difficult to be valued monetarily and captured financially\. However, the ex-ante and ex- post analyses are not comparable, as the sub-sectors included in each stage were not similar\. The ex-post economic analysis included a cost benefit and cost effectiveness analysis to evaluate project works implemented, using actual costs and actual benefits obtained from drainage, resettlement, and urban parks investments\. Results for water interventions and sewerage were zero because they were not executed\. Drainage results using a cost effectiveness analysis showed that actual costs were half the alternative selected at appraisal: total cost was lower and number of beneficiaries higher\. Results of the cost benefit analysis conducted for drainage, urban parks, and voluntary resettlement show that the investments had positive impact on the area intervened\. Actual benefits were 27 percent higher than actual costs and interventions showed a 14 percent return, higher than the 10 percent discount rate\. All interventions showed benefits exceeding costs and returns of 13 percent or higher\. However, the ICR noted the shortcoming that systematic maintenance is not yet in place, potentially jeopardizing sustainability and the benefits already enjoyed by residents\. Operational/Administrative Efficiency: There were significant operational and administrative inefficiencies\. The closing date was extended for 22 months to overcome allow time to complete sub-projects that faced delays\. However, the 22 month extension did not deliver expected results and one-third of the Loan was cancelled\. Project efficiency is rated Modest, due to and significant administrative and operational inefficiencies\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 5\.00 Appraisal  40\.50 Not Applicable 23\.00 ICR Estimate  14\.00 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The project had major shortcomings\. The relevance of Objectives is rated Substantial but Relevance of Design is rated Modest\. Two objectives out of the three are rated Negligible, namely “improving the Borrower’s capacity in the managerial, financial, urban, environmental and service- delivery areas” and “improving the quality of life of the population living in the Bacanga River Basin”; and the objective, ”promoting local economic development” is rated Substantial\. Efficiency is rated Modest due to administrative and operational inefficiencies\. The combined outcome rating is Unsatisfactory\. a\. Outcome Rating Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating The risk of sustainability of project investments is significant, mainly due to lack of maintenance arrangements\. Drainage works conform to high design and construction standards but maintenance of works was still lacking when the project got closed\. The Municipal Secretariat for Works and Public Services is responsible for canal upkeep, while has appropriate equipment, it lacks systems and planning capacity\. As the sewage outflow issue was not addressed, the canals show a mix of sewage, rainwater and vegetation growth, risking renewed flooding\. The ICR reported (p\. 22) similar issues for the housing clusters where new buildings and public areas were already showing signs of weak maintenance\. Community leaders interviewed by the ICR mission were actively promoting organized O&M of buildings by the residents themselves\. In addition the Bacanga Dam rehabilitation, which is dependent on State funding, and did not commence under the project faced the risk of non- execution\. Despite the social and environmental hazards presented by the Dam in its deteriorated condition, and the body of technical studies, recommendations and detailed designs available to the State, it was/is not a State Government priority and the prospects for its rehabilitation are uncertain\. a\. Risk to Development Outcome Rating Substantial 8\. Assessment of Bank Performance  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) a\. Quality-at-Entry The current project was one of eight similar projects in Brazil, under the Municipal Lending Program (MLP)\. This project was centered in the capital of the poorest state in Brazil, an area with complex problems including massive migration, poor urban planning and urban poverty, lack of basic services and environmental vulnerability\. This resulted in an ambitious project difficult to execute given the changing political climate at the State level and the severe capacity constraints\. The Quality of Entry is rated unsatisfactory owing to numerous and major shortcomings : • Appraisal did not include sufficient lessons: particularly given that lessons drawn from MLP Bank operations were not available at the time of appraisal\. The Lessons used in the PAD were partially reflected in design, i\.e\. municipal capacity strengthening linked to investments and refraining from a christmas tree approach in design\. • Risk analysis underestimated risks and did not provide specific mitigation measures for known risks (e\.g\. political rivalry and consequences of elections), and did not consider the high risk of complex implementation arrangements (as a new small management unit would coordinate multiple agencies); as well as the high risk of reliance on independently financed and executed activities that were inter-dependent\. • Institutional design was also problematic as the project implementation unit within the Municipal Secretariat for Special Projects (SEMPE), a newly created agency, would work with multiple secretariats of municipal government (eleven of them)\. Its responsibilities were extensive\. • Although it took three years to prepare the project, sub-projects were not ready to be implemented, as detailed engineering designs were left to the post-effectiveness period; this increased the cost considerably\. • The project activities were not aligned sufficiently with the over-ambitious project development objective; particularly the scale and type of activities could not capture the high level of the capacity-building objective which spanned five sectors of government\. The Project’s physical design was too demanding in practice for a single, five-year operation and existing capacity\. The activities were too numerous, complex and inflexible to ensure that the objectives and intermediate outcomes would be achieved\. Multiple, linked activities/institutions required exceptional technical and coordination capacity/arrangements, firm commitment and flawless execution to finish on time\. • M&E indicators were weak, as they were inadequate to track the desired achievements and outcomes\. Quality-at-Entry Rating Unsatisfactory b\. Quality of supervision The ICR noted that (p\. 6) project supervision missions over the 7-year implementation period were relatively frequent (25 missions including fiduciary and technical) – but not always staffed for project needs\. For example Bank supervision missions lacked an M&E specialist, as well as a safeguards specialist to mentor the Project Management Unit (UGP)\. Fiduciary supervision was strong throughout\. Also transitional arrangements for post-closing follow-up were well-crafted, positioning the PMSL/UGP to complete key unfinished interventions\. Shortcomings were as follows: during the initial years, the supervision suffered lack of safeguards oversight; “distant” relationship with the UGP technical team; less than candid reporting/ratings (DO and IP ratings were Satisfactory range despite significant issues); and, not contracting the management entity required under the Loan Agreement\. Later on issues included delayed MTR (10 month), ineffective restructuring; lack of M&E mentoring\. Overall, the supervision team missed opportunities to restructure earlier; therefore development impact and M&E lost focus\. Specialist support to the UGP and engagement with the State on the Dam were further intensified but problems persisted and delays accumulated\. The ICR noted that (p\.22) the Bank team felt its input was discounted and unable to influence the course of events\. The Project could not comply with OP 4\.37, Safety of Dams\. Quality of Supervision Rating Unsatisfactory Overall Bank Performance Rating Unsatisfactory 9\. Assessment of Borrower Performance a\. Government Performance The Municipal Government of Sao Luis in power during preparation was highly committed to the project, but could not adequately judge its complexity, which increased further through unilateral changes in project concept and environmental compliance\. Its dialogue with the Bank team was better during preparation and with the State Government was better before signing the Loan\. The new Municipality after the  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) election had doubts about the Project’s resettlement activities and weak operational capacity\. After detailed technical designs were made, the project’s real costs showed a substantial financing gap; however, the government accessed additional counterpart funds\. Still, the new government’s commitment toward the project became less over time as delays and problems mounted\. However, the government agreed to post-closure Bank supervision of resettlement, and with the terms of the Bank-sponsored Management Letter calling for completion of unfinished works\. Government Performance Rating Unsatisfactory b\. Implementing Agency Performance Project Management Unit (UGP): Over the course of project implementation, the new UGP had five coordinators and three separate project teams that were not closely linked to the institutional structure and thus in the initial years lacked the ability to mobilize the established agencies’, at the state-level\. Also, UGP had a distant relationship with the Bank team in the initial years that affected its performance\. Negotiations with multiple parties to resolve the large-scale resettlement of flood-prone families on the Left Bank took two years, but prompted significant maturation\. Contract management and M&E remained problematic, the former due to complexity, and the latter set aside under the pressure to implement the works\. However, in the final years the UGP procured and signed large, contracts reflecting notable technical and administrative improvements\. Also, as assessed correctly by the UGP team, the 22-month extension was used to conclude or advance key works which had not progressed in the previous five years\. The UGP’s support to the ICR was notable\. State Government/SINFRA: The State Government (SINFRA) was legally committed under the Bacanga Dam Agreement to repair the Dam floodgates and supporting structures and to operate and maintain the Dam properly But, it was not formally an implementing agency\. Mostly for political reasons, the State lacked any buy-in to the Project during implementation\. The results of Component 1 – LED, Tourism Cluster efforts, TA/training and employment creation – could, have been even stronger with the State’s support\. State Water and Sewerage Utility (CAEMA): This State agency was responsible for implementing the water and sanitation works\. The institution was weak and no intervention was successful due to lack of adequate planning and capacity\. While water supply works were partly executed by SEMPE/UGP, no results emerged as the main water source (CAEMA’s responsibility) could not properly feed the system\. Also, at Project completion the sewerage system in the Right Bank was just 30% complete\. CAEMA had/still has limited technical capacity to evaluate design, plan ahead and execute works, and to operate and maintain WSS systems\. Implementing Agency Performance Rating Moderately Unsatisfactory Overall Borrower Performance Rating Unsatisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design The two PDO indicators (which can equally serve the third objective regarding quality of life) do not directly measure capacity improvements in the sectors mentioned in the development objective\. The M&E system included: (i) Management Information System (MIS); (ii) three Consumer Satisfaction Surveys to solicit beneficiary perceptions on the quality of project-provided WSS services; (iii) Environmental Health Baseline linked to water quality monitoring of the Bacanga Lake; (iv) Mid-term Evaluation (MTE); and, (v) Final Evaluation, updating the MTE and supporting the Borrower Completion Report (BCR)\. b\. M&E Implementation The Bank team did not chose to improve the M&E framework during implementation to make the indicators more linked to measure the outcomes\. The MIS established during preparation tracked basic physical progress but was unable to issue automatic financial monitoring reports (FMR)\. Progress reporting continued to fall short throughout and the evaluation agenda was weak; the former lacked appropriate monitoring of indicators and thus ISRs tended to post outdated values\. Neither of the planned evaluation studies was done and the final Satisfaction Survey was still awaiting procurement at the time of ICR finalization\. Bank supervision missions lacked an M&E specialist to  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) mentor the UGP in best practice data collection, management and evaluation even though the PAD called for the Bank to be “closely involved in the M&E framework However, the Project financed a baseline Satisfaction Survey, water quality monitoring in the Lake and a BCR, all of satisfactory quality\. c\. M&E Utilization These reports supported preparation of the ICR\. M&E Quality Rating Modest 11\. Other Issues a\. Safeguards The Project was classified as Category A and triggered OP 4\.01 Environmental Assessment; OP 4\.04 Natural Habitats; OP 4\.11 Physical Cultural Resources; OP 4\.12 Involuntary Resettlement; and, OP 4\.37 Safety of Dams\. A Regional Environmental Assessment and Environmental Management Plan of good quality were prepared\. While Bank supervision generally was intensive in the first two years, the Bank team – for reasons unexplained – did not include an environmental safeguards specialist in that period and the Aide Memoires and ISRs of this period did not comment on Safeguards issues yet Safeguards compliance was rated Satisfactory\. The UGP technical team of that period lacked an understanding of Bank safeguards requirements because they had never been briefed and this had repercussions for project designs/works\. Later, environmental monitoring of works was satisfactory but technical monitoring and environmental licensing were uneven\. Further, while ongoing works generally complied with OP 4\.01, the UGP having acquired over time the required capacity, most interventions linked to sustainable environmental benefits were not completed: most importantly, renovation of the Dam, sewerage systems, and full resettlement of targeted populations\. Involuntary Resettlement: An Involuntary Resettlement Framework (IRF) was the basis for a later Resettlement Plan based on identification of affected families, public consultation, and engineering/other studies\. Analytical quality of the IRF was satisfactory\. Social safeguards supervision was negligible in the first two years but strong thereafter\. There were two distinct populations to be resettled, initially aggregated under Involuntary Resettlement, but subsequently re-mapped into voluntary and involuntary groups\. Progress was partial for the MCMV-financed voluntary resettlement of flood-risk families at Piancó: 108 families of the revised 568 total were settled by closing, another 260 would be settled by end-May, 2016 and the remainder was awaiting approval\. Families affected by the canal works and to be resettled involuntarily saw good progress by closing under the Resettlement Action Plan (RAP) with 33 families either physically resettled or waiting in rent-subsidized accommodation\. Active construction sites and level of completion were confirmed in both cases by the ICR mission\. The Bank’s Safeguards Coordinator for Brazil and the Project Safeguards Specialist agreed with the PMSL - backed by an Action Plan and legal/budget guarantees - to supervise completion of the involuntary resettlement, and to verify completion of voluntary resettlement through PMSL progress reporting\. The Social Safeguards Specialist assessed compliance under this Safeguard as moderately unsatisfactory\. Safety of Dams: A safety assessment study by a panel of experts during appraisal (2007) analyzed the Dam’s structural and operational conditions, found strong evidence of deterioration and imminent collapse, and issued recommendations\. Performance/compliance under this Safeguard are assessed as highly unsatisfactory based on the Bank Safeguards Specialist’s analysis at exit\. Despite all efforts by the Bank and PMSL to resolve the impasse associated with the State’s management of the Dam and legal obligation to rehabilitate it, the Project could not comply with OP 4\.37, Safety of Dams\. Political interference/rivalry played a major role in this outcome\. Despite the social and environmental hazards presented by the Dam in its deteriorated condition, and the body of technical studies, recommendations and detailed designs available to the State, it was/is not a State Government priority and the prospects for its rehabilitation are uncertain\. At the time of ICR finalization, the State had not responded to the PMSL’s recent overtures to reactivate a dialogue on Dam restoration\. Natural Habitats: Project interventions sought: adequate use and occupancy of the Bacanga region; maintenance of an agreed water level in the lake; delineation of a permanent preservation strip (Área de Proteção Permanente, APP) of 30 meters; and, plan to promote use of those areas (vegetation, urban parks, leisure areas) by the population and prevent re-occupation\. The Environmental Safeguards Specialist assessed compliance as unsatisfactory, due inter alia, to delays in resettling populations in risk areas and thus inability to establish the APP and execute planned works, lack of Borrower control of new, urban occupations in risk areas and in conservation areas around the Lake, and failure to improve the Dam, affecting water levels/quality\. Physical Cultural Resources: The Project was not expected to affect areas of historical and cultural heritage in the City of São Luís as interventions were outside the Central Historic District\. However, as the Project entailed construction and excavation to expand and replace  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) infrastructure the EA included screening for known cultural property in the project area and incorporated chance finding procedures\. In practice, screening procedures for all works throughout the Project period did not encounter any known cultural property and chance finding procedures were not invoked\. b\. Fiduciary Compliance Financial Management (FM): The UGP worked responsibly to address Bank FM concerns and improve capacity\. There were several shortcomings: Quarterly expenditure forecasts and disbursement timetables were inadequately aligned with project needs’ An outdated operational manual and manually-generated financial management reports persisted throughout implementation\. However, audit performance was uniformly strong; annual, independent audits of project accounts produced clean, unqualified opinions for all years audited\. FM performance was rated Moderately Satisfactory at closing and for most of the Project period\. Procurement: Three Procurement Post-Reviews (PPR) were conducted before closing and a final PPR in March 2016 focused on contract management documentation\. The Bank team provided analysis, comment and clearance for a high proportion of all contracts processed due to the risks evident in the UGP’s limited exposure to IFI-financed procurement\. The UGP procurement team received several rounds of Bank training and benefited from the continuity of key staff since 2009\. Performance in the initial years was strong - the unit developed significant capacity in complex procurement\. However, quality weakened due to time related pressures\. The Bank’s comments on key issues, e\.g\., contract cost composition, was not regarded\. Some execution delays affecting large contracts in the final period were avoidable, and virtually guaranteed that the works in question would not be completed by closing\. The UGP felt that the Bank’s response time on some no objections was too slow, and its interpretations unclear\. However, the Bank team and Procurement Specialist strived to support the PMSL/UGP in achieving maximum physical execution of works pre-closing\. The Bank Procurement Specialist rated Project procurement performance Unsatisfactory at closing with risk rated Substantial primarily due to weak contract management\. c\. Unintended impacts (Positive or Negative) No unintended impacts were found\. d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Unsatisfactory Unsatisfactory --- Risk to Development Outcome Substantial Substantial --- Bank Performance Unsatisfactory Unsatisfactory --- Borrower Performance Unsatisfactory Unsatisfactory --- Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) 13\. Lessons The ICR provided comprehensive lessons\. The most important follow with some modification of language: Multiple, interrelated problems of urban poverty in Brazil require phased operations consistent with the longer-term vision of states and municipalities\. The level of difficulty and risk for integrated, multi-sector urban operations in fragile environments require a strong diagnosis, a programmatic approach with incremental implementation over a longer engagement period, focused objectives and a stable, institutional “champion”\. Substantial capacity-building should accompany infrastructure investments with a strategy for maintaining institutional and professional continuity and commitment\. Dependence fully on counterpart-financed interventions to support achievement of the PDO needs careful consideration, especially if the funds are sourced from public programs\. The spread of targeted, sector-specific financing programs in Brazil, many of them grant-based, is both an opportunity and a risk\. Accessing these programs adds complexity through program specific processing and approval criteria, schedules and financial intermediation arrangements\. They also create a set of autonomous project activities which are difficult to control within the project “package”\. Client cost-sharing of own development should certainly be fostered, but the potential risks and benefits of fully counterpart-financed activities should be weighed\. If they are needed, those activities should not be inter-linked with other activities, i\.e\. their existence shouldn’t be central to the success of the overall project\. Ensuring a critical mass of quality engineering designs ready for procurement at effectiveness should be standard practice to identify the correct scope and scale of works, and the corresponding amount of resources and engagement period\. Readiness to implement balanced with a flexible design can position a project – especially in an untried context – for more rapid take-off, moderating expectations regarding what can be achieved, building momentum and demonstrating results\. Similar MLP projects in Brazil suggest the option/benefits of dividing works into well-defined/sequenced modules, adjustable depending on ambient conditions/timing\. Urban projects which include resettlement need to analyze the political and economic pressures driving land use and allocation, the risks these entail for the project and how they will be mitigated\. The expropriating authority should take ownership of the resettlement process, collaborating with stakeholders to monitor/build commitment\. The Bank should train the counterpart adequately to build capacity\. The elements driving land allocation – scarcity, poverty, competing uses, budgets, speculation – need to be understood and reflected in project documents and design, including whether the correct/feasible approach is via involuntary or voluntary resettlement\. Once land is expropriated the authority needs to ensure control over it, including by assigning social and/or public uses to prevent invasion or reoccupation\. The Client’s prior agreement and tangible commitment to resettlement should be a condition of negotiations\. The political risks to project implementation, can partially be mitigated through enforceable legal agreements and sustainable institutional structures\. Risk mitigation needs to carefully weigh design features for their potential to add to an operation’s political challenges\. Legal agreements are a legitimate instrument only if enforceable\. The project experience showed that even highly important issues such as dam safety may not be addressed due to political issues/rivalries\. Turnover in trained counterpart teams is unavoidable but the Bank can insist on vetting new candidates, and on the retention at minimum of fiduciary and M&E specialists\. An embedded international technical agency could boost institutional capacity and continuity through such cycles\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR was quite comprehensive and clear with candid articulation of implementation challenges as well as good formulation of lessons\. No important issue was found with the quality of the ICR\. However, justification for the efficiency section was weak, as some points raised by the ICR were more relevant to efficacy and risk to sustainability of outcomes aspects rather than efficiency of the project\. a\. Quality of ICR Rating  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Municipal APL4: Sao Luis (P094315) Substantial

REVIEW

P067828

 ICRR 14359 Report Number : ICRR14359 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 07/29/2014 Country : China Project ID : P067828 Appraisal Actual Project Name : Renewable Energy US$M ): Project Costs (US$M): 361\.24 440\.59 Scale-up Program (CRESP) L/C Number : L4792 Loan/ US$M): Loan /Credit (US$M): 213\.55 201\.59 Sector Board : Energy and Mining Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 06/16/2005 Closing Date : 09/30/2010 12/31/2011 Sector (s): Renewable energy (100%) Theme (s): Environmental policies and institutions (29% - P); Climate change (29% - P); Infrastructure services for private sector development (28% - P); Rural services and infrastructure (14% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Surajit Goswami Robert Mark Lacey Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: Program Objective and Phases: The projects under review supported the first phase of a three-phase Renewable Energy Scale Up Program, partly financed by a proposed Adaptable Program Loan (APL) series\. The program objective was to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively, and on a large scale\. Phase 1 was to contribute to the program’s global objective through development and implementation of the legal and regulatory framework to create and gradually increase the share of renewable energy-based electricity generation\. Phase 2 was to continue supporting the program’s global objectives through institutional development and capacity building to further decrease cost, and to improve the financing framework and provide assistance for implementation in about 10 provinces\. Phase 3 was to contribute to the full achievement of the program’s global objective through support to the remaining less developed provinces\. Project Objective: Two projects were prepared: (a) the First Phase of the Renewable Energy Scale-Up Program (termed as Project 1 in this Review); and (b) the Follow Up to the First Phase of the Renewable Energy Scale-Up Program (termed as Project 2 in this Review)\. The ICR does not distinguish between the two projects\. According to the Project Appraisal Documents of Project 1 (page 5) and Project 2 (page 5): The objectives of the Projects were to: (i) create a legal, regulatory, and institutional environment conducive to large-scale, renewable based electricity generation; and (ii) demonstrate early success in large-scale, renewable energy development with participating local developers in two provinces, in one pilot autonomous region and one pilot province\. According to the Loan Agreements of Project 1 (page 18) and Project 2 (page 15): The objectives were to assist the Borrower to initiate actions to achieve the Program’s objectives countrywide through: (i) developing a legal and regulatory framework for the Mandated Market Policy (MMP); and (ii) providing support for the implementation of said legal and regulatory framework in the Pilot Provinces, with participation of private sector developers\. The Loan Agreement of Project 1 (page 4) defined MMP to mean a policy aimed at building demand by mandating electricity suppliers to meet some of their electricity needs from renewable sources\. In addition, studies were expected to include (page 18): distribution of national renewable energy targets between provinces; setting the tariff level for renewable energy; sharing the MMP costs between provinces; developing trading schemes to minimize the MMP costs; linking the MMP to carbon trading mechanisms; and preparing a medium to long term plan for renewable energy development\. The statements of Project objectives in the Loan Agreements are used as the basis for this Review\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The projects had two components: (a) an institutional development and capacity building component (Project 1); and (b) an investment component (Project 1 and Project 2)\. Component A: Institutional development and capacity building component (Project Cost: US$ 88\.82 million estimated; US$100\.22 million actual)\. The Institutional Development and Capacity Building component was designed to meet national priorities and the needs of the pilot provinces and was to include the following: (a) MMP research and implementation support\. This included studies on further development of the MMP and its implementation, particularly on targets, tariff levels, policy development, sharing of incremental cost, trading and carbon trading, and long-term planning and preparation of implementing regulations\. The main counterparts for these activities included government bodies, and the main anticipated outcomes included legislation and regulations leading to sustained scaling-up of renewable energy; (b) Technology improvement for wind and biomass\. This included technology development based on important local investments leveraged by small grants, cost-shared grants or both, for wind and biomass\. In addition, it covered preparation of standards, development of certification and establishment of a testing center\. Beneficiaries included Chinese wind and biomass equipment and related service suppliers, government bodies dealing with standards, and testing and accreditation agencies; (c) Long-term capacity building\. This included support to selected universities for twinning arrangements with leading international universities to develop postgraduate-level or specialist renewable energy engineering and other related courses and to offer fellowship programs to support senior specialists studying abroad\. At the provincial level, the project was to provide TA for effective implementation of the Renewable Energy Law (REL), that included: (a) Implementation of the MMP by focusing on the tasks to make the REL effective in the pilot provinces, aimed principally at provincial government bodies and other stakeholders; (b) Support to ensure the success of the investment projects by providing assistance in design, procurement, construction, and operations and maintenance, as needed by each project Sponsor; (c) Pilot or demonstration projects to be carried out in the pilot provinces supporting technologies other than wind, biomass, and small hydro with potential for replication in the pilot provinces component; (d) Renewable resource assessments for each of the pilot provinces; (e) Capacity building for market participants; (f) Support for investment scale-up with the sponsors of the investment subprojects financed under the Support for Wind and Biomass in Pilot Provinces Component; and (g) Costs of the Project Management Office (PMO), Government of China, and donor coordination activities, monitoring and evaluation, and administration, including fiduciary duties\. Component B: Investment component, financed by the (Project Cost: US$253\.06 million estimated; US$338\.37 million actual)\. This had four sub-components at four locations: In Fujian, Project 1 was to construct a 100 MW wind farm at Changjiang’ao, Pingtan Island\. The investment consisted of wind turbines, associated civil and electrical works, an extension to an existing control room, a switchyard, and a 15 km, 110 kV transmission line from the wind farm to the Beicuo substation, which was to be upgraded to meet the evacuation needs of the wind farm\. In Jiangsu, Project 1 was to construct a 25 MW straw-fired biomass power plant at Rudong with an 110 ton per hour, high-temperature, high-pressure straw-fired boiler; one 25 MW steam turbine; and associated mechanical, electrical, and civil works\. In Inner Mongolia, Project 2 was to develop a wind farm at Huitengxile\. It was to install wind turbines with an aggregate capacity of about 100 MW and associated civil and electrical works; expand an existing switchyard and a control room; extend 110kV transmission line from the wind farm to the Desheng Substation; and upgrade the Desheng Sub-station\. In Zhejiang, Project 2 was to carry out Small Hydropower Sub-projects (SHP)\. It was to rehabilitate about eleven (11) small hydropower plants to increase the aggregate capacity from about 40MW to about 52MW; and construct about seven (7) hydropower plants with an aggregate capacity of about 16MW\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost: Actual project costs were US$440\.59 million (about 22 percent more than the appraisal estimate)\. There were no revisions of the project components\. However, reallocations were made within the component financed by the GEF grant, on 08/28/07 and 09/24/10\. These reallocations were to meet changing priorities, and requests from the Borrower/Local Authorities\. For example, at the request of the Government, the project supported a component (of turbine) manufactures in addition to the support provided to the turbine manufacturers\. Similarly, at the request of pilot provinces, part of the provincial budget was transferred to the demonstration projects for offshore wind projects\. External Financing: The World Bank Group provided US$161\.68 million in the form of an IBRD loan (about 6\.7 percent less than envisaged at appraisal), and the GEF provided US$40\.22 million of grant financing (in line with the appraisal estimate)\. There were no other external sources of financing\. Borrower Contribution and Local Sources of Borrowing Country: The Borrower contributed US$69\.34 million (about 11 percent more than envisaged at appraisal); and Local Sources of Borrowing Country (including Local Financial Intermediaries) provided US$101\.26 million (about 57 percent more than envisaged at appraisal)\. Dates: The closing date of the projects was extended twice: (a) from September 20, 2010, to September 30, 2011,, to reallocate the grant proceeds to high-priority activities indicated above; and (b) from September 30, 2011, to December 31, 2011, to enable the Project Management Office (PMO) to disseminate lessons through, among other things, a project closing workshop\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High Project objectives are highly relevant at appraisal and currently\. China's emissions from coal fired power plants have risen sharply in recent years due to rapid industrialization, and analysis had indicated that the greatest potential for displacing coal by renewable energy (RE) was in the power sector\. Recognizing the potential, the Government passed the Renewable Energy Law, which became effective January1, 2006, almost immediately after this project was approved by the Board\. As indicated by the ICR, China is currently committed to increase the share of non-fossil fuel in its primary consumption to 15 percent by 2020, with RE accounting 80 percent of that amount\. Lastly, project objectives also contributed towards the CPS (FY13-16) Strategic Theme 1: Supporting Greener Growth (Outcome 1\.1 Shifting to a sustainable energy path\. b\. Relevance of Design: Substantial For the first objective, that of developing a legal and regulatory framework, the design was conceptually adequate to deliver on the various aspects of the Mandated Market Policy (MMP)\. For example, in terms of developing (through studies) trading schemes to minimize the MMP costs, a single national quantity target was set and it was required that every province meet a corresponding percentage of its total consumption from new renewable energy resources\. Trade in green certificates was to then enable the provinces to attain their quantity targets at least cost\. In the early years of development, the system was expected to work without a centralized market\. Bilateral deals between producers and power companies who need to meet their renewable energy targets was expected to lead to attainment of quantity targets at least cost\. For the second objective, that of providing support for the implementation of the said framework in the Pilot Provinces, for generation the design was adequate\. In addition, the project did plan studies on connection of wind farms to the grid and their impacts on grid stability to raise awareness of power grid operators and wind developers of interconnection requirements and transfer international best practice and knowledge\. However, there was no plan to ascertain in depth the incentives of the grid companies\. Specifically, the project did not have pilots for transmission pricing at grid companies for them to make adequate investments in additional transmission facilities and to cover costs of dispatch activities required to accommodate more intermittent renewable resources (such as wind)\. The organization of the projects (see PAD page 47) had a distinct generation focus at least for piloting in the provinces\. 4\. Achievement of Objectives (Efficacy): (a) Develop a legal and regulatory framework for the Mandated Market Policy (MMP): Substantial\. Outputs • Reviewed and updated national renewable energy (RE) objective and target with recommendations for management regulation for quota system of RE power generation • Study on pricing mechanism for RE and proposed management regulations on renewable electricity tariffs • Analysis and recommendations on cost sharing mechanism for RE and proposed management regulation on sharing RE generation cost • A one-week study tour on pricing mechanism and cost sharing system for RE electricity in Italy and Denmark along with a summary report for the study tour • Various studies, such as the RE industry development report and the analysis, evaluation of energy sources development status in rural China, as well as proposed sector development of specific technologies (such as biomass, ethanol, and solar) that could contribute to the country’s long-term plan for RE development were prepared but no specific medium to long-term plan for RE development was prepared (to be checked w/ TTL)\. Some of the studies crucial to the development of MMP (as envisaged in the PAD), such as those for developing trading schemes to minimize MMP costs and linking MMP to carbon trading mechanisms, were not reported in the ICR\. Outcomes The RE Law, the main legal framework for MMP, became effective on January 1, 2006, just after Project 1 became effective on 11/30/05\. China committed to 15% non-fossil fuel in primary energy mix by 2020, and targets were allocated to all provinces with national and provincial incentives for RE development established\. Key amendments to the RE Law and regulations that were adopted can be partly attributed to the Project 1\. These include: On targets, and subsidies: • Notice on Measures for Renewable Electricity Surcharge Subsidies and Quota Trade System from October 2007 to June 2008 – Ordinance Code NDRC Price No\. 3052 (2008) • Interim Management Regulation on Subsidy for Energized Biomass, MOF Economic Construction No\. 735 (2008) and the follow-up, Notice on Management Regulation of Agricultural and Forestry Biomass Combustion Power generation • Interim Management Regulations on Financial Subsidy for Solar PV on Buildings, MOF Build No\. 129 (2009) • Notice on Implementation Plan of Promoting Renewable Energy in Infrastructure, MOF Economic Construction No\. 306 (2009) On setting tariff levels: • Notice on Improved Price Policy for Grid-Connected Wind Power, NDRC Price No\. 1906 (2009) • Notice on Improved Price Policy for Agricultural and Forestry Biomass Generation, NDRC Price No\. (2010) 1579 : • Because of the studies undertaken by the project, the prices of biomass fuels (straw from agriculture residues) turned out to be much higher than originally anticipated for many biomass-fired power plants\. As a result, the feed-in tariffs for biomass have been adjusted upward to factor in the fluctuations in biomass fuel prices\. In terms of technology strategies and roadmaps for key RE technologies, the small hydro-power (SHP) policy studies and Zhejiang SHP investments put SHP back on the national agenda\. Some regulations, also partly attributable to the Project 1, supported MMP indirectly\. These, for example, included demand management initiatives such as the Notice on Recommendation of Green Energy County NEA New Energy No\. 343 (2009), and management of supply chain, such as the Notice for Collection and Management of Livestock and Landfill Biogas for Power generation\. However, no notices to support MMP cost-minimization or to link it to carbon trading appear to have been developed using project support\. (b) Provide support for the implementation of said legal and regulatory framework in the Pilot Provinces, with participation of private sector developers: Substantial The projects provided support at the National level as well as in Pilot Provinces through: • National Level Institutional Development and Capacity Building: (a) Technology Improvement Wind; and (b) Technology Improvement Biomass • Provincial Level Institutional Development and Capacity Building: (a) Support Implementation of the RE Law; and (b) Pilot Demonstration Projects; • Building a pipeline of RE projects at the Pilot Provinces through Investors Scale-up Support Facility (ISSF); and • RE investment projects at four locations\. Outputs National Level Institutional Development and Capacity Building Technology improvements for wind: • Wind turbines design and type certified according to international standards • Standards developed for wind turbines based on and in compliance with international standards • Accredited wind turbine testing centers and certification bodies according to ISO/IEC Guide 65 requirements • Short-term wind forecasting capabilities internationally benchmarked • Developed academic and post-academic wind training courses\. Technology improvements for biomass: • Supported ten biomass equipment manufacturers through cost-shared sub-grants to improve biomass gasification technologies and address biomass fuel management issues\. In nine of these projects, new or improved equipment were developed\. These included biomass briquetting and gasifier equipment, and equipment to collect crop residues\. Provincial Level Institutional Development and Capacity Building Support Implementation of the RE Law: • Five policy related tasks were carried out in Fujian, ten in Jiangsu, ten in Zhejiang, and eight in Inner Mongolia\. These were related to targets, quota, financial incentives, and cost sharing mechanism of incremental costs, specific to that location\. Pilot Demonstration Projects: • Under the Competitive Grant Facility—Pilot Demonstration Project (CGF-PDP), the projects supported the identification and preparation of renewable energy demonstration projects in the pilot provinces\. Eight projects were selected on a competitive basis\. They included biomass gasification, biogas, biomass-fueled CHP, PV, ecological buildings and heat pumps\. One project (heat pump in Inner Mongolia) had to be cancelled, since required approvals could not be obtained\. • In addition to the above projects, five additional demonstration projects were supported using the reallocated funds from the provincial policy support\. These included tidal power in Zhejiang, biogas in Inner Mongolia, and offshore wind in Jiangsu, Zhejiang, and Fujian\. Building a pipeline of RE projects at the Pilot Provinces through Investors Scale-up Support Facility (ISSF) • Under the facility, 14 projects were approved: three for Jiangsu Guoxin, 9 for Zhejiang, 1 for China Long Yuan Power Group, and 1 for Inner Mongolia North Longyuan Wind Power Corporation\. RE investment projects at four locations The following RE investment projects were undertaken under CRESP: (a) Fujian Wind, (b) Jiangsu Biomass, (c) Zhejiang SHP, and (d) Inner Mongolia Wind\. • Fujian Wind: The China Long Yuan Power Group Corp\. installed 50x2\.0 MW Vestas wind turbines on Pingtan Island in Fujian (total capacity 100 MW)\. All 50 units were operational by December 31, 2007\. • Jiangsu Biomass: Jiangsu Guoxin installed a 25 MW straw-fired biomass power plant at Yinxing Village, Rudong County, Jiangsu\. It was operational by July 1, 2008\. • Zhejiang SHP: Zhejiang Hydropower Management Center (ZHMC) oversaw the implementation of the 16 SHP projects\. The total capacity of the 6 newly constructed SHP projects was 13\.6 MW and the incremental capacity of the 10 rehabilitated SHP plants was 9\.91 MW (the total capacity of the rehabilitated SHP plants increased from 26\.38 MW to 36\.29 MW)\. The total incremental capacity was 23\.51 MW, which was 4\.49 MW below the target (28 MW) and was due to cancellation of one new and one rehabilitated plants\. They (new and rehabilitated plants) were operational by December 31, 2010\. • Inner Mongolia Wind: The Inner Mongolia North Longyuan Wind Power Company installed 80x1\.5MW Suzlon wind turbines at Huitengxile, Desheng County, Inner Mongolia\. All turbines were operational in September 2011\. Outcomes National Level Institutional Development and Capacity Building Technology improvements for wind: • Fully achieved as (a) all the eight Chinese wind standards developed under the project were approved by the Standardization Administration of China (SAC); (b) two wind turbine testing centers were accredited and carried out 15 and 21 wind turbine tests respectively; (c) two certification bodies were accredited for wind turbine certification\. The Standards Committee, testing centers, and certification bodies are expected to continue their work in the future\. The Standards Committee will operate with support from the government (Ministry of Science and Technology, MOST) and the private sector (wind turbine manufacturers), and the testing centers and certification bodies will operate on a commercial basis\. • Chinese RE equipment, especially wind turbines, has improved greatly, with exports, even to developed countries, increasing significantly\. Four out of the top 10 global wind manufacturers are now Chinese wind manufacturers\. The increased demand for wind power related equipment in China has led to all internationally recognized international manufacturers establishing manufacturing capacity in China, which in turn has led to quality improvements by the domestic manufacturers\. • Technology improvements for biomass: • The country has become the world’s number 3 in installed capacity for production of electricity from biomass, although the role of the projects was limited compared to that for the technology improvements for wind\. Provincial Level Institutional Development and Capacity Building Support Implementation of the RE Law: • The pilot provinces used the outputs to prepare wind, PV, and biomass development plans and to support the preparation of the 12th Five Year Plan for renewable energy\. Pilot Demonstration Projects: • The total renewable electricity capacity of the seven projects is 7\.5 MW\. Particular noteworthy is the 5 MW fixed bed biomass gasification plant in Jiangsu\. This is the largest gasifier in China\. The total capacity of the five demonstration projects is 370 MW (to be checked w/ TTL), although it is not yet known how much will actually be built\. Building a pipeline of RE projects at the Pilot Provinces through Investors Scale-up Support Facility (ISSF) • The 14 projects resulted in an additional renewable electricity capacity of 149 MW (actually built) and may lead to an additional 918 MW renewable electricity generation capacity (envisaged)\. The ICR also indicates that, by the end of 2008, 1,329 MW of RE projects were planned and developed in pilot provinces, which was more than double the target\. RE investment projects at four locations • Fujian Wind: The installed 100 MW units sold 280 GWh to the grid in 2008, 301 GWh in 2009 and 2010\. The capacity factor increased from 33\.0 to 35\.5% (one of the highest in China)\. The annual electricity generation at 294\.1 GWh/year (average over the last 3 years) is 113% of target\. • Jiangsu Biomass: The installed 25 MW straw-fired biomass power plant sold 141\.2 GWh of renewable electricity into the grid in 2010 (87% of target)\. • Zhejiang SHP: The incremental (to be checked w/ TTL) installed capacity of 23\.51 MW sold 103\.78 GWh of additional electricity into the grid in 2010 (109% of target)\. • Inner Mongolia Wind: The installed 100 MW units sold 79\.71 GWh to the grid in 2011 (33% of target)\. 5\. Efficiency: Modest The ICR calculated traditional measures of efficiency (economic and financial internal rates of return - EIRR and FIRR) for the RE investment projects, which cost 77 percent of total project cost\. These measures were then compared with those in the PAD\. The PAD had also attempted to calculate the regional development impacts (a distributional measure) of the RE policies but neither the PAD nor the ICR calculated the efficiency of anything other than the investment projects\. The table comparing the EIRRs and FIRRs of the four investment projects, as presented in the ICR, is shown below for easy reference\. Economic benefits include both direct benefits from the sales of electricity as well as emission reduction benefits based on a model\. No weighted EIRR or FIRR for the projects combined was calculated in the ICR or in the PAD\. EIRRs and FIRRs at ICR and Appraisal Project EIRR (%) FIRR (%) Brief Explanation: ICR Appraisa ICR Appraisa l l Fujian Wind 16\.1 13\.6 10\.9 6\.5 - Higher annual generation Power - Higher power purchase tariff Jiangsu 11\.6 20\.8 5\.0 10\.6 - Operational problems 2008–10 Biomass - Higher fuel price Power Inner 9\.3 12\.5 5\.1 7\.0 - Overrun of investment cost Mongolia - Delayed project commissioning Wind Power - Less power generation Zhejiang 10-195 10-33 6-102 7-16 - Increase of investment costs Small - Rehabilitation not affected Hydropower The PAD assumed an “Opportunity cost of capitalâ€? of 12% (page 79), and the various investment project returns were expected to be above this hurdle rate\. Ex-post, except for wind power and some of the small hydro power projects, the investment project returns were below this rate\. For wind power and small hydro power investment projects, if a capacity penalty (the penalty for not having continuous power available for dispatch to the grid) is included, the EIRR would decrease and could be below the hurdle rate\. On the other hand, if the opportunity cost of capital (which in turn is a weighted average of equity and debt costs) is lower (say 8%, currently used by China’s National Development and Reform Commission according to the ICR), returns from all investment projects would be above the hurdle rate\. There were also some operational and administrative inefficiencies from organization of the project (see section 9), which contributed to postponement of various activities particularly those related to policies\. The implementation period was increased by roughly 25 percent and the project closing date was postponed by a little more than a year\. Based on the above figures and analysis, the efficiency of the project is rated Modest \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of the project objectives was high, while the relevance of project design was substantial, with some shortcoming from not having the incentives of the grid companies taken into consideration\. Achievements of the two objectives are substantial\. Lastly, Efficiency of the project based on the efficiencies of the investment projects (77 percent of the total cost) was modest, which was a moderate shortcoming\. A Moderately Satisfactory outcome rating is assigned\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: • Technical: Significant\. The technical problems of continued development of various RE technologies remain challenging\. While considering the risks, the ICR mentions only wind power, and even that faces obstacles from not being able to supply continuously\. For other REs, such as biomass, the situation is even more challenging technically\. While the cost-shared sub-grants for improvements in biomass technology did bring success, the Renewable Energy Scale Up Program did not support any university program for biomass and post-academic training for biomass was not available\. Consequently, over the medium-term, development of solutions in biomass can be expected to be less forthcoming than for wind power\. • Financial: Moderate\. The Government’s strong commitment to the ambitious targets can be expected to wane as consumers complain more and more about the higher prices that would have to be paid for RE\. When the amount of electricity generated from RE units is small, the burden on consumers is relatively small and consumers do not complain\. However, as the electricity from RE units reaches a certain level, the blend price that the consumer has to pay may start to be perceived as onerous\. In some European countries, such as Germany and Spain, because of costs, there has been already a backlash against electricity from wind power\. • Other stakeholder ownership: Significant\. The whole system of development of a pipeline of projects could come to a halt as a result of relatively small changes in investment incentives\. As the ICR points out, the phase 2 project will continue to support initiatives started under this one, including the cost-shared grant scheme for pipeline development\. Beyond the phase 2 project, however, sustainability of these schemes is questionable\. Should an economic downturn occur, China would likely reevaluate these subsidies\. In addition, there are competing incentives to develop clean coal, and private sector interest may easily switch out of developing RE technologies to these other technologies where government support may lead to higher profits\. Should the support for RE falter because of technological or, financial reasons, or because of waning private sector interest, the goals for RE output would likely be lowered, probably implying rule changes for the MMP\. Over the assumed 20-year lifetime of investments supported by this project, such a risk is significant\. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: The ICR stressed the parts of the project where the Quality-at-entry (QAE) was indeed satisfactory but it did not point out where there were shortcomings\. Regarding strategic relevance and approach, QAE was highly satisfactory particularly with the passage of the RE Law\. On Technical Aspects, because of the project that preceded this one, QAE was satisfactory on wind power related items including manufacturing, testing, and certification, and the investment project Fujian Wind\. However, QAE had significant shortcomings with regard to biomass technology\. There were, for example, issues related to moisture content of the feed and the feeder system\. In terms of institutions, there were some unresolved issues at entry such as the location of the biomass plant which was resolved later\. In terms of M&E design, separating unproven Biomass from Wind technology for the PDO Indicator 3 (Improved quality and reduced cost among manufacturers and service providers), and similarly for Intermediate Outcome Indicators, could have permitted better management of risks\. at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: The Bank supervision team focused on Development Impact satisfactorily as indicated by its reallocating of project resources as and when the Government allocated resources (outside the project) to original project priorities, for example, wind resource assessment\. The supervision team also reallocated resources effectively when progress at the provincial level was insufficient\. The team also addressed satisfactorily project shortcomings due to divergences among public agencies, and inexperience of the Project Management Office (PMO)\. For example, when it was observed that the follow-up of consultant contracts by the PMO was insufficient, the number of expert consultants was increased while reducing the number of inexperienced PMO staff\. Continuity could have been undermined by the fact that there were six Task Team Leaders (TTLs) in five years\. However, this turnover of TTLs was mitigated by having as a consultant the first TTL and a core project team, which with the changing TTLs, developed detailed aide-memoires and mission reports and kept the focus on implementation issues as they arose\. The Bank was less diligent in adjusting M&E indicators when project funds were reallocated\. For example, although pilot demonstration projects received additional funds, the target for the Intermediate Outcome Indicator 5 (Pipeline of renewable energy projects under development in the provinces) was not adjusted upward\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Government ownership and commitment to development objectives were Highly Satisfactory\. The supportive institutional policies were achieved\. Not only was the RE Law approved faster than anticipated, but important actions on setting the tariff and subsidy levels were achieved rapidly as well\. However, as the ICR on page 11 indicate, unwarranted delays were experienced during the first year after effectiveness, from institutional divergence among government agencies\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: The main implementing agencies were: National Development and Reform Commission (NDRC); Long Yuan Pingtan Wind Power Company Ltd\.; Jiangsu Guo Xin New Energy Development Company Ltd\.; Inner Mongolia North Long Yuan Wind Power Company; and Zhejiang Small Hydropower Development and Management Center\. The PMO was within the Energy Bureau of NDRC\. The ICR indicates that unwarranted delays arose in the first year from (a) inexperienced PMO staff and inadequate alignment of PMO staff skills with the project focus areas; and (b) coordination difficulties between PMO (national level) and provincial Development and Reform Commissions (DRCs)\. After the first year, further delays were encountered because of (a) the long time required to put contracts in place; (b) large number of small contracts; (c) consultants not meeting agreed deadlines and insufficient follow-up from the PMO; (d) implementation of the sub-grant projects much more difficult than anticipated and requiring more time; and (e) insufficient initiatives at the provincial levels, They were addressed after the mid-term review\. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: • Detailed M&E indicators were developed for both institutional aspects and investment projects\. A results framework was prepared (see PADs: Annex 3 on pages 27-33 and pages 28-29)\. In the framework, objectives were specified clearly (but not exactly as in the loan-agreements), with the outcome indicators, including intermediate ones, that reflected the objectives in the loan-agreements\. The indicators were measurable for project end in terms of numbers and location, with some targets set for the mid-term review as well\. • Because this is a Phase 1 project, most of the baselines, such as those for institutional development or emissions reduction were set to zero\. There were three sets of indicators where the project had non-zero baselines\. For one of these non-zero baseline indicators, on costing of various renewable technologies, the baseline data was not collected\. For another set, on standards for wind turbines and availability of testing facilities, the baseline was just indicated as “partialâ€?\. Only for one set of indicators, the one on renewable electricity generation and capacity, the project had numerical baselines\. • For evidence on the “environmentâ€? for development of renewables at the pilot provinces, technical and social surveys were to be used\. Similar surveys were proposed for data collection on improvements in quality and reduced cost among manufacturers and service providers\. • Data collection was proposed on increased renewable electricity in TWh/year, renewable capacity in GW, and reduced emissions (for carbon, oxides of nitrogen, oxides of sulphur, and particulates)\. However, no measures were proposed relative to the overall electricity generation or emissions\. Consequently, the amount of renewable electricity generated could be going up with renewable electricity generation as a percentage of total electricity generation going down\. Similarly the project could be reducing emissions through this project but total emissions due to electricity generation in China could be going up\. b\. M&E Implementation: • Development of capacity to enable the Government to monitor and evaluate the impact of the project was an integral part of the Institutional Development and Capacity Building Component and was to be undertaken by the PMO\. • Based on the PAD, the project measured five project development objective indicators and nine intermediate outcome indicators\. However, the project did not carry out the technical and social surveys indicated in the PAD, neither gathering evidence on “environmentâ€? for development of renewables or of improved quality and reduced cost,\. For the evidence on the provincial environment for renewables, the project sidestepped the lack of surveys with targets set for each province of substantial increases in renewable electricity generation along with approval of supporting regulations, which were being measured also for another indicator\. For evidence of improved quality and reduced costs, the project chose qualitative and softer measures, for example, diminishing operational problems with biomass units and increase in certifications of wind turbines\. While these may indicate to some extent quality improvements, they were inadequate to measure reduction in costs of renewable technologies\. • The M&E was owned fully at the national level\. However, when it came to getting data that required participation at the provincial level or the industry in general (for example, to get costs), the ownership was weak\. c\. M&E Utilization: • The project carefully measured RE generation and capacity along with the implied reduction of emissions\. When the generation was not forthcoming, the project took corrective actions such as changing the closing date by one year\. • Because certain crucial feedbacks at the provincial level and from the manufacturers were dropped, the program’s direction possibly did not benefit enough from M&E\. Instead, the project relied on the cost-shared grant mechanism to find out what interests the private sector\. Without detailed cost data, the project had no reliable way to find out if a certain process promoted by the private sector could actually work (and be replicated) without the subsidies\. At the end, much of the work related to sustainability was transferred to the next phase\. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: Three Safeguard Policies -- Environmental (OP 4\.01), Involuntary Resettlement (OP 4\.12), and Safety of Dams (OP 4\.37) -- were triggered by the Project\. The project was classified as safeguard screening category S2, and environmental screening category B\. No major safeguards issues were identified at appraisal and no exceptions to Bank policies were requested\. For each of the four investment projects, the Borrower and implementing agencies agreed to implement environment management plans (EMPs), acceptable to the Bank\. The ICR found overall Environmental performance of all four investment projects satisfactory\. In three locations, Fujian, Jiangsu, and Zhejiang, there were no significant issues with implementation of the environmental aspects of the project or environmental management activities\. There was no reporting specifically that the project completed the planned mitigation activities In the Inner Mongolia wind farm, the ICR reports that “one significant environmental issue was experienced\. Early on during construction, poor access to roads had led to trucks driving through grassland, which caused unacceptable impacts\. Corrective efforts were made at the request of the Bank’s supervision teams\. In addition, the external environmental supervisor was engaged by Inner Mongolia North Long Yuan Wind Power Company only in 2010 to strengthen the Environmental Management Plan (EMP) implementationâ€?\. On Resettlement, the ICR reports that land acquisition and resettlement for all investment projects were satisfactorily implemented\. Compensation was paid to the affected people based on the Resettlement Action Plan (RAP), replacement houses were constructed for all relocated households, and all proposed rehabilitation measures indicated in the RAP were implemented for the affected villages\. The income and livelihood of the affected people were restored and even increased compared with that before resettlement\. On Safety of Dams, the ICR reported that in Zhejiang SHP one of the subprojects identified at appraisal was dropped because of dam safety issues and no mitigation was required for the 16 sub-projects financed under the project\. b\. Fiduciary Compliance: Financial Management The Project Management Office (PMO) produced financial reports in line with World Bank reporting requirements and summary reports for internal use and use by the World Bank supervision team\. Over the years, the projects were audited regularly and no problems were found\. In the most recent financial audit results, they received the highest ranking by the National Audit Office\. This highest ranking was received by 11 of the 49 World Bank projects/programs in China\. The National Audit Office also praised the verification mechanism for the financial sub-grants which had been introduced\. Based on the above, it is assumed that the financial covenants were complied with and there were no audit recommendations Procurement At Appraisal, the procurement capacity of the PMO was assessed as adequate\. For the investment subcomponent, the implementing company at Fujian was found to have previous experience with Bank procurement\. At Jiangsu and Inner Mongolia, the implementing companies were found to have extensive experience with power sector projects, but not with Bank procurement\. At Zhejiang, implementing company was found to have extensive experience of small hydro projects\. All companies were to use procurement agents familiar with Bank procedures\. Even with the above capacity, because of diverging opinions between the PMO and the Bank/GEF team, some major procurement issues delayed implementation until they were resolved following the midterm review of the project\. These issues included procurement procedures and fragmentation of contracts, cost-sharing bidding procedures and their alignment with Chinese decision making, and the choice of provincial pilot projects\. Disbursement The project had no issues with eligibility of expenditures and once the procurement issues (see above) were resolved, disbursement followed, particularly during the last 18 months of the project\. c\. Unintended Impacts (positive or negative): None d\. Other: None 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Moderately The shortcoming in design in not Satisfactory having considered the incentives of grid companies was not acknowledged in the ICR\. The relevance of the project objectives was high, while the relevance of project design was substantial, with some shortcoming from not having the incentives of the grid companies taken into consideration\. Achievements of the two objectives are substantial\. Lastly, Efficiency of the project based on the efficiencies of the investment projects (77 percent of the total cost) was modest, which was a moderate shortcoming\. Risk to Development Negligible to Low Significant The technical challenges of various Outcome : RE technologies are significant, particularly because cost aspects have become important\. Bank Performance : Satisfactory Moderately QAE has moderate shortcomings Satisfactory with biomass technology\. Unlike wind technology development, there was no preceding Bank project that had developed this technology, which undermined performance in this area\. Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: • Long-term engagement with the government at the national level is important to the success of an initiative such as the Chinese Renewable Energy Scale Up Program (CRESP)\. The CRESP program is the only window in the Bank’s China energy portfolio that engages long-term RE policy dialogues and partnership with the National Energy Authority(NEA)\. The long-term engagement has built trust between the Bank team and NEA, which often turns to the Bank team and the CRESP program for support and inputs to key policy decisions\. However, at the provincial or industry level, trust building has been slow\. • Combining policy support and technical assistance through a GEF grant with large-scale long-term financing for RE investments through IBRD loans in one package may be the most cost-effective tool to enable transformational changes to scale up renewable energy\. Conceivably, such a combined GEF grant and IBRD loan approach could be substituted by projects that blend bilateral grants or concessional loans (from Clean Technology Fund for example) with IBRD or even IFC lending\. • A core project management team, with contributions from world-class international and local experts, is a cost effective method for carrying out the studies under a project such as this one\. Relying on the recruitment of a large number short-term staff is less conducive to high-quality work\. • The project showed strong agenda setting role of the Government for renewable energy\. However, it also showed inability of the industry to respond when technological solutions are unavailable at the cost supported by the Government/customers\. While generation from wind energy progressed well under the MMP, that from biomass was limited\. The lesson is it takes more than strong agenda setting and subsidies by the Government to generate solutions from the domestic industry\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR demonstrated a good understanding of a complex project, particularly on the required organization to address both policy issues and investments in a large country\. Analysis and presentation were generally satisfactory\. However, the ICR could have presented the project in a more a systematic and balanced way\. For example, it could have provided more details on activities envisaged in the PAD but not undertaken, such as the technical and social surveys that were to provide the data on environment for development of renewable and on quality and cost among manufacturers and service providers\. Because certain shortcomings did not receive the attention they warranted, some ratings were over-positive\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P048756

 ICRR 11556 Report Number : ICRR11556 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/30/2003 PROJ ID : P048756 Appraisal Actual Project Name : Private Participation In Project Costs 18\.5 18\.5 (see 2\.c below) Infrastructure Technical US$M ) (US$M) Assistance Country : Guatemala Loan/ Loan US$M ) 13\.0 /Credit (US$M) 8\.0 Sector (s): Board: PSD - Central Cofinancing Government: 4\.9; Government: 10\.0 government administration US$M ) USAID: 0\.6 (US$M) (see 2\.c below); (91%), Postal services USAID: 0\.5 (7%), Law and justice (1%), Power (1%) L/C Number : L4149 Board Approval 97 FY ) (FY) Partners involved : Closing Date 06/30/2001 08/31/2002 Prepared by : Reviewed by : Group Manager : Group : Hakon Nordang Fernando Manibog Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The Private Participation in Infrastructure (PPI) Technical Assistance (TA) project sought to prepare selected infrastructure sectors - ports, power (electricity), telecommunications, roads and highways, and the postal service - for privatization and concessioning, within a sound legal and regulatory framework \. To accomplish this objective, the project provided TA to : - draw up regulations for existing sectoral legislation and develop new legislation where required; - strengthen regulatory agencies and sectoral ministries charged with overseeing the infrastructure sectors listed above; - restructure and prepare for privatization entities within these sectors; and - strengthen the ability of the Government to manage and implement the program of privatization and concessioning in the infrastructure sector\. b\. Components By sector, the project components were the following : 10 % of total estimated project costs ): TA to assist in the concessioning process, draft 1) Ports (US$ 1\.8 million or 10% sector legislation, conduct environmental audits and prepare environmental regulations, develop a strategy for the minor ports, and conduct a training program for the staff in port authorities 27 % of total estimated project costs ): TA to establish the electricity wholesale 2) Electricity (US$ 4\.7 million or 27% market, restructure the National Institute of Electricity (INDE), privatize the Guatemala Electricity Company (EEGSA), procure equipment, train staff of the National Electrical Energy Commission (CNEE, the sector regulator) and the Ministry of Energy and Mining (MEM), develop all required regulations, conduct environmental audits and produce environmental regulations\. 3) Telecommunications (US$ 5\.0 million or 28% 28 % of total estimated project costs ): Provide training and equipment to the regulatory body, draft detailed regulations for interconnections, prepare the state -owned telecommunications company, GUATEL, for privatization (funded by the Borrower), assist in auctioning and monitoring of the radiospectrum including the purchase of software, and develop regulations dealing with the radiospectrum \. 4) Roads and Highways (US$ 0\.7 million or 4% of total estimated project costs ): TA to identify roads for possible concessions and to develop model concession agreements and bidding documents \. 5) Postal Services (US$ 1\.6 million or 9% of total estimated project costs ): Assist in the development of a regulatory framework; prepare concession documents and the strategy for postal services; offer TA to prepare a management contract; and train staff for a new regulatory role \. 6) Cross -sectoral Activities (US$ 3\.8 million or 22%22 % of total estimated project costs ): Fund a public information campaign, study tours and the promotion and dissemination of investment opportunities; handle project management (funding for implementing unit, procurement agent and external audit ); and offer TA and training for additional privatization requirements and cross -sectoral issues\. Revised components : Municipal Services : At the request of the new Administration following the 1999 elections, the project also financed diagnostic studies and provided recommendations related to improving service delivery (improve coverage, efficiency and financial sustainability) of municipal infrastructure (electricity, water and sanitation, and solid waste ) through private sector participation\. The overall project objective, however, was not affected by this change \. c\. Comments on Project Cost, Financing and Dates As noted in Annex 2 of the ICR, the Borrower had failed to provide information on actual project costs, hence, the above breakdowns of costs are based on the estimated project costs as set out in the Project Appraisal Document \. Whilst Bank disbursements were less than estimated (US$ 5\.0 million of Bank loans were cancelled ) due to delays in project implementation, total project costs were at closing still estimated by the ICR at US$ 18\.5 million based on the assumption that the Government may make up the difference and later complete the project without Bank financing\. In response to the addition of the municipal infrastructure services sub -component by the new Government Administration in 2000, the project was extended by one year until June 30, 2002\. The Government requested a second extension but was unable to fulfill the Bank's requirements for a credible rescheduling of pending activities to achieve project development objectives, thus, the loan finally closed on August 31, 2002\. 3\. Achievement of Relevant Objectives: To prepare selected infrastructure sectors - ports, electricity, telecommunications, roads and highways, and postal services - for privatization and concessioning within a sound legal and regulatory framework \. Mainly due to the lack of ownership and support for the project by the Government, and particularly the Portillo administration, this overall objective was at best modestly achieved, though the achievements differed by sector \. ports and roads and highways sectors The achievements of the objectives related to the sub -components of the ports, were negligible, and benefits are potentially at risk in the other sectors, especially in the postal sector\. Ports : There has been almost no progress in terms of private participation in the ports sector since the beginning of the project \. Whilst the project helped the Government draft a legal framework (the Port and Maritime Bill), the law has never been enacted\. A TA through the Public-Private Infrastructure Advisory Facility (PPIAF) was requested by the Bank to follow up on the progress of these activities \. Roads and highways : Only one concession has been operating since 1998\. However, this concessioning process was not supported by the project as the bidding process, along with the social and environmental assessments, were not deemed satisfactory by the Bank \. Postal sector : The 5-year management contract with International Postal Services (IPS) Ltd from Canada helped improve coverage, reliability and efficiency, but delays in concessioning puts the future benefits from these achievements at risk \. The reasons why the management contract with IPS was not renewed, is not clear from the ICR, however \. Electricity sector : Future benefits are also at risk in the electricity sector, due to the continued existence of unsustainable and non-targeted residential subsidies and potentially also due to the semi -independent nature of the regulatory agency \. Telecommunications sector : Benefits in the telecommunications sector have been restricted to the urban, and relatively better-off, segments of the country \. These limitations have also been exacerbated by the somewhat unclear institutional framework for rural and suburban telephone services caused by having two institutions, GUATEL (the entity in charge of some 2,000 rural community telephones remaining after the separation and privatization of TELGUA in 1997) and FONDETEL (an OBA-fund established by the telecommunications law ), with somewhat overlapping roles and responsibilities \. Again, the semi-independent nature of the sector regulator may, as above, pose future difficulties\. Despite these limitations, in the sectors where the Government had shown substantial commitment to reform prior to the project was initiated, specifically, the electricity and telecommunications sectors where the Guatemalan government already had made the initial steps towards restructuring (putting in place appropriate implementation arrangements, passage of legislation, setting up of regulators, etc ), some of the objectives related to these sub-components were substantially achieved \. Electricity sector : The TA successfully aided, in addition to the privatization of the main generation and distribution entities, the unbundling of INDE and the restructuring of the power sector, the creation of a wholesale market (administered by the Administrator of the Wholesale Market , AMM), and the creation of a regulatory agency (the CNEE), as well as the passage of key regulations including tariff setting and quality of service\. Telecommunications sector : Since the 1996/7 reform, the sector has been fully privatized and liberalized, and a new legal and regulatory framework has been established \. Municipal Services : As this subcomponent was not part of the original project it was not rated by the ICR \. 4\. Significant Outcomes/Impacts: The restructuring of the electricity sector in Guatemala has been impressive, and equity concerns (in the sense of increased coverage and access ) have been well incorporated alongside improved reliability and efficiency \. That is, power supply has become more reliable and efficient, and the implementation of a rural electrification program, using output-based aid (OBA) financed by privatization proceeds, has resulted in an increase in electricity coverage from 56% in 1997 to 82% in 2001\. Indeed, Guatemala, which used to have one of the lower electrification rates in Latin America now rates well above the regional average (the electrification index for Guatemala may reach as high as 90% by 2004)\.  Since the 1996/7 telecommunications sector reform, fixed lines have almost doubled from 430,000 to 756,000 lines (an increase of 76%), whilst the more competitive mobile telephone market has seen a 20 fold increase from 64,000 to 1,126,000 mobile lines\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The semi-independent nature of the regulatory agencies in both the electricity and telecommunications sector may potentially in the future undermine the benefits and achievements to date \. Future benefits are also at risk in the electricity sector due to the continued existence of unsustainable and non-targeted residential subsidies \. The complex and somewhat overwhelming design of the project - aiming to restructure as many as 5 different infrastructure sectors, at different stages of reform - has to be considered a factor in the overall unsatisfactory outcome\. Given that the Bank's support for PPI is supposed to be conditional upon strong, pre -existing government commitment and moves towards reform, a more selective approach should have been adopted where the Bank would support only those sectors (electricity and telecommunications ) where the Guatemalan government already had made the initial steps towards restructuring (putting in place appropriate implementation arrangements, passage of legislation, setting up of regulators, etc )\. As Guatemala had just recovered from civil war, the Bank should have anticipated the potential risks of political uncertainty and powershifts during the project cycle \. As such, more emphasis should have been placed on public-education campaigns, stakeholder participation, and other efforts aimed at building greater consensus around the need for infrastructure reforms, so as to generate a broader coalition for reform \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Moderately [the ICR's 4-point scale does not allow for Unsatisfactory a "moderately unsat\." rating]\. As noted above, some progress was achieved in the electricity and telecommunication sectors\. Institutional Dev \.: Modest Modest Sustainability : Unlikely Unlikely Bank Performance : Satisfactory Satisfactory The complex design and lack of selectivity of the project did, however, contribute to the project's unsatisfactory outcome \. Borrower Perf \.: Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. As the processes and stages of infrastructure reform frequently differ from sector to sector, PPI project designs should not be overly complex and should only concentrate on a few sectors at similar stages of reform \. 2\. The Bank should only support PPI where there is clear government commitment and ownership of reforms, as seen by actual steps made towards restructuring prior to Bank involvement \. It is important to recognise in this regard that government commitment to reform in some infrastructure sectors may not necessarily signify similar commitments to reform in other sectors \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The quality of the ICR was satisfactory \. It is internally consistent, and for the most part provides sufficient evidence to support its ratings\. More information and data could, nevertheless, have been provided on a range of issues (actual project costs; costs of privatization - including economic impact of redundancies caused by restructuring; usage of proceeds from privatization) so as to better assess and comprehend the benefits and costs of the project \. The lack of data is partly due, however, to the failure of the Borrower to in the first place make them available \.

REVIEW

P044711

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 34787 IMPLEMENTATION COMPLETION REPORT (IDA-32720 PPFI-Q0280) ON A CREDIT IN THE AMOUNT OF SDR28\.2 MILLION (US$38\.1 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR THE INTEGRATED DEVELOPMENT PROJECT FOR IRRIGATED AGRICULTURE IN SUPPORT OF THE FIRST PHASE OF THE INTEGRATED DEVELOPMENT PROGRAM FOR IRRIGATED AGRICULTURE December 28 , 2005 Rural Development 4 Country Department 15 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 2005) Currency Unit = Mauritanian Ouguiyas UM 280 = US$ 1\.00 US$ 0\.36 = UM 100 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AGETA Association Générale des Groupements d'Exploitants et Eleveurs pour l'Etude et l'Emploi des Techniques Améliorées Agricoles et Animales- Association of Livestock Farmers and Growers for the Use of Improved Agricultural and Animal Technology AGSECAL Agricultural Sector Ajustment Loan APL Adaptable Program Lending BAF Bureau des Affaires Foncières -Land Tenure Bureau CIMOS Comité Interministériel d'Orientation et de Suivi- Interministerial Committee on Orientation and Evaluation CNPM Confédération Nationale du Patronat de Mauritanie - National Confederation of Patronage in Mauritania CNRADA Centre National de Recherche Agronomique pour le Développement Agricole - National Center for Agronomy Research for the Development of Agriculture CP Comité de Pilotage- Steering Committee DE Direction de l'Elevage- Livestock Directorate DEAR Direction de l'Environnement et de l'Aménagement Rural - Environment and Rural Equipment Directorate DPSE Direction des politiques et du suivi-évaluation - Policy and Monitoring/Evaluation Directorate DRAP Direction des ressources agro-pastorales - Directorate for Agro-pastoral Resources DRFV Direction de la recherche, de la formation et de la vulgarisation - Research, Training and Extension Directorate EMEA Enquête Ménage et Exploitants Agricoles - Households and farmers study FAEM Fédération des Agriculteurs et Eleveurs de Mauritanie - National Federation of Agriculuralists and Livestock Farmers of Mauritania GDM Société des Grands Domaines de Mauritanie GIE Groupe d'Intérêt Economique - Economic Interest Group MDRE Ministère du développement rural et de l'environnement - Ministry of Rural Development and Environment M&E Monitoring and Evaluation OMC Organisation Mondiale du Commerce - World Trade Organization SONADER Société nationale pour le développement rural - National Agency for Rural Development UC-PDIAIM Project Coordination Unit - Unité de Coordination du PDIAIM UGS Unité de Gestion de Semences - Unit for seeds management  UNCACEM Union nationale des coopératives agricoles de crédit et d'épargne de Mauritanie - Union of agricultural savings and loan cooperatives UCAF Union des Coopératives Agricoles de Foum-Gleita - Union of Agricultural Cooperatives of Foum-Gleita WARDA Africa Rice Center Vice President: Gobind T\. Nankani Acting Country Director: Darietou Gaye Sector Manager: Mary Barton-Dock Task Team Leader/Task Manager: Ismael S\. Ouedraogo  MAURITANIA INTEGRATED DEVELOPMENT PROJECT FOR IRRIGATED AGRICULTURE CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 15 6\. Sustainability 16 7\. Bank and Borrower Performance 17 8\. Lessons Learned 19 9\. Partner Comments 20 10\. Additional Information 20 Annex 1\. Key Performance Indicators/Log Frame Matrix 22 Annex 2\. Project Costs and Financing 24 Annex 3\. Economic Costs and Benefits 26 Annex 4\. Bank Inputs 28 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6\. Ratings of Bank and Borrower Performance 31 Annex 7\. List of Supporting Documents 32 Annex 8\. Borrower's Contribution 33 Annex Mid-Term Review Aide-Memoire 47 Annex IBRD Maps No\. 30312 R1 and 30313 R2 61  Project ID: P044711 Project Name: MR-Iirrigated Agr Integr Dev APL (FY00) Team Leader: Ismael Ouedraogo TL Unit: AFTS4 ICR Type: Core ICR Report Date: December 28, 2005 1\. Project Data Name: MR-Iirrigated Agr Integr Dev APL (FY00) L/C/TF Number: IDA-32720; PPFI-Q0280 Country/Department: MAURITANIA Region: Africa Regional Office Sector/subsector: General public administration sector (44%); Crops (26%); Irrigation and drainage (20%); Agricultural extension and research (6%); Roads and highways (4%) Theme: Export development and competitiveness (P); Infrastructure services for private sector development (P); Rural markets (P); Water resource management (P); Land administration and management (S) KEY DATES Original Revised/Actual PCD: 09/14/1998 Effective: 12/19/1999 12/16/1999 Appraisal: 03/16/1999 MTR: 06/30/2001 02/19/2002 Approval: 07/08/1999 Closing: 12/31/2002 06/30/2005 Borrower/Implementing Agency: GOVERNMENT/MRDE Other Partners: STAFF Current At Appraisal Vice President: Gobind T\. Nankani Jean-Louis Sarbib Country Director: Darietou Gaye (Acting) Hasan Tuluy Sector Manager: Mary A\. Barton-Dock Jean-Paul Chausse Team Leader at ICR: Ismael Ouedraogo Abdelkrim Oka ICR Primary Author: Lucie H\.G\. Tran 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The development objective of the Adaptable Program Lending (APL) - the Integrated Development Program for Irrigation Agriculture in Mauritania (IDPIAM) - is to increase agriculture value-added, income and employment for the population living in the Senegal River Valley, through the judicious use of the country's most precious natural assets, which is 90 percent desert: the Valley's water and arable land\. The objective of the APL's Phase 1 (the Project) is to lay the foundations for a sustainable development of irrigated agriculture in technical, financial, environmental and socio-economic terms through the following components: (i) creation of an enabling policy, legal, and institutional framework: (ii) development of basic infrastructure; (iii) improvement of farmers' and farmer associations' management and organization skills; (iv) strengthening of the traditional irrigated agriculture subsector; (v) promotion of agricultural diversification; (vi) implementation of measures to mitigate project adverse environmental impacts; and (vii) project management and monitoring and evaluation\. The project was responsive to the Borrower development priorities\. However, it was complex and risky to implement because adopting a holistic approach to integrated rural development, combined with controversial policy and regulatory reforms, was ambitious and innovative\. The project attempted to solve a large variety of problems in the irrigation subsector: provision of inputs, rehabilitation of irrigation schemes, improvement of rice production, agricultural diversification, agricultural service delivery, public infrastructure, socio-economic aspects, safeguards, and the coordination and monitoring of such activities\. The project was demanding to implement for the project coordination unit because of the complexity of the integrated approach, the scope of activities, and the geographical area covered, as well as the number of components (objectives) which required skillful monitoring, collaboration, and coordination across multiple agencies (14 in total)\. In addition, the project was required institutional reforms or restructuring of some of its own implementing agencies, to be carried out under the larger umbrella of national policy reforms (rice liberalization)\. The project design was appropriate for laying the foundation for achieving the long-term development objectives of the Adjustable Program Loan (APL), which were agreed upon with the Government of Mauritania for development of the Senegal River Valley\. The project design incorporated the lessons on suitable methods and viable options for developing collective irrigated schemes versus large-scale irrigation projects, the profitability and competitive advantages of producing rice locally, options for providing access to credit, sustainable operation and maintenance of collective infrastructure, and the effects of dependency on monoculture\. It also tried to address the degradation of individual and village schemes which were built 10-20 years earliler\. Although constructed properly, these suffered from lack of medium and long-term credit for important maintenance and repairs and for rehabilitation\. Poor farmers' organization and lack of formal recognition of such organizations also contributed to the degradation\. The Line of Credit (LOC) was designed to address this gap (see end of Section 4\.2)\. The APL was designed in three phases\. Phase 1 was to be implemented in three years, and the subsequent phases in five years each, with flexibility built into each phase for adjustments to changing capacity, results, and conditions\. Progress from one phase to the next was monitored with policy requirements, triggers and linkages to the overall program objective\. The first phase used existing sectoral reforms and policies already initiated by the Government to strengthen further the institutional and legal framework while addressing sectoral weaknesses (sources of growth, supporting infrastructure, environmental issues, lack of credit)\. This was carried out within an integrated, holistic framework, which avoided a piecemeal approach to development under individual projects\. However, the Phase 1 implementation period of only - 2 -  three years was unrealistic and too short to carry out the range of project activities which required a longer time frame to show results (e\.g\., land registration, irrigation infrastructure, policy reforms)\. Consequently, the project was extended by two and a half years from the original closing date of December 31, 2002 to June 30, 2005\. The design of the rehabilitation/public infrastructure component was overly optimistic on the pace of implementation and it underestimated the time it would take to establish the groundworks before rehabilitation could take place\. The key performance indicators for the first phase were numerous and complex, generic, and lacking in quantitative outputs, making it difficult for the Bank and Borrower to monitor\. They were modified following the mid-term review\. 3\.2 Revised Objective: The objectives were not revised\. 3\.3 Original Components: As stated in the Project Appraisal Document, the components were: Component A\. Development of a Sound Policy, Legal and Institutional Framework (US$3\.74 million)\. Component B: Development of Basic Infrastructure (US$13\.16 million)\. Component C: Support to Farm Management and Organization (US$1\.11 million)\. Component D: Support for Traditional Crops Subsector (US$11\.70 million)\. Component E: Diversification Promotion (US$8\.07 million)\. Component F: Environmental Impact Mitigation Measures (US$3\.14 million)\. Component G: Project Management, Supervision, Monitoring & Evaluation (US$3\.85 million)\. 3\.4 Revised Components: N\.A\. 3\.5 Quality at Entry: Quality at entry is rated satisfactory\. A Quality Assessment Group interview was carried out on May 20, 1999\. Questions were raised on the economics of rice production and scope for productivity improvement, the causes of declining performance and scope for rehabilitation, monitoring and evaluation, conditionalities, and the high cost unit costs of rehabilitation\. The project team responded satisfactorily to the questions (memorandum dated May 21, 1999 available in institutional files) and suggestions were taken into account in the PAD\. The program's objectives were consistent with the CAS and was important for the Government's objective of reducing poverty through accelerated private sector-led growth\. The program builds on the positive results achieved under the SAL (1987) and the AGSECAL (1990) (liberalization of pricing and marketing of cereals, privatization of rice mills, creation of better rural credit systems, restructuring of the Ministry of Rural Development and SONADER, implementation of land reforms in the pilot area in Trarza, devaluation of rice to make domestic rice more competitive)\. The rural sector was seen as playing a crucial role in generating employment and growth, and the development of irrigated agriculture, through to the year 2010 and was seen as a focal point in the Government's Rural Development Strategy adopted in March 1998, and in the Letter of Development Policy for Irrigation Agriculture\. Adequate attention was given to fidicuary aspects and provisions were made for complying with Bank safeguard policies which included pest management (collaboration with health projects), preparation of an Environmental Assessment and Management Plan for a Category A project, and capacity building and training in the area of environmental monitoring for agencies concerned\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The objectives of Phase 1, as measured by the triggers for moving into Phase 2, have been met, - 3 -  specifically: (a) Liberalization measures for agricultural markets negotiated in 1999 remain in place, i\.e\., no increase in import tariff on rice is set at 45 percent, no import quota, no administrative pricing, no interest subsidies on rice marketing\. (b) The credit agency, UNCACEM, has achieved operational and financial self-sufficiency, i\.e\., financial self-sufficiency in 2002 (one year later than expected due to loan rescheduling for the 1999-2000 flood victims)\. (c) Credit and investment subsidies are granted in accordance with procedures agreed with IDA (as confirmed in audits); (d) Awards of land use concessions are in conformity with land tenure regulations\. New changes were introduced in 2002 to shorten land distribution process from three to two stages (provisional and permanent concessions)\. The amended law also recognized land rights for cooperatives that developed land before the tenure law came into effect\. (e) Transparent and accessible land registries are established permitting confirmation of land tenure\. (f) Procedures are established for collecting of water fees, and operation and management fees for public infrastructure works\. A charter for the operation and maintenance of public schemes was signed between SONADER and the rice producers cooperatives\. (g) Economic return of Government-supported irrigation infrastructures demonstrated satisfactorily - through feasibility studies (access to investment credit and matching grant for irrigation development is dependent on satisfactory financial and economic rates of return)\. (h) The performance of SONADER is satisfactory using criteria established in performance contract under the project (establishment of a suitable financial management system, reduction of administrative costs, and staff costs)\. 4\.2 Outputs by components: Component A\. Developing a Sound Policy, Legal and Institutional Framework (US$3\.74 million)\. The objectives of this component to develop a sound policy, legal and institutional framework and adoption of liberalization measures for agricultural markets and transport services have been met and capacity building of the key implementing institutions has been successful; as such, this component is rated satisfactory\. This component funded: (i) studies to prepare laws and regulations for taxes and tariffs for agricultural produce and trade, transport, rural land tenure, transfer and registration, and rural property taxation, regulation of agricultural organizations, and export promotion for rural products through technical advisory services and training programs; and (ii) strengthened the institutional framework and capacity of the Ministry of Rural Development and Environment (Ministère du développement rural et de l'environnement - MDRE), the National Agency for Rural Development (Société nationale pour le développement rural - SONADER), and the Union of Agricultural Savings and Loan Cooperatives (Union nationale des coopératives agricoles de crédit et d'éparge de Mauritanie - UNCACEM)\. Liberalization of Rice Marketing was successfully implemented by the Government of Mauritania, i\.e\., (i) maintaining the taxes on imported rice at the same level; (ii) no intervention in the import of rice; and (iii) no intervention at the national level in rice marketing (price fixing, purchase quotas, and interest rate subsidies on loans for producers and sellers)\. This contributed to improving rice quality and paddy yields, pushing up the price of both paddy and local rice\. Such improvements motivated rice producers and mill owners to improve the quality of local rice and products through better seed selection and use of improved processing techniques\. By the end of only two cropping seasons, Mauritanian rice had improved to a level - 4 -  where it became difficult for the consumer to differentiate between local and imported rice\. Producers who were producing rice of a poorer quality and selling it at inflated prices were pushed out of production\. More successful producers increased their investments and began to seek financing for improvements, such as storage facilities and processing equipment, through loans provided by UNCACEM\. Major studies on agricultural tariffs, constraints to legislation and formation of socio-professional organizations, review of transport sector policies and risks, marketing policies on the movement of goods and agricultural production across the country, were carried out\. As a result, the country adopted regulations to liberalize public transport fees\. Four studies related to land tax and land rights were not completed pending the completion of a preliminary study on land use planning\. Land Tenure\. Implementation of the 1990 land tenure law moved slowly because the Bureau des Affaires Foncières (BAF), which was responsible for processing land registration applications had insufficient funds for its operations when support under European Union ended in January 2001\. An urgent, 12-month backlog of some 659 applications from associations as well as individuals for land registration were delayed until the project agreed to fund the BAF\. With the Government's issuance of a decree on the transfer of property rights, land registration was completed for about 768 applications by the end of the project\. In terms of surface area, this represented about 36,704 ha out of the available 45,000 ha of land suitable for rice production, and one third of the 36,704 ha are collective schemes\. Through the project, inhabitants of the Valley were assisted with land registration, systems for planning, implementing, and monitoring land use were put in place, as well as surveillance mechanisms to monitor transparency and potential sources of conflict\. Norms for the design and implementation of irrigation schemes including technical specifications, established at appraisal proved to be too demanding and therefore too costly for farmers and cooperatives to comply with causing delays in their applications for credit financing which were dependent on meeting these norms\. These were later revised\. Capacity Building of Institutions: (a) MDRE\. The MDRE was reorganized to redefine the roles of its agencies and improve communication, and information flow: the Directorate for Policy and Monitoring (DPSE) was reorganized into the Direction des Politiques, de la Coopération et du Suivi-Evaluation (DPCSE); the DEAR was divided into two divisions - the Direction de l'Environnement (DENV) and the Direction de l'Aménagement Rural (DAR); and the DEA was reorganized into the Direction de l'Elevage (DE) and the Direction de l'Agriculture (DA)\. In terms of building capacity in data collection under the project, the DPCSE and its regional offices were supported with office equipment, transport, and various training including M&E tools and techniques, team management, GIS, agricultural statistics, and information technology to strengthen capacity in data collection and monitoring\. DPSE provides reliable agro-pastoral data with SIAP (Système d'information agro-pastorales) established to capture agricultural statistics, provides regular surveys (EMEA), and data collection which have been carried out since 2000 as part of M&E\. Results are disseminated and endorsed in stakeholder workshops\. (b) SONADER had a key role in project implementation but began its involvement with a sluggish performance\. The organization had undergone three changes of directors until late in 2002 when a new Directeur Général was appointed and implementation accelerated\. SONADER was restructured into a leaner institution with the voluntary departure of 113 employees, reducing personnel and operating costs 20 percent and 12 percent respectively to meet the requirements of the performance contract\. Staff were redeployed to improve service delivery, and linkages between project activities and staff competencies\. SONADER has updated its financial management system, produces acceptable financial management reports to the Bank, and established a financial and budgetary management unit\. Under this component, an - 5 -  intranet system which has been set up at the Nouakchott headquarters now links the regional offices and facilitates information access for staff in the field, and a human resources development plan was imlemented providing training to staff (12 professionals and 29 agents) in such areas as participatory approaches, use of rural communication tools, and updated techniques for, e\.g\., weed control\. (c) UNCACEM\. Analysis of UNCACEM's performance at the end of the project confirmed that the agency has reached financial and operational self-sufficiency by 2001; this was a trigger for moving from Phase 1 to Phase 2\. Under the component, full-time technical assistance was provided to assist UNCACEM in improving its performance in executing its credit line, and in providing quality financial, management and marketing advice to clients such as the cooperatives (Groupement d'Intérêts Economiques - GIEs) and the unions of cooperatives of large irrigation schemes\. Other outputs include: an information system in place to improve monitoring and evaluation, a study on banking guarantees and regulations completed, and training in banking techniques and credit management carried for four higher level staff\. An organizational audit was also carried out, but UNCACEM did not need to be reorganized since it had formulated a human resources development plan for its staff and demonstrated a strong performance in reaching project targets\. Component B: Development of Basic Infrastructure (US$13\.12 million)\. This component is rated unsatisfactory\. The objectives of the component was to prepare the foundation for future investments in sustainable irrigation\. Although many of the activities such as the completion of preparatory studies for basic infrastructure, establishment of the framework for rehabilitation of schemes, and research and development tests were carried out, the results in rehabilitation fell short of the physical targets set at appraisal\. Activities which were not completed will have to be carried over to the subsequent phases and the pace of implementation accelerated to meet the physical targets in the next phase\. It was implemented by UC-PDIAIM\. Financing was provided through loans by UNCACEM and grants through the project\. Public Infrastructure\. The priority studies for preparing investments in Phase 2 were completed, including: (i) the master plan for management of the Gorgol Valley which was also discussed with stakeholders during workshops; (ii) a master plan for irrigation and drainage works, and land occupation for the Koundi 1-5 area; and (iii) check-up of the Foum-Gleita dam and studies on sand accumulation\. Also completed were rural tracks to facilitate access to irrigated perimeters in Gani to Dar el Barka\. Studies which were delayed or cancelled due to lack of funds or low priority include: water use and management and the participation of the Gouere users' association which is expected to start in Phase 2; facilitation of access to water in the Gorgol, Guidimarkha, Brakna, Trarza areas; rehabilitation of large, collective, irrigated schemes (partially completed due to lack of funds); and integrated development program and options in the Garak-Sokam area, including an environmental impact and feasibility study (lack of funds); these are expected to be completed in Phase 2\. Crossings and small bridges were planned but were not constructed because the Government decided that these were the responsibility of the Transport Department and should not be funded under the project; the construction of hydraulic infrastructure works in selected areas; and the construction of an inverted drain to siphon excess sand and clear obstructions at the Foum-Gleita dam was delayed because SONADER cancelled the contract with a poorly performing contractor\. Rehabilitation, expansion and creation of irrigated schemes\. This sub-component experienced serious delays in project implementation mainly because activities required for rehabilitation/expansion/creation to take place also met with delays and problems\. These included: the lack of land titles and delays in securing them for farmers; delays in obtaining legal status for farmer organizations; unmet eligibility - 6 -  criteria from applicants seeking credit assistance; rehabilitation norms which were too demanding and, therefore, too costly for farmers to comply with; the poor performance of contractors who won bids for studies and civil works but were poorly prepared for the work combined with the initially poor supervision by SONADER; an unattractive funding scheme (individual farmers complained that the ratio of credit to matching grant was too high); and the 50-80 percent increase in the cost of rehabilitation by mid project; all contributed to delays in start-up of the component well into 2001, hampering efforts to rehabilitate the schemes\. Farmers from collective schemes of 20 ha or more were the most interested in the credit/subsidy program, while individual farmers with larger farms were not interested in using credit for rehabilitation (the matching grant portion was considered too low) and did not want to comply with the specified modes of implementation\. The project received requests for rehabilitation for only five cooperative schemes (210 ha) by 2000, whereas it had expected individual farmers to contribute to half of the targeted 3,100 ha\. Studies related to the schemes were submitted late (end 2001) and had to be revised by SONADER further delaying the process\. By 2004, the cost of rehabilitating a hectare of land had increased substantially from an estimated UM 300,000/ha in 2000 to UM 800,000/ha\. The technical norms and eligibility criteria were subsequently revised, and new studies carried out for additional schemes which began rehabilitation in 2003\. The criteria for credit and subsidies were revised for collective farmers (70 percent subsidy rate versus the initial 50 percent, 20 percent of credit, and 10 percent personal contribution) to attract collective scheme farmers, and measures were taken at mid-term review to remove constraints allowing more than 700 cases of land registration to be processed\. These measures did succeed in increasing the pace of rehabilitation for collective farmers so that, by the end of Phase 1, about 1,000 ha of the 1,500 ha targeted for collective schemes had been rehabilitated\. However, these had not yet gone into production by project closing\. Research and Development was subcontracted by SONADER to CNRADA which successfully carried out drip and sprinkler irrigation tests in the Trarza and Gorgol\. Tests and demonstrations on drip irrigation were used to identify major constraints to its adoption in terms of conditions and soil types\. Results from drainage and soil salinity tests are available for assessing the effects on water and soil degradation under irrigation\. Drainage systems testing were carried out and asian and european pumps (13), tested and installed in various locations to improve irrigation operations\. Component C: Support to Farm Management and Organization (US$1\.11 million)\. This component is rated satisfactory\. The objective of this component was to provide support to farmers and farmers' organizations/federations in administration, financial management, and maintenance of irrigation schemes and equipment; and strengthen capacity for selected farmers in operational and financial management and maintenance of these assets\. SONADER executed this component satisfactorily, particularly in the areas of training, and the transfer of technical knowledge and management capacity to producer organizations\. Some important studies on improvement of advisory services and the communication strategy were not carried out which could have helped to improve service delivery and should be addressed in Phase 2\. However, important achievements were made in empowering producers and producers' organizations, and in assisting associations to obtain land registration, legal status, and access to credit provided by UNCACEM\. Women's associations were also able to gain access to credit, which they did not have prior to the project\. Although execution of this component moved slowly during the first two years of project implementation, being afflicted by similar constraints to Component B, recommendations were made at the Mid-term Review and measures taken which accelerated the pace of implementation: (i) development of a - 7 -  communication strategy, (ii) establishment of contracts with service providers with a clear program of services which are demand driven; (iii) development of a financial base for producers to access services, (iv) encouraging transparency in the award of contracts; (v) establishment of an inventory of private sector service providers; (vi) creation and animation of regional fora to allow producers to discuss their needs and to provide a base for information dissemination; (vii) incorporation of gender sensitivity in planning advisory services; (viii) improvement and monitoring of SONADER's response to needs of producers; and (ix) the merging of Component C with D1 (Technical Support to the Traditional Crops Sector) to enable SONADER to provide services more effectively by production group and theme\. The changes in personnel also contributed to improvements in SONADER's performance\. Support to Collective Farm Management and Organization\. SONADER created the regular forum and facilitated the gathering where farmers and providers of services came together to agree on and engage in contracts for services\. SONADER also formed multi-disciplinary teams to improve service delivery and added a gender specialist to implement the gender strategy in its work program\. However, the creation of a regional development committee to manage regional funds for procurement of technical assistance and training services was planned but did not materialize\. Extension services, various seminars and training sessions(functional literacy, financial management, basic bookeeping, farm management, etc\.), study tours, and assistance to women's cooperatives (including literacy, food processing, marketing) have been carried out\. About 343 producers' organizations now have legal status and are officially recognized, including 199 cooperatives which have managed to maintain their eligibility for credit and matching grants\. Training and technical assistance were offered in functional literacy (1,150 farmers); management (448 members of OSPs); technical/maintenance for workers of cooperatives (189) and individual farms (92); 160 cooperatives were assisted for the preparation of their production campaign; extension sessions about legal texts to 52 cooperatives; and farm diagnostic for 132 cooperatives and 25 individuals\. Consultation services requested by associations included: establishing the financial accounts of the UCAF, formulating a common legal statute for the union of cooperatives and the GIEs to negotiate for the large schemes, and analysis of the financial viability of two women's association in in Foum-Gleita and in Lexeiba\. By 2003, there was an overall improvement in the design and implementation of extension services by SONADER\. Participative methods and diagnostic tools were systematically employed to engage producers in formulating and endorsing work programs, preparing bidding documents for service contracts, and for local committees to monitor the quality of services provided by contractors\. A commmunication strategy was also put in place to disseminate information on rural issues and extension services through local radio stations and national television\. Support to Federating Organizations\. The APL was initially met with strong opposition from the Fédération des Agriculteurs et Eleveurs de Mauritanie (FAEM), a national umbrella organization of individual farmers which was instrumental in negotiating a credit envelope for individual farmers with the Bank at the time of appraisal\. After the project yielded positive results in the development of the local rice market, prices for local rice rose, the FAEM offered its support to the program\. Under funding from Phase 1, the national federation received technical assistance in improving management and structure, establishing regional branches in the High Valley and staffing to represent the region effectively, office equipment and supplies, publication of a bulletin, training and study tours, and assistance with subscription fees to the Confédération Nationale du Patronat de Mauritanie (CNPM)\. Support to Institutions and their Financing\. The AGETA (Association générale des groupements d'exploitants et éleveurs pour l'étude et l'emploi des techniques améliorées agricoles et animales), was an organization established by French donors to provide advice and technical assistance to individual farmers\. SONADER's mandate at the time was to provide such services to cooperatives\. When AGETA later faded - 8 -  due to poor management and insufficient funding, SONADER filled the service gap by subcontracting the private sector to provide the services\. Subsequently, about 30 private sector operators are now employed as advisory service providers to cooperatives and individual farmers\. Transfer of State-managed Schemes to Farmer Groups\. Before the project, the maintenance of large collective schemes was created with public funds and donor funding and co-managed by SONADER\. The system was unsustainable\. Water usage fees paid to SONADER were insufficient to cover operating costs and the farmers claimed not to be able to afford the fees\. However, during the project, SONADER successfully carried out a participative process with the union of cooperatives and producer organizations to negotiate a solution to the problem\. The cooperatives and producer organizations subsequently signed a charter to establish procedures for collecting water fees which provided the necessary mechanisms for transfering responsibility for managing public schemes to producers and users in the future; this was a trigger for Phase 1 to move into Phase 2\. Component D: Support for Traditional Crops Subsector (US$11\.70 million)\. The objectives of supporting the development of the traditional rice sector under this component have largely been met and the component is rated satisfactory\. This component was implemented by SONADER and supported the training of trainers and agricultural producers in improving the quality of rice production and productivity in flood recession agriculture, production and extension of traditional farm products, adapted technology and mechanization of agricultural activities, definition and establishment of quality standards for rice, and dissemination of market information\. It also funded participatory identification, appraisal, design, implementation and supervision of activities initiated by communities and individual farmers, and access to credit through loans provided by UNCACEM, and grants for agricultural inputs, rice processing equipment, marketing initiatives, and contruction of storage facilities for crops\. The component provided support to the Centre de Contrôle de la Qualité des Semences et Plantes (CCQSP), and to the Unité de Gestion des Semences (UGS) to develop, distribute and control the quality of improved rice seed though training, equipment and technical assistance\. The Interprofessionnelle des Semences et Plants de Mauritanie (ISPM) was supported through training\. Several workshops were also held to raise the awareness of producers, combined with training on multiplication techniques for multipliers\. A technical manual has also been produced\. Contracts with WARDA, the Africa Rice Center, to establish production techniques and irrigation drainage have been successfully carried out\. The quality of paddy rice has increased considerably with the use of certified seed under the project\. Controls in place to ensure seed quality at all stages of production for certified seeds has improved its reputation and demand from producers, production or local rice and yield has increased\. Eight seed processing centers have now been established, out of which six are operational with the right qualification and sorting equipment\. The capacity of the institutions involved in the propagation of seeds has been strengthened (UGS, ISP, CCQSP), and a catalog of national seed varieties (Catalogue National des Espèces de Variétés) has been developed\. Under the new liberalized policy environment, rice marketing operations saw an increase in the price of local rice on the domestic market\. Prices were maintained despite that fact that not all of the targeted rehabilitation was not completed, which meant that the solid framework put in place through the project was a success\. The new policy environment also saw the emergence of new small actors, the GIEs which were made up of small private traders and rice millers, and formed with the assistance of UNCACEM for - 9 -  producers in Borghé and Kaédi\. Despite the compounded effects of policy changes, collapse in the world price of rice, and natural disasters such as floods, the level of stakeholder commitment remained strong weathering the transition successfully\. The table below illustrates the corresponding production and prices of local rice on the domestic market: Cropping Season 2000/2001 2001/2002 2002/2003 2003/2004 Surface Area (ha) 17,938 13,586 19,362 16,879 Production (tons) 76,200 62,496 85,272 75,993 Yield (tons/ha) 4\.24 4\.60 4\.40 4\.50 Avg\. Price (UM/kg) n\.a\. 104 109 120 Sources: Enquête ménagers et exploitants agricoles (EMEA), PDIAIM (SIM/Riz) Mauritanie\. SONADER provided support to GIEs for the marketing and selling of local rice\. This included technical assistance in sampling, monitoring of test results, building capacity through training in sampling techniques, training in quality assessments, and training in identification of varieties\. However, there was often a shortage of sorting and processing equipment\. Financial support was provided through grants and through UNCACEM's line of credit consisting of short-term loans for agricultural inputs and marketing, medium-term credit for processing equipment, and long-term loans for grain storage facilities for producer organizations and individual farmers\. Financing provided by UNCACEM for seed and rice marketing totalled UM253 million in 1999 for about 5,000 tons of paddy rice, and increased to UM389 million for about 10,000 tons in 2003/2004\. Seasonal credit for agricultural campaigns, provided on a short-term to medium-term basis for the purchase of agricultural equipment, increased from UM294 million (US$1\.05 million) in 2001 to UM510 million (US$1\.82 million) in 2004\. Component E: Diversification Promotion (US$8\.07 million)\. This component is rated highly satisfactory because it has met the objectives of promoting and developing diversification and exceeded most of the targets set at appraisal\. This component was implemented by UC-PDIAIM, and funded the development of agricultural diversification in the project area (studies to identify commercial opportunities and production options for the extension of diversified, non-traditional crops; financing for pilot activities to test the recommendations of such studies; establishment of a data base in the Project Coordination Unit/Unité de coordination of PDIAIM (UC-PDIAIM) on agricultural production, crop diversification, technical and marketing information; and equipment and training for project unit staff\. Financing was provided by UNCACEM\. The diversification component began with tests in a small 2\.5 ha plot in Rosso to grow melon, tomatoes and bell peppers using new technologies, including drip irrigation and plastic straw\. Melons were particularly successful yielding 42T/ha by the end of 2001, and results on test plots were positive enough to attract a private sector partner, the Société des Grands Domaines de Mauritanie (GDM), a subsidiary of Compagnie Fruitière, an international producer and exporter of fruits and vegetables\. GDM entered into a contract with IDPIAM and established an initial pilot operation of 20 ha to test 18 different products for export\. With the entrance of GDM, production accelerated\. By the end of the project, the test plots have been expanded to 60 ha\. GDM also applied for credit from UNCACEM under the project\. For the first time in the country's history, Mauritania is exporting fruits and vegetables to Europe and melons Senegal\. The targets for preparing plots for diversification have been exceeded, counter-season vegetables were - 10 -  being produced, and a total of 1,800 tons of fruits and vegetables have been exported since 2001 (see table below): Year 2000/2001 2001/2002 2002/2003 2003/2004 Total Quantity (tons) 100 225 675 800 1,800 Diversification has encouraged farmers to be more innovative in planting profitable agricultural products as well as venturing outside of traditional periods to plant crops and increase their incomes\. Diversified crops include melon, gombo, hot peppers, bell peppers, tomatoes, eggplant, squash, turnips, fodder crops, green beans, and cherry tomatoes, destined for local markets in Noukchott, Rosso, Boghé and Kaédi, with export of melons to Senegal (beginning with 15 tons in 2004) and additional products to the European markets of France, England, and The Netherlands (about 800 tons by end of 2004, and 1,800 tons cumulatively from 2000-2004)\. The total area that has been developed for new products is at 150 ha, exceeding the target of 100 ha estimated at appraisal\. Market information is available in the form of weekly bulletins on prices for fruits and vegetables in Nouakchott, Rosso and Kaedi markets, as well as a website\. Private Sector Participation\. Mauritanian brand names for the agricultural produce have been created by two GIE groups, "Carmelita" and "Caravan" which have set up an export committee with GDM's support to oversee air and sea logistics and ensure synergy in the processing and marketing\. The products will be shipped by sea through Dakar\. Other contracts with private sector institutions include: SITAG-Fourrage for a system of irrigation adapted to cereals for fodder crops (11 ha), SICAP for supply of 10 ha for fuelwood, and seedlings for fruit trees (for 10,000 plants/yr), SOMAGIR for arboculture (12 ha), and GDM for sweet potatoes\. Infrastructure\. Implementation was hampered somewhat by bureaucractic obstruction caused by the National Procurement Agency when the airport hangar and the pilot center at Rosso came under national competitive bidding, and delays from contractors experiencing financial difficulties\. However, a temporary collective processing center was set up in Rosso and a cold storage truck purchased to offset the delays\. Construction of a second center by GDM has also been initiated and will be funded under the second phase\. Financing\. In terms of demand for credit, more than 200 requests have been made to UNCACEM for credit assistance, out of which 91 have been approved for diversification totalling 508 ha (additional to the 150 ha already developed for new products)\. This is estimated at about UM660 million (about US$2\.4 million at current exchange rates)\. Credit was also provided to two companies, GDM and Horti-Mauritanie, totalling UM340 million (US$1\.2 million) from 2001-2003, of which UM212 million (US$0\.76 million) was for short-term financing, and UM127 million for long-term\. Component F: Environmental Impact Mitigation Measures (US$3\.14 million)\. Although some progress has been made, not enough has been accomplished under the activities of the component for the objectives to be met\. Since capacity building of environmental institutions and environmental monitoring is usually a long-term investment, more time will be needed in later phases to ensure success under this component\. As such, it is rated unsatisfactory\. Progress under this component was slow throughout the project's life\. DEAR (now DENV), viewed as one of the weaker agencies of the MDRE, was given support through office equipment, transportation, technical assistance and training under an allocated envelope of $3\.5 million\. By 2004, little had been accomplished on the ground (some studies were initiated, one assessment flight had taken place and 11 sites - 11 -  replanted for aforestation)\. The amount budgeted in 2004 for this component was US$700,000\. The committee put in place by DEAR to manage the component was not visibly active, and in general the quantity and quality of activities undertaken by the DEAR could not be clearly determined, e\.g\., the surface area covered by the assessment flight was not available, a disconnect or lack of integration of environmental actions into project activities\. In addition, there was a strong dependence on internal and external consultants, to the detriment of transfer of knowledge to DEAR staff\. Communication and information flow could have been improved between different execution teams to ensure better synergy between departmental activities under the project\. Feasibility and environmental assessment studies were also delayed due to the large number of studies involved, the lengthy procurement procedures and the limited experience of project staff in procurement\. However, DEAR did accomplish the following: (i) training in environmental assessment for DEAR staff along with staff from other implementing agencies and a training plan formulated; (ii) conducting public workshops on forestry and hunting laws; (iii) certain mitigating measures have been taken including the establishment of firebreaks, fixation of sand dunes, identification of drinking wells; and (iv) studies on land use, health monitoring (malaria), and reports for establishing environmental norms\. Activities to be completed include: the implementation of recommendations contained in the completed studies including the formulation of a land use plan, the establishment of environmental norms, and the establishment of the environmental data base and monitoring system\. Construction of the 15 wells for drinking water, of which 10 have been completed, was delayed because DEAR spent valuable time involving a public agency which was eventually stripped of its mandate, and difficulties with the National Procurement Agency for finalizing works contracts under national competitive bidding\. Component G: Project Management, Supervision, Monitoring & Evaluation (US$3\.85 million)\. The objective of this component which was to build capacity in the implementing agencies to manage and coordinate a complex project has been successfully reached and targets have been met\. As such, it is rated satisfactory\. The project unit is staffed with a dynamic team based in Nouakchott (headquarters) and in two regional centers, Rosso and Kaédi (diversification)\. Coordination under the PDIAIM involving collaboration with a dozen agencies within the MDRE, and UNCACEM and SONADER spread across nine components, was successfully carried out for the most part\. Coordination between different agencies responsible for the implementation of project experienced some problems (information exchange, consolidation of project information at the project unit level, bi-weekly meetings with representatives of all agencies, monthly meetings of the steering comittee) but were progressively resolved as experience with managing project activities increased and systems were put in place to assist with coordination and monitoring\. The Interministerial Policy Committee (Comité Interministériel d'Orientation et de Suivi (CIMOS) ) and the Steering Committee (Comité de Pilotage (CP)) were meeting regularly\. The coordination unit also acted as the interlocutor of the Government with the Bank and its various partners for project activities\. SONADER and UNCACEM, independent of the MDRE and managing their own Special Acounts, held advantages for the project by using its structure without creating parallels in execution\. However, this presented a challenge in terms of management and coordination\. Financial management reports were generated on time and were found to be of good quality by the Bank's financial management specialist\. Accounting systems were sound\. The performance of the financial and accounting staff of the three implementing agencies remained constant with no turnover\. Training was given to the staff in accounting and financial management, and the financial management software in place was used regularly for quality reporting\. Capacity in procurement has been developed and by the end of - 12 -  Phase 1, Bank assessment of procurement performance was equally positive\. The data base, initially set up as a condition of effectiveness for the purpose of monitoring and evaluation, faced the constraints of not being user friendly and could not handle a large volume of requests for data\. It was being upgraded\. Regular agricultural surveys are carried out through the Enquête Ménage et Exploitants Agricoles (EMEA) and monitoring reports are generated on a trimester basis\. The Geographic Information System (GIS) was not established in Phase 1, but TORs were drafted jointly by the DPCSE, SONADER, SAFC and the cartography services of the Ministry of Equipment and Transport\. It is expected to materialize in Phase 2\. A social and economic impact analysis was completed and used to develop a methodology to assess impact in project areas and a gender study used to develop a strategy within project activities\. To improve communication and disseminate information, UC-PDIAM established a website (www\.pdiaim\.mr) to provide project information and links (including updated information on local rice prices, etc\.) to be used as a monitoring system and to link up the center at Nouakchott with all agencies collaborating under the project\. SPECIAL TOPIC: Line of Credit The line of credit (LOC) was established under the project to provide financial assistance to producers for developing irrigated schemes and production and post-harvest activities\. The LOC was a financing mechanism implemented by UNCACEM under Components B, C, D and E of the project\. It was treated as a separate chapter in the PAD and the ICR follows this format for ease of review\. The Government onlent to UNCACEM in local currency at a rate of six percent to cover IDA's credit costs\. Subsidies were also provided within certain constraints (land registration, legal status obtained) to cooperatives and individual farmers for rehabilitation and diversification activities\. The results achieved are reassuring\. Targets set at appraisal have been met fulfilling the requirements for the triggers into Phase 2, i\.e\., UNCACEM must obtain operational and financial self-sufficiency by 2001\. If achievements towards the objectives under the line of credit were to be rated, it would be highly satisfactory\. UNCACEM, a rural credit agency owned by a union of cooperatives was created in 1992, initially concentrated on short-term lending for rice cultivation\. Through the project, it has diversified its portfolio and decreased risk by moving into longer term lending\. It currently provides short and medium term loans for diversification (GDM) and loans for storage infrastructure and processing equipment; rehabilitation of schemes and management of plots for diversification\. UNCACEM's operating self-sufficiency, which measures viability, was negative in 1999, turned positive in 2002, and increased through to 2004\. The negative trend was due to floods in 1999 which affected the repayments of loans to UNCACEM the following year, forcing the agency to reschedule its debts\. Financial self-sufficiency, which measures sustainability, was negative during the first three years from 1999-2001, slightly deteriorated from 97 percent in 2000 to 91 percent in 2001, was attained in 2002 and maintained through the end of 2003\. During 1999-2003, UNCACEM's average annual increase in net income reached 26 percent; staff operating costs were maintained at 11 percent, and total operating costs at nine percent per year\. Overall, from a significant net operating loss position in 1999, net profits have been positive yearly from the end of 2000 through the end of 2003\. UNCACEM finances about 80 percent of the rice schemes and fills a financing gap, not only for the rural sector, but for medium- to long-term loans in Mauritania as a whole\. Sustainability is likely provided a second line of credit can be made available to balance out the source of funds and repayments to be made on its line of credit from the Government\. UNCACEM will also need to explore possibilities for diversifying its products outside of the rice sector in the medium to long term\. - 13 -  For the project, agricultural credit in the past was restricted to lending for planting for rice only (short term), and to a few loans for harvesting equipment (medium term)\. Women who had some irrigated vegetable gardens and farmers who wished to diversify could not access credit since it did not exist\. This was changed with the project when credit for cropping was made available to any farmer who could present a financially viable case for funding to UNCACEM\. It has now been expanded to cover marketing credit (short term), equipment (medium term) for processing, storage and marketing, and rehabilitation (long-term), for the rehabilitation and extension of existing schemes\. 4\.3 Net Present Value/Economic rate of return: A Cost Benefit Analysis was not carried out for Phase 1 because the target of 3,000 ha of land to be rehabilitated was not met, and the 1,000 ha of land which was rehabilitated did not go into production\. However, updated information gathered during implementation such as input costs, production costs, yields and prices of local rice, various crops and vegetables, were used to update the Phase 1 analysis and revise the hypothesis and applied to Phase 2\. The Phase 2 analysis (see details in Annex 3) updated the investment models and assumptions, and results of the economic and financial analyses are summarized below\. The analysis considers three investment models (rice sole cropping, rice and diversified crops, and diversification in vegetables, fruits and forage production) undertaken by cooperatives and private individual farmers operating in the Trarza and Haut-Fleuve\. The economic analysis indicated that private investment in irrigation was economically profitable, particularly for poor, collective farms involved in rice production, followed by horticulture\. For individual farmers in the Trarza willing to substitute rice for other diversified crop production, results were even higher, supporting the rationale for providing incentives to farmers to invest in new production systems, an activity which is perceived to be risky\. The ERR and NPV for the various models and assumptions used are as follows: Economic and Financial Analysis (NPV in US$) Economic Financial Models ERR (%) NPV IRR (%) NPV Rice Only Individuals with > 40 ha in Trazrza 14 907 17 989 Individuals with > 40 ha in Haut-Fleuve 15 1,222 15 693 Individuals with < 40 ha in Trazrza 14 907 27 1,507 Individuals with < 40 ha in Trazrza 15 1,222 22 1,259 Cooperative in Trarza 14 763 72 2,804 Cooperative in Haut-Fleuve 17 1,622 74 3,044 Rice + Diversification Cooperative in Trarza 22 2,607 122 4,537 Cooperative in Haut-Fleuve 22 2,711 101 4,056 Diversification Only Individual in Trarza: horticulture 62 13,181 88 6,244 Individual in Trarza: orchard 23 22,678 21 19,070 Individual in Trarza: forage 44 8,011 44 2,978 4\.4 Financial rate of return: - 14 -  A financial analysis (see above, and Annex 3) was conducted of collective farms which showed that the financial rate of return was better than the economic rate of return because of the incentives provided under the project\. Without the one-time matching grant, poor farmers would not be able to generate adequate cash flow to pay their debts\. The financial gains for individual farmers were greater in horticultural production, remained the same or less for fruit production due to the intensive nature of the investment and production systems assumed in the models\. 4\.5 Institutional development impact: The project made important contributions to the Government's efforts in fighting poverty\. It encouraged and supported the Government's efforts in sectoral and policy reforms, yielding positive results for the rural sector, and for the country as a whole\. Management and oversight of project activities strengthened ministerial staff working under the project in terms of management and coordination skills, as well as technical skills\. The project also made important contributions to establishing and strengthening national institutions and groups involved in the network of rural development, as well as to the social aspects and financial benefits of producers and their organizations\. Diversification was launched successfully in Mauritania in that it has provided agricultural export products in a country which had few export prospects at the time\. Private sector partnerships with a large European company for exporting fruits and vegetables to Europe has been built, ensuring some transfer of knowledge and technology to Mauritania\. Valuable information on the country's local rice production sector has been generated and disseminated, establishing the groundworks for developing a comprehensive monitoring and evaluation system using GIS technology for the subsequent phases\. Specifically, the implementing agencies, UC-PDIAIM, SONADER and UNCACEM have become stronger institutions capable of skillfully managing a complex set of project activities and collaboration with multiple layers of clients and donor agencies\. Their performance, weak at the beginning of the project due to lack of experience of new teams, has been strengthened to the point of being major contributors to the design of Phase 2\. Computerized financial management and reporting systems are in place and as experience built with procurement procedures, these skills have also improved\. UC-PDIAIM has established a data base on national and international market prices for rice (SIM/Riz) for the use of stakeholders, and updated information is disseminated in the PDIAIM's website along with an information bulletin which has been distributed regularly since January 2003\. SONADER's sluggish performance has accelerated in the latter half of project implementation and with the use performance contracts\. It will remain a key player in Phase 2's implementation\. UNCACEM's performance, also weak at the beginning of the project, picked up momentum following the MTR and remains a strong performer, as measured by the operating and financial self-sufficiency indicators, and now holds a market presence in the Mauritanian financial sector\. Producers and their organizations have been empowered and the mentality of producer organizations has changed as awareness increased and capacity developed (e\.g\., the Union des Coopératives Agricoles de Foum-Gleita (UCAF) pursued debtors under the Mauritanian judicial system)\. Fora are established to give voice to producers and attention to gender under the project has encouraged the participation of women's associations in gaining access to credit where previously such access was not available\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: These included the floods of 1999, periodic drought, the drop in world purchases of rice, and the uncontrolled import of Senegalese rice all along the Valley which threatened the progress of the project in 2000\. Most affected was UNCACEM's portfolio: clients affected by the 1999 floods had difficulty - 15 -  repaying the loans and UNCACEM was obliged to reschedule debts maturing in the year 2000 over the next several years, adjusting the levels of repayment for those most affected to be commensurate with their level of loss\. Despite this, however, the activities in the portfolio remained stable and some borrowing by cooperatives even increased\. 5\.2 Factors generally subject to government control: Although Government counterpart funds were received each year the amounts varied substantially from one year to the next which affected implementation until it peaked in 2003\. In the area of procurement, the central National Procurement Agency's cumbersome administrative requirements and procedures caused frequent delays in project implementation when it came to contracts which had to be launched and finalized under national competitive bidding\. The Government could also have accelerated the pace of land titling and the day-do-day functioniong of the environment department could have been overseen with more rigour\. 5\.3 Factors generally subject to implementing agency control: The high turnover of directors at SONADER contributed to the sluggishness of the implementing agency's performance in the earlier part of the project, combined with the large scope of activities for which the extension workers were responsible, covering the large project area, with unclear direction and roles all contributed to delays in start-up for the activities under the auspices of SONADER\. The lack of experience with coordinating the activities required for Component B (rehablitation/extension) including procurement and supervision of contractors by the implementing agencies also delayed start-up of this component\. 5\.4 Costs and financing: The project closed at an estimated total project cost of US$43\.09 million (excluding contributions from beneficiaries)\. As of December 13, 2005, the project has almost fully disbursed at SDR28\.16 million (US$40\.17 million) the original approved amount of SDR28\.2 million (US$38\.10 million)\. Government counterpart funds amounted to about US$2\.92 million; latest estimates for beneficiary contributions, estimated at appraisal US$3\.7 million, were not available\. The difference between total project cost estimates at appraisal and at completion can be explained by exchange rate fluctuations and by the difference in beneficiary contributions estimates missing\. The rate of implementation, as indicated by the rate of disbursements, lagged the appraisal estimates and was bunched during the later years of the project\. The extension of the closing date allowed the project funds to be fully disbursed\. Bank resources used to prepare the project was higher than for other APLs (averaging $380,000) because a lengthier preparation time was necessary to build the base and obtain agreement from the Government for implementing the controversial sectoral and institutional reforms\. Preparation also included difficult negotiations with strong national lobbies and interest groups who were opposed to the project, and building consensus among different stakeholders and disseminating information to farmer organizations\. The project team also had to accommodate changes in project design based on changes to the Bank's strategic priorities and new lending instruments\. The integrated approach also added project complexity and scope to the activities which led to delays in implementation\. As a result, the project was extended by two and a half years, adding to the costs of supervision\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Sustainability is rated likely\. Although some of the physical targets under the component on rehabilitation/extension were not fully met, these are largely offset by the targets for financial results and institutional development which were met and even exceeded\. With the experience gained from - 16 -  implementing Phase 1, the executing agencies will likely be able to carry out irrigation activities faster and more efficiently to meet the objectives of Phase 2\. The problems and issues causing the delays have been identified and measures taken in the design of Phase 2 to avoid a recurrence\. These include measures to bring together engineering firms and contractors to determine the best ways to complete irrigation infrastructure on time and at a reasonable cost; arrangements to ensure better accountability and coordination of core agencies involved in irrigation development, and administrative improvements for ensuring the timely availability of investment matching grants and timely land registration for beneficiaries\. Sustainability can then be seen in light of policy and institutional reforms have been maintained for five years and has taken root in the national system and structure, making it unlikely that this will reverse\. The agricultural sector has now been liberalized, economic reforms undertaken giving rise to improved quality and production levels of local rice\. Rice production has now become attractive economically for farmers, from small farms to larger cooperatives\. The development of agricultural credit was a principal feature of the reforms\. Formerly it was reserved for rice production but has now been made available for other activities such as trials and investments in agricultural diversification\. Diversification of agricultural products (crops, fruits, vegetables) has taken hold in the Valley and has managed to attract private sector partnership with the large French exporter of fruits and vegetables - Compagnie Fruitière - in developing products for export to the European market\. In a country like Mauritania where exportable products are still quite limited, this presents a promising prospect for developing the economy\. Community and producer organizations' active participation in strategic planning and implementation of project activities has taken hold through the fora established under the project and has witnessed ownership and a change in perspective in most areas where they have been established\. 6\.2 Transition arrangement to regular operations: The project is transitioning to the second phase of the three-phase APL, which was declared effective on July 13, 2005, and was approved for an estimated SDR25\.7 million (US$39\.0 million)\. Project activities funded under the first phase will be carried through to the second phase which will be implemented over five years to 2010\. A third, five-year phase is planned if triggers are met for Phase 2\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Project identification and preparation was satisfactory based on the amount of effort placed on obtaining agreement from the Borrower to undertake difficult sectoral and institutional reforms\. Project appraisal was carried out successfully with an adequate attention to safeguards, linkages with other sectors such as health, and other projects (Agricultural Services), appropriate skills mix and experience\. The project was highly relevant to Government priorities at the time and consistent with the objectives of the CAS\. However, project preparation took longer than normal due because the project underwent several changes in design and content to align with changes in the Bank's program priorities and lending instruments in order to transition from an individual project to an integrated APL\. 7\.2 Supervision: Supervision is rated satisfactory\. For the most part, it was carried out regularly and with an adequate skills mix, except during the latter part of the project which did not include an environmental specialist\. Problems were identified and remedial measures taken were effective in turning around the performance of most of the implementing agencies; indicators were adjusted and activities regrouped when required in order to improve implementation\. However, the capacity building of the environmental management agencies was less successful although capacity building requires a long-term commitment\. - 17 -  7\.3 Overall Bank performance: Overall, the Bank's performance is rated as satisfactory; project activities contained a difficult blend of legal, policy and institutional reforms, investments to support new market development in the country, combined with investments in physical infrastructure, capacity building for agricultural services, and establishing a mechanism for providing access to credit\. Partnership with the Government counterpart was strong which enabled to project to carry out the more difficult reforms\. Risks were clearly identified, particularly as they related to irrigation investments and the delays due to implementation of land tenure/registration laws\. However, it did not adequately identify risks related to extreme weather conditions which could affect project investments, nor the risks of inadequate infrastructure (i\.e\., rural roads, airport, sea port) which could impact agricultural market development and export\. Borrower 7\.4 Preparation: The borrower's performance at preparation is rated as satisfactory since there was a high level of ownership on the part of the Government of Mauritania and its agencies in executing the difficult legal, policy, and institutional reforms, and Government made available resources for the project teams from various agencies to participate actively in designing and preparing the project throughout the long preparation period\. 7\.5 Government implementation performance: The Government's implementation performance is rated as marginally satisfactory\. It could have done more to correct the shortcomings of the environment department's performance, and the land tenure/land titling activities would have slowed down without Bank persistence\. However, it did remained committed to the project's objectives, providing the necessary support to the program's activities and priorities, implementing the necessary legal and policy reforms, maintaining the course of liberalization, and was resourceful in taking measures to deal with situations as they arose, e\.g\., following the low rainfalls of 2002, the Government incited irrigated rice farmers to produce forage rice which is more resistant to pests and less costly to produce, to mitigate the risks of drought\. The Government made available the resources needed in terms of counterpart funds contribution to Government implementing units, although less than requested by the implementing units\. 7\.6 Implementing Agency: Overall, the implementing agencies' performances are rated satisfactory\. The MDRE's performance is rated as satisfactory\. It is staffed with a dynamic project coordination unit with a minimal turnover of staff which is advantageous for continuity, established a comprehensive M&E system to track project activities and progress, the impact of rice liberalization, and developments in market development and diversification\. It has provided coordination support to a difficult and complex project which requires experienced staff with various skills in technical as well as managerial areas\. UNCACEM's performance as a credit institution is also rated as satisfactory having significantly improved over the course of project implementation, once its portfolio was diversified\. It was able to to reach a high reimbursement rate 93-94 percent despite delayed payments during certain periods, and is staffed with a skilled manager and qualified personnel\. SONADER's performance improved during the project\. It provided valuable support and contributed to the success of the farmers and farmers' organizations activities of the project, although the record is spotty from one region to the next\. 7\.7 Overall Borrower performance: The Borrower's overall rating is satisfactory\. It demonstrated a high level of commitment to the project's objectives by staying the course on liberalization of rice and transport as well as a high level of ownership\. - 18 -  Legal covenants\. Compliance with legal covenants were satisfactory\. Audits\. Audit Reports were furnished on time and all project accounts, including special accounts, were without reserve\. Procurement\. Contractor performances involving national companies caused implementation delays in several cases, specifically: (i) construction of the cold storage facility; (ii) construction of wells for potable water; and (iii) establishment of the geographical information system\. The responsible implementing agency, SONADER, terminated contracts with the companies responsible for the canal works at Borghé and Foum Gleita and for the construction of the "Dalot 900"\. Although the performance of SONADER and that of the producers improved over the project period, they waited longer than necessary to take care of the deterioration in the secondary canal along the Borghé irrigation scheme and made the situation worse\. 8\. Lessons Learned l The APL's key features of long-term commitment and flexibility in execution facilitated the initiation and maintenance of liberalization policies for the Government of Mauritania; l Sustainability of rehabilitated schemes depend on the quality of work and sufficient amount of funding provided for operation and maintenance\. To ensure such quality and funding availability, farmer organizations should be involved early in the consultation and design process, and their involvement maintained during implementation and monitoring\. An analysis should be made on farmers' ability to pay based on means and sources of income\. l Land registration, critical to the access of investment credit and subsidies for developing irrigation schemes, needs to focus more on cooperative farmers who are the ones most interested in and most need rehabilitation and extension\. l Flood control infrastructure needs to be supported, partly or entirely, by public funds in the absence of crop insurance and risk of flooding\. l Civil works enterprises based outside Mauritania, which are regularly invited to bid but are given little incentive because of payment in local currency, should be encouraged to effectively participate and partner with Mauritanians to help increase the capacities of the latter, and exert downward pressure on the cost of building irrigation schemes; l Capacity building of public and private providers, combined with effective accountability in the form of results-based contracts, is necessary to ensure good quality and better service delivery\. l Agricultural diversification in Mauritania is a viable growth and employment strategy and should be strongly promoted\. l A large participatory approach that empowers producers and their organizations in the design and implementation of development operations is needed for sustainability\. l Within large and complex operations, an effective communication strategy is needed to ensure coordination between and within implementing agencies and disseminate the project objectives to - 19 -  the public, particularly in structures which also require a participative diagnostic approach from communities\. Communication which stops at the consultative process at the grassroots level and does not receive feedback from the decision-making centers will risk dismantling the participative process\. l An efficient M&E system should be designed early in the project's life and should be easy to use for project management and implementing agencies to provide timely and reliable data\. 9\. Partner Comments (a) Borrower/implementing agency: (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information Studies Completed: 1\. Actualisation de la stratégie du développement rural ''horizon 2015'' 2\. Stratégie agro-alimentaire de la Mauritanie 3\. Audit organisationnel et fonctionnel du MDRE 4\. Impact de la réforme tarifaire (tarifs agricoles) 5\. Organisations rurales 6\. Cadre de dépense à moyen terme du MDRE (CDMT 2002-2005) 7\. Systèmes d'informations des marchés du Riz (SIM/Riz) 8\. Schéma d'aménagement de la Vallée du Gorgol 9\. Désenclavement Gani-Dar El Barka 10\. Impact environnemental du PDIAIM 11\. Plan d'occupation des sols et schéma directeur d'aménagement Koundi 1 à 5 12\. Schéma directeur d'aménagement Koundi 6 à 10 (Brakna Ouest) 13\. Développement intégré de la zone de Garak-Sokam 14\. Problèmes sanitaires 15\. Réhabilitation de petits périmètres hydro-agricoles 16\. Transfert des grands aménagements 17\. Transfert juridique des grands aménagements 18\. Diagnostic des exploitations agricoles - 20 -  19\. Diagnostic du périmètre de Foum-Gleita 20\. Stratégie de la filière semencière en Mauritanie 21\. Elaboration d'une méthodologie d'études des impacts socio-économiques du PDIAIM 22\. Elaboration d'une stratégie genre du PDIAIM 23\. Elaboration des Comptes d'Exploitations des Exploitations Agricoles en Zônes Irriguées\. 24\. Environnement économique de l'irriguée, mécanismes de financement, et analyse économique et financière (PHASE II) 25\. Plan de Gestion Environnementale et Sociale du PDIAIM 26\. Plan de Gestion de Pestes et Pesticides 27\. Plan de Relocalisation - 21 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Status of agreed outcomes indicators PDO Indicator Baseline Value End-of-Project Target Value Number or text Date Number or text Date 1\. Continued absence of rice sector Rice imports tied to quotas of 12/16/1999 Rice sector distortions are absent\. 06/30/2005 distortions, as a result of measures paddy purchases; administered introduced in 1999 paddy prices; subsidies for paddy purchases; rice milling publicly managed; millers paid 2\. Implementation of regulations Regulations adopted but not yet 12/16/1999 Additional measures are identified 06/30/2005 associated with Decree 98/48 and implemented in proposed transport project Bylaw R075 on transport sector 3\. Satisfactory rate of repayment Poor repayment rates (as low as 12/16/1999 Repayment rate is 92% in total 06/30/2005 (at least 95%) of loans granted by 75%) portfolio (including rescheduled UNCACEM loans) 4\. Operational and financial self- UNCACEM is not self-sufficient 12/16/1999 UNCACEM has achieved 06/30/2005 sufficiency achieved by operational and financial self- UNCACEM by the end of 2001 sufficiency 5\. Credit for non-rice crops Credit not accessible 12/16/1999 Credit accessible to farmers 06/30/2005 accessible to producers fulfilling fulfilling credit conditions 6\. Improved efficiency (volume of Volume: UM 640 million 12/16/1999 UNCACEM provides timely res- 06/30/2005 credit and response time) of ponse to all requests and provides UNCACEM in pro-viding credit to timely credit to those eligible; indivi-duals and cooperatives Volume: UM1,266 m for 7\. Improved performance of SONADER's performance was 12/16/1999 Improved technical supervision 06/30/2005 SONADER in accordance to poor (timetable) of irrigation criteria set out in its Performance development 8\. Awards of land use permits and Laws not always stricktly 12/16/1999 Amended land tenure (Decret no\. 06/30/2005 temporary or permanent applied 089-2000) properly applied concessions are in accordance with applicable land tenure laws (tran 9\. Satisfactory access to Poor access to agricultural 12/16/1999 Special survey completed found 06/30/2005 agricultural services by poor services by poor farmers\. access satisfactory\. 10\. Economic return of Degraded schemes, poor rice 12/16/1999 Available data indicate satisfactory 06/30/2005 investments made on irrigated quality, and distortions financial and economic returns schemes under IDA credit are contribute to negative economic 11\. Improved cost-benefit ratio for Economic and financial analysis 12/16/1999 Cost-benefit ratios are sufficient to 06/30/2005 rice and new diversification crops for Phase 1 indicated positive incite farmers to make new on the basis of initial available results investments\. Economic and results financial analysis conductedf for Phase 2 indicate positive returns for 12\. Completion of feasibility No feasibility 12/16/1999 Priority feasibility studies for 06/30/2005 studies for off-farm (public) available investment under Phase 2 investments have been completed - 22 -  Intermediate outcome indicator(s) 1\. Legal and regulatory texts re Measures not available or 12/16/1999 Policy measures adopted and 06/30/2005 import tariffs, transportation, land without implementation implemented tenure, producer organizations, and water mgt are satisfacotry and 2\. Institutional capacities at Weak capacities in all 3 12/16/1999 Improved capacities at UNCACEM, 06/30/2005 UNCACEM (credit), MDRE institutions MDRE, and SONADER (central coordination) and SONADER (producers) 3\. Feasibility studies available and No adequate feasibility studies 12/16/1999 Feasibility studies are available for 06/30/2005 adequate for public infra structures available eventual investment under Phase II to be carried out under Phase 2 4\. Irrigated schemes rehabilitated, No rehab\. and creation of 12/16/1999 Total 1,000 ha rehabilitated or 06/30/2005 expanded and newly created technically and environmentally newly created 5\. Results of R&D on pumping No results of R&D on pumping 12/16/1999 Information on material on R&D 06/30/2005 systems, irrigation and drainage systems, irrigation and drainage activities finalized for diffusion techniques techniques available to 6\. Skills strengthened in the areas Producers lack capacity in the 12/16/1999 Cooperatives maintain credit 06/30/2005 of literacy, management, areas mentioned eligibility organization, supply, marketing, credit, partnerships, irrigated scheme and equipment 7\. Skills improved for producers Producers have low technical 12/16/1999 Technical training materials are 06/30/2005 and extensions agents in the areas skills compiled and distributed of productions, storage, processing, conservation techniques and intermediate mechanization 8\. Availability of high quality seed Little use of certified improved 12/16/1999 At least 42% use of certified seed 06/30/2005 9\. Functional rice market Rice quality under distorted seed 12/16/1999 Initiate process for weekly, instead 06/30/2005 information system (SIMRiz) policy regime is known to be of monthly, publication poor, but no rice market 10\. Diversification products tested No tests for exports 12/16/1999 800 tons exported 06/30/2005 and proved promising 11\. Professionalization of No exporters of fruits and 12/16/1999 Maintained core number of 06/30/2005 diversification subsectors vegetables exporters 12\. Operational pest control No available pest control service 12/16/1999 Improved services available at 06/30/2005 services at ports and airports at airport airport 13\. Operational logistical and No operational, logistical, and 12/16/1999 Airfreightt terminal and packouse 06/30/2005 refrigeration infrastructures refrigeration infrastructures under construction for completion 14\. Existence of a database on No available database 12/16/1999 Market information system on fruits 06/30/2005 market data and comparator for and veg-tables continues to be products developed provided 15\. Environmental observatory No environmental observatory 12/16/1999 Reports finalized 06/30/2005 operation (database of 16\. Land use plan No land use plan 12/16/1999 Report finalized 06/30/2005 17\. Environmental norms adopted No environmental norms 12/16/1999 Environmental norms adopted for 06/30/2005 and followed adopted implementation during Phase 2 18\. Mitigation measures carried No mitigation measures carried 12/16/1999 10 wells completed during 06/30/2005 19\. Project Management out N\.A\. (Project management not out 12/16/1999 Satisfactory financial management extension phase 06/30/2005 created) and reporting - 23 -  Annex 2\. Project Costs and Financing Appraisal Estimates Actual Estimates Percentage of Disbursement Accounts (US$ millions) (US$ millions) Appraisal Civil Works 3\.70 1\.34 36% Goods 5\.68 4\.72 83% Consultant Services, Training 14\.82 14\.00 94% Line of Credit/Subsidies 17\.14 15\.42 90% Operating Costs 3\.38 6\.31 187% PPF 1\.30 1\.30 100% Total 46\.02 43\.09 94% N\.B\.: Actual estimated Project Costs by Components are not available\. Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.28 1\.92 0\.00 2\.20 (0\.00) (0\.23) (1\.60) (0\.00) (1\.83) 2\. Goods 5\.66 0\.21 0\.83 0\.00 6\.70 (4\.23) (0\.17) (0\.66) (0\.00) (5\.06) 3\. Services 0\.00 0\.00 13\.85 0\.53 14\.38 and Training (0\.00) (0\.00) (13\.27) (0\.00) (13\.27) 4\. Line of Credit, Subsidies 0\.00 0\.00 14\.04 3\.71 17\.75 (0\.00) (0\.00) (14\.04) (0\.00) (14\.04) 5\. PPF Refund 0\.00 0\.00 1\.30 0\.32 1\.62 (0\.00) (0\.00) (1\.30) (0\.00) (1\.30) 6\. Operating Costs 0\.00 0\.00 3\.38 0\.00 3\.38 (0\.00) (0\.00) (2\.64) (0\.00) (2\.64) Total 5\.66 0\.49 35\.32 4\.56 46\.03 (4\.23) (0\.40) (33\.51) (0\.00) (38\.14) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.28 0\.80 0\.26 0\.00 1\.34 (0\.26) (0\.70) (0\.24) (0\.00) (1\.20) 2\. Goods 2\.80 1\.02 0\.90 0\.00 4\.72 (2\.35) (0\.83) (0\.77) (0\.00) (3\.95) 3\. Services 0\.00 0\.00 14\.00 0\.00 14\.00 and Training (0\.00) (0\.00) (13\.41) (0\.00) (13\.41) 4\. Line of Credit, Subsidies 0\.00 0\.00 15\.42 0\.00 15\.42 - 24 -  (0\.00) (0\.00) (15\.42) (0\.00) (15\.42) 5\. PPF Refund 0\.00 0\.00 1\.30 0\.00 1\.30 (0\.00) (0\.00) (1\.30) (0\.00) (1\.30) 6\. Operating Costs 0\.00 0\.00 6\.31 0\.00 6\.31 (0\.00) (0\.00) (4\.88) (0\.00) (4\.88) Total 3\.08 1\.82 38\.19 0\.00 43\.09 (2\.61) (1\.53) (36\.02) (0\.00) (40\.16) 1/Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Disbursement Accounts (US$ M) Appraisal Estimates Actual Estimates Govt of Govt of IDA Mauritania Beneficiaries Total IDA Mauritania Beneficiaries Total Civil Works 2\.29 0\.48 0\.93 3\.7 1\.2 0\.14 n\.a\. 1\.34 Goods 4\.28 1\.4 5\.68 3\.95 0\.77 n\.a\. 4\.72 Consultant Services, Training13\.59 0\.69 0\.54 14\.82 13\.41 0\.59 n\.a\. 14 Line of Credit/Subsidies 14\.04 0\.32 2\.78 17\.14 15\.42 0 n\.a\. 15\.42 Operating Costs 2\.64 0\.74 3\.38 4\.88 1\.43 n\.a\. 6\.31 PPF 1\.3 1\.3 1\.3 0 n\.a\. 1\.3 Total 38\.14 3\.63 4\.25 46\.02 53\.9 2\.93 n\.a\. 43\.09 N\.B\.: Actual estimates of Project Costs by Components are not available\. Appraisal Estimate: Beneficiary contribution for Component 2: $1\.92 million; Component 4: $0\.86 million; Component 5: $0\.93 million\. Actual/Latest Estimate: Beneficiary contribution amounts not available\. - 25 -  Annex 3\. Economic Costs and Benefits A Cost Benefit Analysis (CBA) was not carried out for Phase 1 because the target of 3,000 ha of land to be rehabilitated was not met, and the 1,000 ha of land which was rehabilitated did not go into production\. Consequently, an illustrative Cost Benefit Analysis was carried out for Phase 2 which revised the hypotheses and updated the economic and financial analysis for Phase 1\. The Phase 2 analysis (see below) updated the information applicable to Phase 1 using recent information on costs of inputs, production, data on yields and recent prices of rice, different crops, and vegetables\. The investment models, assumptions used, and results of the economic and financial analyses are as follows: Economic and Financial Analysis (NPV in US$) Economic Financial Models ERR (%) NPV IRR (%) NPV Rice Only Individuals with > 40 ha in Trazrza 14 907 17 989 Individuals with > 40 ha in Haut-Fleuve 15 1,222 15 693 Individuals with < 40 ha in Trazrza 14 907 27 1,507 Individuals with < 40 ha in Trazrza 15 1,222 22 1,259 Cooperative in Trarza 14 763 72 2,804 Cooperative in Haut-Fleuve 17 1,622 74 3,044 Rice + Diversification Cooperative in Trarza 22 2,607 122 4,537 Cooperative in Haut-Fleuve 22 2,711 101 4,056 Diversification Only Individual in Trarza: horticulture 62 13,181 88 6,244 Individual in Trarza: orchard 23 22,678 21 19,070 Individual in Trarza: forage 44 8,011 44 2,978 Investment Models The analysis considers three investment models (rice sole cropping, rice and diversified crops, and diversification in vegetables, fruits and forage production) undertaken by cooperatives and private individual farmers operating in the Trarza and Haut-Fleuve\. However, it is more likely to have only collective farmers engage in horticultural production after a rice crop and individual farmers engaged in horticultural mono cropping\. All models include windbreaks, which are promoted by the project to protect crops, increase revenues from wood products and reduce environmental degradation (protection against wind and sand erosion)\. Assumptions The rice model assumes an increase in yield from 4 tons/ha to 6 tons/ha, and an increase in cultural intensity of 1\.2 to 1\.5, from the without- to with-project situation\. These remain very conservative assumptions given the strengthening of capacities provided by the project\. The assumptions are also conservative in accounting only for the increase in revenue (sale of wood products) from the windbreaks and not for their likely impact on yields of protected crops for lack of information\. Prices of local paddy and horticultural products (melon, pepper, mango, and okra) are those observed in local markets at the - 26 -  wholesale level\. Local prices for horticultural products are higher in Mauritania than those observed in neighboring countries, but they are a reflection of the strong demand from Mauritanian consumers that are increasing added fresh vegetables to their diets\. The cost of capital is assessed at 12 percent\. Economic Analysis The results are indicative of economic profitability of private investment in irrigation development\. The results are particularly strong for poor collective farms in the Trarza and the Haut-Fleuve that engaged in rice production, followed by horticultural production\. The results, however, are strongest for individual farmers in the Trarza that would substitute rice for other diversified crop production\. These results provided the reason and rationale for providing incentives to farmers to invest in new production systems, which are perceived to be risky\. Financial Analysis The financial results for collective farmers are markedly better than the economic results because of the incentives provided under the project\. Without the one-time matching grant, poor farmers would not be able to generate enough cash flow to pay back their debts\. The financial gains for individual farmers are greater in horticultural production\. but remained unchanged or lower for fruit production because of the intensive nature of the investment and production systems assumed in those models\. In addition, fruit production required a longer gestation period and periodic reinvestment without matching grants\. Sensitivity Analysis: Switching values Models Economic Financial Product Investment Product Product Investment Product price cost yield price cost yield Rice only Individuals with > 40 ha in Trarza -23% 38% -11% -20% 34% -10% Individuals with > 40 ha in Haut-Fleuve -26% 47% -13% 0\.14 21% -7% Individuals with < 40 ha in Trarza -23% 38% -11% -30% 62% -15 Individuals with < 40 ha in Haut-Fleuve -26% 47% -13% -25% 47% -13% Cooperative in Trarza -19% 32% -10% -56% 324% -28% Cooperative in Haut Fleuve -31% 62% -17% -53% 320% -29% Diversification only Individual in Trarza: horticulture -29% 160% -31% -11% 54% -12% Individual in Trarza: orchard -45% 384% -45% -35% 273% -35% Individual in Trarza: forage -27% 79% -27% -4% 12% -4% The results are somewhat sensitive to a decrease in product yield, but less to a drop in product price (except for forage crops) and insensitive to a one-time investment increase in investment cost\. The assumptions, however, are conservative on the down side\. Targeted extension services are provided to producers to help them realize high product yields, and the project has provision to combat attacks of granivorous birds that could ravage rice crops, particularly in the off-season\. Also, Mauritania is one of several Sahelian countries that are implementing a 5-year Locust project, which emphasizes preventive measures and timely treatments of swarms\. - 27 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/19/1996 8 SR NRM/TTL (1); AGRIC\. S S ECONOMIST (1); SR ENV ASSESSMENT SPEC\.(1) ; M&E SPECIALIST(1); AGRONOMIST (1); RURAL CREDIT SPECIALIST (1); CREDIT SPEC/ECONOMIST (1); IRRIG ENGINEER( 1) Appraisal/Negotiation 02/21/1998 15 SR NRM/TTL (1); TECHNICAL MANAGER (1); AGRIC\. ECONOMISTS (1); AGRIC\. STATISTICS (1); IRRIG ENGINEER (1); AGRONOMIST(1); ECONOMIST (1); CROP CONSULTANT(1) ; OPERATIONS ANALYST(1); M&E SPECIALIST(1); AGRICULTURALIST (1); PROC SPECIALIST (1); LAWYER (1); SOCIOLOGIST (1); PIM CONSULTANT(1) Supervision 10/10/2000 2 NRM, TTL (1); FMS (1) S S 04/01/2001 2 SR\. NATUR\. RESOURCE MG S S (1); ECONOMIST (1) 02/19/2002 (MTR) 14 TTL, MISSION LEADER (1); S S AGR\. SERVICES (2); FIN/ECON/TARIFFS/MKTG (1); ENVIRONMENT (1); PROCUREMENT (1); GIS (1); FINANCIAL MANAGEMENT (2); SOCIAL/GENDER ISSUES (1); CREDITS/GRANTMGT;ECON\. (1); MONITORING/ EVALUATION (1); DIVERSIFICATION (1); - 28 -  DISBURSEMENT (1) 11/26/2002 6 TEAM LEADER (1); S S AGRICULTURALSPECIALIST (1); SENIOR AGR\. ECONOMIST (1); IRRIGATION SPECIALIST (1); RURAL FINANCING CREDIT (1); DIVERSIFICATION (1) 07/11/2003 1 TTL (1) S S 01/06/2004 7 TEAM LEADER (1); AGRICULTURAL SPECIALIST (1); INFORMATION SYST\. (1); IRRIGATION SPECIALIST (1); AGRIC\.RESEARCH (1); FIN\.MGT(1); PROCUREMENT (1) ICR 09/18/2004; 2 1 SR\. AGRIC ECONOMIST; 1 INFRASTRUCTURE CONS\. ; 1 RURAL FINANCE/CREDIT SPECIALIST; 1 SOCIOLOGIST; 1 OPER\. ANALYST (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 321\.80 1,044\.0 Appraisal/Negotiation 19\.80 37\.7 Supervision 204\.71 655\.98 ICR 7\.94 25\.87 Total 554\.25 1,763\.55 - 29 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA farmers'/producers' organizations Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 30 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU Implementation performance for SONADER was unsatisfactory up until mid-term review following which it would be rated partially satisfactory\. Performance of the DENV would be unsatisfactory\. However, since overall project implementation was carried out principally by the coordination unit and UNCACEM in addition, whose performance were highly satisfactory, this balanced out the overall rating for implementing agencies\. - 31 -  Annex 7\. List of Supporting Documents Mission Aide Memoire, Mission de revue à mi-parcours, 20 janvier - 6 février 2002 (attached, see Annex 9)\. Lettre de Politique de Développement de l'Agriculture Irriguée, Horizon 2010\. Ministère du Développement Rural et de l'Environnement, 25 mai 1999\. Rapport Bilan du 134 janvier 200 au 31 août 2004, Unité de Coordination du PDIAIM, Ministère du Développement Rural et de l'Environnement, Septembre 2004\. - 32 -  Additional Annex 8\. Borrower's Report Mauritanie Projet de Développement Intégré de l'Agriculture Irriguée en Mauritanie PDIAIM Rapport d'Achèvement de la Phase I Juin 2005 - 33 -  A\. Données de synthèse Date du rapport : juin 2005 Dates clé : Prévu Révisé Mise en vigueur du prêt 01 sept 1999 16 déc 1999 Révision à Mi-Parcours 01 sept 2002 06 fév 2002 Fermeture 31 déc 2002 30 juin 2005 Agence(s) d'exécution : MDRE (UC-PDIAIM), SONADER, UNCACEM Financement du projet (US$ m) : IDA : 38,1 Co-financement : 0,5 Gouvernement : 3,7 Bénéficiaires : 3,7 Coût total : 46,0 Crédit (IDA seulement) : Période de sursis : 10 ans Période de repaiement : 40 ans Intérêt : 0,50% Frais de service 0,75% Plan de paiement (US$ m) : Origine Local Etranger Total Contribution du gouvernement mauritanien 3,7 - 3,7 Contribution des bénéficiaires mauritaniens 3,7 - 3,7 Cofinanciers 0,5 - 0,5 IDA 15,2 22,9 38,1 Total 23,1 22,9 46,0 Emprunteur : Gouvernement de la République Islamique de Mauritanie Déboursements IDA prévus (US$ m) : Période juil 1999 ­ juin 2000 juil 2000 ­ juin 2001 juil 2001 ­ juin 2002 juil 2002 ­ juin 2003 Annuel 10 12 14 2\.1 Cumulatif 10 22 36 38\.1 B\. Evaluateurs de Performance Principaux Résultat global : S Durabilité : HP Performance de la Banque Mondiale : S Performance de l'Emprunteur : S Qualité du Projet au Démarrage : S Projet à Risque à un moment donné : Non HS = Hautement Satisfaisant, S = Satisfaisant, I = Insatisfaisant, HI = Hautement Insatisfaisant HP = Hautement Probable, P = Probable, I = Improbable, HI = Hautement Improbable - 34 -  C\. Evaluation des Objectifs, Conception du Projet et Qualité au Démarrage C\.1 Objectif(s) du Projet au Démarrage (adapté du document d'évaluation du projet et de l'Accord de Crédit) Stratégie du Gouvernement La stratégie globale du gouvernement est d'atteindre un développement économique et social rapide mené par le secteur privé, avec comme rôle pour l'Etat de créer les conditions nécessaires pour promouvoir la croissance et contribuer à la réduction de la pauvreté\. Le Programme de Développement Intégré de l'Agriculture Irriguée en Mauritanie ­ PDIAIM Le PDIAIM s'inscrit dans la stratégie du gouvernement et comprend l'amélioration du niveau de vie et une réduction du nombre de personnes habitant en dessous du seuil de la pauvreté\. Ce Programme, qui a une durée de 11 ans (prorogé de deux ans), a pour objectif de faire de la Vallée du Fleuve Sénégal une des sources principales de développement et de croissance économique pour la Mauritanie\. A moyen terme, le Programme prévoit surtout la réhabilitation des périmètres irrigués couramment sous exploitation et leur mise en valeur en production intensive de riz et de légumes\. Le Projet Dans le cas du présent rapport, « Le Projet » se réfère à la période 1999 à 2002 (prorogé à juin 2005), qui représente la première phase du Programme\. Les objectifs du Projet défini comme tel sont (a) d'augmenter la productivité agricole, l'emploi et le niveau de revenu par l'utilisation rationnelle de l'eau et des terres arables ; et (b) d'établir le fondement d'un développement durable de l'agriculture irriguée d'un point de vue technique, financier, environnemental et socio-économique\. Le Projet a prévu de fournir les incitations nécessaires à la réhabilitation et l'extension de 3\.000 ha de périmètres irrigués partiellement dégradés et au développement de 100 ha de nouveaux périmètres\. Certaines composantes du Projet (amélioration des modes de gestion et d'organisation des fermiers, appui au secteur rizicole, promotion de la diversification agricole, atténuation environnementale) auront un impact positif sur une étendue largement supérieure aux 3\.100 ha ciblés, étant donné qu'ils seront bénéfiques également aux périmètres réhabilités par d'autres bailleurs\. C\.2 Objectif(s) du Projet à la clôture (si révisé) Les objectifs du Projet n'ont pas été révisés\. C\.3 Composantes à l'Origine Le Projet est constitué des composantes suivantes selon l'accord de crédit : Composante A créer un cadre politique, légal et institutionnel favorable et incitatif ; ceci comprend : (1) des études pour la préparation de lois et arrêtés sur les taxes, tarifs, le transport, le secteur foncier, les organisations agricoles et la promotion des produits pour l'exportation, y compris de la formation ; (2) le renforcement du cadre institutionnel et des capacités des : (a) Ministère du Développement Rural et de l'Environnement (MDRE) ; assistance technique et formation au personnel de la Direction des Politiques et du Suivi-Evaluation (DPSE) dans la collecte des données, les logistiques, l'évaluation statistique, la coordination, le suivi, la communication et la passation des marchés ; (b) de la Société Nationale pour le Développement Rural (SONADER) ; études et mise en oeuvre les recommandations sur la structure du personnel dans le but de réduire et former celui-ci ; (c) de l'Union Nationale des Coopératives Agricoles (UNCACEM) ; études et mise en oeuvre les recommandations sur les besoins en formation, amélioration de la gestion et le potentiel de diversification Composante B développer une infrastructure de base publique et privée ; (1) études sur la réhabilitation des structures hydrauliques, drainage et routes et la préparation des termes de référence pour la mise à jour du Plan Directeur de la Rive Droite\. - 35 -  (2) la construction d'infrastructure hydraulique et routes ; (3) la recherche et la mise en oeuvre d'études pour l'amélioration des ouvrages agricoles ; et (4) l'identification, évaluation, conception et mise en oeuvre d'activités à base communautaire, et l'octroi de dons et prêts pour la réhabilitation, extension et création de réseaux d'irrigation\. Composante C améliorer les compétences de gestion et d'organisation des fermiers et des organisations de producteurs ; (1) renforcer les Organisations de Producteurs (OP), y compris des études sur les organisations existantes et un programme de formation pour certains membres des OP dans la gestion financière et l'entretien des équipements d'irrigation\. (2) exécuter un programme de formation pour les producteurs dans la gestion financière et opérationnelle et l'entretien des équipements d'irrigation\. Composante D renforcer le secteur agricole irrigué traditionnel (rizicole) ; (1) exécuter un programme de formation pour les communautés agricoles, les fermiers et les formateurs agricoles dans les domaines de : (a) l'amélioration de la qualité du riz ; (b) l'augmentation de la productivité dans la culture de décrue ; (c) l'augmentation de la production des produits traditionnels p\.ex\. le fourrage, les oléagineuses, le bois de chauffe et la conservation des produits ; (d) les technologies adaptées et la mécanisation des activités agricoles ; (e) la définition et la mise en place des standards de qualité pour le riz ; et (f) la dissémination nationale, régionale et internationale de l'information des marchés\. (2) l'identification, évaluation, conception, mise en oeuvre et supervision des initiatives communautaires et celles demandées par les fermiers individuels, et l'octroi de dons et prêts pour : (a) intrants agricoles pour les cultures traditionnelles ; (b) l'équipement de transformation du riz ; (c) des initiatives de marketing ; et (d) la construction de moyens d'entreposage\. Composante E promouvoir la diversification agricole ; (1) études pour identifier les opportunités commerciales et les options de production pour l'extension des cultures diversifiées et non-traditionnelles par des services d'aide technique\. (2) l'approbation, la conception, la mise en oeuvre, la supervision et l'octroi de dons pour le financement d'activités pilotes pour évaluer les recommandations des études entreprises sous le paragraphe ci-dessus\. (3) la mise en place d'une base de données à l'Unité de Coordination (UC) du PDIAIM sur la production agricole, la diversification, et l'information technique et des marchés\. (4) programme de formation pour le personnel de l'UC-PDIAIM, et acquisition d'équipement\. Composante F mettre en place des mesures d'atténuation pour les impacts indésirables du Projet (1) mise en place à la Direction de l'Environnement et de l'Aménagement Rural (DEAR) de : (a) une banque de données qui collecte l'information sur les données sensibles d'un point de vue environnemental ; (b) un système de gestion environnementale qui facilite : (i) l'évaluation des impacts des activités agricoles sur l'environnement ; et (ii) le développement de stratégies d'atténuation ; par la provision de services techniques et l'exécution d'un programme de formation à la DEAR et l'obtention d'équipement\. (2) un programme de formation pour la DEAR, UC-PDIAIM, MDRE et SONADER dans les sujets suivants : (a) la gestion environnementale, (b) Etudes d'Impact Environnemental (EIE), (c) conception de stratégies environnementales, et (d) suivi des impacts environnementaux\. (3) études et recherche et préparation des règlements et normes techniques pour l'utilisation optimale des sols et les activités agricoles les moins négatives\. (4) mesures d'atténuation pour réduire les effets néfastes du Projet, par l'octroi de services conseils techniques, de travaux et d'acquisition d'équipement\. Composante G Gestion, supervision, suivi et évaluation du Projet\. Administration, coordination, supervision et évaluation de la mise en oeuvre du projet par la formation du personnel dans l'UC-PDIAIM, DPSE, DEAR, Direction de la Recherche, Formation et de la Vulgarisation (DRFV) et la Direction des Ressources Agro-Pastorales (DRAP)\. Acquisition d'équipement et provision de services techniques\. - 36 -  Ces composantes ne sont pas obligatoirement les mêmes que celles inscrites dans le Project Appraisal Document (PAD)\. C\.4 Composantes Révisées Les composantes du Projet ont été en partie révisées au niveau des sous-composantes\. Certaines adaptations ont été faites pour mieux répondre à l'attente des différents centres de responsabilité : La sous-composante B4 (réhabilitation des périmètres) a été combinée à la sous-composante B2 (construction d'infrastructures hydrauliques et routes) Une nouvelle sous-composante B4 a été créée : Révision foncière, auparavant sous financement de l'Union Européenne\. La composante C (renforcement des capacités des producteurs) a été combinée avec la sous-composante D1 (renforcement des capacités pour les communautés agricoles)\. Deux nouvelles sous-composantes sur les semences du riz (D2 Contrôle de la qualité et D3 Amélioration de la filière semence) sont venues s'ajouter à la composante D (secteur irrigué traditionnel) C\.5 Qualité au Démarrage La qualité du projet au démarrage est « Satisfaisante » ; le Projet est conforme avec la stratégie du gouvernement, qui est la réduction de la pauvreté par le développement économique\. Le Projet a comme but d'établir le fondement de ce développement dans la Vallée du Fleuve Sénégal\. Problèmes Environnementaux Existants Le projet est en accord avec les politiques environnementales nationales et avec les politiques environnementales et sociales de la Banque Mondiale (les « Sauvegardes »)\. La sixième composante du Projet a comme but de mettre en place les mesures d'atténuation d'impacts du Projet, ainsi que d'entretenir une gestion environnementale de la Vallée\. Cependant, en ce qui concerne les problèmes environnementaux existants, le projet n'a pas prévu de mesures préventives liées aux grandes infrastructures existantes (les barrages de Manantali et Diama), qui ont été construits avec comme but principal la gestion de l'eau pour l'agriculture\. Cependant, l'ensemble de ces problèmes est pris en charge par des projets sous-régionaux (OMVS et Programme Biodiversité)\. Problèmes Sociaux Existants Au démarrage du Projet, les pêcheurs, éleveurs, et agriculteurs de décrue n'avaient pas accès à l'irrigation\. Le projet compte développer le marché foncier sans démunir ces classes défavorisées et vulnérables\. En ce qui concerne les impacts sociaux liés aux grandes infrastructures existantes (augmentation des maladies hydriques, difficulté de navigation à travers les plantes envahissantes, baisse de la qualité de l'eau) le Projet a prévu de coordonner ses efforts avec le Deuxième Projet de Santé, également sur financement IDA, pour combattre les maladies hydriques\. En plus, le Projet a prévu de financer des enquêtes annuelles sur les effets des nouvelles infrastructures sur l'incidence des maladies infectieuses et proposera des mesures d'atténuation, à être financées sous le Deuxième Projet de Santé\. Problèmes environnementaux et sociaux résultant du Projet Il n'y a pas de travaux d'infrastructure majeurs prévus pendant la durée du Projet (1999 ­ 2002, prorogé à juin 2005), période durant laquelle des études de faisabilité, des plans d'aménagement, des procédures de gestion et des travaux de réhabilitation seront élaborés\. Cependant, pour toute activité entreprise sur les casiers irrigués, le Projet à prévu que des EIE soient exécutées, et a prévu des fonds pour financer les mesures d'atténuation y afférentes\. Le Projet a également prévu qu'un système de suivi environnemental pour la Vallée sera développé\. Indicateurs de Performance Le Projet est trop complexe en ce qui concerne les indicateurs de performance clés utilisés dans le cadre logique : ceux-ci sont trop nombreux (75 au total), et difficiles à quantifier, mesurer et suivre\. Pendant l'exécution de la première phase, l'UC-PDIAIM n'a pas pu mesurer certains indicateurs, a du en modifier certains, et a du en ajouter - 37 -  d'autres\. Deuxièmement, le PAD n'a qu'un objectif (« établir le fondement technique, financier, environnemental et socio-économique pour le développement durable de l'agriculture irriguée »), alors que l'Accord de Crédit en a un de plus : (« augmenter la productivité agricole, l'emploi et le niveau de revenu dans la zone du Projet par l'utilisation rationnelle de l'eau et des terres arables »)\. Ces objectifs sont soutenus par 12 indicateurs, qui deviennent 16 indicateurs dans le cadre logique\. Troisièmement, les sept composantes du Projet ne sont pas résumées dans le texte principal du PAD, mais uniquement dans les annexes\. Conception La conception du Projet est de bonne qualité : étant la première phase d'un programme de 11 ans, le Projet a surtout comme résultats attendus des mesures institutionnelles et légales ; il ne prévoit pas de travaux d'infrastructure majeurs, mais prévoit par contre des petits travaux de réhabilitation\. Il est raisonnable de croire que les produits du Projet trouveront bonne réception auprès des populations cibles : un nouveau cadre politique, légal et institutionnel est indispensable pour ouvrir le secteur aux producteurs, qui ont été, avant le projet, restreints par un manque de transparence, des contraintes fiscales et légales, et des restrictions dans le domaine du transport et du foncier qui causaient un handicap majeur\. L'infrastructure actuelle étant fort dégradée, la population pourra relancer l'agriculture avec une meilleure productivité quand l'infrastructure sera réhabilitée\. Les appuis divers offerts par le Projet (appui à la gestion et organisation agricole, à la filière riz, à la filière fruits / légumes) et grand nombre de renforcement de capacités serviront à augmenter l'efficacité du secteur\. Les mesures d'atténuation environnementales et sociales seront reçues avec enthousiasme par la population, qui cherche accès aux soins médicaux et à un environnement sain\. Suppositions Le Projet, qui espère rendre le marché du riz plus compétitif, et qui espère concurrencer les produits jusqu'alors importés, a supposé que la libéralisation du marché du riz (paddy) résulte en une augmentation du prix de l'achat auprès des producteurs et une augmentation de la qualité ; ces suppositions sont raisonnables du fait que le système antérieur était inefficace, produisait un riz de mauvaise qualité, mal entreposé et mal traité\. Le Projet a aussi supposé avec précision sur la stabilité du gouvernement, sur le soutient que porte le gouvernement au projet, et sur les besoins importants en renforcement de capacités pour le développement de l'infrastructure et la gestion\. Cependant, ayant vu les catastrophes naturelles (inondations en 2001, criquets en 2004) et l'endémisme de certains fléaux (pestes aviaires), le Projet aurait pu prévoir les retards que ces problèmes portent à l'atteinte des objectifs du projet, en particulier le non-repaiement des crédits par les paysans\. Le Projet aurait pu prévoir des mesures (p\.ex\. un système d'assurance ou de prise en charge des calamités) pour stabiliser le revenu des paysans\. D\. Réalisation des Objectifs et Produits du Projet D\.1 Réalisation des Objectifs Le Projet équivaut à la première phase d'un Crédit de Programme Adaptable (Adaptable Program Loan ­ APL)\. Un APL est exécuté en phases, et les conditions essentielles pour progresser d'une phase à la suivante sont les « déclencheurs »\. D'après les documents du PDIAIM, les déclencheurs du Projet ont tous été atteints ; la condition essentielle pour passer à la Phase II est donc satisfaite\. Les réalisations du Projet sont globalement Satisfaisantes\. Le fondement pour le développement d'une agriculture stable est établi, dans lequel les producteurs, quelle que soit l'échelle de leurs opérations, peuvent évoluer librement et avec un taux de rentabilité acceptable\. Ceci est particulièrement évident dans le secteur rizicole, secteur qui, avant le Projet, était handicapé par des distorsions au niveau de la commercialisation et du transport\. Le résultat du Projet est une amélioration spectaculaire de la qualité du riz, un prix plus élevé au producteur, et une meilleure information sur les prix\. D\.2 Réalisation par Composante Composante A : La composante Création d'un Cadre Favorable a permis la libéralisation des secteurs du riz, du transport et du foncier par l'acceptation de plusieurs décrets et arrêtés\. Dans le cadre du riz, la Direction des Politiques, de la Coopération et du Suivi-Evaluation (DPCSE) a mis en place un système d'information sur les prix du riz (SIM Riz)\. Dans le domaine du renforcement des statistiques agricoles, le Projet a promu l'Enquête Ménages et Exploitants Agricoles (EMEA), effectuée annuellement, validée et publiée\. Finalement, il a promu le renforcement des capacités, la restructuration du MDRE et de la SONADER (comprenant le départ volontaire de - 38 -  113 agents)\. Plusieurs ateliers et voyages d'études ont contribué à l'augmentation de l'efficacité de ces organisations\. L'UNCACEM a connu un appui, dans l'obtention d'assistance technique, de renforcement des capacités, informatique et de matériel\. Globalement, les résultats atteints font que cette composante est jugée « Hautement Satisfaisante »\. Composante B : La composante « Infrastructure de Base », qui comportait des études sur la réhabilitation des casiers, a été réorganisée après le démarrage du projet, et est présentée par centre d'exécution, plutôt que par thème\. Les quatre centres d'exécution retenus ont obtenu les résultats suivants : (1) la SONADER a exécuté des études sur la réhabilitation des infrastructures publiques : le schéma directeur Vallée du Gorgol, expertise d'auscultation du barrage du Foum-Gleïta, le désenclavement Gani-DarElBarka, et autres ouvrages de désenclavement\. (2) en matière de réhabilitation, 762 ha sont déjà réhabilités et pour les dossiers de plus de 500 ha, les études sont achevées\. La sous-composante de réhabilitation des routes d'accès a été transférée au Ministère de l'Equipement et du Transport, comme celui-ci est plus apte à leur réhabilitation\. (3) La SONADER et le Centre National de Recherche Agronomique et de Développement Agricole (CNRADA) avec un certain retard, ont vulgarisé la technique du goutte-à-goutte (formation de 50 coopératives maraîchères, installation de trois kits d'irrigation, journées de démonstration pour 50 coopératives), ont obtenu l'installation d'un lot de matériel d'irrigation par aspersion, et ont mis en place une base de données sur les systèmes de pompage de la Vallée\. Le Projet a fait une démonstration sur le fonctionnement d'électropompes pour 20 coopératives, a installé six motopompes, a entrepris des analyses eau et sol, a fait l'entretien de 60 piézomètres, a entrepris des travaux d'horticulture et a introduit des techniques de drainage\. (4) La Révision Foncière au Ministère de l'Intérieur, des Postes et Télécommunications (RF/MIPT), la DPCSE et le Service des Affaires Foncières et de la Cartographie (SAFC) ont obtenu la régularisation foncière de 771 dossiers, ont développé un Système d'Information Géographique (SIG) foncier, ont exécuté des campagnes d'information et de sensibilisation, et ont sensibilisé les producteurs sur la valeur des espaces protégés\. Cette composante est jugée « Satisfaisante », pour avoir atteint ses objectifs, malgré le fait de n'avoir intégralement réhabilité que peu d'hectares\. Composantes C et D1 : Les composantes C Appui en Gestion des Exploitations et D1 Appui aux Filières Traditionnelles ont été jugées suffisamment proches à l'issue de l'évaluation à mi-parcours du Projet pour être combinées, étant donné leur dénominateur commun : le périmètre\. Ceci met au centre les producteurs ruraux dans la prise de décision pour toute action à mener\. Le PDIAIM a entrepris la formation en gestion de 1\.235 personnes et 54 coopératives, la formation en aigadier, pompiste, manipulateur de vanne ou opérateurs de station de 304 personnes, a appuyé la reconnaissance juridique de 200 coopératives et groupements, et la régularisation foncière de 171 entités\. Il a contribué à l'alphabétisation de membres de 22 coopératives et 1\.115 individus, et a introduit de nouvelles cultures et méthodes : cultures fourragères, arachide, tournesol, eucalyptus, tomate hivernale, arbres fruitiers et culture attelée\. Il a en plus, parmi d'autres acquis, appuyé plus de 664 personnes et 210 cooperatives pour : des voyages d'étude, un appui aux coopératives féminines, la formation en transformation de produits agricoles, d'extraction d'huile végétale, de promotion d'utilisation d'engrais, de lutte contre les mauvaises herbes et contre les sésamies\. Une formation sur les techniques d'utilisation des pesticides a été dispensée au profit de 12 AVB, qui vont à leur tour vont former les producteurs\. Les réalisations sont multiples, et la composante est jugée « Satisfaisante »\. Composante D2 - D4 : La composante Qualité des Semences / Appui Financier, a été ré-organisée par centre d'exécution, qui sont : (D2) Le Centre de Contrôle de la Qualité des Semences et Plants (CCQSP), qui a engendré un programme de contrôle aux champs, pour s'assurer que les normes techniques de production de semences seraient respectées (1\.700 ha contrôlés sur quatre ans), et a aussi soutenu des centres de certification, qui s'occuppent du triage et du conditionnement des semences (2\.360 t contrôlées sur quatre ans)\. La SONADER a appuyé les Groupements d'Intérêt Economique (GIE) spécialisés dans la commercialisation du paddy aux activités d'amélioration de sa qualité\. Le CCQSP a bénéficié d'un renforcement de capacités en équipement de laboratoire, en personnel, et en stage de formation du PDIAIM\. (D3) L'Unité de Gestion des Semences (UGS) de la DRFV du MDRE a financé une étude approfondie de la filière « semence riz », tenu des ateliers, a proposé des arrêtés sur la filière et a financé le renforcement des capacités de la filière\. (D4) L'UNCACEM a financé la commercialisation du paddy par les usiniers et les GIE, pour un montant total de US$ 4,8 millions sur la période du projet\. Ceci permet entre autres la fixation d'un prix plancher, et la production d'un riz de qualité supérieure\. Des GIE se sont équipés de matériel, et certains d'entre eux ont bénéficié de prêts pour l'acquisition de mini-rizerie\. L'UNCACEM - 39 -  a aussi financé la diversification de campagnes (US$ 1\.3 m), le matériel d'irrigation et travaux (US$ 3,2 m) et les crédits de campagne (US$ 11,2 m)\. Globalement, la composante est jugée « Satisfaisante » pour avoir atteint ses objectifs\. Composante E : La composante Développement de la Diversification a réalisé un appui constant à la culture maraîchère et fourragère, et a approuvé 91 dossiers pour un montant de US$ 2,5 m et une couverture de 527 ha\. La mise en place de systèmes d'irrigation (110 ha d'aspersion et goutte-à-goutte), le conditionnement, la conservation, et l'exportation de produits maraîchers constitue une importante réussite de la composante\. D'autre part, le Projet a organisé des conventions de partenariat avec de gros opérateurs, a lancé un programme pilote d'export encourageant, pour un total de 2\.500 tonnes, a organisé plusieurs voyages d'étude de ses associés, a établi une infrastructure de chambre froide dans la vallée, et un système d'information sur les marchés\. Le Projet a aussi lancé les travaux d'aménagement de la zone fret de l'aéroport de Nouakchott, ainsi que le centre de conditionnement de fruits et légumes à Rosso\. L'achèvement de ces travaux est prévu avant la fin 2004\. Globalement, cette composante est jugée « Satisfaisante »\. Composante F : La composante des Mesures Environnementales a été assurée par la Direction de l'Environnement (DENV), qui a entrepris des études relatives à la formation en suivi, évaluation et gestion environnementale (formation de 25 personnes)\. Un progrès considérable a été fait en ce qui concerne la mise en place d'un observatoire de l'environnement : le marché pour la base de données pour le suivi environnemental est achevé et une formation a été effectuée en Mauritanie et à l'étranger\. Un plan d'occupation des sols existe et le rapport de l'étude sur les normes environnementales est disponible\. Une étude des mesures d'atténuation des impacts environnementaux et sociaux a été conduite, qui propose la mise en place d'un système de suivi et évaluation des maladies sanitaires ; ce document est achevé et disponible\. Le Projet a préparé un plan de gestion intégrée des pesticides\. Finalement, la DENV a soutenu des ONG à la production de plants et la réhabilitation d'espaces forestiers, a tenu un atelier national sur la filière bois et charbon, a entrepris du reboisement sur les dunes (13 ha), et a réalisé 1\.650 km de pare-feu\. Il est à signaler aussi que 10 puits ont été construits au niveau du Trarza pour permettre l'approvisionnement en eau potable des populations locales\. Cette composante est jugée « Satisfaisante » du fait d'avoir accompli ses taches\. Composante G : Les acquis de la Gestion du Projet sont une Unité de Coordination dynamique qui maîtrise bien le projet, qui a mis en place un système de suivi-évaluation pratique et opérationnel, et qui assure la communication et l'information sur le PDIAIM par un site web (www\.pdiaim\.mr)\. Des missions régulières de supervision de la Banque Mondiale, des réunions du comité de pilotage, des réunions du Comité de l'Aide Incitatrice (CADI) pour l'approbation de dossiers de réhabilitation et de diversification, la mise à niveau du logiciel financier et des audits financiers annuels renforcent cette situation\. Le PDIAIM a fait l'objet de renforcement de capacités, sur base de formations sur les domaines de la gestion de projet, la passation des marchés, la comptabilité analytique, la planification budgétaire, plusieurs voyages d'études, échanges d'expérience et la tenue d'ateliers de concertation et d'information\. Dans le domaine du suivi-évaluation, le Projet a conçu une base de données informatisée de suivi et de gestion du PDIAIM, suivi des indicateurs et suivi des déclencheurs\. Dans le cadre du renforcement des capacités du personnel du de l'UC-PDIAIM, un plan de formation annuel a été élaboré\. Le PDIAIM a aussi réalisé deux études importantes relatives à une stratégie en matière Genre et une stratégie de communication\. En matière de passation des marchés, les activités du projet sont jugées satisfaisantes\. Globalement, cette composante est jugée « Satisfaisante »\. Les déclencheurs du Projet ont été identifiés parmi les 16 indicateurs clés du Projet\. Leur état d'avancement est le suivant : Déclencheur Etat d'avancement D1) Maintient de la libéralisation Secteur riz des marchés des produits agricoles Amélioration spectaculaire de la qualité du riz local, maintenant équivalent au riz et des services de transport, comme importé convenu par le Gouvernement et Import du riz indépendant de l'achat du riz local\. l'IDA dans le PFP 1999 ­ 2002 Libre marché du riz local et importé\. Annulation de la subvention du taux d'intérêt sur les prêts à la commercialisation du riz local\. - 40 -  Système Information sur les Marchés (SIM) filière riz réalisée et mise en place\. Un niveau satisfaisant de prix aux producteurs : UM 45 / kg au lieu de UM 30 / kg (US$ 0\.17 / kg au lieu de US$ 0\.12 / kg)\. Harmonisation des taux de taxation entre la Mauritanie et la sous-région Taux de taxation global du riz importé inférieur à 45% (45,14%) Taux maximal des droits de douane inférieur à 20% (23%) Impôt Minimum Forfaitaire (IMF) et Taxe de Valeur Ajoutée (TVA) sur le riz entre 4 et 14% (4% et 0%)\. Transport : - étude sur la restructuration des transports réalisée - suppression du contrôle des prix - deux fédérations de transports créées Conclusion : déclencheur atteint D2) Autosuffisance opérationnelle Autosuffisance opérationnelle : assurée depuis 2000\. Le ratio a atteint 172% en 2003\. et financière de l'UNCACEM Autosuffisance financière : assurée en 2002\. Le ratio s'établit à 106% au cours de assurée à partir de 2001 l'exercice 2003\. Conclusion : déclencheur atteint 5) Niveau satisfaisant d'offre de Crédits octroyés conformément aux procédures de l'UNCACEM convenues avec l'IDA et crédit (au moins 75% des valeurs attesté par audits à 100% des demandeurs\. cibles pour la réhabilitation) D3) Crédits et subventions à Subventions à la promotion de la diversification agricole et à la réhabilitation réalisées l'investissement accordés conformément aux procédures convenues avec l'IDA avec leur approbation par le CADI\. conformément aux procédures convenues avec l'IDA Conclusion : déclencheur atteint D8) Performance de la SONADER Mise en place d'un système de gestion financière adapté aux projets gérés par la jugée satisfaisante selon les critères SONADER\. du Contrat-programme Finalisation du logiciel « TOMPRO » pour le suivi de la comptabilité budgétaire et analytique et la production des états financiers dans les délais requis\. Mise en place d'une base de données pour la gestion du personnel\. Mise en place d'un système intranet\. Gestion financière : - coefficient brut d'exploitation : 98% - ratio de rentabilité : 32% - réduction des charges de fonctionnement : 94% - importance de la maîtrise d'oeuvre : 12% Gestion des ressources humaines : - diminution de la charge du personnel - poids de la charge du personnel : 20% de baisse de la masse salariale Conclusion : déclencheur atteint D4) Attribution d'autorisation Régularisation réalisée conformément au décret N° 2000/89 du 17 juillet 2000 qui abroge et d'exploiter, de concessions remplace le décret N° 90/020 du 31 janvier 1990\. A ce jour : provisoires et de concessions au Trarza : 642 périmètres dont 423 individuels et 219 collectifs définitives, effectuées conformément au Brakna : 54 en concession définitive et 5 en concession provisoire\. aux textes d'application de la loi au Gorgol : 55 périmètres collectifs foncière au Guidimagha : 15 périmètres collectifs en concession définitive\. Conclusion : déclencheur atteint D5) Mise en place de registres Registres fonciers transparents et accessibles mis en place à tous les centres importants (1\. fonciers, transparents et accessibles, Keur Macène, 2\. Rosso, 3\. R'Kiz, 4\. Boghé, 5\. Bababé, 6\. M'Bagne, 7\. Kaédi, 8\. permettant la vérification des actes Maghama, 9\. Sélibaby) d'autorisation d'exploiter, de concessions provisoires ou de concessions définitives Conclusion : déclencheur atteint D7) Rentabilité économique des Des études économiques et financières faites sur les périmètres à réhabiliter montrent que aménagements hydro-agricoles les taux de Rentabilité Internes (TRI) initiales sont de : - 41 -  soutenus par l'état, démontrée de TRI financier : 38,5% manière satisfaisante sur la base des TRI économique : 40,5% premiers résultats disponibles\. Conclusion : déclencheur atteint D6) Procédures instaurées pour la Cahier de charges adopté et effectif mise en oeuvre d'un système de collecte des charges d'eau, et de gestion et entretien des ouvrages collectifs Conclusion : déclencheur atteint Durant la période du Projet, l'UC-PDIAIM a légèrement modifié certains déclencheurs pour mieux les préciser, pour améliorer leur qualité ou pour mieux intégrer la dimension sociale de la lutte contre la pauvreté\. L'atteinte des déclencheurs établit le fondement pour un développement durable de l'agriculture irriguée, qui entend que l'objectif du Projet a été atteint\. La réalisation de la première phase permet au Programme de progresser\. Taux de Rentabilité Interne L'analyse économique faite avant le projet montre un taux de rentabilité interne (TRI) financier de 28\.5% et un TRI économique de 28\.4%\. Une analyse économique globale est en cours de réalisation, mais des études préliminaires de réhabilitation des casiers montrent que les TRI pour les périmètres à être réhabilités sont de : TRI financier : 38,5% TRI économique : 40,5% Ces résultats indiquent que les réhabilitations de périmètres sont rentables\. E\. Facteurs Principaux Influant l'Exécution et le Résultat E\.1 Facteurs hors du contrôle du gouvernement Parmi les facteurs principaux influant l'exécution du projet peuvent être cités les catastrophes naturelles : des inondations en 2001, qui ont causé des dégâts considérables aux périmètres en cours de production, aux cultures des paysans soutenus par le Projet, et qui peuvent fortement endommager les infrastructures les oiseaux granivores, qui peuvent détruire une culture de riz à 100%, les criquets grégaires (2004), qui risquent d'endommager fortement les rizières\. E\.2 Facteurs Sujets au Gouvernement Le Projet était complexe, avait trois comptes spéciaux (un par agence d'exécution ­ MDRE, SONADER, UNCACEM) et a mis un certain temps à se roder dans les procédures de la Banque Mondiale\. Ceci explique la prorogation de deux ans de la première phase\. La complexité du projet peut être attribuée aussi bien à la Banque Mondiale qu'au Gouvernement\. L'appui continu du gouvernement et sa volonté d'entreprendre des réformes majeures a contribué aux acquis du Projet\. Un fort dévouement de la part du gouvernement à permis au Projet de revitaliser un des secteurs les plus importants de l'économie mauritanienne\. E\.3 Facteurs Sujets à l'Agence d'Exécution L'UC-PDIAIM a reçu des formations sur la gestion du projet, la gestion financière et le suivi-évaluation\. Le comité de pilotage du Projet se réunit régulièrement, et l'UC a coordonné les activités entre les différentes agences d'exécution avec grand succès\. Ces facteurs ont contribué au bon déroulement du Projet\. F\. Durabilité Le présent rapport couvre la Phase I (3 ans) du Programme de 11 ans\. L'auteur de ce rapport est d'avis que la Phase I a été exécutée de façon satisfaisante, et que les déclencheurs pour passer à la Phase II ont été satisfaits\. Le programme entrera donc dans sa deuxième phase en 2005\. De ce fait, la durabilité du programme est « Hautement Probable »\. - 42 -  G\. Performance de la Banque Mondiale et de l'Emprunteur La performance de la Banque Mondiale est jugée « Satisfaisante » ; La Banque a entrepris des missions de supervision régulières et a fait un suivi complet du projet\. Malgré le fait que le projet soit complexe, et que certains retards aient été observés au niveau de réceptions de non-objections, le Projet n'a pas eu à subir de gros problèmes et les relations entre l'Emprunteur et la Banque ont toujours été des meilleures\. Le remplacement du chef d'équipe (Task Team Leader ­ TTL) de la Banque s'est fait sans ralentissement du projet, dû au fait que le nouveau TTL avait participé à toutes les missions antérieures et maîtrisait bien le Projet\. L'emprunteur, a, pour sa part, aussi mis en place une équipe dynamique de gestion de projet, un système de suivi-évaluation performant, et a obtenu des résultats importants sur le terrain (voir aussi Section D, Composante G)\. H\. Leçons apprises Les leçons principales qui peuvent être tirées du Projet sont que : 1) les réformes prennent du temps ; 2) qu'il faut prévoir plus de temps pour les imprévus telles les calamités naturelles, qui retardent l'avancement du projet ; 3) qu'il faut prévoir plus de temps pour mettre en oeuvre la gestion complexe d'un projet de dimension ; 4) qu'un projet multi-sectoriel comme le PDIAIM demande du renforcement des capacités à tous les niveaux et dans beaucoup de domaines\. I\. Annexe 1 ­ Indicateurs Clés Les indicateurs clés présentés ci-dessous sont ceux qui n'ont pas servi de déclencheurs au Programme : Indicateur clé Taux d'achèvement 3) Taux de repaiement 93% dont 94% pour les collectifs et 92 % pour les individuels satisfaisant (au moins 95%) des prêts d'UNCACEM 6) Crédit pour les producteurs UNCACEM a diversifié ses crédits, et a servi les producteurs dans le domaine non-riz octroyé aux producteurs de la diversification\. réalisant les conditions de crédit 7) Amélioration de l'efficacité de Volume augmentant : à 1\.266 millions UM (US$ 4,220,000) l'UNCACEM (volume et temps de réponse) à fournir du crédit aux individuels et coopératives\. 11) Transparence, équité et Transparence, équité et sécurisation foncière assurées d'après enquêtes sécurisation foncière assurée, participatives et par les registres fonciers disponibles et ouverts aux d'après enquêtes participatives exploitants\. 12) accès des familles pauvres Enquête pas effectuée mais tous les périmètres collectifs sont jugés être des aux services agricoles, d'après familles pauvres\. Le projet entier cible les services agricoles pour les pauvres\. enquête participatives 14) Amélioration de la Les premiers résultats devaient être faits sur les périmètres réhabilités ; ceux-ci rentabilité du riz et des nouvelles étant dans leur première campagne de production, les données ne sont pas cultures d'après les premiers disponibles\. résultats disponibles\. 16) Etudes de faisabilité a) Schéma directeur Vallée du Gorgol : étude restituée et Avant-Projet Détaillé achevées, y compris les EIE pour (APD) en cours\. l'infrastructure hors exploitation b) Désenclavement de la zone de Gani Dar El Barka : étude achevée\. (indispensables pour les c) Schéma directeur Zone Gani Dar El Barka ( Koundi 1 a 5) : pris en charge par investissements à prévoir en UC-PDIAIM\. En cours, rapport provisoire achevé\. Phase II) d) Etudes des normes environnementales e) Etude sanitaire (maladies, surtout hydriques)\. - 43 -  J\. Annexe 2 Financement : l'état d'exécution financière par catégorie de dépense est présentée comme suit : Catégorie de dépenses Budget prévu Budget exécuté au Taux d'exécution Phase I (US $) 31/08/2004 (US $) (%) Travaux de génie civil 1 776 427,30 659 588,22 37 Véhicules 1 202 220,05 1 222 576,95 102 Matériels 2 857 670,25 1 407 739,51 49 Services consultants et études 8 145 814,78 7 262 578,28 89 Formation 3 252 320,73 2 664 361,59 82 Prêts au titre de sous projet 11 535 291,00 9 078 283,67 79 Don au titre de sous projet 3 742 554,86 1 946 104,19 52 Charges de fonctionnement 4 858 392,86 3 506 693,14 72 additionnelles Total 37\.370\.691,60 27\.747\.925,55 74 Plus d'information sur les dépenses peuvent être obtenues du Rapport Bilan\. - 44 -  Additional Annex 9\. Mid-Term Review Aide-Memoire BANQUE MONDIALE Projet de Développement Intégré de l'Agriculture Irriguée en Mauritanie (PDIAIM) Mission de revue à mi-parcours 20 janvier ­ 6 février 2002 Aide-mémoire ========= 1\. Une mission de la Banque mondiale a réalisé, entre le 20 janvier et le 16 février 2002, une revue à mi-parcours du Projet de Développement Intégré de l'Agriculture Irriguée en Mauritanie (PDIAIM) pour lequel un crédit IDA a été mis en vigueur le 16 décembre 1999\. Objet et composition de la mission 2\. L'objet de la mission était de (i) faire un constat de l'état d'avancement du projet (objectifs, composantes, approche, procédures de mise en oeuvre, réalisations, premiers impacts, gestion administrative, financière et comptable, etc\.) ; (ii) identifier les mesures à prendre pour apporter les ajustements éventuels ; et (iii) étudier le programme de travail et budget pour l'année calendaire 2002 et pour le reste de la durée de vie du projet\. 3\. La mission était dirigée par M\. Abdelkrim Oka, responsable du secteur rural pour la Mauritanie auprès de la Banque mondiale et était composée des Messieurs Ismael Ouedraogo (agro-économiste), Amadou Oumar Ba (agronome); Robert Robelus (spécialiste de l'environnement); Daniel Moreau (agronome); Ahmedou Ould Hamed (spécialiste en passation de marchés); El Hadj Adama Touré (spécialiste des services agricoles); Amadou Soumaila (spécialiste en irrigation, FAO/CP); Samba Diom Ba (spécialiste en gestion financière, consultant) ; et Catherine Cormont-Touré, (sociologue/genre, consultante)\. Il avait de plus été convenu que le PDIAIM mette à la disposition de la mission quatre experts consultants pour couvrir les aspects génie rural, crédit-aide incitatrice-aspects économiques, diversification et suivi-évaluation\. Il s'agissait respectivement de Pierre Ponsy, Nicolas Gergely, Jean-Michel Voisard et Annick Lachance\. La mission a aussi bénéficié de l'assistance de M\. Siaka Bakayoko, Spécialiste en gestion financière (Banque mondiale, Washington) et de M\. Yahya Ould Aly Jean, Assistant en décaissements, Banque mondiale, Nouakchott\. Déroulement de la mission et personnes rencontrées 4\. La mission a participé à des présentations générales sur les réalisations du projet (20-21 janvier), des visites de terrain dans la vallée (22-27 janvier) ; des travaux de groupes (28-30 janvier) ; la restitution des groupes de travail (31 janvier) ; une visite à Rosso avec le Directeur de la Banque mondiale pour la Mauritanie (2-3 février)\. La rédaction de l'aide-mémoire et des notes techniques s'est déroulé du 2 au 4 février et les réunions de synthèse les 5 et 6 février\. 5\. Au cours de son séjour, la mission a rencontré le Ministre du Développement Rural et de l'Environnement et le Ministre des Affaires Economiques et du Développement avec lesquels elle a fait le point sur les questions liées au PDIAIM ainsi que sur des sujets connexes\. La mission a tenu des séances de travail avec les cadres des différentes institutions impliquées dans la mise en oeuvre du PDIAIM - 45 -  (UC/PDIAIM, DRFV, DPSE, DEAR,, DEA, CNRADA, Bureau des Affaires Foncières, SONADER, Réviseur Foncier (Ministère de l'intérieur) ; UNCACEM\. Enfin la mission a rencontré les représentants d'agence de coopération (Coopération française, AFD, GTZ, KfW, OMS, et UE)\. Résultats de la mission : Résumé 6\. D'une manière générale, le constat de la mission est mitigé\. Il y a eu, d'une part de très grands progrès au niveau de la filière riz en matière de libéralisation, amélioration de la qualité du riz, commercialisation et crédit agricole\. Il y a eu aussi une percée impressionnante dans le domaine de la diversification\. Malheureusement des composantes importantes du projet ont très peu évolué\. Il s'agit principalement des composantes Réhabilitations et Infrastructures Publiques\. Il s'agit aussi, et ce dans une moindre mesure, des aspects concernant l'appui aux producteurs (composantes C et D) et l'environnement (composante F)\. La mission reconnaît que la taille et la complexité de ce projet, de ses nombreux aspects novateurs, des contraintes auxquelles il est confronté et de l'expérience limitée d'une part de son personnel sont en partie responsables de la limite des résultats obtenus\. La mission demeure cependant convaincue qu'un redressement au niveau de la SONADER (ou le transfert de certaines de ses activités à d'autres opérateurs) et une coordination mieux structurée, plus présente, vigilante et ferme sont indispensables si l'on souhaite atteindre les objectifs ciblés pour cette première phase du PDIAIM et satisfaire aux conditions convenues pour le déclenchement d'une seconde phase\. La mission attire l'attention sur le fait que la première phase du PDIAIM arrive à terme le 31 décembre 2002 et, qu'à cette date, il n'y a aucune chance pour que ces conditions soient réunies\. Même avec une extension de douze à dix huit mois, ces objectifs ne pourront pas être atteints si des mesures importantes ne sont pas prises pour lever les contraintes rencontrées\. Etant donné que certaines de ces contraintes Routes, hydraulique, électrification, commerce, tarification, transports, foncier, santé, etc\. relèvent d'autres départements ministériels que le MDRE, la mission recommande que le Comité interministériel d'orientation et de suivi (CIMOS) et le Comité de pilotage du PDIAIM soient pleinement impliqués\. Filière riz et mise en oeuvre de politiques d'accompagnement 7\. Au niveau de la filière riz, le Gouvernement a continué à mettre en oeuvre la politique de libéralisation pour laquelle il s'était engagé au moment des négociations à savoir (i) maintien des taxes à l'importation du riz à un taux conforme aux accords passés ; (ii) non-intervention au niveau des volumes importés ; et (iii) non-intervention dans la commercialisation de la production nationale ((plus de fixation du prix d'achat, pas de garantie d'achat et pas de subvention des taux d'intérêt des prêts aux producteurs et commerçants)\. La mission recommande le maintien de cette politique qui a porté ses fruits\. 8\. Comme résultat, le prix d'achat a commencé à varier en fonction de la qualité, ce qui a amené les producteurs à améliorer la qualité de leur paddy (sélection de meilleures variétés) et les riziers à procéder à un meilleur usinage du riz (qualité et rendement)\. Au bout de deux ans du projet (deux campagnes agricoles), le riz mauritanien s'est tellement amélioré qu'il est devenu difficile de le distinguer du riz importé et sa valeur commerciale s'est nettement accrue\. Les producteurs ont été incités à améliorer leurs rendements et les résultats se sont déjà faits sentir\. Ceux habitués à compter sur la subvention et la protection de l'Etat pour produire un paddy de qualité médiocre et à un coût élevé et qui n'ont pas recherché l'amélioration de cette qualité ont momentanément cessé leur production\. Dans un soucis d'améliorer leurs revenus, les riziers ont commencé à investir dans la construction de hangars pour un meilleur entreposage du paddy et du riz et dans l'acquisition d'équipement d'usinage plus performants en faisant appel aux prêts disponibles au niveau de l'UNCACEM grâce au financement PDIAIM\. - 46 -  9\. La leçon tirée par les producteurs, usiniers et commerçants est que ceux qui sont disposés à faire de l'agriculture une vraie profession sont capables, grâce à l'aide du PDIAIM, de s'en sortir et d'avoir une activité économique viable et profitable, l'Etat étant là pour les aider dans cette voie, que ce soit sous forme de financement d'investissements (crédits aux taux du marché, aide incitatrice) ou d'assistance technique et conseil, cette aide étant ouverte à toute activité agricole prouvée viable (investissements structurants, aménagement, production, transformation ou commercialisation)\. C'est donc à un assainissement de la filière que nous assistons\. Crédit agricole 10\. Grâce au PDIAIM, le crédit agricole, restreint par le passé au prêt de campagne de production (court terme) et à quelques prêts d'équipements liés à la production et la récolte (moyen terme), a été élargi aux prêts de commercialisation (court terme), d'équipement (moyen terme) pour la transformation, le stockage et la commercialisation, et d'aménagement (long terme) pour la réhabilitation et l'extension de périmètres\. Les conditions de prêts ont été revues pour tenir compte de la rentabilité financière de l'investissement proposé et exiger une garantie foncière ou caution bancaire\. 11\. Grâce à cette nouvelle politique, le volume des demandes et d'octroi des prêts a augmenté de manière significative entre 1999 et 2001\. Il a cependant été affecté par les inondations de fin 1999 qui ont détruit une partie des récoltes, endommagé les périmètres, ralenti le taux de remboursement des créditeurs et réduit la capacité d'emprunt des producteurs en 2000 et 2001\. La baisse du taux de recouvrement des prêts par l'UNCACEM empêchera cette dernière d'atteindre son autosuffisance financière en fin 2001 tel que prévu\. Le ré-échelonnement de certaines dettes de la campagne 1999-2000 a permis de soulager les producteurs mais les nouvelles échéances de paiement doivent impérativement être honorées si l'UNCACEM veut atteindre son autosuffisance financière en fin 2002\. La mission recommande donc que l'UNCACEM prenne toutes les dispositions (juridiques et autres) prévues dans le cadre des contrats de prêts et consignées dans son manuel de procédures pour recouvrer ces échéances, particulièrement celles de ré-échelonnements non liés aux inondations\. L'UNCACEM devra aussi accompagner tout ré-échelonnement par des actions concrètes de redressement des exploitations en difficulté\. Réhabilitations 12\. Des améliorations significatives et durables au niveau de la qualité et du rendement du paddy ne sont possibles que si les périmètres irrigués actuellement en production sont réhabilités\. Or c'est la sous-composante Réhabilitation des Périmètres (B2) qui a le plus souffert de retards dans la mise en oeuvre\. Ces retards sont dus à (i) une absence de régularisation du statut foncier des exploitations ; (ii) une absence de régularisation du statut juridique des coopératives (périmètres collectifs) ; (iii) des normes d'aménagement jugées trop exigeantes et coûteuses ; et (iv) des études trop exigeantes et trop longues pour les réhabilitations\. Ceci a eu pour conséquence qu'après deux ans de mise en oeuvre du projet, aucun périmètre n'a entamé de réhabilitation\. Au cours de la mission de supervision précédente, des mesures avaient été prises pour débloquer la situation au niveau du foncier et des coopératives\. Ceci a permis de régulariser en huit mois 516 dossiers fonciers et de nombreux dossiers de coopératives\. Cependant, les sept études foncières prévues n'ont pas été réalisées\. La mission considère que les contraintes responsables de ces retards auraient pu être levées plus rapidement si la SONADER et l'UC-PDIAIM avaient été plus vigilantes et alerté à temps les autorités concernées\. 13\. Pour pallier aux problèmes rencontrés au niveau de la Composante Réhabilitations, la mission recommande les mesures suivantes: (i) révision des normes d'aménagement ; (ii) poursuite des opérations de régularisations foncières et des coopératives ; (iii) mise en place d'une unité de coordination du PDIAIM - 47 -  pour le Moyen et Haut Fleuve pour accélérer le processus de réhabilitation des périmètres ; (iv), révision des TdR des études de réhabilitation des périmètres pour les rendre moins complexes, moins exigeantes et moins onéreuses ; (v) renforcement du rôle de l'ingénieur conseil (Sonader) jugé peu performante ; (vi) adaptation des règles de procédures de crédit et de l'aide incitatrice ; et (vii) intégration des grands périmètres collectifs dans le processus de réhabilitation\. Le détail de ces recommandations est présenté dans les annexes du présent aide-mémoire\. 14\. Si ces recommandations sont prises en compte, il sera possible, d'ici la fin 2003, de compléter les études de réhabilitation pour 1610 ha de petits périmètres irrigués (PPI) collectifs, 500 ha de PPI privés et 6000 ha grands périmètres (GPI) collectifs et de procéder à la réhabilitation de 910 ha de PPI collectifs 200 ha de PPI privés\. Ceci impliquerait cependant une extension de la date de clôture du projet\. Infrastructures publiques 15\. Des retards importants ont été accusés au niveau de cette dernière auxquels il faudra remédier de toute urgence\. Tout comme pour les réhabilitation, les lourdeurs de la SONADER ont contribué en partie à ces retards\. La mission recommande que la Sonader assume pleinement ses responsabilités, veille à une meilleure gestion de ses dossiers et à un suivi plus rigoureux et plus rapproché de ses activités\. La mission recommande aussi que l'Unité de Coordination du projet (UC-PDIAIM) veille étroitement au respect du calendrier convenu avec la Sonader\. Les actions suivantes sont urgentes : restitution aux populations concernées des conclusions de l'étude des schémas directeurs de la vallée du Gorgol et le passage sans délai à la préparation des études d'avant-projet détaillés et des dossiers de consultation des entreprises\. réorientation des études générales prévues vers la définition de règles de gestion des axes hydraulique et émissaires de drainage impliquant fortement les associations d'usagers; financement additionnel des études APD/DCE des ouvrages hydrauliques et de désenclavement de la zone de Garak - Sokam, faisant suite aux conclusions de l'étude de faisabilité pour un programme de développement intégré de cette zone financée par l'AFD pour un montant estimé à 30 millions UM; financement des études techniques et économiques de travaux confortant à réaliser sur les ouvrages et équipements communs des grands périmètres collectifs dans la perspective du transfert de leur gestion aux organisations professionnelles; financement d'études et de travaux confortants stratégiques à caractère urgent sur GPC (diagnostic complet et restauration du dispositif d'auscultation du barrage de Foum Gleita, réalisation d'un siphon inversé pour le franchissement d'un talweg par la tête morte du périmètre de Foum Gleita)\. 9\. L'attention de la mission a été attirée par le problème du désenclavement de plusieurs périmètres mettant en péril l'évacuation de leur production\. S'agissant d'infrastructures publiques relevant du domaine du PDIAIM, il a été convenu que la réparation de certains axes stratégiques et prioritaires pouvait être prise en charge par le PDIAIM\. Des propositions devront être faites dans ce sens à l'IDA\. Transfert des grands périmètres collectifs 10\. Le contrat-programme Etat-SONADER prévoit l'étude et la mise en oeuvre du transfert de ces périmètres (six) aux organisations socioprofessionnelles\. Ces aménagements représentent au total 5\.800 ha\. L'étude a proposé une démarche pour ce transfert et ses conditions de succès dont la régularisation foncière et juridique, le renforcement institutionnel des organisations socioprofessionnelles, l'apurement de leur passif vis-à-vis de l'UNCACEM, un programme de travaux de réhabilitation et l'amélioration de - 48 -  l'environnement des exploitations agricoles\. Bien que la réhabilitation des grands périmètres collectifs ne figure pas explicitement dans le programme initial de la phase I du PDIAIM, la mission recommande que certains d'entre eux pourraient être pris en considération, d'autant plus que le volume total de réhabilitations prévu en Phase-I (3\.000 ha) ne pourra pas être réalisé au cours de cette phase même si une extension de 12 à 18 mois était considérée\. Recherche-développement 11\. La sous-composante Recherche-développement visait l'amélioration des systèmes et techniques de pompage, irrigation et drainage et de lutte contre la salinité et l'alcalinité des sols\. Les réalisations ont porté sur l'organisation de missions de consultants qui ont permis d'identifier les programmes de recherche-développement; la sensibilisation des producteurs sur les thèmes de recherche et sur leur participation aux essais, l'élaboration de programmes de formation et la conduite de démonstrations sur des systèmes de goutte à goutte\. La mission a fait un constat de retards importants dans la mise en oeuvre des 3 programmes\. En vue de re-dynamiser cette sous-composante, la mission recommande que l'ensemble des activités de recherche soient confiées au CNRADA à travers des conventions telles que celle déjà envisagée pour le volet drainage et lutte contre la salinité\. La mission a aussi recommandé de réviser à la baisse les objectifs quantitatifs de la sous-composante étant donné le temps limité restant\. Appui aux producteurs en techniques et en gestion 12\. L'amélioration des rendements passe aussi par une meilleure gestion des périmètres au niveau des infrastructures, de la production et de l'organisation de la production\. Cette gestion exige l'acquisition d'un savoir-faire technique et organisationnel de la part des producteurs que la Sonader avait mandat d'appuyer (Composantes C et D1)\. La mission a pris note des volumes réalisés communiqués par la Sonader mais n'a pas été en mesure d'en apprécier la qualité ni les effets\. En effet les informations mises à la disposition de la mission ne donne pas de précisions sur la liste des personnes ayant bénéficié d'appui en matière de formation-vulgarisation ou sur leur localisation\. La Sonader ne dispose pas d'un système pour évaluer l'impact de l'assistance qu'elle apporte\. Enfin, en termes financiers, le niveau d'exécution financière de la composante C s'élève à 77\.64% par rapport au montant alloué pour la durée de la première phase\. Une analyse plus approfondie est donc nécessaire\. La mission a rappelé à la Sonader qu'une partie importante de ses interventions en matière d'appui doivent être délégué à des ONG et des institutions privées, tel que prévu dans les documents de projet\. La mission recommande les actions suivantes : développer une stratégie de communication vers le monde rural en utilisant les media disponibles (visuels et audio) pour à la fois, donner la parole aux producteurs et les informer; Établir des relations contractuelles entre prestataires publics et/ou privés spécialisés et producteurs demandeurs de services d'appui\. Les groupements en particulier devraient établir, avec les services d'appui, un programme d'intervention annuel précis et répondant à leurs demandes; développer un mécanisme de financement « à la base » pour permettre progressivement aux producteurs individuels ou collectifs d'avoir accès sous forme contractuelle à des services d'appui spécialisés de leur choix; encourager la contractualisation de prestataires privés spécialisés par un système public et transparent d'information et de communication sur les procédures visant prestataires potentiels et demandeurs de services; dresser mettre à jour régulièrement un inventaire des prestataires spécialisés et agréés en appui CGF au niveau régional et national, en fonction de la qualité de leurs prestations; - 49 -  prendre systématiquement en compte l'aspect genre dans toutes les activités d'appui pour bien identifier les besoins et contraintes spécifiques aux femmes et permettant ainsi de mieux répondre à leurs demandes; et créer des espaces de concertation pour permettre aux producteurs d'être informés et d'exprimer leurs demandes\. Diversification 13\. Au niveau de la diversification, une avancée remarquable a été faite\. La Mauritanie, qui n'avait il y a deux ans à peine pratiquement aucune tradition de maraîchage, sauf à très petite échelle dans les oasis, exporte aujourd'hui à destination de l'Europe melons, gombos, haricots verts, tomates cerise, piment antillais entièrement produits et commercialisés par le secteur privé\. Une aide incitatrice a été fournie aux agriculteurs souhaitant tester la diversification (actions pilotes)\. En tout 19 dossiers ont été approuvés pour une aide de 50 millions d'ouguiyas, couvrant divers opérations pilote (maraîchères de contre-saison chaude et d'hivernage, fourrages et papaye\. Sauf pour la tomate, les productions ont été un succès, dégageant des marges appréciables pour les producteurs\. On note en particulier des résultats encourageants pour le melon, avec une production locale estimée à plus de 500 tonnes en 2001 et une valeur au détail d'environ 75 millions d'ouguiya\. 14\. Des conventions de partenariats ont aussi été signées avec des agro-industriels ayant déjà une expertise en diversification et désireux de promouvoir les exportations mauritaniennes\. Le cas le plus important est celui de la convention de partenariat avec GDM qui a installé un dispositif de 20 hectares d'essais et qui a pu tester (production et commercialisation) une gamme de 14 produits d'exportation\. 15\. Le programme export en cours de réalisation porte sur 45 hectares avec une commercialisation prévue de 230 tonnes de différents produits, par voie maritime via Dakar et par avion via Nouakchott\. L'opération pilote est basée sur une installation de conditionnement sommaire à Rosso en attendant la construction du centre pilote qui permettra de traiter plus de 1000 tonnes par an\. Une telle capacité permettra d'amorcer un flux viable à l'exportation et pourra servir de plate forme de service aux exportateurs émergeants qui pourront ensuite développer leur propre infrastructure\. L'UC/PDIAIM a achevé la conception technique de la gare de fret de l'aéroport de Nouakchott et du centre pilote de conditionnement de Rosso, dont la procédure d'appel d'offres est actuellement en cours\. Ce premier programme mérite d'être applaudi compte tenu de l'absence d'infrastructure et de circuits de commercialisations bien rodés\. Il faut souligner ici le dynamisme et la forte mobilisation des producteurs organisés en GIE qui augurent bien pour la suite du programme\. Ceci n'aurait pu réussir sans l'équipe de la cellule de diversification du PDIAIM à Rosso, elle aussi, animée du même dynamisme et engagement\. 16\. Au cours de la mission, de réelles potentialités de développement ont été identifiées au niveau de la Moyenne et de la Haute Vallée\. Une intervention du PDIAIM en matière de diversification trouverait donc, dans cette partie de la vallée, des conditions très favorables, tout en contribuant au développement économique et social d'une zone où le taux de population en-dessous du seuil de pauvreté est élevé\. 17\. Suite aux discussions, la mission recommande (i) une meilleure collecte et dissémination des informations et du savoir, une meilleure communication et concertation entre les partenaires ; (ii) la poursuite de la mobilisation pour le développement des infrastructures de base (Gare de fret de l'aéroport de Nouakchott, Centre pilote de conditionnement de Rosso, service d'agréage phytosanitaire, désenclavement de points stratégiques sur l'axe routier Rosso-Boghé); (iii) l'élargissement de la couverture du PDIAIM en termes de produits et de zone d'intervention (Moyenne et Haute Vallée) ; et (iv) le - 50 -  développement d'un système de collecte des données techniques sur la diversification\. Mesures environnementales 18\. les principaux problèmes environnementaux dans la Vallée du Fleuve Sénégal sont nombreux: paludisme, bilharziose et maladies intestinales liées au manque d'eau potable, obstruction des canaux par des plantes aquatiques envahissantes, salinité, alcalinité ou engorgement des sols, mauvaises herbes et oiseaux granivores\. 19\. Malgré les contraintes substantielles, on peut considérer que la performance en matière de degré d'atteinte des résultats est satisfaisante\. Les facteurs de blocage de la composantes ont été : (i) la lenteur de la mise en oeuvre des volets formation, élaboration des manuels, établissements du POS dans la zone pilote ; (ii) la lenteur dans les procédures de la passation des marchés DAO ; (iii) la lenteur dans les procédures de l'obtention de la non-objection ; et (iv) le manque de suivi rapproché de la mise en oeuvre de la composante\. 20\. La mission recommande: (i) un appui dans le domaine de la passation de marchés ; (ii) un suivi rapproché de l'expert de la Banque mondiale chargé du projet à travers l'établissement d'un calendrier de missions régulières auprès de la DEAR ; (iii) une augmentation des activités liées à la sensibilisation, la formation et l'implication de la population dans le programme de l'environnement du PDIAIM\. la DEAR, en collaboration avec la mission et les autres partenaires au développement, a élaboré un plan d'action budgétisé pour l'année 2002 et 2003 (voir partie de l'Annexe concernant la Composante F)\. Gestion financière et comptable 21\. La mission a examiné le suivi budgétaire, apprécié le niveau actuel de décaissement, évalué le système de gestion financière (tenue de la comptabilité du Projet, procédures de contrôle interne), examiné les relevés de dépenses des exercices 2000 et 2001\. En terme d'exécution financière, sur un montant total de crédit IDA de 38,07 millions de dollars, il a été décaissé 11,39 millions soit 29,92%\. Un tableau détaillé des décaissements des fonds de l'IDA par catégorie se trouve en annexe au présent aide mémoire\. Pour ce qui est de la contribution du Gouvernement, les versements ont été de 687\.390 de dollars sur un total prévu dans l'Accord de crédit de 3,7 millions soit 18,58%\. A l'échéance du 1er février 2002, le total des versements cumulés devait atteindre 3,3 millions\. Etant donné le niveau général des décaissements, il n'est pas surprenant que le montant des 3\.3 millions n'ait pas été atteint\. La mission recommande qu'un état soit communiqué à l'IDA indiquant le montant total des dépenses qui auraient dû être financées sur les fonds de contrepartie à la date du 1er février 2002\. UC-PDIAIM 22\. La mission a noté avec satisfaction la mise en place d'un système de gestion financière et comptable fiable au niveau de l'UC-PDIAIM\. Le système permet d'obtenir beaucoup d'informations en la matière\. La comptabilité analytique mise en place exige cependant des ajustements pour mieux refléter la mise en oeuvre des opérations et permettre l'utilisation de cet outil par les différents centres de responsabilité\. La mission recommande de soumettre un cahier des charges reprenant les améliorations détaillées en annexe au concepteur du logiciel de comptabilité (TOMPRO) afin qu'il en étudie la faisabilité (voir détails en annexe)\. 23\. La revue du système de contrôle interne et l'examen des demandes de paiement des exercices 2000 - 51 -  à 2001 a démontré une bonne capacité de gestion du service financier\. Le rapprochement entre le budget et les réalisations mérite cependant d'être amélioré\. La mission a aussi noté que la plupart des avances faites dans le cadre des ateliers et séminaires ne font pas l'objet de bilan permettant de comparer le budget et son exécution, bien qu'il existe des dossiers contenant des justificatifs\. Pour ce qui de la gestion des biens meubles et immeubles, la mission recommande que soient tenus à jour (1) les inventaires de tous les biens meubles et immeubles affectés au Projet ainsi que de leur lieu d'affectation (service, personne, localisation)et (2) le carnet de bord de chaque véhicule avec fiche individuelle de suivi des consommations de carburant et lubrifiants et d'entretien et réparations\. 24\. Il avait été convenu lors de la précédente mission de supervision que les états financiers consolidés (UC-PDIAIM, SONADER et UNCACEM) au 31 décembre 2000 devront inclure un bilan consolidé, un compte de résultat consolidé, un état des ressources et des dépenses, les états de justification des comptes spéciaux, les états des relevés de dépense et des notes explicatives\. Cet état n'a pu être communiqué à la mission mais celle-ci a été informée que ces états sont en possession de l'Auditeur de l'UC-PDIAM et a obtenu l'assurance qu'ils lui seront transmis sous quinzaine\. 25\. Audits\. La mission a noté également avec satisfaction que les audits du projet ont été effectués pour l'exercice 2000 et jugés sans réserve\. 26\. Compte spécial\. La mission a pris note du souhait du besoin de procéder à une augmentation du plafond actuel du Compte spécial pour mieux répondre à l'augmentation du rythme de décaissement\. La mission a attiré l'attention de l'UC-PDIAIM que l'avance initiale déposée au Compte spécial de l'UC-PDIAIM était de 700\.000 DTS mais que le plafond de l'avance (montant autorisé) avait été fixé à 1\.400\.000 de DTS dans l'Accord de crédit qui (annexe 5, paragraphe 1c) que ce montant initial pouvait être augmenté jusqu'à concurrence du plafond quand certaines conditions étaient réunies Quand le montant global des retraits du Compte de Crédit alloués aux Catégories 1 (a), 2 (a), 3 (a), 4 (a), 5 (a) et 8 (a) figurant au tableau du paragraphe 1 de l'Annexe 1 au présent Accord, plus l'encours total de tous les engagements spéciaux pris par l'Association conformément à la Section 5\.02 des Conditions Générales pour les Parties A (1) et (2) (a), B (4), D (2), E, F et G du Projet, atteignait ou dépassait la contre-valeur de 2\.000\.000 de DTS\. Or ce montant a déjà été atteint\. Etant donné que ces conditions sont aujourd'hui réunies, la mission recommande que le Gouvernement fasse une demande formelle d'augmentation du plafond de l'avance\. UNCACEM 27\. Gestion financière et comptable\. La comptabilité générale du projet est tenue séparément de celle de l'UNCACEM sur SAARI-Sage\.L'interface entre le logiciel de gestion SCAN de l'UNCACEM et SAARI n'est pas encore réalisé pour permettre la sortie des états LACI\. La mission a effectué une revue du système de contrôle interne et examiné les demandes de paiement des exercices 2000 et 2001\. La mission an noté une bonne capacité de gestion du service financier dans l'élaboration des SOE et de la tenue des dossiers relatifs au projet\. 28\. Audits\. La mission a noté également avec satisfaction que les audits du projet ont été effectués pour l'exercice 2000 sans réserve\. SONADER 29\. La comptabilité de la SONADER est actuellement tenue sur le logiciel TOMPRO\. Cependant le module budgétaire n'est pas encore opérationnel et la comptabilité analytique n'est pas encore mise en place et ce malgré la signature d'un contrat avec un bureau spécialisé\. - 52 -  30\. La mission a effectué une revue du système de contrôle interne et examiné les demandes de paiement des exercices 2000 à 2001\. Elle a relevé des insuffisances en matière de gestion et a fait le constat suivant : § les avances faites pour les ateliers et séminaires ne font pas l'objet de justifications systématiques ; § plusieurs dépenses n'ont pas fait l'objet des demandes de non-objections requises par l'IDA; § les valeurs d'achat de certains biens paraissent excessives (voir annexe); § les justificatifs de dépense ne donnent pas de précision sur la qualité du bien, ni de sa destination; § les primes incitatrices versées en 2001 au personnel sont plus du double du budget prévu ; § des primes ont été aussi été versées à du personnel non prévu et § l'état de réalisation du budget 2001 a été préparé de manière extra comptable alors que le projet a bénéficié de la mise en place d'un logiciel de gestion sophistiqué et de formation à ce logiciel\. 31\. Sur la base des résultats de la revue, la mission recommande de: § fournir une justification systématique par des pièces probantes de l'utilisation des fonds reçus par les responsables en ce qui concerne les ateliers et séminaires\. Par ailleurs un bilan doit être établi avec rapprochement du budget initial et des dépenses réelles et explication des écarts; § procéder au remboursement de toutes les dépenses inéligibles au niveau des primes incitatrices en excluant les employés non visés par ces indemnités et tout dépassement de la ligne budgétaire\. Aucune prime ne devra être accordée en 2002 tant qu'une formule n'a pas été soumise à l'IDA et acceptée par celle-ci\. Les primes doivent viser à inciter certains agents (AVB et techniciens) faisant de fréquents déplacements sur le terrain dans des conditions difficiles bien définies ; § utiliser les compétences identifiées au niveau des services financiers (notamment à l'UC) pour assurer la formation ou assister leurs homologues ; § demander la non-objection préalable pour certaines dépenses (notamment les contrats d'études et de consultations) ; § tenir une liste mensuellement mise à jour des véhicules financés sur fonds IDA et affectés au Projet et leur lieu d'affectation (service, personne) ainsi qu'un carnet de bord pour chaque véhicule avec fiche individuelle de suivi des consommations; et § finaliser le paramétrage du logiciel de gestion existant afin que le suivi budgétaire par tâche soit intégré au système en s'inspirant du système de comptabilité analytique déjà opérationnel à l'UC-PDIAIM\. 32\. Étant donné le constat établi ci-dessus, la mission recommande une revue des SOE afin de déterminer le montant exact des dépenses non éligibles\. 33\. Audits\. Les audits du projet ont été effectués pour l'exercice 2000 sans réserve\. Passation des marchés 34\. La mission a procédé à: (i) l'évaluation de l'application des procédures de passation de marchés; (ii) la revue de la performance du personnel chargé de la passation de marchés; (iii) l'assistance aux éventuels amendements du manuel de procédure ; (iv) l'évaluation de l'état d'exécution des marchés ainsi que les prévisions ; et (v) l'examen du plan de passation de marchés pour la seconde moitié du projet\. 35\. UC-PDIAIM\. L'Unité de Coordination a préparé pour la mission toute la documentation requise pour la revue (rapport, plan de passation de marchés, liste des marchés par catégorie etc\.)\. La mission a - 53 -  félicité le responsable de la passation des marché pour l'excellente gestion de ses dossiers\. Elle a toutefois fait les remarques suivantes : le responsable de passation de marchés (APM) traite tout ce qui relève des Commissions de marchés (> 1 million d'ouguiyas) et l'agent comptable pour les achats inférieurs à ce seuil et qui sont approuvés directement par le Directeur\. Ceci constitue une défaillance dans l'organisation car personne ne peut s'assurer que les procédures sont respectées particulièrement en ce qui concerne le regroupement des marchés et le respect des seuils de cumul alors que ces missions font partie des termes de référence de l'APM; les moyens de rangement des dossiers commencent à faire défaut; les correspondances à la Commission Centrale des Marchés (CCM) passent par le MDRE pour transmission et accuse des délais à cette étape\. 36\. La revue à posteriori des marchés a permis de constater que la Commission Départementale des Marchés n'ouvre pas les plis à la date indiquée dans le DAO faute de quorum\. Les marchés appelés « par bon de commande » parce qu'ils n'atteignent pas un million d'ouguiyas sont préparés par l'agent comptable et approuvés par le Directeur\. Les achats de biens qui ont été examinés l'ont été suite à la consultation d'au moins 3 fournisseurs\. Ce sont cependant rarement des fournisseurs connus sur la place pour les équipements en question\. Les spécifications techniques sont parfois sommaires et il n'y a pas de demande de proposition dans le dossier\. Le regroupement exigé par l'accord de crédit n'est pas fait et on assiste donc à la multiplicité de petits marchés de même nature\. Le cumul des marchés passés par cette méthode (environ 800\.000$) a dépassé le montant autorisé par l'accord de crédit (400 000 $)\. L'agent de passation des marchés ne peut vérifier cette condition car il n'est pas informé des commandes passées au niveau de la comptabilité\. Il est à noter que le plafond des 400\.000$ réfère à la somme des marchés passés par les trois institutions (UCPDIAIM, SONADER et UNCACEM et pas seulement l'UC-PDIAIM\. 37\. La revue de l'état d'exécution des marchés et plans de passation des marchés (PPM) a montré que ce sont principalement des marchés de fournitures et des marchés de consultants qui ont été exécutés\. Les marchés de travaux n'ont pas démarré\. Le traitement des marchés importants de consultants ont été lents à traiter\. Les lenteurs au niveau des procédures de passation des marchés proviennent tant du côté de l'Administration que de l'IDA\. Les délais de signature des contrats n'ont pu être expliqués\. La mission a néanmoins constaté la mise à jour régulière du PPM qui a été réactualisé lors de la mission\. 38\. SONADER\. Le manque d'organisation a été constaté à tous les niveaux\. Le chef du service des marchés ne disposait pas de toutes les informations sollicitées par la mission\. Il est chargé de la préparation des dossiers mais n'assiste pas aux réunions des commissions de marchés et ne détient pas les fonds de dossier\. Ceux-ci sont détenus par le Secrétaire de la Commissions des marchés qui se trouve être aussi le Conseiller juridique de la SONADER\. Pour les marchés inférieurs à 5 millions d'ouguiyas, c'est l'agent comptable et non le chef du service des marchés qui prépare les dossiers qui sont directement soumis à la signature du Directeur\. Le conseiller juridique, qui assure par ailleurs le secrétariat du Conseil d'Administration et du Comité de gestion se dit surchargé et ne dispose pas d'assistant\. Le chef de service des marchés ne dispose pas de fiche de description de poste\. Les moyens de rangement font cruellement défaut et l'organisation des dossiers laisse donc à désirer\. La Commission des marchés est très difficile à réunir car elle est composée de haut responsables de divers ministères souvent absents ou occupés\. 39\. La revue à posteriori des marchés a indiqué que des marchés de faibles montants se répètent pour des biens de même nature et aucun effort de regroupement n'est fait\. Ils sont préparés par la Direction Administrative et Financière et sont approuvés directement par le Directeur Général\. L'échantillon revu - 54 -  montre qu'il est fait appel à trois devis chaque fois mais auprès de fournisseurs qui sont rarement reconnus sur la place comme fournisseurs attitrés pour ces équipements\. Les mêmes noms reviennent souvent\. Les spécifications techniques sont souvent sommaires et il n'y a pas de demande de proposition dans le dossier\. Le cumul des marchés ainsi passés par la méthode « consultation de fournisseurs » est de 87 451 496 ouguiyas\. Ce qui fait porte le cumul général (UC et SONADER) à 308\.509\.003 ouguiyas (environ 1\.200\.000 $) alors que le cumul autorisé est de 400\.000 $\. Les consultants individuels sont tous recrutés par entente directe\. La mission n'a pas pu voir les non-objections de la Banque pour ces consultants\. Enfin la Commission des Marchés ne respecte pas la date d'ouverture des plis annoncée dans le DAO\. Le report de la date d'ouverture des plis est souvent annoncé le jour de l'ouverture prévu dans le DAO, faute de quorum de la Commission\. 40\. Sur la base des résultats de la revue et en vue d'assainir la situation, la mission recommande les actions suivantes\. Le service des marchés dans chaque entité doit planifier les acquisitions de biens, de services et travaux quelque soit le montant, préparer et mettre à jour un plan de passation de marchés quelque soit l'unité qui aura à les passer, rechercher tous les regroupements possibles, s'assurer du respect des procédures et coordonner avec les services de marchés des autres entités qui participent à la gestion du crédit\. L'UC-PDIAIM doit assurer la coordination des actions de suivi des marchés depuis l'élaboration du plan de passation de marché par composante et faire un PPM consolidé en recherchant à faire tous les regroupements possibles, jusqu'au suivi de l'exécution des marchés en veillant au respect des procédures prévues dans l'accord de crédit\. L'entente directe est une méthode exceptionnelle et ne doit être utilisée que dans les conditions prévues par les Directives\. Les dates d'ouverture publique des offres doivent être respectées et les commissions doivent s'organiser (désigner une commission restreinte d'ouverture, se faire représenter etc\.) pour que l'absence de membres ne puisse handicaper cette opération\. La non objection ne doit être demandée que si l'avis préalable de la Banque est requis (conformément à accord de crédit ou à la demande explicite du chargé de projet)\. les demandes de propositions doivent être utilisées systématiquement dans le cadre de la «Consultation des Fournisseurs », faire appel aux fournisseurs attitrés les plus connus sur la place et doivent porter description des fournitures demandées\. Les clauses du contrat (y compris les spécifications techniques) ne peuvent être différentes de celles qui résultent du processus d'évaluation\. L'exécution des marchés doit être suivie avec rigueur et les sanctions prévues dans le contrat doivent être appliquées\. Les délais de passation de marchés doivent être réduits en particulier le délai de signature des contrats et le délai de non objection\. Les circuits de transmission du courrier entre les unités et la CCM doivent être simplifiés\. La SONADER doit revoir l'organisation de sa cellule de marchés en précisant les rôles de chaque intervenant et en renforçant ses moyens\. Fonction de Coordination du projet 41\. La coordination du PDIAIM implique plusieurs institutions DPSE, SONADER, UNCACEM, BAF, Bureau du Réviseur foncier, Centre de contrôle de qualité des semences et plants (CCQSP), Unité de gestion des semences (UGS), CNRADA, DRFV, DEAR, FAEM, etc\. dont aucune ne relève administrativement de l'Unité de coordination du projet (UC-PDIAIM)\. Ces - 55 -  institutions ont une gestion financière indépendante et les fonds du projet sont gérés soit d'une façon autonome (cas de la SONADER et de l'UNCACEM qui disposent chacune d'un compte spécial propre) soit semi-autonome (paiement des factures par l'UC-PDIAIM)\. Cette formule a l'avantage d'utiliser les structures existantes sans en créer une parallèle pour l'exécution du projet mais représente un défi en matière de coordination et de gestion\. L'UC-PDIAIM agit aussi comme l'interlocuteur du Gouvernement vis-à-vis de la Banque mondiale et des différents partenaires et ce pour l'ensemble des actions du projet 42\. La responsabilité en matière de coordination consiste à faire preuve (i) d'une vigilance constante et sans complaisance pour assurer le respect des engagements et l'atteinte des résultats et (ii)d'une capacité de répondre rapidement aux problèmes rencontrés et aux faiblesses constatées en tirant la sonnette d'alarme et en portant rapidement les informations et propositions de solutions au niveau de décision approprié pour action\. Etant donné que l'échec d'une seule composante ou activité peut entraîner l'échec de tout le projet, la fonction de coordination de l'UC-PDIAIM est très importante et il donc est indispensable de disposer d'une unité de coordination efficace, dynamique et proactive qui assume la pleine responsabilité pour tout succès ou échec du projet\. 43\. Le constat de la mission est que cette coordination doit être plus effective et mieux s'affirmer\. Le PDIAIM fonctionne parfois comme plusieurs projets parallèles (constitués autour de composantes ou sous-composantes) avec des liens plutôt lâches entre eux, surtout lorsque différentes composantes sont exécutées par différentes institutions\. Des problèmes apparaissent lorsque plusieurs institutions sont appelées à mener des actions parallèles mais concomitantes en vue de l'atteinte d'un objectif commun\. Ce fut le cas des réhabilitations où la régularisation des dossiers fonciers et des dossiers de coopératives n'a pas été menée de pair avec la réalisation des études techniques de faisabilité\. Le manque de coordination se remarque aussi à l'élaboration des rapports d'étapes (annuels et autres) où des inconsistances apparaissent\. 44\. Pour parer à ces faiblesses, la mission recommande : des réunions de concertation formelles, fréquentes et régulières, associant tous les intervenants du PDIAIM pour une programmation et un suivi collégial des activités et budgets et assurer la synergie entre intervenants\. Les réunions du CIMOS doivent être plus fréquentes et faire l'objet de minutes détaillées qui seront largement distribuées; des suivis et contrôles internes et externes réguliers et rigoureux pour apprécier la performance de chaque composante du projet; un guichet d'information PDIAIM permettant aux intervenants, mais aussi et surtout aux producteurs d'accéder à toute information sur le PDIAIM Ceci exige un système d'information défini au préalable avec les tous intervenants et dont chacun veille à faciliter le bon fonctionnement et la diffusion\. Ce guichet doit se trouver au niveau de l'UC-PDIAIM à Nouakchott, au niveau de l'Antenne diversification à Rosso, et de l'antenne PDIAIM qui sera ouverte dans le Haut Fleuve; une mission d'information auprès des décideurs par l'UC-PDIAIM qui doit les informer régulièrement sur l'état d'avancement du projet, les sources de blocage et leurs causes et intervenir au niveau des centres de responsabilité et de décision pour les résoudre\. Suivi-Evaluation et système d'information géographique 45\. Suivi-Evaluation au niveau Intrants-Processus-Résultats\. L'UC-PDIAIM a travaillé en étroite collaboration avec tous les responsables des composantes pour harmoniser les outils de programmation et - 56 -  de suivi des action du projet et assurer leur adoption par l'ensemble des acteurs du Projet\. Les programmes, budgets et rapports d'avancement reprennent généralement la structure du Projet par composante, ce qui facilite le suivi et la prise de décision, cependant la structure des rapports varie d'une mission à l'autre et d'une institution à l'autre\. La mission recommande une plus grande précision des tableaux et leur cohérence avec l'analyse qui en est faite; l'utilisation des indicateurs prévus dans les documents de référence du PAD ; une meilleure circulation des informations sur le suivi budgétaire et des réalisations physiques et le lien entre les deux et une meilleure qualité des analyses pour mettre en lumière les facteurs de succès et contraintes 46\. Les indicateurs de résultats spécifiques à chacune des composantes ont été clarifiés avec les intervenants concernés à partir des indicateurs identifiés au cadre logique et de l'expérience des deux premières années du PDIAIM \. Un consensus sur des indicateurs pertinents et à leur portée a été atteint au cours de cette mission\. Ces indicateurs spécifiques seront désormais utilisés dans le dispositif de pilotage du Projet, pour justifier les programmes d'activités demandés et rendre compte des résultats atteints dans les rapports d'avancement\. 47\. Suivi-Evaluation au niveau des impacts\. Le dispositif de suivi et évaluation des impacts du projet est conduit en étroite collaboration avec la DPSE, notamment la Division des Statistiques Agricoles et Pastorales (qui conduit chaque année des enquêtes routinières et des enquêtes ponctuelles sur certaines variables du cadre de référence pour l'évaluation d'impact) et la Division S&E des projets et programmes (qui assure le suivi des projets par le logiciel AGROPRO lequel permet de suivre les réalisations physiques et financières)\. Dans le souci de développer le suivi d'impact, la DPSE a mis sur pied un Comité technique S&E (MDRE, MAED, CDHLPI et autres acteurs au niveau du secteur rural) qui a pour objet de faire le point sur les systèmes de S&E en usage et d'en harmoniser les outils en vue de bâtir un système d'information rurale dynamique et pérenne\. 48\. Système d'information géographique (SIG)\. La masse d'information à consolider par l'Unité de coordination du PDIAIM dépassera les capacités de traitement et de restitution du dispositif de S&E du PDIAIM si sa gestion n'est pas organisée\. L'élaboration d'un manuel de gestion des bases de données et la mise en place d'un système d'information géographique intégrant l'ensemble des données du projet et autres données externes -mais utiles- permettraient aux décideurs mauritaniens de disposer d'un puissant outil de gestion et de programmation\. Ce travail est réalisable d'ici la fin de la présente phase du projet\. Pour cela l'UC-PDIAIM devra recourir à un spécialiste en bases de données et SIG\. Les termes de référence pour une telle assistance sont esquissés en annexe au présent aide-mémoire\. 49\. La mission recommande que des ajustements soient effectués en vue de (i) réviser le cadre de référence d'évaluation d'impact pour mieux l'inscrire dans la logique de la stratégie nationale de lutte contre la pauvreté; (ii) adopter une nomenclature commune pour tous les projets pour permettre la consolidation des informations et du suivi des investissements publics dans le secteur; (iii) compléter la collecte des données relatives à certains indicateurs en 2002 et 2003; (iv) arrêter les modalités d'actualisation de la base de données de 1998 sur les périmètres irrigués : (v) revoir la typologie des périmètres; développer une capacité d'enquête qualitative en Mauritanie; et (vi) mettre sur pied un système d'information géographique (SIG) intégrant une grande partie des informations produites dans les différents projets (pour plus de détails, voir la note sur l'utilisation d'un SIG en annexe)\. Perspectives d'extension de la date de clôture de la première phase du PDIAIM 50\. Le PDIAIM a été conçu comme un APL de trois phases de 3, 4 et 4 ans respectivement\. La raison pour une courte première phase était pour permettre de lancer, au cours de cette phase, les études pour - 57 -  d'importants et urgents travaux d'infrastructures publiques, puis passer le plus rapidement, en seconde phase, à l'exécution de ces travaux\. Malheureusement, une série d'évènements imprévisibles est venue retarder le processus de mise en oeuvre de cette première phase\. La production de la campagne agricole (1999-2000) a été gravement affectée par des inondations qui ont eu lieu en décembre 1999, au moment même où le crédit IDA était mis en vigueur et qui ont détruit une partie des récoltes, endommagé les périmètres, ralenti le taux de remboursement des producteurs créditeurs et réduit leur capacité d'emprunt pour les campagnes 2000-2001 et 2001-2002\. La baisse du taux de recouvrement des prêts par l'UNCACEM a empêché cette dernière d'atteindre son autosuffisance financière en fin 2001 tel que prévu\. Or cette autosuffisance constitue un des indicateurs de déclenchement de la seconde phase\. La campagne agricole 2001-2002 a été partiellement affectée par une violente chute de grêle parvenue au moment de la récolte et qui a causé des dégâts importants\. La régularisation foncière et le règlement du statut des coopératives (qui ne relevaient pas de la responsabilité du projet) a dramatiquement réduit le nombre de périmètres éligibles pour un financement pour leur réhabilitation\. La situation a été corrigée en prenant en charge, dans le cadre du projet, le financement et l'organisation de ces activités mais un temps précieux a été perdu et les objectifs de réhabilitation prévus ne seront pas atteints à la date de clôture du crédit IDA\. Les autres causes de non atteinte de cet objectif ont été les exigences, le coût et la durée (trop longue) des études techniques préalables aux réhabilitations et le type de travaux coûteux proposés pour ces réhabilitations\. Au cours de la revue à mi-parcours, la mission a convenu de mesures à prendre mais les retards enregistrés ne pourront pas être rattrapés avant la date de clôture\. Le projet constitue une vraie révolution en matière de projets et/ou programmes d'irrigation en Mauritanie et dans la région\. Ce changement radicale dans la stratégie, les politiques, le mode d'intervention et de financement ne se sont pas faits sans un certain temps d'adaptation de la part de tous les acteurs impliqués dans cette opération\. Aussi, une confiance devait être établie entre gouvernement, producteurs, riziers, commerçants, et agence de crédit\. Cette même confiance devait aussi être établie entre ces derniers et la Banque mondiale\. 51\. En conséquence, certains objectifs importants du projet et indicateurs de déclenchement de la seconde phase ne pourront être atteints sans une extension de la date de clôture du crédit IDA\. La mission a pris note du souhait du Gouvernement pour une extension et a invité ce dernier à en faire la demande officielle\. - 58 -  IBRD 30312R1 18° 16° 14° 12° 10° 8° 6° REGION CAPITALS CAPITALE REGIONALES ALGERIA NATIONAL CAPITAL BRAKNA REGION CAPITALE NATIONALE 26° REGION BOUNDARIES NOUAKCHOTT Boutilmit LIMITES DE REGIONS TRARZA SCHEME SCHEME INTERNATIONAL BOUNDARIES FRONTIERES INTERNATIONALES TIRIS REGION Koundi 5 Boghé 3 24° ZEMMOUR 24° A t l a n t i c SCHEME Koundi 5 bis Boghé 4 Former O c e a n Spanish Garak 1 Koundi 6,7,8 Boghé 5 Sahara Fdérik Garak 2 Koundi 9 Boghé 6 22° 22° Koundi 1 Koundi 10 M'bagne 1 Koundi 2 Boghé 1 M'bagne 2 MALI Nouâdhibou ADRAR Koundi 3 Boghé 2 M'bagne 3 DAKHLET NOUADHIBOU Atâr INCHIRI Koundi 4 20° 20° Akjoujt KO9 KO10 Gorgol Noir Lake R'Kiz TAGANT BRAKNA KO5 BISKO6,7,8 C\.PB Lekseiba TRARZA Tidjikja HODH ECH Boghe Qualo de NOUAKCHOTT CHARGUI 18° DELTA ZONE TRARZA KO5 MB1 MB2 BRAKNA GORGOLK1 Kaedi Gorgol AREA OF BRAKNA M'Pourié MB3 HODH K2 MAP Rosso Aleg ASSABA EL Ayoûn el Néma Geo`ere River Kaédi Kiffa BO2 K3 GHARBI Atroûs 16° GORGOL 16° Dioup R'Kiz SENEGAL Senegal BO3 Senegal N'Diader Lake KO4 BO4 BO6 K4 GUIDIMAKA R\. Sélibabi MALI N'Callax BO5 M'Bagne 0 100 200 300 KO2 Podor 18° 16° 14° 12° 10° 8° KILOMETERS 6° 14° Existing Koundel Reo Maghama Casier G1Dao The boundaries, colors, denominations and any other information MD1 shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any M'Pourié GA2 KO3 Pilot MD2 Selibabi endorsement or acceptance of such boundaries\. Dioup KO1 MAURITANIA GORGOL MD4 MD6 N'Diadier Gouére GA1 MAURITANIE GUIDIMAKA ATLANTIC Rosso INTEGRATED DEVELOPMENT PROGRAM GORGOL MD3 OCEAN Keur REGION MD5 Diogountourou Senegal R iver Massne FOR IRRIGATED AGRICULTURE (PDIAIM) SCHEME Bakel Ambidedi PROJET DE DEVELOPPEMENT INTEGRE Kaédi 1 Guiers Kaédi 2 Lake DE L'AGRICULTURE IRRIGUEE (PDIAIM) Kaédi 3 M A L I Kaédi 4 Garli 1 N\.Colax Dao 1 GUIDIMAKHA REGION BOUNDARIES S E N E G A L REGION LIMITES DE REGION Maghama 1 Diama NATURAL EQUIPMENT UNITS Maghama 2 SCHEME UNITES NATURELLES D'EQUIPEMENT(UNE) Maghama 3 Maghama TOWNS Maghama 4 VILLES Other NATIONAL CAPITAL Maghama 5 (Not shown) CAPITALE NATIONALE ROADS GORGOL VALLEY ROUTES Casier Pilote Kaedi TRACKS PISTES Oualo de Gorgol INTERNATIONAL BOUNDARIES Gorgol Noir FRONTIERE INTERNATIONALES 0 25 50 75 100 KILOMETERS DECEMBER 2005  IBRD 30313R2 16° 12° MOROCCO MAURITANIA MAURITANIE FORMER ALGERIA AGRO-ECOLOGICAL ZONES SPANISH SAHARA ZONES AGRO-ECOLOGIQUES AGRO-ECOLOGOCAL ZONES: M A U R I TA N I A ZONES AGRO-ECOLOGIQUES NATIONALS PARKS Nouakchott SENEGAL RIVER AREA ZONE DU FLEUVE SENEGAL PARCS NATIONAUX MALI RAINFED AGRICULTURE THE SENEGAL CULTURE PLUVIALE GAMBIA NIGER FLOOD RECESSION AGRICULTURE BURKINA GUINEA- FASO 1 CULTURE DE DECRUE GUINEA BENIN OASIS AGRICULTURE BISSAU CULTURE OASIENNE M O R O C C O TOGO SIERRA CÔTE LEONE 200 ISOHYETS (1949-1974) IN MM AT L A N T I C D'IVOIRE 28° O C E A N LIBERIA GHANA 200 ISOHYETS (1968-1974) IN MM PAVED ROADS ROUTES PAVEES 8° PAVED ROADS UNDER CONSTRUCTION ROUTES PAVEES EN CONSTRUCTION LATERITE/EARTH ROADS EN TERRE OU EN LATERITE A L G E R I A TRAILS PISTES RAILROADS CHEMINS DE FER INTERNATIONAL AIRPORTS AEROPORTS INTERNATIONAUX PORTS To Bir-Moghrein PORTS Aaiun INTERNATIONAL BOUNDARIES FRONTIERES INTERNATIONALES F O R M E R S P A N I S H 24° 24° S A H A R A 0 50 100 150 200 250 KILOMETERS F\. Derik Zouérate M A L I Choum Nouadhibou La Guerra Ouadane G Atar e100% Chinguetti BANC D'ARGUIN Oued 20° 20° Seguelil e100 Akjoujt G 0% ATLANTIC OCEAN Tidjikja Tichitt e1 G 100 e100% NOUAKCHOTT Moudjéria G 100 Cangarâfa e100% e Boutilimit G G 100 Oualata e100% e100% 100 200 Tamchakett G G G G e100% e100% e100% e100% 200 Mederdra Aleg Aioun el Atrouss G G G 200 300 Boghé 200 e100% e100% e100% e1 Kiffa Néma DIAWLING Rosso Se G G G G Kaedi 100% Timbedra 300 300 ne e 400 16° g a l M´Bout 16° R\. El Moundéré For detail, see 400 IBRD 30312R1 400 300 400 Nioro du Sahel 500 500Dakar To Selibaby Gourai M A L I The boundaries, colors, denominations and any other information shown S E N E G A L on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. 16° 12° 8° DECEMBER 2005

REVIEW

P037156

 ICRR 11027 Report Number : ICRR11027 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/06/2001 PROJ ID : P037156 Appraisal Actual Project Name : Iodine Deficiency Disorders Project Costs 152\.3 118\.8 Control US$M ) (US$M) Country : China Loan/ Loan US$M ) 27 /Credit (US$M) 17\.3 Sector (s): Board: HE - Other industry Cofinancing 0 0 (100%) US$M ) (US$M) L/C Number : C2756; L3914 Board Approval 95 FY ) (FY) Partners involved : UNICEF Closing Date 12/31/1998 12/31/2000 Prepared by : Reviewed by : Group Manager : Group : Timothy A\. Johnston Ronald S\. Parker Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The project's objective was to help reduce the incidence of iodine deficiency disorder (IDD) in China through improved production, iodization, packaging and distribution of iodized salt \. The project's scope and activities were designed as part of a master plan for rationalizing and upgrading the salt industry in China, covering over 200 enterprises and 31 provincial-level jurisdictions\. b\. Components The project supported the government's National IDD Elimination Program -- a comprehensive, multisectoral initiative -- which was launched in 1993 and benefited from high-level political support\. The loan focussed on the salt industry, consistent with government's request \. The project consisted of two parts : A\. Physical projects at the salt enterprise level, including civil works, equipment, purchase and installation, training and management support for upgrading and expanding industry capacity for salt iodization; B\. A limited program of technical assistance for information systems and project management \. c\. Comments on Project Cost, Financing and Dates An IBRD loan of US$7 million was included in the Bank's initial assistance, but was canceled in 1998 due to savings in procurement The $17\.3 million IDA credit was dispersed\. The project benefited from parallel financing by UNICEF and other UN agencies\. 3\. Achievement of Relevant Objectives: The project met or exceeded all of its physical targets, and the technology transfer to improve the packaging of salt for retail distribution was highly successful \. The production of quality iodized salt in China rose from 3\.0 million tons per year in 1995 to more than 6\.7 million tons per year in 1999\. As part of the National IDD Elimination Program, the GoC passed laws and regulations mandating iodization of all edible salt, set a new price for quality iodized salt, and levied a proportion of salt producers' revenue for a reconstituted Iodized Salt Industry Development Fund \. With project support, the salt industry (which remains under state control ) was rationalized and upgraded, including consolidation of production and iodizing units, reduction of excess capacity, installing modern machinery for iodization and packaging, and improved project management and information systems \. While the project significantly contributed to reducing IDD among the poor, an estimated ten percent of households are not yet consuming iodized salts\. These are predominantly located in the poor provinces and counties, which were not reached directly by the project \. Government has made plans to address these areas, making use of funds generated through the Iodized Salt Industry Development Fund \. 4\. Significant Outcomes/Impacts: The proportion of households in China with adequately iodized salt rose from 40 percent in 1995 to 89 percent in 1999, and the percentage of schoolchildren 8-10 years with low urinary iodine declined from 13 percent to 3 percent in the same period\. Given that China was estimated to have 40 percent of the world population at risk of IDD, the project thus contributed to reducing the global burden of IDD \. Children born into previously iodine deficient communities will have on average intelligence 10-15 IQ points greater than if they had not been protected \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The project faced various challenges and difficulties during implementation, but did not have any major shortcomings\. Because nearly all project inputs focused on the salt industry, contributions to the Ministry of Health -- which has responsibility for policy and monitoring of micronutrients -- were more limited\. This made it more difficult at times to engage the MOH in policy dialogue \. The small TA component was not implemented, but was financed through other sources\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Highly Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Highly Likely Highly Likely Bank Performance : Satisfactory Satisfactory The project provides a good example of an interdisciplinary Bank team implementing a multisectoral project\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The ICR includes a range of lessons for China and other countries addressing IDD \. This project also was reviewed as part of an OED study of the Bank's experience in addressing IDD \. Some major lessons include: Salt iodization is a highly cost -effective means to reduce iodine deficiency, but the approach and strategy for iodization must be aligned with the structure and incentives of the country's salt industry \. China's IDD program was successful because it gave a central role to the salt industry, and aligned industry objectives with a social objective -- rather than working exclusively through the health sector \. State control over the salt industry (through licensing, quotas and other regulations ) facilitated implementation, however; different approaches may be necessary in countries with a large number informal salt producers and distributors, and /or with weaker regulatory capacity\. Effective IDD campaigns should be based on a comprehensive approach, including analysis of national IDD status; awareness building among political leaders and stakeholders; market and social analysis of consumer preferences regarding iodized salt; development of a strategy identifying key interventions, responsibilities of implementing agencies and partners, and coordination mechanisms; and a program of technical assistance through local and international agencies \. In China, sound scientific analysis of IDD greatly helped in generating high level and multisectoral support \. Attention to developing appropriate monitoring indicators and enforcement mechanisms is also essential, as well as identifying the appropriate institutional "home" for these functions\. Industry and MOH initially had different methods, standards, and definitions for reporting and monitoring iodine concetration in salt, which have since been resolved\. The salt industry is now responsible for its own quality control, while the MOH monitors compliance, and tracks population trends in IDD \. Although there was no formal project partnership with UNICEF, the Bank signed Memoranda of Understanding (MOUs) with UNICEF and three other UN agencies to clarify roles and responsibilities under the National IDD Elimination Program\. This contributed to a high level of cooperation, which was sustained throughout the project\. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR is comprehensive, and provides extensive evidence to document the project's accomplishments, successes, and difficulties\. The Executive Summary at the end is useful \.

REVIEW

P040739

 ICRR 11396 Report Number : ICRR11396 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 02/11/2003 PROJ ID : P040739 Appraisal Actual Project Name : Planning For Adaptation To Project Costs 6\.6 6\.22 Global Climate Change US$M ) (US$M) (CPACC) Project (GEF) Country : Caribbean Loan/ Loan US$M ) 6\.6 /Credit (US$M) 6\.22 Sector (s): Board: ENV - Central Cofinancing government administration US$M ) (US$M) (100%) L/C Number : Board Approval 97 FY) (FY) Partners involved : Closing Date 12/31/2001 03/29/2002 Prepared by : Reviewed by : Group Manager : Group : John English Alice C\. Galenson Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The CPACC project's overall objective was to support CARICOM member countries in preparing to cope with the adverse effects of global climate change (GCC), particularly sea level rise in coastal and marine areas, through vulnerability assessment, adaptation planning, and capacity building linked to adaptation planning \. Specifically, to: strengthen regional capacity for monitoring and analyzing climate and sea level dynamics and trends, seeking to determine the immediate and potential impacts of GCC; identify areas particularly vulnerable to the adverse effects of GCC and sea level rise; develop an integrated management and planning framework for cost -effective response and adaptation to the impacts of GCC on coastal and marine areas; enhance regional and national capabilities for preparing for the advent of of GCC through institutional strengthening and human resource development; and identify and assess policy options and instruments to help initiate the implementation of a long -term program of adaptation to GCC in vulnerable coastal areas \. b\. Components At appraisal there were four subcomponents for regional activities, four for national level activities, and two project management activities\. Regional components - (total estimated cost US$2,206,000 or 35% of project cost) Design and establishment of sea level /climate monitoring network, (US$824,000) Establishment of databases and information systems (US$392,000) Inventory of coastal resources and use (US$690,000) Formulation of a policy framework for integrated coastal and marine management, (US$300,000) National Components - (total estimated cost US$1,340,000 or 22% of project cost) Coral reef monitoring for climate change, (US$406,000) Coastal vulnerability and risk assessment, (US$433,000) Economic valuation of coastal and marine resources, (US$312,000) Formulation of economic/regulatory proposals, (US$189,000)\. Project management activities - (total estimated cost US$2,708,000 or 43% of project cost) Regional project implementation and capacity building, (US$2,038,000) Executing agency costs, (US$670,000) c\. Comments on Project Cost, Financing and Dates The estimated project cost of US$ 6\.6 million was covered by a GEF grant of SDR 4\.66 million\. During implementation the value of the SDR fell relative to the dollar so that there was a shortfall of about US$ 435,000 (7% of expenditure) in the dollar amount available for implementation \. This resulted in some downscaling of activities at the end of the implementation period \. 3\. Achievement of Relevant Objectives: The overall objectives of the project were largely achieved, although some activities (e\.g\. dissemination and study tours) were curtailed because of the financing shortfall \. In particular, substantial progress was achieved in enhancing relevant regional and national capabilities \. A Regional Programme Implementation Unit (RPIU) was established together with National Implementation Coordinating Units (NICUs) and National Focal Points (NFPs) in each of the participating countries \. However, there were shortfalls in establishing the climate and sea level monitoring systems because of ongoing maintenance problems at some of the small stations established by the project\. Thus, the data bases established to date have some gaps \. The project was able to assess and identify key policy options for the all countries, although the options were not immediately applicable in all cases to government programs\. However, the work has provided the basis for implementation of a long -term program\. 4\. Significant Outcomes/Impacts: The RPIU has developed into an effective mechanism for coordinating climate change activities in the region and, through the RPIU, the project had a direct link to the political decision making process \. This has led to the recognition at the decision making level of the leadership role in the advocacy for climate change issues which the RPIU now performs in the region\. In addition the NFPs and NICUs have emerged as a prominent source of expertise and advocacy for climate change issues nationally and regionally \. CPACC has also facilitated the articulation of regional positions for participation in international fora, and regional personnel, mainly NFPs, play a prominent role in the negotiating process\. During the course of the project, RPIU staff and NFPs increasingly assisted, and on many occasions represented, the region at global and regional meetings and provided key technical inputs to support the position of the region, thus effectively guiding its agenda \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The major shortcomings relate to the sustainability of the operation \. The ICR reports that considerable progress was achieved in obtaining political buy -in in the CARICOM states, but this was not reflected in a willingness to fund operations\. The project was 100% financed from the GEF grant and, when the shortfall due to SDR devaluation appeared, no other financing source was available and operations were scaled back \. The ICR indicates that the project is to be followed by a "Mainstreaming Adaptation to Climate Change " (MACC) project, which will continue operations, but no financing source is reported \. In fact, the report on the ICR workshop notes that the "World Bank was commended for its efforts to bring in extra trust fund resources (Canadian and Dutch) in the preparation of MACC and to recover some of the lost CPACC activities \." The ICR reports that "the CARICOM Secretariat is in the process of implementing the decision of the Heads of States to establish a permanent and independent Caribbean Community Climate Change Center "\. This would presumably be the major actor in implementing the follow -on MACC project\. However, it also notes that "much work remains to be done to ensure a sustainable basis for its operations \." This apparent state of affairs calls into question the extent of local ownership of the CPACC project and, therefore, its sustainability \. Note : This project was unusual in a number of ways \. It was entirely grant funded and implemented in 12 small Note: countries\. It arose from the negotiation of the UN sponsored Framework Convention on Climate Change, when it became clear that the small countries of the Caribbean (grouped in CARICOM) needed to collaborate if they were to effectively follow up on the initiatives proposed by the convention \. The GEF grant was seen as an appropriate vehicle for kick-starting this process\. But, it is not clear who was envisaged as being the ultimate owner of the project, and it is also not clear what entity was expected to pick up the baton and continue the effort when this first operation was complete\. The experience of this project suggests that the GEF should consider a broader review of policy with respect to the funding of, and responsibility for, climate change related operations in groups of small and/or poor countries\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Unlikely While the ICR indicates broad political and rhetorical support for this operation, it does not show that financial support is available to allow the program to be continued (see section 5)\. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory The project was unusual in having a large number of agencies on the implementation side\. Additionally, since the operation was grant funded there was no "borrower" per se and no single entity responsible for implementation\.  Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. For small developing countries, with scarce human resources and weak adaptive capacity, most effective use can be made of resources by adopting a regional approach (where possible) to meeting their obligations under multilateral environmental agreements\. 2\. The use of SDR denominated GEF grants introduces a currency risk that needs to be taken into account by building contingency funds in the financing plan \. 3\. There is a danger that the efforts promoted by GEF and the UNFCCC at large in the area of climate change may be seen by some as an opportunity to capture financial resources instead of the mechanism by which adaptation needs are understood, formulated, internalized and acted upon \. 4\. Political buy-in is a major implementation and sustainability issue in adaptation to climate change and can be enhanced through a highly visible regional coordination institution, multi -stakeholder committee, public awareness campaigns and involvement of a variety of relevant national ministries \. 5\. Data networks need strong support at the national level to perform at the level that is expected \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: This is a good quality ICR that provides a great deal of detail on the wide range of activities undertaken by the project\. The presentation of the achievements under the wide range of project outputs is exemplary \.

REVIEW

P035775

 ICRR 12274 Report Number : ICRR12274 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/28/2005 PROJ ID :P035775 Appraisal Actual Project Name :Transport Project Project Costs 49\.5 51\.3 US$M ) (US$M) Country :Estonia Loan/ US$M ) Loan /Credit (US$M) 25\.0 12\.9 Sector (s):General ): public US$M ) Cofinancing (US$M) administration sector; Roads and highways L/C Number :L7008 FY ) Board Approval (FY) 00 Partners involved : Closing Date 12/31/2005 11/01/2005 Evaluator : Panel Reviewer : Group Manager : Group : Peter Nigel Freeman Ridley Nelson Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives 1\. To reduce transport costs between Estonia's two largest cities and the Latvian and Russian borders \. 2\. To improve Estonia's road safety performance \. 3\. To strengthen Estonia's road administration \. 4\. To improve the competitiveness of Estonia's trade supporting infrastructure and services \. b\. Components (or Key Conditions in the case of Adjustment Loans ): 1\. Rehabilitation and upgrading of portions of the Tallin - Luhamaa road, including interchanges and the Tartu ring road\. (App\. estimate US$ 43\.3 million; actual US$ 49\.3 million) 2\. Road Safety\. Elimination of black spots, improvements in road markings and signs, speed control cameras, road safety educational campaign materials, technical assistance, software and training \. (App\. estimate US$4\.35 million; actual US$ 1\.8 million)\. 3\. Institutional strengthening\. Improvements to maintenance management and systems, training, office and laboratory equipment\. (App\. estimate US$ 1\.4 million; actual US$ 0\.1 million)\. 4\. Trade facilitation \. Development of laws and regulations, support to create a public, private partnership, improved market access and education, training and research on trade supporting services \. (App\. estimate US$ 0\.1 million; actual nil)\. Note: The final actual cost was US$ 51\.3 million as opposed to US$ 49\.6 million at appraisal (which included a front end fee of US$ 0\.3 million)\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates In November 2003, the Ministry of Finance cancelled US$ 12\.1 million of the loan because Estonia had moved into a position where it had a significant budgetary surplus and elected to complete the project using own funds \. The actual date of completion is given as November 1, 2005, but this is when the outstanding loan was cancelled, not when the project was finished\. The final project cost was US$ 1\.75 million more than expected largely due to an additional 50km of road being rehabilitated over the distance outlined in the original project description \. This additional work was entirely funded by Estonia \. 3\. Relevance of Objectives & Design : The CAS for Estonia emphasized the importance of the private sector as an engine of growth to improve the living standards of those left behind in the transition from a command to a market economy \. Lowering transport costs was an important and highly relevant part of creating the right climate for this to happen \. In addition, the push for contract based maintenance, the streamlining of administration and the encouragement of transit traffic were all supportive of this general thrust\. The quality of the design was appropriate for the country, and preparation took into account the Bank's policies\. However, the design could have paid more attention to the longer term issue of the adequacy of funds for routine maintenance\. The Quality Assessment Group assessed the project as satisfactory and stated that it was well focused and consistent with the CAS \. 4\. Achievement of Objectives (Efficacy) : Reduce transport costs\. Highly achieved\. All road rehabilitation was successfully completed \. In total, 240km were improved as against 190km planned at appraisal\. Road roughness was reduced from an average roughness indicator of 4\.0m/km to 2\.95 m/km\. The ERR at appraisal of 32% was exceeded and the ERR on completion was 38%\. Traffic usage of the rehabilitated roads, including transit traffic, was greater than forecast \. Road safety performance\. Highly achieved\. All aspects of the road safety program were successfully carried out \. Fatalities per 10,000 vehicles were reduced from 4\.7 to 3\.2 over the life of the project\. The road safety education program was also implemented successfully \. The road safety budget was stable and a black spot remediation program was introduced in 2005 as a direct result of the successful black spot and strategy components of the project \. Strengthening of road administration \. Substantially achieved\. Training has been undertaken to improve financial management, procurement, environment, and maintenance by contract\. Specific reforms include the adoption of performance based contract maintenance for highways (this has been particularly beneficial), the replacement of in-house routine maintenance with long term contracted out maintenance arrangements and the consolidation of administrative districts (from 15 to 6)\. A Traffic Information Center and a laboratory for photogrammetry were established \. A new traffic management system is 80% complete\. An environmental unit has been set up in the Estonian National Road Administration (ENRA) and an environmental specialist recruited to coordinate environmental issues in compliance with the environmental management program \. One concern is that the budget for road maintenance is currently insufficient \. Part of this shortfall stems from the fact that maintenance has been partly funded by international financial institutions and although the government has cancelled all the outstanding loans because it is in a good financial position, it has not yet allocated additional funds for maintenance\. ENRA, however, is a competent and effective organization so it is likely that this situation will be redressed soon\. A new pavement management system funded under the project has already been operationalized \. This will assist with the outstanding maintenance problem because it will be possible to assess road maintenance needs more accurately\. Had it not been for the maintenance issue the outcome rating might have been even better \. Trade facilitation\. Highly achieved\. As part of project preparation a transport and trade facilitation study was carried out which led to a strategic plan and an action plan being agreed\. An electronic data interchange system has been set up to provide one -stop border clearances\. This system is compatible with European Union (EU) standards, and allows for a direct transfer of electronic data related to shipments at border crossings of Estonia's main EU partners \. The platform was financed by the Government of Estonia and all future expenditures will be fully funded by the private sector \. No Bank funds were expended on this component because the private sector responded well \. Particularly noteworthy was the introduction of an internet forum enabling the participation of specialists, including those with experience in other countries, (this link is also available on the Bank website )\. 5\. Efficiency : The ERR at appraisal of 32% was exceeded and the ERR on completion was 38%; this is a very good return\. The higher ERR resulted from the use of actual figures on completion as opposed to imputed figures at appraisal \. This means there was a significant reduction in transport costs to the users \. The road safety, trade facilitation and institutional strengthening components were competently and effectively accomplished \. 6\. M&E Design, Implementation, & Utilization: Both outcome and output design indicators were used \. For the most part they were realistic and measurable \. They were used effectively in monitoring and enabled the Bank to track progress and performance appropriately \. An indicator on the funding of road maintenance in addition to the percentage of routine maintenance contracted out would have been helpful\. Such an indicator was mentioned in the PAD but not shown in the ICR, Annex 1\. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): No safeguards were contravened and there were no unintended impacts \. 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: The EU accession policy can play a catalytic role in accelerating institutional and policy reform in the region, especially through encouraging the attainment of road traffic safety and pavement upgrading standards \. When loans are repaid at an earlier stage than anticipated it is important to ensure that appropriate provision has been made for ongoing routine expenditure, including maintenance \. An internet forum can be an inexpensive and efficient way to exchange trade information and share specialist advice on transport and trade topics \. 10\. Assessment Recommended? Yes No 11\. Comments on Quality of ICR: The ICR is well written and generally provides enough information to enable the project to be rated satisfactorily \. Probably because the Bank was no longer involved in the project when it was finished, the actual date of completion of works is not given and there are some minor differences between the tables and the text explaining where the funds were actually spent\.

REVIEW

P001044

Document of The World Bank FOR OFFICIAL USE ONLY Report No\.: 20520 PERFORMANCE AUDIT REPORT REPUBLIC OF GUINEA SECOND WATER SUPPLY PROJECT (Credit 1985-GUI) June 12, 2000 Sector and Thematic Evaluations Group Operations Evaluation Department Thi ocument has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Currency Equivalents (annual averages as per International Finance Statistics) Currency Name: Guinean Francs (GNF) 1989 USD 1\.00 GNF 620 1990 USD 1\.00 GNF 680 1991 USD 1\.00 GNF 803 1992 USD 1\.00 GNF 922 1993 USD 1\.00 GNF 972 1994 USD 1\.00 GNF 981 1995 USD 1\.00 GNF 998 1996 USD 1\.00 GNF 1039 1997 USD 1\.00 GNF 1145 1998 USD 1\.00 GNF 1230 Abbreviations and Acronyms AfDB African Development Bank BADEA Arab Bank for Economic Development in Africa/Banque Arabe pour le D6veloppement Economique en Afrique CCCE Caisse centrale de coop6ration 6conomique CGE Compagnie g6n6rale des eaux DEG Entreprise nationale de distribution d'eau de Guin6e EIB European Investment Bank MRNE Minist6re des ressources naturelles et de l'environnement ICR Implementation Completion Report SAR Staff Appraisal Report SAUR Societ6 d'am6nagement urbain et rural SEEG Soci6t6 d'exploitation des eaux en Guin6e SONEG Soci6t6 nationale des eaux en Guin6e UNDP United Nations Development Program WSS Water supply and sanitation Fiscal Year Government: January 1 - December 31 Director-General, Operations Evaluation : Mr\. Robert Picciotto Director, Operations Evaluation Dept\. : Mr\. Gregory Ingram Acting Manager, Sector and Thematic Evaluations Group : Mr\. Ridley Nelson (Acting) Task Manager : Mr\. Klas Ringskog FOR OFFICIAL USE ONLY The World Bank Washington, D\.C\. 20433 U\.S\.A\. Office of the Director-General Operations Evaluation June 12, 2000 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Guinea Second Water Supply Project (Credit 1985-GUI) The Guinea Second Water Supply Project (Credit 1985-GUI) was approved on May 3, 1989, and was partly financed with an IDA credit in the amount of SDR 29\.3 million (US$40\.0 million equivalent)\. The IDA credit was closed on October 31, 1997, one year behind schedule, at which time a balance of SDR 102,000 (US$139,000) was canceled\. Cofinancing was provided by the African Development Bank, the Caisse centrale de coopiration economique, the European Investment Bank, and the Japan International Cooperation Agency\. Guinea is one of the least-developed countries in the world and the coverage and quality of water supply services have been low\. IDA had initially extended a credit for the Conakry Water Supply and Sanitation Project\. This project helped increase the quantity of water for Conakry and improved drainage conditions\. However, the most important component, institutional strengthening, was not achieved and results were unsatisfactory\. It became clear that only deep reforms of the sector's institutions would improve water supply service in a sustainable fashion\. The Second Water Supply Project was designed with such objectives in mind\. The legal, institutional, technical and financial frameworks were all reformed and professional know-how was injected via private sector participation\. A government-owned asset holding company, Soci6t& nationale des eaux en Guin6e (SONEG) was set up to implement the project and supervise a lease contract with the private operator, Soci6t6 d'exploitation des eaux en Guin6e (SEEG)\. A novel formula was designed where the IDA credit and the government budget financed a share of operating costs during the early years of the project on a sliding scale\. The consumer tariff was gradually raised in line with improvements in service and eventually the operating subsidies could be phased out altogether\. The project was successful in ending water rationing in Conakry and in increasing the population's service coverage from 40% to 67%\. More importantly, the project was instrumental in creating and strengthening SONEG, which is gradually expanding the number of centers in the interior that is receiving service provided by SEEG\. Staff productivity in SEEG has roughly doubled over the project period, but unaccounted-for-water has remained stubbornly high at 47% due to high losses in an aged network that is now receiving water at higher pressure because of project investments\. The coverage and quality of service is expected to further improve as a consequence of the Third Water Supply and Sanitation Project for which an IDA credit of SDR 18 million (US$25 million equivalent) was approved on March 3, 1997\. The government is now negotiating with SEEG a possible renewed lease contract that would shift more investment responsibility to the private operator\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. 2 OED rates the outcome of the project as satisfactory, its institutional development impact as substantial and sustainability as likely\. Bank performance is rated as highly satisfactory and borrower performance as satisfactory\. The ratings agree with those in the Implementation Completion Report\. The project was a pioneer for Bank group lending with significant private sector participation in the water supply sector and its experience contains a number of relevant lessons\. First, it demonstrates that private sector participation is a viable option even in very poor countries if the government provides strong and sustained political support throughout the process\. Second, the project teaches that major reforms should best be implemented before the private operator assumes responsibility for operations\. The contract should specify how the contract would evolve over time\. The contract should also provide the government with ready access to the information and data gained by the operator during the course of the contract\. This will minimize the comparative advantages of the incumbent operator in case the government wishes to proceed to public competitive bidding at the conclusion of the initial contract\. Third, financing should be provided to low-income consumers to enable them to connect to the system at an affordable cost in order to take advantage of any unused production capacity\. Rapidly expanding connection rates are important not only to improve the health of the population but also to strengthen the financial viability of operations\. Attachment Contents Ratings and Responsibilities \. n1 Preface \. \. iv 1\. Background \.1\. \.1 2\. The Project \. \. 1 ICR Findings \.2\. \.2 The OED Review of the ICR \. 2 3\. The Audit Findings \. 3 Project Outcome\. 3 Institutional Development \. 5 Sustainability \. Bank Performance 7 Borrower Performance \. \. 7 4\. Lessons \. 7 Annexes A\. Basic Data Sheet \.9\. \.9 This report was prepared by Klas Ringskog and edited by William Hurlbut\. Helen Phillip provided administrative support\.  111 Principal Ratings ICR ES Audit Outcome Satisfactory Satisfactory Satisfactory Sustainability Likely Likely Likely Institutional Development Substantial Substantial Substantial Borrower Performance Satisfactory Satisfactory Satisfactory Bank Performance Highly Satisfactory Highly Satisfactory Highly Satisfactory Key Staff Responsible Task Manager Division Chief Country Director Appraisal Alain Locussol Alfredo Soto Ismail Serageldin Midterm Yao Badjo Alberto Harth Mamadou Dia Completion Yao Badjo Letitia Obeng Mamadou Dia  V Preface This is a Performance Audit Report (PAR) on the Second Water Supply Project in the Republic of Guinea (Cr\. 1985-GUI) for which an IDA credit in the amount of SDR29\.3 million (US$40 million equivalent) was approved on May 3, 1989\. The credit closed on October 31, 1997, one year behind schedule, at which time a balance of SDR 102,000 (US$139,000) was canceled\. The Basic Data Sheet is shown in Annex A\. The PAR was prepared by Klas Ringskog, Principal Evaluation Officer, Operations Evaluation Department (OED)\. The PAR is based on the ICR, the President's Report, relevant legal documents, and the Staff Appraisal Report (SAR)\. In addition, the analysis draws upon the discussions with the borrower, views of the private water supply operator, a review of relevant project files and other background material collected during the audit mission in May 2000\. The ICR provides an accurate account of the achievements the project\. The PAR builds on this information and elaborates on the project's institutional development and on the sustainability of the reforms under the project, and draws the pertinent lessons\. Copies of the draft PAR was sent to the relevant government officials for their views and comments\. No comments were received\.  1 1\. Background Guinea has an area of 245,000 square kilometers and is located on the West Coast of Africa where it is bordered to the north by Guinea-Bissau, Senegal, and Mali, to the east by C6te d'Ivoire and to the south by Liberia and Sierra Leone\. Its 1998 population was estimated at about 7 million, growing at 2\.6 percent annually, and of whom about 31 percent were classified as urban\. Guinea has substantial mineral resources, ample agricultural land, and rich fisheries\. However, past mismanagement of resources has slowed growth and the GNP per capita was estimated at US$530 in 1998\. Much of the population is extremely poor and the United Nations classifies Guinea as one of the "least developed" countries\. Its social indicators are low: 1998 under-five child mortality was 184 per thousand live births, maternal mortality was close to 1 percent, and life expectancy was just 47 years\. Only 37 percent of children are enrolled in primary education\. Deep economic and financial reforms were launched in 1985 and received support from IDA, IMF, and a number of donors in the form of structural adjustment credits and individual project financing\. The water supply sector was identified as priority in view of its low coverage and unsafe quality\. The former private water provider, la Compagnie Africaine de Service Public, had been nationalized in 1961 and replaced by a public sector service provider, DEG\. The World Bank had extended an IDA credit under the First Conakry Water Supply and Sanitation Project that was implemented over the 1976-85 period\. The first IDA credit resulted in completed works but little in terms of institutional development and sustainability\. In the mid-1980s only 10 of the 33 urban centers had piped water systems, with coverage on the order of 12 percent and with intermittent and unsafe service\. During preparation of a second water supply project, the Bank commissioned a study that proposed private sector participation through the creation of a private company, Soci6t6 d'Exploitation des Eaux en Guin6e (SEEG), to operate systems that would be constructed and owned by a public asset holding and project management company, la Soci6t6 Nationale des Eaux de Guin6e (SONEG)\. Based on this report, SONEG was created under the Ministry of Natural Resources and Energy (MRNE) with which it has a performance contract (contrat plan) that specifies targets to achieve and its authority to act\. The Second Water Supply Project became the pioneer project for the Bank's effort to sustain private sector participation (PSP)\. Subsequently, in 1997, the Bank Group approved a Third Water Supply and Sanitation Project that is now being implemented\. 2\. The Project The Second Water Supply Project had four objectives: * Strengthening the planning and management capabilities of the agency responsible for sector development, SONEG * Rehabilitating the technical, commercial and financing operations of the sector through a lease contract between SONEG and SEEG * Expanding the Conakry water supply system, to generate additional revenues, with the side objective of allowing further development in less profitable secondary centers * Gradually revising water rates to meet long-term marginal cost\. In order to achieve its objectives the project financed five components: 2 * A management support program to SONEG including (i) technical assistance to the General Manager and to the Department of Studies and New Works; (ii) services of a consultant for regular revision of water rates and of a legal counsel; (iii) training of higher-level staff; and (iv) office space, equipment, and vehicles * Rehabilitation of sector operations through a lease contract between SONEG and SEEG * A rehabilitation program of existing facilities including the supply and installation of equipment for the plants, small-diameter pipes, domestic connections, and water meters * Expansion of the Conakry system including, inter alia, the supply and installation of material and equipment for (i) partial doubling of the Grandes Chutes-Yessoulou-Conakry transmission line; (ii) expansion of the Yessoulou treatment plant; (iii) building of additional distribution storage capacity; (iv) extension of the water distribution network; and (v) services of an engineering consultant for the preparation of detailed designs, tender documents, and construction supervision * Consultant services for the preparation of urban water supply studies in secondary centers; and a retraining program for laid-off staff in the former water company, DEG\. ICR Findings The Implementation Completion Report dated March 30, 1998, presents a good analysis of what happened and of the project accomplishments and shortfalls\. In summary, the main goal of creating a legal, institutional, technical, and financial framework that would constitute the basis for future development of the urban water supply sector was largely achieved\. Specific project objectives were achieved and most components were completed with some delays but within reasonable budget constraints\. Credit covenants were also generally complied with\. The ICR noted that the project had been designed in such a manner that major steps of institutional reform were taken before credit effectiveness\. The early commitments in favor of reform and the deepened technical assistance helped SONEG grow into a much stronger water supply agency than its predecessor, DEG, had been\. Procurement was initially delayed but eventually all major project components were completed, albeit with some delays, and some ended up costing less than appraisal estimates\. The resulting savings were used to build additional storage and lay more distribution pipe\. In summary, the ICR rated the project outcome satisfactory, the institutional development substantial, the sustainability likely, the Bank performance highly satisfactory, and the borrower performance satisfactory\. The OED Review of the ICR In its review, OED concurred with all of the ICR ratings\. OED agreed with several of the project- specific lessons that the ICR pinpointed such as the need for a strong regulatory and oversight function to protect consumers and to control private sector operations, and concluded that short- term and long-term incentive structures should be carefully crafted to meet precisely articulated objectives to maximize the efficiency of the private sector operations\. OED noted that the project represented an example of "good practice" of the Bank by obtaining a firm commitment from the borrower for crucial restructuring of the sector prior to project appraisal and credit effectiveness\. 3 OED recommended an audit since the project is a model of high-quality project preparation as well as the first example of large-scale privatization in the water supply sector\. In the opinion of OED, an audit would give an opportunity for an in-depth look at issues relevant to the lessons noted and on how effectively to improve sector finances\. 3\. The Audit Findings The project audit reaffirms, without exception, the positive ratings of the ICR and of the previous OED review of the ICR\. The added perspective of analyzing the project more than two and a half years after the final Bank supervision mission in October 1997 allows additional insight and lessons\. This is particularly relevant in view of the difficulties of moving beyond the completion of the private operator lease contract that expired in October 1999 and was extended for a period of three months until early January 2000\. At present, SEEG continues operating the systems without any formal contract while awaiting the outcome of the negotiations on an extension\. These and other aspects will be analyzed using OED's standard evaluation methodology\. Project Outcome The project outcome rating is the composite of ratings for the (i) relevance; (ii) efficacy; and (iii) efficiency of the project\. The relevance of the project was self-evident at the time of preparation: only about 40 percent of Conakry's population had access to water through their own or their neighbor's connection and water was available only about one third of the time\. In addition, its bacteriological quality could not be assured since the absence of a sanitary excreta disposal resulted in infiltration of polluted groundwater into the empty water pipe\. Water- and sanitation- related disease was and remains a serious health hazard as evidenced by a cholera epidemic in 1994\. The efficacy of the project was satisfactory as the performance indicators in Table I confirm\. Table 1\. The Evolution of the Conakry Performance Indicators Service Coverage and Quality 1989 1993 1997 1999 Share of households connected to piped water 40% 40% 67% 67% Share of households connected to sewerage 0% 0% 0% 0% Share of households with continuous water supply 33% 33% 100% 100% Share of water supplied that is disinfected 33% 33% 100% 100% Efficiency of Service Accounted Water (Metered consumption/metered production) N\.A\. 46% 49% 47% Employees per thousand water supply accounts (SEEG) 21 19 14 10 Sustainability of Service Working Ratio (Cash operating costs/Cash operating income) 91% 155% 99% 85% Share of wastewater that is treated 0% 0% 0% 0% Source: SONEG and SEEG, N\.A\.=Not Available The efficacy of the project is satisfactory since the share of Conakry's population with access to water from house connections rose from 40 percent to 67 percent and since the served population has received continuous and disinfected potable water since 1994\. The efficiency of the project measures the relation between project costs and benefits\. It can also be measured by analyzing whether the project investments and operations represented the least- 4 cost solution to meeting previously unmet demand\. The project investments performed satisfactorily since Conakry suffered from acute shortages and an unreliable supply prior to the project\. Consequently, the project costs concentrated on the production, treatment and transmission components with relatively fewer funds invested in distribution as Table 2 shows\. Furthermore, experience from studies elsewhere suggests the disinfected water supplies have produced high levels of health benefits - although difficult to quantify in an economic cost/benefit analysis\. Table 2\. Allocation of Project Cost by Component, 1992-97 Raw water intake and pumping 1% Raw water transmission line 32% Water treatment plant 8% Treated water transmission line 26% Treated water storage 3% Primary distribution network 11% Secondary distribution network 8% Tertiary distribution network 11% Total Investment Cost, All Financiers 100% It is striking that financing constraints did not allow distribution investments - particularly in tertiary distribution and house connections - to meet existing demand\. A rule of thumb is that about 60 percent of total water supply system costs will be for distribution\. However, the project (including financing from the African Development Bank for the raw water transmission line, from the French bilateral CCCE for the treated water transmission line, and from the European Investment Bank for primary and secondary distribution) only has about 30 percent for distribution works\. This relative underinvestment is being partially corrected in the Third Water Supply and Sanitation Project that the World Bank approved in 1997\. The efficiency of operations is gauged by the accounted water, or the measured water consumption as a share of measured water production\. This share has remained constant, at around 47 percent, which is disappointingly low\. SEEG has commissioned studies on the reasons for the stubbornly low accounted water and reached the conclusion that the major share, or 46 percentage points of the total 53 percent unaccounted water is explained by physical leakage in the distribution system\. If this estimate is correct, unaccounted water will remain high until additional financing is provided to replace leaky sections of the distribution pipe\. Under the past lease contract, SEEG was not obliged to finance such investments, nor did it have a financial incentive for doing so since Conakry's water supply works by gravity and is relatively cheap\. As long as water supply surpasses water consumption by a comfortable margin, any operator will have little incentive for replacing aged pipe, given that the opportunity cost of the lost water is likely to be lower than the pipe replacement cost\. With the wisdom of hindsight it might have been cost-effective to include more equipment to reduce pressure, which reached 9 bars immediately following the commissioning of the treatment plant and transmission lines in late 1993 as compared to no pressure during the hours of previous rationing\. In summary, the audit rates project outcome satisfactory particularly given that the project reforms and institutional development were achieved despite a historically difficult and risky country environment\. 5 Institutional Development The degree and success of the sector reforms are the most significant accomplishments of the project\. As a consequence, the audit reaffirms the rating that the institutional development has been substantial\. The creation and continuous strengthening of SONEG as the sector water supply agency is a major shift\. SONEG has been accountable to reach certain targets through rolling three-years contra plan with the overseeing ministry\. Similarly, the success under the project to attract two foreign private operators, SAUR and Compagnie Generale des Eaux, is also remarkable since the lease contract obliges the private operator, SEEG, to accept the commercial collections risk among quite poor consumers\. The sector reforms in 1989 did not include the creation of an independent regulator but resorted to contract regulation that is exercised by SONEG, which signed the 10-year lease contract with SEEG\. It is doubtful that a special regulatory body would have been justified at the early stages of sector reform, but the issue may have to be revisited after a decade of private sector operations\. The need for regulation applies with equal force whether the operator is a private or public water company\. The major achievements of SEEG are shown by the steadily improving staff productivity, which roughly doubled over the 10-year lease\. With the increase of customers and towns served, the number of staff has also increased to close to 500, of whom three are expatriates\. SEEG has developed management information and commercial systems that are key for the commercial success of the operations\. The lease contract that expired at the end of 1999 did not specify that such data and systems will become the property of SONEG, which is a powerful argument in favor of trying to reach agreement with SEEG on a continued contract\. As of the time of the audit, negotiations on a contract renewal were ongoing\. Sustainability The audit rates sustainability of benefits from water consumption and of the institutional development as likely, but the rating is conditioned on continued private sector participation\. There are several reasons for this qualified rating\. First, SEEG's performance contrasts with the previous public operator's inferior performance\. Second, only through a contract with a private operator will the risks and their allocation be clearly identified\. Third, the previously noted failure of the past contract to make all operating and commercial data shared property between SEEG and SONEG implies that it would be time-consuming to re-create the database\. The sustainability of the achievements of the project depends to a great degree on financial sustainability\. Given the relatively small consumer base of about 50,000 water supply clients and the low average levels of consumer income and consumption it is not surprising that SEEG's financial operations appear somewhat weak\. The working ratio has been noted to be on the order of 85 percent to 99 percent over the 1989-99 period but with spikes as high as 155 percent in 1993, as a reaction to higher tariffs and more rigorous metering\. Such working ratios show that operational cash flows are relatively fragile and could turn into deficits if control slackens\. Tariffs are relatively high in relation to household income in Guinea\. The absolute tariff levels rose substantially over the first half of the 10-year lease period as Table 3 illustrates\. 6 Table 3\. Water Supply Tariffs in Current and Constant Prices and Collection Ratios (Guinean francs and US$per cubic meter) Year Current Tariff Constant Tariff USD Collections rMAo 1989 150 214 0\.24 89% 1990 151 181 0\.22 88% 1991 240 240 0\.30 44% 1992 418 359 0\.45 39% 1993 696 558 0\.72 42% 1994 880 677 0\.90 84% 1995 880 641 0\.88 84% 1996 880 623 0\.85 64% 1997 880 611 0\.77 75% 1998 880 582 0\.71 79% 1999 880 556 0\.63 80% The interaction between tariff levels and collections ratio is clear: in the wake of sharply higher tariffs and more rigorous billings and collections the collections percentage initially dropped but later recovered\. The roughly doubled tariff over the 1989-93 period resulted in the collections percentage dropping from a high of 89 percent to 42 percent in 1993, explained by the fact that consumers resisted paying the higher tariff since service did not improve appreciably in the early years\. Subsequently, the tariff increased still further to reach a high of US$0\.90 per cubic meter, but the collections percentage doubled, made possible by the fact that Conakry received safe and continuous water supply from the year 1994 onwards\. Since then the collections percentage seems to have stabilized at around 80 percent\. The fact remains that SEEG has to make a considerable effort in collecting the water bills, in part through disconnecting customers with overdue bills\. At any one time, about 30 percent of connections are inactive, most of them because of disconnections\. The variation in working ratio between 0\.85 and 0\.99 in later years indicates that SEEG's short- term operating financial sustainability is at hand\. However, over the longer-term the tariff policy requires that the tariff should cover SEEG's and SONEG's operating costs and debt service and contribute 10 percent of new capital investment\. However, the difficulty of expanding the customer base (due to insufficient financing of tertiary distribution works) jointly with the low consumer incomes are squeezing the surplus that the tariff generates to finance a share of investment as Table 4 shows\. Table 4\. Components of the SEEG Tariff, 1989-99 (Guinean francs per cubic meter, current prices) Year SEEG OA SONEG costs Debt service Investment share 1989 86 11 0 53 1990 105 11 0 35 1991 114 15 27 84 1992 165 30 63 160 1993 223 32 163 63 1994 353 38 278 211 1995 460 36 250 134 1996 510 37 235 98 1997 615 35 170 60 1998 615 35 178 52 1999 615 35 185 45 7 With the gradual build-up of debt service, the remaining surplus that can be used to finance a share of new investments and replacement of the aging system is being squeezed\. The consequences are negative since it restricts the investment in tertiary distribution that will enable new connections to be made and therefore increase sales\. Recognizing the need to mobilize funding and executing more distribution investments SONEG and SEEG have been negotiating since 1998 a renewed but modified lease contract that would shift the responsibility for financing tertiary distribution from SONEG to SEEG\. SEEG has agreed, but the negotiations are still inconclusive since there is disagreement on the level of the compensation (tarif exploitant) to be paid to SEEG\. This seems to be the only outstanding issue as of May 2000\. Assuming the impasse is overcome, sustainability is likely over the foreseeable future\. Failure to reach agreement will likely lead to a competitive public bid to contract for another lease\. The whole bidding procedure might take two years and would introduce considerable uncertainty to the sustainability and future development of the water supply sector\. The difficulties of reaching an agreement underlines the importance of specifying in private sector contracts the procedures for renewing existing contracts or bidding anew\. Bank Performance The audit reaffirms the rating of "highly satisfactory" for the Bank's performance\. The decision to undertake deep sector reforms and to attract a private lease contractor was brave at the time\. Once taken, the project was well prepared and appraised\. Subsequently, the supervision of the Bank was satisfactory\. Borrower Performance The audit also reaffirms the rating of "satisfactory" of the borrower's performance\. The government recognized that private sector participation offered the quickest and most efficient way of improving poor water supply service and has subsequently supported PSP\. The recent difficulties in concluding the negotiations with SEEG and renew the contract do not put in doubt the government's firm decision to continue relying on private operators for the actual operations and maintenance\. 4\. Lessons The Second Water Supply Project teaches a number of lessons about the possibilities and policies in favor of private sector participation in the water supply sector: * Private sector participation is a real option even in very poor countries if the government provides strong and sustained political support throughout the preparation, contracting, and operating stages\. Incentives are possible that will make private operators assume considerable risk, such as the collections risk, even in countries and cities that would appear to highly risky\. * Major reforms are best implemented before the private operator is contracted and assumes the responsibility for operations and maintenance\. * Private sector participation should be considered a long-term public-private collaboration that should evolve with time and with changing circumstances\. In particular, the access to service for consumers at all income levels should be facilitated through the financing of the 8 distribution investments and of the house connections themselves in order to widen the consumer base\. As risks diminish with greater knowledge of the system, with the consumers learning to accept higher tariffs in return for better service, and with the application of sector policies, the private partner should be encouraged to assume greater risk whenever contracts come up for re-negotiation\. * The renewal of contracts presents special risks that would motivate spelling out in the agreements the procedures and conditions under which the contract can be renewed with the incumbent operator\. * If the government and the incumbent private operator fail to reach agreement on a renewed contract, the ensuing public bidding process for a successor private operator should be a "level-playing field" for all potential operators and the government\. Inter alia, this would require that the government be the owner of all databases generated during the private operator contract in order to eliminate the potential information asymmetry and reduce the incumbent's competitive edge vis-A-vis its competitors\. 9 Annex A Basic Data Sheet GUINEA: SECOND WATER SUPPLY PROJECT (CREDIT 1985-GUI) Key Project Data (Amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate Appraisal estimate Total project costs 102\.6 118\.0 115\.0 Loan amount 40\.0 41\.0 102\.5 Cofinancing 50\.9 62\.7 123\.1 Economic rate of return 11% 10% Cumulative Estimated and Actual Disbursements FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 Appraisal estimate 2\.40 7\.20 14\.40 23\.60 31\.60 36\.80 39\.60 40\.00 40\.00 Actual (US$M) 2\.91 8\.06 12\.64 22\.28 28\.50 32\.48 36\.42 39\.65 41\.00 Actual as% of appraisal 121 112 88 94 90 88 92 99 Date of final disbursement: November 19, 1997 Project Dates Original Actual Identification July 9, 1984 Preparation 1985-June 1987 Pre-Appraisal February 1988 Appraisal May 1985 March 1988 Negotiations October 1988 Board Presentation May 1988 February 21, 1989 Signing May 3, 1989 Effectiveness Subject to Borrower Meeting Several Conditions October 5, 1989 Project Completion October 31, 1996 July 31, 1998 Closing date October 31, 1996 October 31, 1997 Staff Inputs (staff weeks) Actual Weeks Actual US$000 Through appraisal 51\.7 124\.9 Appraisal-Board 59\.1 148\.7 Board-Effectiveness 6\.1 15\.7 Supervision 140\.6 440\.9 Completion 10\.5 31\.3 Total 268\.0 716\.5 10 Annex A Mission Data Date No\. of Staff days Specialization Performance ratingofProblems (month/year) persons infield representeda Implementation Development Status objectives Preparation 12/85 2 12 EN,FA Preparation 3/86 1 7 FA Preparation 7/86 3 11 EN,FA,CON Preparation 2/87 3 8 EN,FA,CON Preparation 6/87 2 11 EN,FA Appraisal 3/88 4 22 EN,FA,EC,CP Supervision 1 10/89 2 15 FA,EN 1 1 PP Supervision 2 5/90 1 7 EN I Pp Supervision 3 10/90 1 11 EN 2 1 PP,PMP,TA Supervision 4 1/91 1 8 FA 2 1 PP,TA Supervision 5 7/91 1 5 FA 2 1 PP,PMP,TA,CC Supervision 6 6/92 2 9 FA,EN 2 1 PMP,AF,PP,TA,FP Supervision 7 10/92 1 6 EN 2 1 CC,AF,PP,TA,FP Supervision 8 1/93 2 5 FA,EN I I CC,TA Supervision 9 6/93 1 10 EN 2 1 CC,PP,TA,FP Supervision 10 3/94 1 6 EN 2 1 CC,PMP,PP,TA,FP Supervision 11 7/94 1 FA S S CC,PMP,PP,TA,FP Supervision 12 10/94 3 10 EN,FA,OP S S CC,PMP,AF,PP,TA,FP Supervision 13 2/95 2 20 EN,FA S S CC,PMP,AF,PP,TA,FP Supervision 14 7/95 5 4 EN,FA,OP,EN S S CC,PMP,AF,PP,TA,FP Supervision 15 11/95 1 5 EN HS S CC,PMP,AF,TA,FP Supervision 16 4/96 1 5 EN HS S CC,TA Supervision 17 9/96 1 8 EN HS S CC,TA,FP Supervision 18 6/97 3 10 EN S S PMP Last Mission 10/97 1 7 EN S S a AR=Architect; CON=Consultant; EC=Economist; EN=Engineer; FA=Financial Analyst; OA=Operation Assistant; OP=Operations Officer; PO=Project Officer; TTL=Task Team Leader; CP=Community Participation specialist b 1 =Minor or No Problems; 2=Moderate Problems; 3=Major Problems; S=Satisfactory; HS=Highly Satisfactory\. 11 Annex A Other Project Data FoLLoW-ON OPERATIONS Operation Credit no\. Amount Board date (US$ million) Third Water Supply and Sanitation Project N0170 25 4/17/97

REVIEW

P001193

 ICRR 10173 Report Number : ICRR10173 ICR Review Operations Evaluation Department 1\. Project Data : OEDID: OEDID : C2636 Project ID : P001193 Project Name : National Agricultural Services Country : Cote D'Ivoire Sector : Agricultural Extension L/C Number : C2636 Partners involved : IFAD, ADF (France) Prepared by : Charles Derek Poate, OEDST Reviewed by : Jock R\. Anderson Group Manager : Roger H\. Slade Date Posted : 08/11/1998 2\. Project Objectives, Financing, Costs and Components : Objectives : (i) streamline and decentralize the organization of the agricultural services; (ii) enhance the role of the Ministry of Agriculture in policy making and supervision of agricultural development; and, (iii) increase farmers' participation in the policy making process \. Components : (i) institutional restructuring of three parastatal extension services into a single, decentralized, agency and the revamping of the Ministry of Agriculture; (ii) operating support to the new agency; (iii) institutional strengthening of the Directorates of Administration and Finance, and Planning and Programming in the Ministry of Agriculture and the sub -Directorate of Adaptive Research of the Ministry of Scientific Research and Higher Education \. Costs and financing : The total project cost was US$ 90 million (US$ 44\.6 million at appraisal) of which the Bank financed US$ 20\.5 million (US$ 21\.8 million at appraisal) through an IDA Credit\. Co-financing of US$ 6 million (US$ 1\.9 million at appraisal) was provided by IFAD, and the French Development Fund (AFD) provided US$ 5\.2 million (US$ 5 million at appraisal)\. The credit was approved on September 12, 1994 and was closed on December 31, 1997, six months after the originally planned date\. Final disbursement took place on June 4, 1998, at which time the undisbursed balance of SDR 1\.53 million was canceled\. 3\. Achievement of Relevant Objectives : Within three years, an efficient extension agency was established and the project was able to involve farmers' organizations and the private sector in the management of extension services, thereby increasing quality and lowering cost \. In addition, substantial progress was made in strengthening some key activities in the Ministry of Agriculture \. 4\. Significant Achievements : During project preparation a decentralized National Agricultural Services Agency was established and contributed substantially to the successful implementation of the project \. In addition, the Ministry of Agriculture performed extremely well in monitoring and evaluation and co -operative support\. 5\. Significant Shortcomings : Procurement was a source of substantial delays early on due to slow national processes and untimely responses by the Bank\. The lower than expected skill level of extension staff made it necessary to invest much more in training than was planned\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments  Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : (i) Simultaneous restructuring and support to agricultural extension and research institutions may significantly improve the cost effectiveness of the adaptive research components of agricultural service projects\. (ii) Initiating restructuring during project preparation (with PPF funding) and making it a condition of effectiveness can be instrumental to the success of institutional reform \. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR was generally satisfactory but did not include any comments from the two co -financiers\. Furthermore, there was much evidence of sloppy production, e\.g\., in the Statistical Tables, Bank and Borrower performance and project outcome were rated as "Unlikely" due to careless presentation\.

REVIEW

P035762

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 18013 IMPLEMENTAl'ION COMPLETION REPORT KAZAKHSTAN FINANCIAL SECTOR ADJUSTMENT LOAN Loan 4051-KZ June 18, 1998 Private & Financial Sector Development Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS asofMay31, 1998:CurrencyUnit-Tenge(T); IT=US$0\.0131; US$1 =T76\.65 AVERAGE EXCHANGE RATES 1996 1997 3rd Quarter, 1997 4th Quarter, 1997 January 1998 67\.30 75\.44 75\.55 75\.55 76\.09 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank ASF - Agricultural Support Fund BSD - Bank Supervision Department CAS - Country Assistance Strategy CEL - Committee for External Loans CIS - Commonwealth of Independent States EBRD - European Bank for Reconstruction and Development EFF - Extended Fund Facility ETF - Economic Transformation Fund EU - European Union FEDL - Finance and Enterprise Development Loan FSAL - Financial Sector Adjustment Loan FSU - Former Soviet Union FY - Fiscal Year GDP - Gross Domestic Product GOK - Government of Kazakhstan IAS - International Accounting Standards IBRD - International Bank for Reconstruction and Development IBS - International Banking Standards IFC - International Finance Corporation IMF - International Monetary Fund JSC - Joint Stock Company MOF - Ministry of Finance of the Republic of Kazakhstan NBK - National Bank of the Republic of Kazakhstan PHRD - Policy and Human Resource Development RB - Rehabilitation Bank SAL - Structural Adjustment Loan SPD - State Property Department of the Ministry of Finance TA - Technical Assistance TAL - Technical Assistance Loan USAID - United States Agency for International Development KAZAKHSTAN'S FISCAL YEAR January I -December 31 Vice President: Mr\. Johannes F\. Linn, ECA Country Director: Mr\. Kiyoshi Kodera, ECCO8 Sector Director: Mr\. Lajos Bokros, ECSPF Program Team Leader: Mr\. Albert Martinez, ECSPF Responsible Staff: Ms\. Lazzat Buranbayeva, ECCKZ  IMPLEMENTATION COMPLETION REPORT KAZAKHSTAN FINANCIAL SECTOR ADJUSTMENT LOAN NO\. 4051-KZ Contents PREFACE \.I EVALUATION SUMMARY \. i-v PART 1\. PROJECT IMPLEMENTATION ASSESSMENT \. 1 A\. PROJECT ORIGIN AND OBJECTIVES \. I B\. ACHIEVEMENT OF OBJECTIVES \. 2 C\. IMPLEMENTATION RECORD AND MAJOR FACT'ORS AFFECTING THE PROJECT \. 7 D\. PROJECT SUSTAINABILITY \. 8 E\. THE BANK'S PERFORMANCF \. 9 F\. THE BORROWER'S PERFORMANCE\. \. 9 G\. ASSESSMENT OF OUTCOME \. 9 H\. FUTlURE OPERATIONS \. , 10 1\. KEY LESSONS LEARNED \. 10 PART II\. STATISTICAL TABLES \. 13 TABLE 1: SUMMARY OF ASSESSMENT \. 14 TABLE 2: RELATED BANK LOANS/CREDITS \. 16 TABLE 3: PROJECT TIMETABLE \. 17 TABLE 4: LOAN/CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL \. 17 TABLE 5: KEY INDICATORS FOR PROGRAM IMPLEMENTATION \. 18 TABLE SA: WAIVER OF TWO CONDITIONS FOR RELEASE OF SECOND TRANCHE \. 27 TABLE 6: KEY INDICATORS FOR PROJECT OPERATIONS \. 28 TABLE 7: STUDIES INCLUDED IN PROJECT \. ,\. 28 TABLE 8A: PROJECT COSTS \. , \. \. ,\. -\.28 TABLE 8B: PROJECT FINANCING \. 28 TABLE 9: E CONOMIC COSTS AND BENEFITS \. \. ,28 TABLE 1 0: STATUS OF LEGAL CONVENANTS \. ,\.,\. 29 TABLE 1 1: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS \. 30 TABLE 12: BANK RESOURCES: STAFF INPUTS \. , \. , \.,\. 30 TABLE 13: BANK RESOURCES: MISSIONS \. 30 APPENDICES: A\. BORROWER CONTRIBUTION4 TO THE ICR B\. SECOND TRANCHE RELEASE MEMORANDUM C\. SELECTED ECONOMIC INDICATORS AND FINANCIAL SECTOR STATISTICS MAP IBRD 29326  IMPLEMENTAT]ION COMPLETION REPORT KAZAKHSTAN FINANCIAL SECTOR ADJUSTMENT LOAN Loan 4051-KZ Preface This is the Implementation Completion Report (ICR) for the Financial Sector Adjustment Loan in Kazakhstan, for which Loan 4051 -KZ in the amount of US$ 180 million equivalent was approved on June 25, 1996 and made effective on July 31, 1996\. The loan was closed on September 30, 1997, six months after the original closing date March 31, 1997\. The first tranche in an amount of US$ 90 million released upon effectiveness, was fully disbursed on July 31, 1996\. The second tranche of US$ 90 million was disbursed in August 1997\. This ICR was prepared by Lazzat Buranbayeva and reviewed by Fred King (ECCO8), Klaus Lorch (ECSPF) and Albert Martinez (ECSPF)\. This ICR was prepared on the basis of a financial sector review done by Bank's Joint Assessment Mission in February, 1998 and updated by staff in the Resident Mission in May/June 1998\. It is based on materials in the project file and discussions held with Borrower staff involved in project implementation\. The Iborrower contributed to preparation of the ICR by its Project Implementation Report (Appendix A)\.  IMPLEMENTATION COMPLETION REPORT KkZAKHSTAN FINANCIAL SECTOR ADJUSTMENT LOAN (4051-KZ) Evaluation Summary Introduction\. 1\. The Financial Sector Adjustment Loan (FSAL) of US$ 180 million was an adjustment operation designed to support the financial sector reform program of the Government and the National Bank of the Republic of Kazakhstan\. The Loan was appraised in March 1996, and approved by the Board on June 25, 1996\. The Loan Agreement was signed on June 25, 1996, and became effective, with the release of the first tranche of US$ 90 million on July 31, 1996\. The second tranche was released on August 6, 1997\. The Loan was fully disbursed and closed on September 30, 1997, six months after the original closing date March 31, 1997\. Project Objectives and Design 2\. Kazakhstan's reforms were initially implemented against a background of high inflation and sharply declining GDP\. In response to these conditions, the Government started in mid-1994 to implement tight monetary and fiscal policies with a package of structural measures aimed at a more rapid and effective restructuring of the enterprise sector, that allowed to achieve some macro-economic and financial stability (Project Implementation Assessment, para\. 2)\. However, sustaining the country's macroeconomic stabilization hinged on banks' ability to force financial discipline on their borrowers, support enterprise adjustment and avoid a systemic banking crisis\. Strengthening the financial sector became a key element of the overall program of stabilization and structural reforms in Kazakhstan, and in particular, the continued restructuring and recovery in the enterprise sector\. 3\. The Government's stabilization policies created favorable macro conditions for the emergence of a sound financial sector, and determined reform policy in the enterprise sector improved conditions for sound bank lending\. The FSAL aimed to advance the structural reform process by supporting critical reforms in the financial sector to make it sound and efficient and to ensure a minimum of critical financial services during the transition period\. It was developed as an integral part and within the framework of the Bank's and IMF's macroeconomic stabilization programs (PIA, para\. 3)\. Moreover, the Loan also helped to meet external financing requirements and support the budget of the Government\. 4\. The FSAL program therefore focused on the following two key objectives: (1) improving the sector environment to reduce the operational risks and latent instability of even promising banks; and (2) dealing with old problem loans and problem banks that affected the entire sector\.  - ii - Implementation Experience and Results 5\. The Program supported by FSAL successfully achieved its objectives The Borrower implemented a number of legal and regulatory reforms to establish the appropriate framework for prudent banking\. In addition, the Borrower dealt directly with the stock of nonperforming loans and the problem banks\. Major portions of nonperforming loans were carved out to special institutions\. Nonviable banks were closed, a number of state owned banks were privatized, and banks that were considered too big to fail were restructured with the intent of privatizing them at a later date\. The end result of these reforms was that the health of the banking system improved\. The balance sheet of the banking sector strengthened\. In December 1996 Kazakhstan floated its first Eurobond and became the third country of the former Soviet Union to obtain an international credit rating (speculative)\. Two Kazakhstani banks - Kazcommertzbank and Halyk Bank - also obtained international credit rating\. 6\. Improving the sector environment for a sound banking sector\. The framework for secured lending has been strengthened in several ways\. The legal system was developed to provide better security for property rights (PIA, para\.8)\. The institutional development of banks has been fostered in terms of, among other things, better governance through privatization and new bank accounting systems\. The number of banks in which the State holds shares has been reduced from 73 in 1996 to 5 in 1998: Halyk Bank, Eximbank Kazakhstan, Zhilstoybank, Central Asian Bank for Cooperation and Development (CABCD - a regional development bank jointly owned with neighboring Kyrgyzstan and Uzbekistan) and Bank Center Credit\. All these banks, except CABCD, are in the process of privatization (PIA, para\. 9)\. Inter-bank payments and liquidity management have been facilitated through new monetary and payment instruments and inter-bank payment systems (PIA, para\. 10)\. Progress has also been made in ensuring competition, particularly with regard to the role of the Halyk Bank - the former branch of the Soviet Saving Bank\. Growth and strengthening of Kazcommertzbank, Bank TuranAlem and Bank CenterCredit diminished the special position of Halyk Bank in the financial sector and increased competition among the local banks\. Easing the entry for the foreign banks contributed to the strengthening of competition in the financial market as well (PIA, para\. 11)\. Prudential supervision has been tightened in a transparent, gradual process\. NBK identified 29 banks which will come into compliance with full intemational banking standards (IBS) by end-1998, and the other banks should achieve IBS by end- 2000\. To improve enforcement of the regulations, NBK increased the number of staff in its Banking Supervision Departments and intensified off-site and on-site inspections (PIA, para\. 12)\. 7\. Dealing with problem loans and problem banks\. The financial burden related to old problem loans was shared between bank shareholders and the Government roughly in proportion to their respective responsibility for these loans\. The state in many ways relieved banks of bad loans that had been imposed by authorities by transferring the loans to the specially created debt resolution institutes or by transferring them from the banks' accounts to the budget with the banks continuing to service the loans on an agent basis with operational cost compensation\. The removal of non-performing loans and isolation of distressed enterprises from the banking system, which minimized the allocation of further resources to them, contributed immensely to the healthy development of the financial system\. The non-performing loans made to small and  - ill - medium scale enterprises remained in the portfolios of the lending banks, which were urged to establish internal work-out units to deal directly with the problem loans without government assistance (PIA, para\. 13)\. However, the actual resolution of bad loans is still on the agenda of the Government, and in 1998 the Government has adopted a more aggressive approach to resolve this problem (PIA, para\. 14)\. 8\. The resolution of problem banks proceeded rapidly on two levels, specifically, the streamlined handling of a large number of ordinary problem banks and the case-by-case treatment of four very large ones\. In the rnass closure of small and medium problem banks, NBK canceled the licenses of banks which did not meet the prudential norms, including the liquidation of the fourth largest bank (KRAMDS Bank) in September 1996\. As a result of closures and mergers, the number of banks decreased ifrom 184 banks in end-1994 to 82 in end-1997\. The case-by-case treatment of large problem banks was focused on Turan Bank and Alem Bank (which in 1996 merged into Bank TuranAlem), Agroprom and Eximbank Kazakhstan (PIA, paras\. 16-18)\. The merger of Turan and Alem Banks made necessary the introduction of a waiver of the Loan's second tranche conditions (which originally included separate conditions for each bank)\. This was approved by the Board on June 23, 1997\. 9\. Use of the Foreign Exchange Provided\. The external financing provided by the Loan helped sustain the country's import capacity and provided important budgetary support, especially in view of active measures undertaken by the Government to resolve the problems of arrears on pension and social payments\. The specific reform measures introduced under the FSAL allowed the reduction of the risk of a future banking sector crisis which has major budget repercussions, and the enhancement of banks' ability to support adjustment and recovery in the enterprise sector that will have positive e ffect on the fiscal situation in the longer term\. Summary of Findings, Future Operations, and Key Lessons Learned 10\. The project had significant development outcomes\. Strengthening of the financial sector increased the country's capacity to impleiment enterprise sector reform and provided the basis for future economic growth\. An improved financial sector better accumulates and allocates financial resources and promotes increased savings\. The specific reform measures implemented in the FSAL context have considerably reduced the risk of a future banking sector crisis which has major budget repercussions, and they have enhanced the banks' ability to support adjustment and recovery in the enterprise sector, which is necessary for improving the fiscal situation in the longer term\. 11\. Future Bank and other donors' operations will use the improved capacity of the banking sector to channel long-term resources to the real sector of the economy\. In FY1998 the Bank will start the long-term Agricultural Post Privatization Assistance Project (US$ 85 million, in three phases, over approximately 10 years)\. EBRD opened a credit line for Small and Medium Size Business Support (US$ 77\.7 million)\. In the future the Bank is not going to provide direct lending to support the development of the financial sector (except the on-going Finance & Enterprise Development Loan), focusing instead on analysis of the financial situation in  - iv - Kazakhstan and promoting development of new instruments (e\.g\. guarantees) as well as providing rapid response TA on an ad hoc basis\. 12\. The reform program supported by FSAL has yielded important lessons lessons relevant not only to future developments in Kazakhstan but to other transitional economies\. These are as follows: 13\. A stable macro-economic framework is critical to the success of financial sector reform\. FSAL was preceded by the Bank's adjustment operations (Rehabilitation Loan of FY94 and Structural Adjustment Loan of FY95) and an IMF stand-by arrangement which provided the macro-economic environment for implementation of the financial sector reform\. It is very important that the FSAL was prepared and implemented in parallel with IMF's EFF program, which provided continuing support (through policy advise and conditions, but not funding as Kazakhstan has not withdrawn funds from this facility due to its strong international reserve position) to the macro-economic stabilization program\. Close coordination and collaboration with the IMF in preparation of the Bank's FSAL programs was highly desirable as was simultaneous implementation of FSAL and the IMF's programs\. FSAL had to follow the program on macro-economic stabilization and not be implemented before such stabilization had started to be demonstrated\. Maintaining macro-economic stability was an imperative requirement of FSAL\. 14\. Preparation of an FSAL within the framework of a country's medium-term assistance strategy will contribute to the success of the project\. To achieve its development objectives, FSAL was a bridge operation between the macro-stabilization adjustment loans and investment projects to support a sector of economy through provision of resources for on- lending\. The former operations create a proper macro-economic environment while the latter ones create incentives for financial sector participants to implement reforms and to get technical assistance\. 15\. Financial reform strategy implemented in Kazakhstan proved its viability and may provide a useful model for late reforming FSU countries\. It includes the following key elements, which are critical for the development of a sound banking sector: A\. Isolation of non-performing enterprises\. Even if debt resolution institutions fail to provide effective restructuring of distressed enterprises, they minimize allocation of further resources to these enterprises, thus contributing significantly to the health of the banking sector\. B\. Burden-sharing concept in resolving problem loans: Removing those credits that had been explicitly Government directed with a corresponding amount of government/central bank refinancing, letting the banks work out the rest, and giving banks the necessary legal framework and political backing proved to be a better practice than keeping these loans within the banking system for two reasons\. First, the indebted enterprises continue to get access to loans from commercial banks\. Second, it is unlikely that such enterprises will be forced to undertake restructuring or liquidation\.  - v - C\. Policy of gradual easing of access firforeign banks to local market\. Protection of local banks for 2-3 years from intensive foreign competition while pushing them to recover their portfolio losses over that period from local margins and fresh private equity, and easing access for foreign banks once the period is over allowed local banks to strengthen and become competitive\. Creating a strong competitive environment once local banks became stronger is critical for further viability and development of local banks\. D\. Dividing banks into two groups - more advanced and less advanced - with appropriate systems ofprudential standards\. This approach allowed Government to cope with the initially huge variety in banks' performance through a de facto dual prudential system that created incentives for the better banks to achieve International Banking Standards (IBS) by providing them the access to a wider range of bankinjg operations\. At the same time, for weaker banks, such system provided some "grace" period during which they may address their portfolio problems and form necessary provisions, but, at the same time, restricted severely their operations\. Over the period these banks either achieved the first group requirements or converted themselves into other vehicles or were closed by the central bank\. 16\. Independence of the Central Ban]k is a key factor in the success of the financial sector reform\. Implementation of the financial reform program involves restrictive and tough measures which usually creates strong opposition at different levels and political pressure to soften the policy\. If the Central Bank is dependent on the Government, it is very likely that it will apply different standards to private and state banks, which decreases the effectiveness of introduced measures (prudential standards, banking supervision) and undermine the soundness of the financial system by keeping problem state banks open\. In addition, an FSAL should be supplemented by strict monetary policy, which also requires a high level of independence for the Central bank\. 17\. Rapid response and timely delivery of TA is very important to support FSAL implementation\. First, as they are developed, TA requirements should be broadly discussed with the Borrower to identify the real benefits of such TA, so they would not be considered as political requirements imposed with adjustment operations, and the Borrower would be interested in receiving this TA\. Second, TA projects should have a more flexible structure to address ad hoc needs and/or to adapt to the current situation\. Third, TA supporting FSAL operations at the expense of the Borrower, should be provided as much as possible on repayment basis with proper financial models and system of incentives for the ultimate beneficiaries 18\. Hyperinflation, which reduced fiinancial assets and liabilities, and the low level of intermediation by the financial system, gave the government a window of opportunity to build institutions without making major disruptions in the intermediation function\. At the beginning of financial reform in transition economies, banks were mainly providers of financial services\. Based on experience in other countries, financial deepening and institution building will take time\.  IMPLEMENTATION COMPLETION REPORT KAZAKHSTAN FINANCIAL SECTOR ADJUSTMENT LOAN (FSAL) (Loan No\. 4051-KZ) Part I\. Project ][mplementation Assessment 1\. The Financial Sector Adjustment Loan (FSAL) of US$ 180 million was an adjustment operation designed to support the financial sector reform program of the Government and the National Bank of the Republic of Kazakhstan\. The Loan was appraised in March 1996, and approved by the Board on June 25, 1996\. The Loan Agreement was signed on June 25, 1996, and became effective, with release of the first lranche of US$ 90 million on July 31, 1996\. The second tranche was released on August 6, 1997\. The Loan was fully disbursed and closed on September 30, 1997, six months after the original closing date March 31, 1997\. A\. Project Objectives and Design 2\. Kazakhstan's reforms were initially implemented against a background of high inflation and sharply declining GDP\. In response to these conditions, the Government started in mid-1994 to implement tight monetary and fiscal policies with a package of structural measures aimed at a more rapid and effective restructuring of the enterprise sector\. As the result of these policies, inflation declined sharply from an annual rate of 1,160 percent in 1994 to 61 percent in 1995; the budget deficit was brought down to 3 percent of GDP in 1995 from 6\.5 percent in 1994, and the exchange rate of the Tenge was stabilized\. Restrictive monetary policy resulted in a deceleration of the broad money expansion to a rate of 98 percent in 1995; and the refinancing rate of the NBK turned positive in real terms in the third quarter of 1994 and has remained so thereafter\. The balance of payments improved with a reduction in the current account deficit to 2\.5 percent of GDP that led to an increase of foreign r eserves to US$1\.7 billion by December 1995\. The Government liberalized prices and trade, dismantled state-owned holding companies and undertook measures to accelerate privatization\. The Government also initiated a policy of accelerated enterprise restructuring in 1995, with support of the SAL\. However, sustaining the country's macroeconomic stabilization hinged on banks' ability to force financial discipline on their borrowers, support enterprise adjustment and avoid a systemic banking crisis\. Strengthening the financial sector became a key element of the overall program of stabilization and structural reforms in Kazakhstan, and in particular, the continued restructuring and recovery in the enterprise sector\. 3\. The Government's stabilization policies created favorable macro conditions for the emergence of a sound financial sector, and determined reform policy in the enterprise sector improved conditions for sound bank lending\. The FSAL aimed to advance the structural reform process by supporting critical reforms in the financial sector to make it sound and efficient and to ensure a minimum of critical financial services during the transition period\. It was developed as an integral part and within the framework of the macroeconomic stabilization program that had been pursued under a Rehabilitation Loan of FY94 and Structural Adjustment Loan (SAL) of FY95, as well as an IMF stand-by arrangement\. FSAL was prepared in close coordination with  - 2 - an Extended Fund Facility Program (EFF) of the IMF which supported the maintenance of the macroeconomic policy framework\. Moreover, the Loan also helped to meet external financing requirements and support the budget\. 4\. The FSAL program therefore focused on the following two key objectives: (1) improving the sector environment to reduce the operational risks and latent instability of even promising banks; and (2) dealing with old problem loans and problem banks that affected the entire sector\. 5\. In order to establish a conducive environment for sound banking sector growth, the financial sector reform program included the following requirements: (a) strengthening the framework for secured lending; (b) fostering the institutional development of banks; (c) facilitating inter-bank payments and liquidity management; (d) ensuring competition on an even playing field; and (e) tightening prudential supervision\. This program supplemented the Government's enterprise reform program which by that time had started to result in the elimination of the least viable enterprises, the restructuring of distressed firms, and the growth of new private enterprises\. 6\. To resolve problem loans, which in 1995 amounted to about 55-60 percent of the commercial loan portfolio, a burden-sharing concept was accepted, where the reform program relieved banks of bad loans that they had been instructed by various authorities to make, and encouraged the banks' recapitalization from private sources after they had provisioned for the bad loans that had not been imposed by authorities\. The financial sector suffered from an overhang not only of problem loans, but also of problem banks\. Therefore, the program included components to handle the vast number of smaller problem banks and to focus determined action on the four largest ones: Alem, Turan, Agroprom and Eximbank Kazakhstan\. B\. Achievements of Objectives 7\. The Program supported by FSAL successfully achieved its objectives The Borrower implemented a number of legal and regulatory reforms to establish the appropriate framework for prudent banking\. In addition, the Borrower dealt directly with the stock of nonperforming loans and the problem banks\. Major portions of nonperforming loans were carved out to special institutions\. Nonviable banks were closed, a number of state owned banks were privatized, and banks that were considered too big to fail were restructured with the intent of privatizing them at a later date\. The end result of these reforms is that the health of the banking system improved\. The balance sheet of the banking sector strengthened\. In December 1996 Kazakhstan floated its first Eurobond and became the third country of the former Soviet Union to obtain an international credit rating (speculative)\. Two Kazakhstani banks - Kazcommertzbank and Halyk Bank - also obtained international credit rating\. (1) Improving the sector environment for a sound banking sector\. 8\. The framework for secured lending has been strengthened in several ways\. The legal system was developed to provide better security for property rights\. The Bankruptcy Law made judicial procedures for bankruptcy cases more speedy and transparent\. The Company Law was  -3 - recently revised to provide better protection of rights of minority shareholders and to update the company legislation in view of developments in the economic environment\. The legislation on mortgages was adopted and a law on pledges on movable property has been submitted to the Parliament, providing the legal basis for secured lending\. A new registry system for establishing property rights is being set up, and the procedures for registering collateral have been simplified\. A new chart of accounts and a broad set of accounting standards were mandated starting from 1997\. A credit information bureau started operations in NBK\. The framework for rating agencies has been clarified to avoid conflicts of interest\. NBK introduced the rating system for financial status of banks (CAMEL) and already 33 banks were inspected under this system\. Moreover, various reforms are under way to modernize and strengthen the judicial system which also will be supported by TA provided under the Bank's FY98 Agricultural Post Privatization Assistance Loan and the Legal Reform Loan planned for FY99\. 9\. The institutional development of banks has been fostered in terms of, among other things, better governance through privatization and new bank accounting systems\. The number of banks in which the State holds shares has been reduced from 73 in 1996 to 5 in 1998: Halyk Bank, Eximbank Kazakhstan, Zhilstroybank, Cenltral Asian Bank for Cooperation and Development (CABCD - a regional development bank jointly owned with neighboring Kyrgyzstan and Uzbekistan) and Bank Center Credit\. All these banks, except CABCD, are in the process of privatization\. Rehabilitation Bank is being transformed into the Trust Fund\. The Budget Bank was closed, transferring its function to the Treasury Department of the Ministry of Finance\. A proposed sale of the Eximbank Kazakhstan to Bank Bumiputra Malaysia Berhard and IFC planned for the end of 1997-beginning of 1998 has been jeopardized by the financial crises in East Asia\. Currently, the Government in collaboration with IFC is seeking a new strategic investor\. In December 1997 Government held tenders for Bank TuranAlem and Zhilstroybank\. In both cases the winners were local investors (for Bank Turanalem - a group of Kazakhstani investors, and for Zhilstroybank - Bank Center Credit; for Zhilstroybank the transaction has not been completed yet)\. The Government approved the program for privatization of the Halyk Bank, which will be implemented by several phases to 2001\. As to bank accounting and audit, NBK mandated a new chart of accounts, reporting forms, and accounting standards, mandatory for all banks, as their primary system, and assisted banks, with donor support, in the conversion\. 10\. Inter-bank payments and liquidity management have been facilitated through new monetary and payment instruments and inter-bank payment systems\. For example, an automatic overnight Lombard facility was opened and a Law on Bills of Exchange and Promissory Notes was enacted, conforming with the relevant Geneva Convention of 1930\. All banks are now maintaining unified correspondent accounts nationwide with NBK\. Payment clearing centers were established in all oblasts, and control over them is being transferred to commercial banks within an improved regulatory framework\. For high-value transactions NBK has completed preparations for a special payment system with special standards of security and speed which will be funded under the Finance and Enterprise Development Loan\. 11\. Progress has also been made in ensuring competition, particularly with regard to the role of the Halyk Bank (former branch of the Soviet Saving Bank)\. The bank has received operational autonomy and, at the same time, relinquished earlier privileges, such as exemption from reserve  -4- requirements and the free use of local premises\. Growth and strengthening of Kazcommertzbank, Bank TuranAlem and Bank CenterCredit, whose assets and branch network are comparable to Halyk's, and which have licenses for household deposits, diminished the special position of Halyk Bank in the financial sector and increased competition among the local banks\. Easing the entry for foreign banks contributed to the strengthening of competition in the financial market as well\. As of end of the 1997, twenty-two banks (out of 82) were registered with foreign participation\. Recently CitiBank and Societe General have opened full operational daughter banks in Kazakhstan\. NBK is planning to increase soon the ceiling for aggregate capital of foreign banks to 50 percent (currently the ceiling is 25 percent)\. 12\. Prudential supervision has been tightened in a transparent, gradual process\. For example, NBK has clarified the calculation methods of prudential norms developed in accordance with the Basel agreement, enforced a broader range of norms (e\.g\. including affiliated borrower exposure limits), introduced the classification not only for loans but also for other types of assets and for contingent liabilities, and introduced requirements for provisioning for all the types of classified assets and contingent liabilities\. NBK identified 29 banks which will come into compliance with full international banking standards (IBS) by end-1998, and the other banks should achieve IBS by end- 2000\. When a bank meets the IBS criteria, it qualifies for the following activities: investment operations, participation in the National Bank credit auctions, conducting international operations; issuing bonds, certificates of deposit, and checks; and acting as custodian in the corporate securities market\. These create incentives for banks to strive toward higher prudential performance and limits access of less sound banks to certain operations\. To improve enforcement of the regulations, NBK increased the number of staff in its Banking Supervision Departments and intensified off-site and on-site inspections\. (2) Dealing with problem loans and problem banks 13\. The financial burden related to old problem loans was shared between bank shareholders and the Government roughly in proportion to their respective responsibility for these loans\. The state in many ways relieved banks of bad loans that had been imposed by authorities\. The Government in 1995 created two special debt resolution institutions - the Agricultural Support Fund and the Rehabilitation Bank\. The Agricultural Support Fund took over from banks non- performing imposed credits to farms\. As a result, the loan portfolio of Agroprombank was reduced to US$ 45 million\. Forty-six very large industrial enterprises-defaulters, including some that had failed to recover under management contracts, were transferred to the Rehabilitation Bank, and were isolated from the commercial banking system\. Nonperforming directed loans made from the Economic Transformation Fund in 1993-1994 were transferred to the Development Bank and the loans made by Alembank Kazakhstan under the export credit facilities in 1993-1994 were transferred to the Eximbank Kazakhstan\. After the merger of the Development Bank with Eximbank Kazakhstan and in the course of the strengthening and institutional development of the combined bank, these loans were transferred to the Government, and Eximbank started to service them on an agent basis\. The same conversion to managed fund status was done for non-performing imposed loans of Turan Bank (after merger with AlemBank into Bank TuranAlem)\. Outright recapitalization with budget funds was limited to one bank, Bank TuranAlem\. The recapitalization of banks through retained earnings was facilitated by  -5 - reforming the tax treatment of loan loss provisions\. Injections of new private capital into banks were fostered by enforcing minimum capital and capital adequacy requirements (from December 5, 1997 the minimal capital requirement was T 300 million for newly opened banks and T 100 million for other banks)\. The removal of non-performing loans and isolation of distressed enterprises from the banking system, minimizing the allocation of further resources to them, contributed immensely to the healthy development of the financial system\. The non-performing loans made to small and medium scale enterprises remained in the portfolios of the lending banks, which were urged to establish internal work-out units to deal directly with the problem loans without government assistance\. 14\. The actual resolution of bad loans is still on the agenda of the Government\. Despite quite successful work of the Rehabilitation Bank (a severe reduction in staff of enterprises transferred to the RB - an average 34\.3%; liquidation procedures against 4 insolvent enterprises; restructuring of 14 enterprises and privatization and transfer under the management contracts of 26 enterprises), rehabilitation institutions that received the non-performing loans were not able to make much headway in restructuring indebted farms and enterprises due to a number of reasons, and in 1998 the Government adopted a more aggressive approach to resolve this problem\. Starting from 1998 the Agricultural Support Fund and the State Property Department of the Ministry of Finance (or the JSC Agency oni Reorganization and Liquidation of Insolvent Enterprises authorized by the SPD) were mandated to bankrupt indebted farms and enterprises or provide creditor-led restructuring if the farm or enterprise is potentially viable and has developed a restructuring plan\. The Government is also intending to continue the practice of auctioning off bad loans\. The JSC Agency on Reorganization and Liquidation of Insolvent Enterprises, which absorbed the Center for Advice to Insolvent Enterprises, has assisted in the preparation of restructuring plans, and has the special mandate from the Government to deal with Government's non-performing loans and debts to the Government on commercial basis (for a commission fee or for a portion of recovered debt)\. Out of 598 insolvent enterprises included in the scope of the JSC activities, the financial status of 30 enterprises has been improved, 233 have been proposed for liquidation; 57 for sale of state shares; 89 ifor sanitation, 15 for rehabilitation, 20 for financial rehabilitation, 9 for reorganization, and the remaining enterprises are subject to further analysis\. 15\. The resolution of problem banks proceeded rapidly on two levels, specifically, the streamlined handling of a large number of ordinary problem banks and the case-by-case treatment of four very large ones\. In the mass closure of small and medium problem banks, NBK canceled the licenses of banks which did n,ot meet the prudential norms, including the liquidation of the fourth largest bank (KRAMDS Bank) in September 1996\. As a result of closures and mergers, the number of banks decreased from 184 banks in end-1994 to 82 in end-1997\. The NBK created special liquidation units in its Banking Supervision Department to oversee the liquidation of nonviable banks\. A recent court ruling placed the liquidation process with the judicial system\. The case-by-case treatment of large problem banks was focused on Turan, Alem (in 1996 merged into Bank TuranAlem), Agroprom and Eximbank Kazakhstan\. 16\. Turan Bank went through rigorous restructuring in 1996 under a management team provided by NBK\. AlemBank tried to stem the deterioration of its financial condition while the Government negotiated, without success, the bank's privatization to a foreign investor\. Based on  -6 - audit results that became available in the third quarter of 1996, the bank's capital was more negative than had been estimated, but the Government was reluctant to proceed with liquidation of AlemBank in view of nervousness in the financial markets and among population caused by the closure of KRAMDS bank\. In the judgment of NBK, the systemic risk of starting the liquidation of AlemBank would have been unacceptable in this environment\. Instead, the Government and NBK decided in December on an alternative course of action, the merger of AlemBank with TuranBank and the subsequent recapitalization and privatization of the resulting TuranAlembank\. TuranAlembank was forced to undergo drastic restructuring and downsizing to stabilize its financial situation\. Government provided about US$ 90 million to re-capitalize the combined bank and NBK lent to the combined bank about US$ 60 million\. In the end of 1997 the Government put the state shares of TuranAlem on tender, and it was purchased by a consortium of local investors\. The merger of Turan and Alem Banks made necessary the introduction of a waiver of the Loan's second tranche conditions (which originally included separate conditions for each bank)\. This was approved by the Board on June 23, 1997\. 17\. Agroprombank implemented a restructuring plan agreed with NBK\. A combination of extensive transfers of bad loans to the Agricultural Support Fund in 1995, enhanced loan collection efforts, tight limits on the bank's new lending activities, and additional restrictions improved the condition of the bank's balance sheet\. In the end of 1996 the Government sold back to Agroprombank its entire package of shares in the bank in return for 42 branch buildings which were transferred to the state\. With this step, the branch network was downsized, and the bank is now fully privately owned\. However, dispersed ownership of Agroprombank is preventing the introduction of a new managerial culture, and the bank still needs to improve its institutional capacity and operations\. The achieved financial stability of the bank is fragile and there is a high probability of accumulating non-performing loans from the time when the bank has been allowed to resume active lending operations\. 18\. Eximbank Kazakhstan was relieved of most of its non-performing loans and their refinancing, and provisioned for the rest in its end- 1996 statements\. In has since grown cautiously within the constraint of a 3:1 debt/equity ratio, and has focused on a list of core activities and instruments so as to avoid diluting its efforts\. While the bank has rejected lending proposed by the authorities at bank risk, such as to the social sector, the bank is sometimes managing state loans on an agency basis\. Eximbank implemented a development plan (which was a FSAL second tranche condition) aimed at strengthening its financial position, improved its operational capacities and looked for further privatization\. Bank Bumiputra Malaysia Berhad (BBMB) and IFC expressed a strong interest in acquiring 51% of the shares of Eximbank Kazakhstan, but, due to the current financial crisis in East Asia and its impact on Malaysian banks, this transaction has fallen through\. The failure of this deal put Eximbank in a difficult financial situation because of lack of expected recapitalization, and affected the overall position of Eximbank in the financial markets\. Eximbank does not have its own deposit base for lending (according to the agreed special treatment, it is not allowed to take deposits or keep company and individual accounts until it is privatized), and, due to upcoming privatization, it stopped receiving budget resources for lending activities\. The prospects for attracting foreign resources is also uncertain since Kazcommertzbank and Halyk Bank have obtained international credit ratings and it has been widely recognized that Eximbank's liabilities are not backed by the Government\.  -7 - Eximbank has good institutional capacities and well trained personnel; however, if it is not privatized in the near future, it may lose all its comparative advantages and its niche in the Kazakhstani market\. (3) Use of the Foreign Exchange Provided 19\. The external financing provided by the Loan helped sustain the country's import capacity and provided important budgetary support, especially in view of active measures undertaken by the Government to resolve the problems of arrears on pension and social payments\. The specific reform measures introduced under the FSAL allowed the reduction of the risk of a future banking sector crisis with major budget repercussions and the enhancement of banks' ability to support adjustment and recovery in the enterprise sector that will have positive effects on the fiscal situation in the longer term\. C\. Implementation Record and Major ]Factors Affecting the Project 20\. Implementation of the Financial Sector Reform Policy was satisfactory as discussed above\. The following main factors contributed to the successful implementation: (i) the comprehensive macro-economic stabilization policy maintained by the Government and supported by the IMF's EFF arrangements; (ii) strong commitment and independence of the NBK in implementing financial sector reform policy, in close coordination with Government's agencies; (iii) availability of TA to support the program's implementation; (iv) the quality of project design and intensive supervision with active participation of the Borrower\. 21\. It is necessary to underline, that the Government did not undertake non-desirable actions; this also contributed to the success of the reform program\. For example: (i) a deposit guarantee system has not been established, and authorities are not going to introduce it until the banking system has been shaken out drarmatically and strengthened, notwithstanding heavy bank lobbying and populist temptations; (ii) since the start of the FSAL no more specialized state banks were established; and (iii) only one bank (Bank TuranAlem) was directly recapitalized with budget funds\. These funds were almost entirely used to retire liabilities of the bank rather than to expand assets\. 22\. There were also factors that negatively affected the project implementation and that created difficulties in achieving some results of the program\. The first major factor, which was not in the control of the Bank and the Borrower, was the financial crisis in East Asia in mid- 1997\. As a result, Eximbank Kazakhstan, whose privatization transaction failed because of this crisis, is still a problem bank\. This factor may also have a negative impact on enterprise reform which, in turn, will affect the financial sector, in view of the substantial shareholding and expected investments of East Asian companies in the largest enterprises of Kazakhstan\. But the overall negative impact of this factor on sustainability of the financial sector in Kazakhstan is not expected to be very strong\. Even if the Government is forced to close Eximbank Kazakhstan for lack of a strategic investor, this will not involve a systemic risk for the banking sector, as the total exposure of the Eximbank is limitedi and it does not hold company and individual deposits\. The loans managed by the Eximbank on agency basis may be easily transferred to the Treasury Department of the Ministry of Finance\. Other assets of the Eximbank may be sold\. The exposure  -8 - of local banks to enterprises with East Asian companies' shareholding is also not very high\. In that respect, the possible negative outcome would be the narrowing of good client base of Kazakhstani banks\. 23\. The results of the program could be even more impressive, if the Government had fully utilized TA provided under the FEDL and TAL\. This underutilization of TA to support the program was caused by the lack of interest from beneficiary agencies and, in some cases, vague understanding of the benefits of TA\. Latest initiatives on simplification and restructuring of the FEDL with active participation of the Borrower and better understanding by the Borrower of the real needs in financial sector development which could be addressed through TA has allowed a start to overcoming this shortage and providing further implementation and sustainability of the financial sector reform program\. 24\. The Loan was extended by six months and the release of the second tranche of the Loan was postponed due to the necessity to introduce a waiver to the second tranche conditions as a result of the merger of the Turam and Alem bank as was discussed above in paragraph 16\. This was justified by unforeseen circumstances that prevented the authorities from liquidating Alem Bank when their privatization effort failed and the impressive degree of restructuring and downsizing that was achieved in a short time as well as by the firm commitment of the Borrower to privatize TuranAlembank within one year\. The waiver was introduced and the second tranche was released under the following conditions: (i) reduction in number of branches, personnel and administrative expenses of the combined bank; (ii) recruiting of new management and introducing a weekly portfolio review system; (iii) removal of the bad loans imposed by the State; (iv) the recapitalization of TuranAlem in an amount of US$ 90 million from the budget; (v) limiting the growth of bank's loan volume (net after the extensive provisioning) to 50% from March 1997 to March 1998 and limiting the exposure to any single borrower to US$ 3 million; and (vi) further privatization of TuranAlembank\. The recent privatization of TuranAlembank proved the soundness of this decision\. D\. Project Sustainability 25\. The comprehensive policy of the Borrower on implementation of the financial sector reform in combination with continued efforts on maintaining macroeconomic stability ensures the sustainability of the program's results\. The Borrower continues the implementation of the measures envisaged in the program, using TA provided under the FEDL (development of the payment system, commercial banks institutional development under twinning arrangements, strengthening the institutional capacity of Banking supervision, development of the state property register system and the settlement securities/depository system, and pension reform TA involving banks and non-banking financial institutions)\. The most serious risk for sustainability of the financial sector is associated with the narrow client base in Kazakhstan which leads to the concentration of lending to a relatively few large borrowers\. Currently, the ten largest borrowers accounts for between 30 and 50 percent of lending by the five largest banks\. Second, a minor risk is associated with weakness of Agroprombank\. The possible problems of this bank would not have a major effect on the health of the overall financial sector, but might create a negative social impact and involve intervention from the NBK\. In view of the lack of control over the  -9 - management from the numerous shareholders, it is highly desirable to continue work on institutional and managerial strengthening of this bank by concluding the special agreement between NBK and Agroprombank\. Special attention is to be paid also to the activities of Halyk bank whose management will be out of the effective control of the small, numerous shareholders and which in coming years will maintain majority of state shares in the bank's capital\. E\. The Bank's Performance 26\. The Bank's performance proved responsive, flexible and pragmatic as the needs of the time dictated\. The Bank, through this project, played an important role in supporting a critical phase of the transition reform program\. The policy advice surrounding the design and implementation of this program helped to crystallize Government thinking and the conversion of principles into program and actions\. In recognizing the rapidly evolving country situation, the Bank and the Borrower worked collaboratively throughout implementation to ensure that program development objectives were mtet, while pragmatic solutions to implementation problems were found\. The project was suipervised at regular intervals and Government was actively involved in discussing the progress made and results achieved\. At the same time, the program might have achieved better results with a more rapid response by the Bank in providing TA under the FEDL and in changing the scope of this TA as needed\. F\. The Borrower's Performance 27\. The Borrower's performance proved its strong commitment to the objectives of the program and its comprehensive policy toward reform implementation\. The strong position and independence of the NBK contributed greatly to the success of the project, providing political backing for implementing such measures as closure and merger of weak banks, enforcement of prudential regulations and restructuring of banks as well as restrictive monetary policy\. The Borrower's performance was fully satisfactory\. However, the better and timely utilization of TA provided by Bank would have helped to achieve even more impressive results, especially in dealing with problem loans and problemr banks\. G\. Assessment of Outcome 28\. The project's outcome was satisfactory, as it achieved its major objectives, created a sound and sustainable financial sector, and provided a basis for future growth of the real sector of the economy\. Two major Kazakhstani banks (Kazcommertzbank and Halyk Bank) obtained international credit rating\. A number of banks (CenterCredit, Kazcommertzbank, Halyk Bank, Tsesna Bank, Nefte Bank) are participating in twinning programs financed by the EBRD and IBRD\. Improving the environment for secured lending has led to increased bank lending activities in the real sector of economy (in 1997 by 20 percent)\. Savings of individuals in the banking system increased by 48 percent in 1997\. Competition in the banking sector is becoming more intense with four major local players (Kazcommertzbank, HalykBank, Bank CenterCredit, TuranAlembank) and active participation of foreign banks\. Prudential standards enforced and continually supervised by the NBK are in full compliance with the Basel Agreement and ensure sound operations of the banking system\. All major banks are undergoing audits conducted by internationally recognized auditor companies\. Isolation of bad loans and non-performing  - 10- enterprises prevented further lending to these enterprises and contributed to improvement of the financial position of banks\. Now the Government has undertaken decisive measures on debt resolution\. The Government achieved very impressive results in privatization of state-owned banks, although it is still having a problem with Eximbank Kazakhstan due to force majeure events, however, measures undertaken in respect to this bank under the program have diminished the risk for the financial system in case of its closure\. 29\. The project had significant development outcomes\. Strengthening of the financial sector increased the country's capacity to implement enterprise sector reform and provided the basis for future economic growth\. An improved financial sector better accumulates and allocates financial resources and promotes increased savings\. The specific reform measures implemented in the FSAL context have considerably reduced the risk of a future banking sector crisis with major budget repercussions, and they have enhanced the banks' ability to support adjustment and recovery in the enterprise sector, which is necessary for improving the fiscal situation in the longer term\. H\. Future Operations 30\. Future Bank and other donors' operations will use the improved capacity of the banking sector to channel long-term resources to the real sector of the economy\. In FY1998 the Bank will start the long-term Agricultural Post Privatization Assistance Project (US$ 85 million, in three phases, over approximately 10 years)\. EBRD opened a credit line for Small and Medium Size Business Support (US$ 77\.7 million)\. In the future the Bank is not going to provide direct lending to support the development of the financial sector (except the on-going Finance & Enterprise Development Loan), focusing more on analysis of the financial situation in Kazakhstan and promoting development of new instruments (e\.g\. guarantees) as well as providing rapid response TA on an ad hoc basis\. I\. Key Lessons Learned 31\. A stable macro-economic framework is critical to the success of financial sector reform\. FSAL was preceded by the Bank's adjustment operations (Rehabilitation Loan of FY94 and Structural Adjustment Loan of FY95) and an IMF stand-by arrangement which provided the macro-economic environment for implementation of the financial sector reform\. It is very important that the FSAL was prepared and implemented in parallel with IMF's EEF program, which provided continuing support (through policy advise and conditions,but not funding as Kazakhstan has not withdrawn funds from this facility due to its strong international reserve position) to the macro-economic stabilization program\. Close coordination and collaboration with the IMF in preparation of the Bank's FSAL programs was highly desirable as was simultaneous implementation of FSAL and the IMF's programs\. FSAL had to follow the program on macro-economic stabilization and not be implemented before such stabilization had started to be demonstrated\. Maintaining of the macro-economic stability was an imperative requirement of FSAL\. 32\. Preparation of an FSAL within the framework of a country's medium-term assistance strategy will contribute to the success of the project\. To achieve its development  - 11 - objectives, FSAL was a bridge operation between the macro-stabilization adjustment loans and investment projects to support a sector of economy through provision of resources for on- lending\. The former operations will create a proper macro-economic environment while the latter ones will create incentives for financial sector participants to implement reforms and to get technical assistance\. 33\. Financial reform strategy implemented in Kazakhstan proved its viability and may provide a useful model for late reforming FSU countries\. It includes the following key elements, which are critical for the development of a sound banking sector: A\. Isolation of non-performing enterprises\. Even if debt resolution institutions fail to provide effective restructuring of distressed enterprises, they minimize allocation of further resources to these enterprises, thus contributing significantly to the health of the banking sector\. B\. Burden-sharing concept in resolving problem loans: Removing those credits that had been explicitly Government directed with a corTesponding amount of government/central bank refinancing and letting the banks work out the rest, and giving banks the necessary legal framework and political backing proved to be a better practice than keeping these loans within the banking system for two reasons\. First, the indebted enterprises continue to get access to loans from commercial banks\. Second, it is unlikely that such enterprises will be forced to undertake restructuring or liquidation\. C\. Policy of gradual easing of access for foreign banks to local market\. Protection of local banks for 2-3 years from intensive foreign competition while pushing them to recover their portfolio losses over that period from local margins and fresh private equity, and easing access for foreign banks once the period is over allowed local banks to strengthen and become competitive\. Creating a strong competitive environment once local banks became stronger is critical for further viability and developmrent of local banks\. D\. Dividing banks into two groups - more advanced and less advanced - with appropriate systems ofprudential standards\. This approach allowed Government to cope with the initially huge variety in banks' performance through a de facto dual prudential system that created incentives for the better banks to achieve International Banking Standards (IBS) by providing them the access to a wider range of banking operations\. At the same time, for weaker banks, such system provided some "grace" period during which they may address their portfolio problems and form necessary provisions, but, at the same time, restricted severely their operations\. Over the period these banks either achieved the first group requirements or converted themselves into other vehicles or were closed by the central bank\. 34\. Independence of the Central Bank is a key factor in the success of the financial sector reform\. Implementation of the financial reform program involves restrictive and tough measures which usually creates strong opposition at different levels and political pressure to soften the policy\. If the Central Bank is dependent on the Government, it is very likely that it will apply different standards to private and state banks, which decreases the effectiveness of introduced measures (prudential standardis, banking supervision) and undermine the soundness of the financial system by keeping problem state banks open\. In addition, an FSAL should be  - 12- supplemented by strict monetary policy, which also requires a high level of independence for the Central bank\. 35\. Rapid response and timely delivery of TA is very important to support FSAL implementation\. First, as they are developed, TA requirements should be broadly discussed with the Borrower to identify the real benefits of such TA, so they would not be considered as political requirements imposed with adjustment operations, and the Borrower would be interested in receiving this TA\. Second, TA projects should have a more flexible structure to address ad hoc needs and/or to adapt to the current situation\. Third, TA supporting FSAL operations at the expense of the Borrower, should be provided as much as possible on repayment basis with proper financial models and system of incentives for the ultimate beneficiaries\. 36\. Hyperinflation, which reduced financial assets and liabilities, and the low level of intermediation by the financial system, gave the government a window of opportunity to build institutions without making major disruptions in the intermediation function\. At the beginning of financial reformn in transition economies, banks were mainly providers of financial services\. Based on experience in other countries, financial deepening and institution building will take time\.  - 13 - Part II\. Statistical Tables Table 1: Summary of Assessment Table 2: Related Bank Loans Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 5A: Waiver of Two Conditions for Release of Second Tranche Table 6: Key Indicators for Project Operation Table 7: Studies Included in Project Table 8A: Project Costs Table 8B: Project Financing Table 9: Economic Costs and Benefits Table 10: Status of Legal Covenants Table 11: Compliance with Operational Manual Statements Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions Note: Tables 6-9 are not applicable for adjustnment operations\.  - 14- Table 1: Summary of Assessments A\. Achievement of Objectives Substantial Partial Negligible Not aplicable Macro Policies V O O O Sector Policies 0 E O Financial Objectives V O O O Institutional Development O V O O Physical Objectives O O O V Poverty Reduction O O E VI Gender Issues O O O / Other Social Objectives 0 O E / Environmental Objectives O O O V/ Public Sector Management V/ O O O Private Sector Development V/ O O O Other (specify) O Ol O B\. Project Sustainability Likely Unlikely Uncertain (V/) (V/) (V) Hhly C\. Bank Performance Satisfactory Satisfactory Deficient (V) (V) (V) Identification V/ O O Preparation Assistance V El Appraisal V El Supervision E V E (Continued)  - 15 - Highly D\. Borrower Performance Satisfactory Satisfactory Deficient (1/) (1) ($) Preparation \.I / C] Implementation / C] C] Covenant Compliance El EC Operation (if applicable) O 0 C] Highly HihLy E\. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory (E') (V) El/) El  -16- Table 2: Related Bank Loans Loan title Purpose Year of Status approval Preceding operations 1\. TAL No\. 3642-KZ To provide assistance in the design and FY1 994 On-going Technical Assistance Loan development of the Government's reform (US$ 38 million) policies and programs; help build the institutional capacity and skills base to cany out these reforms; initiate policy work for the development of key sectors\. 2\. REHAB No\. 36490-KZ At macroeconomic level: to support the FY1994 Completed Rehabilitation Loan (US$ 180 program to stabilize the economy; including million) bringing inflation under control and renewing growth\. At the structural level: to support the implementation of policy and institutional reforms intended to promote both an early supply response and the development of a competitive market economy\. 3\. FEDL No\. 3867-KZ Help build institution and infrastructure to carry FY1995 On-going Financial & Enterprises out enterprise and financial sector restructuring\. Development Loan (US$ 62 million) 4\. SAL No\. 3900-KZ Facilitate a more rapid and effective FY95 Completed Structural Adjustment Loan restructuring of the enterprise sector - crucial to (US$ 180 million) both macroeconomic stabilization and recovery output, eliminating constraints preventing such restructuring, i\. e\. liberalizing exports, dismantling monopoly holdings, facilitating entry of firms through land reforms and exit of firms through foreclosure and bankruptcy, accelerating privatization, imposing financial discipline with isolation of distressed enterprises and strengthening unemployment benefit policy to facilitate labor adjustment\. Following operations 1\. APPA Support and development of newly privatized Agricultural Post Privatization farms and agro-enterprises in key agricultural FY98 Approved by the Assistance Loan No\. 4331-0- areas of Kazakhstan and improve rural Board of Directors KZ productivity and incomes\. (Program US$ 85 million, first loan US$ 15 million) 2\. Pension Reform Loan To support Government's efforts to finance the FY98 Negotiated (US$ 300 million) transition to a fully funded pension system by providing assistance to help bridge the fiscal deficit resulting from reform of the system\.  -17- Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual Identification (Executive Project Summary) 01/15/96 01/15/96 Preparation 02/96 Appraisal 02/01/96 03/02/96 Negotiations 04/08/96 05/29/96 Letter of DevelopmentlSector Policy (if applicable) 05/17/96 Board Presentation 05/28/96 Signing 06/25/96 Effectiveness 07/25/96 07/31/96 First Tranche Release 06/30/96 07/31/96 Second Tranche Release 12/31/96 08/06/97 Loan Closing 03/31/97 09/30/97 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ thousands) FY96 FY97 FY98 Appraisal estimate* 90 90 - Actual - 90 90 Actual as % of estimate 0% 100% Date of final disbursement August 1997 * Loan Description of the President's Report  - 18- Table 5: Key Indicators for Program Implementation (Policy Matrix) Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment 1\. PROVIDING AN ENVIRONMENT CONDUCIVE FOR SOUND BANKING SECTOR GROWTH a\. Strengthening the Framework for Secured Lending i\. Improving property rights * Civil Code Part I of early 1995 replaced, inter alia, the laws * Prepare legislation on pledges on movable * Substantially met\. Law "On Pledges on Movable legislation on property, pledges, and leases\. property\. Property" prepared and submitted to the Mazhilis (Lower * Draft of Civil Code Part 11 is being reviewed\. Chamber) of the Parliament in January, 1998\. Draft Law * Pres\.Decree on Bankruptcy signed in 4/95\. was sent for review to the World bank before the second * Pres\.Decree on Econ\. Entities and Companies signed in tranche release\. 5/95\. * New Constitution of mid-95 introduced private land ownership\. * Pres\.Decree on Land signed in 12/95\. * Pres\.Decree on Mortgage of Real Estate was signed in 12/95\. ii\. Providing information through * New chart of account and several accounting standards for * Adoption by the Borrower or an Accounting * Met\. The new Chart of Accounts was adopted by the reporting and registration enterprises developed\. Standards Board of the Borrower, and Resolution of the National Accounting Commission on systems * Pres\.Decree on Accounting issued in 12/95\. publication, of a new chart of accounts and a November 18, 1996, No\. 6 and published in the following * Govemment is publishing lists of delinquent-debtor comprehensive set of accounting standards magazines: "Information Bulletin ofthe Ministry of enterprises\. conforming substantially with International Finance" No\.4-5, 1997; "Legal Acts on Finance, Taxes, * Pres\.Decree on Registration of Legal Entities signed in Accounting Standards\. Accounting and Insurance of the Ministry of Finance of mid-95\. the Republic of Kazakhstan", No\.5, 1997; and "Bulletin o * Registration of urban real estate restructured in 1995\. an Accounter", No\.1, 1997\. Introduced accounting standards conform substantially with twenty of the thirty Intemational Accounting Standards (IAS)\. The new standards are effective from January 1, 1997\. * Met\. Notary fee on collateral is established as 1% of deal * Reduce notary fees on collateral from 10% to a value that is substantially lower than 10%\. much lower level\. * Substantially met\. Law "On Pledges of Movable * Prepare a registry system for pledges on movable Property" which has been submitted to the Parliament properties\. contains provisions for registration\. Registration system is being establishing under the Ministry of Justice\. * Met\. Credit Information Bureau of the NBK started its * Start operation of a credit information bureau\. operations in 1997\. * Met\. Amendments to the Presidential Decree having the * Issue a regulation that prohibits banks and their force of the Law "On Banks and Banking" enacted on affiliated parties from owning or managing June 11, 1997 establish the list of legal entities in which agencies that rate fin\. institutions\. banks may participate in a capital or in a management l_____________________________ ________________________________________________________ _______________________________________________ (article 8)\. Rating agencies are not included in the list\.  - 19 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment iii\. Strengthening the judiciary * Code on Civil Procedures prepared\. * Pass a law on bankruptcy with adequate * Met\. The new Law "On bankruptcy" was adopted on * Code on Criminal Procedure prepared\. provisions for its application and enforcement, January 21, 1997\. The bankruptcy procedures for * Court system unified by abolishing the arbitrage courts in or prescribe adequate rules, regulations or agriculture are clarified by the Govemment's Resolution 10/95\. procedures for the application and No\. 1816 of December 12, 1997\. * Extensive training program for judicial personnel, enforcement of the Pres\.Decree on Bankruptcy including in financial and corporate jurisdiction, developed of 1995\. and started implementation\. * Met\. Reform ofjudicial system was completed in 1996\. * Introduce a new system of the selection ofjudges\. Presidential Decree having the force of Law "On courts and status ofjudges" adopted on February 12, 1995\. The re-appointment ofjudges based on the new system of their selection was completed by the end of 1997\. b\. Fostering the Institutional Development of Banks P,,\.,\.L- ---i, I * Ma~ny banks- got panl rti, ~ 5,,o i'tn , l\.-E\. *,t \.~,t \.v-tr 11 *t2tp * Me~t nnd imqe Gonvernment reduced the number of \. \.nacn bakgvr\.ac,\.Maybnsgo\.a"yprvtie through privastiz-ti\. of I Offer for sa!e to pA\.ri-pe vSt\.orsc 2! ---t --e-d--ssd Gvrmn!rdcd \.enmbro especially through bank their owners and through share dilution\. shares in, or withdraw the banking licenses of, banks with state shares to 5: Halyk Bank, Eximbank privatization * MOF swapped the bank shares held by state enterprises all except no more than It banks (other than Kazakhstan, Zhilstroybank, Central Asian Bank for against bonds in 3-6/95\. The Pres\.Decree on Banking of NBK) whose equity includes state shares\. Reconstruction and Development and Bank CenterCredit\. 8/95 forbids such firms to own bank shares\. * Turan Bank and Kredsoz Bank, and 8 medium and small * Provide in the 1997 budget for potential equity * Met and surpassed\. Bank TuranAlem was the only bank banks, fully privatized since mid-95\. Licenses withdrawn contribution to no banks others than fully state- recapitalized by the Government (US$ 90 million)\. from 17 banks with state shares\. owned ones\. * Strategy for fair and transparent bank privatization has been finalized\. * Management of Agroprom and Narodnyi Bank replaced in late 1994, and Alem Bank's in 1/1996\. * Government as shareholder agreed to henceforth appoint some independent professionals to the supervisory councils of state-owned banks not slated for privatization in 1996\. Ii\. Transferring modem banking * A bank advisory center and two bank training centers and management skills started operating in 1994\. Two of them were combined under the Bankers Association; the joining of the third is being prepared\. * Bank twinning program, with EBRD and IBRD support, for 7 banks has been initiated\. Banks are being screened for eligibility, and some grant co-funding has been mobilized\. * Withdrawal of over 100 bank licenses since mid-93 has been weeding out ineffective bank managers\. * Pres\.Decree on Banking of 8/95 tightened the NBK approval of bank and branch managers\. * Plan to focus bankers training on priority needs has been _ _ _ _ _ _ _ _ d l d_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __developed\.  - 20 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment iii\. Reforming bank accounting * New chart of accounts, reporting formats, and accounting * Establish bank audit standards\. * Met\. The Statute "On principal requirements to the audit and audit instructions for commercial banks developed\. * Introduce standard terms of reference for bank reports licensed to conduct bank audits (banks' * Bank accounting standards based on the Intemational audits and minimum audit disclosure operations) and on types of audit reports" approved by the Accounting Standards (IAS 30) established\. requirements\. NBK by its Resolution No\. 346 of December 31, 1996 * In-depth diagnostic studies on the ten largest banks establishes bank audit standards, standard terms of submitted by intemational auditors in early 1995\. reference for bank audits and minimum audit disclosure * NBK has issued regulations that make a new chart of requirements\. accounts, reporting formats and accounting standards * Make extemal audit according to standards * Met\. The Program "On Transition of the second tier mandatory for all commercial banks as their primary equivalent to intemational ones mandatory for Banks to the Intemational banking Standards" adopted in system by 1/97, including an opening balance for 1997\. banks on the ISB track, and require it also from 1996 contains the intemational audit requirement for * Implementation of a comprehensive training program in large problem banks\. banks of the first group\. In 1997 Alem Bank and bank accounting commenced\. Eximbank Kazakhstan were audited by the intemational auditors\. Currently all large problem banks are undergoing the intemational audit\. c\. Facilitating Inter-Bank Payments and Liquidity Management i\. Providing monetary * T-bills issued through auction since 4/94\. Secondary * Offer banks with sufficient collateral at NBK an * Met\. An automatic ovemight facilities are available for instruments to facilitate market developed rapidly in 1995\. automatic ovemight Lombard facility\. banks included in the first IBS group\. liquidity management * NBK introduced short-term notes in mid-95\. * NBK started repurchase (repo) and reverse repo operations in early 1996\. * NBK issued regulations on money market houses\. A first one started operating by mid 1995\. * Income tax on statt securities eliminated\. * Lombard facility introduced in early 1996\. ii\. Broadening the range of * Republic acceded to the 1930 Geneva Convention on Bills * Enact a law on bills of exchange and * Met\. Law "On Bills of Exchange and Promissory Notes" available payment of Exchange and Promissory Notes in 11/95\. promissory notes conforming with the Geneva conforming with the relevant Geneva Convention of 1930 instruments * Restrictions on the use of cheques revisited in early 1996\. Convention of 1930 providing a Uniform Law is enacted\. for Hills of Exchange and Promissory Notes\. * Pass legislation on letters of credit substantially * Met\. Operations on letters of credit are subject to the confomi with the Paris Convention on Uniform international regulations (Paris Convention)\. NBK Standards and Procedures\. introduced them as mandatory for all banks\. iii\. Developing effective and * National Payment Council reactivated in early 1995; plays * Issue improved regulations on inter-bank clearing * Substantially met\. These requirements are covered by the efficient payment systems a key role in defining policy and rules\. and on settlement that specify, inter alia, NBK's Presidential Decree having the force of a Law "On * Improvements to NBK's payments system in 94/95 allow exclusive supervision responsibilities for payment National Bank of the Republic of Kazakhstan" (1995, later its oblast centers to handle inter-oblast payments via E- systems and the requirement that all payments get amendments) - see chapter VIII\. Mail\. settled on NBK books\. * Almaty Clearing Center, controlled by 9 banks, started up * Elaborate a plan for the transfer of control over after mid-95\. It clears also for others\. clearing operations in the long-term system to the * Met\. NBK approved by its Resolution No\. 200 of August * Feasibility and design study for a long-term payment banks\. 29, 1996 "The Regulations on settlements of interbank system substantially completed\. payments in the high value system" which address this * Require each bank to maintain one unified issue\. reserve/corresp\. account nationwide with * Met\. As of end of 1997 all the banks except one NBK\. Exceptions (for technical reasons) (Intemational Bank Alma-Ata) are maintaining unified require agreement on an implementation correspondent account with the NBK\. timetable\. * Start to build a long-term payment system that will channel and settle high-value transactions * Substantially met\. Bidding procedure for long-term gross in real time\. payment system in underway\.  -21 - Objectives Actions Taken before Board Presentation Actions to bc Taken Before Second Tranche Assessment d\. Ensuring Competition on an Even Playing Field i\. Remove regulatory barriers * Over 200 banks were licensed in 1991-93, and 129 are still to bank competition operating\. Licensing requirements have since increased, but licensing has not stopped completely\. * Law allows foreign bank ownership up to 100%\. More than 12 foreign and joint venture banks exist\. * Government Resolution that required each state enterprise to hold its current accounts only in one bank has been abrogated\. * NBK is authorized since 1/96 to license foreign-owned banks on a case-by-case basis irrespective of the combined share of all foreign-owned banks in the total capital of all commercial banks\. ii\. Revisit deposit guarantee and * Pres\.Decree on Banking of 8/95 limits the state liability for * License a deposit insurance only if it is voluntary * Met and surpassed\. Deposit insurance system has not bee deposit insurance any bank to its capital in the bank, and thus eliminates the and does not i pnirate NBKo r G0K financia!!y\. introduces notwithstanding heavy baank lobbying \.ad state deposit guarantee\. populist temptation\. * Among the state banks, only Narodnyi and Housing Bank have licenses for household deposits\. iii\. Make the savings bank * Narodnyi Bank (NB) is free in setting interest rates\. * Approve the strategy and restructuring plan for * Met\. The strategy and restructuring plan for Halyk Bank network viable without * In retum, the bank must comply with reserve requirements Halyk Bank, incl\. the timing of eventual was approved by the Resolution of the NBK No\. 142 of privileges since 7/95, got its tax freedom repealed, and enjoys no privatization\. April 30,1997\. Halyk Bank has obtained managerial and more deposit guarantee\. * Substantially complete the rationalization of financial autonomy that relieved Halyk bank from * Management of NB was replaced in late 94\. Halyk Bank staff and branches\. provision of any financial services without charges that * NB curtailed its commercial lending in 1995, and lent * Instruct state organs to desist from demanding the reflects market conditions\. Branch network of the Halyk interbank only to banks that it selects among NBK-auction provision of financial services from Halyk Bank Bank was drastically downsized with conversion of the eligible banks\. or any other bank without charges that reflect branches in the settlement and cashier centers\. For * NB has been reducing fixed costs through staff and branch market conditions or costs\. example, during 1997-1998 Halyk bank closed 88 cuts (having closed 900 outlets since 1993), and raising * Consider introducing financial incentives to any branches which involved substantial staff reduction\. By its capacity utilization through new fee-based services and bank for operating outlets in defined remote Resolution No\. 1051 of June 27, 1997, the Government forex deposits\. settlements a minimum hours per week\. approved the Program for step-by-step privatization of the * NB's Supervisory Council has decided to substantially Halyk bank for 1997-2000\. rationalize staffing and to dispose of at least 500 outlets\. Govemment expressed it readiness to authorize the disposal of additional outlets\.  - 22 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment e\. En(orcing Prudential Norms * The main prudential ratios were set at stringent levels in * Issue an NBK regulations implementing the * Met\. NBK approved on December 12, 1996 a Resolution L Tightening prudential norms 1994, confirmed in 8/95 by the Pres\.Decree on Banking, policy regarding an International Standards No, 292 providing for Procedures of Transition of Second and their enforcement and further refined by NBK regulations\. The calculation of Bank (ISH) track agreed with the Bank\. Tier Banks to International Standards\. the ratios was clarified by a NBK regulation of 3/96, and Different from a slower base track, the ISB track their enforcement is being tightened\. will lead to full compliance with international * NBK regulations clarified the definition of connected standards by end 1998\. Only banks on the ISB borrower and limit the aggregate exposure to all connected track will be eligible to special activities such as borrowers to 100% of capital\. NBK credit auctions, Government-guaranteed * NBK regulation of 3/96 brought guarantees issued by banks foreign credit, establishment of investment banks, fully under prudential supervision\. issuance of bank bonds, etc\. * Minimum capital for commercial banks increased to $0\.5m equivalent, $1\.5m if a bank has branches or forex transactions, and T 200m (US$ 3m) for banks that take household deposits\. * NBK has issued regulations on intemal control, internal audit, and credit approval\. * Pres\. Decrees on NBK and Banking of 1995 reinforced the basis of prudential regulation and enforcement\. * NBK raised its staff positions in the Supervision Dept\. to 112, in addition to a large bank liquidation unit, and mobilized TA of some 6 person-years per year\. It reorganized the Department into teams in charge of clusters of banks, and centralized it in Almaty headquarters\. * A Council of Ministers Decision has confirmed that the state-owned banks are subject to NBK's supervisory norms and enforcement, with any special rules or relaxations of norms that are necessary to take into account the specific nature of their activities to be specifically stipulated by NBK bank by bank\.  - 23 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment 11\. DEALING WITH PROBLEM LOANS AND PROBLEM BANKS a\. Sharing the Burden of Problem Loans i Relieving banks of bad loans * The Rehabilitation Bank (RB) was created in 1995 to take * Transfer to the RB some of the insolvent debtors * Met\. 44 enterprises were transferred to the rehabilitation that had been instructed by over the non-performing bank loans and budget claims to that have been under management contract but Bank\. authorities very large net debtors\. It became fully operational, got still owe overdue credit service to banks\. more than 30 firms assigned, and has started taking over * As to the ASF, ensure substantial MOF * Substantially met\. The new Statute of ASF approved by bank loans to them\. representation on its Board; add financial the Resolution of the Govemment No\. 1590 of November * The Agricultural Support Fund (ASF) was set up in 1994, professionals to its staff; produce appropriate 17, 1997 incorporates these provisions\. and took over the non-performing instructed farm loans of financial statements; amd intemally, separate the Agroprom and other banks by mid-95\. Agroprom Bank post-privatization assistance and subsidy was later also relieved of some bad loans to agro-industrial functions, if any, from the debt resolution firms\. function\. * The Exim Bank was created in 1994 through spin-off from * Convert to managed fund status, or give MOF * Met\. The all non-performing loans instructed by the Alem Bank\. By 9/95, it assumed almost all Alem Bank guarantee for, those non-performing loans of pre- authorities were transferred to the MOF, RB and ASF loans funded by export credit agencies against a GOK 1994 that were clearly instructed by authorities and banks are servicing loans transferred to the MoF on an guarantee; much of this portfolio is non-performing\. These and are still held by commercial banks\. agent basis loans have been put on a managed fund basis\. The 1996 budget includes US$ 320m to repay foreign lenders\. * GOK has by end 1994 reiieved the commercial banks of the risk associated with Directed Credit of 1994/95, and de facto of loans from an inter-enterprise arrears clearing of early 1994\. ii\. Requiring and facilitating * Major increase of minimum capital requirement effective * Permit pre-tax specific loss provisions on * Met\. This permission is provided by the "Regulations on private recapitalization 11/95 forced banks to raise private capital\. classified bank guarantees, up to 20% of their classification of bank's assets and contingent liabilities * NBK introduced in 1995 mandatory loan classification value\. and calculation of provisions for them by second tier based on a standard methodology, and requires full banks of the Republic of Kazakhstan" approved by the adequate provisions to be reported since start 1996\. (Loan NBK on May 25, 1997, Res\. No\. 218 (including loss provisions can be "amortized" over several years, amendments approved by the NBK on September 15, however, for purposes of calculating capital adequacy\.) 1997, Res\. No\. 351 and on October 15, 1997, Res\. No\. * In 12/95, tax provisions have been amended effective 375)\. from 1/1/1996, to allow, before tax, specific loan loss provisions on all classified loans pre-dating 1995 in full, and up to 50% of the book value of outstanding loans from 1995 or thereafter\. * An NBK Decision of 3/96 raises the interest rate on reserve/correspondent accounts with NBK to 50% of the NBK's refinancing rate effective 7/1/1996\. Said decision also reduces the reserve ratio to 15% effective 4/1/1996\.  - 24 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment b\. Resolving Bad Loans i\. Resolving carved-out bad * A key objective of the Rehabilitation Bank (RB) is to force * RB will follow its Operating Principles in place * Met\. RB followed its operational principles\. Credit from loans drastic defensive restructuring or liquidation on large since 3/96\. the RB were used strictly for downsizing (severance debtor enterprises\. An Advisory Unit helps these debtors payments or disposal of social assets) and to finance develop restructuring and liquidation plans\. The RB restructuring plans included reduction in staff and adopted in 2/96 rigorous Operating Principles aimed at negative operating cash flow\. Enterprises were privatized ensuring rapid downsizing and cash flow recovery, when an interested investor has appeared\. conditioning funds on implementation benchmarks and * Review the success of the RB in enforcing drastic * Met\. RB quarterly reported to the MOF on its activities phasing it out, encouraging debtor privatization, and using restructuring and curtailing cash flow losses of its and utilization of budget resources and agreed on further RB funds mainly for downsizing\. large debtors, and decide an action plan to address action plan to be undertaken\. * The ASF has been asking insolvent farms for restructuring weaknesses\. plans, but lacks capacity for farm restructuring on a case- by-case basis\. In 5/96, the Council of Ministers adopted an action plan, satisfactory to the World Bank, on the resolution of loans taken over by the ASF\. The policy * Initiation of liquidation proceedings against at * Met and surpassed\. As of January 1, 1998, RB pushed the focuses on residual debt forgiveness in return for least 3 insolvent corporate debtors of the RB reduction of staff of enterprises by an average 34,3% immediate partial payment\. and reduction of staff of at least 5 other including 13 enterprises with staff reduction more than * MOF resolution of 2/96 asked all enterprises to repay in corporate debtors of the RB by 30%/7 each or 30% and initiated liquidation procedures against 4 one month all principal plus 10% annual interest more in comparison to the numbers employed insolvent enterprises\. outstanding to state organs, and offered to forgive all thereat on 11/1/95\. further overdue interest in retum\. In 5/96, the Council of Ministers adopted an action plan, satisfactory to the World Bank, on the resolution policy for overdue enterprise borrowing from MOF, or with a MOF guarantee\. It emphasizes the buy-back and sale of loans\. A special GOK commission puts pressure on firms deemed willful defaulters on inherited Exim Bank loans\. ii\. Using state ownership rights * Govemment concluded in 1995 management contracts for * Review by end 6/96 the model and actual * Substantially met\. SPD of the MOF (former State Property to accelerate loan collection over 30 major industrial/mining firms\. They oblige the management contracts regarding debt resolution Committee) reviewed all the existing contracts by the end contractors to ensure rapid settlement of firms' overdue and elaborate better standard provisions\. of 1996\. Debt resolution issues were discussed with the debt\. management companies\. * Enterprise Restructuring Agency created in 1995 controls * Review the structure of receivables of the main * Substantially met\. the restructuring or liquidation of some small/medium state state-owned utilities, transport/communication, firms\. and coal/fuel enterprises; establish a regular * Public supplier firms started denying delivery to overdue reporting of these receivables; and instruct RB, debtors\. ASF, and Restructuring Agency to coordinate their actions against debtors with them\. iii\. Encouraging bad loan * NBK has been encouraging banks to set up intemal work- resolution by commercial out units\. Turan and Kredsoz Bank receive TA for this\. banks Some large banks are now aggressively pursuing loan resolution\. * The phasing in of loan loss provisioning forces banks to emphasize loan collection\.  - 25 - Objectives Actions Taken beforc Board Presentation Actions to be Taken Before Second Tranche Assessment c\. Handling Problem Banks i\. Handling a large number of * Since 6/93, NBK withdrew the licenses of 45% of all banks ordinary problem banks (103 banks, of which 55 in 1995)\. * NBK created bank liquidation divisions in 1995\. * Pres\.Decree on Banking of 8/95 gives NBK effective options for early control of, and proceedings against, problem banks\. The Civil Code was amended accordingly\. * Since 1995, NBK actively applies graduated sanctions, including early notice, exclusion from credit auctions, time-bound compliance plans, license withdrawal, etc\. * NBK issued implementing regulations on bank liquidation in 2/96, and bank conservatorship in 3/96\. ii\. Restructuring and privatizing * Alem Bank's loans funded by foreign export credit * Commence negotiations with no more than * The waiver was introduced before the second tranche Alem Bank agencies, many of which are non-performing, were moved four private investors for the purchase by them release (see table 5-a) to the Exim Bank in 1995\. of the majority ef shares of Alem Bank\. * After a crisis in 6/95, Alem Bank's liquidity was restored, and its restructuring initiated, under temporary extemal managemeni by NBK\. * Alem Bank had been privatized spontaneously close to majority, in 1992-94\. Private stakes is 47%\. * Chief executive was replaced in 1/96\. * International audit was carried out in early 1996\. * Alem Bank started downsizing by selling assets (fixed assets, investments, and branches), and improving its net worth by stepped-up foreclosure on debtors and collateral\. * Alem Bank has been strengthening intemal policies regarding, e\.g\., credit and guarantee approvals, loan/deposit I___________________________ ratio, cunrncy positions, and intemal control\. iii\. Downsizing Turan Bank * After partial privatization since 1993, all further state * Implementation of key elements of the action * Substantially met\. The waiver was introduced before the shares in Turan Bank were sold at the exchange in 8/95 to plan, agreed by IBRD upon FSAL negotiations, second tranche release (see table 5-a) investors around management\. pursuant to the agreement between NBK and * Since mid-95, the bank revised credit procedures, enhanced Turan\.Bank, or alternatively assumption of its loan work-out dept\., intensified training, raised paid-in NBK conservatorship over Turan Bank\. It will capital, cut its loan/deposit ratio to 1\.5, and started address, inter alia, the collection of principal improving interest spread and administrative costs\. overdue, suspension of lending to large defaulters, * Loans to over 20 large Turan Bank defaulters are being loan/deposit ratio, compliance with ISB track moved to the RB; loans from the 1994 arrears clearing are capital adequacy, pay-in of private capital, included in MOF's loan resolution program; over 20 major disposal of fixed assets, closure of branches, and debtors came in 1995 under management contracts with the reorganization of the branch network\. debt settlement obligation; and the largest debtor (KARMET) was taken over by a foreign strategic investor\. * NBK and Turan Bank have signed an action plan agreement, satisfactory to the World Bank, aimed at downsizing Turan Bank and bringing it into compliance with NBK prudential norms by end 1998\.  -26 - Objectives Actions Taken before Board Presentation Actions to be Taken Before Second Tranche Assessment iv\. Resolving Agroprom Bank * Agroprom Bank has become 72% private\. * NBK to reach agreement with Agroprom on a 3- * Met\. In the beginning of 1996 Agroprombank started * Almost all branches ceased lending in early 1994\. phase approach: (i) Strongly downsize the branch implementation of the restructuring plan agreed with * Agroprom's directed farm credit moved to ASF in 1995\. network, focused on most clearly non-viable or NBK\. According to the plan, Agroprombank was * Due to the carve-out and negative real interest, Agroprom's redundant branches; phase out household withdrawn from lending operations for six months\. portfolio shrank to 5-10% of the 4/94 level\. deposits; (ii) after further study, sell clusters of Besides, the plan included requirement ofdrastic * Since 1/95, Agroprom cut staffby some 28%\. branches, without restrictions on staff cuts; (iii) downsizing of the branch network\. In the end of 1996 the * Part of the 1995 grain harvest was pre-financed by another limit unsold branches primarily to agency Govemment sold back to Agroprombank its entire bank, with state guarantees\. The pre-financing of the 1996 operations or close them\. Headquarters might be package of shares in the bank in return for 42 branch state grain reserve purchases was tendered among banks\. chosen by the spun-off clusters as a basis for a buildings which were transferred to the state\. * Regulation on mutual credit societies introduced\. service center\. * Review of the pros and cons of rural credit cooperatives in * If emergency agricultural credit is needed from * Met\. The all Govemment's agricultural loans were the local context commenced\. Govemment then have it managed on an agency channeled through ASF (post privatization and family basis by banks or professional fund managers\. farms support) or were lent to the banks under the 100% of risk undertaken by banks and banks' autonomy in selecting agricultural projects to be financed\. v\. Putting the Exim Bank on * Merger of Exim and Development Bank in 8/95 ended their * Complete the institutional diagnostic of Exim * Met\. Eximbank undergone the first intemational audit in sound footing duplication of term lending\. Bank\. 1996 including institutional diagnostic\. * In-depth audit of Exim Bank carried out\. * Government approval of an institutional * Met\. Institutional Development Plan of the Eximbank * MOF relieved Exim of all but US$ 14m of its inherited, development plan, acceptable to the World Kazakhstan approved in July 1996 included the all these non-performing extemally funded loans by putting them on Bank, for the strengthening of the Exim Bank\. provisions\. an agency basis\. The bank's assets thus shrank beneath T In this context, restrict the bank for 3 years, or 7bn before provisioning\. until it is substantially privatized, to a specified * Policy framework for GOK guarantees to foreign lenders list of core instrument/activities\. has been formulated\. Monitoring system for all GOK- * Exim Bank to provision for the inherited ETF * Met\. Part of the loans inherited from ETF were transferred guaranteed external loans started up\. loans\. Budget to pay in new equity in line with to the MoF and put on an agency basis\. Residual part was the overall fiscal constraint\. fully provisioned by the end of 1996\. * Govemment agreed to put new infrastructure and social * Undertake reasonable efforts to mobilize foreign * Met\. Negotiations on privatization of Eximbank sector loans involving Exim Bank, and projects rejected by or other private equity\. Kazakhstan with Malaysian Bank (BBMB) and IFC were the bank for lending at its own risk, on an agency basis\. completed\. Privatization didn't go through because of * Govemment agreed to bank's corporatization and partial unforeseeable events (financial crisis in East Asia)\. privatization\. * NBK issued a regulation mandating full compliance by Exim Bank no later than 1/1/97 with NBK's supervisory norms applied to the international standards bank track, except for the connected borrower limit\. It limits the debt-equity ratio to 3:1 to account for the particular \._______________ risks of long-term lending\.  - 27 - Table 5A: Waiver of Two Conditions for Release of Second Tranche Alem Bank was to commence negotiations for its privatization, and Turan Bank was to implement an agreed restructuring plan\. Bothi conditions had been largely fulfilled by late 1996: negotiations for the privatization of Alem Bank had commenced, and satisfactory implementation progress had been made under an agreed restructuring plan for Turan Bank\. Subsequently, the negotiations for sale of Alem Bank ground to halt while the bank's financial situations continued deteriorating\. The planned fall-back option had been conservatorship and then liquidation of Alem Bank\. However, in view of the persistent high anxiety in financial markets and the general public caused by the bankruptcy of another large bank a few months earlier, the National Bank of the Republic of Kazakhstan (NBK) found the systemic risk of this fall-back option unacceptably large at the time\. The authorities therefore decided on an alternative course of action\. They merged Alem Bank with Turan Bank\. They forced the resulting Bank TuranAlem to drastically restructure and particularly to downsize, and provided recapitalization funding to settle liabilities of this bank\. The scope and rigor of this restructuring of Bank TuranAlem has in many ways already gone beyond the original restructuring agreement for Turan Bank alone, and continues under NBK's close moniitoring\. Moreover, in the course of restructuring Bank TuranAlem, its former Alem Bank portion has defacto been largely liquidated: All former Alem Bank branches have been closed, all its senior managers released, most of its staff laid-off, most of its liabilities paid off, and the bulk of its loans (which had been non-performing) transferred out of the bank\. Moreover, the authorities committed themselves to privatizing Bank TuranAlem no later than by mid- 1998\. This course of actions, chosen to adapt to changed circumstances but aimed at the Program's sector development objectives, is considered a satisfactory substitute for the actions that were conditions for tranche release\. The progress in implementing this revised action plan has been very substantial and rapid\.  - 28 - Table 6: Key Indicators for Project Operation Not Applicable Table 7: Studies Included in Project Not Applicable Table 8A: Project Costs Not Applicable Table 8B: Project Financing Not Applicable Table 9: Economic Costs and Benefits Not Applicable  - 29 - Table 10: Status of Legal Covenants Republic of Kazakhstan Financial[ Sector Adjustment Loan Covenant Present Description of Covenant Agreement Section Type Status Loan 3\.01 9 C Borrower and the Bank to Agreement (a,b,c) exchange views on the progress achieved in carrying out the program and on any proposed action taken after loan disbursement that could reverse the program's objectives\. Loan 3\.02 1 C Borrower to have the Deposit Agreement (a,b,c) Account audited in accordance with appropriate auditing principles by independent auditors acceptable to the Bank; to furnish to the Bank reports of the audit by said auditors within 6 months after the Bank's request for such audit; and to furnish information on the Deposit Account and Audit to the Bank upon such request\. Covenant types: Present Status: 1\. = Accounts/audits 8\. = Indigenous people C = covenant complied with 2\. = Financial performance/revenue generation ifrom 9\. = Monitoring, review, and CD = complied with after delay beneficiaries reporting CP = complied with partially \. = Flow and utilization of project funds 10\. = Project implementation NC = not complied with 4\. = Counterpart funding not covered by categories 5\. = Management aspects of the project or executing 1-9 agency 11\. = Sectoral or cross- 6\. = Environmental covenants sectoral budgetary or 7\. = Involuntary resettlement other resource allocation 12\. = Sectoral or cross- sectoral policy/ regulatory/institutional action 13\. = Other  - 30 - Table 11: Compliance with Operational Manual Statements Not Applicable Table 12: Bank Resources: Staff Inputs Planned Revised Actual Stage of project cycle Weeks US$ Weeks US$ Weeks US$ Preparation to Appraisal 27\.5 115\.8 37\.4 163\.8 53\.8 247\.9 Appraisal 34\.0 140\.2 21\.3 95\.6 77\.0 75\.0 Negotiations through 22\.0 74\.6 76\.9 60\.6 8\.6 23\.5 Board approval Supervision 46\.0 179\.1 38\.3 159\.0 45\.7 187\.8 Completion 0 0 10\.0 27\.9 0\.4 0\.8 Total 129\.5 509\.7 183\.9 506\.9 185\.5 535\.0 Table 13: Bank Resources: Missions SPerformance Rating2 Types of Stage of project cycle Month/ No\. of Days Specialization Implem\. Developm\. Problems3 Year Person in status objectives s Field Through Appraisal 5/95 8 Appraisal through Board 2/96 7 approval Supervision 10/96 3 S S Completion 12/96 3 S S Total 6 1 - Key to Specialized staff skills: 2 - Key to Performance Ratings: 3 - Key to Types of Problems: etc\. etc\. etc\.  Appendix A Page 1 of 5 FINANCIAL SECTOR ADJUSTMENT LOAN PROJECT IMPLEMENTATION ASSESSMENT prepared by THE NATIONAL BANK OF THE REPUBLIC OF KAZAKHSTAN 1\. The financial sector reform program was elaborated by the Government of the Republic of Kazakhstan in collaboration with the National Bank of Kazakhstan (NBK) and its implementation started in the middle of 1995\. By that time Kazakhstan's stabilization policies had created favorable macroeconomic condlitions necessary for the emergence of a sound financial sector\. Strengthening the financial sector was and continued to be a key element of the overall program of stabilization and structural reforms in Kazakhstan, in particular, the continued restructuring and recovery in the enterprise sector\. 2\. To support the program of financial sector reform, the Government of the Republic of Kazakhstan requested a Financial Sector Adjustment Loan (FSAL) from the World Bank in an amount of US$ 180 million\. Objectives 3\. The financial sector reform program of the Government and the NBK addressed two main objectives\. First, we wanted to improve the sector environment in order to reduce the operating risks and latent instability of even promising banks\. Second, we wanted to deal with old problem loans and problem banks that had been affecting the entire sector\. Results of Program hnplementation Part One: Establishing a Conductive Environment for Sound Banking Sector Growth 4\. Strengthening the Framework for Secured Lending\. The Government paid special attention to the overhauling the property rights legislation\. The Constitution of the Republic of Kazakhstan and the Civil Code of the Republic of Kazakhstan (General Part) provided the basis for this legislation and spelled out the recognition of the property rights and their protection (articles 6,18,26 of the Constitution and articles 259-267 of the Civil Code)\. We have been adopted several laws on specific property rights which provided legal framework for secured lending\. This included, for example, a Presidential Decree having the force of the law "On Economic Partnerships" (1995), a Presidential Decree having the force of the law "On Land" (1995) which allowed the use of land as collateral, a Presidential Decree having the force of law "On Mortgage" (1995), and a law "On Bankruptcy" (1997) with a Resolution of the Government specifying the implementation of bankruptcy procedures in agriculture (No\. 1816 of 22\.12\.1997)\. Recently, the Government submitted to the Parliament the draft law "On Joint Stock Companies"' and the draft law "On Pledges on Movable Property"\. In addition to the legislation, we have begun initiatives that would modernize and strengthen the judicial system to ensure credible and effective resolution of disputes and enforcement of contracts\. Previously, legal provisions for Joint Stock Companies were included in the law "On Economic Partnerships"  Appendix A Page 2 of 5 5\. Security in lending would also be enhanced if an efficient information infrastructure could be established\. To this end, a new chart of accounts for enterprises and a comprehensive set of accounting standards conforming substantially with International Accounting Standards was adopted on November 18, 1996 and introduced from January 1997\. The establishment of a registration system on borrowers, their real property, their pledges of property and their borrowing was another key condition for enhancing secured lending\. Laws and Presidential Decrees having the force of Law "On Mortgage" (1995), "On state Registration of Rights for Immovable Property and Transactions With It" (1995), "On State Registration of Legal Entities" (1995), and Resolution of the Government "On State Code for City Constructions" (1996) provided the legal framework for the registration system, which is being developed with donors' assistance\. A credit information bureau started operations in the NBK\. 6\. Restructuring the Banking System\. The development of the Kazakhstani banking system in 1995-97 was characterized by consolidation and improvement in the financial condition\. The Law "On Amendments to Several Legal Acts of the Republic of Kazakhstan Concerning the Banking Activities Issues" (11\.07\.1997) made changes in the procedure for liquidation of banks\. The Law also removed the classification of banks into investment and deposit banks, and envisaged the expansion of the scope of banking activities\. The NBK introduced higher requirements for licensing different banking activities and required banks to install internal procedures and control systems\. Today the minimum capital requirement is T 300 million for new banks and T 100 million for existing banks (introduced and made effective on December 5, 1997)\. 7\. As of end-1997, the banking system of Kazakhstan consisted of 82 second tier banks (compared with 101 in 1996) including one intergovernmental bank, five state-owned banks, and 22 banks with foreign participation (including daughter banks)\. During 1997, four new banks started operations and one bank resumed operations\. The Government repurchased shares of Turan Bank and Alem Bank and merged the two banks into the Bank TuranAlem\. The Government also repurchased the shares of Kazkredsoc Bank with merged the Bank with the state owned Zhilstroy Bank\. These actions were undertaken to reduce instability and systemic risk in banking sector and alleviate the social tension caused by the worsening financial position of Alem Bank and Kazkredsoc Bank, both of which had a large number of deposit-holders\. State shares in Zhilstroy Bank and Bank TuranAlem were offered for sale and were eventually acquired by local strategic investors (in case of Bank TuranAlem by consortium of local investors)\. Kazdor Bank and Caspian bank merged in new Caspian Bank\. In 1997 NBK issued and renewed licenses of 55 banks and recalled licenses of 25 banks\. Thirteen foreign banks have representative offices in Kazakhstan\. 8\. To improve the financial stability of banking system by accelerating restructuring of and compliance by banks with the International Banking Standards (IBS), the NBK adopted the Program "On Transition of the Second Tier Banks to the International Banking Standards" (1996)\. According to the program banks were divided into two groups: first group of banks should achieve the IBS by the end of 1998 and second group by the end of 2000\. Each bank should submit to the NBK its "Plan for Recapitalization and Improvement in Operations" by November 15, 1997\. NBK recalled the licenses of banks which did not submit plans on time\. Improvements in bank governance and banking and management skills are supported by the on- going EBRD and World Bank twining programs\.  Appendix A Page 3 of 5 9\. The NBK developed a new chart of accounts, reporting formats and accounting standards for banks conforming with International Accounting Standards (IAS)\. This chart of account is mandatory for all banks starting from January 1, 1997\. The NBK licensed seven auditor companies and six individual auditors to provide audit of banks\. 10\. Facilitating Inter-Bank Payments and Liquidity Management\. The Government and the NBK introduced various new monetary instruments that facilitated liquidity management and broadened the range of payments instruments available to banks and enterprises\. From April 1996, Government started to issue three month Treasury Bills, from July 1995, six month Treasury Bills, and from July 1996, twelve month Treasury Bills\. The Government is preparing the issuance of Treasury Bills wilh three and five year maturity\. From June 1997, the Government started to float medium term promissory notes with two years maturity, and since September 1996, the Government has been issuing National Saving Promissory Notes with one year maturity\. In January 1997, the Government converted its debt to the NBK into Special Treasury Bills with maturity of 10 years\. The NBK started repurchase (repo) and reverse repo operations with Treasury Bills in early 1996, and introduced short-term NBK notes\. Government enacted a Law on Bills of Exchange and Promissory Notes which conform with the relevant Geneva Convention of 1930\. Furthermore, NBK has adopted, in agreement with the National Commission on Securities, the uniform requirements for the issuance of shares and promissory notes of banks including the reporting forms\. The NBK defined the conditions for banks' participation in share capital of pension funds and companies on pension assets management\. 11\. There were several initiatives in the development of effective and efficient payment systems\. All banks are now maintaining unified correspondent accounts nationwide with NBK\. Payment clearing centers were established in all oblasts, and control over them is being transferred to commercial banks within an improved regulatory framework\. Currently, the NBK is preparing bidding procedures for the procurement of hardware and software for the payment system under the Financial and Enterprises Development Loan of the World bank\. 12\. Ensuring Competition on an Even Playing Field\. As mentioned above, banking system of Kazakhstan in 1997 was composed of 82 banks including 22 banks with foreign shares or foreign daughter banks\. Easing the access to the Kazakhstani market for the foreign banks allowed to enhance competition between banks\. There are 13 representative offices of the foreign banks including four opened during 1997\. Removing special privileges for the Halyk bank (the former saving bank) coupled with strengthening of Kazkommertz Bank and privatization of large Bank TuranAlem andi Zhilstroy Bank helped to ensure a strong level of competition among the local banks\. The NBK is planning to remove the 25% ceiling for the foreign participation in the consolidated capital of banking system, thereby eliminating a potential regulatory barrier to competition\. 13\. Tightening Prudential Supervision\. The prudential regulation of banking activities is provided for in the Regulations "On Prudential Standards" approved by the Board of the NBK on May 23, 1995\. The latest amendments to the set of prudential standards introduced requirements for provisioning for all types of classified assets and for contingent liabilities, as well as requirements for provisioning for all types classified assets and contingent liabilities\. There are a procedures and a sequence of measures that the NBK can impose on banks violating prudential standards and other requirements\. The NBK also introduced mandatory registration of guarantees and other types of contingent liabilities issued by banks\. There are  Appendix A Page 4 of 5 clear procedures for licensing banks for custodial activities and clearly defined conditions of banks' participation in pension funds and assets management companies\. In June 1997, the NBK participated in the workshop of the Regional Group of Basle Committee on banking supervision for Caucasus and Central Asian countries devoted to the issues of restructuring in banking system and main principles of banking supervision\. Regional Group appointed the representative of the NBK to chair the Group for coming two years\. 14\. Strengthening the on-site inspection capacities is an important component of the institutional development of banking supervision\. The on-site inspection enables NBK to evaluate the financial position of a bank, its managerial capacity, strategy and tactics of a bank's credit policy, and compliance with prudential norms\. The NBK is trying to apply the international methods and procedures of on-site inspections, which evaluates the true capitalization level of a bank and assesses the risks associated with a bank's activities\. The NBK uses the CAMEL system in rating of the financial position of banks\. There were 33 banks inspected using this system\. Among them rating 2 (satisfactory) was applied to 14 banks; 3 (less satisfactory) to seven banks; 4 (marginal) to three banks and 5 (unsatisfactory) to nine banks\. The rating has not been performed on ten banks as on-site inspection was not provided in full scope\. In 1997, the NBK performed 43 on site inspections\. Part Two: Resolving Problem Loans and Problem Banks 15\. To resolve problem loans, the Government and the NBK adopted a burden-sharing concept under which the Government relieved the banks of bad loans that had been directed by various authorities, and facilitated (through adequate tax provisions and other means) the banks' recapitalization from private sources after they have provisioned for the bad loans that were not part of the debt relief\. The government directed bad loans were transferred to special debt resolution institutions: (1) most loans to some 44 of the country's largest insolvent net debtors were transferred to the Rehabilitation Bank; (2) virtually all non-performing directed loans to farms was transferred to the Agricultural Support Fund (ASF); and (3) all outstanding loans funded by foreign export credit agencies on the basis of government guarantees were transferred to Eximbank Kazakhstan and then transferred to the Ministry of Finance\. Eximbank Kazakhstan continued to service these loans on agency principles \. After receiving relief from the government directed bad loans, banks were required to make provisions for residual assets and contingent liabilities and to recapitalize themselves through earnings and private capital contributions\. Each bank developed a Plan for Recapitalization and Improvement of Operations which laid out a time-schedule as well as the principal measures for financial and operational restructuring\. 16\. The Rehabilitation Bank received the non-performing loans of 46 large enterprises\. These enterprises were isolated from the banking system\. During 1995-97, the Rehabilitation Bank pushed for staff reduction of more than 30 % in eight enterprises, implemented liquidation procedures on five enterprises, and provided the financing of restructuring in several enterprises\. As of January 1,1998, the Rehabilitation Bank serviced 14 enterprises\. 17\. ASF made continuous efforts to collect non-performing agricultural loans but without substantial success\. The Government has mandated the ASF to impose bankruptcy proceedings on nonviable enterprises and develop restructuring plans for potentially viable ones\.  Appendix A Page 5 of 5 18\. The resolution of problem banks proceeded rapidly on two levels -- the streamlined handling of a large number of smaller problem banks and the case-by-case treatment of four very large ones\. In the mass closure of small and medium problem banks, NBK withdrew licenses of banks which did not meet prudential requirement\. For example, in 1997, the NBK withdrew the licenses of 25 banks -- 15 bank:s for violation of prudential standards; one bank following the decision of the Government of Kazakhstan; two banks following court decisions; one bank following voluntary liquidation; ancl six banks as result of mergers\. As for the large problem banks, all of them were prepared for privatization\. The Government almost completed the negotiations with a Malaysian bank (BBMB) and IFC on the privatization of Eximbank Kazakhstan, but, unfortunately, this deal fell through due to the financial crises in East Asia\. Zhilstroy Bank and Bank TuranAlem were offered for sale through tender in the end of 1997 and were purchased by local investors\. On June 27, 1997, the Government approved the program for step-by-step privatization of Halyk Bank\. Assessments of results 19\. The outcome of the program supported by the Financial Sector Adjustment Loan was on the whole quite satisfactory as it achievedl all its major objectives\. Substantial progress has been made in developing the legal framework for secured lending and for the development of a sound banking sector in Kazakhstan\. Strengthening of the financial sector increased the country's capacity to implement enterprise sector reform and provided the basis for future economic growth\. 20\. The National Bank of Kazakhstan and the Government of Kazakhstan are satisfied with the Bank's performance in the process of implementing the FSAL program\. The Bank and the Government have built constructive relations which significantly contributed to the successful outcome of the Program\. Almaty, Republic of Kazakhstan, June 5, 1998  International Bank for Reconstruction and Development Appendix B Page 1 of 12 FOR OFFICLAL USE ONLY R97-181 From: Vice President and Secretary July 24, 1997 KAZAKHSTAN: Financial Sector Adjustment Loan (4051-KZ) Release of Second Tranche (Waiver of Two Conditions) Attached is a memorandum from the President entitled "Kazakhstan: Financial Sector Adjustment Loan (405 1-KZ) - Release of the Second Tranche (Waiver of Two Conditions)"\. In the absence of objections (to be communicated to the Vice President and Secretary by the close of business on August 4, 1997), the recommendation contained in paragraph 49 of the memorandum will be deemed approved and so recorded in the minutes of a subsequent meeting of the Executive Directors\. Questions on this documents may be referred to Mr\. Klaus Lorch, Task Manager, ECSPF (Extension 37843)\. Distribution Executive Directors and Alternates President's Executive Committee Senior Management, Bank, IFC, and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  Appendix B Page 2 of 12 From: The President July 23, 1997 KAZAKHSTAN: Financial Sector Adjustment Loan (4051-KZ) Release of the Second Tranche (Waiver of Two Conditions) 1\. The Board of the Executive Directors approved a Financial Sector Adjustment Loan (FSAL) to the Republic of Kazakhstan on June 25, 1996 to support the reform program in the banking sector\. The Loan (US$180 million) was declared effective, and the first tranche of US$90 million was made available, on July 31, 1996\. 2\. As provided in Section 2\.02(d) oif the Loan Agreement, a series of discussions has been held in Almaty and Washington to evaluate progress wvith the sector adjustment program (the Program) and with fulfillment of the conditions for release of the second tranche\. The Borrower has shown strong commitment to the Program, and eight of ten conditions for release of the second tranche have been met\. 3\. The two other conditions for tranche release concern two large problem banks, Alem Bank and Turan Bank\. Alem Bank was to commence negotiations for its privatization, and Turan Bank was to implement an agreed restructuring plan\. Both conditions had been largely fulfilled by late 1996: Negotiations for the privatization of Alem Bank had commenced, and satisfactory implementation progress had been made under an agreed restructuring plan for Turan Bank\. Subsequently, the negotiations for sale of Alem Bank ground to halt while the bank's financial situations continued deteriorating\. The planned fall-back option had been conservatorship and then liquidation of Alem Bank\. However, in view of the persistent high anxiety in financial markets and the general public caused by the bankruptcy of another large bank a few months earlier, the National Bank of the Republic of Kazakhstan (NBK) found the systemic risk of this fall-back option unacceptably large at the time\. The authorities therefore decided on an alternative course of action\. They merged Alem Bank with Turan Bank\. They forced the resulting Bank TuranAlem to drastically restructure and particularly to downsize, and provided recapitalization funding to settle liabilities of this bank\. The scope and rigor of this restructuring of Bank TuranAlem has in many ways already gone beyond the original restructuring agreement for Turan Bank alone, and continues under NBK's close monitori:ng\. Moreover, in the course of restructuring Bank TuranAlem, its former Alem Bank portion has defacto been largely liquidated: All former Alem Bank branches have been closed, all its senior managers released, most of its staff laid-off, most of its liabilities paid off, and the bulk of its loans (which had been non-performing) transferred out of the bank\. Moreover, the authorities committed themselves to privatizing Bank TuranAlem no later than by mid-1998\. This course of actions, chosen to adapt to changed circumstances but aimed at the Program's sector development objectives, is considered a satisfactory substitute for the actions that were conditions for tranche release\. The progress in implementing this revised action plan has been very substantial and rapid\. 4\. This memorandum summarizes the overall progress made under the Program, and reports on the actions taken by the Borrower and NBK to meet the specific conditions for second tranche release\. On the basis of the authorities' overall good performance in implementing the Program, putting in place measures that aim at the agreed sector objectives whilst containing risks to the sector's systemic stability, this memorandum seeks a waiver of two conditions and recommends that the second tranche be released\. Vice President: Mr\. Johannes Linn Country Director: Mr\. Kadir Yurukoglu (acting) Sector Director: Mr\. Lajos Bokros Task Team Leader: Mr\. K'laus Lorch  Appendix B -2- Page 3 cf 12 I\. BACKGROUND 5\. The Financial Sector Adjustment Loan (FSAL) aimed at enabling the financial sector to become sound and efficient, and to ensure a minimum of critical financial services during the transition period\. To these ends, the sector reform program was designed to create an environment conducive to sound banking sector growth, and to resolve problem loans and problem banks\. 6\. The Loan was appraised in May 1996 and approved by the Board on June 25, 1996\. The FSAL was signed on June 25, 1996, and declared effective on July 31, 1996\. The first tranche was fully disbursed in August 1996\. II\. RECENT ECONOMIC DEVELOPMENTS 7\. Kazakhstan has been successful in getting inflation under control\. Although the increase in the consumer price index was nearly 3,000 percent during 1992, and was still 1,160 percent in 1994, the rate was brought down to 28\.6 percent during 1996\. The target for 1997 is to limit the increase in the consumer price index to 17 percent during the year\. Data available for the first part of this year indicate that inflation is currently running at a rate that would be consistent with the attainment of this target\. 8\. The current account deficit in the balance of payments reached 9\.9 percent of GDP in 1994, but the deficit was reduced to 3\.7 percent of GDP in 1996\. International reserves (including gold) reached US$2\.1 billion at the end of the year, equivalent to 4 months of imports of goods and non-factor services\. With imports growing somewhat faster than exports in 1997, the current account deficit is expeated to increase this year\. However, due in large measure to the inflow of direct foreign investment, the deficit on current account is more than adequately covered by the inflow on capital account\. Net foreign exchange reserves are expected to rise by US$234 million during the year\. Gross reserves (including gold) are expected to increase to the comfortable equivalent of 4\.3 months imports by the end of 1997\. The strength of the balance of payments is indicated by the fact that, although Kazakhstan entered into an EFF agreement with the IMF in mid-1996, the authorities have not found it necessary to draw on this facility\. It is also suggested by the continuing appreciation of the real exchange rate (by 42 percent in 1995, by 28 percent in 1996, and probably by an additional 5 percent this year)\. 9\. The gains in financial stabilization were brought about as a result of tight fiscal and monetary policies\. In real terms, total general government expenditures were cut almost in half between 1993 and 1996\. Much of this resulted from the drastic cut in investment expenditures, which were 8\.4 percent of GDP in 1993 but had almost disappeared in 1996\. A significant build-up in payments arrears (primarily due to delayed payment of pensions and public sector wages) also contributed to holding the budget deficit (which is measured on a cash basis) to 3\.1 percent of GDP in 1996\. At the end of the year the arrears in government payments exceeded 5 percent of GDP\. In 1997 the budget deficit is expected to rise to 4\.2 percent of GDP, but half of this cash deficit will be the result of the promised elimination of pension fund arrears by the end of the year\. When changes in arrears are taken into account, there will be a substantial further improvement in the budget results in 1997\. 10\. Money and credit have been kept under tight controls\. The supply of broad money is now less than 9\.0 percent of GDP\. The growth of net domestic credit has been constrained by the increase in international reserves as well as by the limited growth in broad money\. Even though government borrowing from the monetary system has been kept under control (and was actually negative in 1996), banking system credit to the rest of the economy has been very tight\. Relative to the GDP, credit to the rest of the economy fell from 16\.8 percent of GDP at the end of 1994 to only 4\.0 percent of GDP at the end of 1996\. This tight liquidity has contributed to the growth of inter-enterprise arrears and also to the large arrears in the payment of taxes\. To some extent the condoning of payments arrears has served as a substitute for money and credit during this period of very tight liquidity\.  Appendix B 3 - Page 4 of 12 11\. Real GDP in 1996 was only 60 percent of the level in 1990\. Thus the impressive gains in re- establishing financial stability have not been achieved without substantial costs in output and living standards\. However, much of the decline in production must be attributed to the breakdown in trade and payments relations with other FSU republics, and to other transitional problems, rather than simply to tight fiscal and monetary policies\. Moreover, the production decline now appears to have "bottomed out", and there are modest signs of a recovery in output\. GDP grew by about 1\.0 percent in 1996 and a modest further improvement of 1\.5 percent is projected for 1997\. The fact that this year the government will be able to reduce, rather than increase, it own payments arrears is also a hopeful sign\. Credit to the rest of the economy, however, remains very tight\. At the moment the activities where growth is strongest are those related to the exploitation of Kazakhstan's petroleum and mineral resources, which benefit from a large inflow of direct foreign investment\. III\. STATUS OF THE FINANCIAL SECTOR REFORM PROGRAM 12\. The Program supported by the FSAL comprises a wide range of actions which, taken together, were designed to enable the financial sector to become sound and efficient, and to ensure a minimum of critical financial services during the transition period\. The Program had two principal goals: (a) To improve the sector environment so as to reduce the operating risks and latent instability of all banks; and (b) to resolve old problem loans and problem banks that affected the entire sector\. The following paragraphs discuss reform progress in the sector in relation to these goals\. Goal (a): Improving the sector environment for sound banldng sector growth 13\. The framework for secured lending has been strengthened in several ways\. New legislation has been adopted on, inter alia, mortgages, companies, and bankruptcy\. The latter law has also made judicial procedures for bankruptcy cases more speedy and transparent\. New registry systems for different property rights are being established, and the prohibitive notary fees for registering collateral have been revisited\. A new chart of accounts and broad set of accounting standards have been mandated with the start of 1997\. A credit information bureau has started operations at NBK\. The framework for rating agencies has been clarified to avoid conflicts of interest\. Moreover, various reforms are under way to modernize and strengthen the judicial system\. 14\. The institutional development cf banks has been fostered in terms of, among other things, better governance through privatization, and new bank accounting systems\. The number of banks in with the State holds shares has been reduced in two years from 73 to 11\. Among these 11 banks, the State has now on offer its entire stake in four of them, the majority stake in a fifth (Exim Bank) and minority stakes in a sixth (Halyk Savings Bank)\. A seventh bank (Bank TuranAlem) is being prepared for privatization, and an eighth (Rehabilitation Bank) is slated for closure next year after having completed its mission\. The three remaining banks are the housing bank, a regional development bank jointly owned with neighboring republics, and the special-purpose Budget Bank\. As to bank accounting and audit, NBK mandated a new chart of accounts, reporting formats, and accounting standards mandatory for all banks as their primary system, and assisted banks with donor support in the conversion\. \.15\. Inter-bank payments and liquidity management have been facilitated through new monetary and payment instruments, and inter-bank payment systems\. For example, an automatic overnight Lombard facility has been opened, and a law on bills of exchange and promissory notes has been enacted conforming with the relevant Geneva Convention of 1930\. All banks, with only few temporary exceptions for technical reasons, are now maintaining unified correspondent accounts nationwide with NBK\. Payment clearing centers have been established in practically every oblast, and control over them is being transferred to commercial banks within an improved regulatory framework\. For high-value transactions, NBK has substantially completed preparations for a special payment system with special standards of security and speed\. 16\. Progress has also been made in ensuring competition on an even playing field, particularly with regard to the role of the Halyk Savings Bank (formerly called Narodnyi Bank)\. In pursuit of a comprehensive  Appendix B _ 4 _ Page 5 of 12 institutional development plan, the bank has been modernizing its skills, systems, culture, image, and product range, especially non-lending services\. State agencies have reportedly ceased asking the bank for major services without appropriate compensation\. They have also allowed the bank to cut its number of branches and other outlets by almost half (some 2,000 units), and its staff by about one fifth (2,500 persons), in the past two years\. The bank is preparing the initial public offering of about 10 percent of its shares at the stock exchange this year, and the offer of shares to the bank's depositors soon thereafter\. The ultimate goal in a three-year horizon is majority private ownership\. In return for such operational autonomy and private capital, the bank relinquished earlier privileges such as freedom from reserve requirements and the free use of local premises\. To overcome shortages of basic banking services in rural communities as the deregulated and gradually privatized Halyk Bank is closing non-profitable rural outlets, the authorities licensed the state postal enterprise with its vast network of counters to handle cash transfers and act as an agent for commercial banks in collecting household deposits\. 17\. Prudential supervision has been tightened in a transparent gradual process\. For example, NBK has been clarifying the calculation methods of prudential norms, focusing enforcement action on a broader range of norns (including, for example, connected borrower exposure limits), paying increasing attention to banks' contingent liabilities, and subjecting also state-owned banks to examinations\. Moreover, NBK has started differentiating an international standards bank track, where banks come into compliance with full international standards by end-1998, from a slower base track towards full standards\. When a bank meets the criteria of the faster track, it qualifies to undertake certain operations such as issuing bonds, or collecting household deposits beyond the amount of the bank's capital)\. This approach had several advantages: It harmonizes to some extent the many differentiations between more or less sound bariks that NBK had earlier applied to the access to such operations in an ad hoc fashion; it recognizes the still wide differences in performance levels in the infant stage of the financial sector; and it offers incentives to banks to strive towards higher prudential performance\. Goal (b): Resolving problem loans and problem banks 18\. The financial burden related to old problem loans has been largely shared between bank shareholders and the Government roughly in proportion to their respective responsibility for these loans\. The state has in many ways relieved banks of bad loans that had been instructed by authorities\. Non-performing local sub-loans under externally funded credit lines have been almost entirely removed, together with their refinancing, from the balance sheets of commercial banks\. Non-performing instructed loans funded from local sources have largely been converted to managed fund status, including loans stemming from the Economic Transformation Fund in 1993-94\. Some forty very large defaulters, including some that had failed to recover under management contracts, had been transferred to the state's Rehabilitation Bank\. The Agricultural Support Fund had taken over from banks, in 1995, non-performing instructed credit to farms\. Outright recapitalization with budget funds was limited to one bank, Bank TuranAlem (see para\. 42)\. The recapitalization of banks through retained earnings has been facilitated by reforming the tax treatment of loan loss provisions\. Injections of new private capital into banks were fostered by enforcing minimum capital and capital adequacy requirements\. 19\. The actual resolution of bad loans has also made substantial progress\. The Ministry of Finance has started auctioning off bad loans that it has taken over from banks because these loans had been instructed\. The Government has also been using its ownership rights to accelerate loan collection from state-owned enterprises\. In this context, it has been carrying out reviews of the management contracts that it has concluded for dozens of firms, and has been encouraging state utility, fuel, and communication enterprises to step up their collection of receivables\. Several state institutions have been playing special roles in debt resolution: (a) The Agricultural Support Fund has been pursuing the farm loan resolution strategy agreed upon prior to Board presentation of the FSAL, and has been strengthened institutionally; (b) The Exim Bank has been trying to collect on a large volume of old, externally funded loans on an agency basis; (c) The Enterprise Restructuring Agency has been forming a cadre of trained administrators and liquidators, and has been involved in the bankruptcy of dozens of medium-size firms where the state had shares or credit claims; and (d) The Rehabilitation Bank has substantially been pursuing a set of agreed operating policies in its restructuring and privatizing, or else liquidating, very large insolvent enterprises\. Out of forty enterprises assigned to the Rehabilitation Bank, it has been liquidating four and is preparing a fifth case; forced downsizing and other  5 Appendix B Page 6 of 12 restructuring, as well as a fair degree of financial control and often external managers, on some twenty firms; and has released the other fifteen firms mostly for privatization or private management contracts\. The Rehabilitation Bank has used a substantial part of its funding for severance pay, wage arrears and essential social services of the insolvent firms\. It has not funded investments in fixed assets, and is providing funds generally in installments that decline over time\. The bank has been agreeing with enterprises on time-bound restructuring plans that generally include cuts in employment by at least 30 percent within a year\. 20\. The resolution of problem banks proceeded rapidly on two levels, specifically, the streamlined handling of a large number of ordinary problemr banks and the case-by-case treatment of four very large problem banks\. In a mass closure of small and medium problem banks, NBK cancelled the licenses of 103 banks from mid-93 through mid-96, and continued with additional 30 license withdrawals since then\. Of the 97 banks currently operating, 45 have recently been identified as not even meeting the minimum prudential requirements for the slow, base track towards higher banking standards; this points to a large number of further bank closures\. The case-by-case treatment of large problem banks has focused on Turan, Alem, Agroprom, and Exim Bank\. 21\. Turan Bank went through rigorous restructuring in 1996 under a management team provided by NBK\. Alem Bank tried to stem the deterioration of its financial condition while the Government negotiated, without success, the bank's privatizatien to foreign investors\. The authorities then chose to merge Alem Bank with Turan Bank, and forced the combined bank to drastically restructure and downsize, so as to stabilize its financial situation, contain risks, and facilitate the bank's privatization over the coming six to twelve months\. These developments are elaborated in paragraphs 39-46\. 22\. Agroprom Bank agreed with NBK on a improvement plan in fall 1996, and has been proceeding with its implementation\. A combination of extensive transfers of bad loans to the Agricultural Support Fund in 1995, enhanced loan collection efforts, tight limits on the bank's new lending activities, and additional restrictions have improved the condition of the bank's balance sheet\. Progress was initially slower, however, in downsizing the branch network and staffing levels, and thus in reducing expenditures\. Late in 1996, however, the Government sold back to Agroprom Bank its entire package of shares in the bank in return for 42 branch buildings being transferred to the state\. With this step, the branch network has been downsized, and the bank is now fully privately owned\. Moreover, the state earmarked the 42 buildings for lease to emerging rural credit societies\. 23\. Exim Bank has been relieved of most of its non-performing loans and their refinancing, and provisioned for the rest in its end-1996 statements\. It has since grown only cautiously within the constraint of a 3:1 debt/equity ratio, and has focused on a list of core activities and instruments so as to avoid diluting its efforts\. Where the bank rejected lending proposed by the authorities at its risk, such as in social sectors, it is sometimes managing state loans on an agency basis\. These and other positive developments at the bank are underpinned by a satisfactory development plan, built on the results of an intemational audit\. Negotiations are now under way for a strategic investor and IFC together to acquire the majority of shares in Exim Bank\. IV\. PROGRESS AGAINST TRANCHE RELEASE CRITERIA 24\. Pursuant to Section 2\.02(d) of the Loan Agreement, conditions for the release of the second tranche require that the Bank shall be satisfied with the progress achieved by the Borrower in carrying out the Program, and that the actions described in Schedule 3 to the Loan Agreement have been taken and are satisfactory to the Bank\. 25\. Progress in carrying out the Program has been strong as described in Section III above\. The status of the specific actions provided in the Loan Agreement is described below\. (i) Continued maintenance of the macroeconomic policy framework consistent with the objectives of the Program as; deterrnined on the basis of indicators satisfactory to the Bank\.  Appendi x B 6- Page 7 of 12 26\. This condition has been met\. Progress in the macroeconomic sphere is described in Section II above\. (ii) Adoption by the Borrower or an Accounting Standards Board of the Borrower, and publication, of a new chart of accounts and a comprehensive set of accounting standards conforming substantially with the International Accounting Standards\. 27\. This condition has been met\. The National Accounting Commission of the Republic of Kazakhstan adopted and published twenty accounting standards through its Resolutions Nos\. 3, 4, 5, and 7 dating from November 13 to 21, 1996\. The standards are effective from January 1, 1997, except for three standards that will become effective a year later\. These standards conform substantially with twenty of the thirty International Accounting Standards (IAS)\. Together, the new standards constitute an adequately comprehensive set, since the other ten IAS are not yet of significant relevance in the current business environment of Kazakhstan or, in two cases, need to await the promulgation of the Civil Code Part II with regard to provisions on non- tangible assets\. An additional standard, for banking institutions, had been approved by NBK Resolution No\. 237 of December 26, 1995\. 28\. The National Accounting Commission also approved a new General Chart of Accounts for business entities, and declared it effective from the beginning of 1997\. With about 190 accounts on the third- digit level, the new chart has appropriate detail\. The chart of accounts permits the application of the new accounting standards\. 29\. The new accounting standards and chart of accounts were presented to the public at a national conference on in late November, 1996, widely distributed to professional and educational entities, and published in newspapers in December 1996\. (iii) Offering for sale to private investor all state shares in, or withdrawing the banldng licenses of, all except no more than ten banks (other than NBK) whose equity includes state shares\. 30\. This condition has been met\. In mid-1995, there were about 73 banks whose shares were owned by the Borrower, or by legal entities majority owned by the Borrower\. Of these 73 banks, 32 have by now been fully privatized, and 30 had their license withdrawn\. Of the remaining 11 banks with state shares, three (Tsvetmet, Kazkomstroi and BSB) have been offered for sale at the stock exchange, with the minimum prices reduced over time to as little as 1 percent of the net book value of the shares\. Another bank, Kazpochta Bank, has been on offer outside the stock exchange since last December\. 31\. This leaves at present only 7 licensed banks whose state shares have not yet been formally offered for complete sale\. The Budget Bank will remain fully state owned\. The state's Rehabilitation Bank will be closed after 4 years of existence, i\.e\., in 1999\. The Exim Bank is negotiating with a foreign strategic investor and the IFC, but will leave a minority share in state hands\. In the Central Asian Bank for Reconstruction and Development that is jointly owned with neighboring republics, as well as in the Housing Bank, the state will likely retain ownership as well\. The privatization of Halyk Savings Bank is being prepared to start this year with the offer of some shares to its household depositors and some further shares to foreign portfolio investors\. Bank TuranAlem is undergoing drastic restructuring, and the Government expressed its commitment to privatize it in the first half of 1998\. (iv) Enactment of a law on bills of exchange and promissory notes conforming with the Geneva Convention of 1930 providing a Uniforn Law for Bills of Exchange and Promissory Notes\. 32\. This condition has been met\. A Law On the Circulation of Bills in the Republic of Kazakhstan was enacted by parliament last April and signed by the President of the Republic on April 28, 1997\. The law addressed bills of exchange as well as promissory notes\. The law conforns substantially with the 1930 Geneva Convention on Bills of Exchange and Promissory Notes\.  Appendix B -7 - Page 8 of 12 33\. Article I of the Convention requires parties to the convention to enforce or enact in original texts in their national language a Unified Law as set forth in Appendix I of the Convention\. It permits signatory countries to make certain reservations, but requires them to declare, at the moment of ratifying, or acceding to, the Convention which reservations they have elected to make\. The Convention became effective in Kazakhstan on August 21, 1995, through Presidential Decree No\. 2418 On the Republic of Kazakhstan Becoming a Signatory to the Geneva Convention of June 7, 1930\. In the above law, Kazakhstan did elect to reserve a number of rights which are allowed in Appendix II of the Convention and which were included in the list of reserved right of Presidential Decree No\. 2418\. (v) Issuance, by NBK, of regulations implementing the policy regarding the international standards banks track agreed with the World Bank\. 34\. This condition has been met\. NBK approved on December 12, 1996 a Resolution No\. 292 providing for Procedures of Transition of Second-Tier Banks to International Standards\. Resolution No\. 292 conforms substantially with the concept agreed between the Borrower and the Bank\. Among other things, the Resolution provides for: An international standards track ("Group 1") and a base track ("Group 2") for commercial banks; annual minimum ratios that lead towards full compliance with final prudential standards by end-1998 (Group 1) or end of the year 2000 (Group 2); a requirement of bank improvement plans to underpin the increase in prudential performance; incentives to achieve Group I status, including the right to take household deposits to an extent that exceeds the bank's capital; and the expectation of license withdrawal from banks that do not even achieve Group 2 performance levels\. 35\. By June 1, 1997, NBK finalized its review of all licensed banks\. It assigned Group 1 status to 25 banks, and Group 2 status to 27 banks\. Since the minimum prudential ratios for both groups will rise over time following the schedule- stipulated by Resolution No\. 292, these numbers will change\. Further 45 licensed banks did not meet the minimum criteria even for Group 2, and are thus excluded from either group; Resolution No\. 292 indicated NBK's intention to withdraw licenses from such banks\. (vi) Initiation of liquidation proceedings against at least three insolvent corporate debtors of the Rehabilitation Bank and reduction of staff of at least five other corporate debtors of the Rehabilitation Bank by 30 percent each or more in comparison to the numbers employed thereat on November 1, 1995\. 36\. This condition has been met\. Liquidation has been practically completed for one large enterprise, is well under way for two more, has been legally initiated for a fourth, and is being prepared for a fifth\. (a) The closure of Karaganda Liquidschaht with its five coal mines of formerly 1,840 employees is virtually completed\. The final steps are the sell-off of some last pieces of installation\. Most of the former employees have been laid off, and another third of the employees, mainly those suffering from work-related accidents or sickness, were transferred to other mines\. The Rehabilitation Bank is also engaged in the liquidation of two additional coal mines that did not belong to the same enterprise\. (b) Phosphochim in Alga, a producer of boric acid with once well over 1,000 employees, was declared bankrupt by an oblast court last November, upon applications by the Rehabilitation Bank as creditor as well as another state agency as owner representative\. The liquidation cormnission has now closed the plant, catalogued assets and creditors, and started the sale of assets\. (c) For the Petropavlovsk Small Engines Plant, with formerly 1,320 employees, a general shareholder meeting decided last November the firm's voluntary licluidation\. The liquidation commission has offered the assets of the enterprise for sale as essentially a whole in late May 1997, and has recently reduced the minimum price for lack offers\. (d) A fourth company, Belogorslcy Mining and Concentration Corporation with formerly 1,590 employees, was declared bankrupt by a court last March upon application by the Rehabilitation Bank as creditor\. Creditor claims have been filed, and the Creditor's Meeting was held in June\. (e) For the Tekeli Lead Zinc enterprise, which once employed about 2,700 persons, the filing of an application for bankruptcy with the courts is under preparation since the authorities cancelled a management contract and transferred the enterprise to the Rehabilitation Bank for liquidation\.  Appendix B - 8 - Page 9 of 12 37\. The conditionality regarding employment reduction is fulfilled as well\. Most of the enterprises that were brought under the control of the Rehabilitation Bank had been over-staffed or employed persons in non- viable operations\. The 25 enterprises that the Rehabilitation Bank controlled by end-96 had more than 64,000 employees in November 1995\. By May 1997, fourteen of these enterprises had cut their employment by more than 30 percent each, ranging from 31 to 75 percent\. Four additional enterprises were in liquidation, as explained above\. Only seven enterprises had so far reduced their staff by less than 30 percent\. (vii) Approval by the Borrower of a development plan, acceptable to the World Bank, for the institutional strengthening of the Exin Bank\. 38\. This condition has been met\. The Board of Directors of Exim Bank approved an institutional development plan in November 1996\. The plan has been signed by each member of the bank's Board, including Deputy Prime Minister and Minister of Finance\. The plan is in conformity with the requirements agreed between the Borrower and the Bank\. As a high-level document it is strategic, and comprehensive in coverage\. A strategy statement and an organization chart are incorporated in its text\. Operational details for the shorter term has subsequently been included in a business plan and the 1997 budget of the bank\. Further operational detail is also provided in a Memorandum on Credit Policy\. Key elements of the institutional development plan are backed up by earlier Government Resolutions and Exim Bank Board decisions\. They concern, inter alia, the bank's corporatization and privatization; the charter of the bank; the prudential norms applicable to the bank; its relief from non-performing loans and their extemal refinancing that it inherited from its predecessor institution; and relief from, and future arrangements for, loans that had originated under the state's Economic Transformation Fund\. (viii) Commencement of negotiations with no more than four private investors for the purchase by them of the majority of shares of Alem Bank\." 39\. This condition had largelv been fulfilled\. However, confronted with changing circumstances\. the Borrower chose to revise its strategv to achieve the same sector development obiectives\. On this satisfactory alternative course of actions\. substantial progress has been achieved\. The Alem Bank, the former trade bank of the state and still 53 percent owned by the state in early 1996, has been the country's largest bank by gross assets\. After it emerged from a brief conservatorship in 1995 but was still saddled with major governance, management, and portfolio problems, the state offered its shares for sale to investors\. By September 1996, the Government with NBK's support had in fact commenced intensive negotiations with a foreign business group for the sale of the state's stake in Alem Bank\. This investor was expected to help bring Alem Bank's capital in compliance with capital adequacy requirements and improve liquidity, while the Government would facilitate this by settling various obligations towards Alem Bank and taking over external liabilities that it had guaranteed\. By mid-October, 1996, the two negotiating parties were reportedly close to agreement\. However, demands of the foreign investor in unrelated areas, as well as indications that contingent liabilities were worse than expected, then led to a slowdown in the negotiations\. By December, the negotiations were discontinued\. 40\. The authorities had been contemplating conservatorship with liquidation as the fall-back option\. Based on audit results that became available in the third quarter, the bank's capital had a more highly negative than had been estimated\. (A further audit as of end-1996 showed necessary provisions finally amounting to 89 percent of gross loans\.) The bank operated on the verge of illiquidity, requiring heavy support by NBK and other state-owned banks\. However, in September 1996, Kramds Bank, the fifth largest bank and a major collector of household deposits, went bankrupt\. The resulting nervousness in the financial markets, wide publicity, and public protests were slow to subside\. In December, when the negotiations for sale of Alem Bank had failed, it was the judgment of NBK that the systemic risk of starting the liquidation of Alem Bank would be unacceptable in this environment, for months to come\. In the meantime, Alem Bank would likely deteriorate further through the loss of deposits, good clients, and qualified staff\. 41\. In this situation, the Government and NBK decided in December on an alternative course of action, namely, the merger of Alem Bank with Turan Bank and the subsequent recapitalization and privatization  Appendix B - 9 - Page 10 of 12 of the resulting "Bank TuranAlem"\. (Turan Banlk, as will be explained below, was the privatized former state industrial bank\.) Bank TuranAlem would close all former Alem Bank branches, sell their fixed assets, replace all senior Alem Bank managers, settle in court various disputes of former Alem Bank, and extend the rigorous restructuring that had already well advanced in Turan Bank to the Alem portion of TuranAlem's balance sheet\. The state budget would provide for the recapitallization of Bank TuranAlem, but these funds would be used generally to repay liabilities and not to provide liquidity for new lending\. This would curtail additional portfolio risks, generally make the bank less "too-large-to-fail", and increase the prospects for Bank TuranAlem's privatization, which would be the final objective anticipated no later than mid-1998\. 42\. The Bank thereupon agreed with the Borrower on a set of actions, plans, and commitments to ensure that, first, the objectives of the Program would be supported and, second, the privatization objective (originally relating to Alem Bank) and the restructuring objective (originally relating to Turan Bank, as explained below) would ultimately be achieved\. By now, the authorities in collaboration with Bank TuranAlem have met all the prior actions, submitted a satisfactory restructuring agreement between Bank TuranAlem and NBK, and provided all the formal commitments that had been agreed upon\. These steps can be summarized as follows: (a) The former branches of the Alem Bank and Turan Bank have been reduced within one year from 103 to 27, i\.e\., by three quarters: 17 of the branches were closed before merger and 39 after the merger, and 24 branches had their licenses withdrawn and operate now as mere cash windows for nearby branches\. The duplication of branches iin any one town has been eliminated\. Vacated office buildings have been put on sale\. For the bank's largest fixed asset, a very large new office tower in Almaty, the bank has substantially completed its sales negotiations with a buyer; only outstanding are issues of taxation that the buyer is negotiating with the authorities\. Staff of the two original banks has been reduced from a combined total of 4,600 in mid-1996 to about 3,600 by end-1996, and further to less than 2,100 persons since the merger\. The bank also agreed with NBK to cut its administrative expenses by 28 percent in 1997\. (b) The bank's chairman and deputy chairmen were all recruited from outside the two original banks\. This new management team has been demonstrating substantial professional competence\. The majority of department directors and many branch directors were replaced as well\. Major progress has been made in strengthening headquarters control of branches and centralizing credit decisions; all branches now report directly to headquarters\. The combination of the accounting systems of the two original banks has advanced well, and the Republic's new chart of account for banks is being adopted\. A weekly portfolio review system is being introduced\. (c) Practically all external liabilities inherited by Bank TuranAlem that had been guaranteed to the foreign parties by the State, and whose on-lending had been directed and has been non-performing, have been assumed by the State\. The corresponding local loans have been removed from the bank's balance sheet\. From among the bank's other loans, 80 percent (US$80 million equivalent, by gross value) of those that were classified as "loss" by an international audit have been removed from the legal ownership and balance sheet of the bank\. For a large part of these removed loans, Bank TuranAlem will act as a collection agent on behalf of the new creditors\. In addition, the bank has ceased lending to defaulters\. Furthermore, the bank agreed with NBK to offset deposits of defaulters with their credits, and to collect by end-1997 30 percent on its doubtful loans and 50 percent on its substandard loans\. (d) The State has provided a total of apprcximately US$150 million equivalent for the recapitalization of Bank TuranAlem\. The vast majority of these funds have been used to repay liabilities of the bank, and thus to downsize it financially\. Firstly, US$30 million was provided in January upon the merger by converting into equity the Government's deposits that dated back to its efforts to stabilize Alem Bank and Turan Bank\. Secondly, an additional US$60 million was paid in April, and has by now almost entirely been utilized to repay liabilities of the bank (including large loans by other state-owned banks), to help cover operating costs during the initial restructuring phase, or to be held on escrow accounts for the settlement of contingent liabilities that are disputed in court\. Thirdly, the state's Rehabilitation Bank,  Appendix B -10- Page 11 of 12 has obtained an NBK loan to purchase "loss" loans from Bank TuranAlem at a gross value of US$61m equivalent, and Bank TuranAlem used the entire proceeds to repay its liability towards NBK\. In addition, the Goverinent has committed itself in a letter to the World Bank not to undertake any further recapitalization of Bank TuranAlem from the state budget\. (e) These and other actions have brought the bank back into compliance with most prudential norms, including the mandatory liquidity ratio\. In addition, the bank agreed with NBK to limit the growth of its loan volume (net after the extensive provisioning) to 50 percent from March 97 to March 1998, and to limit its exposure to any single borrower to US$3 million, except for up to three exposures with a US$5 million ceiling\. The bank does not yet meet the capital adequacy norms, though, and still constitutes a risk that required careful monitoring by NBK\. (f) The Government confirmed in a letter to Bank management, dated July 2, 1997, that it "will do [its] best effort to conclude the sale of the majority of the voting stock of Bank TuranAlem in a transparent process open to competition no later than by June\. \. [The Government] will seek a strategic investor with strong capabilities and give consideration to ensuring adequate competition in the banking sector\." The bank's rigorous restructuring is expected to facilitate this privatization\. It has also been noted that several major foreign banks are contemplating to open branches in Kazakhstan, for which legislation requires first a one-year operation of a representative office; this interim period can be avoided by purchasing an existing bank\. The authorities plan to intensify their investor search in September once an international audit of the bank's results through June 1997 will provide potential investors with more insight into the bank's recent income performance\. The European Bank for Reconstruction and Development (EBRD) is preparing to assist the authorities in this privatization effort, and potentially to participate in the equity itself\. 43\. Given that it was unforeseen circumstances that prevented the authorities from liquidating Alem Bank when their privatization effort failed last year; given the impressive degree of restructuring and downsizing that has been achieved in a short time; and given the Borrower's firm commitment and improving prospects to privatize Bank TuranAlem within one year, these actions and commitments can be considered an appropriate substitute for the original tranche release condition regarding Alem Bank\. (ix) Implementation of key elements of an action plan, agreed with the World Bank, pursuant to the agreement dated May 1996 between NBK and Turan Bank or, altermatively, assumption of conservatorship over Turan Bank by NBK\. 44\. This condition had been met\. However, it was subsequently overtaken by a satisfactory alternative course of actions\. The progress achieved towards sector reform objectives on this alternative route exceeds in many ways the targets of the tranche release condition\. This revised course of action involved the merger of Turan Bank with Alem Bank, and the rigorous restructuring of the resulting Bank TuranAlem, as described above\. 45\. Early last year Turan Bank, the former state industrial bank, had been the country's fourth largest bank (by gross value of assets) and fully in private hands\. Its performance and financial stability were crippled by weak management, lack of control over regional branches, disputes and failed takeover attempts among owners, and the migration of its heavy industry clients, once privatized, to more dynamic banks\. In September 1996, the bank's management including the CEO was replaced by a group of NBK staff\. This situation carne close defacto to a conservatorship by NBK\. This new management team implemented a profound and detailed restructuring program\. New lending was curtailed, lending to major defaulters ceased altogether, and the collection of non-performing loans was stepped up, except for loans under foreign credit lines where responsibility was blurred through state guarantees and lending instructions\. These actions reduced the loan/deposit ratio to 1\.04, and nominally brought capital adequacy in line with prudential norms (allowing for amortization of initial provisions over three years, and based on provisioning needs defined upon NBK on-site examination for lack of an international audit)\. Within a quarter year, the bank closed 17 of 83 branches, cut  Appendix B -11- Page 12 of 12 staffing by 16 percent, and disposed of 25 percent of its fixed assets\. Internal controls were strengthened, and all branches were made to report directly to headquarters\. The agreed target of raising additional equity capital of US$2 million from private sources was not yet met, but was planned to follow this period of de facto conservatorship\. 46\. On January 15, 1997, the shares of Turan Bank were transferred to the state under applicable law, which immediately merged Turan Bank with the troubled Alem Bank as described above\. The main purpose was to prevent a collapse of the large Alem Bank in an environment already affected by the recent bankruptcy of another large bank\. A secondary motive, according to NBK, was to facilitate the replacement of private shareholders whose behavior in governing Turan Bank, which had negative capital, had indicated moral hazard and who continued to obstruct the necessary restructuring\. NBK applied an amendment to banlking legislation that allowed NBK to seize, against some compensation, the shares of banks with a negative net worth\. The Government assured the Bank formally of its commitment to privatize the merged Bank TuranAlem no later than by mid-1998\. In the meantime, the rigorous restructuring has continued and, in many respects, accelerated at Bank TuranAlem\. Although data of the former Turan Bank is not fully comparable with that of today's merged Bank TuranAlem, it is fair to say that most of the restructuring actions for Turan Bank that had been agreed under the Loan have by now been exceeded by Bank TuranAlem\. (x) Passage of a law on bankruiptcy that includes adequate provisions for its application and enforcement, or prescription of adequate rules, regulations or procedures for the application and enforcement of the Presidential Decree on Bankruptcy of 1995\. 47\. This condition has been met\. A new Law on Bankruptcy was passed by parliament on January 21, 1997, signed by the President, and came into effect on January 25, 1997\. The law constitutes a major improvement over the prior Presidential Decree on Bankruptcy of 1995, and its content is substantially satisfactory\. Different from the prior Decree, the new Law is highly detailed and includes a wide range of generally satisfactory provisions for the Law's application and enforcement\. There are indications that the new Law has already contributed to making bankruptcy a more widely considered option for creditors, and that the number of bankruptcy applications has risen\. The state itself, too, is now utilizing its role as creditor more actively to force bankruptcy on major debitors, especially through its Rehabilitation Bank and Enterprise Restructuring Agency\. V\. CONCLUSION 48\. The Borrower's implementation of the Program has been strong\. Most measures have been implemented as planned\. Where the original measures have proved no longer appropriate in light of events, the Borrower has substituted practical alternatives that pursue that same objectives and have been implemented rapidly in a satisfactory manner\. Overall, the Program has impacted on the development of the financial sector in the manrier and to the extent intended under the Loan\. The environment has been made more conducive for sound banking sector growth, and the resolution of problem loans and the restructuring of critical problem banks have made major progress\. 49\. Recommendation\. On the above basis, I recommend that the Executive Directors approve the release of the second tranche of the Loan\. Upon approval, the Bank will notify the Borrower that the second tranche of US$90 million is available\. James D\. Wolfensohn President by Caio K\. Koch-Weser  SELECTED MACRO-ECONOMIC INDICATORS AND FINANCIAL SECTOR STATISTICS Table 1\. Kazakhstan: GDP, Money and Velocity 3/8/98 17:49 1997 1998 December, actual, January March June September December including Budget Outcome Projected Projected Projected Projected Bank with NBK \._\.__ GDP and Inflation (percentage change over same period a year earlier) 155,105 Real GDP (quarterly) 2\.0 93,862 3\.0 3\.0 3\.0 3\.0 GDP Deflator 12\.0 86,718 8\.7 9\.4 9\.7 9\.8 CPI Inflation 11\.3 10\.7 10\.9 11\.6 10\.4 11,651 Nominal GDP (millions of Tenge) 477,573 4,507 395,466 426,588 556,087 540,026 Quarterly 1,900,292 6,850 1,581,864 1,706,352 2,224,348 2,160,104 Annualize 295 177,257 160,039 174,132 196,967 216,689 Monetary Aggregates (millions of Tenge) 106,921 92,485 97,442 108,850 118,194 Broad Money 96,536 83,353 87,644 97,036 104,548 Reserve Money 82,211 o/w currency 14,121 12,867 13,534 15,550 17,381 3,736 72,895 3,736 3,736 3,736 3,736 Bank Reserves (R) 10,254 72,865 9\.000 9,666 11,683 13,514 Currency holdings by commercial banks 131 29 131 131 131 131 Bank deposits at NBK Demand, time and enterprise deposits at NBK Currency held by households (C) 92,800 79,716 83,908 93,300 100,812 Deposits (D) 84,457 80,422 90,224 103,667 115,876 Deposits at commercial banks 84,421 80,385 90,187 103,630 115,840 Bonds/Promisory notes of banks 36 36 36 36 36 Ratios Velocity 10\.78 9\.88 9\.80 11\.29 9\.97 Reserves/Deposits (r=R/D) 0\.17 0\.16 0\.16 0\.15 0\.15 0\.15 Currency /Deposits (c=C/D) 1\.10 1\.13 0\.99 0\.93 0\.90 0\.87 Money multiplier (m=[l+c]/[c+rl) 1\.66 1\.65 1\.73 1\.79 1\.81 1\.83 I-i\. o X  Table 6\. Grouping of operating STBs (second tire banks) by owner's equity At the end of the period Owner's equity within the limits of (mln\. tenge) Total Owner's equity, STBs mln\. tenge <5 5-20 20-80 80-130 130-500 500-1300 >1300 12\.95 45 24 25 21 11 3 1 130 10 292\.3 12\.95 share, % 34\.62 18\.46 19\.23 16\.15 8\.46 2\.31 0\.77 100\.00 share, % 12\.96 17 10 27 28 11 4 4 101 17 873\.5 12\.96 share, % 16\.83 9\.90 26\.73 27\.72 10\.89 3\.96 3\.96 100\.00 share, % 01\.97 18 7 27 30 11 4 4 101 20 553\.0 01\.97 02\.97 17 6 28 28 13 4 4 100 20 553\.0 02\.97 03\.97 16 7 27 27 11 4 5 97 22 195\.6 03\.97 04\.97 17 8 24 28 13 3 4 97 22 199\.3 04\.97 05\.97 16 9 24 28 11 2 6 96 23 023\.9 05\.97 06\.97 1 7 23 28 13 2 6 96 25 619\.5 06\.97 07\.97 21 5 22 29 14 3 4 98 24 983\.9 07\.97 08\.97 18 8 21 29 13 5 4 98 25 387\.2 08\.97 09\.97 14 7 17 27 16 3 6 90 26 355\.4 09\.97 10\.97 14 6 16 28 17 3 6 90 26 413\.2 10\.97 11\.97 12 5 18 28 18 3 6 90 26 726\.1 11\.97 12\.97 8 3 17 25 18 5 6 82 27 997\.2 12\.97 share, % 9\.76 3\.66 20\.73 30\.49 21\.95 6\.10 7\.32 100\.00 share, % 01\.98 7 4 14 24 16 5 6 76 27 506\.3 01\.98 share, % 9\.21 5\.26 18\.42 31\.58 21\.05 6\.58 7\.89 100\.00 _ _--share, % OQ ro t'h) -J  Table 2\. Kazakhstan: Medium-Term Balance of Payments, 1995-2003 Appendix C (million US dollars) Page 3 of 7 1995 1996 1997 1998 1999 2000 2001 2002 2003 Current -516 -752 -9 -I1,434 - 1,288 -1,306 -595 -574 -619 account Trade -222 -326 -384 -817 -666 -636 108 105 103 balance_ Exports (f\. 5,164 6,292 6,770 6,837 7,498 8,073 9,399 9,752 10,122 o\. b\.)I Non-oil 4,378 5,034 5,230 5,466 5,740 6,027 6,328 6,644 6,977 exports Oil exports 786 1,257 I1,540 1,371 1,758 2,046 3,071 3,108 3,145 Imports -5,387 -6,618 -7,154 -7,654 -8,164 -8,708 -9,291 -9,648 -10,018 (f\.o\.b\.) Non-oil -5,149 -6,304 -6,722 -7,273 -7,782 -8,327 -8,910 -9,266 -9,637 importsII Oil imports -237 -314 -382 -382 -382 -382 -382 -382 -382 Services -353 -475 -663 -668 -672 -721 -754 -730 -772 (net) Non-factor -208 -253 -336 -316 -352 -393 -414 -378 -408 services (net) Credit 535 675 853 812 867 927 991 1,060 1,135 Transport 352 432 494 518 544 572 600 630 662 Other 184 243 359 294 323 355 391 430 473 Debit -74 -92 -119 -,2 120 -2 -1,405 -1,438 Transport -2654 -357 -391 | -418 -439 | -461 -461 -400 -400 Other | -478 -571 -798 -709 -780 | -858 -944 -1,038 -1,142 Factor - 145 -222 -327 -352 -320 -328 -339 -351 -365 services (net)_ Interest I/ -65 -78 -92 | -163 -231 | -239 -250 -262 -276 Credit C 40 2 0 6 61 61 61 611 Internatio 33 19 49 60 60 60 60 60 60 nal reserves FSU debtors 7 10 1 2 | 2 | I 1 |Debt | -105 T -107 T -143 [ -225 -292 -301 IMF -17 _ -23 -25 -23 -18 -9 |Other | -88 | -84 -118 -202 | -275 -291 |Other factor | -80 | -144 | -234 | -189 -89 -89 -89 -89 -89 |services |Unrequited 59 50 75| 50 0 50 50 50 50 transfers | |Ca pital |1,1160 |1,374 1,617 1,600 1,433 account | |Medium 569 486 r 805 T 731 | 300 279 159 25 -23 |and long- | |term credits| Drawings 352 352 244 566 427 449 404 400 329 |on official | |loans Drawings | 265 | 143 | 332 | 150 | 204 | 191 175 71 56 |credits Bond issue 0 200 350 245 0 0 0 0 0 |(net) o/w 0 200 350 245 -200 0 0 -350 -245 |government I I I rroll-over | 0 0 0 | 0 200 0 0 350 245 |Amortiza -48 -210 | -121 | -230 | -331 | -360 -420 -447 -408 |tion 1/ I |o/w Other | 19 30 0 | 0 0 0 6 6 8 |FSU ol o/to -23 0 0 0 0 0 0 0 0 Other 0 434 -92 j 0 j ° j ° jo |banking  system Appendix C (NIR) _ Page 4 of 7 Portfolio 7 24 54 0 0 0 0 0 0 investment (net) _ Direct 964 1,137 1,269 1,269 1,333 1,366 1,366 1,366 1,366 investment (net) Capital -381 -316 -419 403 -200 -100 -50 0 0 transfers (Migrants- net) Errors and -488 -567 -155 0 0 0 0 0 0 omissions (net) Overall 156 55 490 65 - 145 239 879 816 724 balance Financing -156 -55 -490 -65 -145 -239 -879 -816 -724 NIR of the -375 -228 -490 -65 -145 -239 -879 -816 -724 NBK (increase) Foreign -232 -55 -490 -65 -145 -239 -879 -816 -724 Exchange Assets (net) olw Fund 142 135 -7 -95 -175 -132 -52 -28 -28 Credit (net) Purchases 142 135 0 0 0 0 0 0 0 SBA 142 135 0 0 0 0 0 0 0 EFF 0 0 0 0 0 0 0 0 0 Repurcha 0 0 -7 -95 -175 -132 -52 -28 -28 ses Exceptional 219 0 0 0 0 0 0 0 0 financing I I Arrears I 0 0 0 0 0 0 0 0 reduction Inter- 0 0 0 0 0 0 0 0 0 enterprise arrears (net) Debt relief 217 0 0 0 0 0 0 0 0 from Russia Memoran dum GDP in US$ 16,588 20,810 22,514 24,707 26,313 27,760 29,987 30,898 32,597 CA to GDP -3\.1% -3\.6% -4\.3% -5\.8% -4\.9% -4\.7% -2\.0% -1\.9% -1\.9% NBK Gross 1,980 2,252 2,222 2,367 \.2,606 3,485 4,301 5,025 Internation al Reserves In months 3\.1 3\.2 3\.0 3\.0 3\.1 3\.9 4\.7 5\.2 of imports of G&NFS  Table 3: Kazakhstan: External Financing Requirements Appendix C (in millions of US dollars) AgendixfC 1997 1998 Page 5 of 7 QI Q2 Q3 Q4 year QI Q2 Q3 Q4 year (proj) (proj) TOTAL FINAN 213 377 632 760 1,982 155 358 647 661 1,821 CING REQUIREMENT _ ___ External Current Account deficit (excluding transfers) - 368 417 379 1,047 203 205 654 423 1,485 116 _____ Amortization payments 51 51 37 59 198 38 103 44 85 270 Errors and omissions 302 -210 5 58 155 0 0 0 0 0 Change in International -23 168 174 264 582 -87 50 -51 153 65 Reserves of Banking system (+increase) _ __ COMMITED FINANCING 181 411 572 414 1,578 69 242 381 227 920 Transfers (net) -52 -101 -112 -79 -344 -39 -75 -85 - -350 151 Official loans 30 66 115 110 322 0 Multilaterals 12 66 107 101 287 1 0 World Bank 4 10 98 88 200 0 EBRD 6 0 5 6 18 0 ADB 2 56 3 7 69 0 Bilateral 18 0 5 4 26 - 0 Foreign commercial banks and 0 0 4 5 9 firms Drawings on trade credits 88 109 71 64 332 0 Direct investment 115 338 498 319 1,269 108 317 466 378 1,269 IMF Purchases 0 0 0 0 0 0 0 0 0 0 UNCOMMITED FINANCING 32 -34 61 346 404 86 117 266 434 902 Multilateral 0 0 0 0 0 81 38 243 38 401 World Bank 0 0 0 0 0 16 27 199 10 251 PSRMAL 0 0 0 0 0 0 0 75 0 75 Pension Reform Loan 0 0 0 0 0 0 0 100 0 100 project loans 0 0 0 0 0 16 27 24 10 76 EBRD 0 0 0 0 0 5 1 9 10 26 ADB 0 0 0 0 0 60 10 28 6 104 Other 0 0 0 0 0 0 0 8 12 20 Bilaterals 0 0 0 0 0 4 9 17 100 129 JEXIM (III) 0 0 0 0 0 0 0 0 0 0 Japan (OECF) 0 0 0 0 0 4 3 13 94 115 France 0 0 0 0 0 0 6 3 2 10 Germany (KFW) 0 0 0 0 0 0 0 0 4 4 Foreign Commercial Banks 0 0 0 0 0 13 32 18 13 76 Drawings on trade credits 0 0 0 0 0 38 38 38 38 150 Bond issue 0 0 0 350 350 0 0 0 245 245 Portfolio investment 32 -34 61 -4 54 -50 0 -50 0 -100 EXTERNAL FINANCING 0 0 0 0 -1 0 0 0 0 -1 GAP  Table 4\. Monetary review of banking system Appendix C mln\. tenge Page 6 of 7 12\.94 12\.95 12\.96 12\.97 01\.98 Net external assets -533\.6 76568\.1 113454\.0 134191\.1 120806\.9 Net international reserves -1022\.0 76213\.7 113086\.6 131610\.4 119487\.6 Gross international assets 79988\.0 132963\.0 162682\.7 186477\.9 176175\.5 Monetary gold 20509\.2 33529\.6 48858\.1 39577\.6 41781\.1 Cash in convertible currency (CC) 1460\.8 2548\.5 3721\.6 3489\.4 7277\.0 Deposits in CC 58018\.0 96884\.8 110102\.9 63840\.5 49232\.3 Credits in CC \. \. \. 4307\.3 4326\.5 Securities (excluding shares), CC \. \. \. 75142\.0 73397\.5 Other external assets, CC \. \. \. 121\.1 161\.1 Less: Liabilities, CC 81010\.0 56749\.3 49596\.1 54867\.5 56687\.9 Short-term liabilities 39619\.7 39733\.9 45641\.9 48652\.0 49301\.4 Mid- and long-term liabilities 41390\.4 17015\.4 3954\.1 6215\.5 7386\.5 Other net external assets 488\.4 354\.5 367\.3 2580\.7 1319\.3 Gross assets, 909\.4 1098\.3 1114\.8 4545\.1 2687\.3 Less: External liabilities, 421\.0 743\.9 747\.4 1964\.4 1368\.0 Net internal assets 55950\.7 39226\.6 21537\.3 43250\.1 34416\.4 Net claims to the Government 10831\.4 24514\.1 20851\.1 35448\.5 22575\.2 Claims 20662\.6 44571\.1 43108\.5 62305\.8 58894 Credits 17746\.1 39104\.4 34743\.7 41479\.2 3847\.8 Securities 75\.9 5395\.5 8364\.8 20826\.6 55046\.8 Others 2840\.6 71\.2 0\.0 0\.0 0\.0 Less: liabilities 9831\.2 20056\.9 22257\.4 26857\.3 36319\.4 Deposits \. \. \. 26684\.7 36140\.6 Others \. - \. \. 172\.5 178\.8 Claims to the rest of economy 112507\.1 72652\.6 64627\.7 79227\.1 82094\.2 non-financial organizations 98504\.9 61096\.6 51404\.7 72995\.3 75678\.6 Credits \. \. \. 68142\.1 70792\.2 Securities \. \. \. 1449\.8 1526\.8 Others \. \. \. 3403\.4 3359\.6 non-banking financial \. \. \. 1383\.1 1406\.0 organizations Credits \. \. \. 98\.1 129\.7 Securities \. \. \. 23\.8 23\.6 Others \. \. \. 1261\.2 1252\.8 Non-commercial institutions \. \. \. 270\.9 265\.8 servicing households Credits \. \. \. 270\.7 265\.2 Others \. \. \. 0\.2 0\.5 Households 14002\.2 11556\.0 13223\.0 4577\.8 4743\.8 Credits \. \. \. 4321\.6 4420\.9 Others \. \. \. 256\.2 323\.0 Other net internal assets -6738Z8 -57940\.1 -63941\.5 -71425\.5 -70253\.0 Other financial assets \. \. \. 4550\.1 6156\.4 Non-financial assets \. \. \. 15976\.1 15537\.1 Other assets \. \. \. 35948\.7 26820\.7 Less: assets accounts \. \. \. -70970\.5 -71710\.5 Less: other liabilities \. \. \. -56929\.9 -47056\.7 Liabilities (cash ) 55417\.1 115794\.7 134991\.2 177441\.3 155223\.3 Cash in circulation 20255\.3 47998\.2 62812\.3 92799\.7 82210\.5 Deposits of non-financial 29042\.8 52605\.0 51235\.2 54682\.4 42212\.4 organizations Deposits of non-banking financial \. \. \. 1160\.2 979\.7 organizations Deposits of non-commercial 747\.6 2443\.3 1580\.2 1634\.4 2204\.5 institutions servicing households Households deposits 5371\.3 12748\.3 19363\.5 27164\.6 27616\.2  Appendix C Table 5\. Classification of Assets and Contingent Liabilities of Second Tier Banks Page 7 of 7 (million tenge as of the end of the period) January 1998 Principal amount of Accrued Actual provisions debt remuneration (interest) amount share, % amount share, amoun share, % t % Total assets and contingent 111643\.4* 100\.0 3007\.4 100\.0 10170\. 100\.0 liabilities of SLBs, 1 including: 1\. Standard 83240\.4 74\.6 1452\.3 48\.3 - - 2\. Doubtful 21173\.0 18\.9 1233\.2 41\.0 2963\.5 29\.1 - substandard 15753\.7 74\.4 621\.3 50\.4 1035\.2 34\.9 - unsatisfactory 3873\.8 18\.3 293\.8 23\.8 1163\.3 39\.3 - doubtful with enhanced risk 1545\.5 7\.3 318\.1 25\.8 765\.0 25\.8 3\. Hopeless 7230\.0 6\.5 321\.9 10\.7 7206\.6 70\.9 Loans from the total amount of 78635\.5* 70\.4 2993\.0 99\.5 7294\.6 71\.7 assets, including: 1\. Standard 54263\.0 69\.0 1438\.0 48\.0 - - 2\. Doubtful 19546\.9 24\.9 1233\.1 41\.2 2492\.6 34\.2 - substandard 14617\.0 74\.8 621\.3 50\.4 958\.8 38\.5 - unsatisfactory 3542\.4 18\.1 293\.8 23\.8 850\.8 34\.1 - doubtful with enhanced risk 1387\.5 7\.1 321\.9 25\.8 683\.0 27\.4 3\. Hopeless 4825\.6 6\.1 60\.0 10\.8 4802\.0 65\.8 Contingent liabilities, 12215\.3 10\.9 60\.0 2\.0 1661\.2 16\.3 including: _ 1\. Standard 9771\.9 80\.0 - - - - 2\. Doubtful 819\.9 6\.7 60\.0 100\.0 55\.8 3\.4 - substandard 719\.8 87\.8 55\.0 91\.7 35\.8 64\.2 - unsatisfactory 100\.1 12\.2 5\.0 8\.3 20\.0 35\.8 - doubtful with enhanced risk 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 3\. Hopeless 1623\.5 13\.3 0\.0 0\.0 1605\.4 96\.6 * non-classified assets of Rehabilitation Bank and Eximbank are not included\.  IBRD 29326 50' 60' BO-' 00' T\. Ch\.fyabins T u c k~ T\. T mt Nsbrt\.mYld obcuhOyvilZ R U S S I A N r -' 4 T F~~~~U EI D IE R r4A \.@TA I 0 N ToHamu To To Somora Ksi- \ _ Xh~~~~~~~~~~ ~ ~~~~~~~~~~ATh\.uT T\. il--l f WFoSr \ 5 '\^- : k X ~~~~~~~~~~~~~~~~~~~~~~~~~~P A V LO DOA R SEN\._,OCLI 50' i: KAZAKHSTAN\} Sen, 4\. - Ak\.y4 ARGHAo-o / EAI E ;ts o \. w K ' 0 5 NK T A B11 A E\ I ) \ \.K A Z A K S T A N T O \~~~~~C\. N DAYR K EMEN\*\. aAc KAEAKHSTAN AKTOBE / Z Beint ~~~~~~~~~~~~~~~~~~~,k\. TldykognV T\.i I i SD -K H A E T ,\. _ , _ | ~ ' ' ~ \. _ ' ' \. T_-__ IA DA i U z B E k 1 k 5 g hA I LR O A D S T-1- ~ ~ 6 /I /\. j*\ '<\\>\\X\ >, Dzhe2aS <, _ g _, _, _,_,- , 1,%, _ ® T NATIONAL CAPITAL \., _, J < W _ J ~~T UR KM E NI ST AN : , 1 \. \. "s -; |- INTERNATIONAL BOUNDARIRS ISLAMIC REPUBLIC KYZY LOR D A' / 0 100 20 300 400 500 600CLOMEOERS O F IRAN G Y- 0 100 200 300 i00 601N5 00' \. i ~~~~~~~~~~AAFGHANSTAN" 70 - UZBEKISTAN__ __ _ __ __ _ __ __ _ __ _ KAZAKHSTAN~~~~~~~AY99

REVIEW

P118188

 ICRR 13889 Report Number : ICRR13889 IEG ICR Review Independent Evaluation Group 1\. Project Data : Date Posted : 12/09/2013 Country : Ghana Is this Review for a Programmatic Series? Yes No How many operations were planned for the 3 series? How many were approved? 3 Series ID : S118188 First Project ID : P102971 Appraisal Actual Project Name : Natural Resources US$M ): Project Costs (US$M): 20 20 And Environmental Governance Project L/C Number : C4426 Loan/ Loan US$M): /Credit (US$M ): 20 20 Sector Board : Environment US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 06/03/2008 Closing Date : 06/30/2009 06/30/2009 Sector (s): Forestry (29%); Mining and other extractive (29%); Other social services (14%); General transportation sector (14%); General energy sector (14%) Theme (s): Environmental policies and institutions (67% - P); Other environment and natural resources management (33% - S) Second Project ID :P113172 Appraisal Actual Project Name : Ghana Natural Project Costs (US$M): US$M ): 10 10 Resource And Environmental Governance - Dpo L/C Number : C4627 Loan/ Loan US$M): /Credit (US$M ): 10 10 Sector Board : Environment US$M ): Cofinancing (US$M): Board Approval Date : 06/30/2009 Cofinancers : Closing Date : 06/30/2010 06/30/2010 Sector (s): Forestry (33%), Mining and other extractive (33%), General agriculture fishing and forestry sector (17%), Other industry (17%) Theme (s): Environmental policies and institutions (36% - P), Climate change (18%), Biodiversity (18% - S), Rural policies and institutions (18%), Other rural development (10%) Third Project ID :P118188 Appraisal Actual Project Name : Ghana Natural Project Costs (US$M): US$M ): 10 10 Resource And Environmental Governance - Dpo L/C Number : Loan/ Loan US$M): /Credit (US$M ): 10 10 Sector Board : Environment US$M ): Cofinancing (US$M): Board Approval Date : 06/03/2010 Cofinancers : Closing Date : 06/30/2011 06/30/2011 Sector (s): Forestry (40%), Mining and other extractive (40%), Oil and gas (20%) Theme (s): Environmental policies and institutions (54%), Biodiversity (18%), Rural policies and institutions (18%), Land administration and management (10%) Evaluator : Panel Reviewer : ICR Review Group :  Coordinator : Stephen Hutton Peter Nigel Freeman Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: The objectives of the programmatic series of development policy operations as listed in the original 2008 Program Document (page 8) were to: a) Ensure predictable and sustainable financing for the forest and wildlife sectors and effective forest law enforcement; b) improve mining sector revenue collection, management, and transparency; c) address social issues in forest and mining communities, and d) mainstream environment into economic growth through Strategic Environmental Assessment (SEA), Environmental Impact Assessment (EIA), and development of a climate change strategy \. These objectives were identical to those restated in the 2009 and 2010 Program Documents (page 1 in both documents)\. There were changes in PDO indicators during the preparation of the second project, but no change in the overall program objectives \. The 2008 Program Document also noted The specific development objectives of the program are to enact reform measures conducive to (a) improving management of government revenues and finances in the forestry and mining sectors; (b) securing livelihoods in these sectors; and (c) simultaneously improving environmental protection in these sectors and in the other sectors supporting growth in Ghana \. (page 27) This language does not appear in the 2009 or 2010 program documents, and these documents do not include statements of objectives other than the program objective described above \. The financing agreements do not contain a clear statement of objectives, though they contain hints at broader objectives: “Programâ€? means the Recipient’s program of actions, objectives and policies designed to promote sustainable growth and poverty reduction through improved natural resource management and environmental governance \. (Financing Agreement 2008 page 9, Financing Agreement 2009 page 9, Financing Agreement 2010 page 9)\. This evaluation evaluates against the first set of objectives above, which are more concrete and appear throughout the program documentation \. The three projects in the program represent a concerted effort across policy areas with minimal changes over a three year period, so this review assesses the program as a whole without distinguishing between the individual operations, as it would not be meaningful to do so \. b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: The DPO program supported activities in three main policy areas : Forest and Wildlife: The program would support: effective law enforcement to curb illegal logging including review, drafting, consultation, and implementation of new forest and wildlife laws and regulations, and including support for systems to verify the legality of exported and domestic timber through a voluntary partnership agreement with the European Union; predictable and sustainable financing of the forest sector to enable the forestry commission to regulate and manage the forest sector, through development of a financial framework; equitable socio-economic benefits for all segments of society from forest resource management by reviewing and implementing benefit sharing schemes in forest districts and improving collaborative forest management; sustainable finance of investment in the forestry sector by encouraging value -added processing and establishing land lease and benefit sharing agreements with investors; reduced degradation of natural ecosystems by reducing wildfires and demarcating protected areas, and by establishing integrated management plans for forest reserves; improved information management and M&E capability of the sector \.  Mining: The program would support: improved information availability of mining sector information and improved information management and M&E capacity in agencies; institutional strengthening of mining sector agencies through human resources development; addressing social conflict issues in mining communities including equitable distribution of mining revenues and impacts of mining, through stakeholder consultation and improvements to mine closure and post-closure process policy; improved support for small-scale mining through exploration and establishment of mining cooperatives; improved mining sector revenue collection, management and transparency, through establishment and implementation of multi-agency mining revenue task force, and auditing of mines; enhanced regulatory framework and coordination among mining sector agencies, including revision of mining sector regulations; enhanced regional and international cooperation through registration of small scale diamond miners \. Environmental protection: The program would support: improved cross-sectoral environmental management through creation of inter -ministerial forum, capacity building on environmental analysis, drafting a sustainable development action plan, development of a climate change strategy, and creation and implementation of a sustainable land management roadmap; application of strategic environmental assessment in sectoral and district policies; improved environmental impact assessment processes and compliance through decentralization, new sector guidelines, and capacity building; decentralization of environmental management through establishment of district level plans \. secure funding for environmental protection agency through budget allocations and implementation of levies and fee system; strategic planning for environmental protection agency; improved environmental monitoring and dissemination of environmental data; strengthened partnership and participation in environmental management through stakeholder consultations and CSO training\. During implementation, a decision was made to drop preparation of a national climate change adaptation strategy in favor of a comprehensive national climate change framework \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The program consisted of the First, Second and Third Natural Resources and Environmental Governance Development Policy Operations, financed by IDA credits of SDR 12\.5 million (USD$20 million), SDR 6\.8 million (USD$10 million) and SDR 6\.6 million (USD$ 10 million) respectively for a total of roughly $USD 40 million\. The credits were all fully disbursed, and the program closed on time on June 30 2011\. While the specific program did not receive formal cofinancing, there were parallel budget support efforts from Agence Francaise de Developpement, the UK's Department for International Development, the European Commission, and the Royal Netherlands Embassy in Ghana \. These commitments were to total roughly $ 11 million in the first year and $16 million in each of the following following years, totalling $ 43 million over the 3 year period of the Bank's DPO\. The ICR does not identify whether or not these commitments were fully disbursed\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Forestry, wildlife and mining are key sectors in the Ghanaian economy, accounting at appraisal for 15 percent of GDP, 25 percent of government revenues, 60 percent of foreign exchange, and significant employment (120,000 in the formal forestry sector, and an estimated 50,000 in the informal chainsaw industry; 15,000 in the large-scale and medium-scale mining sector, and up to 500,000 in small-scale mining)\. The absence of effective regulatory management has contributed to resource depletion, with 50 percent of forest cover having been converted to agriculture, serious declines in forest product production and biodiversity (due in part to over-extraction), and a lack of government capture of revenues from forestry and mining \. Environmental degradation has had an impact on health, quality of life, and productivity, primarily through air and water pollution\. The broad objectives of improving natural resource management and environmental governance were relevant to the FY08-11 Country Assistance Strategy (CAS) for Ghana\. Managing natural resources in a sustainable and  transparent way was a strategic priority in the strategy's pillar on Private Sector Competitiveness, which specifically identified the need to build the capacity of regulatory agencies, to regularize informal sectors, to improve budget formulation and execution as well as public financial management, to strengthen oversight capacity, and to enhance coordination mechanisms among regulatory agencies \. The strategy identified sustainable natural resource management as critical to long term growth, and identifies specific environmental problems, noting that forestry and wildlife depletion are costing Ghana 4% of GDP and water and air pollution a further 4%\. The Country Assistance strategy also emphasized fisheries and sound environmental management of the oil and gas sectors, but a decision was made to avoid making the DPO too complex by attempting to cover these sectors as well as forestry, mining, and environmental management \. However, the actual objectives used in the program were inputs, outputs or at most intermediate outcomes, rather than final outcomes, which reduced their relevance \. Desirable final outcomes consistent with the CAS might have included reducing deforestation rates, reducing illegal logging rates, reducing the environmental and health impacts of mining, increasing the share of forestry revenues going to forest communities, reducing poverty or social conflict in forestry and mining communities, reducing air and water pollution, or increasing resilience to climate change\. [By comparison, the preceding Natural Resource Management Project in Ghana had objectives to "protect, rehabilitate and sustainably manage national land, forest and wildlife resources and to sustainably increase the income of rural communities who own these resources "\.] While some of the program objectives might plausibly lead to desirable final outcomes, they are not sufficient to achieve those final outcomes (for example: increased financing for the forest sector does not necessarily improve forest management)\. This selection of the objectives was likely driven by an awareness of the difficulty of achieving and demonstrating progress on final outcomes by the end of a 3 year policy program, when many policies would not even be fully introduced until the third year \. But this left the program with objectives that were unambitious and that did not map directly to the underlying problems \. The ICR notes (page 19) that the objectives could have been more focused on tackling informal forestry and mining activities \. Some objectives ("address social issues in forest and mining communities ") were vague and difficult to evaluate \. Relevance of objectives is rated Modest\. b\. Relevance of Design: The policy areas supported under the program would contribute towards achieving the project objectives \. A financial framework for the forestry commission would contribute to ensuring predictable and sustainable financing for the forestry and wildlife sectors \. New forest laws and regulations could contribute to effective forest law enforcement, though the main focus of the program was on increasing the supply of legal timber on the domestic market rather than law enforcement issues \. A mining revenue task force and audits of large mines could improve mining sector revenue, and improved information availability and mining agency capacity could improve mining management and transparency \. Improved stakeholder consultation and transparency could help to address social issues in forest and mining communities \. Strategic planning and secure funding for the environmental protection agency, and application of strategic environmental assessments and environmental impact assessments could help to mainstream environmental issues into key economic sectors \. The ICR notes (page 12) that much of the design followed from recommendations from a Country Environmental Analysis report\. It is not clear whether the design was sufficient to achieve the broader environmental and natural resource management problems identified in the Country Assistance Strategy and the Program Document \. The design did little to engage with the informal chainsaw forestry sector which contributes significantly to deforestation and provides timber for domestic supply (and so is not affected by export certification )\. It did not address land tenure, despite lack of clarity in land and cutting rights being an important contributor to illegal forestry, and so would arguably struggle to have much impact on the illegal forestry sector \. It included relatively little to engage with small scale mining, which has serious environmental and health consequences, other than some expansion of the sector through surveys \. However, many of these issues were not covered by the program's objectives and so are not related to the ability of the ability of the project design to achieve those objectives \. But the design included little direct engagement with addressing social issues in forest communities \. The activities on forestry communities were aimed at informing forest communities of forest royalties rather than reducing poverty or increasing incomes from forests \. Relevance of design is rated Substantial \. 4\. Achievement of Objectives (Efficacy): The Bank's $40 million of financing was joined by parallel sector budget support of roughly $ 43 from other donors, so it is not possible to fully attribute outcomes to the Bank financing \. However, it is plausible that the Bank's involvement and financing was an important element in attracting other donors, and so the sectoral achievements might not have occurred in the absence of the Bank \. The ICR contained little measurable evidence on outcomes, as the results framework and indicators were largely focused on generation of outputs \. However, some progress to achievement of the objectives was reflected in generation of the following outputs \. Objective 1: Ensure predictable and sustainable financing for the forest and wildlife sectors and effective forest law enforcement : Substantial A voluntary partnership agreement between the government and the EU under the Forest Law Enforcement, Governance and Trade (FLEGT) mechanism on defining legal timber exports was negotiated and ratified \. A financial framework for the Forest Commission was devised and implemented, and procedures for improving transparency of disbursement of forestry revenue were established \. Forest sector revenues increased by 30% from 2006 to 2008 (which was largely before the DPO commenced ), but decreased by 50% by 2009, and decreased further in 2010\. The ICR notes (page 8) that this is likely due mainly to cutting cycles and the general decline in production of valuable timber, rather than to poor revenue collection \. The ICR notes that revenue collection performance has risen to 95% (page 7), but does not provide a baseline level \. According to additional information provided by the Region, the baseline revenue collection performance was 65% and so this represents substantial progress \. Plantation forest area increased by 19% from 2007-2009 (largely before the DPO commenced), but private sector investment constituted only one third of the total and government investment the remainder (the target had been to increase plantation forest 15% through private investment)\. No evidence was provided on plantation investment following 2009\. Also: A Timber Verification department was established within the forestry commission for issuing FLEGT export licenses\. No licenses for export had been issued as of project closure (against a target of 1 license), though the ICR reports that the first license was expected shortly based on completion of the tracking system\. A baseline study on the percentage of domestic timber consumption coming from legal sources was carried out, with the legal % estimated at 16%\. Proposals for increasing the domestic supply of timber were considered but not implemented\. The ICR did not contain evidence on whether the proportion of legal timber increased during the projects \. The forestry commission improved its budgetary and planning processes \. Rapid response teams were established to combat "hot spots" of illegal logging, the forestry commission was assigned the power to prosecute forest offenses, and 49 prosecutors were trained\. Fundamental reforms to timber fees were blocked by industry lobbying \. A pilot program for tracking wood to verify the origin of timber was set up and implemented with four companies\. A new forest and wildlife policy was approved \. Wildlife park visitor fees were increased, but this is a very small proportion of forest revenues \. Timber export levies were decreased from 3% to 1\.5% following timber company complaints that the revenues were not being reinvested in the industry \. District revenues for forestry royalties were published but dissemination is weak \. Objective 2: Improve mining sector revenue collection, management, and transparency : Substantial A mining revenue task force was established and an action plan for the task force was created and implemented\. Fiscal models of mines were created, and audits were carried out at three mines \. The Task Force concluded that the fiscal regime did not excessively favor investors, but revealed some specific gaps in revenue collections and made proposals for improving revenue, which are being implemented \. A flat 5% royalty replaced a former sliding scale royalty rate based on mine profits, for easier administration \. The ICR implies (page 8-9) that revenue from mining was increased, but does not contain quantitative data on mining sector revenues\. Additional evidence provided by the Region showed that Internally Generated Funds increased from GHc 3\.7 million in 2007 to GHc 13\.9 million in 2011, due partly to a 56% increase in legal gold production and increased revenue capture \. The minerals commission improved its budgetary and planning processes\. Extractive Industry Transparency Initiative reporting of mining royalty payments was expanded to include  sub-national transfers, though payments to traditional authorities was not published, and dissemination of information is weak\. Objective 3: Address social issues in forest and mining communities : Modest The ICR noted (page 8) that M&E systems were not sufficient to assess the impact of social responsibility guidelines or other conflict-resolution measures\. The number of district level Forest Fora for local consultation were expanded, and District Mining committees were piloted as a platform for increasing local consultation in two districts \. Outreach with civil society groups increased through annual environmental summits and other mechanisms \. Non-binding guidelines on social responsibility for mining companies and mining communities were prepared and issued, and the ICR reports (page 8) that they were assessed to be of high quality \. A tool for tracking social conflict in mining communities was developed and piloted in three areas \. 60 candidate sites for small scale mining expansion were identified, and surveys carried out at 7 sites, but no sites were formally designated \. Since project closure a formalization pilot has been started at one site \. Planned small scale mining cooperatives were not established \. Objective 4: Mainstream environment into economic growth through SEA, EIA, and development of a climate change strategy : Substantial Strategic environmental assessments were completed in the energy, transport, and tourism sectors and a draft was produced for the oil sector \. However, these were issued ex -post and so had limited direct policy impact \. Environmental impact assessments were processed within the proscribed timeframe in at least 60% of cases (though no baseline data was available for comparison )\. The Borrower's comments to the ICR (page 35) note that there was an improvement in the time taken to process environmental impact assessments and that progress was made in decentralizing this \. Also: Basic strategic environmental assessments were introduced into routine local government planning \. Guidelines for environmental management in the oil sector were issued \. Preparation of a law on strategic environmental assessments was begun but not completed \. A national climate change framework was developed, as were a number of other overview and background reports\. Work on an investment plan for specific sectors was commenced but a comprehensive plan was not completed\. Additional evidence provided by the Region reported that a National Climate Change Policy was approved in 2013\. The ICR reports than an online environmental impact assessment system improved performance and monitoring\. 5\. Efficiency (not applicable to DPLs): 6\. Outcome: The project objectives were largely framed as outputs and intermediate outcomes rather than final outcomes, and so were unambitious in scope \. Consequently the Relevance of Objectives is rated Modest \. The policy areas included would contribute to achieving the objectives and the Relevance of Design is rated Substantial, though the design did relatively little to engage in the informal forestry and mining sectors \. The ICR contained little evidence on outcomes, so it was difficult to assess the impact of the project on outcomes, but additional information was provided by the Region \. There was a significant increase in the forestry commission's revenue collection under the program, so the achievement of the forestry objective is rated Modest \. The mining revenue task force appears to have been successful and there were significant transparency improvements in royalty payment transparency through the EITI, so achievement of the mining objective is rated Substantial \. There is no clear evidence that social issues in forest and mining communities were improved, so achievement of that objective is rated Modest\. Significant progress was made on production of strategic environmental assessments, environmental impact assessments, and climate change strategy documents, so achievement of this objective is rated Substantial \. Overall these lead to an outcome rating of Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory  7\. Rationale for Risk to Development Outcome Rating: The ICR reports that government commitment the program is strong and that as most reforms are largely incremental that there is little risk that the achievements will be reversed \. The use of the DPO instrument meant that government ownership of the reforms is high, and likely to be sustained \. The appointment of a Natural Resources Director in the finance ministry demonstrates continued engagement on these issues \. Additional evidence provided by the Region suggests that commitment in these policy areas has continued since project closure \. However, there is more risk in policy areas that are more controversial, including work on increasing the domestic supply of legal timber and managing social conflict in the mining sector \. Lobbying efforts from the forestry industry have blocked major reforms\. There is resistance from traditional authorities to increasing resource royalties at the local level\. Budget support from other development partners was to continue until 2013, allowing continuation of policy reforms \. At the time of project closure and the ICR, there was expected to be a second phase of support for the program, with another programmatic DPO series\. As of 2013 there has been no followup DPO, but a Natural Resources and Environmental Governance Technical Assistance project was approved in June 2013\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The program was founded on a considerable analytical base, including a 2007 Country Environmental Analysis and other economic and sector work, though some recommendations from the Analysis were not included in the program (competitive bidding for timber and wildlife concessions, active community -based natural resource management)\. Institutional analysis including budget and financial management was undertaken using a recipient-executed trust fund grant, but delivery of the work was delayed and could not be completed by the time the program became effective, and 40% of the grant was not disbursed \. The choice of a budget support instrument rather than investment lending seems to be justified \. The Bank had previously tried to improve natural resource management in Ghana through investment lending - the Natural Resources Management Project - but this had been unsuccessful and the envisaged 10 year program was halted after 2 years because the project was considered to be overly complex and because policy and governance gaps limited the effectiveness of project investments \. The government was committed to improving management of natural resource sectors, and development partners were present and supportive of using sector budget support instruments\. The program was prepared in the context of strong macroeconomic performance; this performance worsened during the program because of the global economic downturn, but remained acceptable \. However, there were a number of problems with the way in which the instrument was used in practice \. The ICR notes (page 13) that many of the activities included were technical rather than policy related, and arguably could have been supported through technical assistance rather than budget support \. Other activities that were sector priorities but were more investment related were not covered by the program \. There were a number of weaknesses with the program framework (see section 10a below)\. As initially the Bank's planned contribution had been expected to be small relative to other development partners, a decision was made not to construct a separate policy matrix for the Bank's operation, but to use a shared framework with other development partners\. The ICR notes (page 14) that a clearer distinction between the Bank's DPO and sector budget support from other donors would have helped to sharpened the focus on key policy results \. It also notes that the harmonization significantly to the burden of coordination, and that though there was an informal division of labor between development partners in supervision support, that this division did not function well in practice \. The Bank and each other partner were still accountable for results across all sectors and this led to duplication \. The need to negotiate any changes in the program across 5 development partners and the government also limited the agility of the program\. The ICR's summary of borrower comments (page 34) notes that the government did not feel that there was sufficient harmonization, and that this led to heavy transaction costs and parallel discussions with multiple donors on the same topics \. Development of a complementary technical assistance program based on a comprehensive needs assessment was discussed during appraisal but was not formalized in the design, and consequently a systematic approach to technical assistance did not occur \. The ICR notes (page 16) that the design a number of key risks, but did not include risks associated with weak implementation capacity\. An additional complication in design was that the Bank DPO was devised as a three year program while the budget support from other development partners was for 5 years\. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: There is little evidence that the Bank had a positive impact on program implementation \. The use of a programmatic DPO where each project lasted for a single year added significantly to the documentation and processing burden for the Bank team, who spent much of their time preparing the second and third operations, which may have hampered the ability of the Bank to provide effective supervision on technical and strategic issues\. The ICR notes that during implementation, the Bank was seen as difficult to deal with due to the annual processing requirements\. Some efforts were made to improve the design and M&E system, but there was significant resistance by government and development partners to changing the program framework, and so the Bank team prioritized adherence to the original design and processing the second and third operations, rather than pushing hard for significant changes\. Under the informal separation of responsibilities across donors, the Bank was not directly involved in monitoring and evaluation, other than through its efforts to simplify the program framework \. In 2009 the Bank worked to establish an independent monitoring and advisory team to try to reduce the burden of reporting, but this effort was not welcomed by the implementing agencies and the mechanism was not repeated for the 2010 project\. The informal division of labor across development partners led to a perception that the Bank was neglecting some aspects of the program (such as civil society issues ) that had been agreed would be carried out by other partners\. The ICR notes (page 25) that the documentation of the program was sparse, focusing on processing requirements rather than technical and policy discussions \. Quality of Supervision Rating : Moderately Unsatisfactory Overall Bank Performance Rating : Moderately Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The ICR reports (page 10) that ownership of and engagement with the program by the finance ministry and the mining, forestry and environment agencies have been strong \. However, the ICR also notes (page 11) that the program would have benefited had more capacity been made available to meet coordination, M&E and reporting requirements, and from greater engagement by senior government decisionmakers on contentious issues \. Strong engagement at a technical level was not always matched at the senior policy level, which limited progress on contentious issues (page 26)\. A change in government in autumn 2008 caused some delays in policy dialog and coordination but did not disrupt the broad policy content of the program \. Based on these observations IEG contends that government performance was satisfactory with moderate shortcomings\. According to the World Bank Civil Society Monitoring Program that reviewed NREG in 2010, there has been an improvement in government efforts to engage with civil society, although there remain some deficiencies\. Furthermore, the Multi-Agency Minerals Revenues Task Force has worked effectively and the Cabinet has understood the need for a comprehensive national climate change framework \. Government Performance Rating : Moderately Satisfactory  b\. Implementing Agency Performance: With the Ministry of Finance and Economic Planning providing oversight and coordination, the policy areas were implemented under the institutional mandate of the Forestry Commission, the Minerals Commission, and the Environmental Protection Agency \. Most program triggers were met and most products were produced \. But development partners felt that agencies were more focused on delivery of outputs rather than policy support or achieving broader sector goals \. The implementing agencies struggled with absorptive capacity, and did not always put in place sufficient staff and technical support to absorb the additional funding or carry out all programmed activities\. Program coordinators had numerous other duties and were not always able to provide sufficient attention to the program \. Some disruptions occurred due to the institutional transition from the environmental protection agency to the newly formed Ministry of Environment, Science and Technology \. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: There were a number of weaknesses in the design of the M&E system and the design of the program framework \. The framework would have benefited from a clearer distinction between program triggers (outputs with formal verification used for processing subsequent operations ) and outcome indicators (used to track achievements of the program)\. As it was, there were too many indicators (roughly 60 targets were identified in the matrix, on which progress was to be reported on each year ) and these focused too much on recording completion of outputs rather than tracking intermediate or final outcomes \. The program indicators selected did not always focus on the key results\. The ICR notes (page 16) that an overly extensive program framework was substituted for under -developed sector planning systems\. b\. M&E Implementation: During preparation of the second DPO, the number of policy objectives was reduced from 24 to 16 and the number of targets was reduced from more than 60 to roughly 40\. Efforts were made to tighten indicators to make them more precise and measurable, but despite this the indicators still focused on production of outputs and provided weak evidence on which to assess the program's impacts \. The results chain by which the project would achieve outcomes was not always clear, and so there were difficulties in attributing changes in outcomes to the program \. The multi-donor approach hindered the ability to revise the results framework \. The government agencies reported on the targeted indicators, though output -oriented nature of targets led to disagreements between the government and development partners over the acceptable level of quality (ICR page 16, 34)\. Because of the government's and development partners' focus on a 5 year program rather than 3 years, there was no systematic attempt to report against indicators after the Bank program closed \. c\. M&E Utilization: M&E was used for reporting purposes and as the basis for disbursement by the Bank and other development partners, rather than for program management \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: As a DPO, the program was not subject to the Bank's formal operational policies on safeguards \. The projects were involved in sectors with serious social and environmental impacts \. The Bank did not monitor environmental or social aspects of the program \. The program aimed to improve social issues in mining and forestry communities, but there is not much evidence on the extent to which this was achieved \. Discussions  with NGOs and CSOs were improved and there were some gains in transparency, but it is unclear to what extent there were impacts on the ground \. The project would have benefited from a clearer logical chain as to how program activities were expected to resolve social conflicts, and on acquiring stronger evidence as to baseline levels of conflict and its causes, and tracking indicators of these over time \. Under the program there was an increase in investment in plantation forests, and the Bank team reports that this was intended to be on land that was not forested \. Under the program, environmental safeguards were issued for small scale mining, but it is unclear if these guidelines had any impact \. Activities with informal forestry and mining have emphasized carrots (by supporting the path of a legal industry ) rather than sticks (enforcement and punishment), reducing the risk of negative social impacts \. b\. Fiduciary Compliance: Standard financial management and procurement procedures are not relevant due to use of the Development Policy Operation instrument\. The ICR notes that there have been gradual improvements in the quality of financial reporting within the program's implementing agencies\. c\. Unintended Impacts (positive or negative): d\. Other: The ICR reports (page 23) that the program has been game-changing in increasing government ownership of donor support\. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR identifies a number of lessons : Shifting from investment projects to sector budget support can increase government ownership and improve dialog between agencies \. Government buy-in is much stronger when they feel more completely in charge of the agenda and strategic decision making \. Dialog between agencies is improved when they work together on budgeting of a joint program with less direct involvement from the Bank \. A lack of upfront sectoral strategic and budgetary plans can reduce the impact of sectoral budget support \. If they need to be improved, this should be formalized within the framework \. A program framework that concentrates on outputs will not be useful during implementation and will be  unable to demonstrate results \. A framework should be based on sector strategies rather than substituting for them\. Development policy lending has limitations when used as the only vehicle of support, and may be more effective when combined with other instruments (such as a technical assistance facility )\. It may be difficult to achieve policy reform and to improve sector management systems through a single instrument \. The dual complexities of a multi-donor approach across multi-sectoral work add significant challenges to design and supervision, and multiply transaction and processing costs \. Alternative approaches may have been for different donors to explicitly lead support different technical areas, to differentiate disbursement triggers across donors based on sectoral leadership, or to coordinate donors based on unity of purpose rather than unity of instrument \. Complex policy reforms can be hindered by the annual processing requirements of a programmatic DPO with 12 month projects\. This design means that there is only a 6 month gap between disbursal of one operation and the delivery of prior actions for the next operation, leaving very little time to discern outcomes from the previous set of actions \. IEG also finds that: The need for consensus and harmonization in multi -donor operations reduces the ability to adjust programs during implementation\. There is a risk that sharing design and monitoring of program triggers and indicators with other development partners will lead to a system that does not focus on key policy results and /or does not provide sufficient evidence to meet Bank accountability requirements \. 14\. Assessment Recommended? Yes No Why? A full assessment could offer a more complete assessment of the efficacy of the project by gathering additional evidence on outcomes and attribution that were not covered by the indicators included in the ICR \. It could offer additional opportunities for learning from one of the first environmental DPO series \. 15\. Comments on Quality of ICR: The ICR was clearly written and insightful \. It offered a careful and frank assessment of weaknesses in the project design, use of the DPO instrument, complexities of interaction with other development partners, the results framework, Bank performance, and in limiting factors from the government side \. It included a summary of Borrower comments on the ICR draft, which included a number of important points \. The ICR took the lessons section seriously and provided a number of useful and significant findings with constructive suggestions \. However, the ICR did not include clear evidence on the outputs or outcomes of the project \. This was driven in part by weaknesses in the results framework and the lack of data collected on achievement of project outputs and outcomes\. The efficacy ratings in this review are based in part on additional evidence provided by the Region\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P041396

 ICRR 14371 Report Number : ICRR14371 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/27/2014 Country : Morocco Project ID : P041396 Appraisal Actual Project Name : Integrated Solar US$M ): Project Costs (US$M): 567\.8 543\.6 Combined Cycle Power Project L/C Number : Loan/ US$M): Loan /Credit (US$M): 43\.2 43\.2 Sector Board : Energy and Mining Cofinancing (US$M): US$M ): 0\.0 0\.0 Cofinanciers : African Development Board Approval Date : 04/19/2007 Bank; Spain's “Instituto Closing Date : 12/31/2012 12/31/2012 de Crédito Official (ICO) Sector (s): Renewable energy (100%) Theme (s): Climate change (40% - P); Technology diffusion (40% - P); Infrastructure services for private sector development (20% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Richard L\. Berney Fernando Manibog Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: According to the Global Environment Facility (GEF) Grant Agreement (page 8), the project objectives are : "to support the Recipient in increasing its power generation capacity, reducing greenhouse gas emissions and promoting renewable energy sources in the Kingdom of Morocco through the development of an integrated solar combined cycle power plant in Ain Beni Mathar \." The objectives in the Project Appraisal Document (PAD) are consistent with the Grant Agreement : "to increase the contribution of renewable energy sources in Morocco's energy mix and add capacity to the power grid to help cope with the sustained growth in electricity demand \." The PAD further states that the project's global environmental objectives are "to reduce greenhouse gas emissions from anthropogenic sources by increasing the market share of low greenhouse gas emitting technologies \." This ICR Review is based on the objectives stated in the Grant Agreement \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project components implemented by the national power company, Morocco National Electricity and Water Utility (ONEE), are the following: (1) Design, Construction and Operation of an Integrated Solar Combined Cycle Power Plant and auxiliary facilities, including 225-kV and 60-kV power lines; a 225-kV substation; an access road; boreholes, a gas pipeline; land acquisition (203 hectares); and consulting services for management and supervision \. (Appraisal estimate US$565\.56 million including physical and price contingencies; Actual US$ 543\.51 million) (2) Environmental and Social Development, and Management , including a comprehensive monitoring and evaluation program to disseminate the project's results and lessons; the implementation of the Environmental Management Plan (EMP); and the strengthening of ONEE's capacity to monitor EMP implementation \. (Appraisal estimate US$2\.24 million; Actual US$0\.09 million) d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Costs: The actual project cost was US$ 543\.6 million, which was 4\.3% below the appraisal’s total cost estimate (including physical and price contingencies ) of US$567\.80 million\. Financing: The GEF financing was US$43\.2 million; there was no IBRD/IDA financing\. The African Development Bank (AfDB) was the project’s primary cofinancier, with one loan of Euro 136\.45 million in 2005 and another of Euro 151\.14 million in 2008\. In 2009, ONEE obtained a loan of Euro 100 million from Spain’s state financial agency to finance its contribution to the project \. The GEF grant was intended to cover the incremental cost of the solar generation component\. All co-financiers participated in the financing of one single contract for the design, construction, operation and maintenance of the entire plant \. Borrower Contribution: The Government’s original project financing commitment of US$ 136 million was covered by a loan of US$129 million equivalent from the Instituto de Crédito Oficial (Spain)\. Dates: The effectiveness deadline was extended from August 19, 2007 to March 31, 2008 to allow ONEE to complete the recruitment of the engineering consultant, which was one of the effectiveness conditions \. The project became effective on December 31, 2007 and was closed on schedule on December 31, 2012\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Substantial The project is fully consistent with the third pillar of the Bank ’s FY2010-2013 Country Partner Strategy (page 37) for Morocco, that is, to support the Government ’s goal of enhancing energy security and to ensure availability of energy to all Moroccan households and businesses at competitive prices, while protecting the environment and mitigating climate change\. To achieve these objectives, the strategy ’s key elements have been to : (i) diversify and optimize the energy mix around reliable and competitive energy technologies; and (ii) develop the national renewable energy potential\. b\. Relevance of Design: Substantial The statement of the project objectives is clear, concise and monitorable \. The intended outcomes are closely linked in a causal chain to the project's objectives, The project was designed to demonstrate the operational viability of hybrid solar thermal power generation technology and contribute to its replication in Morocco and throughout the world through the learning effect provided by its construction and operation \. The capacity of the combined cycle was planned initially for 207 MW, and the solar plant was to be approximately 20% of this capacity (about 37 to 45 MW)\. When the original concept of a plant owned and operated by an independent power producer (IPP) failed to attract any bidders, ONEE took over the project \. It subsequently decided to raise the capacity of the combined cycle island from 207 MW to 452 MW to meet Morocco's increasing electricity demand and the unexpected serious delays in another planned combined cycle plant \. This change was fully consistent with the objective of increasing power generation capacity\. At the same time, the solar plant was reduced from 45 MW to 20 MW\. The two design changes together reduced the solar operation from 20% to less than 5% of the power plant’s total capacity, and also reduced its electricity production to only 1\.2% of total plant output\. While the revised design still provided an link in the causal chain of demonstrating to technology for a hybrid solar and gas power plant , the demonstration effect was significantly less compelling than it had been in the project as originally designed \. 4\. Achievement of Objectives (Efficacy): The three distinct parts of the GEF Grant Agreement's statement of objectives are assessed below : Objective 1: To increase Morocco ’s power generation capacity - Substantial Output: After a difficult start due to the unavailability of sufficient gas, the integrated power plant financed under the project is performing satisfactorily\. Outcome:: The new power plant has increased Morocco ’s electricity generation by 3,703 GWh per year, which is above the appraisal target for the increasing generation by 3,538 GWh per year\. p romote reduce greenhouse gas emissions - Substantial Objective 2: To promote Output: The target value for yearly generation of solar electricity was 40 GWh, and the actual output in the first year of full production (2012) was 39 GWh\. The target value for solar output as percentage of total electricity produced by power plant was 1\.13%, and the actual value was 1\.16%\. The target value for the reduction in CO 2 emissions was 24,300 tons/year, and the actual value in 2012 was 23,000 tons/year Outcome: The project promoted a way to reduce greenhouse gas emissions through the implementation of an integrated solar power generation plant\. Objective 3: To promote the use of renewable energy sources in the Kingdom of Morocco - Modest Output: As indicated above, two design changes resulted in the reduction of solar power generation to only 1\.2% of total plant output\. Otherwise, in terms of public information outreach, there were 440 visitors to the plant and experience of plant was presented at 91 workshops and conferences \. Outcome: The reduction in the solar operation from 20% to less than 5% of the plant's total capacity diminished its demonstration effect\. Nonetheless, while little can be learned about the economics of concentrated solar power (CSP) technology from the implementation of this relatively small solar island, useful lessons have been drawn in the areas of procurement, contractual structure, performance testing, and operations & maintenance for future solar projects\. 5\. Efficiency: Substantial Project implementation was delayed by 6 months due to force majeure events, including severe flooding of the project site, damage to collectors due to strong winds, total loss of one transformer and fire in one turbine filter \. Nevertheless, the project was implemented on schedule and within budget \. An unanticipated shortage of gas for the combined -cycle plant hindered the maximization of solar -generated electricity for thirteen months\. The plant had relied on gas transiting through the Maghreb -Europe pipeline from which Morocco had the right to consume around 7%\. But total throughput declined with the reduction of gas demand in Europe\. As a result, after commissioning, the plant could only operate intermittently to cover the evening peak electricity demand\. The solar field was available, but steam was not produced due mainly to cost -efficiency reasons\. This problem was solved in November 2011 when a dedicated gas supply pipeline from Algeria became available \. As a result of the shortage of gas supply from the October 2010 plant commissioning until November 2011, the performance of the solar field and its integration with the combined cycle island can only be evaluated on the basis of a single full-year of data (2012)\. The ICR calculates the a 16\.6% financial rate of return of the project (FRR), using the actual values in 2012\. This is significantly above the 11\.4% estimate at Appraisal\. The most significant factor in the increase in the FRR was the higher average electricity selling price, which increased from the appraisal value of US$ 8¢/kWh to US$ 9\.15¢/kWh\. Fuel costs are the other critical variable in this calculation \. The ICR was unable to obtain the actual price of Algeria gas supplied to the project \. It therefore took as a reference the price used in the PAD of US$6/MMBtu\. The project’s FRR would fall below 10% if the price of natural gas exceeded $ 7\.7/MMBtu\. The ICR points out correctly that since electricity prices are subsidized by the Government and are lower than the consumer willingness to pay, then the economic rate of return (ERR) to the project as a whole would be higher than the FRR\. The FRR for the solar portion of the project could not be calculated \. However the ICR shows that its costs were significantly greater than estimated at appraisal \. Capital costs increased from the appraisal estimate of US$ 62\.5 million to US$104 million, while the estimated the average cost of electricity from the solar system was estimated to be US$38 per MWh, compared to the appraisal estimate of US$ 21 per MWh\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 100% 11\.4% ICR estimate Yes 100% 16\.6% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of objectives is high because all of the project's objectives (to increase power generation capacity, to promote renewable energy sources, and to lower greenhouse gas emissions ) are still relevant to Morocco\. The relevance of design is substantial \. It included the construction of a power plant in support of the objective of increasing power generation capacity, while incorporating solar technology to also lower the emission of greenhouse gases from what have would occurred if the entire output had been based in power generated solely from gas \. The project’s efficacy was substantial , by increasing Morocco’s electricity generation by 3,703 GWh per year, above the target of 3,538 GWh per year, while promoting the use of solar energy, a renewable resource that also reduces greenhouse gas emissions The project ’s efficiency was substantial \. Total capital cost were lower than the appraisal estimate, and the project’s FRR is 16\.6% (the ERR would certainly be greater than the FRR given the subsidized electricity prices and much higher consumer willingness to pay )\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The integrated plant completed a one year of operation (2012) with highly satisfactory performance values \. The operation & maintenance (O&M) of the plant has been entrusted to a private company under a five -year contract\. The contractor submits monthly reports to ONEE with details on the performance of the plant and a list of maintenance actions\. The five-year O&M contract also includes performance tests at the end of this period, thereby guaranteeing good performance at least for the medium term \. The technical risk is considered to be low to moderate \. When the O&M contract expires and ONEE will have to operate and maintain the plant with its own staff, the important issue is to ensure that the expertise acquired during the operation and maintenance of the pilot ISCC plant remains in Morocco\. At present, 90% of the 60 staff employed by the private company in O&M are Moroccans, which already ensures achievement of this goal \. This risk is considered to be low \. The initial acute problem related to gas supply shortages was resolved after ONEE signed a gas supply agreement with Algeria, thereby ensuring an adequate and continuous fuel supply to the plant \. The risk of further supply problems is considered to be low to moderate \. The solar island is performing well\. However, a mirror-soiling phenomenon, created by sand and dust wet with morning dew, has been noticed during the summer, which can reduce mirror reflectivity by 20% to 40% and hence decrease the solar island's performance in the long run \. ONEE has recently started using manual mirror washing to complement the work of the contractors ’ mirror washing truck\. The risk of lower performance of the solar island is moderate\. However, there are continued risks extreme from natural events, such as flooding and wind damage \. Given the history of this problem during the project ’s construction phase, this risk is considered to be significant \.  a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The project was approved by the Bank ’s Board in April 2007, after a preparation time of over eight years \. The Bank was involved in the design of this project design since 1998\. The original concept was for the project to be designed, built, financed, and operated by an Independent Power Producer (IPP)\. The Bank supported conceptual design as a “merchant plantâ€?, where electricity purchasers would be identified, and purchase contracts and prices negotiated only after the plant had been built \. In 2002, the Government issued two calls for expressions of interest, which did not attract interest from the private sector \. This scheme could have worked in a large and open market like the US, but without the security of a long -term power purchasing agreement, potential private investors considered it too risky for a project in Morocco, where there were very few potential buyers of bulk electricity\. The project was subsequently redesigned so that it was owned by the public sector, based on a turnkey operation, a tripling of the size of the combined cycle plant (from 150 MW to 472 MW) and halving of the size of the solar plant (from 45 MW to 20 MW)\. Project implementation started in 2007\. A Bank’s internal assessment on the project ’s quality at entry carried out in October 2007, stated that “delays appear to have been largely outside the control of the project team â€? and highlighted that the “GEF Council Approval was not obtained until October 2004, more than 6 years after the (August 1998) Concept Reviewâ€?\. The Bank’s assessment at that time rated the project “Satisfactoryâ€? overall\. That assessment did not identify any other significant shortcoming, and highlighted the procurement arrangements among its strong aspects \. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: The Bank carried out six supervision missions with teams composed of technical and safeguards policy experts \. The Bank team monitored closely the compliance with the effectiveness conditions of the Grant Agreement \. During construction of the plant, the Bank supervised adequately environmental and social issues \. The Bank team contributed to the dissemination of lessons learned by, inter alia, presenting a paper about the project at the international Solar Paces Conference in 2011\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Moroccan government was a major driving force behind the project, since it needed to reduce the risk of blackouts due to a fast-growing electricity demand in the country \. The GEF grant provided the government with the opportunity to diversify its energy mix and to contribute to the demonstration and replication of the technology through learning effects\. In 2006, the Moroccan government sent a letter to the Bank expressing its commitment to these objectives while reiterating the importance of the GEF contribution \. The government continues to be deeply committed to scale -up solar technology in Morocco to fulfill the target of 2,000 MW installed by 2020\. Hence, its contributions will continue toward (i) the cost reduction of CSP technology through economies of scale and (ii) technology demonstration and lesson -learning\. The Government has also reinforced the legal and institutional framework for the large -scale development of solar energy by the adoption of a law on renewable energies \. In 2010, the Government created a new specialized agency, Moroccan Agency for solar Energy (MASEN), to take over ONEE on the leadership role to implement solar technology in the future \. Government Performance Rating Satisfactory b\. Implementing Agency Performance: ONEE deserves credit for having successfully implemented a unique project involving high uncertainties and risks\. During construction, ONEE’s project implementation unit was confronted by : (i) extreme weather events in 2008 and 2009 (wind and storms), which affected equipment in the solar field; (ii) incidents during construction, such as fire in the air filter of one gas turbine (May 2009); and (iii) lack of sufficient gas for testing \. Despite these adversities, ONEE’s project team reacted swiftly and construction was delayed by only 6 months\. The establishment of a working environment based on trust and dialogue with its contractors was a significant part of the reason for the timely resolution of these problems \. After bid evaluation, ONEE knew that the GEF grant could not cover the total cost of the solar field \. ONEE showed strong commitment to the project by covering the US$ 23\.8 million difference\. On environmental protection issues, ONEE chose a cooling system that dramatically reduced the project ’s water consumption, even though it had a higher price tag \. The implementation of the Environmental Management Plan for the ISCC plant was adequate, but the overall monitoring of environmental impacts could have been improved –including impact on groundwater and impacts related to transmission lines – with the appointment of an environmental manager with competences on all components of the project as suggested by the Bank \. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: M&E design was adequate\. It included all the critical project performance elements : the project’s total annual electricity generation and annual generation from solar sources; and the solar thermal power plant generation costs \. Other indicators, including solar output as a percentage of project output, which is a derivative figure, and share of project output in Morocco’s total electrical energy output, which reflects energy investments in other parts of the economy, were less relevant\. b\. M&E Implementation: The contractors provided ONEE with the appropriate data \. The ONEE staff that were being trained in various aspects of the integrated staff combined cycle technology were regularly monitored, to ensure smooth operations and maintenance once the contractors depart \. c\. M&E Utilization: ONEE provided data to evaluate project implementation after the Bank ’s project closing date\. The monitoring of performance indicators need to continue and be more systematic in the future \. The availability of more operational data in the future could confirm that the satisfactory performance has been sustained \. The government should monitor and report the results to the GEF \. A systematic and comprehensive plan to compile lessons learned and disseminate knowledge resulting from the plant needs to be further pursued when more operational data becomes available\. Since only one year of operations was achieved (2012), and thus, given the limited information to guide operational decisions and establish long -term sustainability, M&E is rated modest \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: The project did not pose major environmental risks and was classified as Category B by the Bank \. The operational policies OP4\.01 on environmental assessment and OP 4\.12 on involuntary resettlement were triggered \. Appropriate safeguards documents were completed and disclosed, including (i) Environmental Impacts Assessment (EIA) for the Integrated Solar Combinded Cycle plant, the gas spur and access road, and high voltage lines (three reports), (ii) Environmental Management Plan (EMP), (iii) Resettlement Policy Framework (RPF) and (iv) Resettlement Action Plan (RAP)\. The main identified potential environmental impacts were those during construction and operation, i \.e\. site contamination by thermal fluid leakage, excessive water pumping and generation of large quantities of solid waste during construction\. At the beginning of construction (2008), the environmental mitigation and monitoring measures were not adequately conducted nor thoroughly reported \. ONEE staff on-site was not aware, for example, of the existence of an EMP\. Hence, several measures required in the EMP such as noise and air quality monitoring, proper waste management, preparation of an occupational, health, and safety plan by the plant operator had not been done \. ONEE rapidly remediated these issues when Bank supervision missions brought them to their attention \. Based on the estimated consumption requirements of a wet -cooling system, the project had authorization to pump 3\.1 million m3/year of water from the local aquifer \. The choice of a dry-cooling system reduced dramatically the plant ’s impact on the aquifer\. The water consumption in 2012 was only 334,112 m3\. The project's overall environmental compliance was considered satisfactory, according to the ICR \. Measures implemented by ONEE for compliance with Bank ’s RAP policies,(e\.g\. compensation to landowners for loss of agricultural productivity), were considered satisfactory and no significant issues arose, according to the ICR \. b\. Fiduciary Compliance: The ICR contains no information on fiduciary performance \. c\. Unintended Impacts (positive or negative): The project provided invaluable experience during its different phases \. The experience gained by ONEE’s staff had a positive influence in the preparation of the Moroccan Solar Plan (2009) and the preparation of a 160 MW pure solar CSP project in Ouarzazate, which the Bank is supporting \. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following useful lessons can be derived from the project's implementation experience (as adapted from the ICR): The use of integrated solar combined cycle (ISCC)ISCC ) technology can be a stepping stone for scaling -up concentrated solar power (CSP) CSP )\. The integrated design allowed ONEE to take a measured risk and test the feasibility of introducing solar power in its generation system without hampering its objective of ensuring reliable electricity supply\. The fossil fuel supply, however, needs to be guaranteed \. The choice of wet or dry cooling technology should to be fully evaluated \. ONEE required bidders to submit separate proposals for both wet cooling technology and dry cooling, with associated required levels of water consumption\. This approach allowed ONEE to take an informed decision, which yielded the best technical solution at a lower cost\. Bid the ISCC project with a single contract \. Bidding the project with a turnkey contract for the construction, operation and maintenance of the plant enhances the prospects for achieving its smooth operation \. An operations and maintenance agreement for five years is preferable to the standard contract of two years \. as the longer contract significantly reduces project risks \. This procurement arrangement lowered ONEE ’s operational risks by transferring these risks to the contractor and has assured the plant ’s satisfactory performance to date \. The turnkey Engineering, Procurement and Construction (EPC) EPC ) consortium should include the suppliers of the key ISCC plant components \. This could reduce possible delays \. At Ain Beni Mathar, the supplier of the steam turbine was not a member of the turnkey consortium contract for the design, construction, operation and maintenance of the plant\. The inclusion of the steam turbine supplier in the consortium could probably have reduced unnecessary delays during construction because of the risk -sharing EPC arrangement\. Independent power producers (IPP) IPP ) are unlikely to be interested in projects that lack a firm Power Purchase Agreements unless they have a fully operational, large scale market for electricity, with many independent producers and consumers\. Initial IPP tenders in 2002 for this project failed primarily because it was considered too risky by potential bidders for a project in Morocco, where there were very few potential buyers of electricity \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The quality of the evidence in the ICR is adequate to judge the project ’s efficacy and efficiency \. The quality of the analysis is keyed to the project ’s outcome and impact\. The ICR’s internal reasoning demonstrates a good understanding of the causal chains that underlie the project ’s results framework\. The lessons are well articulated and are directly rooted in the ICR’s evidence and analysis \. It is generally well written\. One important ICR shortcoming, however, is the absence of information on fiduciary compliance \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P006030

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 24325 IMPLEMENTATION COMPLETION REPORT (CPL-39310; SCL-3931A; SCPD-393IS; PPFB-P2270; PPFB-P2271) ONA LOAN IN THE AMOUNT OF US$101\.4 MILLION TO THE REPUBLIC OF ARGENTINA FOR A PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT 06/30/2002 Country Management Unit for Argentina, Chile and Uruguay Human Development Sector Management Unit Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Argentine Peso AR$3\.7 = US$ 1\.00 US$ 1\.00 = AR$3\.7 FISCAL YEAR January I through December 31 ABBREVIATIONS AND ACRONYMS CAS: Country Assistance Strategy GoA: Government of Argentina HPAs: Hospital Piublico Autogestionados (Autonomous Public Hospitals) IBRD: International Bank for Reconstruction and Development ICR: Implementation Completion Report MIS: Management Infornation System MoE: Ministerio de Economia y Obras y Servicios Puiblicos (Ministry of Economy and Public Works) MoH: Ministry of Health MSP: Ministerio de Salud Provincial (Provincial Ministry of Health and MCBA) O&M: Organizational and Management OSs: Obras Sociales (Health Insurance Fund) PBA: Province of Buenos Aires PCU: Project Coordination Unit PRESSAL: Proyecto de Reforma del Sector Salud (Provincial Health Sector Development Project) PRESSS: Programa de Reconversi6n del Sistema de Seguro Social (Restructuring Program of Health Insurance System) UEC: Unidad Ejecutiva Central del Proyecto de Desarrollo del Sector Salud en las Provincias UEP: Unidad Ejecutora Provincial UNDP: United Nations Development Program Vice President: David de Ferranti Country Director: Myma Alexander Sector Director: Ana-Maria Arriagada Task Team Leader: Ruth Levine  ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 6 5\. Major Factors Affecting Implementation and Outcome 9 6\. Sustainability 11 7\. Bank and Borrower Performance 11 8\. Lessons Learned 13 9\. Partner Comments 14 10\. Additional Information 14 Annex 1\. Key Performance Indicators/Log Frame Matrix 15 Annex 2\. Project Costs and Financing 17 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 21 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6\. Ratings of Bank and Borrower Performance 24 Annex 7\. List of Supporting Documents 25   Project ID: P006030 Project Name: AR-Prov\. Health Sector Development Team Leader: Maria Lucy Giraldo TL Unit: LCSHD ICR Type: Core ICR Report Date: June 25, 2002 1\. Project Data Name: AR-Prov\. Health Sector Development L/C/TF Number: CPL-39310; SCL-393 1A; SCPD-393 iS; PPFB-P2270; PPFB-P2271 Countrv/Department: ARGENTINA Region: Latin America and Caribbean Region Sector/subsector: HR - Reform and Financing KEY DATES Original Revised/Actual PCD: 08/24/1993 Effective: 03/01/1996 03/01/1996 Appraisal: 03/14/1995 MTR: 12/02/1998 12/02/1998 Approval: 08/03/1995 Closing: 06/30/2001 12/31/2001 Borrower/lImplementing Agency: REPUBLIC OF ARGENTINA/MIN OF HEALTH Other Partners: STAFF Current At Appraisal Vice President: David De Ferranti Shahid Javed Burki Country Manager: Myrna L\. Alexander Gobind T\. Nankani Sector Manager: Evangeline Xavier Alain Colliou Team Leader at ICR: Maria L\. Giraldo Marie Odile H\. Waty ICR Primary Author\. Luis Perez; Ruth E\. Levine; Sati Achath 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The objective of the US$144\.72 million investment project was to support the Government of Argentina's goal of rationalizing health sector spending\. To achieve this goal, the project took a two-pronged approach: (i) strengthening the policy-making capacity of the central Ministry of Health (MOH) and the provincial health ministries, and assisting the Government in the implementation of specific changes in the incentives faced by public hospitals; and (ii) improving the capacity to deliver services by pilot testing the implementation of autonomous public hospitals (Hospitales Publicos Autogestionados, or HPAs) through altemative managerial models\. The objectives were consistent with the Government's sector policy in several ways\. First, the Government had taken steps to reform the health insurance system\. Second, the operational and financial decentralization of services to provinces and municipalities was well underway, and the legal and financial bases were set for the establishment of autonomous public hospitals\. Third, new regulations had opened the way for competition in the pharmaceutical market\. Fourth, the Government, with support from the Bank, was committed to improvement of govemment-provided matemal and child health services\. Fifth, reform of public hospitals and rationalization of health services in urban areas were considered priorities\. The project objectives complemented the objectives of other Bank-financed projects, were supported by sector work, and were fully consistent with the Bank's Country Assistance Strategy (CAS), which emphasized the Government's ambitious reform program\. In particular, the objectives were relevant to help the Government: (a) restore and maintain fiscal balance by improving the efficiency of public expenditures; and (b) support investments in human resources, especially with improved education, nutrition, and health\. The Bank's heavy involvement in Argentina's health sector through a number of other activities - Maternal and Child Health and Nutrition Project (6025-AR), Social Protection Project (3957-AR), Health Sector Financing Study (Argentina: Facing the Challenge of Health Insurance Reform, Report No\. 16402-AR), and Health Sector Insurance Reform Project (4002/3-AR) - placed the Bank in a strong position as a partner to the Government which it sought to address sector efficiency\. The project envisioned several significant benefits\. First, the project was expected to set the stage and provide the technical tools for an in-depth transformation of the health sector by strengthening policy-making through the definition of specific short- and medium-term strategies and actions aimed at furthering sector reform\. Second, the project aimed to establish a new and more efficient delivery model, for future nationwide replication, by strengthening the organization and management of 15 public hospitals and guiding their transformation into HPAs\. The project was also expected to increase cost-recovery, allow for more flexibility in the utilization of resources by hospital managers, reduce unnecessary utilization of hospital beds, and increase hospital productivity\. The change of managerial model for public hospitals was expected to lead to progressive public-private integration in the provision of health services\. The project took into account main risk factors to successful project implementation\. The first important risk was the lack of future government support to reform in the health sector\. While it was not possible to guarantee support to the project by all stakeholders, risks related to the sustainability of the project were minimized by: (a) the attention given during preparation to ensure support of key stakeholders, particularly of the jurisdictional governments, the Ministry of Economy (MOE), and some professional associations; and (b) a project design that was not overly ambitious, had a pilot and demonstration features, as well as specific and operational studies, focused on gradually building the sector's knowledge base for reform\. The second important risk was that project implementation demands would outstrip the managerial - 2 -  capacity of the MOH, the provincial health ministries and the Municipality of Buenos Aires Health Secretariat\. This risk was expected to be minimized by: (a) full-time project units, National Project Coordination Unit (Unidad Ejecutiva Central, or UEC) and Provincial Project Coordination Units ( Unidades Ejecutivas Provinciales, or UEPs), which had successfully managed preparation and had become familiar with Bank guidelines during the administration of an advance from the Project Preparation Facility (PPF); and (b) annual and mid-term reviews to assess implementation progress and adjust its pace and scope as needed\. The project was technically demanding for the Borrower\. Because the concept of autonomous public hospitals was novel in Latin America, the Government was initially not aware of its full implications\. A wide variety of technical and political challenges and constraints, which were not fully known at the project's inception, emerged during implementation\. 3\.2 Revised Objective: Responding to a request from the Government, the Bank amended the Loan Agreement in July 1999 to use the savings of US$4\.2 million to finance technical assistance activities aimed at contributing to the Government's health insurance reform program; this component was called Programa de Reconversion del Sistema del Seguro de Salud (PRESSS)\. Consequently, new development objectives were introduced into the project, including: (i) improving the institutional capacity of the funds of the health insurance system, to design restructuring plans for health insurers, known as Obras Sociales; (ii) improving the technical capacity of the health insurance superintendency (Superintendencia de Seguros de Salud, SSS), and implementing effective monitoring, control and regulatory tools for OSs to assure the provision of adequate services to beneficiaries; (iii) improving the institutional capacity of the MOH to improve the quality and efficiency of the information system; (iv) improving institutional capacity of the Social Development Secretariat to develop monitoring systems to finance health insurance for retired persons; and (v) designing on a pilot basis health insurance for the uninsured poor persons in selected provinces\. In December 1999, PRESSS objectives and activities were modified, leaving those referred to as "SSS Strengthening" and "Strengthening of the MOH and Social Development Secretariat," as well as the tasks related to strengthening the provincial OSs\. The remaining activities included those related to diagnostic studies and drafting of conversion plans for provincial OSs, and designing (as a pilot) health insurance for the poor and uninsured in selected provinces (Salta, C6rdoba and Rio Negro)\. It was expected that the health insurance pilots would be financed with a new World Bank loan - US$4\.9 million from the Bank, US$ 1\.01 million from the federal government, and US$1\.16 million from provincial funds, under the auspices of a "Learning and Innovation Loan" (LIL)\. After several delays and discussions over a two-year period about the approach of the project, the LIL was cancelled in June 2002\. 3\.3 Original Components: The project consisted of three components: Component I\. Formulation of Policy for Reform\. Under this component, the project financed a limited number of studies and system designs to improve the incentive environment in which public hospitals operate\. The aim of the studies was to develop action-oriented recommendations and designs in key areas, which would be implemented during the second half of the project\. These areas were identified on the basis of the Government's priorities for action, their technical relevance to further reform, and their implementation feasibility\. The studies included: (a) upgrading the national information system on sector resources, epidemiological information and productivity of service delivery; (b) defining priority health services financed by - 3 -  government subsidies (burden of disease and priority services packages); (c) formulating a proposal for a new financing model, which would include: designing a public hospital reimbursement system; drafting a performance contracting model; creating a strategy to separate the financing from the service delivery functions of the public sector at the provincial level; and creating a system to identify beneficiaries of the public insurance; (d) designing a regulatory framework for private health insurance and health care providers; (e) defining a quality guarantee system; (f) designing a strategy to reform provincial social insurance programs, in an effort to improve their financial sustainability and managerial efficiency; (g) reviewing the relevant legislation and institutional framework to improve the regulations on hospital waste disposal; (h) developing investment and project proposals for HIV/AIDS control; (i) nationwide expansion of the HPA initiative; and (j) an impact evaluation of the project\. Component II\. Pilot Implementation of Autonomous Hospitals\. Under this component, the project sought to establish the basis for a broader reform of public hospitals\. To that end, the project was to support pilot implementation of HPAs in three eligible jurisdictions identified by the Government, namely, the Province of Mendoza (PM), City of Buenos Aires (CBA), and the Province of Buenos Aires (PBA)\. While PM was chosen because of its achievements in health sector reform, CBA and PBA were chosen because the Government considered these major urban centers critical for health sector reform in Argentina\. The HPA model was based on the separation of health financing and delivery functions of the public sector, which implied the gradual development of a purchasing agency role for provincial ministries of health, and the transformation of public hospitals into self-governing trusts\. HPA hospitals would be autonomous in the management of all resources, and would establish contractual arrangements with public and private purchasing agencies\. The project supported the process by introducing the most urgently required organizational, management, and financial tools into hospitals, and by pilot testing the HPA model during the second half of project implementation\. The institutional development intervention of hospitals were to be carried out through organization and management (O&M) consulting firms, which would concentrate their efforts in: general organization and management; accounting and finance; patient administration; pharmacy materials and supplies; hotel services; diagnostic procedures; infrastructure and equipment maintenance; control of hospital infections; medical auditing; and management of medical waste\. To facilitate the implementation of institutional development, the project was also to finance the design of a hospital management information system (MIS)\. To support and complement the institutional development activities, the component financed investment in hospital physical plant and equipment\. These infrastructure improvements were intended to: solve bottlenecks to increase productivity; reduce the risk for patients and hospital staff; and increase productive efficiency\. Investments were limited to the rehabilitation of existing infrastructure and replacement of basic equipment, and were to be completed in two phases\. Component HI\. Dissemination of Reform Initiatives\. This component supported national dissemination of the findings and experiences of the first two components, as well as strengthening of the technical and management capacity of sector professionals\. To this end, the project supported: (a) technical assistance, training, and workshops aimed at increasing the awareness and knowledge of the activities to reform the health sector, and disseminating the findings and lessons learned from the other two components to provinces which did not participate in Component II; and (b) 20 international scholarships in the areas of hospital management, public health and health economics\. 3\.4 Revised Components- Component I\. Based on the 1999 amendment mentioned earlier, the following activities were financed under the project but administered under PRESSS: -4 -  (a) technical assistance to: (i) provincial OSs to design pilot restructuring plans and strengthen their information systems; and (ii) national OSs of less than 10,000 beneficiaries, to design pilot plans and operational mechanisms for their merger or acquisition\. (b) institutional strengthening of the SSS: (i) monitoring and control systems, and (ii) design and implementation of norms for crisis resolution and prevention of failure of social health insurance funds\. (c) institutional strengthening of the MOH in managing registration and filing systems for health providers and insurers, and of the Secretariat for Social Development in developing monitoring systems for, the financing of medical coverage for pensioners without health insurance coverage (non-contributing pensioners); (d) design of a pilot health insurance plan for poor, uninsured populations in selected provinces\. Component H\. A January 21, 1998, amendment to the Loan Agreement, which was retroactive to March 1996, established that the infrastructure and equipment investments would be completed in a single stage, rather than the two stages originally planned\. This change was made to simplify the approval and execution of individual projects, thereby accelerating the overall program of works\. Component III\. The technical assistance activities for ministries of health, public hospitals and POSs in non-eligible provinces were not foreseen in the original Loan Agreement; they were incorporated in a September 15, 1999, amendment\. This revision was necessary because of the strong demand for technical assistance in provinces that were not included in the pilot and because PRESSAL assumed a commitment to support provinces benefiting from Provincial Reform Loans, Rio Negro (4218-AR), Salta (4219-AR), Tucuman (4221-AR), San Juan (4220-AR) and Catamarca (4578-AR)\. 3\.5 Quality at Entry: The project design predates the existence of the Quality Assurance Group (QAG), thus the project's quality at entry was not formally assessed\. For the purposes of this report the quality at entry is judged to be marginally satisfactory\. As mentioned earlier, project objectives were consistent with the CAS and the Government priorities, and the operation constituted a fundamental part of the reform of public hospitals and health sector in Argentina\. Project components were reasonably well related to achieving the project objectives\. Sufficient attention was given to strengthening hospital administration and management, as well as to investment in infrastructure and hospital equipment; these could reasonably be expected to lead to improvement in hospital productivity and capacity\. However, several design flaws ultimately contributed to the project's overall poor performance\. First, with respect to hospital autonomy, the project failed to take into account several external factors that are essential for strengthening autonomy\. For example, no investment was made to strengthen provincial ministries, including their administrative capacity, training, information systems, performance evaluation, and capacity to monitor cost and quality indicators\. Second, for several of the risks identified during project preparation, the remedial measures built into the design proved to be insufficient\. For example, the risk of possible lack of future govermment support at the national and provincial levels was taken into account\. However, in the course of the implementation, this risk became a reality and hindered the project's achievements\. Letters of intent, which were signed by - 5-  provincial executive bodies, proved difficult to translate into legislative agreements, which required consensus\. In the case of CBA, for example, the legislative consensus took a long time, and the political accord was disrupted with a change in administration\. As a result, the concept of self-management of hospitals was very slow to take hold\. Similarly, the risk that project implementation demands would outstrip the managerial capacity of the MOH, the provincial health ministries and the Buenos Aires Health Secretariat was considered, and preventive measures were adopted into the design\. This risk also became a reality when the administrative weakness of these agencies hampered smooth project implementation\. Several other flaws in project design were also manifested during implementation: (i) the design did not sufficiently take into account issues of govemance and institutional capacity, including corruption, which significantly hampered implementation; (ii) combining civil works and equipment investments with the planned policy, organizational and management reforms did not lead to positive results, in part because the design assumed that the institutional reform and hospital rehabilitation could proceed in a coordinated fashion; this did not happen; (iii) the design did not include actions to disseminate the reform to other sectors of the provincial governments, restricting them to health sector authorities, although many of the measures required for successful implementation (e\.g\., human resources, budget decentralization, and others) concemed other parts of the govemment\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The overall achievement of the project is judged to be unsatisfactory\. The desired-for results - stronger policy-making and regulation, autonomous hospitals, and a generalization of the hospital pilot experiences - did not result from project interventions and investments\. Component I\. Strengthening of the Policy-making and Regulatory Capacity of the Central Ministry of Health (MOH) and the Provincial Health Ministries\. Significant strengthening of policy-making capacity in the national and provincial MOH was achieved, fostering reforms and new programs in the health sector\. Studies carried out supported the definition of a mandatory health benefits package (PMO), and the design and development of the quality guarantee national program, which furthered the policy dialogue regarding financing and insurance reforms\. It also initiated national programs in epidemiological surveillance, which eventually led to the identification of the Public Health Surveillance and Disease Control Project (VIGI-A), Loan 4516-AR and HIV/AIDS prevention, which led to the identification of the AIDS and Sexually Transmitted Disease Control Project (LUSIDA), Loan 4168-AR\. Component II\. Pilot Implementation of Autonomous Hospitals\. The project did not succeed in transforming even a single hospital into an autonomous entity with full juridical personality; thus, a major objective of the project was not attained\. Strong opposition and resistance by many stakeholders - including ministers, trade unions and even some provincial hospitals - greatly hindered achievement of full-fledged autonomy\. With the change of government administration in November 1999, the idea of autonomy itself was discredited because it was considered "anti-poor"; leaders in the health sector thought that autonomy would promote discriminatory behaviors against uninsured patients\. Specific improvements were achieved in some of the pilot hospitals in terms of quality of service and efficiency\. Some of these hospitals showed increased client orientation, increased productivity, efficient use of resources and effectiveness\. With the same number of staff and smaller number of beds, these hospitals increased their admissions, ambulatory and emergency room consultations, laboratory tests and imagery - 6 -  examinations\. Increased productivity was also accompanied by improved lengths of stay and higher occupancy rates\. However, overall only about 40 percent of the performance indicators in the participating hospitals improved\. All pilot hospitals that conducted organizational development exercises subsequently included new processes for hazardous waste separation, collection, disposal and treatment\. Strangely, in some hospitals, civil works completed along with the managerial training and technical assistance appear to have had a negative impact: some quality and efficiency indicators worsened\. Component M\. Dissemination of Reform Initiatives\. The project played an important role in the reform of the health sector at the provincial level\. It assisted provinces not originally included in the project to design their reform of the health sector - one of the key elements supported by the Bank through the PRLs\. The UEC successfully carried out a plan for disseminating and transferring technology and know-how (instruments and knowledge) to all provinces\. This was done through short-term technical assistance to provincial ministries of health, public hospitals and provincial OS\. Component IV\. PRESSS\. This component played an important role in disseminating the concept of public health insurance\. Under the project, seminars and workshops were conducted to interest provincial leaders in the design and implementation of insurance programs, and the provinces of Santa Fe, Rio Negro and Chubut were supported in their efforts to work on this issue\. 4\.2 Outputs by components: Component I\. Policy Reform Studies\. Moderately satisfactory\. The contribution of this component to the policy-making capacity of the MOH and the provincial Ministries of Health has been partially positive\. Main expected outputs and end-of-project status are described below: (a) The inventory of sector resources and services was partially developed, although never completed and not structured for permanent updating\. It succeeded in providing new information on human resources, physical resources and production in the public and private sectors\. (b) The definition of health priorities/burden of disease study was not conducted\. (c) Work on health sector financing included: definition of a system for the payment of integrated services packages to hospitals; study of the separation of health financing and delivery functions; creation of a management contracts model for PM and PBA, and support for experiences in La Pampa, Salta, Rio Negro and Tucuman provinces; study of beneficiary identification, which was the basis for the creation of a national OSs beneficiaries padr6n, coordinated among national agencies (SSS, ANSES and DGI)\. (The development of the PMO and the national OSs beneficiary padr6n were transferred to PROS (4004-AR)\.) (d) Design of a system to assure service quality both on the public and private sector was developed\. Technical assistance was provided for the development of the Medical Attention Quality Guarantee National Program\. Component II\. Pilot Implementation of Autonomous Hospitals\. Unsatisfactory\. This component had several problems\. First, execution of the component started at a different time in each one of the pilot provinces because the legislative bodies in PBA and CBA experienced delays in approval of - 7-  the subsidiary agreements for loans\. The national government decided to maintain those jurisdictions rather than relocating the resources to interested provinces, which led to a major change in project design: to execute in a shorter period of time, the sequencing of activities - first institutional strengthening within the hospitals, and then investment in infrastructure and equipment - was altered\. Second, commitment of the relevant authorities varied greatly across the 15 eligible hospitals with respect to the organizational and managerial improvements\. In general, changes related to hospital management were accepted faster than those requiring policy changes from the jurisdictions\. However, the commitment of the provincial MOH for implementation of some of the management tools was weak\. As described later, the hospital information system was not developed, hindering the implementation of some key management tools, such as the record of production and costs\. Third, only a small to moderate number of improvements were seen in the outcomes related to autonomous hospitals in the six major areas (organizational, financing, planning and budgeting, human resources, quality of services and knowledge transfer)\. According to a major end-of-project impact evaluation, indicators in CBA, PBA, PM improved by 14, 20 and 43 percent, respectively (PRESSAL Assessment Report, Clapp & Mayne, 2001)\. In general, training activities showed the greatest improvement (75, 80 and 83, respectively), which suggests that in the future improvements also will be seen in the other managerial areas\. Fourth, activities under this component resulted in improvements in the physical plant for several hospitals (12 out of the original 15 expected - five in PBA, four in CBA and in PM), but results did not match the level of investment\. Although facilities were improved, most did not fulfill expectations, particularly with respect to the quality of the finished work and the execution period\. Virtually all the works started later than they were supposed to - between two and three years from the start, and two years before the closure\. (The first started in September 1997, four started in 1998, three in 1999, and four in 2000\.) Delays also occurred in the execution of works because of changes introduced during the work process, undefined terms in bidding documents and/or requests from hospital authorities\. Contractors' financial problems worsened the already bad situation\. Fifth, delays in the signing of subsidiary agreements with the provinces and delays in infrastructure activities caused delays in bidding processes, reception and delivery of medical equipment to respective hospitals\. The procurement process started in late 1997 for PM, while the rest of the provinces started this process during 1998, with the first delivery in early 1999\. Despite this problem, provision of equipment achieved reasonably good results\. Component II\. Dissemination of Reform Initiatives\. Satisfactory\. The major achievement of this component was to sensitize decision makers to the reform, and to increase awareness of the advances in the jurisdictions\. The project provided technical assistance, training, national and international seminars, and workshops aimed at increasing the awareness and knowledge of the reform-related activities\. In addition, some of the technical tools developed under Components II and III were disseminated to 14 provinces\. The graduate study grant program was carried out satisfactorily (22 scholarship holders went to international institutions, and 63 went to national institutions)\. However, no information is available about the positions currently held by the recipients\. Hospital administrators from provinces (152 participants) were given training in both national and international universities in the areas of hospital management, public health and health economics\. -8 -  Technical assistance activities conducted under this component were related to: institutional strengthening of hospitals; support to the opening and moving of new hospitals; restructuring ,projects for health ministries/secretariats; health sector legal reform; support for implementation of management contracts; improvement of the skills of human resources staff; support for development of the provincial health insurance system, and separation of health financing and delivery functions; direct support for complying with the conditions of the PRLs\. Component IV\. PRESSS Activities under PRESSS were conducted in a satisfactory manner, and included: (a) A diagnosis report on the overall situation of provincial OSs, including Obras Sociales in the provinces of Catamarca, Chaco, Chubut, C6rdoba, Corrientes, Entre Rios, Formosa, Jujuy, Mendoza, Misiones, Neuquen, Rio Negro and San Juan, and conversion plans for OSs in the provinces of Rio Negro and Misiones\. (b) Preparation of a framework for public health insurances for the poor, uninsured in Santa Fe, Chubut and Rio Negro\. This included drafting the conceptual developments needed for the pilot implementation that were to be financed under the LIL\. 4\.3 Net Present Value/Economic rate of return: Not able to estimate with the available data\. 4\.4 Financial rate of return: N/A\. 4\.5 Institutional development impact: The institutional development impact of the project was modest\. Reasons for limited impact included: (i) problems with the implementation agency (lack of continuity in management and professional staff), which resulted in an inadequate transfer of knowledge to fornal ministerial structures; (ii) a low capacity in pilot provinces to effectively use human and financial resources; and (iii) relatively little involvement in implementation from the national ministry, except when difficult problems arose\. The major positive impact was achieved in many of the jurisdictions that were beneficiaries of technical assistance under Component III\. The project led to greater interaction among the technical staff from the provincial Ministries\. As mentioned earlier, the overall improvement in the performance indicators of participating hospitals was not as positive as expected\. In many hospitals, the combination of delays in civil works and difficulties in procurement reduced the expected benefits from the installation of new equipment\. Under PRESSS, the impact of the work on public insurance for the poor and uninsured was minimal because the pilot projects had a small number of beneficiaries\. In the province of Santa Fe the impact may have been more significant because the strategy was a condition of the PRL\. 5\. Major Factors Affecting Implementation and Outcome 5 1 Factors outside the control of government or implementing agency: The economic recession experienced by Argentina from 1998 until project closure had a significant -9-  negative impact on construction firms, which in turn affected project implementation\. Financial problems faced by some of the construction firms resulted in delays and the need to renegotiate contracts; some contracts were closed, and new bidding processes had to be started (e\.g\., hospitals in San Roque (PBA) and Durand (CBA)\. 5\.2 Factors generally subject to government control: Two major factors within government control affected implementation of the project\. First, the lag time in finalizing the Loan Subsidiary Agreement of PBA (January 1998) and CBA (November 1997) delayed initiation of the project\. Second, fluctuations in government policy regarding autonomy and the government's weak capacity to advance the policy agenda affected project implementation\. While the earlier administration was committed to public hospital autonomy, the new administration (December 1999 to December 2001) was very much opposed to granting autonomy to public hospitals, believing that strategy to be regressive and "anti-poor\." 5\.3 Factors generally subject to implementing agency control: Multiple factors that were under the control of the implementation agency greatly hampered the effective and timely execution of the project\. These included: (i)\. Procurement problems\. The project experienced a large number of procurement and contracting problems resulting in frequent changes in project management, delay in disbursement, and a negative reputation for the project within Argentina\. In PM, major problems were observed in procurement in the construction of hospitals and supply of oxygen plants; in the CBA, procurement issues arose in the construction of Hospital Fernandez and Durand; and in the PBA, procurement of medical equipment was troublesome\. Out of seven allegations investigated by the World Bank's Anti-Corruption Unit, mis-procurement was declared in two cases\. On the Borrower's side, the federal anti-corruption office referred two cases to the judicial court for criminal investigation (bribe solicitation and manipulation of bids)\. (ii)\. Architectural problems\. In some hospitals - and particularly in CBA - flawed architectural designs led to incomplete or inaccurate blueprints and technical specifications at a late stage in the bidding process\. For instance, in the case of Hospital Fernandez, an audit of both the original technical specifications and the blueprints, and a contract performance audit on the actual construction showed that there were a large number of significant omissions and miscalculations in the technical specifications (e\.g\., elevators that could not accommodate beds to transport patients, lack of fire alarms, lack of clinical gas installations, etc\.)\. In the contract itself, an amount of nearly US$900,000 worth of additional payments had been approved to remedy these shortcomings\. Additional work resulting from such changes led to increased expenditure and delays in implementation\. (iii)\. Operational problems\. The PRESSAL project lacked coordination among its components, which operated in isolation, missing opportunities for the synergy anticipated in the original design\. 5\.4 Costs andfinancing: The total cost of the project was US$124\.72 million, compared with the SAR estimate of US$144\.7 million\. Actual expenditure was lower than expected because: (i) the number of studies was reduced; (ii) some of the activities under institutional strengthening were not completed; and (iii) US$4\.2 million was released to PRESSS for the creation of health insurance schemes for the uninsured persons and also for the reform of provincial OSs\. The Bank financed US$84\.84 million (68\.0 percent), and the Goverrnent - 10 -  contributed US$39\.88 million equivalent in local costs (32\.0 percent)\. 6\. Sustainability 6\.1 Rationale for sustainabdlity rating: Unlikely\. Despite some important accomplishments in advancing policy reforms, much of the project's work is unlikely to be sustained\. As mentioned earlier, the project did not succeed in achieving autonomy for participating provincial hospitals, and thus it did not attain the project's major objective\. This situation will persist as long as the incentive structure does not change\. For instance, if the management of a provincial hospital does not have sufficient autonomy and flexibility on key matters - control of the goveming board; stability in management team; authority to control revenues, define strategic planning, and service portfolio; and control on staffing to achieve its performance targets - the concept of autonomous public hospitals will never materialize\. At the close of the project, construction and equipping of three hospitals remained incomplete\. Unless the governments in CBA and PM finance their completion - which is unlikely in an era of severe fiscal restrictions - they will remain unfinished\. In general, sustainabiity of this component will largely depend on the government's support and commitment\. In addition, it does not appear that the MOH or the provincial health ministries have significantly strengthened their structure and capacity in a sustainable way\. Despite the generally gloomy picture, some of the improvements made by some hospitals in performance indicators are likely to be sustainable\. With the support of the project, for example, PM was using performance agreements in its six major hospitals (five of which were included in PRESSAL) and expanded this reformn to all its public hospitals by 2002\. PBA is using these agreements in 12 hospitals (two of them associated with PRESSAL) after a highly successful initial experience on 2000; the inclusion of all other PRESSAL hospitals will follow the completion of on-going civil works\. CBA, although less advanced when compared to the other two regions, has approved a new law that mandates further decentralization of hospital management\. The benefits of some of the studies financed by the project under Component 1 will be sustained; they have resulted in the design of additional projects (Public Health Surveillance and Disease Control Project, and AIDS and Sexually Transmitted Disease Control Project)\. The provincial OS studies conducted under this component are being used by the provinces to reduce financial deficits and provincial subsidies\. 6\.2 Transition arrangement to regular operations: The Bank will finance expenditures related to disseminating the experiences of the 15 pilot hospitals to other provinces\. At the national level, the UEC will also share the reports from consulting firms with the relevant departments on the MOH, which have the potential to improve their functioning\. At the provincial level, as advised by the Bank, provincial health ministries of CBA, PBA and PM have agreed to include the expenditure for maintaining hospital equipment into their annual budget\. Nationwide, health policies reflect substantive aspects of the sector transformation, including Decree 939/2000 (public hospital with decentralized management)\. Transfer of outcomes and knowledge related to planning, control and regulation to the relevant MOH subsecretariat has been foreseen\. 7\. Bank and Borrower Performance Bank 7\.1 Lending:  The Bank's perfomiance in the identification of the project was marginally satisfactory\. Bank documents indicate that project preparation was well organized and highly satisfactory\. The Bank, which had a harmonious team with a good skill mix, included intemational specialists in hospital management, hospital architecture and health management\. During the project appraisal, the Bank team took into account the technical complexity of the project and assessed the project's risks and benefits\. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal\. The positive evaluation of the preparation process, however, must be weighed against the design flaws that were made manifest during implementation - namely, the underestimation of the severity of the risks implied by the hospital reform\. 7\.2 Supervision The Bank's performance during the implementation of the project was unsatisfactory, largely because the Bank appears to have missed the "big picture" during PRESSAL's implementation\. Over the five-year implementation period, there were 12 supervision missions, with an average of 2\.4 missions per year, and in general the Bank's client relationship was cordial and productive\. However, Bank supervision did not manage the considerable challenges of the PRESSAL project in a fully satisfactory manner\. In particular, at various times during implementation, Bank task managers and management may have missed signals that the project was seriously off-track\. Specific disbursement delays, evidence of misprocurement and lack of substantive progress on the development of autonomous hospitals were all identified in a timely manner and dealt with\. For example, the Bank addressed the procurement and corruption problems appropriately, alerting the corresponding authorities and conducting intemal investigation by the Investigations Unit under the Department of Institutional Integrity\. However, the Bank consistently chose to maintain the original project objectives, making only marginal changes in a somewhat patchwork fashion\. Full-scale reformulation was not pursued, despite evidence - quite clear in retrospect - that the original development objectives were not realistic, given the health sector environment in Argentina\. When the gravity of the problems was finally recognized it was already too late to redirect the project and supervision concentrated on damage control\. 7 3 Overall Bank perfornmance: Overall, the Bank performance was unsatisfactory during project preparation, appraisal and implementation\. Borrower 7\.4 Preparation: The Borrower's performance in the preparation of the project was satisfactory\. The Borrower embraced a strategic approach to health sector reform that was gradual, participatory, and based on the implementation of pilot and demonstration experiences\. During the preparation stage, the Borrower displayed strong willingness and support to the objectives of the project\. Commitment to change and technical capacity was identified at the level of individuals in the MOH, provincial health ministries, and hospitals and they worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm\. 7\.5 Government implementation performance: The Government's performance during implementation was unsatisfactory\. Although the project did not suffer from any counterpart funding problems, the Government failed in tackling both the political risk and the managerial capacity risk, which were identified at appraisal\. The project implementation demonstrated the Government's weak commitment and lack of institutional capacity\. The project was also plagued by perpetual problems in procurement, which became so serious that implementation was suspended at one point\. - 12 -  Hospital information system software was not acquired in a timely fashion because the MOH stopped the process, arguing that a different software system, which the Ministry already owned, could be used\. That software was later assessed by an international expert to be obsolete, but by that point it was too late in project implementation to initiate a new round of bidding\. The Government did not respond effectively to the Bank's proposal to deal with the delays in the Subsidiary Loan agreements, and did not agree to the option of expanding PRESSAL's coverage to interested provinces\. 7\.6 Implementing Agency: Performance of the MOH was unsatisfactory\. Because of the Ministry's internal bureaucracy, implementation progress was slow, especially during the first half of the project\. For instance, cumulative disbursement in December 1997 - 20 months after the project was declared effective - was only US$7\.9 million, compared to the SAR estimate of US$40\.0 million by that point; the disbursement lag was greater than 80 percent\. The December 1998 mid-term review estimated a disbursement lag of 74 percent, with US$18\.4 million in cumulative disbursement compared to the anticipated US$68\.0 million\. Although this situation later improved slightly, the overall disbursement lag was relatively high during entire implementation period\. Performance of the UEC in project management was generally unsatisfactory\. The unit failed to address complaints from bidders and consultants and did not take measures to strengthen and separate functions in the area of procurement as advised by the Bank\. During the five-year implementation period, the Project Coordinator was changed six times because of various allegations, and flaws in procurement and administrative concems in the MOH\. This reflected serious lack of stability on the part of the UEC\. There were numerous complaints from bidders and consultants regarding poorly conducted procurement procedures, inadequate budgeting, conflicts of interest, and lack of attention to the financial health of firms awarded large contracts for works and consultancy contracts\. The MOH was ineffective in dealing with these allegations and procurement problems, both at national and provincial levels\. This delayed the implementation and resulted in the public discrediting of the project, starting in 2000\. The UEC's performance in monitoring and evaluation was satisfactory\. There were both intemal and extemal evaluations of the performance of the pilot hospitals\. Its performance in financial management was also satisfactory\. The project had an adequate accounting system, financial reporting system, and separation of responsibilities and tasks\. These provided timely and reliable information on project financial flows\. 7\.7 Overall Borrower performance\. The overall perforrnance of the Borrower was unsatisfactory\. 8\. Lessons Learned 1\. The Bank should encourage the Borrower to request a reformulation of a project if and when it becomes clear that the development objectives are no longer feasible\. PRESSAL limped along during most of its lifetime, and consistently was a troubled and troublesome project, from the perspectives of both Bank and client\. Large amounts of managerial and technical energy were devoted to marginal "fixes" to problems that in fact required a full-scale re-thinking of the project\. In retrospect, it can be argued that cancellation or reformulation of the project would have led to better outcomes\. - 13-  2\. Operations requiring provincial commitments should obtain those commitments before project approval\. Required legal instruments - such as the legislative authorization required when a province becomes indebted - should be signed as a condition for negotiation, to minimize post-effectiveness delays\. 3\. A reform is a political process first, and only later a technical process; it requires on both a creation of the political viability and development of technical feasibility\. For both of these aspects, participation outside of the health sector and commnunication with civil society is essential\. Having a broader base of support for the concept of autonomous hospitals might have led to less variation in politicians' views about PRESSAL with changes in government administrations\. 4\. In a reform-oriented project, investment in civil works should be made contingent on adoption of specific changes in the sectoral "software" (e\.g\., management, human resources, or the other subjects of the reform)\. In PRESSAL, the link between the reform and the civil works was inconsistent, and the civil works ended up being implemented largely in isolation from management improvements\. Thus, many opportunities for synergy and sustainability in project benefits were lost\. 5\. Intense supervision is crucial for smooth project implementation, particularly In the face of political turbulence\. In the early part of the project, the task team was provided with sufficient budget for close supervision, and the Bank was able to keep track of all aspect of the project and take necessary remedial measures\. Towards the end of the project, severe budgetary constraints prevented the task team from close supervision of civil works and technical aspects of the project\. 9\. Partner Comments (a) Borrower/implementing agency: The Borrower has carried out its own evaluation of the Project and has reported that it agrees with the content of the Implementation Completion Report\. (b) Cofinanciers: N/A\. (c) Other partners (NGOs/private sector): N/A\. 10\. Additional Information ICR Team Ruth Levine (ICR Task Team Leader) Luis Perez (Consultant) Sati Achath (Consultant) Juan P\. Uribe (Co-Task Team Leader) Natalia Moncada (Program Assistant) Coments Received from: Ariel Fiszbein (Sector Leader) Evangeline Javier (Sector Manager) Alexandre Abrantes (Sector Manager, AFTH2) - 14 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Impact Indicators Project Components Indicator Projected in Current / Last evaluation SAR ___________________ 1\. Political Framework Studies were initiated, completed as Dec\. 1996 Dec 1998 Mid Term Mission, all studies Reforms well as the initiation of Pilot test on were completed\. recommendations made on the studies Dec\. 1997 2\. Progress Reports on The Implementation of Pilot Hospitals * Infrastructure Civil works initiated and in Dec\. 1996 Delay in the initiation of implementation 5 in the Province of Buenos mplementation at 40 % in all of civil works: Aires, urisdictions (i) in Sep\. of 1997 1 is 4 in the City of Buenos Aires nitiated, and Concluded phase of 40 % and Dec\.1997 (ii) in 1998 4 are 3 in the Province of Mendoza implementation on the remaining 60 % initiated n all jurisdictions (iii) in 1999, 3 and Total: 15 forecasted (iv) in year 2000, another 4 works are initiated\. Total: 12\. * Information Technology National Strategic Plan Dec\. 1996 Dec\. 1997 Initiation of the bidding process for the first two hospitals Dec 1996 First two hospitals are completed and fully operational in each jurisdiction\. Dec 1998 Initiation of the bidding process for the three last hospitals in each jurisdiction Dec 1999: Terms of Dec 1998 Reference for the Implementation process of the last International Public three hospitals Bidding\. In August 2000\. Suspended All hospitals are fully operational Dec\. 1999 due to lack of time for the fulfillment on the terms Dec\. 2000 Institutional Development Initiated in the two first hospitals of Dec\. 1996 each junsdiction Completion in the two first hospitals and initiated in the last ones of each Dec 1998 Fully executed\. Objectives on global urisdiction hange are reached at 40 % In process in the last three hospitals of eachjurisdiction Dec\. 1999 Finalized and in full operation in all targeted hospitals Dec\. 2000 - 15 -  3\. Dissemination of Reform 1\. Technical Assistance to jurisdictions In December 1998 TA was made available to 14 provinces not Initiatives and other entities no beneficiaries of the transfer of included under component II the pilot experience\. recommendations made under 2\. Human Resources Development and component I of the Tining roject should have been 2\. 2\.1: Biddings results: 2\.1 Training scholarships Plan nitiated\. I International: 7 II International: 15 2\.2 National and Intemational III National: 42 Seminars Amendment IV National: 20 September 15 1999, added "the I st\. International Seminar about Financing 2\.3 Human Resources technical nefit of TA to of the Health Sector Bariloche (June 1997) development System: the Ministries of Regional Seminar on Management (i) Hospital Management and Public Health of Contracts La Pampa\. Date: April 1998\. dministration the Provinces Exchange on Management Experiences (ii) Health Economy\. (MSP), Public Bariloche\. Date: November 1999 (iii) Public Health (Epidemiology Hospitals and "Management Experiences of the Health and statistics) Social Works on Services" Buenos Aires\. Date: November the Provinces"\. 1999\. 2\. 2\.3: Results: 152 trained hospital administrators within he provinces\. 3\.) Web Page of PRESSAL as of October 1998\. 4\.) December 2000 3\.-) information dissemination and Workshops in the provinces of social communication Santa Fe, Cordoba, Catamarca; Misiones 256 attending officials 4\.) Dissemination Program and _Technological Transfer - 16 -  Annex 2\. Project Costs-and Financing Annex 2a (1) Project Cost by Component Component Budget Accumulative Reimbursements Projected Projected % of s/ SAR Execution Jan -April '02 Reimbursements Accumulative Advance unffl (sue 87) (1) May- Execution tfil 31/1212001 Jun '02 (2) 30/06/02 1\. Formulation of policy reforms I Separation design between loans and financing in the provinces 0\.04 0\.04 0\.00 0\.00 0\.04 100\.0% 2\. Relevamiento of health services 0\.82 0 82 0\.00 0\.00 0\.82 100\.0% 3\. Sanitary pnorities in Argentina 0\.09 0\.09 0\.00 0\.00 0\.09 100\.0% 4\. Payment systems design in hospitals 5\. Design of systems to identify the 0\.07 0\.07 0\.00 0\.00 0\.07 100\.0% beneficiaries of the diverse coverage's 0\.11 0 11 0\.00 0\.00 0\.11 100\.0% 6\. Regulatory framework for insurers and pnvate loaners 0\.00 0\.00 0 00 0\.00 0\.00 0\.0Yo 7\. Quality Control 8 Social Provincial projects Reform 0\.00 0\.00 0\.00 0\.00 0\.00 0\.0% 9\. AIDS 1\.85 1\.85 0\.00 0\.00 1\.85 100\.0% 10\. Study of Pre-inversion 0 32 0\.32 0\.00 0\.00 0\.32 100\.0% 0\.03 0 03 0\.00 0\.00 0\.03 100\.0% Total 3\.33 3\.33 0\.00 0\.00 3\.33 100\.0% 11\. Pilot program for Independent Hospitals 1\. Infrastructure improvement 2\. Insatutional development 80\.36 73\.06 0\.21 0\.25 73\.52 91\.5% 14\.49 13\.49 0\.00 0\.00 13\.49 93\.1% Total 94\.85 86\.55 0\.21 0\.25 87\.01 91\.7% 111\. Reforms disemination 1\. Technical Assistance 2\. Training programs 5\.36 5\.36 0\.00 0 06 5\.42 101\.5% 3\.03 2\.99 0\.02 0\.00 3\.01 99\.3% Total 8\.39 8\.35 0\.02 0\.06 8\.43 100\.5% IV: Management 1\. Management 8\.73 9\.21 0\.00 0\.00 9\.21 105\.5% Total 8\.73 9\.21 0\.00 0\.00 9\.21 105\.5% PRESSS 2\.86 1\.96 0\.00 0\.00 1\.96 68\.5% P\.P\.F\. 1\.19 1\.19 0\.00 0\.00 1\.19 100\.0%/0 LOAN TOTAL 119\.35 110\.59 0\.23 0\.31 111\.13 93\.1% Non Eligible Expenses Administatve Cost PNUD 2\.16 0\.00 0\.02 2\.18 Auditing Cost 0\.23 0\.00 0\.01 0\.24 Honoranes UEC y UEPs 0\.00 0 03 0\.06 0\.09 Banking Costs UEPs 0\.02 0\.00 0\.00 0\.02 Non-eligible consulting conracts 0 13 0\.00 0\.00 0\.13 Non- eligible project contacts- 0\.75 0\.00 0\.00 0\.75 Non-eligible Equipment Contracts 0\.23 0\.00 0\.00 0\.23 Expenses UEP Pcia\. of Buenos Aires 0\.25 0\.00 0\.00 0\.25 ( Honoranes, Others, Equip\. Mant\.) Non Eligible expenses subtotal 0\.00 3\.77 0\.03 0\.09 3\.89 0\.0% PROJECT TOTAL 119\.35 114\.36 0\.26 0\.40 115\.02 96\.4%h - 17 -  Annex 2b: Project Costs by Procurement Arrangements dgets/SARN ' Aumulatve'ProJdcteilExecutl6ntto, -9 t~, , ___ __ _______ n tr w +s ^Ns fl 30/06/2002 Categoryq IUPI LPN: 'OTHERS ITOTL i _,,_ LPI ;" "LPL4,?1 >OTHERS -NFBS : '-\.T\.O\.TAL 1\. Community Service 48\.97 3\. 10 52\.07 31\.21 19\.40 0\.34 0\.75 51\.70 2\. Teams 9\.60 9 36 2\.90 21\.86 21\.04 0\.36 0\.07 0 23 21\.70 3\. Consultoria 32\.64 32\.86 26 35 0\.13 26\.48 4\. P\.P\.F\. 1 19 1\.19 1\.19 1\.19 5\. Not Assigned 0\.00 0\.00 0\.00 6\. Administration 8 73 8\.73 9\.21 2\.78 11\.99 PRESSAIL Total 9\.60 , 58\.33 ,*4856 4116\.49 52\.255 19\.'7,6 437r16 '\.3\.89 ',,2 113\.06 PRESSS 2\.86 2\.86 1\.96 - 1\.96 Generob~Total 9\.60 ' 58\.33 A 51\.4 119\.35 52\.25^\., 19\.76 - 39`2, 3\.89,, !- tI115\.02 "Paitiipation 8\.0% 48\.9% 43\.1% 100\.0% 45\.4% 17\.6% 34\.0% 3\.4% 100\.0% , \., \. _____________ 56\.9% 43\.1% 100\.0% 62 6% 34\.0% 3\.4% 100\.0% Notes: Detamls of the concepts included in others: Details of the concepts included in NBF Selection based in cost and quality 20\.61 Administrative Cost 2\.18 Individual Consultants 9\.7 Auditing Cost 0\.24 Direct Contracting 2\.62 Honoraries UEC & UEPs 0\.09 Contest and Minor expenses 3 04 Banking costs UEPs 0\.02 P\.P\.F\. 1\.19 Non Elegible Consulting Contracts 0\.13 PRESSS 1\.96 Non Elegible Work Contracts 0\.75 Other Totals 39\.12 Non Elegible Equipment Contracts 0\.23 UEP Pcia\. De Buenos aires Expenses 0\.25 Total of non eligible concepts 3\.89 - 18 -  Annex 2c: Project Financing by Component Budget s / SAR Accumulative % de Advance Execudon until 31/12/2001 Component BIRF LOCAL BIRF LOCAL BIRF 70% LOCAL 70% 30% 70% 30% 30% 1\. Pollcitcs Formuladon for the reforms 1\. Separation design between loans and financing in the provtnces 0\.3 0\.3 0\.03 0\.01 100\.0% 100\.0% 2\. Relevamiento of health services 3\. Sanitary pnorities in Argentina 0\.57 0\.57 0\.57 0\.25 100\.0W 100\.0% 4\. Payment systems design in hospitals 0\.06 0\.06 0\.06 0\.03 100\.0% 100\.0% 5\. Design of systems to identify the beneficiaries of the 0\.05 0\.05 0\.05 0\.02 100 0% 100\.0% diverse 0\.08 0\.08 0\.08 0 03 100\.0% 100\.0% coverage's 6\. Regulatory fiamework for insurers and pnvate 0\.00 0\.00 0\.00 0\.00 0\.00/0 0\.0°/° loaners 7\. Quality Control 0\.00 0\.00 0\.00 0\.00 0\.0% 0\.0% 8 Social Provincial projects Reform 1\.30 1\.30 1 30 0\.55 100\.0% 100\.0% 9\. AIDS 0\.22 0\.22 0\.22 0\.10 100\.0% 100\.0% 10\. Pre-inversion Study 0\.02 0\.02 0\.02 0\.01 100\.0% 100\.0% Component total I 2\.33 2\.33 \.33 1\.00 100\.0% 100\.0% 11\. Independent hospitals PUot program 1\. Infrastructure improvement 56\.25 56\.25 51\.46 22\.06 91\.5% 91\.7% 2\. Institutional development 10\.14 10\.14 \.44 4\.05 93\.7% 93\.1% Component total 11 66\.39 66\.39 60\.90 26\.11 91\.7% 1\.7% 111\. Reforms disemination 1\. Technical Assistance 3\.75 3\.75 3\.79 1\.63 101\.1% 101\.2% 2\. Training programs 2\.12 2\.12 2\.11 0\.90 99\.5% 8\.9% Component total 111 5\.87 5\.87 5\.90 2\.53 100\.5% 100\.5% IV: Management 1\. Management 6\.11 6\.11 6\.45 2\.76 105\.6% 105\.3% Component total IV 6\.11 6\.11 6\.45 2\.76 105\.6% 105\.3% PRESSS 2\.00 2\.00 1\.37 0\.59 68\.5% 68\.5% P\.P\.F\. 1\.19 1\.19 1\.19 _ 100\.0% Loan Total 83\.89 35\.46 78\.14 32\.99 93\.1% 93\.1% Non Eligible expenses Administrative Cost PNUD 2\.18 Auditing Cost 0\.24 Honoranes UEC & UEPs 0\.09 Banking Costs UEPs 0\.02 Non-eligible consulting contracts 0\.13 Non-eligible project contracts 0\.75 Non-eligible equipment contracts 0\.23 Expenses UEP Pcia\. Of Buenos Aires (Honoranes, 0\.25 Otheres, Eqip Mant\.) Non Eligble expenses subtotal 3\.89 Project Total 83\.89 35\.46 78\.14 36\.88 93\.1% 104\.0% Financed 67\.9% 32\.1% - 19 -  Annex 3\. Economic Costs and Benefits N/A\. - 20 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation August/95 I 1 Public Health Specialist S HS Appraisal/Negotiation April /96 2 1 Consultant, 1 Public HS HS Health Specialist Supervision June/96 2 Public Health Specialist, S HS Consultant August/96 1 Public Health Specialist S HS December/96 2 Operations Officer, Health S HS Economist July/97 2 Operations Officer, Health S HS Economist December/97 4 Health Economist, Operations S HS Officer, Consultant, Consultant July/98 6 Health Economist, Health Care U S Policy, Quality Assurance Specialist, Health Architect, Operations Officer, Financial Management Officer December/98 4 Health Care Policy Specialist, S S Health Economist, Health Architect, Program Assistant June/99 4 Health Economist, Health Care S S Policy Specialist, Health Architect, Consultant August/00 2 Health Specialist, Operations S S Officer November/00 4 Health Specialist, Procurement S U Specialist, Financial Management Specialist, Financial Management Specialist April/01 I Health Specialist S S ICR November/01 2 Procurement Specialist/TM, S S Civil Engineer Consultant - 21 -  (b) Staff Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ c000) Identification/Preparation 39\.40 112\.0 Appraisal/Negotiation N/A Supervision 63\.76 183\.0 ICR 0\.78 2\.3 Total 104\.00 297\.3 No disaggreated data for staff members are available for years previous to FY98\. Therefore, staff data for those years was estimated\. - 22 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies O H OSUOM O N * NA O Sector Policies O H OSU*M O N O NA O Physical O H OSUOM O N O NA O Financial O H OSUOM * N O NA O Institutional Development O H O SU *M 0 N 0 NA F Environmental OH OSUOM O N * NA Social E Poverty Reduction O H OSUOM * N O NA O Gender O H OSUOM O N * NA O Other (Please specify) O H OSUOM O N * NA E Private sector development 0 H O SU O M 0 N 0 NA Ol Public sector management 0 H O SU * M 0 N 0 NA Ol Other (Please specify) O H OSUOM O N * NA - 23 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating ? Lending OHS*S OLU OHU F Supervision OHS OS * u O HU O Overall OHS OS * U O HU 6\.2 Borrowerperformance Rating O Preparation OHS OS OU O HU El Government implementation performance O HS O S * U 0 HU Ol Implementation agency performance OHS OS * u O HU rO Overall OHS OS *U O HU -24 -  Annex 7\. List of Supporting Documents PRESSAL T < i - TYPE OF /2 U3c,~~,~-\.D~ATE' Text RRSSAM - Capacity Building of the Health System\. 19 Conourbano Bonaerense none participating parties\. Office AR - Proposed Greater Buenos Aires HP identification Mission Back to office 07/29/93 Memorandum report Office AR - Proposed Health Sector Development Project Preparation Mission Back to 12/03/93 Memorandum office report Text Health Sector Reform Project - Aide memone 03/01/94 Office AR- Buenos Aires Seminar en HSR in LAC - Preparation of a PHSDP B to 0 report 04/05/94 Memorandum Office AR - HSDP Preparation Mission Back to Office Report 09/23/94 Memorandum Office AR: hsdp Pre-Appraisal Mission Back to Office Report 12/28/94 Memorandum Office AR - Provincial HSDP - Appraisal Mission - Back to Office Report 04/10/95 Memorandum Office AR - Provincial HSDP - Appraisal Mission - Back to Office Report 06/30/95 Memorandum Office Parag- Maternal and Child HP, AR HIRP Provincial HSDP, Urug- HSDP B to 0 10/06/95 Memorandum report Office AR Provincial Health Sector Development Project\. Back to Office Report 05/07/96 Memorandum Office AR Provincial HSDP, HSDP Back to Office report 06/19/96 Memorandum Office AR Provincial HSDP, HSDP Back to Office report 11/26/96 Memorandum Office AR - Provincial HSDP - Ln -30310-AR - Back to Office Report 12/20/97 Memorandum Text Minutes of agreement AR: PDSSP PRESSAL WB Supervision Mission 07/30/98 Office AR - PHSDP (In 30310-AR)\. Supervision Report 08/11/98 Memorandum Office AR - PHSDP (In 39310-AR)\. Mid - Term Review Supervision Report 12/14/98 Memorandum Office Portfolio Status Update AR\. Provincial HSRP (AR-PE 6030) LN 3931 AR 05/19/99 Memorandum Office Supervision Mission Report AR Provincial HSDP (AR-PE 3931) 07/30/99 Memorandum Text Minutes of agreement AR PDSS in the Provincial LN 3931-AR 09/12/99 e-mail Argentina Provincial Health Sector Development Supervision 09/21/99 Report Health Sector Transition Cabinet - Report on the status of PRESSAL Arq\. A de 11/01/99 Debuchy e-mail LCSHD Supervision Mission Report: Argentina Provincial HSD LN 3931 AR 12/15/99 Text Aide Memorie - WB Mision March 20 through 24, 2000 LN 3931 - AR 04/06/00 Text Minutes of Agreement (Aide Memorie) AR Provincial PDSS 08/13/00 - 25 -  e-mail BTOR and Aide Memoire - PRESSAL (AR) 11/16/00 Report PRESSAL - Report on implemented activities and the development of the 11/01/00 management program Report consultant firms technical evaluation of elegible hospitals\. 12/29/00 Report Dissemination and technology transfer program 11/30/00 Letter Letter No\. 1461/00 SPRS from Health Ministry - 4004-AR/393 1-AR 1226/00 Report financial management report - PRESSAL 12/31/00 Text Aide memorie - Ln BIRF 4004-AR and ammendment IBRD 3931 -AR 01/05/01 Report Evaluation on results and impacts of the health sector reform program\. 01/29/01 Report Operational Management Report - PRESSAL 02/01/01 Report Evaluation of the health sector reform program - PRESSAL 07/01/02 Report Evaluation on the technical assistance provided by consultants on hospital 07/01/02 organization and mangement Report Evaluation of the health sector reform program - PRESSAL- by consultant Clapp & 07/01/02 maine Report Completion report - Social security rehabilitation program 10/01/02 - 26 -  IBRD 29348 -20- a BOLIVIA r 0 20'- | av r N BRAZIPARAGUAYL it'\. *Scltm /*I% odo! } e _ ~~S A L TA;, _ 'Fomsih 'Formosa/ ) c' *t; Tu4um6n CHA CO" c T C U, SANTIAGO Resistencia Posodors_," c / M$t \ 0 <Santiago del cstera / orrientes ," **J _A ESTERO |\ >> I * RIOJA\' ISANTA I -30° SAN \ FE ) 30- u JUA C\.6rdobo 'Santo, \ r esnJu'n An F6 cOar=n6 i <¢ \ xtui / i /, URUGUAY 7 \~~~SA N' 1jen U ~ ~ ~ ~ ~ ~ ~~~ B ~~~~~~s Aire E'MENDOZA: I / #\ -JSantoRasas | BUENOS A T L A N T I C ' '-I i X : LA AIRES _ y \. ~4 PAM PA _NEUQUEN1( / t-) U \ Neuqu6 0 C E A N 7 RIO 40° NEGRO led A G N- _ _ \._ iDARGENTINA Golf-GofNuevo Rawson S ( 8 CHUBUT fS CHUB UT * f 0 PROVINCE CAPITALS t I2 ~ < > ' 69 | NATIONAL CAPITAL *Z (_ _( I-- --~ |PROVINCE BOUNDARIES -> - -f INTERNATIONAL BOUNDARIES SANTA °9 (-~ <CRUZ FALKLAND ISLANDS (MALVINAS) -50' 'o Gollegos 0 100 200 300 400 500 600 KILOMETERS I '~~~~~,''\.~~~~XP L I I I I I A P-' OCE4RN SOVE trENTY OM hE 1SLANDS 1ErIST ENA 5J5NJ4 WM55a4544 I I I TIS SCVM0rt AN THE UX WfOsHA S 0 100 200 300 400 Miles 7WE SLANVS\. This mop was produced by the Map Design Unit of The World Bank\. u\., M^^ AThe boundaries, colors\. denominotions and onyother informahon shown ERRTl coc ICA on this map do not imply, on the port of The World Bank Group, any > 4 DEL FUEGO Iudgment on the legalstatus of any temtory, or any endorsement or acceptonce of such boundones 70' 50' APRIL 1998    IMAGING Report No\.: 24325 Type: ICR

REVIEW

P010457

 ICRR 11297 Report Number : ICRR11297 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/20/2002 PROJ ID : P010457 Appraisal Actual Project Name : Population Ix Project Costs 103\.8 100\.51 US$M ) (US$M) Country : India Loan/ US$M ) 88\.6 Loan /Credit (US$M) 81\.6 Sector (s): Board: HE - Health (100%) Cofinancing 0 0 US$M ) (US$M) L/C Number : C2630 Board Approval 94 FY ) (FY) Partners involved : Closing Date 12/31/2001 12/31/2001 Prepared by : Reviewed by : Group Manager : Group : Ronald G\. Ridker Ronald S\. Parker Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives To: (1) strengthen and improve functioning of the Family Welfare (FW) Programs in 3 states, and (2) lower the current levels of fertility and maternal and childhood mortality in these states \. b\. Components Original components included: (1) extension and upgrading of FW infrastructure and strengthening outreach and community linkages and participation systems using volunteers ($55\.2m); (2) Improving quality of FW services through improvements in training, logistics systems, and drugs and medical supplies, and involvement of nongovernmental organizations (NGOs) ($23\.8m); (3) Demand generation activities ($11\.1m); (4) Strengthening FW program management and (5) Innovative schemes and preparation of future investments ($4\.2m) c\. Comments on Project Cost, Financing and Dates Project components were revised by scaling down scope of civil works (because of cost escalation ) and training, information-education-and-communication (IEC) and community mobilization activities (because of limited management capacity at state level ), and diverting some funds for the Gujarat Emergency Earthquake Assistance Project\. Implementation of training, IEC and community mobilization was integrated with those of the IDA -assisted Reproductive and Child Health project \. Steady devaluation of the Rupee against the US dollar resulted in cost savings which were used in part to finance the Emergency Earthquake Assistance Project \. 3\. Achievement of Relevant Objectives: Fertility and maternal and childhood mortality rates fell during the course of the project, but the extent of the decline attributable to the project cannot be determined \. Expansion of Services\. The targets for construction, renovation, upgrading and provisioning of health facilities were largely achieved, and most of the new facilities placed in service \. Outreach and community linkage activities were not pursued with the same vigor \. While large numbers of mobile camps were conducted, moped and bicycle loan schemes to increase mobility of outreach workers had a poor response in all states, training targets for volunteers were not fully achieved, and end -line surveys reported that the fraction of those trained that were actually working was substantially less than planned \. Quality of Services\. End-line surveys suggest that the ability of those who received training to provide services improved significantly\. But only 80% of the revised targets for training were achieved, apparently because of fewer teachers being appointed than planned and slow and problematic procurement of equipment for the training centers that were established\. Demand Generating Activities\. Most IEC activities were only started after the mid -term review and did not achieve their targets, in large part because of neglect, weak implementation capacity, and poor supervision \. Strengthening FW Programs and Management \. This component is considered marginally satisfactory \. A new office building for the FW Department in Assam was constructed \. State level plans for upgrading computer facilities, installing and maintaining systems, and training staff was partially achieved \. The computer department of the Area Projects Division of the Ministry of Health and Family Welfare was upgraded, but staff appointments, and therefore overall capacity improvements, were less than planned \. Innovative schemes were, to a large extent, defined as involving NGOs and (in Rajasthan) enlisting the assistance of community members as volunteers\. For example, in Karnataka, NGOs were contracted to provide services to remote and tribal areas and to operate some public health centers \. Expenditures in this component were only 30% of the amount originally budgeted, suggesting that significantly less was done in these directions than originally planned \. Emergency Earthquake Assistance for Reconstruction in Gujarat \. This project was amended to allow $ 10 mill\. To be reallocated to this component \. $9\.53 mill were disbursed, all for reconstruction of collapsed houses and repair of partially damaged houses\. Performance by State\. Performance by state varied considerably, Assam in general performing better than did Rajasthan and Karnataka\. 4\. Significant Outcomes/Impacts: Main outcome appears to have been provision and upgrading of services in remote regions of three states \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Most shortcomings occurred in the software components \. Significantly less was accomplished than originally planned with respect to training, outreach, community mobilization, demand -generating activities like IEC, mobilization and use of volunteers, and innovative activities \. Appointment of critical academic teaching staff in training institutes was less than planned \. Weak procurement and logistic capacity resulted in delays and failure to fully utilize warehouses and some training facilities \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory While the hardware components were satisfactory, a significant number of important software components were only marginally satisfactory or unsatisfactory, as outlined above\. Institutional Dev \.: Substantial Modest Efforts to improve management capacity were narrowly focused, mainly on construction of a new office building and provision of computer services and related training\. Critical staff appointments to utilize the new office equipment and training facilities were less than targeted Sustainability : Likely Likely Bank Performance : Unsatisfactory Unsatisfactory Borrower Perf \.: Satisfactory Unsatisfactory The less than fully satisfactory outcomes, according to the ICR, resulted from lack of commitment and management capacity, mainly at the state and district level and lack of adequate manpower\. Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The units of government below the center that are responsible for project implementation need to be as much committed and involved in project design as is the center\. Management structures and implementation arrangements must be tailored to the context and environment of the different implementing units, in this case, states; a single model is unlikely to be appropriate in all cases\. An adequate assessment of the impact of training on quality of services requires more than an end-line survey asking trainees whether they benefited; it requires direct observations of service quality itself\. Project outcomes appear to suggest that training of large numbers of para-medical staff requires in-house training capacity, while the implementation and management of a behavior change strategy may best be done by a private sector firm\. This is an interesting hypothesis that should be tested elsewhere\. If community involvement is a goal of a project, the communities should be involved in the design of the project--for example, in the selection of sites for health facilities and in deciding on ways to involve and utilize volunteers from the community\. 8\. Assessment Recommended? Yes No Why? More to be learned, especially if part of a cluster of state projects 9\. Comments on Quality of ICR: Quality is generally good, but explanations sometimes too terse or missing altogether \. For example, the ICR states that the construction component was scaled down because of cost escalation; but why was this escalation not funded from the savings due to devaluation of the rupee? More could usefully be said about the nature of the instititutional and managerial limitations at the state level and whether project inputs to improve management were appropriate and adequate to the task \. An explanation for why the moped loan program failed in all three states would have been useful\. Also, there is too much focus on outputs rather than impacts \. For example, the numbers of buildings created is discussed, but there is little discussion of the extent to which these buildings were utilized \. Similarly, there is more focus on numbers of persons trained than on whether the service quality (which was supposed to improve as a consequence of the training ) was in fact improved\.

REVIEW

P001157

 Abidjan environmental protection project Report No: ; Type: Report/Evaluation Memorandum ; Country: Cote d'Ivoire; Region: Africa; Sector: Pollution Control / Waste Management; Major Sector: Environment; ProjectID: P001157 Content: Cote d'Ivoire: Abidjan Environmental Protection Project (Loan 3155-IVC) The Implementation Completion Report (ICR) on the Republic of Cote d'Ivoire Abidjan Environmental Protection Project (Loan 3155-IVC, approved in FY90), prepared by the Africa Regional Office, was reviewed by the Operations Evaluation Department (OED)\. The loan, in the amount of US$21\.9 million, was extended twice so that works could be completed; the closing date shifted from December 31, 1993 to December 31, 1995\. The final project cost was US$42\.4 million (US$7\.5 million below the SAR estimate of US$49\.9 million)\. US$2\.2 million of the original loan amount was canceled\. The European Investment Bank cofinanced US$17\.9 million equivalent\. Both the cofinancier and the borrower provided comments\. The primary objective of the project was to reverse the degradation of the Abidjan urban aquatic environment caused by the dumping of urban wastes and industrial effluents into the Ebri‚ lagoon\. This was to be achieved by constructing and using an ocean outfall (a large pipe which runs out to sea, and releases treated sewerage into favorable ocean currents so that it dilutes and disperses without impacts to the coastal zone)\. The project included four major components: (a) building waste water disposal facilities; (b) establishing sound environmental regulations; (c) monitoring pollution; and (d) ensuring the financial and operational sustainability of the sewerage system\. Physical works included the construction of an ocean sewerage outfall (with the necessary diffuser, traps and screening plant); and construction of sewer lines/conduits for connecting industrial zones and residential areas to the main culvert and the outfall\. The project also supported a range of activities leading to the development of a comprehensive Master Plan for the protection of the Abidjan environment\. Environmental objectives have been largely achieved: the ocean outfall is expected to reduce the organic pollution of the lagoon by 80 percent (but it will take time before monitoring results show improvements)\. About 174,000 inhabitants (compared to an appraisal estimate of 140,000) and industrial units of the Port area representing an additional 220,000 equivalent-inhabitants were connected to the interceptor\. Civil works were delayed by more than a year so that odor-suppression equipment could be installed\. The project's financial objectives were only partly achieved: cost recovery from the users has been adequate, but revenues collected by Treasury were not transferred to the National Water Fund (contrary to the financial covenants of the Loan Agreement)\. The ICR re-estimated the economic rate of return at 12 percent (15\.4 percent was expected in the SAR) and the net present value computed with a discount rate of 10 percent_ is CFA franc 2\.5 billion (compared with the appraisal estimate of CFA franc 7\.7 billion); implementation delays reduced benefits and kept property values around the lagoon from increasing as expected\. The achievement of the institutional development objectives was also incomplete because the Master Plan was not actualized, the pilot on-site sanitation component was not executed as expected, and sector coordination did not occur entirely as planned\. Still, operational responsibilities have been streamlined and privatized, and although the new regulatory framework has not been enacted yet, draft regulations were developed\. OED rates the project's outcome as satisfactory, its sustainability as likely, its institutional development impact as moderate, and Bank performance as satisfactory\. These ratings are consistent with those in the ICR\. In addition to the lessons on water tariff surcharges, project conditionality, disbursement and contract packaging detailed in the document, lessons learned suggested by this project center on the environment\. First, projects that attempt to upgrade the environment in severely degraded areas can achieve significant impacts provided that comprehensive facilities combined with appropriate regulatory reform are included\. Secondly, environmental assessments should always have mitigation plans, and these should take into account the potential negative impacts of civil works (as well as operations)_even for projects which are trying to improve the environment especially when construction is taking place in densely settled urban areas\. The ICR is of good quality\. The borrower did not prepare the future operations plan, but it is expected soon\. The project may be audited at a later date\.

REVIEW

P088619

 Document of The World Bank Report No: ICR2521 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H1640) ON A GRANT IN THE AMOUNT OF SDR53\.9 MILLION (US$82 MILLION EQUIVALENT) TO THE DEMOCRATIC REPUBLIC OF CONGO FOR AN EMERGENCY LIVING CONDITIONS IMPROVEMENT SUPPORT PROJECT December 21, 2012 Sector Department AFTU2 (Water and Urban Services) Country Department AFCC2 Africa Region i  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2012) Currency Unit = US$ CDF 1\.00 = US$0\.001105 US$ 1\.00 = 905\.00 CDF FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS BCECO Bureau Central de Coordination CAS Country Assistance Strategy CDF Congolese Franc DGA Development Grant Agreement DRC Democratic Republic of Congo EESRSP Emergency Economic and Social Reunification Support Project ELCISP Emergency Living Conditions Improvement support Project FY Fiscal Year ICR Implementation Completion and Results Report ISR Implementation Status and Results Report M&E Monitoring and Evaluation MTR Mid-Term Review n\.a\. not applicable NGO Non-Governmental Organization NPV Net Present Value OP Operational Policy OVD Office de Voirie et Drainage PMPTR Minimum Partnership Program for Recovery and Transition PPF Project Preparation Facility PROROUTES High-Priority Roads Reopening and Maintenance Project RAP Resettlement Action Plan RMF Road Maintenance Fund TSS Transitional Support Strategy TTL Task Team Leader RN Route Nationale – National Road TA Technical Annex UDP Urban Development Project URMF Urban Rehabilitation Management Firm ii  Vice President: Makhtar Diop Country Director: Eustache Ouayoro Sector Manager: Alexander Bakalian Project Team Leader: Mahine Diop ICR Team Leader: Mahine Diop ICR Author: Christian Vang Eghoff iii  DEMOCRATIC REPUBLIC OF CONGO Emergency Living Conditions Improvement Support Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 4 3\. Assessment of Outcomes \. 11 4\. Assessment of Risk to Development Outcome\. 15 5\. Assessment of Bank and Borrower Performance \. 16 6\. Lessons Learned \. 18 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 19 Annex 1\. Project Costs and Financing \. 20 Annex 2\. Outputs by Component \. 21 Annex 3\. Economic and Financial Analysis \. 26 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 30 Annex 5\. Beneficiary Survey Results \. 32 Annex 6\. Stakeholder Workshop Report and Results\. 34 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 35 Annex 8\. Comments of Cofinancers and Other Partners/Stakeholders \. 43 Annex 9\. List of Supporting Documents \. 44 MAP IBRD 333921R2 iv A\. Basic Information Emergency Living Congo, Democratic Conditions Country: Project Name: Republic of Improvement Support Project Project ID: P088619 L/C/TF Number(s): IDA-H1640 ICR Date: 12/21/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVERNMENT Original Total XDR 53\.90M Disbursed Amount: XDR 53\.87M Commitment: Revised Amount: XDR 53\.90M Environmental Category: B Implementing Agencies: Unité de Coordination de Projets (UCoP) Cofinanciers and Other External Partners: Not Applicable B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/08/2004 Effectiveness: 09/23/2005 09/23/2005 07/26/2010 Appraisal: 07/14/2004 Restructuring(s): 03/30/2011 02/22/2012 Approval: 05/26/2005 Mid-term Review: 11/05/2008 Closing: 09/30/2010 06/30/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: High Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: v C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General education sector 7 20 General public administration sector 13 13 General transportation sector 50 40 General water, sanitation and flood protection sector 15 15 Health 12 Transmission and Distribution of Electricity 15 Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction 33 35 Infrastructure services for private sector development 17 10 Municipal governance and institution building 17 10 Participation and civic engagement 16 15 Urban services and housing for the poor 17 30 E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Gobind T\. Nankani Country Director: Eustache Ouayoro Pedro Alba Sector Manager: Alexander E\. Bakalian Inger Andersen Project Team Leader: Mahine Diop Xavier Devictor ICR Team Leader: Mahine Diop ICR Primary Author: Christian Vang Eghoff vi F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project's objective is to assist the Government in improving living conditions by strengthening the socio-economic situation in key urban centers and in two isolated areas - i\.e\.: (i) improving delivery of basic services in provincial capitals and key medium urban centers; and (ii) restoring key transport links to reconnect tow isolated regions\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Additional pupils with access to improved school facilities in targeted areas\. Target not Value provided due to quantitative or 0 additional pupils\. demand-driven 20,000 32,688 Qualitative) nature of the project\. Date achieved 11/26/2005 09/30/2010 06/30/2010 06/30/2012 Comments Fully achieved\. The target did not take into account the classrooms financed (incl\. % under component B\. With this incorporated, the target should have been 32,500 achievement) and was thus fully achieved\. People provided with access to a basic package of health, nutrition, or Indicator 2 : reproductive health services\. Target not Number: Value provided due to Number: 730,000\. 740,000\. quantitative or 0 additional pupils\. demand-driven Percentage: Percentage: Qualitative) nature of the 19%\. 38%\. project\. Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments 99% achieved\. Percentage (outdated CORE indicator) was set as annual increase, (incl\. % and is not considered for the ICR as no longer relevant and the actual number achievement) tells the full story\. Number of people in urban areas provided with access to improved water sources Indicator 3 : under the project\. Target not Value provided due to quantitative or 0 additional pupils\. demand-driven 70,000 239,000 Qualitative) nature of the project\. Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target surpassed\. Additional beneficiaries come from expansion of network in vii (incl\. % Kikwit, Bandundu, and Mbandaka where it was originally only foreseen to achievement) rehabilitate production and storage facilities\. Indicator 4 : Reduction in time travel in two isolated areas (hours)\. Value quantitative or 60 No initial target\. 3 3 Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Fully achieved\. Before, the Lubumbashi-Kasenga (RN5) drive took 60 hours, Comments now 3 hours are enough\. Access by truck to Gemena from both sides (by RN6 (incl\. % from either Akula or Zongo) has been reduced from about one week before to 1- achievement) 2 days after the project\. Indicator 5 : Share of rural population with access to an all-season road\. Value quantitative or 0 No initial target\. 22% 22% Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Fully achieved\. Beneficiaries calculated as populations living in the villages (incl\. % neighboring the rehabilitated roads, as percentage of total provincial population\. achievement) Indicator 6 : Number of additional rural people with access to an all-season road\. Value quantitative or 0 No initial target\. 1,890,000 1,891,932 Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2010 Comments Fully achieved\. Core indicator, not part of original TA, added at the first project (incl\. % restructuring in 2010 to measure results of Component C as restructured\. achievement) Indicator 7 : Direct project beneficiaries\. Value quantitative or 0 No initial target\. 2,732,500 2,893,620 Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments 101% achieved\. Core indicator, not part of original TA, added at the first project (incl\. % restructuring in 2010\. achievement) Indicator 8 : Female beneficiaries\. Value quantitative or 0 No initial target\. 51\.7% 51\.7% Qualitative) Date achieved 11/26/2005 09/30/2010 11/26/2010 06/30/2012 Comments Fully achieved\. Core indicator, not part of original TA, added at the first project (incl\. % restructuring in 2010\. Target and achievement both based on the female achievement) population\. viii (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Roads Rehabilitated (km) Value (quantitative 0 522 360 360 or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments 69% achieved for the original target, 100% achieved for the restructured project\. (incl\. % Original target not specifically part of the TA results framework but retained for achievement) the ICR as de facto target\. Indicator 2 : Roads in good and fair condition as a share of total classified roads\. Value No target (quantitative 14% 16\.5% 16\.5% provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Fully achieved\. Indicator added at the first project restructuring in 2010\. The (incl\. % rehabilitated roads contributed to increasing the share of roads in good condition achievement) by 2\.5 percent\. Indicator 3 : Size of the total classified network (km) Value No target (quantitative 7,154 7,770 7,770 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Fully achieved\. Indicator added at first restructuring in 2010\. Not fully (incl\. % attributable to the Project, it measured the combined effect of the Project and the achievement) PROROUTES project\. Part attributable to Project was achieved (360 km)\. Indicator 4 : Person days provided in labor-intensive public works\. Value No target (quantitative 0 2,400,000 3,500,000 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Fully achieved\. Target should have been 3\.5M, but at restructuring only Comments Components A and B were considered as Component C was dropped\. (incl\. % Component C included for ICR to give full picture\. Indicator added at first achievement) project restructuring in 2010\. Indicator 5 : Beneficiaries of public works program\. Value No target (quantitative 0 34,000 48,000 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Fully achieved\. Target should have been 48,000\. At restructuring only Comments Components A and B were considered as Component C was dropped\. (incl\. % Component C included for ICR to give full picture\. Indicator added at first achievement) project restructuring in 2010\. ix Indicator 6 : Administrative buildings built, rehabilitated or equipped\. Value No target (quantitative 0 9 9 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target fully achieved\. Indicator added at the first project restructuring in 2010 to (incl\. % detail improved living conditions indicator for Components A and B in the TA\. achievement) Indicator 7 : Markets built/rehabilitated Value No target (quantitative 0 7 8 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target fully achieved\. Indicator added at the first project restructuring in 2010 to (incl\. % detail improved living conditions indicator for Components A and B in the TA\. achievement) Indicator 8 : Improved latrines constructed under the project\. Value No target (quantitative 0 599 578 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target 96 percent achieved\. Indicator added at the first project restructuring in (incl\. % 2010 to detail improved living conditions indicator for Components A and B in achievement) the TA\. Indicator 9 : Water distribution network constructed/rehabilitated (km)\. Value No target (quantitative 0 7\.8 35\.8 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Substantially surpassed; additional works carried out on additional Component B Comments allocation during first restructuring, and to benefit more people from upgraded (incl\. % production and storage facilities\. Indicator added at first project restructuring in achievement) 2010\. Indicator 10 : Improved community water points constructed or rehabilitated under the project\. Value No target (quantitative 0 84 239 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Largely surpassed\. 10 water points dropped at first restructuring (taken over by (incl\. % Urban Water Project); additional water points made possible by works achievement) transferred from the EESRSP\. Indicator 11 : Health facilities constructed, renovated, and/or equipped (number)\. Value No target (quantitative 0 18 19 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target fully achieved\. Target should be 19\. Indicator added at first project (incl\. % restructuring in 2010 to detail improved living conditions indicator for x achievement) Components A and B in the TA\. Number of additional classrooms built or rehabilitated at the primary level Indicator 12 : resulting from project interventions\. Value No target (quantitative 0 334 523 provided\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Fully achieved\. Target at restructuring did not take into account expected (incl\. % Component B outputs\. Indicator added at first project restructuring in 2010 to achievement) detail improved living conditions indicator for Components A and B in the TA\. Indicator 13 : Schools equipped with materials and/or furniture\. Value (quantitative 0 No target provided 44 46 or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Target fully achieved\. Indicator added at first project restructuring in 2010 to (incl\. % detail improved living conditions indicator for Components A and B in the TA\. achievement) Decrease of transport cost for goods in areas located along RN5 and RN6 (price Indicator 14 : per ton)\. Lubumbashi- Lubumbashi- Value Kasenga: 25%\. Dropped at Kasenga: 57%\. (quantitative 0 Akula-Gemena: restructuring\. Akula-Gemena: or Qualitative) 30%\. 50%\. Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Comments Largely surpassed\. Was only indicator in TA with details for target\. Dropped at (incl\. % 2010 restructuring, but retained for ICR to show results at restructuring\. Results achievement) based on survey carried out by UCoP for ICR\. Effective involvement of authorities, stakeholders, and beneficiaries in the design Indicator 15 : and supervision of activities\. Value No pre-project Effective Dropped at Effective (quantitative involvement\. involvement\. restructuring\. involvement\. or Qualitative) Date achieved 11/26/2005 09/30/2010 06/26/2010 06/30/2012 Fully achieved\. Indicator part of TA, but dropped at 2010 restructuring\. Comments Involvement in selection, design and supervision was effective, and captured in (incl\. % city contracts and by technical assistance provided to Components A and B achievement) cities\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 08/10/2005 Satisfactory Satisfactory 0\.00 2 06/27/2006 Satisfactory Satisfactory 8\.07 3 11/22/2006 Moderately Satisfactory Moderately Satisfactory 10\.56 xi  4 05/18/2007 Moderately Satisfactory Moderately Satisfactory 16\.87 5 11/15/2007 Moderately Satisfactory Moderately Satisfactory 22\.82 6 05/15/2008 Moderately Satisfactory Moderately Satisfactory 30\.44 7 11/13/2008 Moderately Satisfactory Moderately Satisfactory 36\.40 8 05/12/2009 Moderately Satisfactory Moderately Satisfactory 39\.39 9 11/30/2009 Moderately Satisfactory Moderately Satisfactory 45\.80 Moderately Moderately 10 05/31/2010 52\.87 Unsatisfactory Unsatisfactory 11 03/27/2011 Moderately Satisfactory Moderately Satisfactory 63\.12 12 07/09/2011 Moderately Satisfactory Moderately Satisfactory 66\.83 13 01/09/2012 Satisfactory Moderately Satisfactory 74\.74 14 07/04/2012 Moderately Satisfactory Moderately Satisfactory 81\.03 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions To extend the closing date from 09/08/2010 MU MU 58\.02 February 29, 2012 to June 30, 2012\. To: (i) drop a number of activities under Components A and B, which are no longer considered a 04/04/2011 N MS MS 63\.12 priority by the government and (ii) include a set of activities that face a financing gap from Grant H0640\. To extend closing date to 06/30/2012 to complete 02/22/2012 N S MS 76\.61 activities for RAP or RN2 and limited activities under Components A and B\. xii I\. Disbursement Profile xiii 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The Democratic Republic of Congo (DRC) was gradually emerging from a decade of political instability and conflict\. Major fighting ended in 2001 and a UN peace-keeping force was deployed in 2002\. Since April 2001, the government had implemented a program of economic reforms, supported by the Bretton Woods Institutions, and DRC reached the Highly Indebted Poor Countries decision point in June 2003 - with a total assistance estimated at US$6\.3 billion\. A transitional government of national unity was appointed on June 30, 2003, creating conditions favorable to social and economic reunification\. However, the situation remained fragile\. The size of the country and the lack of infrastructure combined to make access to certain areas extremely difficult and state institutions remained weak, translating into extreme poverty and persistent insecurity in these areas\. 2\. Per capita income, at about US$107 in 2002, was only a fraction of what it was at the time of independence\. An estimated 16 million people were in critical food need\. With the conflict, the formal private sector almost collapsed, with many enterprises losing assets, staff, and commercial networks\. Traditional export activities dropped to only 5 percent of GDP and services declined (from about 45 percent of GDP in the 1980s to 28 percent in 2001), while the share of agriculture substantially increased (from 30 percent of GDP in the 1980s to 54 percent in 2001)\. Only 5 percent of the active population had a job in the formal sector\. The economy was largely based on subsistence; small-scale trade, services, and day labor in urban areas and subsistence agriculture in rural areas\. Sector context 3\. Cities in DRC, home to about a third of the population, had an important role to play in assuring social stability and economic growth\. Urban economic collapse, deteriorating living conditions, and inflows of displaced persons combined to create a highly volatile environment, as illustrated by a series of riots and violence in June 2004\. Infrastructure and services had considerably deteriorated over the previous decade\. Entire provinces did not have access to energy or clean water, urban streets were in poor conditions and drains were blocked, providing breeding grounds for mosquitoes\. Public health had deteriorated with a rapid spreading HIV/AIDS epidemic and with other diseases on the increase, and primary school enrollment had decreased\. The urban population was living in increased poverty, economic activities in cities were limited and they no longer played a role as growth centers in the national economy\. Further, the dilapidation of the road network during the conflict had resulted in the isolation of entire provinces, where living conditions were appalling\. Government strategy and response 4\. The main mandate of the transitional government was to restore peace and assure reunification\. The government had implemented a program of economic reforms to spur economic growth and tackle some of the structural bottlenecks which had hampered DRC’s economic development in the past\. The results of the program were significant, but needed to be further consolidated and the government’s capacity for pro-poor spending was constrained by lack of resources\. A Minimum Partnership Program for Recovery and Transition (PMPTR) had been prepared by the government in November 2004, as a strategy while the comprehensive Poverty Reduction Strategy was being developed\. The PMPTR proposed an overall strategic framework for transition and recovery, and presented the needs in 16 areas, 1 ranging from macroeconomic stability to infrastructure and including the social sectors, organization of elections and security sector reform\. 5\. There was a broad consensus between the government and donors that managing the social crisis and laying the ground for economic growth and poverty alleviation were critical to the success of the overall effort\. The priority was to focus the reconstruction effort on generating peace dividends, in particular in urban centers (since they had proven to be highly combustive), to keep the transition and recovery process on track\. The PMPTR focused on reestablishing the authority of the state throughout the country, pursuing macro-economic, governance and business climate reforms, and working towards social inclusion\. Both the government and donors emphasized the acuity of the ongoing social crisis and donors had pledged US$5\.7 billion in aid for the three to four year program estimated at US$6\.9 billion\. World Bank strategy and response 6\. The Bank’s response was designed and implemented as part of the broader donor response\. A Transitional Support Strategy (TSS) was developed for 2004-2006 to focus on four strategic elements: (i) security and social stability, including in volatile areas, especially urban centers, and re-establishing the authority of the state throughout the country; (ii) high and shared growth, with a particular effort to rehabilitate transport and urban infrastructure; (iii) governance and institutional strengthening, in particular at the provincial level; and (iv) social development, in particular to improve living conditions in urban areas, where “quick winsâ€? could be most easily achieved\. 7\. The Emergency Living Conditions Improvement Support Project (ELICSP) was an integral part of the portfolio of Bank-funded projects, both ongoing and in the pipeline: (i) the Emergency Multi-sector Rehabilitation and Reconstruction Project (EMRRP, 2002), targeted the most basic and urgent needs through community sub-projects; (ii) the Emergency Economic and Social Reunification Support Project (EESRSP, 2004), contributed to the stabilization of the economy and the social fabric in the Eastern and Northern provinces; and (iii) the Emergency Urban and Social Rehabilitation Project was under preparation to focus on Kinshasa\. Together these projects would cover the whole territory, as it was estimated that the conflict had in fact also affected the population outside the conflict areas\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8\. The project's objective was to assist the Government in improving living conditions by strengthening the socio-economic situation in key urban centers and in two isolated areas, i\.e\.: (i) improving delivery of basic services in provincial capitals and key medium urban centers, and (ii) restoring key transport links to reconnect two isolated regions\. The sub- objectives were not part of the Development Grant Agreement (DGA) but figure in the project description in the Technical Annex (TA) to the Memorandum of the President and are retained for the ICR\. 9\. The indicators were not fully developed at appraisal, but the TA specifies that they would measure: (i) the increased quality and coverage of services available in each targeted urban area, and (ii) a decrease of transport costs to reconnected areas\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10\. The PDO was not revised, but as demand-driven investments were selected in project cities the indicators were refined to capture the actual impacts of specific sector investments\. 2 The project was restructured three times, and two restructurings included changes to the results framework (see details in section 2\.3)\. 1\.4 Main Beneficiaries 11\. The original beneficiaries were the residents of the 18 medium-sized cities and 7 provincial capitals targeted by the project and the population living near the two roads to be rehabilitated (Equateur and Katanga Provinces)\. The provincial administrations were also to benefit from capacity building\. 1\.5 Original Components (as approved) Component A: Support to medium urban centers (Appraisal/actual cost: US$10\.00 million/US$13\.16 million) 12\. This component was to finance emergency activities (for infrastructure rehabilitation, social services delivery, and economic revitalization activities) in 18 medium-sized cities located in the Western and Southern provinces 1 with investments to be selected based on a local level consultation process\. The component was a geographical expansion of similar activities successfully implemented under the ongoing EESRSP\. Component B: Support to provincial capitals (Appraisal/actual cost: US$27\.00 million/US$33\.66 million) 13\. Component B would finance quick-impact investments in the capitals of the Western and Southern provinces 2 (including infrastructure rehabilitation, social services delivery, and economic revitalization activities with a particular focus on labor-intensive activities), as well as targeted support to specific technical entities\. Component B was also a geographical expansion of similar EESRSP activities\. Component C: Connectivity to isolated areas (Appraisal/actual cost: US$32\.00 million/US$29\.95 million) 14\. Also a scale-up of similar activities successfully implemented under the EESRSP, this component would finance the rehabilitation of two major roads (Akula-Gemena-Mbari- Libenge-Zongo (RN6) in Equateur and Lubumbashi-Kasomeno-Kasenga (RN5) in Katanga, see details in Annex 2), to make them fit for circulation and the transportation of goods under acceptable economic conditions and re-connect two isolated regions to the national transport network\. Component D: Support to provincial institutions (Appraisal/actual cost: US$7 million/US$0\.01 million) 15\. This component would replicate similar activities successfully implemented with funds from the EESRSP, the European commission, and bilateral donors\. It would support and strengthen key provincial institutions in all project provinces through: (i) provision of basic training, (ii) acquisition of equipment, and (iii) minimal rehabilitation of office facilities\. 1 The cities are: Luozi, Mbanza-Ngungu, Moanda (Bas-Congo Province), Bulungu, Inongo, Kenge (Bandundu), Bikoro, Ingenge, Lisala (Equateur), Luiza, Mueka, Tshikapa (Western Kasai), Kabeyakamwanga, Mwene-Ditu, Tshilenge (Eastern Kasai), Kamina, Kasenga, Kolwezi (Katanga)\. 2 Bandundu (Bandundu Province), Kananga (Western Kasai), Kikwit (Bandundu, not a provincial capital), Lubumbashi (Katanga), Matadi (Bas-Congo), Mbandaka (Equateur), and Mbuji-Mayi (Eastern Kasai)\. 3 Component E: Project management (Appraisal/actual cost: US$3 million/US$5\.03 million, including PPF reimbursement) 16\. The objective of the component was to coordinate, monitor and report on the project (not mentioned explicitly as a component in the TA, but with funds allocated and mentioned as a component in the DGA)\. 1\.6 Revised Components 17\. Component C was closed on July 26, 2010, due to the poor performance of contractors and cost overruns (see section 2\.2) to help refocus the project on other activities consistent with the achievement of the PDO\. Prior to this, work had been carried out to reopen critical road sections in both provinces, and traffic flowed freely, in line with the component objective\. Originally planned Component C activities had to be completed under new contracts partly on the borrower’s own funds and partly through the Bank-funded High- Priority Roads Reopening and Maintenance Project (PROROUTES)\. Component D was closed at the same time as most of the priority activities had been financed by the borrower and the remaining follow-up activities could be implemented under the Bank-funded Governance Capacity Enhancement Project and other donor-funded projects more suited for sector interventions\. 1\.7 Other significant changes 18\. The project was restructured three times: (i) On June 26, 2010, Components C and D were closed and proceeds reallocated to Components A and B (details in Annex 1)\. At the same time, the project was extended by one year from September 30, 2010 to September 30, 2011\. (ii) The second restructuring was approved on March 30, 2011 to drop activities under Components A and B which were no longer considered a priority and transfer activities facing a financing gap from the EESRSP (see section 2\.2 for details)\. The closing date was also extended by 5 months to February 29, 2012 and the results framework slightly revised\. (iii) The third restructuring took place on February 22, 2012, to extend the closing date by another 4 months, from February 29, 2012, to June 30, 2012, to complete activities for the Resettlement Action Plan (RAP) of RN2 (transferred from the EESRSP) and limited activities under Components A and B\. The results framework was revised accordingly each time\. Details and background are provided in sections 2\.2 and 2\.3\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Preparation 19\. The ELCISP was part of a broader effort to consolidate the transition and recovery process\. It was prepared as an emergency operation under OP 8\.50 to expand the reach of ongoing reconstruction activities, reflecting an improvement in the security situation, and built on the existing Bank portfolio, most notably by replicating successful activities of the ongoing EESRSP (covering the four Eastern provinces) in the six remaining provinces\. The Bank and government operational knowledge enabled preparation and appraisal of the project to take place in nine months, an acceptable preparation time for an emergency operation\. The government’s engagement in the EESRSP was replicated and the inter-ministerial committee already in place served for the coordination of the preparation of the ELCISP\. The existing project coordinating unit in the Ministry of Planning (Unité de Coordination de Projets – UCoP), already implementing the EESRSP was charged with project preparation to overcome capacity constraints\. 4 Design 20\. The project design built on approaches which had proven successful under the EESRSP and reflected lessons learned from that operation, including building in flexibility\. It was, however, prepared as a separate operation as EESRSP was a reunification project also providing balance of payment support and micro-credits, and to introduce new features not part of the EESRSP, notably providing on-site technical assistance (engineer) to secondary cities and developing city contracts (as explained below)\. The project expected to generate peace dividends in parts of the country which had previously received little assistance, and focused on living conditions improvement, the government’s highest priority, by using a multi-sectoral approach\. Experience has shown that such support is critical and that relatively small investments can have a disproportionate impact\. This approach was coupled with a focus on recreation of growth poles and employment generation, contributing to stabilizing the social situation and strengthening the environment for transition and recovery\. The project fully reflected the priorities of the TSS\. 21\. Further, previous experience in DRC had shown that imbalances between the resource-rich East and the rest of the country had contributed to political instability, so particular attention was paid to this issue by targeting the areas around Lubumbashi and Gemena (under Component C), which remained isolated\. Investments for Component A would be selected during implementation through consultation with all key stakeholders, helping to ensure that resources would be spent wisely and benefits widely shared, and also contributing to revitalizing municipal structures\. The process to consult the population was fully developed during appraisal\. The cities were selected based on urgency of needs, security conditions (allowing development activities), and access conditions (including for contractors, as moving equipment to sites was highly challenging in many isolated cities and areas)\. Component B activities were selected during appraisal through consultations facilitated by a government technical team that visited each city\. Component C focused on reconnecting isolated regions, as spelled out in the PMPTR\. 22\. Operation and maintenance arrangements have historically proven to be difficult to assure in emergency operations, especially where none existed before the conflict\. The project did, however, include provision for maintenance for all investments (Components A, B, and C according to the TA, although only Component C maintenance is part of the DGA) for a three year period\. A planning element, not part of the EESRSP, was added to the emergency response via the signing of city contracts between the government and city authorities, specifying (for Components A and B) the investments to be financed, the expected development objectives and the corresponding measurable performance indicators, and the arrangements devised by the authorities for operation and maintenance, including financing arrangements and individuals in charge\. The city contracts further had the advantage of providing assurance that investments to be financed by the project would actually occur, correcting a situation where local authorities had previously planned the same investments twice with the hope that at least one donor would eventually finance the investment\. The contracts also engaged the cities to lodge the on-site engineer and secure the sites and had clauses on continuity in case of change of local administration\. Further, it was foreseen that sector ministries and specialized agencies relevant for the types of infrastructures financed by the project would be associated, providing an opportunity for capacity strengthening critical for the continued operation and maintenance of rehabilitated infrastructure\. 5 23\. Implementation arrangements took into account the existing capacity constraints in the public administration\. UCoP was charged with overall project implementation and reporting\. The Bureau Central de Coordination (BCECO, an autonomously functioning government entity) was put in charge of implementing Component A and managing procurement for Component C, as it had some experiences from previous projects, and an engineer was seconded to each of the 18 Component A cities\. The Urban Rehabilitation Management Firm (URMF, private sector) would manage activities under Components B and D, also due to its good track record\. The use of tested implementation mechanisms was a practical way to ensure quick wins and rapid, visible results\. The project also relied on private contractors rather than NGOs, as restarting private sector activity was a priority\. Quality at entry 24\. A quality at entry assessment rated quality satisfactory, confirmed by the evaluation in this ICR\. The project had a relevant PDO and components were designed to flexibly address the most urgent needs in a relatively participatory manner\. Design built on emerging good practices\. The project was ready for implementation at effectiveness, with procurement of key contracts already underway\. With hindsight some shortcomings on Components C and D become apparent\. Given the lack of technical studies for Component C, the project could have set aside more unallocated funds to cover any cost increases\. However, appraisal did rely on prices coming out of competitive bidding at that time (which, however later had to be revised upwards), so this is not considered a significant appraisal shortcoming\. Neither are shortcomings on Component D feasibility; the component was considered as less urgent and took time to start\. Since many activities were taken over by other projects before it could start up under the ELCISP, it was eventually cancelled\. 2\.2 Implementation 25\. In spite of good experience with ELCISP implementing agencies under ongoing Bank-funded projects, the project encountered problems early on due to the inability of the implementing agencies to scale up their work and limited capacity of contractors, combined with the geographic spread of activities\. Delegated contract management also took some time for the parties to fully grasp as a concept, which was new in DRC\. The delegated contract managers (BCECO and URMF) had experience in World Bank procurement procedures but not in works supervision, a shortcoming given the weak capacity of contractors, and were not used to monitoring and reporting on project indicators\. BCECO further did not focus enough on the sustainability of investments proposed, which resulted in many Component A projects being rejected early on, further delaying implementation\. 26\. Component A had experienced about one year delay due to the time taken to recruit on-site engineers, the geographic spread of sites and the limited capacity of the construction industry\. Component B was delayed due to the late recruitment of URMF and the time taken to mobilize staff, including on-site engineers, as well as developing an adequate management system\. Component C encountered persistent delays due to the lack of capacity of the contractors and the isolated locations, which made access to sites extremely difficult\. During contract negotiations, the contractors for road works had accepted a reduction of their bid against reduction in the scope of work (focusing only on the most critical road sections to reopen, since the bids were too high compared to estimates), but this resulted in opening many sites for minor works, which the contractors did not have sufficient capacity to do\. Given the limited capacity of URMF to deal with problems under Component B, priority was given to solving these issues and getting the reconstruction part of the project on track, 6 therefore Component D activities did not start up under the ELCISP, as they were considered less urgent\. 27\. The Mid-Term Review (MTR) was held in November 2008 (disbursement rate was 43 percent), and was used to find solutions to the above-mentioned problems\. Component progress was as follows: • Component A was now progressing well, with 78 percent of component allocations disbursed\. The city contracts were proving useful to assure that all actors played their part\. • For Component B, the low performance of the implementing agency meant that it was not until the MTR that tenders worth US$6\.5 million (30 percent of the component envelope) were ready to be launched\. • Component C also encountered problems\. Work to reopen the Akula-Zongo road (RN6) was progressing slowly\. The work of one of the two contractors (working on the Mbari-Zongo section of RN6) had been at a halt for three months, but the contractor was allowed more flexibility to organize work\. The contractor for the other section (Akula-Mbari) had encountered delays, but work was progressing\. A component cost overrun of US$4 million (or 12\.5 percent of appraised component cost) was however estimated\. • Due to the cost overruns, it was agreed to close Component D and reallocate the funds to Component C, since most of the activities were already financed by the government and the provinces, and the remaining activities, which were less urgent but still relevant to longer term institutional development, would be financed by other donors\. 28\. The MTR was further used to ensure that selected investments under Component B were not already planned for inclusion in other sector projects\. As a result, water sub-projects in Matadi and Lubumbashi were dropped from the ELCISP (as they would be financed by the Urban Water Project, then under preparation and approved on December 18, 2008) and replaced with other investments within the allocated budget\. 29\. In spite of the solutions sought, the contractor for the Mbari-Zongo section of RN6 was not able to restart work, mainly due to lack of funds to supply the site\. The contract eventually had to be terminated\. It took some time to find an adequate solution to finalize the works, given cost overruns, but it was finally agreed to transfer the works to an Additional Financing being prepared for the ongoing Bank-funded PROROUTES\. 30\. The restructuring agreed at the MTR finally took place on June 26, 2010, (disbursement rate 68 percent) to modify the scope and design of the project by closing Component C, with a disbursement rate of 92 percent and Component D, which remained undisbursed\. As it was found that the balance from Component D would not be sufficient to finance the remaining works to consolidate achievements on Component C, and the roads were already passable, in line with the PDO, the unused funds were reallocated for use under Components A and B to ensure that these components’ contribution to PDO would be scaled up and achieved by the new completion date of September 30, 2011\. 31\. The proposed changes would not have a major effect on the original economic and social aspects of the project and the PDO did not change since key project activities were already included in Components A and B\. Component C had already disbursed 92 percent of the allocated funds and met the target of increasing the average speed on the roads 7 rehabilitated (at 30km/h compared to the target of 25km/h), by treating the most critical road sections\. Further, Component D was designed to be additional to Components A, B, and C with focus on longer term development, so closing it would not impact the PDO, also taking into consideration that most of the activities of Component D had been implemented by the borrower and the remaining activities would be financed through other projects\. 32\. A second restructuring became necessary on March 30, 2011 (at the time the disbursement rate was 77 percent)\. The restructuring was used to drop some activities under Components A and B, notably urban roads in Matadi, water supply in Mbuji-Mayi, and supply of IT equipment in some rehabilitated schools, which were no longer considered as a priority because these had already benefited from critical investments from the project\. The restructuring was further used to transfer some EESRSP activities that faced a financing to ELCISP: (i) implementation of the RAP (US$3 million) for RN2, (ii) works related to water supply in Goma, Bukavu and Kindu and power supply in Kindu (US$2 million), (iii) audits and studies for the implementation completion report of the EESRSP (US$290,000), and (v) remaining project implementation costs (US$350,000)\. An additional financing to the EESRSP was considered but rejected due to the overage nature of the project (8 years)\. The results frameworks of the two projects were revised in consequence\. 33\. A third restructuring became necessary on February 22, 2012, to complete activities anticipated in the RAP of RN2 and very limited number of activities under Components A and B which were experiencing implementation delays (works related to water supply in Goma, Bukavu, Kindu, Mbandaka, Kikwit)\. The closing date was extended from February 29, 2012 to June 30, 2012\. All activities were ongoing and expected to be completed before the closing date\. At the time of restructuring about 93 percent (US$76\.31 million) of the Grant had been disbursed\. 34\. At the time of ICR, all activities have been completed; except for the RAP of RN2 (see section 2\.4)\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design 35\. The structure of the M&E framework was fully developed at appraisal, but not all indicators were known, due to the demand-driven nature of the investments under Components A and B\. However, this should not have prevented the project team from developing indicators with adequate baselines for Component C, for which specific investments were known, but also for Component D, which was based on a known package of investments per province\. UCoP was made responsible for regular tracking of indicators and organizing meetings with implementing partners and key stakeholders and direct beneficiaries\. Implementation 36\. It was not until the MTR in November 2008 that the M&E framework was fully developed as the Component A and B investments became known and specific sector indicators with baselines were added for both outputs and outcomes\. It was also agreed to hire specific M&E capacity to UCoP to assure regular follow-up on results and socio- economic aspects of the project, and UCoP staff received targeted M&E training\. The changes were formalized in the June 2010 restructuring, which also included the addition of 8 core indicators\. Further minor adjustments were made during the second restructuring to targets in line with the revisions\. Utilization 37\. Following the MTR, M&E data was actively used to make sure the project was on track\. When it became obvious that contractors for Component C were not performing, the project was restructured once an adequate solution had been found to assure implementation of necessary activities\. The indicators were further used to keep regular track of impacts on beneficiaries\. 2\.4 Safeguard and Fiduciary Compliance Safeguards 38\. The project was rated category B as no major environmental impacts were identified\. Safeguard policies triggered include: Environmental Assessment (OP 4\.01), Natural Habitats (OP 4\.04), Physical Cultural Resources (OP 4\.11), Indigenous Peoples (OP 4\.10), and Involuntary Resettlement OP 4\.12\. The Environmental Impact Assessment for Component C and the Environmental and Social management Framework for Components A, B and D required by OP 4\.01, the Resettlement Policy Framework required by OP 4\.12, and the Indigenous Peoples Plan required by OP 4\.10 were prepared and were disclosed in DRC\. Copies were disseminated to NGOs, academics, Pygmy associations, and news agencies\. 39\. The MTR revealed that project affected persons resettled due to the road construction were not adequately compensated, that the works contracts did not, as foreseen, include funding to mitigate environmental aspects, and that the problem of medical wastes from health facilities funded by the project was not fully taken into account\. An international environmental and social consulting firm was hired to assist and train UCoP staff, contractors and the BCECO on environmental and social impact and management, as well as on Bank safeguards procedures and requirements\. The UCoP developed a plan to address the issues, and the balance of Component A was used to finance activities to address the situation\. RAPs and Environmental Management Plans have been prepared for each 30 kilometer segment of the roads\. A total of 627 project affected persons were compensated\. However, at project closing, the beneficiary satisfaction survey revealed that no adequate solution has been found to the problem of medical waste\. There were no other significant problems encountered\. 40\. The RN2 had been rehabilitated under EESRSP\. No displacement or asset losses occurred, but the road shoulders were reduced, leaving practically no space between the road and neighboring buildings, increasing the risk of traffic accidents\. To correct the situation, the recipient prepared an ex-post RAP (final amount US$262,090), which was to be implemented under the restructured ELCISP\. However, subsequent changes to Bank procedures do no longer allow for cash compensation to be paid on Bank funds, so the government is implementing the RAP as funds become available and has currently paid 61 percent of the adjusted amount of US$ 262,090 due to 35 project affected persons\. Fiduciary compliance 41\. UCoP took longer than expected to recruit internal and external auditors and until the MTR, the Unit had insufficient staffing in the financial department\. This was corrected however\. Financial management is rated moderately unsatisfactory, as a contract signed for road works was canceled in 2010 but the balance of the advance payment made, estimated at US$1,365,430, is still not reimbursed\. The advance guarantee approved by the Minister of 9 Finance turned out to be worthless when the contract (for part of the Akula-Zongo road) was terminated due to non-performance\. However, the government has committed itself to reimburse this amount\. Audit reports and interim financial reports (IFRs) were submitted to the Bank on time and there were no overdue external audit reports and IFRs at the time of the project closing date\. All audit reports and IFRs were reviewed by the Bank and comments provided to the government\. The latest audit report was qualified, although no accountability issues were flagged\. 42\. Procurement is rated satisfactory, as the project complied with the Bank procurement procedures\. Post procurement reviews did not reveal any irregularities\. A technical audit carried out in May 2012 confirmed that procurement methods and thresholds in the delegated contract management agreements have been respected\. 2\.5 Post-completion Operation/Next Phase 43\. For infrastructure built or rehabilitated under Components A and B, the beneficiaries had participated in selecting the priority projects and, in 90 percent of the cases they had participated in the hand-over\. The institutional anchoring is clear, with personnel on the government payroll, although some health centers and schools are still not fully staffed\. Most of the schools and health facilities rehabilitated by the project have committees to ensure regular maintenance\. Latrines facilities also have management committees and are assuring regular maintenance\. The new facilities attract more users than their planned capacity (according to the beneficiary satisfaction survey and due to the quality of services provided), resulting in overload, especially of health facilities\. The Emergency Urban and Social Rehabilitation Project financed operating expenses for 26,000 schools giving some respite\. However, the expected financing for maintenance to be provided by the government may be problematic, since the beneficiary satisfaction survey revealed that 68 percent beneficiary structures do not dispose of a budget line for maintenance and revenues generally do not cover expenses\. This is a serious issue that should be monitored to ensure that built facilities are maintained and provide the expected services over time\. 44\. Road maintenance represents a problem due to the current inability of the Road Maintenance Fund (RMF) to cover all the needs, although a road sector study and linked long-term maintenance strategy is being developed, and the RMF’s resources are increasing substantially year by year\. The Bank will finance, through the PROROUTES, the completion of the rehabilitation works and the current maintenance of the RN6 up to 2016\. During this time, road fund resources are expected to increase substantially enough to support road maintenance programs and maintain the effective operation of the RMF\. The tar surfacing of the Lubumbashi-Kasomeno road (a dirt road funded by the ELCISP but upgraded to asphalt on government funds) contributed to better preserving the investment and making the opening up of the isolated areas around Lubumbashi-Kasenga more sustainable\. 45\. In addition, it is worth noting that the government and the Bank have decided to move from emergency projects to sector projects, to pave the way for sustained access to basic services and address the sustainability requirements of basic services\. The ongoing Urban Water Supply Project is targeting water reforms, the Education Project has contributed to registering teachers and automating payments as well as preparing sector strategies, and the Governance Capacity Enhancement Project focuses on the development of administrative and financial management capacity in provincial governments\. The Urban Development Project (UDP), under preparation, will further focus on introducing performance elements in urban management, which will support the maintenance of urban infrastructure overall\. 10 46\. The technical audit carried out in May 2012 covered six of the 18 Component A cities (23 works contracts reviewed), and four of seven Component B cities (18 works contracts reviewed)\. The audit confirmed the overall acceptable technical quality of works, with some minor shortcomings on works in isolated areas due to the difficulties supplying sites (e\.g\. some locks and toilet flushes of poor quality) and the small contract envelopes not always attracting the most qualified firms\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 47\. The objectives remain highly relevant and reflect proper diagnosis of development priorities\. The project objectives and design were consistent with the 2004 TSS\. Further, the design was overall relevant to the situation prevailing at appraisal, and although parts of the project were not implemented (Component C was scaled down and Component D was dropped from the project, as it was implemented on other funds), the 2010 restructuring ensured continued relevance of the project to the prevailing environment\. Essential infrastructures have been rehabilitated in the Southern and Western provinces, but demand for infrastructures and service are still huge\. Improving living conditions and economic recovery continue to be relevant in a country where 70 percent of the population lives in poverty\. Some 9,000 kilometers of high priority earth roads are still closed to motorized traffic and access to basic services such as water is among the lowest in Sub-Sahara Africa: 22 percent compared to 60 percent on average in Sub-Saharan African countries\. 48\. The PDO remains relevant to DRC’s development needs, as the 2011-2015 PRSP explicitly considers cities as anchors to the development of growth poles\. The operation further created the basic knowledge on implementing urban management tools and improving access to services, which is feeding into preparation of the UDP\. In terms of decentralization, the PRSP aims to move the administration closer to the electorate and implement mechanisms for increased public participation, which the proposed operation will also support\. This is endorsed by the latest draft CAS (2012-2015), which is derived from the PRSP\. 3\.2 Achievement of Project Development Objectives 49\. The PDO was to assist the government in improving living conditions by strengthening the socio-economic situation in key urban centers and in two isolated areas\. This was clearly achieved, as the project directly benefited about 2\.9 million people in the targeted areas, as well as 12\.5 million indirect beneficiaries in the affected provinces\. The detailed evaluation in the ICR is carried out along the lines of the two sub-PDOs and five PDO indicators\. PDO(i)1: Improving delivery of basic services in provincial capitals and key medium urban centers 50\. Despite the very difficult implementation environment of the project, its impact is visible on the ground and the indicators on access to services were achieved: (i) 32,688 additional pupils got access to education against a target of 20,000\. (ii) 730,000 people got access to a basic package of health against 740,000 foreseen\. (iii) 239,000 people got access to water against 70,000 targeted\. (iv) Further, 75,000 persons got access to latrines (not a project indicator)\. 11 51\. This has resulted in increasing the number of pupils in rehabilitated schools by between 17 and 114 percent and health centers have seen the number of consultations increase substantially (by more than 200 percent in many cases) and assisted deliveries have also increased\. Thanks to the equipment provided by the project, many clinics are now able to perform caesarian sections\. The IT equipment provided to schools means that students now have the possibility to use the internet in 6 urban centers\. The markets constructed have resulted in additional resources for the beneficiary cities\. However, due to the “unicité de caisseâ€? principle, the money is deposited directly in the government accounts and not necessarily returned to the city\. On top of these results, an estimated 19,227 people live along the urban roads rehabilitated in Matadi saw their revenues increase by an estimated 48 percent compared to the situation before the rehabilitation\. 52\. The beneficiary satisfaction survey further confirms the adequacy of infrastructures (see section 3\.6)\. Component A sub-projects were selected with the participation of local populations facilitated by BCECO, as confirmed by the independent technical audit\. The priorities identified for Component B prior to appraisal were reconfirmed by the city authorities before implementation of works and recorded in city contracts\. Although these contracts were quite basic, they laid the groundwork for a contractual working relationship between different layers of government, which has proven useful in other countries as a good way to support a gradual decentralization process, and which has laid the groundwork for new urban projects to take over where the ELCISP left off\. They also succeeded in securing continued engagement of city authorities in cases where administrators were replaced, overcoming a problem other projects had encountered due to lack of continuity\. PDO (ii): Restoring key transport links to reconnect two isolated regions 53\. Despite the fact that the road component was closed following the project restructuring due mainly to the poor performance of contractors, the reopening of roads in the Kasai and Equateur Provinces contributed to facilitating the transportation of goods and passengers\. The PDO indicators were achieved: (i) Travel time was reduced from 60 to 3 hours along the rehabilitated parts of RN5, as foreseen\. The travel time by truck to Gemena from both sides (by RN6 from either Akula or Zongo) has been reduced from about one week before to 1-2 days after the project\. Average speeds for a truck reached 30km/h after the roads were rehabilitated, in line with design specifications\. (ii) The share of the rural population in targeted areas with access to an all-season road increased by 22 percent, from no population having access\. (iii) An estimated 1\.9 million additional people who were secluded for several years now have better access to the rest of the country, as targeted (almost 400,000 for the RN5 and 1\.5 million for the RN6)\. (iv) Reduction of 50 to 57 percent in transport cost along the two roads, against 25 to 30 percent targeted at appraisal\. 54\. The Lubumbashi-Kasomeno-Kasenga section was previously not fully open to traffic, but following rehabilitation, traffic now flows freely\. On the Lubumbashi-Kasomeno section (which was opened by the ELCISP) traffic increased from about 1,000 vehicles in July 2006 to 12,000 in July 2007 upon completion of the works funded by the World Bank\. The Kasomeno-Kasenga section was opened through works funded by the government\. The rehabilitation and opening of these roads laid the groundwork for sector projects, which are more appropriate for longer term sustainability of investments\. Private passenger transport 12 companies are now established in Kasenga, which is linked with Lubumbashi by a 3 hour drive, whereas before the reopening of the road, it was necessary to pass through Zambia during periods of the year\. For the Lubumbashi-Kasomeno-Kasenga road it can be considered that the objective has been achieved, with combined ELCISP and government own funds\. The beneficiary area, previously isolated, is now connected to the provincial capital\. As an indicator of economic impact, the socio-economic study carried out along the RN5 showed an increase of 177 percent in household revenue due to increased agricultural production for export\. 55\. For the RN6, the city of Gemena (population of the city and the surrounding territory: 1\.1 million inhabitants) was previously isolated with very difficult access from both sides (Akula and Zongo)\. Special trucks were needed to bring fuel to the city from the main supply port of Akula, until the project rehabilitated the most critical section, an 8 kilometer dike through marshland around Akula\. Travel time to reach Gemena from either side has been reduced from a week to 1-2 days and transport cost has been cut in half to reach Gemena from Akula, the main provision port\. The PROROUTES will finance all initially foreseen works for the RN6 to assure sustainability of investments\. 3\.3 Efficiency 56\. No economic analysis was carried out at appraisal due to the emergency nature of the project\. For the ICR, cost-benefit and unit-cost comparison were carried out for road investments, unit-cost comparisons were used for classroom rehabilitation/construction and water fountain construction, multi-criteria analysis was applied to the RN6, and operating costs were considered\. The full analysis, including assumptions, is presented in Annex 3\. 57\. A cost-benefit analysis was carried out for RN5 (from Lubumbashi to Kasomeno, financed by the ELCISP) and the urban roads in Matadi, based on “withoutâ€? and “withâ€? project scenarios established through a socio-economic survey and traffic counting\. The analysis quantifies reduction to vehicle operating cost, value of time savings and economic activity induced by the road rehabilitation\. The results confirm that roads were profitable from an economic point of view\. The analysis covers 23 percent of project investment costs\. Road investment Length (km) Financial investment IRR NPV (US$) cost (US$) RN5 137 12,056,520\.0 18% 18,279,046 Matadi 4\.7 3,839,739 41% 16,804,113 Total/weighted 141\.7 15,896,259 23% 35,083,159 Table 1: Result of economic analysis of road investments 58\. Unit cost comparisons for roads, classroom rehabilitation and water fountain construction are presented in the table below and confirm the relatively satisfactory efficiency of investments\. The analysis covers US$42\.8 million or 61 percent of total project investments\. Investment Comparator ELCISP Comments Rural road rehabilitation US$92,000 (*) US$81,815 This is for roads implemented under ($/km) similar conditions\. Classrooms US$8,500 (**)/ US$12,127 Comparator (**) operated in Goma only, 16,000 (***) with better accessibility\. Water fountain US$1,634 (**) US$2,500 Comparator only operated in Kinshasa with easy site accessibility\. (*) EESRSP; (**) Emergency Urban and Social Rehabilitation Project; (***) Government own funds\. 13 59\. Further, multi-criteria analysis on the RN6 (24 percent of investment cost) shows there were no alternatives to the opening up of the road and that technical design was least- cost\. Finally, the operating cost of the UCoP, at 6 percent of total project cost, was quite reasonable compared to the generally accepted norm of 5 percent, and given that field supervision had to be carried out by plane due to the geographic circumstances of the country\. 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 60\. The project outcome is rated moderately satisfactory overall, since the project did succeed in achieving the PDO indicators and most of the intermediate indicators, with only minor shortcomings\. Achievement of PDO is rated satisfactory\. Living conditions were improved according to the indicator targets set at the first restructuring, with minor adjustments during the second restructuring\. Service delivery clearly improved (sub-PDO i), and at a relatively satisfactory level of efficiency\. The two regions were reconnected to the rest of the country as foreseen (sub-PDO ii), and with satisfactory efficiency\. The project further remains highly relevant to current government and Bank priorities, but there were minor design shortcomings, justifying a substantial relevance\. The analysis of project efficiency shows good results, with minor shortcomings on unit costs, in spite of the fact that the project was an emergency operation and activities were not selected based on efficiency\. Efficiency is rated substantial\. 61\. The fact that the full component program foreseen at appraisal was not implemented, with cancellation of Components C (after 92 percent disbursement) and D (0 percent disbursement) did not impact the overall result\. Component C achieved the sub-PDO (ii) of decreasing the transportation costs and restoring key transport links to reconnect two isolated region, and albeit sustainability concerns, the areas remain open at project closing and the PROROUTES project will consolidate the works and take over maintenance\. Component D would have contributed to institutional capacity building, but as an additional extra, not as direct contribution to the PDO\. Overall, the PDO was achieved as judged by the indicators (and in spite of design shortcomings), the efficiency was substantial, but given that some activities were dropped from the project, which would have contributed to better sustainability and longer-term institutional impact, a “Moderately Satisfactoryâ€? rating is warranted\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 62\. With ELCISP investments in targeted provinces, local populations have felt, for the first time since the end of the conflict, the presence of the government, which is an important factor in the reconstruction process\. The project improved access to maternal and neonatal care through the rehabilitation of health centers and hospitals\. There was no system to keep track of employment generation, but it is estimated that the project generated about 3\.5 million man-days of work, based on 20 percent labor content of US$70 million investments and daily salary of US$4\. (b) Institutional Change/Strengthening 63\. One important contribution of the project at the government level is the development of a solid national expertise in the areas of social and environmental assessment and analysis\. 14 Through ELCISP and other WB-funded projects, and thanks to continual training and association of its staff in the Bank’s reviews and supervision activities, UCoP has become a multi-disciplinary agency with remarkable expertise in implementing development projects and in social and environmental safeguards assessment\. 64\. It is important to underscore that the Office des Routes (public rural roads agency) and the Office de Voirie et Drainage (OVD, public urban roads agency) had not done any work during the fifteen years of conflict\. By providing some basic equipment to these agencies and associating their staff to road design and construction as well as works supervision and environmental monitoring during the implementation of EESRSP and then ELCISP, their capacity has been reinforced to manage similar investments in the future\. OVD is being retained for road design for the UDP under preparation\. Municipal technical staff further benefited from participating in project implementation in the beneficiary cities, not least through the presence of outside expertise seconded by the implementing agencies\. (c) Other Unintended Outcomes and Impacts (positive or negative) 65\. The US$81 million invested by the project benefited 79 national enterprises through the signature of 201 works and goods contracts amounting to US$70 million\. Many of these companies and suppliers are located in urban centers involved in the project and have reinvested part of their profits locally\. For works, even though the share of imported products is still significant (equipment, cement, iron sheets, diesel, etc\.), the use of local materials (sand, gravel, wood, etc\.) has enabled many local artisans to increase their income\. Most furniture supplied to schools and health centers are wooden (desks, tables, chairs, etc\.) for which raw materials and production were largely domestic and even local\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 66\. A beneficiary satisfaction survey was carried out and shows that all (100 percent) beneficiaries find that the choice of infrastructures correspond to needs in their respective communities\. At closing, 87 percent of beneficiaries of health facilities find that services delivered continue to respond to their expectations, while 13 percent mention overload of facilities as a problem\. 80 percent of beneficiaries find the quality of construction satisfactory (with minor problems mentioned by 20 percent, principally for water, health, and sanitation)\. 85 percent of beneficiaries consider that such problems do not compromise the advantages of the project but that it would be necessary to take them into account to improve results\. See the full details of the survey results in Annex 5\. 4\. Assessment of Risk to Development Outcome Rating: High 67\. At appraisal, sustainability was made part of the selection criteria for sub-projects, and it was foreseen to include a provision for maintenance in all Component A, B, and C contracts\. This, however, did not happen, due to the cost overruns\. In any case, the provision would have been a temporary solution to overcome systemic shortcomings and would not have supported sustainable maintenance of investments\. The risks to the development outcome derive primarily from: (i) the current overall political and economic situation in DRC with the central government weakened due to recrudescent rebellion in the East, (ii) lack of dedicated funds for maintenance of rehabilitated infrastructures, (iii) slow improvement in institutional and community capacity, and (iv) uncertain direction of the decentralization process\. 15 68\. It is likely that the RN6 investments under Component C will be sustainable as completion of rehabilitation and regular maintenance of will be assured under the PROROUTES in the medium term, but having the resources and ensuring the maintenance will have to be monitored over time\. The existence of a Road Maintenance Fund is not a guarantee that maintenance works will be carried out on a regular basis, including for RN5\. 69\. All infrastructures rehabilitated under the project are operational and have been transferred to sector ministries or decentralized administration\. The quality of works was generally assessed as acceptable in technical audits\. The beneficiary survey has shown that the majority of infrastructures of Components A and B continue to operate several years after having been rehabilitated and sustainability was part of selection criteria for sub-projects\. 70\. In spite of some assurance that infrastructures and services will be maintained, the macro-risks from continued fragility of the country, lack of funds and technical capacity are reasons to conclude that risks should be rated as “Highâ€?\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 71\. The Bank delivered a strong and multifaceted response to the urgent rehabilitation and reconstruction needs, building on emerging lessons from ongoing projects and incorporating additional longer term sustainability considerations through a contractual approach\. The project was prepared in nine months as an emergency operation\. The rationale for Bank involvement was well-developed and the needs were well-identified, building on the experience of the EESRSP\. The institutional strengthening component was to complement infrastructure rehabilitation, and was relevant as testified by the fact that activities were implemented on other funding\. However, the project design had some minor weaknesses regarding especially: (i) the underestimation of rehabilitation costs of infrastructures, due to unreliable data, the absence of technical studies, security concerns and difficult access to sites; and (ii) the capacity of implementing agencies and delegated contract managers to mobilize\. These issues could not realistically be anticipated at the time of project design\. The M&E framework was developed and the lack of some specific indicators is also considered a minor shortcoming, so overall the ICR maintains the QAG rating of “Satisfactoryâ€? Bank performance\. (b) Quality of Supervision Rating: Moderately Satisfactory 72\. Overall, the Bank provided good continuity both in team composition throughout the implementation period and in regular interactions with the client, carrying out regular supervision missions during the entire project implementation\. The Borrower noted that the change of Task Team Leader (TTL) in 2006 and other changes in the management team did not noticeably impact institutional memory\. On the contrary, the new TTL based in the region close to the project provided continuous support to the client and helped move the project forward in the very difficult post-conflict environment\. 16 73\. The Bank demonstrated the flexibility to work proactively with the government to find solutions and responses to the requests made for project restructuring, extensions, and reallocations during implementation\. It took quite a long time to restructure the project following the MTR, due to the need to assure that activities could be completed, even if not in the context of the ELCISP\. The restructuring substantially contributed to keeping the project on track towards reaching the main targets as restructured, and achieving the PDO\. The flexible use of the whole Bank-funded project portfolio for DRC contributed to this result as the Bank was also able to solve problems linked with environmental and social safeguards, although the issue of medical waste remains\. In addition to the implementation of ELCISP, the Bank organized training sessions to strengthen UCoP’s capacity, particularly in monitoring and evaluation and safeguards\. The use of surveys to gauge the impact of the project on beneficiaries has been an excellent development supported by the Bank\. Overall, the Bank’s focus on development impact, adequacy of supervision inputs and role in ensuring adequate transition arrangements, with moderate shortcomings on supervision of fiduciary and safeguard aspects (relating to medical waste) justify a “Moderately Satisfactoryâ€? rating\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 74\. The overall rating is justified by the satisfactory outcome rating and the fact that active supervision and restructuring compensated for appraisal shortcomings on cost and insufficient amounts of unallocated funds\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 75\. The Government was actively involved in project preparation and agreed to use existing project structures for the EESRSP (UCoP, BCECO, URMF) with autonomy in the financial management and administrative capacities necessary for the proper execution of the project, marking a commitment to efficiency\. The government proactively requested (on December 20, 2007) restructuring of the project to take place during the MTR to address problems faced by Components C and D, and also financed rehabilitation of the Kasomeno- Kasenga part of RN5 on its own funds\. On the negative side, the project suffered from high turnover of ministerial-designated focal points which occurred as a result of government reshuffles\. Also, the government has committed to reimbursing the ineligible expenditures due to a non-valid contractor guarantee, although this has not happened by the time of ICR\. Office des Routes, a government agency, did not correctly estimate costs for rehabilitation of roads, which turned out to be a major contributing factor to cost overruns and project extensions\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory Unité de Coordination des projets 76\. Satisfactory\. Despite the difficult implementation environment, UCoP assured completion of project activities\. UCoP was able to limit its operating costs to 6 percent of total project funds, quite reasonable compared to the 5 percent normally accepted, despite the fact that all supervision had to be done by plane\. UCoP also implemented ELCISP activities without recruiting the additional staff foreseen at appraisal, albeit at a cost\. Supervision would have been done better by recruiting field officers\. UCoP’s performance is a major 17 contributing factor to the successful implementation of several Bank-funded emergency projects\. UCoP ensured that infrastructure investments were transferred to sector ministries or decentralized administration as relevant\. One case of ineligible expenditures (the void bank guarantee) meant that financial management is rated moderately unsatisfactory\. Despite these issues, UCoP performed satisfactorily\. Bureau Central de Coordination 77\. Moderately Satisfactory\. BCECO, acting as a procurement agent for all contracts for Components A and C helped to achieve project objectives\. The designation of a focal point within BCECO to monitor ELCISP activities greatly facilitated the management of project activities, although there were shortcomings related to delegated contract management for Component A, works supervision and reporting on indicators\. The work carried out for urban rehabilitation was broadly satisfactory\. BCECO could also have assured more regular site visits from the main office, which could have contributed to better quality of works\. Urban Rehabilitation Management Firm 78\. Moderately Unsatisfactory\. The URMF was slow to mobilize personnel, resulting in slow start-up of activities under Component B\. Contract management suffered from lack of application of contractual clauses (in terms of payment and reimbursement of advances and retention of guarantees)\. As with UCoP and BCECO, URMF could also have conducted more regular site visits from the main office\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 79\. The overall borrower performance rating is justified by the ability to implement the project under extremely difficult circumstances, with all site supervision taking place by planes with reduced timetables, which meant visiting one site could take up to a week, and at a time when plane crashes were frequent (two BCECO staff who were travelling to a project site actually died in a plane crash)\. There were minor to significant shortcomings noted on both the government side and for all implementing agencies, but overall, the project was implemented with a satisfactory result, which especially the increasing expertise of UCoP contributed to\. 6\. Lessons Learned 80\. Design of an emergency project needs to balance many competing and sometimes opposed objectives in an unpredictable environment with shortage of information, and hence flexibility underpins success\. The compressed preparation period does not always allow to adequately balance quick wins and longer term impacts\. The ELCISP struck a somewhat successful balance by launching essential road works right after effectiveness while developing a participatory approach to select sub-projects under sustainability criteria\. Scope is a related issue, and by targeting six provinces and 25 cities to maximize impact\. Likely cost overruns and delays mean that strong contingency planning can be a great asset\. Using scalable sub-project components is one way to achieve flexibility, leveraging the overall portfolio is another way\. 81\. Capacity constraints should be addressed up-front and from many angles\. There was a pervasive lack of capacity in the public administration in DRC at appraisal, and one way to mitigate this was to use delegated contract management as a tool to deliver services and infrastructure\. The approach had advantages when dealing with remote sites, and can 18 help extend the project’s operating radius, although it took time to get started under the project\. Prior training on monitoring of indicators to prospective delegated contract managers would have mitigated some of the problems, and could have helped establish baselines earlier in the project\. A parallel training program for contractors on site organization and technical aspects could have been useful to build capacity and potentially avoid some of the delays\. 82\. Sustainability should be built in from the design phase, but addressed on an ongoing basis\. Transition to full regular operation will be difficult in a context where state institutions have been absent or inoperative for longer periods of time\. Delegated contract managers were more capable of appraising sub-projects that existing state institutions, but still had shortcomings\. The project addressed sustainability of sub-projects by making clear maintenance arrangements and responsibilities selection criteria, to be reviewed by UCoP, and involving users in maintenance committees, but could not fully address financing of operation and maintenance, especially for roads\. Establishing links to sector operations as the country gradually recovered from the conflict contributed to sustainability of ELCISP outcomes\. 83\. Restructuring should be pro-actively used to mitigate design shortcomings that are likely to surface during implementation given appraisal difficulties, and to adapt to changing circumstances\. In the ELCISP, the M&E framework was first improved to mitigate the shortage of data at appraisal, then kept in line with the subsequently restructured components\. The cost overruns were taken into account and the overall portfolio of Bank- funded projects was used flexibly to transfer activities between projects with similar emergency reconstruction objectives\. Adaptive restructuring was used to keep sub-projects in line with interventions of project in the water sector as the country emerged from conflict status\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 84\. The draft ICR was discussed with UCoP during the ICR mission\. The final ICR fully reflects the discussions\. Annex 7 presents the full version of the comments sent by UCoP to the Bank following the discussion\. (b) Cofinanciers 85\. There were no cofinanciers\. (c) Other partners and stakeholders 86\. There were no other partners or stakeholders\. 19 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) Appraisal Actual Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) A: Support to medium urban centers 10\.00 13\.16 131\.6% B: Support to provincial capitals 27\.00 33\.66 124\.7% C: Connectivity to isolated areas 32\.00 29\.95 93\.6% D: Support to provincial institutions 7\.00 0\.01 0\.1% E: Project management 3\.00 5\.03 167\.7% Total Baseline Cost 79\.00 81\.81 103\.6% Physical and Price Contingencies 1\.00 0\.00 0\.0% Total Project Costs 80\.00 81\.81 102\.3% Front-end fee PPF 2\.00 0\.00 (*) 0\.0% Total Financing Required 82\.00 81\.81 99\.8% (*) The PPF was not used, as time and the conditions in the field did not permit preparatory studies to be carried out\. (b) Financing Appraisal Actual Type of Estimate Percentage Source of Funds (US$ millions Cofinancing (US$ millions of Appraisal ) ) Borrower 0\.00 0\.00 0\.00 IDA GRANT FOR POST-CONFLICT 82\.00 81\.81 99\.8% (c) Reallocation at the June 26, 2010 restructuring Appraisal Reallocated Components Estimate amount (US$ millions) (US$ millions) A: Support to medium urban centers 10\.00 15\.00 B: Support to provincial capitals 27\.00 32\.00 C: Connectivity to isolated areas 32\.00 30\.00 D: Support to provincial institutions 7\.00 0\.01 E: Project management 3\.00 4\.99 Total Baseline Cost 79\.00 82\.00 Physical and Price Contingencies 1\.00 0\.00 Total Project Costs 80\.00 82\.00 Front-end fee PPF 2\.00 0\.00 Total Financing Required 82\.00 82\.00 (d) Disbursement rates at restructurings Amount Disbursement Restructuring date disbursed rate (US$ millions) July 26, 2010 55\.68 67\.9% March 30, 2011 63\.12 76\.9% February 22, 2012 76\.31 93\.1% 20 Annex 2\. Outputs by Component Component A: Support to medium urban centers (Appraisal/actual cost: US$10\.00 million/US$13\.16 million) 87\. The table below presents the detailed component outputs, plus the number of contractors, suppliers and consultants\. Financing by city is given in the table at the end of this annex\. Category Output Number Health Health centers constructed and rehabilitated 13 Hospitals rehabilitated 3 Latrines facilities constructed 40 Water points constructed 36 Beds and mattresses 237 Microscopes 8 Birthing beds 7 Operating tables 9 Autoclaves 16 Additional health facilities equipped with medical equipment 5 Education Schools constructed or rehabilitated 34 Multi-functional facilities constructed 4 Classrooms constructed or rehabilitated 295 Wooden school desks with chairs (*) 9,141 Wooden teacher’s tables (*) 303 Wooden teacher’s chairs (*) 496 Plastic chairs (*) 1,735 Plastic tables (*) 755 Sewing machines 18 Latrine facilities constructed 188 Water points installed 68 Schools and educational institutes furnished with IT 6 equipment and power generator Social and Social service centers constructed 2 administrative Administrative buildings constructed 5 Roads and Drainage infrastructures rehabilitated 5 drainage Erosion-threatened areas protected 1 Markets Markets constructed 6 Covered vending stalls in the constructed markets 2,930 Storage facilities constructed 10 Latrine facilities constructed 32 Slaughterhouses constructed 2 Water Number of beneficiary cities 3 Length of network constructed - Water fountains installed 1 Water points improved 14 Contractors Contracts signed 78 Total amount of contracts signed 8,421,370 Number of contractors 27 Suppliers Contracts signed 72 Total amount of contracts signed 1,691,170 21  Number of suppliers 16 Consultants Contracts signed 25 Total amount of contracts signed 2,464,019 Number of consultants 17 (*) Some schools not constructed/rehabilitated by the project also received tables and chairs\. Component B: Support to provincial capitals (Appraisal/actual cost: US$27\.00 million/US$33\.66 million) Category Output Number Health Hospitals rehabilitated 3 Latrine facilities constructed 247 Water points installed (reservoirs and cisterns) 7 (11 m³) Beds and mattresses supplied 600 Hospitals supplied with medical equipment 2 Education Schools constructed or rehabilitated 9 Classrooms constructed or rehabilitated 168 Wooden school desks with chairs (*) 3 Teacher’s tables (*) 164 Teacher’s chairs (*) 270 Administrative desks (*) 27 Sewing machines 90 Latrine facilities constructed 58 Schools and educational institutes furnished with IT 4 equipment and power generator Installed water points 18 Boarding school equipment for one student 50 Social and Administrative building constructed 2 administrative Public latrine facilities constructed 13 Roads and Roads rehabilitated 8 drainage Length of roads rehabilitated (km) 13 Roads constructed - Length of roads constructed - Drainage works rehabilitated 6 (12\.3km) Erosion-threatened areas protected 4 Water Number of beneficiary cities 3 Length of network constructed (km) 35\.8 Reservoirs and water towers constructed 3 (1,650m3) Water fountains installed 95 Submerged pumps 10 Domestic water meters installed 2,300 Total amount of contracts signed 4,042,073 Contractors Contracts signed 57 Total amount of contracts signed 29,319,975 Number of contractors 26 Suppliers Contracts signed 23 Total amount of contracts signed 1,503,603 Number of suppliers 14 Consultants Contracts signed 44 Total amount of contracts signed 4,700,339 Number of consultants 32 (*) Some schools not constructed/rehabilitated by the project also received tables and chairs\. 22 88\. On top of the above-mentioned activities, the component funded office, topographic, and IT equipment as well as limited transport equipment (motorcycles) to OVD to allow the agency to carry out studies for urban roads\. Component C: Connectivity to isolated areas (Appraisal/actual cost: US$32\.00 million/US$29\.95 million) 89\. The works carried out as follows: 90\. Equateur Province (RN6): Akula-Gemena-Mbari-Libenge-Zongo (390 km total)\. The rehabilitation was split into two works contracts (Akula-Gemena-Mbari and Mbari-Libenge- Zongo) won by different bidders\. (i) Clearance and earthworks on 242 km (62% of the total length) to reopen the road and treat hotspots\. (ii) Akula-Gemena-Mbari section (165 km): Reopening of 81 km corresponding to 48 percent but only surfacing on 1\.5 km (70% executed by funding allocation)\. (iii) On the Akula-Gemena section (115 km), 42 km of drainage works and 57 km of reshaping or surfacing (14\.5% execution)\. (iv) Mbari-Zongo (220 km): Opening on 102 km (53% executed by funding allocation)\. 91\. Additional financing for the PROROUTES will finance the remainder of both sections plus a 5 year maintenance program\. 92\. Kasai Province (RN5): Lubumbashi-Kasomeno-Kasenga (208 km total)\. One contract was awarded for the entire Lubumbashi-Kasenga section\. (i) Lubumbashi-Kasomeno section (137 km) opened with base layers constructed\. This laid the groundwork for the government financing the surfacing of the road in 2009, a minor investment compared to the total\. (ii) Government financed opening Kasomeno-Kasenga (71 km) and assured tar surfacing of Lubumbashi-Kasomeno on own funds (not counted as co- financing as co-financing was not part of the DGA)\. 93\. The component further funded office, topographic, and IT equipment as well as limited transport equipment (motorcycles) to Office des Routes to allow the agency to participate to supervising road rehabilitation for Component C\. Component D: Support to provincial institutions (Appraisal/actual cost: US$7 million/US$0\.01 million) 94\. The component did not complete any activities before it was closed during the June 26, 2010 restructuring\. All activities foreseen were financed using government’s own funds or by other donors\. Component E: Project management (Appraisal/actual cost: US$3 million/US$5\.03 million, including PPF reimbursement) 23 95\. Component E did, as foreseen, finance all costs related to project management\. Detailed component cost breakdown by city – Components A, B, and C Locality Amount Bas-Congo Province Luozi (A) 445,557\.29 Mbanza ngungu (A) 783,788\.25 Moanda (A) 727,833\.56 Matadi (B) 4,805,049\.59 Sub-Total Bas-Congo 6,762,228\.69 Bandundu Province Bulungu (A) 1,272,701\.79 Kenge (A) 614,265\.03 Inongo (A) 542,083\.65 Kikwit (B) 3,626,391\.27 Bandundu (B) 3,945,370\.84 Sub-Total Bandundu 10,000,812\.58 Equateur Province Bikoro (A) 503,514\.79 Ingende (A) 331,929\.85 Lisala(A) 343,910\.82 Mbandaka (B) 2,405,371\.12 Akula-Gemena-Zongo (C) 16,904,029\.15 Sub-Total Equateur 20,488,755\.73 Western Kasai Province Lwiza (A) 358,807\.40 Mweka (A) 1,147,933\.46 Tshikapa (A) 475,392\.16 Kananga (B) 4,449,013\.38 Sub-Total Western Kasai 6,431,146\.40 Eastern Kasai Province Kabeya kamuenga (A) 432,184\.73 Mwene ditu(A) 533,472\.62 Tshilenge (A) 668,779\.99 Mbuji Mayi (B) 2,178,118\.14 Sub-Total Eastern Kasai 3,812,555\.48 Katanga Province Kolwezi (A) 466,317\.62 Kamina (A) 445,042\.23 Kasenga (A) 336,479\.36 Lubumbashi (B) 3,461,489\.52 Lubumbashi-Kasomeno (C) 12,056,519\.99 Sub-Total Katanga 16,765,848\.72 South Kivu Province Bukavu (B) (*) 441,429\.58 North Kivu Province Goma(B) (*) 1,028,377\.66 Eastern Province PPF activities 143,275\.55 Maniema Province 24 Kindu (B) (*) 527,728\.13 Total components 66,402,158\.50 Fees IA Component A 1,691,155\.10 Fees IA Component B 4,127,700\.00 Project management 5,097,656\.00 Others (goods, consultants, etc\.) 4,681,330\.40 Overall total 82,000,000\.00 A= Component A B= Component B C= Component C (*) Activities in these cities transferred from the EESRSP\. 25 Annex 3\. Economic and Financial Analysis 96\. An economic analysis was not mandated at appraisal and was not carried out due to the emergency nature of the project\. However, several considerations were made to keep cost down, and included: (i) priority to rehabilitation rather than construction of new infrastructure would contribute to keeping cost down under Components A and B, and (ii) use of lower cost technical solutions for Component C with specification of minimum level of services\. Selection of investments under Component A was to be based on local participatory approaches, providing a measure of assurance that the most pressing needs would be addressed\. 97\. For the ICR, an ex-post cost-benefit analysis was carried out on the rural road investments in Katanga Province (RN5, from Lubumbashi to Kasomeno, the section financed by the ELCISP), and for the urban roads in Matadi as these investments lend themselves to actual cost-benefit analysis\. For the other major road-opening financed by the project (RN6 in Equateur Province) as well as classroom rehabilitation and water fountain construction unit- cost considerations are applied\. The analysis is complemented by a multi-criteria analysis for the RN6 and efficiency of project management arrangements\. Approach used for the economic analysis 98\. The road cost-benefit analysis considers scenarios “withâ€? and “withoutâ€? project to determine net incremental costs and benefits of the RN5\. This is based on traffic counting and a socio-economic survey along the RN5 to determine the net incremental benefits accruing to the population and the broader economy\. On the basis of these scenarios, the net incremental benefits and actual costs of investment programs were assessed\. Cash flows are discounted using a discount rate of 12 percent\. Costs include capital costs, operation and maintenance costs (2 percent of investment cost annually), and rehabilitation costs (10 percent of investment cost every 5 years)\. 99\. Benefits of provision of urban services improved the quality of life of the poorest residents of the targeted areas\. The economic rates of return calculated for the project understate some of these social and environmental benefits gained along the RN5 and in Matadi\. However, some of the following socio-economic quantifiable and non-quantifiable benefits are included in the overall evaluation of project outcomes (see main text, Sections 3\.2 Achievement of Project Development Objectives and 3\.5 Overarching Themes, Other Outcomes and Impacts)\. • Improvement in the quality of life through improved physical living conditions and environmental management\. • Increased productivity and efficiency arising from reduced flooding and avoided flood damages to economic property\. • Increase in property value due to improved overall amenities\. • Enhanced investment climate due to improved service delivery\. • Improved health with reduction in waterborne disease and reduced medical costs\. • Enhanced local government capacity to fulfill their service delivery mandate\. • Reduction in accidents\. • Employment generation, market creation, promotion of increased private sector participation in the provision of services\. • By using labor-intensive construction techniques, the project created employment opportunities for unskilled and semi-skilled labor\. 26 100\. From a macro-economic perspective, by targeting isolated areas in DRC and secondary and primary urban centers, the project had positive impacts linked to the following: • Economic growth: The project investments contributed directly to delivering economic growth, in particular through the provision of economic infrastructure (particularly roads)\. • Employment generation: The project generated a considerable amount of short-term employment since labor (mainly unskilled labor) accounted for 20 percent of construction cost and 17 of total project costs, with US$14 million distributed in salaries to low-skilled laborers\. 101\. Given that interventions in rural and urban roads differ, as the access to services and physical characteristics are not homogenous, an overall Economic Rate of Return and Net Present Value are not calculated for the different road investments\. However, the analysis will show that the program overall is economically viable as the analysis of the two major components have positive results\. Economic Analysis of Roads 102\. A full economic analysis was performed on the RN5 and urban roads in Matadi\. The road investments have been assessed with an evaluation period limited to 15 years for the RN5 and 20 years for urban roads\. The ICR analysis is conservative as many benefits have not been quantified (i\.e\. increase in property value, enhanced investment climate due to improved service delivery, improved health with reduction in waterborne disease and reduced medical costs, reduction in accidents)\. 103\. Economic unit costs for vehicle operation were collected during an economic impact evaluation study carried out for the project in October 2012\. The survey also quantified increases in household income compared to the before project situation, which were found to be 177 percent along the RN5 (owing to increased agricultural production for sale) and 48 percent in the three neighborhoods in Matadi (from small-scale sales and services, including transport)\. Figures are in constant 2012 prices, and this is set in relation to DRC revenue per capita of US$190 in 2011\. The beneficiary population is 19,227 in Matadi and 378,413 in the catchment area of the RN5 (although only the population of 67,550 directly bordering the RN5 is used in the analysis)\. 104\. NVPs and IRRs are calculated based on actual investment costs for each road section, traffic counting carried out in October 2012, time savings observed, and benefits accruing to the wider economy from increase in household income\. For the RN5, the opening of a quarry was made possible by the reopening of the road, and the economic surplus of this activity is also attributed to the project\. Traffic along the RN5 is considered as almost exclusively generated (as opposed to normal or diverted traffic)\. 105\. All roads are economically justified, with Net Present Values (NPVs) of US$21\.8 million and US$16\.8 million for RN5 (Component C) and Matadi roads (Component B) respectively and IRRs of 18 percent and 41 percent\. The road investments analyzed amount to US$15\.9 million, corresponding to 23 percent of investment costs or 19 percent of total project cost\. Table 2 below summarizes the results compared to investments\. The results for 27 the Matadi roads are similar to results obtained for other urban road rehabilitation in the region (e\.g\. IRR of 29 to 120 percent in Rwanda)\. Road investment Length Financial investment IRR NPV (US$) (km) cost (US$) RN5 137 12,056,520\.0 18% 18,279,046 Matadi 4\.7 3,839,739 41% 16,804,113 Total/weighted 141\.7 15,896,259 23% 35,083,159 Table 2: Result of economic analysis of road investments Unit cost considerations for RN6, water fountains and classrooms 106\. Unit cost comparisons confirm the relatively satisfactory efficiency of investments: Road works under the ELCISP vary from US$57,391 to US$81,815 per kilometer against US$92,000 per kilometer for the EESRSP\. For works implemented under directly comparable conditions, the cost is still substantially lower for the ELCSIP (US$81,815 against US$92,000)\. The average cost of constructing a water fountain under the Emergency Urban and Social Rehabilitation Project was US$1,634 against US$2,500 for the ELCISP\. The former however operates in Kinshasa, where sites are easily accessible, so conditions are not comparable, justifying a higher cost for the ELCISP\. The average cost of rehabilitating a classroom under the Emergency Urban and Social Rehabilitation Project was US$8,500 against US$12,127 for the ELCISP\. The former however operated in Goma, where sites are easily accessible, so conditions are not comparable, justifying a higher cost for the ELCISP\. The cost was lower than for the investments on government own funds, at US$16,000\. Unit cost comparison covers 61 percent of project investments (roads: 41 percent, schools: 14 percent, water fountains: 6 percent)\. Comparison was not made for health centers, hospitals, protection against erosion, training centers, administrative buildings, etc\. as these are designed to individual standards and not comparable\. Multi-criteria analysis of the RN6 107\. For the RN6 (US$16\.9 million, 24 percent of investment cost), the above analysis is complemented with a multi-criteria analysis of alternatives to achieve the objective and least- cost option\. Regarding alternatives, there were none\. Prior to the conflict, the city had been connected to the rest of the country, but due to the conflict, the road, including critical civil works, had not been maintained and was in a very advanced state of degradation, which only allowed passage of specially designed transport vehicles (equipment normally used in large- scale mining operations) to get fuel to Gemena\. In 2004, Gemena was isolated from the main provision port of Akula, with the access form the secondary port of Zongo also being extremely difficult\. Opening up the existing road through rehabilitation of the most critical sections was the only feasible way to get this area of the Equator Province reconnected to the rest of the country to assure regular administrative oversight and provisioning of the area along the RN6 (population 1,513,519, of which the city of Gemena and the surrounding territory constitute 1,130,347 people)\. 108\. The project assured that the least-cost option was used by launching a competitive bidding process combined with tough negotiations with the bid winner to keep the contract amount within the available envelope\. This assured that the project would only finance the most critical sections, while still attaining the objective of opening up the road to regular traffic\. Instead of rehabilitating the whole stretch Akula-Gemena-Zongo, the contractor was asked to rehabilitate the dikes and drainage system along 8 kilometers in the area around 28 Akula and open up the critical section linking Gemena with Zongo, also mainly through drainage works to allow transport\. This way the project assured that Gemena would be reconnected with the rest of the country, in line with the emergency nature of the project and the PDO\. The Akula-Zongo road remains open at the time of ICR, although further works are needed to assure full sustainability and adequate maintenance\. These are being implemented under the Bank-funded PROROUTES project\. Operating cost 109\. Despite the difficult implementation environment, UCoP assured completion of project activities\. UCoP was able to limit its operating costs to 6 percent of total project funds, quite reasonable compared to the 5 percent normally accepted, despite the fact that all supervision had to be done by plane\. UCoP also implemented ELCISP activities without recruiting the additional staff foreseen at appraisal\. Conclusion 110\. The considerations foreseen at appraisal to keep cost down, including priority to rehabilitation actually contributed to keeping cost down\. Out of the total 523 classrooms provided by the project, 423 were rehabilitated and 100 were new constructions\. The rehabilitation cost per classroom (US$12,127) compares favorably to the construction cost (US$15,420)\. For Component C, the considerations were not fully respected in the design of roads\. As it turned out, the roads were designed to too high a standard, taking into consideration the objective of opening up the isolated regions\. This is demonstrated by the fact that the roads as actually rehabilitated, which was to lower standards than in the initial contracts, was sufficient to fulfill the objective of opening up the isolated areas, and thus the actual implementation of the roads proved to be sufficiently cost-effective\. 111\. Overall, the cost-benefit analysis of 23 percent of investment cost shows satisfactory rate of return, the unit-cost considerations of 61 percent of investment costs substantiates that costs of ELCISP investments were contained within reasonable intervals, the multi-criteria analysis (24 percent of investment cost) shows satisfactory results, and the operating cost was quite reasonable given generally accepted norms for project implementation and the specific, quite difficult, circumstances under which the ELCISP was implemented\. The overall conclusion is of a satisfactory rate of return, in spite of this not being an objective for an emergency operation\. 29 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Xavier Devictor Senior Country Officer AFC09 TTL Jacques Bure Sr Highway Engineer ECSS5 Jean Charles Amon Kra Sr Financial Management Specia AFTME Luc Lapointe Consultant AFTPE Ms\. Miakukila-Kubauka Procurement Assistant AFTTR Miakukila Bamvi-Koua Language Program Assistant AFTTR Renee Descleaux Finance Officer LOAGl Pierre Morin Senior Procurement Specialist AFTPE Emmanuel Noubissie Senior Operations Officer AFCF2 Ngankam Anta Loum Lo Program Assistant AFTU2 Natalie Ford Program Assistant AFC09 Supervision/ICR Mahine Diop Senior Municipal Engineer AFTU2 TTL Ernestina Attafuah Senior Program Assistant AFTU2 Patrick Auffret Consultant AFTG1 Annie Bakambana Program Assistant AFCC2 Mohamed Arbi Ben-Achour Consultant AFTSG Christophe E\. Bosch Lead Water and Sanitation Spec TWIWA Jacques Bure Senior Highway Engineer ECSS5 Laurent Debroux Sector Leader ECSSD Bourama Diaite Senior Procurement Specialist AFTPW Alexandre K\. Dossou Senior Transport\. Spec\. AFTTR Hemchand Rai Heeroo Senior Energy Specialist AFTG1 Nicole Kasongo Kazadi Team Assistant AFCC2 Jean Charles Amon Kra Sr\. Financial Management Specialist AFTME Alain L\. Labeau Consultant SASFP Philippe Mahele Liwoke Senior Procurement Specialist AFTPW Paul Jonathan Martin Senior Environmental Specialist AFTN3 Pierre Morin Senior Procurement Specialist AFTPE Gaspy Gedeon Muanda Consultant AFTME Celeste Mukuna Team Assistant AFCC2 Emilie Ayaza Mushobekwa Economist AFTP3 Gerhard Tschannerl Consultant AFTSE Clement Tukeba Lessa Procurement Specialist AFTPW Kimpuni Armele Vilceus Senior Executive Assistant LCC3C Urban Development Specialist, Christian Eghoff AFTU2 ICR primary author Consultant 30 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 92\.21 Total: 92\.21 Supervision/ICR FY06 13\.53 52\.85 FY07 15\.43 37\.57 FY08 22\.41 49\.07 FY09 23\.77 65\.82 FY10 18\.83 78\.98 FY11 15\.50 67\.63 FY12 12\.66 62\.93 Total: 122\.13 414\.85 31 Annex 5\. Beneficiary Survey Results 112\. The present Annex is a summary of the beneficiary satisfaction survey conducted in June 2012 on a sample of the project activities and sites\. Scope and methodology 113\. The survey was carried out by questionnaire 3 and beneficiary satisfaction was assessed on parameters of relevance, expectations, changes induced, and sustainability\. Subjects were the beneficiaries, users, service providers and institutional beneficiaries of all ELCISP components\. The survey was conducted on 57 sub-projects out of 125, with a representative sample of cities, sectors and components\. Survey Results Relevance 114\. The survey found that 95 percent of ELCISP activities answered problems identified during participative consultations in the context of the PRSP\. Furthermore, 100 percent of beneficiaries acknowledged that the choice of ELCISP activities met the needs expressed in their respective communities\. Expectations 115\. Beneficiaries generally noticed in ELCISP advantages and opportunities that matched their expectations, with 90 percent of beneficiaries responding that their expectations were met at the time of project reception\. Changes induced 116\. It was generally found that activities produced positive outcomes in the beneficiaries’ lives\. In each sector of intervention, beneficiaries acknowledged and mentioned at least two advantages or opportunities that show positive change caused by the project\. 117\. The beneficiary population expressed their relief in seeing their land and property secured and even value-added through main sewer rehabilitation and the prevention of erosion? anti-erosive fight\. 118\. Improvement in sanitation, living conditions and rehabilitation of beneficiaries’ dignity through public latrines is observed as compared to the situation before the project\. 119\. Beneficiaries of rehabilitated markets are sheltered from the elements and can remain open for business in bad weather\. The cleaning of market areas has been facilitated, and the absence of mud, dust, direct sunshine and other discomfort was cited as benefits\. Food products are sold from clean stands, there is generally free passage in the markets with larger flow of people and thereby an increase in clientele\. 3 And therefore is based on subjective perceptions and contains limited quantitative data\. 32 120\. Rehabilitated urban roads stopped isolation and facilitated access to formerly inaccessible neighborhoods\. Living conditions have been improved, with limitation of dust, stagnant water and waste accumulation on roads\. 121\. Rehabilitated schools and health structures have a higher rate of visits due to the improvement of service quality and working conditions\. There has been an increase in passing rates in all rehabilitated schools\. 122\. The study indicates that the range of perceived advantages is higher than expectations, which is an indication that expectations have been over-met\. Sustainability 123\. In 85 percent of cases the respondents confirmed that achievements continue to meet the needs\. However, the implementation quality was not as high as expected for some sub- projects, as flaws can be observed on sanitation structures, on treatment of medical waste, and the operation of some equipment\. 124\. Threats to the beneficiary satisfaction in the longer term are mostly related to financial capacities to maintain infrastructures\. For all sub-projects surveyed, income does not cover operating expenses\. Nearly 68 percent of structures do not have a maintenance budget line, which explains that in case of deficit, maintenance is sacrificed\. 125\. Other threats on sustainability are related to over-demand on rehabilitated structures\. Rehabilitated health and school structures attract more users than their designed service capacity for acceptable standards\. Therefore, service providers may no longer meet demand and the quality of services could become an adjustment parameter, especially as service capacity is limited as compared to demand and as the rate of coverage of charges is low\. Due to this high demand, 13 percent of beneficiaries say that project results no longer meet their expectations due to over-stretched capacity\. Related results: additional support 126\. The beneficiary satisfaction survey further found that ELCISP facilitated and even reinforced support from other actors on project achievements and that for some activities, such support was essential for the reinforcement and sustainability of results\. Especially the education sector benefited from Bank-funded sector projects (Emergency Urban and Social Rehabilitation Project, Emergency Project to Mitigate the Impact of the Financial Crisis, Education Sector Project)\. 33 Annex 6\. Stakeholder Workshop Report and Results 127\. No stakeholder workshop was held\. 34 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 128\. Section (a) below contains the summary of the borrower ICR, translated from English to French by the ICR team\. Section (b) contains the Bank’s translation into English of the comments sent by UCoP to the Bank following a working session to discuss the draft Bank ICR during the ICR mission, on November 15\. (a) Summary of government’s ICR 1\. Introduction 129\. The ELCISP was the object of Development Grant Agreement No\. H 164 DRC in the amount of SDR 53,890,000, signed on 28 June 2005 with IDA, approved by the Government of the Democratic Republic of Congo Decree n ° 05/078 of September 9, 2005 and entered into force on September 23, 2005\. It was closed on 30 June 2012\. 2\. Context 130\. At the time of the preparation of the Project, the government of national unity had been in place since June 2003, in line with the Global and Inclusive Agreement of December 2002, and a favorable environment for economic and social reunification was created\. The government had implemented satisfactorily since 2001 an ambitious economic reform program supported by the Bretton Woods Institutions through various instruments\. 131\. The significant results in the areas of political unification and economic reforms, however, could not be sustainable if appropriate responses were not made to the emergency social crisis raging across the country and particularly in cities which were home to over a third of the population\. Indeed, urbanization had accelerated during the crisis, and the situation in the cities was mainly characterized by an economy in ruins and deteriorating living conditions, particularly in terms of access to basic social services of adequate quality\. 132\. It is in the context that ELCISP was identified to assist the government in its commitment to meet the challenges of the political transition, social consolidation and economic recovery\. The project was part of the actions to implement the strategy of the World Bank in DRC\. It was designed with a status of emergency project to extend to the whole territory of the DRC activities undertaken and implemented successfully in the East in the EESRSP and complete the Social Actions Support Project\. The project was thus part of a comprehensive response to social emergencies in large parts of the country (other than Kinshasa) and preparing for future sector projects in the fields of education, health, transport, energy and water\. 3\. Objectives of the project 133\. The Grant Agreement defines the development objective of the project as "to assist the DRC government to improve the living conditions of the population by strengthening the socio-economic situation in key urban centers and in two isolated areas\." To achieve this development objective, the following specific objectives were identified: (i) facilitate the recovery and access to basic social services in urban centers means (18 centers selected by the Government and approved by the Bank were retained); (ii) stabilize and strengthen the socio-economic development and contribute to the recovery of economic activity in the cities 35 of Bandundu, Kananga, Lubumbashi, Matadi, Mbandaka, Mbuji Mayi and Kikwit; (iii) rehabilitate and maintain the Lubumbashi-axis and the axis Kasenga-Zongo Akula for a total length estimated at 600 kilometers to allow traffic and transportation of goods in economically acceptable conditions; and (iv) support and strengthen key provincial institutions through activities defined in the list of Priority Activities to Support Institutions\. 4\. Changes in objectives 134\. The mid-term review was held from November 5 to 19, 2008 and resulted in a revision of the results framework and the setting of new indicators for each part\. The project was then restructured in July 2010 and the Development Grant Agreement amended to: (i) amend the wording of the specific objective of Part C by deleting the target total length of 600 kilometers of roads to deliver and maintain in adequate state; (ii) terminate Part C whose financial implementation rate was 92 percent, but two of the three works contracts were terminated due to the inability of firms to fulfill their contractual obligations; (iii) remove from Part A a number of activities which had already been funded by the Government and the Provinces included in other projects financed by the World Bank and other donors; (iv) reallocate resources in favor of Parts A and B, to ensure better conditions for the realization of development objectives; and (v) extend the closing date by one year from September 30, 2010 to September 30, 2011\. 135\. With the closing of Part C, the implementation of environmental safeguards (activities for pygmies) was transferred to the PROROUTES which had more resources to implement measures more meaningfully\. 136\. The Grant Agreement has been further amended as follows: (i) a second amendment dated March 30, 2011 that on the one hand, integrates in Parts A and B of the project, unfinished activities of EESRSP in the towns of Bukavu, Goma and Kindu of the same nature as those of ELCISP and the unfinished RAP of RN2 and secondly, extend the closing date to 30 March 2012; and (ii) a third amendment occurred on February 22, 2012 extending the closing date to June 30, 2012\. 5\. Project components and activities The initial components and activities of the project were: Part A: Support to medium urban centers 137\. The component concerned selection, based on a multi-criteria analysis, of the 18 following centers, made by the Government and approved by the World Bank, in six provinces outside Kinshasa and the three eastern provinces, at three per province: (i) Mbanza Ngungu Luozi, Moanda (Bas-Congo Province); (ii) Inongo, Kenge, Bulungu (Bandundu Province); (iii) Lisala, Ingenge, Bikoro (Equator Province); (iv) Tshikapa, Luiza, Mweka (Western Kasai Province); (v) Mwene-Ditu, Kabeya-Kamwanga, Tshilenge (Eastern Kasai Province); and (vi) Kasenga, Kamina, Kolwezi (Katanga Province)\. Every urban center was granted with an initial budget of US$500,000 to fund activities within different categories of equipment and basic social infrastructures (education, health, transport, sanitation, water supply, markets, etc\.)\. Priority activities should be identified in a participatory manner with local government institutions, the private sector and civil society in each urban center\. The 36 implementation of activities approved by UCoP and the World Bank would then be captured in a city contract signed by UCoP and the head of the city\. Part B: Support the chief towns of provinces 138\. The component involved seven cities: Bandundu, Kananga, Lubumbashi, Matadi, Mbandaka, Mbuji-Mayi, and Kikwit\. These were the capitals of six provinces (plus Kikwit) other than Kinshasa and the four eastern provinces which were already benefiting from the EESRSP\. Priority activities were identified during the preparation of the project with an initial budget of US$3 million per city\. They received the non-objection of IDA after approval by the Inter-ministerial Steering Committee\. They also focused on the different types of equipment and basic social infrastructures (education, health, transport, sanitation, water supply, markets, etc)\. Activities finally selected after coordinated review with local authorities would then be captured in a city contract signed by the UMRF and the mayor\. Part C: Opening up remote areas 139\. Two major roads were concerned: Lubumbashi-Kasenga (RN5/R35) in the Province of Katanga and Akula-Zongo (RN6/R23) in Equateur Province, identified during project preparation to open up two areas particularly isolated\. Activities related to studies, rehabilitation services and supervision\. Part D: Support to provincial institutions 140\. The component involved seven provincial capitals: Bandundu, Bukavu, Kananga, Kindu, Kisangani, Mbandaka, Mbuji-Mayi\. Priority activities were identified during the preparation of the project on the basis of defined budgets\. They had received the non- objection of IDA after approval by the ISC\. They were: (i) rehabilitation of administrative buildings, (ii) provision of furniture and miscellaneous equipment (office equipment, etc\.) to provincial institutions, (iii) training of staff of the provincial administration\. 141\. Changes in definitions of components and activities are taken into account in the above-mentioned restructurings of the project\. 6\. Evaluation of objectives 142\. Despite some weaknesses, the objectives were, in general, important for the country and consistent with the socio-economic situation prevailing at the time of the preparation of the project\. Selected activities that aimed to improve access to basic social services (education, health, transport infrastructure, etc\.) perfectly matched the needs of communities, expressed by the populations through participatory consultations conducted in 2004/2005 in all territories in the context of the PRSP\. 7\. Objectives and outcomes that the project 143\. The project results are very satisfactory\. Generally, the objectives have been achieved to a large extent\. During the satisfaction survey conducted in July 2012, based on surveys of beneficiaries of a sample of 57 realizations of 123 (46\.3 percent) in 12 of the 25 centers involved (48 percent) people surveyed all responded that the activities financed by the 37 ELCISP correspond to needs felt in the community and 95 percent of the activities address the problems identified during participatory consultations conducted as part of the PRSP\. 144\. The following table summarizes the performance indicators of the development objectives of the project\. Development Results Indicators Actual Indicator Objective result target Additional pupils with access to 32,688 20,000 improved school facilities in targeted Improving delivery areas of basic services in People provided with access to a basic 730,000 740,000 provincial capitals package of health, nutrition, or and key medium reproductive health services\. urban centers\. Number of people in urban areas 103,500 4 70,000 provided with access to improved water sources under the project\. Reduction in time travel in two isolated 95% 95% Restoring key areas\. transport links to Number of additional rural people with 1 891 932 1,890,000 reconnect two access to an all-season road\. isolated regions\. Share of rural population with access to 22% 22% an all-season road\. 145\. Indirect beneficiaries are estimated at 12,500,000 persons (of which 52 percent female)\. Achievement of the objective of Part A is rated very satisfactory 146\. Investments funded under Part A of the project really helped restore and increase access to basic social services (education, health, drinking water, etc\.) in the 18 medium urban centers targeted\. The primary effects of the achievements of Part A are already being felt in some urban centers where compared to situation before the project: (i) the number of schools rehabilitated rose sharply (17 to 114 percent growth rate); (ii) consultations in the health centers have greatly increased (over 200 percent in many centers) as well as assisted deliveries\. Medical procedures such as caesarean sections are now performed; (iii) computer courses are given at a larger scale in six urban centers where certain schools have been equipped with computer rooms\. Achieving the objective of Part B is less satisfactory 147\. As for Part A, access to social services has been improved in general in the cities concerned and achievements begin to have very positive effects, but nothing suggests that achievements have really helped stabilize and boost economic activity\. Achieving the objective of Part C is moderately satisfactory 148\. None of the two axes targeted was fully rehabilitated\. The axis Lubumbashi- Kasomeno-Kasenga was rehabilitated up to 62 percent (137 of 220 kilometers) stretch of the 4 Does not include the additional beneficiaries in Kikwit, Mbandaka and Bandundu, where the ELCISP funded expansion of the water network and installation of water points, activity taken over from the EESRSP\. 38 Lubumbashi-Kasomeno axis, which was fully surfaced in 2009\. ELCISP investments have helped open up the area\. Although the Kasomeno-Kasenga section is still in earth, private companies currently provide a regular passenger transport service by bus between Kasenga and Lubumbashi\. On the other hand, the Akula-Gemena-Zongo axis was partially opened with draining along marsh areas for 42 kilometers (4 percent) of the length, with limited practicability for almost hundred kilometers\. 8\. Main factors affecting the project 149\. The most significant factors were independent of the government, UCoP and delegated contract managers\. These included: (i) the isolation of some urban centers, which did not facilitate participatory identification of Part A activities, and disrupted the supply of work sites with materials; (ii) recurrent shortages of construction materials in some urban centers; (iii) weak technical and financial capacity of companies and the lack of support of the banking sector, which remains fragile; (iv) difficulties in recruiting some project personnel, due to a limited supply of qualified candidates; (v) the splitting of roadwork bids into a firm tranche financed by the project and a conditional unfunded tranche has been a source of complication for the procurement and implementation of Part C\. 9\. Sustainability of results 150\. Conditions for sustainability investments and services are not yet met\. The schools and health facilities do not collect sufficient resources to cover their expenses, and receive little public financial support\. Sustainability of road and water supply investments depends on the sustainable capacity of the OVD, the Office des routes and REGIDESO 5\. 10\. Performance of the World Bank 151\. The World Bank’s performance is highly satisfactory for identification and preparation and satisfactory for supervision of implementation\. The Bank conducted regular supervision missions supported by field visits\. The Bank was sensitive to the problems that arose during the project and worked positively to solve them, the project manager has changed once, which is an important factor of continuity\. The Bank has, however, its share of responsibility for the delays that have marked the selection of the URMF and the primary contractors responsible for monitoring road works, as well as the attribution of some contracts\. 152\. Only a few weeks before the end of the project, the Bank informed the Government that its procedures did not allow it to finance the RAP of RN2\. It has not been possible in the short time remaining before the closing to affect allocations to the RAP to other activities\. Thus, a total of nearly a million dollars could not be committed before closing\. 11\. Government performance 153\. The government performance is highly satisfactory for both the identification and preparation and for implementation\. The Inter-ministerial Steering Committee has fulfilled its 5 ICR editor’s note: National Water Utility Company\. 39 tasks efficiently to select urban centers for Part A and approval of priority programs for targeted cities of Part B of the project, and the provincial capitals targeted by Part D\. The Government has completed before the deadline, the effectiveness conditions of the Grant Agreement\. The Government has further committed financing of the RN2 RAP transferred to ELCISP after closing of the EESRSP, to supplement the Bank's procedures which no longer allow cash payment of resettlement activities\. The Government further agreed with the Bank on a process to reimburse ineligible expenditures\. 12\. Performance of the Coordination Unit and public institutions 154\. Performance is satisfactory\. UCoP has been heavily involved in the identification and preparation of ELCISP, while the execution of EESRSP had started\. FMRs and financial audits were submitted to the Bank within the time prescribed by the Development Grant Agreement and are satisfactory\. Studies on environmental safeguards have been carried out, validated and published before the deadline prescribed\. With the exception of the Office des Routes, performance of public institutions involved in the project (including REGIDESO and OVD) are moderately satisfactory\. 13\. Performance delegated contract managers 155\. Performance is moderately satisfactory\. With the exception of some unfinished works for Part B, the DCMs successfully implemented all investments for which management was delegated to them\. The technical audit, however, identified the main weaknesses: (i) poor quality of studies in general, which had among other consequences the need for numerous amendments to works contracts; (ii) the insufficient quality of the bid evaluation reports with resulting extended time to procure of works and consultants; (iii) inadequate monitoring of environmental and social aspects during construction; (iv) the lack of attention to monitoring and evaluation of projects\. 14\. Performance of contractors, suppliers and consultants 156\. Performance is moderately satisfactory\. Many works have been carried out with significant delays\. In some very critical cases, delay penalties have been applied and contracts terminated\. In general, companies have had difficulties to fulfill their contractual obligations due to weak technical and financial capacity\. 157\. Regarding furniture for schools and health centers, the quality is in some cases considered insufficient in the technical audit report on achievements of parts A and B, conducted in May 2012\. 158\. In general, the quality of consultant studies is not satisfactory\. Many amendments have been made to amend contracts for additional or omitted or omitted\. Consultants responsible for works supervision have not followed sites sufficiently close\. 15\. The most significant positive lessons 159\. The participatory process of identifying priority activities allowed for a strong community involvement\. 40 160\. Formalizing support to cities and municipalities in a contract with the signing of contracts city contracts has contributed to enhancing the functions of mayors and chiefs of the urban centers concerned, who felt very involved in the project and gave great attention to works implementation and reception\. It is thanks to the contractual approach that many works sites have been secured and made readily available to contractors, thus avoiding delays in starting work\. 161\. Communication on the identification and implementation of activities in French and local languages, through local media, helped to strengthen the process of transparency, which was one of the basic principles of project\. 16\. The most significant negative lessons 162\. Delegated contract management is a quite specific job which remains underdeveloped at the international level, not to be confused with project management\. This is not always an option that ensures greater efficiency in the implementation of projects\. 163\. Particular emphasis was placed on a quick pace of investment, while detailed studies are necessary to avoid inaccuracies and unforeseen work that required the execution of many riders\. (b) Translation into English of comments on draft ICR sent by the UCoP 164\. Overall, the ICR could mention, the fact that the damage following the conflict had touched everyone, beyond the areas covered by the EESRSP, making the ELCISP necessary to reach populations not covered by other projects\. Moreover, the cities of Lubumbashi and Gemena remained isolated\. 165\. The completion report of the World Bank could also put more emphasis on the improvements made to the EESRSP concept for mounting ELCISP, including the introduction of engineers to support secondary cities and the use of city contracts\. These last two have demonstrated their usefulness in terms of projects ownership by beneficiaries, site reservation, continuity of government commitment, and sustainability of investments\. 166\. In section 2\.2 regarding the implementation of the project, it is important to put an emphasis on the difficulties the innovative delegated contract management approach proposed to BCECO for the URMF, partly due to the fact that these agencies had limited experience in site supervision and monitoring of project indicators\. Many investment projects proposed by the delegated contract managers did not adequately ensure sustainability and UCoP was obliged to reject these proposals\. 167\. On post-completion operation (section 2\.5) technical audit deficiencies reported some minor work deficiencies (locks, flush, etc\.)\. It would be useful to mention that the project was subject to conditions that do not favor the supply of quality products, the amounts of contracts were often not incentives to attract the best contractors, but despite this the quality of work is considered satisfactory\. 168\. Regarding the results of Component C, they were achieved at the time of completion of work judging from the speed and cost of transport, although concerns remain about the 41 sustainability of investments\. Fortunately, this issue is taken into account by the PROROUTES project\. 169\. In the section on institutional changes UCOP suggests the report mentions that the staff of the Office de Voirie and OVD were trained on the job by being associated with supervision tasks and the development of specifications\. Both structures have also received equipment essential to their mission\. 170\. UCOP in general agrees with the lessons learned as presented in the completion report of the Bank\. It would be useful to qualify the usefulness of delegated contract managers with a comment on the difficulties in starting up and the training necessary to achieve cruising speed for both agencies\. The lesson on city contracts could incorporate the comments made above\. 42 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders 173\. There were no cofinanciers or other partners\. 43 Annex 9\. List of Supporting Documents The following documents are in the project file: • Memorandum and Recommendation to the President (2005) • Technical Annex, Emergency Living Conditions Improvement Support Project, World Bank (2005) • Development Grant Agreement (2005) • Mid-Term Review Report and aide-mémoire (French, 2008) • Project aide-memoires • Project Restructuring Papers (2010, 2011, 2012) • Project Status Reports (PSRs, 2005-2008) • Project Implementation Status and Results Reports (ISRs, 2008-2012) • Technical audit report (French, 2012) • Beneficiary satisfaction survey (French, 2012) • Socio-economic impact study (French, 2012) • Safeguard studies 44  10°E 15°E 25°E 30°E CENTRAL AFRICAN REPUBLIC SOUTH SUDAN To 5°N Ubang To Bangasso 5°N To i Kembe Bangui To Zongo Gbadolite BAS-UELE Juba Bondo Faradje NORD-UBANGI Uele Libenge Gemena Businga HAUT-UELE Titule DEM\. REP\. Buta Isiro Watsa Kiba li OF CONGO SUD- Aketi To Imese UBANGI Akula Lisala Pakwach Bumba ORIENTALE Wamba MONGALA C Mongbwalu Bunia UGANDA angui Aruwimi ITURI on Banalia g nga Lake o \. Lulo Bongandanga Oub Mts Basankusu TSHOPO Bafwasende Albert EQUATEUR Yangambi Beni ba É Q U AT E U R Kisangani Butembo Margherita Peak tum Wanie Rakula (5,110 m) 0° Mbandaka Boende 0° Mi CONGO Tshu a pa NORD Lake G ABON Lubutu KIVU Edward Lake Lo m Lua Bikoro T S H U A PAL Ikela mi a l NORD- aba om uil ak ela Victoria L a Lowa KIVU Goma Ul To Ruhengeri Inongo i Lake Kivu nd Betamba Congo Yumbi i To MAI-NDOMBE Kalima Bukavu Kibuye RWANDA Kutu Kindu SUD Buna KIVU KINSHASA Bandundu Lukenie Lodja Uvira To KINSHASA CITY Kasa i MANIEMA SUD- Bujumbura uru SANKURU Kama BURUNDI BANDUNDU Mangai Sank MANIEMA KIVU Ilebo KINSHASA Bulungu KASAI Malela Lusambo Kasongo Kenge KWILU K A S AÃ? Lulimba 5°S CABINDA BAS-CONGO ORIENTAL 5°S Kikwit Idiofa (ANGOLA) To KONGO CENTRAL Mbanza-Ngungu Luebo LOMAMI Kongolo TA N Z A N I A Pointe- Boma KASAI Kananga ga Kalemie Kw Noire Mbuji- Luku Lake ATLANTIC KASAÃ?- Mayi ilu Matadi To Feshi OCCIDENTAL Tanganyika Kabinda Kabalo OCEAN Damba Tshikapa Ka sa ORIENTAL TANGANYIKA KWANGO LULUA Kw i Moba ang Mwene-Ditu Manono i DEMOCRATIC REPUBLIC am o Lom KATANGA Luv OF CONGO ua H A U T- L O M A M I Kapanga s\. Pweto Kamina t Lueo M SELECTED CITIES AND TOWNS ba Lulua Lu PROVINCE CAPITALS* ANGOLA L Kilwa Lake m Mweru itu uf ira l ua NATIONAL CAPITAL Sandoa M Lubudi HAUT- 10°S RIVERS LUALABA KATANGA MAIN ROADS Kolwezi To 0 100 200 300 400 Kilometers Dilolo Likasi Luwingu ZAMBIA RAILROADS To Lu Lake lab Lucano Malawi a a PROVINCE BOUNDARIES** 0 100 200 Miles Lubumbashi I IBRD 33391R2 M A L AW INTERNATIONAL BOUNDARIES This map was produced by the Map Design Unit of The World Bank\. *The creation of 26 new Provinces was approved by the ratification of the 2005 Constitution, to take effect by February, The boundaries, colors, denominations and any other information ZAMB I A Sakania JULY 2011 shown on this map do not imply, on the part of The World Bank To 2009\. The existing 11 Province Capitals, shown with green circles, will retain their status, with the exception of Bandundu\. Kitwe Group, any judgment on the legal status of any territory, or any Future Province Capitals are shown with white circles\. endorsement or acceptance of such boundaries\. **The existing 11 Province boundaries and names are shown in dark green; future in light green\. 25°E 30°E

REVIEW

P001068

 ICRR 11598 Report Number : ICRR11598 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/22/2003 PROJ ID : P001068 Appraisal Actual Project Name : National Agricultural Export Project Costs 24\.6 19\.9 Promotion Project US$M ) (US$M) Country : Guinea Loan/ Loan US$M ) 24\.6 /Credit (US$M) 20\.8 Sector (s): Board: RDV - General Cofinancing 0 0 agriculture fishing and US$M ) (US$M) forestry sector (25%), Agricultural marketing and trade (25%), Central government administration (19%), Roads and highways (16%), General finance sector (15%) L/C Number : C2407 Board Approval 92 FY ) (FY) Partners involved : USAID Closing Date 12/31/2000 12/31/2002 Prepared by : Reviewed by : Group Manager : Group : Ridley Nelson Patrick G\. Grasso Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The original very high level and ambitious objective of the project (given the initial conditions) was "to promote strong growth in Guinea's agricultural exports by : strengthening the incentives framework and removing the obstacles to the supply response in the agricultural export sector \." In 1997 the project was substantially and formally restructured to address serious difficulties in implementation \. However, the original objective, which should have been narrowed, was still judged relevant\. The revealed objectives of the restructured project, as indicated by reference to the revised design, would have been better characterized as being "to remove, as a first stage, a limited range of first order physical constraints to agricultural exports "\. b\. Components There were four original components : 1\. Institutional Strengthening , including strengthening the professional organizations relevant to the export sector (US$ 2\.4 million); 2\. Support to Export Production , including specialized services to producers and access roads (US$ 11\.3 million); 3\. Special Programs , including credit and a private investment fund (US$ 3\.1 million); 4\. Project Management and Monitoring , including a management contract with a private consultant firm (US$ 3\.9 million)\. There were four revised components : 1\. Transport, Handling, and Storage Infrastructure (US$3\.5 million); 2\. Export Financing Facility (US$ 2\.0 million); 3\. Reforms in Regulatory and Institutional Framework for private sector development (US$1\.0 million); 4\. Pilot Activities to Support Exporters (amount unspecified)\. c\. Comments on Project Cost, Financing and Dates The restructured project was presented to the Board in November 1997\. The project closed two years behind schedule\. During the first three years of project implementation about US$ 6\.0 million had been disbursed out of a total of US$ 20\.8 million\. 3\. Achievement of Relevant Objectives: Performance of the project is assessed against the original objectives since the project restructuring was precipitated by poor performance rather than by exogenous factors \. Performance was highly unsatisfactory \. The objective of promoting strong growth in Guinea's agricultural exports was not achieved \. The volume of agricultural exports was at about the same level when the project closed as when it became effective \. Little progress was made in strengthening the incentives framework and removing obstacles to the supply response in the agricultural export sector \. However, following the project restructuring, a number of constraints to exporting, in particular the administrative constraints, had started to be at least partially addressed, although with little supply response \. 4\. Significant Outcomes/Impacts: There were a few positive outcomes \. The project succeeded in providing support to the Chamber of Commerce, Industry and Agriculture of Guinea to provide a one -stop window to resolve red tape for companies wanting to invest in Guinea\. Some elements of the barge "feedering" system along the Mellacoree River were implemented but there were technical problems and there remain economic questions \. An airport fruit terminal was constructed but access roads remain a problem\. 190 km of track and road rehabilitation was completed \. There was some progress in the overall regulatory and institutional framework for private sector involvement although, given the many other constraints, this has not yet had any impact \. A number of technical feasibility studies were completed and matching grants provided for study tours \. A number of test shipments were completed \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The objectives were far too ambitious given the initial wide -ranging physical, financial, and economic constraints \. Project preparation and appraisal was highly unsatisfactory both strategically and technically \. Supervision was a little better except the restructuring itself in some aspects by which time it was too late for anything more than marginal project recovery\. As implementation failed the reaction was for the public sector, through the project, to carry out activities itself - a reversion that contradicted the whole strategy of enhancing private sector involvement \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Highly Unsatisfactory The project failed to achieve any of its major development objectives\. Institutional Dev \.: Negligible Negligible Sustainability : Unlikely Unlikely Bank Performance : Unsatisfactory Highly Unsatisfactory Performance at preparation and appraisal was highly unsatisfactory and we give highest weight to that phase as the cause of poor performance in this case \. While the restructuring was, in some respects well handled, even here the lack of revision of the objectives raises questions about that element of performance also \. Supervision both before and after restructuring was at least Unsatisfactory, in some respects Highly Unsatisfactory (e\.g\. with respect to staffing)\. Borrower Perf \.: Unsatisfactory Unsatisfactory Arguably Highly Unsatisfactory because in this case given the substantial policy content the Bank carries somewhat more responsibility for design than the Borrower\. Quality of ICR : Exemplary NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: The ICR draws a number of important lessons which here are couched in more generic terms and somewhat elaborated: 1\. The lending vehicle needs to be suited to the scale and complexity of the reform task (in this case there was a gross mismatch)\. 2\. Private sector investment cannot be expected in the absence of a favorable investment climate \. Enhancing investor expectations is a key element \. Simply fixing some physical constraints or having some resource advantages cannot alone be a substitute \. 3\. As in many cases assessed by OED, independent project units with weak ties to government may avoid some of the constraints of government but they lose government involvement and commitment and leave transition problems and therefore sustainability problems \. 4\. A clear and regularly updated physical implementation plan is important for project management (Computerized Project Management (CPM) programs can be used in both planning and implementation )\. 5\. Phasing and selectivity are particularly important where there is weak capacity but not easy to get right \. While clearly this particular project was very poor, the problems encountered highlight the challenge of addressing a wide range of constraints to privatization and export development in a poor country \. There was a low base to start from and the sector faced a competitive world in a situation where any one of a number of constraints could have defeated the ambitious objectives, yet where an ambitious wide -ranging project tackling all constraints was unmanageable \. Obviously some form of careful phasing and selectivity was required but this itself would have called for patience in awaiting benefits, modest intermediate targets, and probably modest rates of return up to some threshold of take -off\. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: An exemplary examination of an unfortunate story \. A very frank and well argued document \.

REVIEW

P064886

IEG Report Number: ICRR14456 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 10/20/2014 Country: Laos Project ID: P064886 Appraisal Actual Project Name: Sustainable Forestry Project Costs (US$M): 16\.45 40\.45 For Rural Development Project L/C Number: C3802; CH446 Loan/Credit (US$M): 10\.45 20\.45 Sector Board: Agriculture and Rural Cofinancing (US$M): 6\.00 20 Development Cofinanciers: Finland, PHRD Board Approval Date : 06/24/2003 Closing Date: 12/31/2008 12/31/2012 Sector(s): Forestry (100%) Theme(s): Land administration and management (50% - P); Other public sector governance (50% - P) Prepared by: Reviewed by: ICR Review Group: Coordinator: Lauren Kelly Kristin Hallberg Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The objective of the Sustainable Forestry for Rural Development Project (SUFORD), as articulated in both the Credit Agreement and the Project Appraisal Document, was to "assist the Borrower to achieve the sustainable management of production forests to alleviate poverty in the Project provinces by implementing the forest policy reform actions and policies set forth in its Letter of Forest Management Policy" (Schedule 2, Page 17 of the Credit Agreement; PAD p\. 2)\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: 1\. Support Services for Sustainable Forest Management \. (Appraised at US$930,000, Actual costs were US$3\.86m, or 415% of the appraised value)\. This component included support for sectoral policy reforms, establishment of the permanent national production area, forest management guidelines and procedures, and strengthening sustainable forest management capacity\. The additional financing allowed the Government of Lao PDR to build on and expand the participatory sustainable forest management approach and refine the national forestry sector policy and regulatory framework\. 2\. Sustainable Forest Management and Village Development \. (Appraised at US$10m; Actual costs were US$22\.74m, or 228% of the appraised value)\. Divided into two sub-components, this component aimed to (1) support the implementation of sustainable management practices in select production forest areas of the Central and Southern provinces and (2)support villagers in the project area to plan, implement, monitor and evaluate their own development projects financed initially by the project and later from forest revenues generated by the participatory sustainable forest management model\. The additional financing allowed for an expansion of the field implementation of this component, covering five new provinces and a limited number of select production forest areas, 3\. Forest Sector Monitoring and Control \. (Appraised at US$2\.4m, Actual costs were US$6\.3m, or 263% of the appraised value)\. Supported establishment of a national forest sector monitoring and reporting system, including detecting and reporting unauthorized forest operations, strengthening forest control operations and related information systems\. It also sought to strengthen forest law enforcement capacity and to institute an industry licensing system based on long-term allowable cut and processing quality and efficiency, In addition, this component was designed to be linked to the project's monitoring and evaluation system\. The additional financing supported new activities for the newly created Department of Forest Inspection (DoFI) and for activities associated with the REDD+ program (Reduced Emissions from Deforestation and Degradation)\. 4\. Project Management\. (Appraised at US$1\.8m; Actual costs were US$7m or 389% of the appraised value)\. This component was designed to support project implementation and coordination between various government agencies at central, provincial and district levels, and monitoring and evaluation\. The additional financing supported the increased project management costs of expanding into new project areas\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs Originally estimated to cost US$16\.45m, including US$6m in technical assistance support from Finland, the project received an additional US$24m to expand project activities from IDA (US$10m); Finland (US$13\.5); and Japan (US$500,00)\. This additional financing represents an increase of 246% of the appraised target costs\. The additional financing was distributed across all project components\. Borrower Contribution \. Actual borrower contribution of US$550,000 was 100% of the amount planned\. Financing The project received US$10m in additional IDA grant financing (the original IDA finance was a credit) which was approved by the Bank's Board on December 18th, 2008\. The purpose of the additional finance was to expand the geographic scope of the project, over an additional three years\. The additional finance allowed for an expansion of the project into five new project provinces covering an additional 1\.3m hectares, or 40% of all production forests\. Finland also provided an additional US$9m for technical assistance during the extension period\. Dates Approved in June 2003 with an original closing date planned for December 2008, the project was extended twice, including a three year extension to implement activities associated with the additional finance and a second extension for one year to manage unexpected ethnic issues following the resettlement of a large number of Hmong who returned from Thailand to Laos in December 2009\. The actual project closing date was December 2012\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The SUFORD project objective is Substantially Relevant \. The project objective is directly in line with he national forest reform process that seeks to expand participatory sustainable forest management as a means to alleviate rural poverty\. Addressing poverty and inequality is the main thrust of the FY12-FY16 Country Partnership Strategy that is anchored around the country's natural resource led growth strategy\. In recent years, a natural resource boom and the resulting foreign direct investment has fueled high growth rates in LAO PDR, but this resource boom has also exposed risks that threaten to undermine the country's success if not well managed (CPS p\.1)\. Further, "the loss of forest is a particular concern in the Lao context given that households are very dependent on agricultural land, rivers and forests for income and food" (CPS p\. 11)\. The relevance of the objective was somewhat undermined by its lack of specificity\. Rather than aiming to "alleviate rural poverty", the project objective could have been more specific about the outcomes it envisioned for the targeted beneficiaries\. In the case of SUFORD, there were only 190 villages targeted for direct involvement in forest management\. b\. Relevance of Design: The relevance of design is rated Substantial\. The project design is logically sequenced: it supports the government led policy and legal reforms (and incentives) required to bring production forests under a sustainable participatory forest management regime\. Recognizing that any such reforms would require a high level of capacity for implementation (including enforcement), the project equally invested in training and capacity building within the government and the affected communities (for activities such as forest zoning, planning, and sustainable management)\. Planning ahead, the investment in community training for revenue management was a highly relevant design feature of the project\. Institutional arrangements were complex however, with the number of organizations involved exceeding the borrower's coordination capacity (ICR para, 18 page 7)\. The design of the Village Development Component had shortcomings: the activities should have been more effectively aligned with forest management (including downstream processing) or the development of a non-timber forest product (NTFPs) market\. Agricultural activities supported by the project had the potential to run counter to the sustainable forest management aims in the project areas\. 4\. Achievement of Objectives (Efficacy): The objective of this project, as stated in the Credit Agreement, was to “…to assist the Borrower to achieve the sustainable management of production forests to alleviate poverty in the Project provinces by implementing the forest policy reform actions and policies set forth in its Letter of Forest Management Policy\." The Project has an interim objective of "achieving the sustainable management of production forests" that is intended to to enable the project's ultimate objective of "alleviat[ing] rural poverty in the project provinces\. Progress against the interim objective was Substantial, whereas progress towards the ultimate objective was Negligible\. The interim objective seeks to achieve the sustainable management of production forests [through a Participatory Sustainable Forest Management (PSFM) regime that has the potential of contributing to poverty reduction]\. The project made a substantial amount of progress in putting in place the policy, legal, and incentive framework for the expansion of PSFM in Laos, however, owing to the moratorium, evidence is lacking that the production forests are being sustainable managed and that this management system will enable the ultimate objective of poverty alleviation\. Outputs/Outcomes 1\. Regulations covering all key aspects of PSFM has been approved\. A Presidential Decree (2012) drafted with project support increased the share of timber revenue that is directed towards communities from 2-3 percent to 12 percent of gross revenue\. Intern-Ministerial Agreements on competitive log sales and fair benefit sharing have been finalized for all project provinces\. While the initial guidelines for revenue generation and benefit sharing were developed and applied, the "revised benefit sharing arrangements have not yet been applied" and " failed to provide incentives for PSFM" (ICR p\.iii)\. By December 2011, the total amount of of funds that flowed to the 100,000 participating villages was US$150,000\. Of all communities targeted, only 44 percent were able to access a percentage of these forest revenues owing to uneven access to timber across the communities\. 2\.An Integrated Forest Inventory/Cover Monitoring and Data Management system was put in place\. Some 1\.3 million hectares of production forest in 16 Production Forest Areas (PFAs) were legally placed under a sustainable forest management regime\. All PFAs have approved management plans that include the multiple values of forests (timber, wildlife etc\.)\. However evidence is lacking that the management is participatory and is facilitating pro-poor outcomes\. 3\. To further support the environmental sustainability and legality of the forest resources under the new management regime, the project helped to put in place Independent Forest Certification and placed some 3,378 km2 under certification, including 806km2 of area certified by the Forest Stewardship Council\. An annual audit of existing FSC certified areas was competing revealing compliance in 30 Forest Management Areas\. It also supported strengthened forest enforcement capacity, by putting in place a Forest Law Enforcement Strategy and by helping to build capacity for enforcement in the Department of Forest Inspection\. According to the ICR, the Department of Forests and the Department of Forest Inspection gained the tools and capacity to manage risks from concessions and minimize unauthorized logging in PFAs\. Here again, while the project may be effective in supporting more sustainable forest management that is capable of supplying legal timber and guarding against incursions, there is no evidence that the revenues are currently or will be directed towards poverty alleviation objectives\. 5\. The project implemented a Pilot Exercise using new data sources and technology to compare most recent forest cover changes for selected 'hot spot' provinces\. A Prime Ministerial Decree established a new institutional mechanism for the Department of Forest Inspection for Forest Monitoring and a Technical Framework and Forest Law Enforcement\. 6\. The project conducted an assessment of the availability of Non-Timber Forest Products and concluded that significant opportunity exists for NTFPs as livelihood enhancing options however the project did not engage in market development\. This awareness, that NTFPs could contribute significantly to livelihood enhancements of forest dependent communities was borne out in the Project Appraisal Document that found that non-timber forest products contribute between 30-70 percent of income for forest dependent households\. 5\. Efficiency: Project Efficiency \. The project efficiency was not calculated\. This calculation would have considered gains achieved against the funds expended- including progress made against the objective as a function of time (a decade +)\. It should have considered and reported on aspects of implementation (whether they were conducted at least cost) and value for money\. IRR/Benefit Cost Ratio \. The project calculated an IRR at Appraisal on the basis of anticipated returns on logging\. The IRR was projected to be 19\.7 percent with fluctuation upward to 23\.7 percent -- if logs were certified and sold for a premium -- and downwards to 15\.7% if costs increased by 20 percent and if benefits were delayed by 2 years\. The ICR, however, estimated a negative net present value or a benefit cost ratio of 0\.83 to 1\. Since the project development objective seeks to support a sustainable management regime that enables poverty reduction, the benefits calculated at appraisal should have included the assumption that a percentage of the benefits would flow to communities (since the project supported a Timber Revenue Sharing Model)\. The negative net present value is calculated for timbe alone (owing to the management, inspection, certification costs)\. However, the project also has indicated that the rate of return for the intended beneficiaries is lower than anticipated\. An expanded calculation should have been made on the estimated returns associated with including the co-benefits in the management plans, as well as other carbon related (REDD+) projections\. Evidence provided by the ICR leads to a Modest Efficiency Rating\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 19\.7% 25% ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: A Substantially Relevant Objective in line with the country's national forest policy, the poverty reduction goal would have benefitted from greater specificity\. Project design was well sequenced but challenged by the complexity of the implementing structures and misalignment of some of its subproject activities with the project objective\. Modest progress was made towards achieving a sustainable forest management regime that has the potential to reduce poverty, but negligible gains were made towards the project's ultimate aim of reducing rural poverty\. Efficiency is rated modest\. The ICR did not provide an assessment of project efficiency and the net present value of the logging in the managed production forest areas is negatives, with little benefits accruing to the villages engaged in harvesting\. a\. Outcome Rating: Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risks to sustaining the development outcomes achieved under the project are significant\. Factors such as increased foreign direct investment in mining, hydropower, and other types of concessions pose likely negative impacts on the production forest areas that have been targeted for sustainable participatory forest management\. Despite of the significant commitment and efforts that have been made to date to expand and deepen the participatory sustainable forest model, LAO PDR still exercises state control over the management of its forests and there is a high probability that forestry sector institutions may restrict the space for participatory forest management\. Efforts to strengthen forest sector monitoring and forest law enforcement and governance could weaken in the face of rent seeking by unauthorized logging and land conversions outside authorized areas\. Capacity constraints also threaten sustainability of the reforms\. Forest cover change detection and monitoring may not receive the requisite institutional commitment and financial resources that they received under the project\. Considerable project resources have been invested in capacity building in participatory forest management, technical forest management, and social and institutional methodologies and skills\. Mainstreaming and institutionalization of many of these practices and innovations still need time and investment, without which, there is a threat of demotivation, loss of skills and attrition that would have a negative impact on already limited capacity within the forestry sector in Lao PDR\. Climate change presents an unmitigated and unquantifiable risk to the development outcome of this project\. Multiple climate related threats including drought, flood, forest fire, and insect and disease prevalence may all impact sustainable forest management in Lao PDR\. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: Quality at Entry is rated Satisfactory\. The SUFORD project design is based on a decade of learning from previous engagement in Lao's forest sector\. The Bank has a history of engagement in Lao's forest sector: a prior project helped to put in place the co-management schemes (including revenue sharing) as part of a new village forestry model that was expanded in SUFORD\. While there was initial success in setting up the schemes during the prior project period, there were may setbacks- including the rollback of certain village rights, excessive interference in the selection of logging companies, pricing, etc\.The Bank is credited for staying the course in spite of these setbacks\. In between projects, Bank staff - together with its Finnish partners - engaged in an extensive forest dialogue (in part afforded by Nam Theum II) that resulted in a Forest Sector diagnostic\. The dialogue and diagnostic helped the Bank to maintain momentum on the back of an unsatisfactory forest sector investment program in order to press ahead on vitally needed reforms\. The resulting National Forestry Reform process put in place a Participatory Sustainable Forest Management model that was much more advanced than the Village Forestry Model supported a decade prior\. SUFORD was developed to implement the reforms that emanated from this "in-between-project" engagement\. Quality-at-Entry was somewhat challenged by the project's institutional arrangements, coordinating roles and responsibilities\. These roles required greater clarification upfront\. Capacity risks and management strategies to management these risks also should have been better reflected in design\. Quality at entry was also challenged by weak M&E design, due to a lack of outcome indicators - including poverty - and baseline data\. Quality-at-Entry Rating: Moderately Satisfactory b\. Quality of supervision: Despite of a slow project start-up, changes made in response to the mid-term review enhanced project effectiveness and put project implementation on track\. The project supported the appointment of a new project director whose philosophy was more in line with the project objective than was the prior appointment\. Modifications were made to simplify the financial management and procurement and corrections were made to improve planning and coordination between the central governments and the provinces\. Although late in the project cycle, changes made following the additional finance to redesign the institutional framework by placing project management responsibility squarely within the Department of Forests brought project management and extension under one institutional umbrella, improved decision-making, reporting, accountability, and implementation\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government of Lao PDR demonstrated a high level of commitment to the principles of participatory sustainable forest management\. The Government of Lao PDR adopted policies to support village participation in forest management, prior to the start-up of the project\. In December 2001, the Ministry of Agriculture and Forestry agreed on the main principles for village participation in production forest areas and in May 2002, the Prime Minister's office issued decree number 59 on sustainable forest management of production forests incorporating these principles into the decree\. During project implementation the GoL identified and decreed the formal expansion of Production Forest Areas on two occasions\. Decree 29 in 2006 and Decree 270 in 2008 increased total PFA area from an initial 656,000 ha to 2\.5 million ha and eventually to 3\.1 million ha\. Information obtained by IEG after project close provides further evidence of sustained commitment\. The government with Bank assistance is now developing the management plans in 41 of the country’s 51 PFAs\. Substantial progress has already been made in 2014 toward the development of the plans, with over 100,000 ha of forests now inventoried\. For the other 10 PFAs, outside the project area, a meeting with the Vice Minister of Agriculture and Forestry in April confirmed that their management plans will be completed in early 2015\. Future revenue from the PFAs designated provinces and communities by law is expected to be shared once the temporary suspension is lifted, to date, the revenue sharing reforms have not been implemented\. There is also a lack of evidence that the multiple uses of forests are being sustainably exploited with the aim of reducing rural poverty\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The project was implemented by the Department of Forestry located within the Ministry of Agriculture and Forestry and was managed by a national project management office\. The National Project management Office adopted a proactive management style\. It maintained an open and frank dialogue with the World Bank Task Team and Finnish TA team with respect to implementation challenges throughout the project and this facilitated identification of problems, discussion of proposed solutions and fostered an iterative learning process\. Difficult issues, such as the arrival of Hmong into the project areas and issues around salvage logging were identified and addressed by the team in a timely way\. The department of forestry was also proactive with regard to the use of the mid-term review findings\. After its conduct, the project management office introduced significant management and procedural changes in relation to project leadership, financial management, procurement, and beneficiary outreach\. The department of forestry was also proactive in its oversight of the production forest areas, playing a key role in ensuring that proposed development activities were compatible with the sustainable participatory forest management objectives in the project areas\. Coordination with partner agencies both in terms of joint planning and timely transfer of financial resources remains a weakness however\. Performance at the sub-national, or provincial level however was also less than satisfactory despite significant investments in financial management and procurement capacity and systems there was only modest improvement in the performance of these functions at the sub-national levels\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: M&E Design was logical and well sequenced\. Three main indicators reported in Annex A of the PAD sought to measure the effects that the new policy, legal and incentives supported by the project were having on the expansion of PSFM, and in turn, how this expansion was affecting the well-being of communities dependent on forests for their livelihoods\. Substantially different indicators, however, are reported on page 2 of the PAD, that are less robust and specific with regard to the overall project objective\. While a weakness in preparation, the PAD Annex A indicators appear to have been utilized by the project with associated results reported in the close-out report\. While more relevant, the PAD Annex A indicators lacked baseline information however with regard to forest-based income and food security at the household level thus limiting their ability to track progress against the project’s poverty reduction aim\. Efforts to update and improve SUFORD’s performance indicators were made in the Additional Finance Project Paper by reverting to the PAD Annex A indicators and refining the associated outcome indicators\. b\. M&E Implementation: Project level monitoring and evaluation were the responsibility of the National Project Management Office (NPMO) with support from the Finnish TA team\. NPMO provided regular quarterly updates on project activities and deliveries against an agreed work plan and timeline for completion\. The Implementing Agency pursued an opportunity to implement a rapid assessment of forest cover change in an area where harvesting had been authorized to facilitate hydro and mining developments\. This assessment provided an innovative and cost effective way to evaluate the impacts of development activities on project PFAs and adjoining forests\. However there is no evidence that the M&E system attempted to compensate for the lack of baseline data on forest related incomes or food security throughout the course of the project cycle\. c\. M&E Utilization: M&E produced several assessments and case studies that contributed directly to improved project performance\. Project studies were used to evaluate and refine the project approach and strategy, especially with regard to increasing the focus on ethnic group engagement and strengthening outreach to women (See Safeguards Section)\. While these findings emerged late in the SUFORD project cycle, they have been been incorporated into the design of the follow-on SUPSFM project\. Overall, forest sector monitoring and data collection have improved substantially; however more training on information systems is needed at the subnational level\. M&E Quality Rating: Substantial 11\. Other Issues a\. Safeguards: SUFORD appropriately triggered five Bank safeguard policies on Environmental Assessment, Natural Habitats, Forests, Indigenous Peoples and Involuntary Resettlement\. Environmental Assessment , SUFORD was appropriately designated as a Category “A” project\. An Environmental Assessment was conducted and publicly disclosed through the Bank’s Infoshop and in Vientiane in the local language on March 20, 2003\. In preparation for the AF, an updated Environmental Impact Assessment and Social Impact Assessment were also completed\. The ICR does not indicate whether or not the environmental management plan was effectively implemented\. Natural Habitats\. There is no information provided by the ICR that validates the project's compliance with Operational Policy on Natural Habitats\. Forests\. There is no information provided by the ICR that validates the project's compliance with Operational Policy 4\.09 on Forests\. Indigenous Peoples An Ethnic Group Development Plan was developed for the project\. In preparation for the AF, an Ethnic Group Participation Strategy was also prepared\. Following approval of the AF, greater emphasis was placed on strengthening extension services to ethnic group communities, women and poor households through additional staff, ethnic group advisors, and building partnerships\. To evaluate the success of these efforts, a Social Safeguards Assessment was undertaken by the Bank covering both indigenous people and involuntary resettlement (August 2012)\. This assessment did not find any examples of material harm or forced resettlement; however the assessment identified continuing weaknesses in the project’s consultations with ethnic communities and women in the study area of 14 villages\. The assessment made several recommendations, including the need to: (1) mainstream safeguards into project design, to build adequate capacity to meet safeguards requirements, and to create mechanisms for mediation and dispute resolution; (2) adopt indicators to evaluate the quality of the consultation process, offering separate forums for women and providing more time for ethnic communities to discuss and understand project objectives/alternatives and to utilize more culturally appropriate tools and methods for information sharing\. Introducing new ways to strengthen land and resource tenure and improve on participatory land use planning were also recommended\. The assessment further recommended that future projects incorporate diverse incentives from timber, NTFPs, and payment for environmental services, including carbon\. However, despite various attempts to build implementing capacity to ensure ethnic groups in the project areas would receive timely and clear information about project activities, compliance with the Indigenous People’s safeguard was rated moderately unsatisfactory at closing\. This was mainly due to the inability of the Department Forestry to effectively engage with ethnic groups and women in the project areas\. Involuntary Resettlement \. A Resettlement Policy Framework was developed and disclosed at appraisal\. With regard to resettlement issues, the Task Team adopted a ‘proactive’ approach to safeguard management, and engaged actively with the Implementing Agency, provincial authorities and other Development Partners to identify and address the needs of resettled Hmong persons arriving from Thailand in 2009, even though the resettlement issues were not a result of the project\. According to the ICR, no resettlement associated with the project occurred during the entire life of the project\. b\. Fiduciary Compliance: Financial Management \. The financial management capacity at the central and provincial level was duly assessed\. Fiduciary risks were rated substantial after mitigation due to the overall weak control environment in the country and low capacity, particularly at the provincial level\. During the AF, the same financial management and disbursement arrangements were maintained\. Staff in the Finance Management unit had developed good capacity during implementation which was transferred to DoF, and this ensured continuity in both financial management and procurement\. In addition, detailed capacity building, supervision, and controls were implemented during the AF period\. In addition, integrated procurement and financial management supervision was introduced which provided regular feedback and identified areas for improvement\. During the AF, FM performance was rated moderately satisfactory due to delays in advances clearing, the fixed asset register not being up to date, etc\. Audits were conducted and submitted to the Bank on schedule and received unqualified results; IFRs were of acceptable quality and were submitted on time\. Procurement\. Procurement capacity and associated risks were assessed during both project phases and rated substantial after mitigation measures\. These measures included engagement of a qualified international procurement consultant for the Project Management Unit to work with the national procurement staff to implement the Procurement Plan and develop an agreed action plan for strengthening transparency and accountability in procurement\. Procurement had been rated satisfactory in complying with Bank guidelines, but was downgraded to Moderately Satisfactory in 2010 as procurement fell behind schedule\. The AF mid-term review in 2010 found a number of issues with project procurement and made recommendations to improve procurement performance related to strengthening transparency and accountability, improving the procurement plan and reducing delays in procurement\. Adequate systems were in place for effective procurement although sub-national procurement continues to be a challenge\. At closing, procurement was still rated moderately satisfactory due to weaknesses in planning procurement, assessing the quality of and adhering to the procurement plan, and contract administration\. c\. Unintended Impacts (positive or negative): d\. Other: Gender/Social Inclusion\. The project widened the participation base -- making it more ethnically inclusive and gender sensitive\. The project worked to establish 700 Voluntary Forest Organizations and 49 Village Forestry Committees\. However, the Department Forestry was unable to effectively engage with ethnic groups and women in the project areas\. 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Moderately Moderately Important gains were made in Satisfactory Unsatisfactory supporting Lao's Sustainable Forest Management Reforms but evidence is lacking that the sustainable management of LAO's production forests will contribute to rural poverty reduction\. Risk to Development Significant Significant Outcome: Bank Performance: Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: Lessons on Inclusion from the ICR \. Projects that adopt an inclusive approach towards integrating ethnic groups , vulnerable persons, and women in project design require an understanding of pre -existing conceptions and attitudes around equity issues and associated investments in training and capacity building to achieve equity related goals \. The SUFORD project adopted an inclusive approach and prioritized the participation of ethnic group communities, but translating these principles into practice was a challenge\. Equity goals also need to be built into M&E design and monitored throughout the life cycle of the project\. Gender related participation aims can be more effectively achieved if barriers to entry are diagnosed at appraisal and women's perceptions and ideas of how to overcome these barriers are incorporated into project design \. In forest projects, women will have separate and unique perceptions about the design of sustainable forest management plans, in line with their household related income and food security needs\. Gender related participation aims in forest and rural development programs can also have a greater chance of being achieved by prioritizing the recruitment of dedicated female staff and female advisors with extension skills and experience in working with women\. Gender related impacts can be better understood by introducing gender-dissagregated tools such as gender budgeting and social auditing\. The same applies for ethnic minorities and vulnerable groups\. 14\. Assessment Recommended? Yes No Why? Yes, possibly for the Learning Evaluation\. SUFORD is a program that was designed to pick up where its predecessor program left off, a program that tested the limits of Lao's support for poverty reduction through the devolution of forest access and use rights to communities living on state forest lands\. The SUFORD project represents an interesting case that builds on project failure as well as intense policy dialogue and one that utilized leverage points elsewhere in the project portfolio to stay engaged in the sector\. SUFORD perfomed reasonably well in comparison to its predecessor, in part due to sustained commitment\. Lessons learned under SUFORD have informed the design of a third project, which when closed, should yield more than two decades worth of lessons on engaging in participatory forest management in an East Asian context\. 15\. Comments on Quality of ICR: The ICR is rated Satisfactory, with shortcomings, for the following reasons: 1\. The ICR was well written, comprehensive -- covering all evaluative categories-- and included several pieces of annex material that provided supportive evidence (economic analysis, borrower's summary, sources etc\.)\. 2\. The ICR provided useful information about the Bank's engagement in Lao PDR over time, allowing the project to be examined within a broader historical and evolving sectoral context\. 3\. A project with additional financing and revised indicators, the ICR provided a clear explanation of the changes introduced and the implications of these changes for project measurement and reporting\. 4\. The ICR represented the project objectives in a manner that deviated from the credit agreement and the PAD\. While the PDO is consistent between the Credit Agreement the PAD, and the Project Paper for the Additional Financing, the ICR created a split objective which is inconsistent with the legal and originating documentation\. The Objective statement, in the basic information sheet, was rewritten with changed language\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P083581

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004011 IMPLEMENTATION COMPLETION AND RESULTS REPORT IDA-43470 / TF-58293 ON A CREDIT IN THE AMOUNT OF SDR 101\.8 MILLION (US$ 155\.21 MILLION EQUIVALENT) AND A GRANT IN THE AMOUNT OF US$9\.8 MILLION TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE HANOI URBAN TRANSPORT DEVELOPMENT PROJECT ( P083581 ) January 18, 2018 Transport and ICT Global Practice East Asia and Pacific Region  CURRENCY EQUIVALENTS AT ICR (Exchange Rate Effective September 27, 2017) Currency Unit = Vietnamese Dong (VnD) VnD22,730 = US$1 US$ 1\.41076 = SDR 1 CURRENCY EQUIVALENTS AT APPRAISAL (Exchange Rate Effective April 30, 2007) Currency Unit = Vietnamese Dong (VnD) VnD16,000 = US$1 US$ 1\.52493 = SDR 1 FISCAL YEAR January 1–December 31 ABBREVIATIONS AND ACRONYMS BRT Bus Rapid Transit CMU Country Management Unit CPS Country Partnership Strategy DAPM Department of Architecture and Planning Management DOT Department of Transport EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environment Management Plan FM Financial Management GEF Global Environmental Facility GHG Greenhouse Gas GOV Government of Vietnam HCMC Ho Chi Minh City HPC Hanoi People’s Committee ICR Implementation Completion and Results Report IEMC Independent Environmental Monitoring Consultant IRR Internal Rate of Return ISR Implementation Status and Results Report ITS Intelligent Transport Systems LRT Light Rail Transit M&E Monitoring and Evaluation MMPTC Multimodal Public Transport Committee MTR Midterm Review NMT Non-motorized Transport NPV Net Present Value O&M Operation and Maintenance PAD Project Appraisal Document PAH Project Affected Household PDO Project Development Objective PMU Project Management Unit PPIAF Public-Private Infrastructure Advisory Facility PTA Public Transport Authority RAP Resettlement Action Plan RPF Resettlement Policy Framework RR2 Second Ring Road TA Technical Assistance TRAMOC Hanoi Urban Transport Management and Operation Center TRANSERCO Hanoi Transport and Services Corporation UTIP Urban Transport Improvement Project VOC Vehicle Operating Cost VOT Value of Time Regional Vice President: Victoria Kwakwa Country Director: Ousmane Dione Senior Global Practice Director: Jose Luis Irigoyen Practice Manager: Almud Weitz Task Team Leader(s): Van Anh Thi Tran, Jung Eun Oh ICR Main Contributor: Yang Chen  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 6 A\. CONTEXT AT APPRAISAL \. 6 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) \. 9 II\. OUTCOME \. 12 A\. RELEVANCE OF PDOs \. 12 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 13 C\. EFFICIENCY \. 19 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 20 E\. OTHER OUTCOMES AND IMPACTS (IF ANY)\. 20 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 21 A\. KEY FACTORS DURING PREPARATION \. 21 B\. KEY FACTORS DURING IMPLEMENTATION \. 23 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 25 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 25 B\. ENVIRONMENTAL SAFEGUARD, SOCIAL SAFEGUARD, AND FIDUCIARY COMPLIANCE \. 26 C\. BANK PERFORMANCE \. 28 D\. RISK TO DEVELOPMENT OUTCOME \. 30 V\. LESSONS AND RECOMMENDATIONS \. 31 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 33 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 41 ANNEX 3\. PROJECT COST BY COMPONENT \. 43 ANNEX 4\. EFFICIENCY ANALYSIS \. 44 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 50 ANNEX 6\. SUPPORTING DOCUMENTS \. 53 ANNEX 7\. MAP \. 54  The World Bank Hanoi Urban Transport Development Project ( P083581 ) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name HANOI URBAN TRANSPORT DEVELOPMENT PROJECT ( P083581 P083581 ) Country Financing Instrument Vietnam Specific Investment Loan Original EA Category Revised EA Category Related Projects Relationship Project Approval Product Line Supplement P085393-Hanoi Urban 11-Sep-2007 Global Environment Project Transport Development Project GEF component Organizations Borrower Implementing Agency Hanoi Urban Transport Development Project Hanoi People Committee Management Unit Project Development Objective (PDO) Original PDO The development objective of the IDA Credit is to increase urban mobility in targeted areas in Hanoi by (i) increasing the use ofpublic transport in two existing and one new corridors; and (ii) reducing travel times by all modes between the city center and thewest and northwest sections of the city (west of West Lake)\. Page 1 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) PDO as stated in the legal agreement The objectives of the Project are to: (i) increase urban mobility in targeted areas of the City of Hanoi through increased use of public transport in selected traffic corridors and reduced travel time between the center and the west and northwest sections of Hanoi; and (ii) promote more environmentally sustainable transport modes and urban development plans for Hanoi\. FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing P083581 IDA-43470 155,210,000 115,901,593 107,388,341 P085393 TF-58293 9,800,000 6,422,455 6,422,455 Total 165,010,000 122,324,048 113,810,796 Non-World Bank Financing Borrower 139,680,000 329,300,000 181,409,261 Total 139,680,000 329,300,000 181,409,261 Total Project Cost 304,690,000 451,624,048 295,220,057 KEY DATES FIN_TABLE_DAT Project Approval Effectiveness MTR Review Original Closing Actual Closing A P083581 03-Jul-2007 22-Apr-2008 07-Jun-2012 31-Dec-2013 31-Dec-2016 P085393 11-Sep-2007 22-Nov-2007 31-Dec-2013 31-Dec-2016 Page 2 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 06-Nov-2013 44\.82 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Financing Plan Reallocation between Disbursement Categories Change in Implementation Schedule 11-Jun-2015 70\.14 Change in Loan Closing Date(s) Change in Implementation Schedule 29-Dec-2016 94\.47 Reallocation between Disbursement Categories KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 02-Jun-2008 Moderately Satisfactory Moderately Satisfactory 3\.48 Moderately 02 22-Jun-2009 Moderately Unsatisfactory 7\.12 Unsatisfactory Moderately 03 14-Jan-2010 Moderately Unsatisfactory 8\.08 Unsatisfactory Moderately 04 12-Nov-2010 Moderately Unsatisfactory 12\.59 Unsatisfactory Moderately 05 27-Jun-2011 Moderately Unsatisfactory 14\.82 Unsatisfactory Moderately 06 23-Dec-2011 Moderately Unsatisfactory 18\.54 Unsatisfactory Moderately 07 27-May-2012 Moderately Unsatisfactory 21\.82 Unsatisfactory 08 27-Oct-2012 Unsatisfactory Moderately Unsatisfactory 25\.93 09 25-Jun-2013 Unsatisfactory Moderately Unsatisfactory 36\.98 Page 3 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) Moderately 10 25-Feb-2014 Moderately Unsatisfactory 48\.68 Unsatisfactory Moderately 11 28-Oct-2014 Moderately Unsatisfactory 60\.04 Unsatisfactory Moderately 12 24-Feb-2015 Moderately Unsatisfactory 65\.55 Unsatisfactory 13 17-Jun-2015 Satisfactory Moderately Satisfactory 70\.14 14 11-Dec-2015 Moderately Satisfactory Moderately Satisfactory 77\.06 15 28-Jun-2016 Moderately Satisfactory Moderately Satisfactory 86\.25 16 28-Dec-2016 Moderately Satisfactory Moderately Satisfactory 107\.39 SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 4 Sub-National Government 4 Social Protection 12 Social Protection 12 Transportation 84 Urban Transport 84 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 10 Public Private Partnerships 10 Public Sector Management 20 Public Administration 20 Administrative and Civil Service Reform 6 Municipal Institution Building 14 Page 4 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) Social Development and Protection 20 Social Inclusion 18 Other Excluded Groups 18 Fragility, Conflict and Violence 2 Forced Displacement 2 Urban and Rural Development 40 Urban Development 40 Urban Infrastructure and Service Delivery 40 Environment and Natural Resource Management 21 Environmental Health and Pollution Management 21 Air quality management 7 Water Pollution 7 Soil Pollution 7 ADM STAFF Role At Approval At ICR Regional Vice President: James W\. Adams Victoria Kwakwa Country Director: Martin G\. Rama Ousmane Dione Senior Global Practice Director: Jitendra N\. Bajpai Jose Luis Irigoyen Practice Manager: Junhui Wu Almud Weitz Shomik Raj Mehndiratta, Cuong Task Team Leader(s): Van Anh Thi Tran, Jung Eun Oh Duc Dang ICR Contributing Author: Yang Chen Page 5 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. At the time of project preparation around 2005, Hanoi, Vietnam’s capital and key economic center of the country’s north, was a booming city of over 5 million people\. It was also one of the most densely populated urban areas in the world\. With population and income expected to continue rising, motorization levels were expected to accelerate\. 2\. Hanoi’s motorization is characterized by the dominance of motorcycles, a symbol of high personal mobility amid rapidly rising incomes\. Almost 2 million motorcycles were making 60 percent of all trips in the city\. The city’s efforts to curb motorization either failed (for example, restriction on motor vehicle ownership) or were not in place (for example, parking was cheap and plentiful, gasoline price was among the world’s lowest)\. On the other hand, the supply of mobility services was poor\. Occupying less than 7 percent of the land area, the road network of Hanoi was exceptionally sparse\. Road infrastructure was lacking to provide access especially to the less developed areas, for example, in the north and northwest of the city, where the city envisioned to accommodate future urban growth\. The public transport system was underdeveloped with only buses, transporting less than 10 percent of the total trips in the city\. Furthermore, traffic management was still nascent\. Most intersections were not signalized\. Although some progress was made in part through the support of the World Bank-financed Urban Transport Improvement Project (UTIP) (P004833) completed shortly before, residents in Hanoi had been slow to accept basic traffic rules\. Congestion was already becoming a critical problem in the city\. Traffic was in general unorderly and sometimes chaotic at intersections, posing safety concerns especially for vulnerable groups such as women, children, elderly, and long-distance motorists\. 3\. As Hanoi was transforming itself into a major metropolis, the city saw the need to build capacity for all the institutions engaged in managing the urban environment\. In the public transport sector, the city was in the process of a major reform in bus operations and management\. Partly as a result of a study financed by the Public-Private Infrastructure Advisory Facility (PPIAF), Hanoi franchised six new bus routes to two private operators chosen by competitive tender, ending the monopoly of Hanoi Transport and Services Corporation (TRANSERCO), a state-owned enterprise\. As the concession process was extended to other routes, and with proposals of new public transport modes including urban rail, Hanoi saw the need for setting up a strong regulatory and planning authority to manage all public transport issues\. The city also recognized the need to enhance its institutions and infrastructure for air quality monitoring and management\. 4\. Given its international experiences and good working relationship with Hanoi in the urban transport sector since the early 1990s (especially the UTIP that supported traffic management investments and institutions in Hanoi and Ho Chi Minh City [HCMC] and the PPIAF-financed bus sector reform), the World Bank was well positioned to support Hanoi at this critical juncture of rapid motorization\. With the ambition to transform its urban transport sector, the City of Hanoi and the World Bank proposed this project with comprehensive interventions in public transport, road infrastructure, and institutions\. The project aimed to introduce the first mass rapid transit system, a Bus Rapid Transit (BRT) Page 6 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) system to Hanoi, to demonstrate meeting increasing demand with high capacity and quality public transport services\. The project also proposed to construct a critical section of road infrastructure to improve access to the less developed areas and to facilitate environmentally sustainable urbanization of Hanoi\. The institution component included capacity building in transport and planning/implementation institutions for air quality, traffic safety, and public transport authority (PTA)\. The design was consistent with the World Bank’s global urban transport strategy and Vietnam’s infrastructure strategy\. 5\. This project was designed as a Specific Investment Loan with a Global Environmental Facility (GEF) co-financing a set of initiatives that either would reduce barriers to implementation of the project or maximize its global environmental benefits\. The project was consistent with the GEF Operational Program 11’s objective ‘Promoting Environmentally Sustainable Transport’ and the GEF climate change strategic priority related to sustainable transport\. The BRT system proposed in this project would be the first such system financed by the World Bank in Asia and would have the potential to be a high-profile demonstration for bus-based mass rapid transit in the region\. Theory of Change (Results Chain) Figure 1\. Theory of Change (Results Chain) 6\. Figure 1 lays out how outputs from the project activities would lead to the project outcomes and long-term impacts\. To realize this results chain, at project appraisal a number of assumptions were made, including: (a) continuous political commitment to implement the BRT; proper traffic management measures; enforcement of BRT restriction by traffic police; coordination with other transport modes including planned urban light rail, non-motorized transport (NMT), feeder services, and other bus services, and so on for the results chain of the BRT component; (b) no delay in resettlement and no delay or abandonment of the planned urbanization in the west and northwest of the city for the road infrastructure Page 7 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) and sustainable urban planning results chain; and (c) good coordination and political will to reform throughout project implementation for the results chain of institutional development\. All components also assumed sufficient counterpart funding and solid financial management (FM) for project implementation\. Overall risk at appraisal was rated Substantial\. Project Development Objectives (PDOs) 7\. The objectives of the project as stated in the Legal Agreements were to: (a) increase urban mobility in targeted areas of the City of Hanoi through increased use of public transport in selected traffic corridors and reduced travel time between the center and the west and northwest sections of Hanoi and (b) promote more environmentally sustainable transport modes and urban development plans for Hanoi\. This PDO statement is used for this report\. 8\. In the Project Appraisal Document (PAD), these objectives were broken into two parts\. The development objective of the IDA credit was to increase urban mobility in targeted areas in Hanoi by (a) increasing the use of public transport in two existing corridors and one new corridor and (b) reducing travel times by all modes between the city center and the west and northwest sections of the city (west of West Lake)\. GEF strategic objectives were to promote a shift to more environmentally sustainable transport modes and urban development plans and to promote the replication of these approaches in the country and region\. Its Global Environment Objective was to lower Hanoi’s transport-related greenhouse gas (GHG) emissions relative to a business-as-usual scenario\. Key Expected Outcomes and Outcome Indicators 9\. According to the PDO statement in the Legal Agreements, the key expected outcomes of this project were the following: (i) Increase urban mobility in targeted areas of the City of Hanoi, specifically (a) increased use of public transport in selected traffic corridors and (b) reduced travel time between the center and the west and northwest sections of Hanoi\. (ii) Promote (a) more environmentally sustainable transport modes and (b) urban development plans for Hanoi\. 10\. According to the Results Framework in the original PAD, these outcomes would be measured by the following indicators: number of daily BRT/bus boardings and travel time by bus on the project corridors, modal shift to BRT, travel time by bus and motorcycles from Nhat Tan to Cau Giay (RR2), GHG emission reduction, and several other indicators to measure institutional development including land use planning and coordinated public transport plan, air quality management, and number of replication activities (see table 2 for details)\. Components 11\. The project, as designed at appraisal stage, had three major components: Development of the BRT System (BRT component), Road Infrastructure and Sustainable Urban Planning (RR2 component), and the Institutional Development component (see table 1)\. The estimated costs at appraisal as well as Page 8 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) the actual costs (including resettlement costs) at project closing are also listed with main reasons of cost variation by component\. Table 1\. Estimated and Actual Costs by Component B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 12\. The PDOs have remained unchanged throughout the project implementation\. 13\. The outcome targets for the BRT component, however, were changed during the first restructuring of the project in November 2013\. Due to changes of Hanoi’s public transport strategy, a metro line and a LRT were planned along the original project BRT corridors, so the original project BRT alignment was changed and the scope and impact of the BRT system was reduced\. BRT Line 1 was realigned and extended from Hadong to Yen Nghia Bus Terminal while BRT Line 2 (Giai Phong corridor) was cancelled\. The targets for daily BRT/bus boardings (PDO indicator 1) were therefore reduced from 100,000 (Line 2), 80,000 (Line 1), 30,000 (Dong Anh and west of West Lake districts) to 37,162 (first section of the realigned and extended Line 1), 61,050 (second section of the realigned and extended Line 1), and 28,623 (Dong Anh and west of West Lake districts), respectively\. The target for percentage of BRT riders who would switch from private motorized modes (PDO indicator 2) was also adjusted from 15 percent to 10 percent during this restructuring\. Page 9 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Revised PDO Indicators Table 2\. Indicators to Measure Project Outcomes after First Restructuring Note: PDO indicators are in bold, typos are corrected in red with asterisk, and changes are marked as shaded text\. 14\. The first restructuring in November 2013 resulted in several changes to the Results Framework including the PDO indicators\. PDO indicators 1 and 2 and intermediate indicator 7 were revised in response to the new alignment of the BRT\. PDO indicators 5 and 6 on user satisfaction of the BRT system were added\. Two indicators (intermediate indicator 4 and 6) on financial performance of the bus system and BRT were dropped as they were for monitoring purpose only and not directly linked to the PDO or project activities\. Two intermediate outcome indicators, 10 and 12, to measure institutional and capacity improvement were revised to be less ambitious\. Revised Components 15\. The BRT component was modified during implementation\. Due to overlapping alignment of urban rail lines under implementation (as mentioned above), the City of Hanoi and the World Bank agreed to change the scope and alignment of the BRT system in 2011 and this change was later formally approved Page 10 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) in the first restructuring in November 2013\. This change included the following: the original BRT Line 1 west section (Khuat Duy Tien-Nguyen Trai-Ba La) was realigned so that it would not overlap with LRT Line 2a\. The BRT Line 1 route was also extended from Hadong to Yen Nghia bus station, from the original 9\.1 km to 14\.7 km\. The planned depot at Vinh Quynh was relocated to Yen Nghia, where a BRT terminal was also added\. Concerning that limited road space in the city center would affect BRT operability in mixed traffic from Kim Ma to Hai Ba Trung and surrounding streets of Hoan Kiem Lake, the city requested that the BRT Line 1 end at Kim Ma terminal (3\.8 km of BRT routes cancelled)\. The BRT Line 2 (10\.1 km long Giai Phong corridor) along with a terminal and interchange at Quang Lai was cancelled because its alignment overlapped with Metro Line 1\. Annex 7 shows these changes on a map\. This alignment and scope change of the BRT system had a fundamental impact on the baselines and targets of relevant indicators as set out in the PAD, thus necessitating the revision of the framework as mentioned earlier\. 16\. Two more changes were made to the BRT component but not through formal restructurings\. One was additional civil works to strengthen a flyover at Lang Ha-Thai Ha intersection to allow for use by BRT vehicles and the other was the cancellation of an equipment contract for BRT electronic ticketing and communications system due to bid evaluation delay, the debarment of the recommended bidder, and the city’s plan for implementing a citywide integrated smart card system at a later stage\. 17\. The Institutional Development component was also revised during the first restructuring in November 2013\. Two activities were cancelled: (a) air quality monitoring equipment and (b) technical assistance (TA) for traffic and demand management, which were financed and implemented directly by city authorities\. Other Changes 18\. The project closing date was extended twice, by 36 months in total\. The first restructuring in November 2013 extended the credit closing date from the original December 31, 2013, to June 30, 2015\. The second restructuring in June 2015 extended the closing date for 18 more months to December 31, 2016\. Implementation schedule and disbursement estimates were changed accordingly\. Besides the project design and scope change discussed earlier as well as the modified Results Framework, the first restructuring in 2013 also made a reallocation of credit and grant proceeds to reflect changes in project design and changes in the loan covenant to allow the public bus company TRANSERCO to operate BRT for an initial period of 5 years\. 19\. Finally, due to the cancellation of the BRT electronic ticketing system contract mentioned earlier, the project had unused funds\. The cancellation of SDR 9,675,000 from the credit was approved as a third restructuring right before credit closing in December 2016\. This allowed the reutilization of the cancelled IDA resources to be recommitted to other Vietnam project(s) before the end of the IDA17 cycle\. Rationale for Changes and Their Implication on the Original Theory of Change 20\. While the City of Hanoi had plans for urban rails even before this project was prepared, its public transport plan was made without budget constraints or coordination\. The city’s public transport strategy and priorities changed in 2010 due to factors of financing opportunities and implementation schedules\. The team decided to adjust the scope and design of the BRT system in response to the city’s overall public transport plan change and different priorities\. Per the original theory of change (Figure 1), the BRT system Page 11 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) design and scope change reduced the impact on increasing BRT/bus ridership but, on the other hand, complemented other mass public transport modes in the city such as the metro and LRT\. 21\. The reason for the two closing date extensions totaling 36 months was the complexities of the components, compounded with extremely lengthy administrative approval procedure in Vietnam, especially in Hanoi\. Since the loan became effective, the project implementation had suffered substantial delays caused by the large-scale resettlement under the RR2 component (with more than 1,500 households affected), as well as the technically complex nature of the BRT component (for example, introduction of the first BRT system in Vietnam that featured BRT lanes in the median lanes, special BRT vehicles with doors on both sides, priority signal system, smart card ticketing system, and integration with regular buses and other modes)\. This implementation delay, according to the theory of change, reduced the efficiency of achieving the original expected outcome\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 22\. The relevance of the PDOs is High\. 23\. As Vietnam reached middle-income status (in 2009) and graduated from IDA, its demographic and economic evolutions put new demands on service delivery to which urban mobility and environmentally sustainable transport were critical\. As the population further urbanized, urban mobility issues needed to be addressed for the country and the city to achieve the aspiration of better quality of life\. The PDOs supported all four objectives of the Vietnam 2007–2011 Country Partnership Strategy (CPS) (Report No\. 65200-VN) at project preparation\. In the subsequent 2012–2016 CPS, the PDOs stayed highly relevant as they supported all three pillars: competitiveness, sustainability, and opportunity\. The PDOs are also fully aligned with the GOV’s Socioeconomic Development Strategies and the Socioeconomic Development Plans\. Looking forward, the project PDOs also support two of the three focal areas of the new Country Partnership Framework for Vietnam 2018–2022 (Report No\. 111771-VN): (a) Enable Inclusive Growth and Private Sector Participation by improving planning, management, and delivery of infrastructure and land in cities and enhancing the complementary roles of public and private sectors in infrastructure and (b) Ensure Environmental Sustainability and Resilience by promoting more environmentally sustainable transport modes that will lower the GHG emission in the transport sector\. 24\. The need to improve urban mobility by promoting public transport and integrated urban growth has become even more relevant in Hanoi throughout the project implementation period, which underlies the project’s relevance of design\. From 2005 to 2016, the population of Hanoi grew from 5\.9 million to 7\.3 million\. The income growth is even more drastic: the nominal income more than doubled just in 6 years (2010 to 2016)\. As predicted in project preparation, the motorization in Hanoi has accelerated dramatically during this decade, with the number of motor vehicles reaching 5\.7 million in 2016 compared to 2 million in 2005\. Notably, the number of cars in the city grew almost sixfold, from 56,000 in 2005 to 328,000 in 2016\. Motorcycles still dominate the streets today while bus ridership remains stagnated with a declining trend, carrying less than 10 percent of all trips the residents make\. The target areas of the Page 12 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) project were located either with current or anticipated large-scale development with high mobility demand\. Booming Hanoi needed and continues to need a sustainable transport solution to meet the rapidly increasing mobility demand and to accommodate and guide urban growth\. 25\. Finally, the project has demonstrated its relevance by adapting to the changing circumstances and priorities of the government, notably the government’s decision to reconfigure its public transport, to which the project adapted\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 26\. As described in the previous section, key expected outcomes of this project were to (i) increase urban mobility in targeted areas of the City of Hanoi through (a) increased use of public transport in selected traffic corridors and (b) reduced travel time between the center and the west and northwest sections of Hanoi and (ii) promote (a) more environmentally sustainable transport modes and (b) urban development plans for Hanoi\. These four aspects are evaluated and discussed separately in the following paragraphs\. It is important to note that indicators in the M&E framework are not sufficient to fully assess the project outcomes, especially those related to the BRT whose design and scope was adjusted in response to the client’s overall public transport strategy change\. PDO (i)(a): Increase urban mobility in targeted areas of the City of Hanoi through increased use of public transport in selected traffic corridors Rating: Substantial 27\. This part of the PDO captures the impact of the introduction of BRT to Hanoi\. In the original project design, this outcome was measured by number of daily bus/BRT boardings (PDO indicator 1) and travel time by bus (intermediate indicator 7) in the corridor\. The first restructuring in 2013 added indicators for user satisfaction of the BRT system (PDO indicators 5 and 6) to the results framework\. Given the context of trying to transform the urban transport sector with dramatic motorization, the pioneering aspect of the first BRT line in Hanoi is also taken into consideration to evaluate this outcome, that is, whether the introduction of BRT has increased urban mobility by its impact on the overall increased use of public transport in Hanoi\. 28\. Because the PDO statement did not change and the values of corridor-specific indicators (especially ridership) for original design and actual implementation were not comparable because of the corridor selection/alignment change, this ICR does not use a split evaluation but instead assesses the efficacy based on the overall achievement of the stated outcome considering ridership, travel time, user satisfaction, and its transformational impact as the first mass public transport mode in the city\. 29\. The project built the first BRT line in Vietnam\. The output was one BRT route, including a 14\.7 km long BRT busway (one bus lane per direction) from Kim Ma to Yen Nghia, 21 BRT stations, 2 BRT terminals (Kim Ma and Yen Nghia), one depot at Yen Nghia, 10 pedestrian overpasses, 35 BRT vehicles, and BRT traffic signals\. The BRT line began operation on January 1, 2017\. In the first month, passengers could ride the BRT free of charge\. After one month, a one-way BRT ticket costs VND 7,000 (about US$0\.3)\. BRT has Page 13 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) been operating a service frequency of one bus every 5 minutes (each direction) in the peak hours, 7 minutes in the daytime off-peak hours, and every 10 minutes in the evening\. 30\. Ridership\. The selection of ‘ridership’ or number of boardings as a PDO indicator is problematic\. Firstly, as discussed earlier, the scope and design of BRT was changed due to the client’s strategy and priority change, leading to the first project restructuring when the targets for daily BRT/bus boardings (PDO indicator 1) were reduced from 100,000 (Line 2), 80,000 (Line 1), 30,000 (Dong Anh and west of West Lake districts) to 37,162 (first section of the realigned and extended Line 1), 61,050 (second section of the realigned and extended Line 1), and 28,623 (Dong Anh and west of West Lake districts) after the realignment of Line 1 and the cancellation of Line 2\. This significant reduction of ridership target was reasonable not only because one line was cancelled and the other line shifted partly to a route with less demand, but also because the original integrated BRT system became only one line, which significantly limited its ability to attract riders\. Secondly, the total number of daily bus/BRT ridership on the corridor could be a good indicator if it was monitored after a considerable period of BRT operation with a stabilized service plan for all routes\. However, in this case, while the monitored ridership on the corridors almost achieved all revised targets in November 2016, at that time BRT had not started operation, therefore it was not attributable to BRT\. As reported by Hanoi Urban Transport Management and Operation Center (TRAMOC), after 10 months of operation, BRT ridership has been quite stable at 13,000 to 14,000 trips per day\. However, the forecast was 36,500 trips per day at the first restructuring\. While the ridership on the corridor had not yet met its expectation at the time of this writing, it is also not a good indicator to use as TRAMOC and the Department of Transport (DOT) are still deciding and adjusting the service plan and route reorganization of other buses on the corridor\. The lower-than-expected ridership is due to several factors: the most important being the lack of integration with regular bus services\. TRAMOC has taken all regular bus routes off the BRT corridor and reorganized five bus routes to connect to BRT, but more efforts are needed to achieve service integration and attract riders, including much wider scale route rationalization and service planning, relocating some bus stations closer to BRT stations, and solving transfer and ticketing issues\. Furthermore, the current BRT line is the first in the city and is still operating on a pilot basis with limited or compromised features such as manual ticketing, soft barriers for designating the dedicated lane, loose traffic management and enforcement, and inadequate accessibility facilities to stations\. These important features were planned but some have not yet been fully implemented with necessary compromises made in order to get Hanoi’s first BRT system up and running\. Also, the access to BRT stations needs improvement, as on average people need to walk longer distance to cross the street either at intersections or by pedestrian overpasses to get to the BRT stations, which deters ridership or causes safety risks\. There is also lack of wheelchair access to the BRT stations\. DOT and TRAMOC are actively looking into these issues and have started to take actions\. It is expected that these issues will gradually be addressed over time, and the system is likely to attract more passengers\. For example, more hard barriers (lane dividers) are being installed at some locations (for example, Giang Vo and Hoang Dao Thuy intersections) to prevent other traffic from invading the BRT lane; traffic police started imposing fines on BRT lane violation from February 15, 2017; and signage and a speaker system were added to remind road users to respect the BRT lane\. Also, much higher ridership is expected when more BRT routes are introduced and regular bus services and stations are more integrated\. Furthermore, according to TRAMOC’s 8-month BRT operation report, ridership will have significant growth in the near future when the high-density development with high-rise apartments along the corridor from Ring Road 3 to Yen Nghia is completed\. Page 14 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) 31\. User satisfaction\. User satisfaction and user experiences on the BRT systems are measured through BRT passenger surveys\. The World Bank ICR team designed and conducted two rounds of BRT passenger satisfaction survey as part of this report\. One round of BRT passenger survey with 723 respondents was carried out in February 2017 (‘2nd month BRT survey’) and another round with 707 respondents in September 2017 (‘9th month BRT survey’)\. TRAMOC is also responsible for conducting passenger satisfaction surveys regularly\. The 2nd month BRT survey showed that 96 percent of all sampled passengers are either satisfied or extremely satisfied with the BRT services\. Specifically, about 95 percent of all female passengers are either satisfied or extremely satisfied with the BRT services\. Another survey of a larger scale (2,050 respondents) conducted by TRAMOC in March 2017 (‘3rd month TRAMOC survey’) showed similar results with 97 percent of passengers responding that the BRT services are good\. The 9th month BRT survey also offered consistent numbers: 97 percent of passengers are satisfied with the BRT services\. These high satisfaction levels of BRT passengers well exceeded the target values for the BRT user satisfaction indicator (PDO indicator 5 aimed for 55 percent satisfaction of all users and PDO indicator 6 targeted 60 percent satisfaction for female users)\. According to the BRT user surveys, riders are mostly satisfied with the punctuality, high speed, comfort, ease of getting on and off, and the fare level\. However, passengers are not satisfied (that is, less than 80 percent agree to the statement) with (a) the access to the station locations, (b) accessibility facilities for the disabled, and (c) the integration with other bus routes\. These accessibility and integration issues are also the most mentioned comments in the survey\. 32\. Travel time\. According to the TRAMOC BRT 3-month operation report, the average operating speed of the BRT buses is 20 km per hour, 20 percent faster than regular buses\. The travel time on bus for Kim Ma-Khuat Duy Tien and Khuat Duy Tien-Yen Nghia is therefore calculated using the lengths of these two sections: 24 minutes and 22 minutes, respectively\. Adding 3 minutes of average waiting time (half of average headway weighted by ridership during peak and non-peak hours), the travel time by bus on these two sections are 27 minutes and 25 minutes, respectively, well achieving the target values (35 minutes and 30 minutes) for intermediate indicator 7\. BRT riders also reported in the surveys the travel time using BRT versus their ‘alternative mode’ (the transport mode they would have used if there was no BRT)\. On average, BRT riders save 14 percent (or 3\.1 minutes in the 9th month BRT survey) of their travel time (including walking time to the station and waiting time at the station) per trip\. For those who shifted from regular buses to BRT, their travel time savings is much higher: 37–87 percent according to the BRT surveys, as the higher frequency and reliability of BRT buses further saves waiting time for riders\. The saved travel time is important evidence of improved mobility, which has particularly more significance for highly congested areas like this corridor\. 33\. In summary, significant compromises in design and implementation have been made to get the first BRT into operation, which affected the ridership not achieving the target\. However, high user satisfaction and considerable time savings of riders show the achievement of improved mobility by providing high-quality public transport services\. BRT has also improved the safety in the corridor—no fatalities/injuries have been reported so far after almost a year’s operation\. While Hanoi is working hard to solve numerous issues including enforcement, accessibility, and integration, the introduction of BRT in Hanoi is the first difficult step toward a transformation from chaotic motorization to a modern urban transport system with mass public transport system as its backbone (see before and after image comparison in figure 2)\. The efficacy of this outcome is therefore rated Substantial considering all the factors mentioned above and the pioneering impact of introducing public transport priority in the context of dramatic motorization in Hanoi\. Page 15 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Figure 2\. BRT Corridor Before (above) and After (below) Source: BRT survey report (above) and vnexpress\.net (below left) and dtinews\.vn (below right)\. PDO (i)(b): Increase urban mobility in targeted areas of the City of Hanoi through reduced travel time between the center and the west and northwest sections of Hanoi Rating: High 34\. This part of the PDO captures the impact of the RR2 component\. The RR2 component has constructed the key northwest quarter of the RR2, including 6\.1 km roadway; major interchanges (Buoi, Dao Tan, and Cau Giay); overpasses; lighting; greening; and traffic signal system\. RR2 has been open to traffic since January 18, 2016\. This segment of RR2 connects the city center to the less developed west and northwest sections of Hanoi and to the newly completed rainbow bridge financed by Japan International Cooperation Agency, saving significant time between the city and the airport too\. The construction of the RR2 section also enabled five more bus routes connecting the city center to the north and west of the city as well as to the airport\. The travel time by bus from Cau Giay to Dyke Road at Nhat Tan with the RR2 is 21 minutes, 7 minutes less than the baseline, almost meeting the target value (20 minutes) for intermediate indicator 9a\. The average travel time by motorcycle from Nhat Tan to Cau Giay at PM peak hours is only 11 minutes by the new RR2, well achieving the target value (18 minutes) for the intermediate indicator 9b\. A roadside survey as well as traffic count was conducted along RR2 in October 2017 as part of this ICR for updating the economic analysis\. According to the traffic count, on a typical weekday from 7 a\.m\. to 7 p\.m\., there are 77,000 to 93,000 vehicles (50–75 percent are motorcycles) Page 16 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) running in two directions along RR2\. According to the roadside survey, road users save on average 20 minutes (or 30 percent) of their travel time\. The significant time saving due to the construction of RR2 has exceeded the mobility increase objective and therefore the efficacy for this part of the PDO is rated High\. PDO (ii)(a): Promote more environmentally sustainable transport modes Rating: Substantial 35\. One important indicator to measure the extent to which the introduction of BRT has promoted more environmentally sustainable transport modes (public transport in this case) is to see how many of the new BRT passengers are switching from private transport mode (PDO indicator 2) or ‘modal shift’\. In the 2nd month and 9th month BRT surveys, one question was focusing on modal shift and asked the BRT rider what transport mode he/she would use for that specific trip if BRT was not built (the counterfactual ‘alternative mode’)\. Interestingly, over half of the BRT riders would have used a personal motorized vehicle (including private car, taxi, motorcycle, or motorcycle taxi; see figure 3)\. The modal shift is 51 percent, far exceeding the target value of PDO indicator 2 (15 percent in original PAD or 10 percent at the first restructuring)\. This result therefore provides strong evidence that with better quality of service, mass public transport modes such as BRT can attract a significant portion of personal motorized vehicle users, in the context of Vietnam and Hanoi, where motorcycles dominate the streets\. 36\. However, because the BRT ridership is moderate, the absolute number (number of passengers who switched modes) or scale of the modal shift impact is not large\. Considering both the impressive modal shift percentage and relatively small scale of the impact, the achievement of this part of the PDO is rated Substantial\. Figure 3\. Modal Shift of BRT Passengers Source: Left: 2nd month BRT survey; Right: 9th month BRT survey\. 37\. As part of this ICR, GHG emission reduction is estimated using the actual BRT ridership, traffic counts along RR2, and modal shift and speed change estimations from the surveys\. Annual growth of public transport demand is conservatively assumed to be 1 percent while the annual growth of traffic demand on RR2 is assumed to be 6 percent\. The major GHG emission reduction comes from the avoided car and motorcycle trips due to modal shift to BRT, as well as the travel distance and speed change Page 17 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) because of the construction of RR2\. Given that BRT started operation in 2017 and RR2 in 2016, till 2025, the total GHG emission reduction is 122,177 tons CO2e (see annex 4 for details)\. This estimation has achieved the target for PDO indicator 3 after the first restructuring (100,000 tons)\. PDO (ii)(b): Promote more environmentally sustainable urban development plans for Hanoi Rating: Moderate 38\. This outcome is also part of the GEF objectives\. The rationale was that the GEF-financed TA would help Hanoi to learn and pilot sustainable urban planning that integrates land use and transport planning and to improve the coordination among city agencies for integrated, multimodal transport planning, management, and operation\. Disseminating experiences and promoting the replication of Hanoi BRT in Vietnam and other regions was also mentioned in the GEF objective in the PAD\. 39\. This outcome was originally measured by the indicator ‘adoption of land use TA leading to implementation of pilots, or policy change in land use planning or controls’, ‘coordinated institutional system to manage and coordinate public transport planning and operations’, and ‘the number of Department of Architecture and Planning Management (DAPM) staff trained\.’ After the first restructuring, the descriptions for the former two indicators were relaxed\. The ‘adoption of land use TA’ was relaxed to mean the development and approval of the land use TA final report, without pilots or policy changes\. The ‘coordinated institutional system’ that included substantial institutional reforms (such as control of public transport planning, fare, and schedule integration between bus-based and rail-based systems and establishment of an independent agency) was revised at the first restructuring to ‘strengthen capacity for planning multimodal public transport system’, which includes the following three steps: (1) decision for establishment of Multimodal Public Transport Committee (MMPTC) issued; (2) draft final report on establishment of PTA developed; and (3) final report on establishment of PTA approved (‘approved’ was further relaxed to ‘developed’ in the second restructuring in 2015)\. Targets were achieved for most indicators with less ambitious definitions after the first restructuring but not the original definitions\. 40\. Policy changes and institutional reforms in Hanoi, as originally envisioned, proved to be difficult and the results were hard earned but still incremental\. The project has supported DAPM (later changed to Department of Planning and Architecture, or DPA) on urban planning and integrated land use and transport model\. Using the TransCAD-based integrated land use and transport model and others, trainings are provided to staff in the Project Management Unit (PMU) and DAPM\. In March 2016, the prime minister approved the ‘Transportation Plan for Hanoi by 2030, with a Vision to 2050’\. This new transport master plan for Hanoi prioritizes mass public transport\. The proposed transport system including eight new BRT corridors is planned in coordination with the economic, social, and land use planning to accommodate the city’s future growth in a sustainable way\. The Hanoi DOT and PMU proposed to use World Bank financing for two of these planned BRT corridors\. 41\. The project also provided technical support to the establishment of the MMPTC and the preparation for establishing a PTA by strengthening the capacity of TRAMOC\. To ensure integration of all public transport modes and to avoid duplication/overlapping, Hanoi People’s Committee (HPC) established the MMPTC on July 11, 2013, with participation of key agencies such as Metropolitan Railway Management Board, TRAMOC, DOT, DPA, Department of Construction, TRANSERCO, and Department of Planning and Investment\. In September 2013, HPC approved a general fare collection policy framework, supporting one common ticket for all modes and an open ticketing system\. Although a PTA has not yet Page 18 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) been established (Hanoi DOT and TRAMOC are still making efforts), relevant agencies in Hanoi better understand the importance and methods of coordination and multimodal integration for public transport\. 42\. The project has made efforts and completed several replication activities by conducting workshops, study tours, and other knowledge exchange events in Vietnam and the region\. The lessons from Hanoi BRT have been very helpful for Da Nang and HCMC\. For example, Da Nang BRT improved its bidding document of the electronic ticketing package by incorporating the lessons learned in this project; HCMC has recently completed a yearlong review of its feasibility study design, in close consultation with Hanoi DOT, TRAMOC, and TRANSERCO, incorporating some design modifications that would allow them to avoid some of the difficulties Hanoi BRT experienced\. 43\. The overall achievement of this outcome is thus rated Moderate\. Justification of Overall Efficacy Rating 44\. Summarizing the discussions and ratings for the four parts of the PDOs above (Substantial, High, Substantial, Moderate), the overall efficacy of this project is rated Substantial\. Going back to the theory of change, the RR2 component exceeded expected outcomes; moderate results were achieved in institutional development; and the first BRT in Hanoi has made transformational impact in the urban transport sector despite of its significant scope reduction and compromises to adapt to the government’s strategy and priority change\. C\. EFFICIENCY Assessment of Efficiency and Rating 45\. The prolonged project implementation and reduced scope of work for the BRT component has affected the efficiency of the project\. The implementation period was extended for 3 years (in total 8\.5 years of implementation from loan effectiveness) and the completion of all project activities was delayed\. The scope of work for the BRT component reduced from two corridors to one (but extended) corridor and without the electronic ticketing system\. The cost-benefit analyses done at appraisal stage and completion stage showed that the economic internal rate of return (EIRR) and the net present value (NPV) for the BRT component were much lower than originally estimated, even with emission reduction benefits added\. The EIRR and NPV for the RR2 component, on the other hand, were higher at completion stage, showing good efficiency given the good traffic volume and higher-than-expected time savings (based on the roadside survey)\. The higher EIRR at completion is also due to the higher value of time (VOT) estimation using the roadside survey conducted in 2017\. See annex 4 for details of the ex post economic analyses\. Table 3\. Results of Economic Analysis at Different Stages PAD (2007) Restructuring (2013) Completion (2017) BRT NPV (US$, millions)a 41\.3 3\.4 −5\.2 EIRR (%) 21\.0 13\.1 6\.0 RR2 NPV (US$, millions)a 34\.0 — 165\.0 EIRR (%) 14\.5 — 18\.5 Note: a\. Discount rate of 12 percent was used for calculation at all stages\. Page 19 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) 46\. Considering all factors above, the overall efficiency rating for the project is Modest\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING 47\. The project objectives are highly relevant to the country’s priorities and the World Bank’s country strategies at the design stage and remained relevant at the completion stage also\. The project almost fully achieved its objectives\. The project suffered efficiency loss due to prolonged project implementation and reduced scope of work for the BRT component\. Considering the High relevance, Substantial efficacy, and Modest efficiency, the overall outcome rating is Moderately Satisfactory\. E\. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 48\. International research findings show that women generally rely on public transport more than men and use less motorized vehicles\. Results from the 2nd month and 9th month BRT surveys confirmed that Hanoi BRT has more female passengers than male, and women also use BRT more frequently\. Therefore, the introduction of BRT system in Hanoi benefits women more\. Based on the 9th month BRT survey, female passengers spend longer time making a trip (including walking and waiting time) and the BRT saves them 4\.5 minutes per trip on average versus only 1\.4 minutes for male passengers\. Averaging the Likert scale of the satisfaction questions, female passengers tend to be more satisfied with the BRT services and more likely to recommend others to use BRT (table 4)\. Table 4\. Benefit Comparison for Female and Male Passengers on Hanoi BRT (9th Month BRT Survey) Alternative Travel Time Average Are You Satisfied Will You Recommend Travel Time with BRT Time Saved with BRT Services? Others to Use BRT? (minutes) (minutes) (minutes) Female 40\.0 35\.4 4\.5 4\.51 4\.41 Male 34\.3 33\.0 1\.4 4\.44 4\.33 49\. The most unsatisfactory aspects of the system are the same for both women and men: station access, disabled accessibility, and integration with other buses\. One notable difference is that women are more satisfied with the safety feature of the BRT system, which is always an important consideration for female public transport users\. Institutional Strengthening 50\. As discussed earlier, although institutional reform proved to be difficult, incremental improvements have been made by the project\. For example, the capacity of the planning agency for Hanoi has been strengthened to integrate land use urban plan with transport plans\. Results are reflected by the newly approved transport master plan, which prioritizes mass public transport\. The capacity of relevant agencies in Hanoi, especially TRAMOC, has also been strengthened\. Page 20 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Mobilizing Private Sector Financing 51\. As mentioned earlier, the PPIAF-funded study in 2004 helped the city franchise the operation of some bus routes to private operators in 2005, ending the monopoly of the state-owned TRANSERCO\. This project aimed to build on that effort and to mobilize private sector financing in the BRT operation\. The project design hence incorporated legal covenants that the operation of the BRT had to go through competitive tendering and award concessions for private operators\. Although this requirement was amended later, at project restructuring, to allow TRANSERCO to operate the BRT during the start-up period due to lack of competent operators in the untested market, the implementation of the first BRT system and all the supporting TAs in the project has set up the mechanism to mobilize private sector financing for the operation of the bus routes\. Poverty Reduction and Shared Prosperity 52\. The BRT component of this project benefits the low-income households more as low-income people without personal motorized vehicles tend to depend on public transport modes\. Furthermore, the BRT saves more travel time for those who used to take buses (who tend to be poorer), while those who would have used motor vehicles (who tend to have higher income) save much less time or even spend more time riding BRT\. Therefore, in terms of time-saving benefits, the BRT is progressive\. Figure 4 indicates that those who ‘switched’ from buses save 37–86 percent of their travel time (including walking and waiting time), and those who switched from bicycles save 25–30 percent\. The riders who would have ridden motorcycles spend 10–12 percent more time on BRT and those who would have taken a motor taxi lose the most time\. Figure 4\. Time Savings of BRT Riders Shifted from Different Modes III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 53\. Ambitious objectives\. As discussed earlier, the project PDOs are highly relevant, aiming to solve pressing urban transport issues in Hanoi\. However, these objectives proved to be too ambitious, especially Page 21 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) those related to the BRT component and institutional reform\. Introducing BRT to a city is not easy—it is a reform of the public transport sector and its planning and implementation need to be considered as part of the whole urban transport system including all other modes\. Furthermore, it is the first mass public transport system in the city and the first BRT system in the country\. A lot of institutional changes are needed—which is extremely difficult in Vietnam and even more so in its capital Hanoi\. Taking one lane from each direction in an already congested corridor was not accepted by many residents who were using private vehicles, causing negative public pressure\. Technically, route reorganization, traffic management plan, pedestrian accessibility, operational plan, service plan, financing plan, fare setting, subsidy, concession contract, and risk allocation all need to be considered before the design of the infrastructure, and many of these technical considerations required policy and regulation changes\. For example, passenger boarding and alighting in the median lane was not compliant with Hanoi’s traffic regulation\. Not only TRAMOC, most related agencies in Hanoi agreed with the concept but did not understand what a BRT really meant and were overwhelmed when they needed to face the details\. The objectives of the project also included the competitive tendering of BRT operation\. Due to lack of competent operators in an untested market and risk of further delaying project implementation, later amendment had to be made to assign TRANSERCO to operate the BRT for an initial period of 5 years\. As discussed earlier, the institutional component was also very ambitious, targeting policy reforms and institutional changes in multiple sectors: urban development, land use and transport planning, air quality, traffic management and safety, and public transport, all facing challenges that required significant resources to address\. 54\. Complex project design\. The project wanted to accomplish too many objectives in several complex fields that are very difficult to implement: BRT and pedestrian accessibility, urban ring road construction with large resettlement, resettlement housing, integrated urban planning, institutional reform, air quality monitoring, and traffic management and safety\. In the context of Vietnam, by design it is not likely that all these activities can be completed within a reasonable implementation period\. Also, the detailed sequencing of project activities was not emphasized at the project preparation stage, for example, several TA tasks in the institutional component should have been carried out earlier to prepare for the implementation of other components\. 55\. Adequately identified risk and mitigation measures\. The project preparation has adequately identified that this is a project with substantial risk even with mitigation measures\. Specifically, the risk of ineffective traffic management and lack of coordination with other transport modes (including urban rail, NMT, and other buses) jeopardizing the BRT benefits materialized\. The mitigation measures were reasonably identified in the PAD but some (for example, establishing the PTA) were difficult to implement\. The team also correctly identified the high risk of implementation delay caused by slow domestic decision and approval procedures, which also materialized even with mitigation measures\. The substantial risks of losing political will in the BRT and resettlement delays happened and the preparation team was correctly identified\. 56\. In summary, this project was prepared aiming to solve pressing issues in Hanoi with high ambition given the context\. The technical complexity and institutional challenges of project design posed substantial risks to project outcomes, as adequately identified by the World Bank team\. Page 22 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) B\. KEY FACTORS DURING IMPLEMENTATION 57\. The project fell into ‘problem project’ status shortly after effectiveness, from May 2009 to May 2015, due to considerable delays in implementation, which were due to a number of factors, as outlined in the following paragraphs\. Factors Subject to Government and/or Implementing Entities’ Control 58\. Lack of coordination and integration\. As integrated transport master planning and a coordinating authority for public transport did not exist in Hanoi, there was no coordination mechanism for public transport projects planned and implemented by different levels of government agencies\. Institutionally, the PMU for Hanoi Urban Transport Development Project (as well as TRAMOC) was housed under Transport and Urban Public Works Service (TUPWS, later DOT), while the PMU for the metro was housed directly under HPC and the PMU for the LRT was housed under the Ministry of Transport at the national level\. While the BRT was at design stage, government’s strategy changed and top national priority was given to the urban rail\. The alignment of one BRT corridor had to be changed due to the overlapping alignment of the planned LRT and metro and the Giai Phong BRT corridor was cancelled\. This lack of coordination mechanism makes intermodal integration (planning, infrastructure, ticketing, operation) extremely difficult: uncoordinated route and service planning, station location and design, electronic ticketing, passenger information system, and so on lead to further inefficiency\. 59\. Varying levels of government confidence in BRT\. Despite strong commitment by HPC, especially during the two restructurings in 2013 and 2015, Hanoi leadership showed lack of confidence in the BRT system over the course of its implementation\. The study tour to international examples (Curitiba and Bogota) helped Hanoi leaders witness high-quality BRT services and, at the same time, the political risks associated with its implementation\. The unique characteristics of Hanoi and the corridor (motorcycle dominance, narrow streets, small blocks, and dense population distribution, which make traffic management difficult) made Hanoi city leadership, which was risk adverse, hesitate in making several key decisions\. For example, in mid-2012 and early 2013, Hanoi constructed a ‘light structure’ flyover along the proposed BRT realignment to ease congestion\. The contract of strengthening the flyover to allow for its use by BRT vehicles was awarded on October 2, 2014, but the construction started only in October 2016\. In 2016, HPC and DOT had a hard time approving the traffic management plan on the BRT corridor, again showing lack of confidence even when the infrastructure was completed\. Because of the delay in getting official sign-off for the basic attributes (for example, dedicated lane with soft or hard barrier), DOT and TRAMOC were also late in preparing the traffic management plan, operational and service plan, and bus reorganization, which affected project outcomes\. 60\. Delayed and difficult execution of resettlement and land acquisition for RR2\. The RR2 component has affected many households (1,541 Project-Affected Households [PAHs], including 714 relocated)\. Compensating these households was extremely difficult and caused significant delays\. Affected households demanded higher level of compensation and determining the market price was difficult due to highly volatile land markets in Hanoi\. All compensation and resettlement activities were put on hold waiting for the approval of new land compensation prices by HPC that would reflect the results of an independent land appraisal\. After more than one year, HPC approved land compensation prices (K- factors) for all four districts with resettlement in September 2013 and provided a methodology to establish land price in 2014\. More time and resources were needed to restore livelihood of PAHs who had Page 23 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) suffered economic loss, for example, to assist the business PAHs in finding new sites to restart business or to provide cash payment or job training\. Also, initiated by residents’ complaints, the design of the Dao Tan interchange was changed after extensive consultation and discussions to reduce the amount of resettlement\. 61\. Lengthy approval procedures\. Like all other World Bank operations, project implementation had to comply with both the World Bank system and the domestic system\. With the BRT being the first one in the country, and technically complicated, the project had to go through careful evaluation, scrutiny, and lengthy approval procedures at different institutional levels of Hanoi\. It was identified in the first Implementation Status and Results Report (ISR) that the delays caused by administrative procedures would make it difficult to complete the project before closing date\. Every implementation step needed reappraisal and clearances, often sequentially by multiple Hanoi agencies, adding additional processing time to every decision\. For example, as mentioned in the Aide Memoire of the April 2011 mission, the time it took to move to the next implementation step even when preparatory work was completed, for example, bid evaluations and procurement following design and cost estimate approval, was unacceptably long (each step took several months)\. The World Bank team and the PMU agreed during that mission to streamline the review/clearance process between the World Bank and DOT by setting up a parallel work flow\. 62\. Cancellation of the BRT electronic ticketing and communication contract\. There had been serious delays in bid evaluation of the contract for the BRT electronic ticketing and communications system\. The PMU and the World Bank team could not reach consensus on bid evaluation on whether the recommended bidder met the post-qualification criteria\. After the questioned bidder was debarred for different reasons on May 12, 2015, the DOT PMU and the World Bank team disagreed on the post- qualification evaluation of the second responsive bid\. In the end in 2016, Hanoi decided to cancel the package and proposed that the BRT use paper tickets and manual ticketing\. The delay and cancellation of this contract further affected other BRT contracts and image of the BRT system, for example, some communication hardware needed to go with another contract (for example, causing BRT vehicle design change) and the station handover was delayed, causing security as well as maintenance issues\. 63\. Delay and quality issue of the designs and TA\. For example, the TA ‘institutional strengthening of TRAMOC and creation of PTA’ contract was signed on June 6, 2012\. The consulting firm was not able to deliver quality recommendations to address the pressing issue of integration with BRT and Metro Line 2A and was requested to revise team composition in September 2013\. By the time the contract amendment ended without extension due to the debarment of the firm, the consulting firm completed 8 technical notes out of the total 18, and the PMU had to hire individual consultants to carry out the remaining tasks\. As Hanoi had no experience in BRT, the delay and quality issues of the technical support significantly affected project implementation and outcomes\. 64\. Underwhelming media and public communication strategy\. Partly due to lack of confidence of the city leadership in the BRT system and other issues mentioned earlier, the media and public communication strategy could not fully achieve its potential\. Introducing a new system to Hanoi is challenging and calls for more proactive, creative, and collaborative communication strategy to manage public expectations and opinions\. Page 24 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Factors Subject to World Bank Control 65\. Lengthy internal procedures\. The internal procedures of the World Bank also took a long time\. For example, the Integrity Vice Presidency’s investigation of the BRT fare collection and communication contract was extremely slow, took more than one year, and the further delay in deciding on this package caused more troubles (Intelligent Transport Systems [ITS] in stations, change of vehicle design, and so on), as discussed earlier, and affected project implementation and outcomes\. Factors Outside the Control of Government and/or Implementing Entities 66\. Rapid urban growth and rising land prices\. During project implementation, Hanoi experienced rapid urban growth and rising land prices\. This not only dramatically increased the counterpart funds needed for resettlement but also made negotiations with PAHs on compensation standards difficult as people had high expectations and had a lot of complaints\. The implementation delay itself further adversely affected the project\. Conditions in Hanoi changed quickly as time passed, for example, the exchange rate, inflation, land prices, approvals procedures, Government agenda and commitment, traffic conditions, media, and public opinion\. Many of these changing factors went against the project implementation and caused further delay\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 67\. The operation’s theory of change in the PAD was clear, but the indicators were not well selected\. For example, the total bus and BRT ridership on the corridor is not attributable to project activity but rather more associated with bus operational and service plan\. The indicators were not well defined, with inconsistency in the description and baseline and target values\. For example, for PDO indicator ‘number of BRT riders whose alternate mode would have been a private motorized vehicle/taxi’, ‘number’ should be ‘percentage’, and alternate should be ‘alternative’\. GHG emission in Hanoi should be limited to ‘transport sector’\. The methodology of how to estimate each indicator was unclear\. For example, the estimation results for modal shift as well as transport-related GHG emission reduction could be very different using different methods\. At the first restructuring, several issues were fixed, some indicators were dropped, and some were made clearer, but clarity in indicator description and methodology was still lacking\. The M&E design is therefore rated Modest\. M&E Implementation 68\. An M&E consultancy was contracted by the PMU to carry out the M&E as well as completion evaluation\. However, due to the lack of description on methodologies for many of the indicators, the M&E data were collected regularly but not analyzed in a methodologically sound manner\. The M&E consultant has made efforts to clarify the methodology and implemented monitoring after the first restructuring\. Overall, M&E implementation is also rated Modest\. Page 25 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) M&E Utilization 69\. Although the M&E consultant carried out M&E regularly, some of the data and results were not used to inform project management and decision making because these indicators do not measure project progress or outcomes\. For example, the total bus and BRT ridership on the BRT corridor was monitored regularly before the BRT started operation and mostly achieved the target, but that had nothing to do with the project activity and therefore could not inform project management and decision making\. Therefore, the M&E utilization is rated Modest\. Justification of Overall Rating of Quality of M&E 70\. As discussed, there were significant weaknesses in the design and implementation of the M&E system, making it somewhat difficult to assess the achievement of the stated objectives and test the links in the results chain, and there were also some weaknesses in the use and impact of the M&E system\. Therefore, the overall rating of quality of M&E is Modest\. B\. ENVIRONMENTAL SAFEGUARD, SOCIAL SAFEGUARD, AND FIDUCIARY COMPLIANCE Environmental Safeguards 71\. The project was classified as a Category A project under OP 4\.01 - Environmental Assessment due to the disruption to be caused by the construction of a new road, BRT lanes, and stations and a resettlement site in an urban setting\. The only environmental safeguard policy triggered was Environmental Assessment (OP/BP 4\.01)\. The project Environmental Impact Assessment (EIA) identified potential negative environmental impacts associated with construction-related disruption, noise, and the possibility of increased air pollution and treatment of wastewater\. The EIA and Environment Management Plan (EMP) were satisfactorily prepared in line with the Government and the World Bank safeguard policies and disclosed at the InfoShop in English and at the project sites in Vietnamese\. The EMP included detailed practical mitigation measures and estimated budgets for their implementation, institutional responsibilities, monitoring plans, and building capacity for environmental management and a budget for implementation\. 72\. During implementation, specific requirements of the EMP were included in the bidding documents to ensure effective execution of the mitigation measures during construction\. Training on environmental management and monitoring of EMP implementation was provided to the staff of the PMUs and contractors\. Monitoring of the implementation of EMPs was carried out by the technical supervision staff of the PMU and Construction Supervision Consultant\. An Independent Environmental Monitoring Consultant (IEMC), hired by the Hanoi PMU, also conducted quarterly environmental monitoring and provided reports on the implementation of the EMPs, including results of consultation with local communities regarding environmental concerns and complaints\. The EMP was implemented satisfactorily as confirmed by the Hanoi PMU and the IEMC in project progress reports\. 73\. The project demonstrated good practices in management of physical cultural resources\. A 300- year-old banyan tree is located within the originally planned right-of-way of RR2\. As a result of consultation and design examination, it was proposed that the tree would be kept in the median of the road\. The ancient Buoi dyke surrounding inner Hanoi is located along the RR2 alignment; consultation Page 26 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) with the flood prevention and dyke management authority resulted in the selection of an engineering design which maintains the dyke’s flood protection function as well as its cultural and historical value\. 74\. The World Bank missions consistently rated environmental performance of the project as satisfactory and moderately satisfactory during the project implementation\. The final World Bank supervision mission concluded that the current environmental safeguards management is satisfactory for the BRT corridor and along RR2\. There were no outstanding environmental safeguard issues\. Social Safeguards 75\. The project triggered the Involuntary Resettlement (OP/BP 4\.12) social safeguard policy\. The Resettlement Policy Framework (RPF) and Resettlement Action Plan (RAP) were satisfactorily prepared in line with local laws, regulations, and the World Bank’s policy and disclosed at project preparation\. The RAP was updated to reflect the changes in the first restructuring and disclosed\. A multilevel organization was established for the management and implementation of the resettlement program at the Hanoi municipal, district, and ward levels\. The PMU was responsible for implementing the RAP on behalf of HPC\. An external agency was engaged to carry out independent M&E of the RAP’s implementation\. The reporting frequency of external resettlement monitoring was increased from every 6 months originally to every 3 months after the first restructuring\. 76\. After the first restructuring, RR2 was the only activity causing involuntary resettlement\. The RR2 component has affected many households (1,541 PAHs, including 714 relocated ones)\. During the project implementation, the World Bank missions rated social safeguard performance of the project as moderately satisfactory and moderately unsatisfactory when noncompliance was found\. For example, the midterm review (MTR) found that the PMU and local (mainly district) authorities had been following the HPC regulation but not the RFP and RAP, including not assisting for illegal residential land, replacement cost not replacing PAHs’ losses, earlier cut-off date per the Land Law, eligibility for compensation/assistance of illegal land occupation, and not providing assistance for unregistered businesses\. The World Bank team had worked intensively with the PMU and HPC to make them comply with the approved RPF/RAP\. 77\. The final World Bank supervision mission concluded that the social safeguards are moderately satisfactory by project closing\. According to the PMU report, the compensation and resettlement activities for the whole project had been completed, except for two outstanding cases\. The PMU continues to work with local authorities to supplement compensation packages for all relocated households to help them stabilize their living conditions\. However, compensation and assistance activities for the income loss as well as for assisting business PAHs to restore income sources remain very slow\. HPC was requested to instruct all project districts to (a) speed up the process of payment for the income losses in Tay Ho, Cau Giay, and Dong Da districts as per the RPF/RAP and (b) assist the business PAHs in finding new sites for them to restart their business either at the resettlement site or any markets available in the city\. Otherwise, cash payment or new job training should be provided to the PAHs to help them in restoring the income sources as per RPF/RAP requirements\. Page 27 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Procurement 78\. Although there was significant delay in implementing the procurement activities under the project, it was noted that the PMU had made considerable efforts to move the project ahead\. The overall procurement performance of the PMU is considered moderately satisfactory\. There were several critical issues that caused procurement and project implementation delays: (a) lengthy internal approval process within the PMU and Hanoi DOT, (b) difficulty in resettlement and site clearance, (c) cases of complaints during the procurement process resulting in several adverse influences on the project implementation including cancellation of the procurement process, and (d) delay in making payments to consultants and contractors causing delay in contract implementation and sometimes leading to disputes\. Financial Management 79\. The project FM reviews in regular supervision missions identified that an adequate FM system was in place that could provide, with reasonable assurance, accurate and timely information that World Bank loan proceeds were being used for the intended purposes\. The project FM rating was consistently rated Moderately Satisfactory since late 2010\. The reviews also recognized adequacy of FM staffing, accounting, and internal control systems; maintenance of supporting documents in the project; and implementation of auditor recommendations for annual audit\. Quarterly financial reports with acceptable quality have been submitted on time\. Annual audited financial reports have mostly been submitted on time to the World Bank with unqualified (clean) audit opinions\. The project accounting systems were observed to be in order and payments were well controlled\. The verifying and payment for contracts were timely and accurate, consistent with the provisions of the Vietnamese Government and the World Bank\. The FM arrangement of the project GEF component continues to be Moderately Satisfactorily, as maintained throughout project implementation\. 80\. A regular fund flow arrangement was applied and the fund sources of project were allocated promptly\. By October 31, 2017, a total of US$102\.8 million or 80 percent of US$129\.2 million project funds were disbursed\. C\. BANK PERFORMANCE Quality at Entry 81\. As discussed earlier, the project objectives are of high strategic relevance but too ambitious, aiming to solve many pressing issues Hanoi was facing\. The project design was comprehensive but too complex, with activities covering many difficult fields\. Technical, financial, and economic appraisal was done properly except for substantially overoptimistic estimation of BRT ridership\. Poverty, gender, and social development aspects were considered\. Risks and mitigation measures were adequately identified\. Environmental and social safeguards were prepared properly, with extensive due diligence and consultation done in the process of preparing the Environmental Assessment, EMP, RFP, and RAP\. However, the preparation failed to identify the challenges of different local law and regulation for land and resettlement compensation to comply with World Bank resettlement policy\. The fiduciary team properly assessed the procurement and FM aspects of the implementation entities\. The World Bank team also engaged with the correct stakeholders, especially HPC, whose relationship proved to be critical in project implementation\. Project preparation also placed enough emphasis on institutional aspects and Page 28 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) capacity building to gain political commitment to the BRT, which turned out to be very difficult\. The M&E framework was designed with significant weaknesses, including lack of attribution and lack of methodology description\. Quality of Supervision 82\. Intensive supervision and technical support\. The World Bank team has been providing Hanoi with intensive technical support and supervision throughout the implementation process\. Besides regular missions, the team conducted additional technical visits; study tours; workshops; review meetings; consultations; and numerous discussions with experts, consultants, and the client\. For example, the MTR was conducted during June 7–12, 2012\. A quality enhancement review, chaired by the Sector Director was carried out during August 20–28, 2012, to share experience from other countries and provide advice to the team on how to address these difficult issues\. After the MTR, World Bank management recommended that HPC could consider cancelling the project\. High-level management, especially the Country Management Unit (CMU), had been engaging and working closely with HPC\. Given the progress and commitment from HPC, the World Bank team decided to continue with project extension during the mission in April 2013\. The project was restructured for the first time, with the important realignment of BRT and extension of closing date, as well as an updated and improved M&E framework\. In 2015, the World Bank processed a second restructuring with another 18-month extension to allow for the remaining PAHs by the RR2 to be resettled and BRT to be completed\. Another example was in October 2016 before the launch of the BRT, a conference on urban public transport under the GEF component, focusing on BRT, was organized by the Ministry of Construction\. The conference discussed the lessons learned from ongoing BRT projects financed by the World Bank in Vietnam (Hanoi, HCMC and Da Nang) and other countries (China, Republic of Korea, and India)\. 83\. Proactivity and flexibility\. Facing the unique urban transport characteristic and institutional challenges in Hanoi, the World Bank team tried to adapt to the context and seek flexible solutions by sometimes making compromises\. For example, in 2016 when the city was having a hard time approving the traffic management plan for the BRT corridor, especially the dedicated busway with hard barriers, the World Bank team agreed to compromise on the traffic management plan as a pilot and to use markings and only fencing off key areas such as stations and intersections\. The ‘pilot’ traffic management plan finally got signed in time for BRT to start operation\. With BRT operating, the drivers, traffic police, and passengers began to see the need for better protection of the dedicated bus lane, and hard barriers have been installed gradually\. Public opinion and perception of BRT improved\. 84\. In summary, the World Bank team has been providing intensive technical support and supervision to the project\. The World Bank team focused on development impact and made great efforts in communicating with clients\. The World Bank management, especially the CMU, played a crucial role in engaging and working closely with HPC to solve difficult issues and turned the project around\. The supervision of fiduciary and safeguard aspects was done adequately\. Adequate number of international and local experts were part of the missions, technical visits, review meetings, and workshops\. ISRs and AMs showed candor and quality in performance reporting\. The World Bank team proactively supported three project restructurings including two extensions\. The client showed appreciation to the World Bank team and requested future projects for World Bank financing\. After credit closing, the team continued the good relationship with relevant agencies and continued providing support\. For example, the team mobilized a trust fund to support the city in operating and expanding of the BRT system, including Page 29 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) assessing the overall public transport network for accessibility and connectivity improvement\. TRAMOC is managing the new BRT system with confidence and producing quality monthly operation reports\. Justification of Overall Rating of Bank Performance 85\. In summary, the overall World Bank performance is Moderately Satisfactory, with moderate shortcomings in Quality at Entry\. D\. RISK TO DEVELOPMENT OUTCOME 86\. For the BRT component, the biggest risk is the failure to attract ridership\. Once the BRT loses passengers, mobility is reduced, and keeping the dedicated lane will be an inefficient use of the infrastructure\. This risk can only be mitigated by continuing to enhance the quality of service and solving the accessibility and integration issues discussed in the ‘Efficacy’ section\. Maintaining speed and reliability is key to maintain and attract more passengers\. There is a risk that traffic is not well managed and BRT buses lose their advantages in speed and reliability\. TRAMOC and DOT will probably need to keep installing hard barriers at least at key sections to protect the dedicated lane from intrusion of other traffic\. Traffic police needs to put more resources to monitor the traffic or think of innovative measures to enforce the dedicated lane for BRT buses\. For example, there is a risk that violations by motorcycles are too many to enforce (for example, on flyovers, intersections) and the busway could ‘collapse’ when massive motorcycles invade the BRT lane and BRT buses get stuck in traffic congestion\. There is also a risk that the station access issues are not solved and people still need to walk a long distance to be able to safely get to the BRT station\. That lack of access will cause the loss of passengers too or even worse, cause accidents when people try to cross in the middle of the street\. More importantly, the improved mobility objective through increased public transport use will only be maintained if the BRT is integrated with other modes such as the metro, LRT, other future BRT lines, regular buses, and NMT\. There is a substantial risk that when LRT Line 2a starts operation, this BRT line will lose ridership as they overlap in a significant portion and the BRT line is not designed to feed the metro\. The integration should be done at different levels through route reorganization, infrastructure (interchange station or bicycle or motorcycle parking facilities), integrated fare collection, operational and service plan, and passenger information system\. There is a risk that due to lack of a coordinating authority for all modes and difficult institutional reform, integration is not implemented\. Careful integration with the metro, LRT, regular buses, NMT, and other modes is also important as the current BRT station design offers limited capacity for boarding and alighting\. Lastly, a maintenance budget needs to be ensured to keep the infrastructure and vehicles in good condition so that services are not disrupted\. 87\. The main benefits of the RR2 component are the accrual of travel time and vehicle operating cost (VOC) savings by road users and spurring the growth in the less developed west and northwest parts of Hanoi\. There is a risk that roads are not sufficiently maintained, so users do not save much time and costs or even cause accidents\. Page 30 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) V\. LESSONS AND RECOMMENDATIONS The Overall Project Design 88\. A more focused project design with appropriate instrument and combination of components\. This project was designed with too many activities and ambitious goals\. Given the limited capacity of both the World Bank team and the client, it may have been better to focus resources in a smaller, high-impact area so that both sides can make decisions and solve problems more quickly\. The financial instrument most appropriate to implement this focus should be selected\. For example, Development Policy Loan might be more effective in bringing critical policy and institutional changes\. Depending on the sector context of the client city and Government strategy, whether to have a combination of road infrastructure, ITS, and public transport components or just focusing on public transport improvement needs to be carefully examined\. The Design and Deployment of a ‘Pioneer’ BRT 89\. Deploying mass transport projects requires both political leadership and technical expertise\. Introducing a new system such as BRT involves many stakeholders with diverging interests\. The city leadership needs to make tough decisions with political implications\. Maintaining a high-level political ‘champion’ and dedicated technical focal points who are responsible to implement the decisions is key\. Continuous political ‘buy-in’ or commitment needs to be built on a full understanding of the political and technical risks in the local context\. Sometimes compromises had to be made\. ‘Getting the buses running’ on a pilot/trial basis was a good decision\. Painting a ‘soft’ barrier, while not being fully effective, makes the installation of hard barrier face less opposition\. Relying on an established and experienced operator to commence services reduced the start-up difficulties and spread out the launch risk\. 90\. BRT operation plan before finalizing designs\. One of the important lessons was to complete a sufficiently detailed operational and service plan before building infrastructure\. A detailed operational and service plan should be part of the project feasibility studies and include a business plan and financial model\. These plans should guide the design and implementation of infrastructure and be updated as necessary to ensure system accessibility and intermodal integration\. 91\. Hiring long-term technical adviser on the client side\. When there is weak technical capacity of government agencies, hiring external consultants can help support timely decision making and the project management skills of the PMU\. Appointing independent technical advisers on longer-term contracts, who can be embedded within the PMU, can help align incentives to deliver longer-term objectives\. Such an adviser was needed to develop the BRT operations and service plan and guide the design and implementation of these components\. Similarly, a stakeholder strategy and public media campaign is important and requires experienced professionals to support the project from the earliest stages\. Necessary Institutional Changes 92\. Anticipating necessary institutional changes\. As is often the case with infrastructure projects, the larger ‘hard’ components such as the Ring Road tend to dominate management attention and overshadow the ‘softer’ institutional components\. However, institutional changes are often the key to sector reform\. For example, introducing a new system opens a window of opportunity to transform the bus operating Page 31 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) industry by allowing incumbent operators to reassemble themselves into creditworthy, asset-owning, highly performing operators\. On the other hand, it is usually the institutional obstacles that delay project implementation and affect outcomes\. It is important to anticipate and evaluate these obstacles, for example, lack of legal framework, no coordination mechanism, lack of transparency, monopoly of the market, and large difference in safeguard policies such as land and resettlement compensation or environmental regulations, so that correct expectation can be set and incorporated into project design with sufficient resources allocated to make necessary changes happen\. Page 32 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: PDO (i) (a): increase urban mobility in targeted areas through increased use of public transport in selected traffic corridors\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Increase in the use of public Text Kim Ma - Khuat Duy 1a\. Le Duan - Giai Kim Ma - Khuat Duy Kim Ma - Khuat Duy transport in two exisiting and Tien: 30,000; Khuat Pong: 100,000; 1b\. Tien: 37,000; Khuat Tien: 32\.038; Khuat one new corridor: Number of Duy Tien - Yen Nghia: Giang Vo - Lang Ha: Duy Tien - Yen Nghia: Duy Tien - Yen Nghia: daily BRT/bus boardings\. 50,000; Dong Anh - 80,000; 1c\. Dong Anh - 61,000; Dong Anh - 63\.598; Dong Anh - West of West Lake: West of West Lake: West of West Lake: West of West Lake: 25,000 30,000 28,000 27,518 22-Oct-2013 20-Jul-2010 13-Nov-2013 02-Nov-2016 Comments (achievements against targets): The revised targets were almost achieved as monitored in November 2016, but not attributable to BRT because it was monitored before the opening of the BRT\. The original targets were based on old alignment therefore not applicable\. After the BRT operation, regular buses were taken off the corridor, and the BRT ridership does not achieve the target\. However, DOT and TRAMOC are still adjusting the routes and service plan on the corridor\. Objective/Outcome: PDO (i) (b): increase urban mobility in targeted areas through reduced travel time between the center and the west and northwest Page 33 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) sections of Hanoi Objective/Outcome: PDO (ii)(a): promote more environmentally sustainable transport modes Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Hanoi GHG emissions saved Text 0 1\.5m tons 100,000 tons 122,177 tons CO2e through 2025 (project corridor) 01-May-2008 17-Jul-2013 13-Nov-2013 30-Dec-2016 Comments (achievements against targets): Revised target was achieved\. The original target value was estimated based on old alignment and two BRT routes with much higher ridership forecast\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of BRT riders whose Text 0 15% and 10% 10% 51% alternate mode would have been a private motorized 22-Oct-2013 31-Dec-2010 13-Nov-2013 29-Sep-2017 vehicle/taxi User satisfaction on BRT Percentage 0\.00 0\.00 55\.00 97\.00 system (all persons) 22-Oct-2013 29-Sep-2017 User satisfaction on BRT Percentage 0\.00 0\.00 60\.00 95\.00 System for women 22-Oct-2013 29-Sep-2017 Comments (achievements against targets): Both the original and revised targets for modal shift were well achieved\. Two user satisfaction indicators also well achieved their targets\. Note that the two user satisfaction indicators below should be individual PDO indicators instead of sub-indicators--this should Page 34 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) be a typo/bug of the project portal\. Objective/Outcome: PDO (ii)(b): promote more environmentally sustainable urban development plans for Hanoi A\.2 Intermediate Results Indicators Component: Bus Rapid Transit Component (BRT) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Travel time by bus from Kim Text 50 min 40 min (20% reduction 30 min 27 min Ma to Khuat Duy Tien of travel time) 22-Oct-2013 31-Dec-2010 13-Nov-2013 03-Apr-2017 Comments (achievements against targets): Revised target was well achieved\. The original indicator target is not applicable as the BRT changed alignment and the indicator is measuring different corridor\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Travel time by bus from Khuat Text 45 min 36 min (20% reduction 35 min 25 min Duy Tien to Yen nghia of travel time) 22-Oct-2013 31-Dec-2010 13-Nov-2013 03-Apr-2017 Comments (achievements against targets): The revised target value was well achieved\. The original indicator target is not applicable as the BRT changed alignment and the indicator is measuring different corridor\. Page 35 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) Component: Road Infrastructure and Sustainable Urban Planning Component Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Travel time by bus Cau Giay to Minutes 28\.00 22\.00 22\.00 21\.00 Dyke Road at Nhat Tran 22-Oct-2013 31-Dec-2013 13-Nov-2013 02-Nov-2016 Comments (achievements against targets): The target value was achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Travel time by motor cycle Minutes 21\.00 15\.00 15\.00 11\.00 Nhat tan to Cau Giay (PM peak) 22-Oct-2013 31-Dec-2013 13-Nov-2013 02-Nov-2016 Comments (achievements against targets): The target value was well achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Adoption of land use TA- Number 0\.00 1\.00 1\.00 1\.00 Draft Final Report developed - Final Report 22-Oct-2013 31-Dec-2013 13-Nov-2013 30-Jun-2016 approved Comments (achievements against targets): The revised less ambitious target was achieved\. Page 36 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of DAPM staff trained Number 0\.00 20\.00 60\.00 61\.00 22-Oct-2013 31-Dec-2013 13-Nov-2013 02-Nov-2016 Comments (achievements against targets): Both original and revised targets were achieved\. Component: Institutional Development Component Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthened capacity for Number 0\.00 1\.00 1\.00 1\.00 planning multi-modal public transport system 22-Nov-2007 31-Dec-2013 13-Nov-2013 02-Nov-2016 Step 1: establishment of Number 0\.00 1\.00 1\.00 1\.00 Multi-Modal Public Transport Committee 22-Oct-2013 31-Dec-2010 13-Nov-2013 31-Dec-2013 Step 2: Draft final report on Number 0\.00 1\.00 1\.00 1\.00 establishment of PTA developed\. 22-Oct-2013 30-Dec-2011 13-Nov-2013 30-Jun-2015 Comments (achievements against targets): The revised less ambitious target was achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 37 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) Coordinated institutional Number 0\.00 1\.00 1\.00 1\.00 system for AQM policy making in place based on monitoring 22-Nov-2007 31-Dec-2013 13-Nov-2013 02-Nov-2016 system and emission data Number of staff trained, skills Number 0\.00 25\.00 85\.00 128\.00 assessment 22-Nov-2007 31-Dec-2013 13-Nov-2013 02-Nov-2016 Number of replication Number 0\.00 5\.00 6\.00 6\.00 activities (workshop, studies in other Vietnam 22-Nov-2007 31-Dec-2013 13-Nov-2013 21-Oct-2016 cities, study tours) Comments (achievements against targets): The target was achieved\. Page 38 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) B\. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Increase urban mobility in targeted areas of the City of Hanoi through increased use of public transport in selected traffic corridors Outcome indicators 1\. PDO indicator 1: Number of daily BRT/bus boardings 2\. PDO indicator 5: User satisfaction on BRT system (all persons) 3\. PDO indicator 6: User satisfaction on BRT system for women Intermediate results indicators 1\. Travel time by bus on the BRT corridors Key outputs by component 1\. Construction of BRT Line 1, including a 14\.7 km long BRT busway from Kim Ma to Yen Nghia, (linked to the achievement of the Objective/Outcome 1) 21 BRT stations, 2 BRT terminals, one depot at Yen Nghia, 35 BRT vehicles, and BRT traffic signals 2\. Improvement of pedestrian and NMT access at BRT stations, including construction of 10 pedestrian overpasses 3\. Implementation of public consultation, communications, and media strategy Objective/Outcome 2: Increase urban mobility in targeted areas of the City of Hanoi through reduced travel time between the center and the west and northwest sections of Hanoi Outcome indicators — Intermediate results indicators 1\. Travel time by bus from Cau Giay to Dyke Road at Nhat Tan 2\. Travel time by motorcycle from Nhat Tan to Cau Giay Key outputs by component 1\. Construction of Ring Road 2, including 6\.1 km roadway; major interchanges (Buoi, Dao Tan, (linked to the achievement of the Objective/Outcome 2) and Cau Giay); overpasses; lighting; greening; and traffic signal system 2\. Construction of the resettlement site CT1 to house the displaced households Objective/Outcome 3: Promote more environmentally sustainable transport modes Outcome indicators 1\. PDO indicator 2: Number (percentage*) of BRT riders whose alternate (alternative*) mode would have been a private motorized vehicle/taxi 2\. PDO indicator 3: Hanoi GHG emission (transport-related*) saved Intermediate results indicators — Key outputs by component 1\. Construction of BRT Line 1 (linked to the achievement of the Objective/Outcome 3) 2\. Construction of Ring Road 2 3\. Implementation of public consultation, communications, and media strategy Page 39 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Objective/Outcome 4: Promote more environmentally sustainable urban development plans for Hanoi Outcome indicators — Intermediate results indicators 1\. Adoption of land use TA 2\. Number of DAPM staff trained 3\. Strengthened capacity for planning multimodal public transport system 4\. Coordinated institutional system for AQM policy making in place based on monitoring system and emission data 5\. Number of replication activities (workshop, study tours in other Vietnam cities) Key outputs by component 1\. Land use TA final report (linked to the achievement of the Objective/Outcome 4) 2\. Establishment of the MMPTC 3\. Final report on strengthening TRAMOC and the establishment of PTA 4\. Replication activities including workshop and study tours in other Vietnam cities 5\. Relevant staff in DAPM trained for integrated land use and transport planning 6\. Procurement of equipment for traffic management and safety Page 40 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Shomik Raj Mehndiratta Task Team Leader Cuong Duc Dang Co-TTL Hoi-Chan Nguyen, Mei Wang, Senior Counsel (s) Edward Daoud, Junxue Chu Finance Officer (s) William D\.O\. Paterson, Alan Coulthart, Samuel Zimmerman Team Member (s) Tran Trung Kien Procurement Specialist Cung Van Pham FM Specialist Tran Thi Van Anh, DungAnh Hoang, Jitu Shah Team Member (s) Hoa Thi Mong Pham, Chaohua Zhang Social Safeguards Specialist (s) Hiroshi Ono, Vinh Quoc Duong Environmental Safeguards Specialist (s) Gerhard Menckhoff, Kenneth Gwilliam, RafaelDely, EdwardDotson Team Member (s) Rod Stickland, Trinh Dinh Toan, Goh Hup Chor, LeongTeng Wui Team Member (s) Gladys Frame, German Correa, John Cracknell, NguyenHuong Team Member (s) Juan Lopez-Silva, Luc Lecuit, Fei Deng, Wenling Chen, Mariana Torres Team Member (s) Christopher De Serio, Thuy BichNguyen Team Member (s) Supervision/ICR Van Anh Thi Tran, Jung Eun Oh Task Team Leader(s) Hoai Van Nguyen, Anna L Wielogorska Procurement Specialist(s) Ha Thuy Tran FM Specialist Hoa Thi Mong Pham Social Safeguards Specialist Thao Phuong Tuong Team Member Yi Yang Team Member Son Van Nguyen Environmental Safeguards Specialist Hien Thi Thu Vu Team Member B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY05 35\.895 91,058\.04 FY06 56\.605 149,267\.39 FY07 53\.537 126,542\.73 Page 41 of 55  The World Bank Hanoi Urban Transport Development Project ( P083581 ) FY08 0 - 212\.90 Total 146\.04 366,655\.26 Supervision/ICR FY08 28\.632 93,066\.95 FY09 28\.904 92,658\.80 FY10 29\.883 135,702\.71 FY11 23\.320 93,585\.72 FY12 32\.970 107,555\.22 FY13 44\.123 177,976\.26 FY14 28\.938 126,008\.12 FY15 23\.820 108,895\.83 FY16 25\.245 73,393\.68 FY17 32\.330 121,263\.12 FY18 6\.100 27,029\.59 Total 304\.27 1,157,136\.00 Page 42 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 3\. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Closing Percentage of Components (US$, millions) (US$, millions) Approval Development of the BRT System 99\.88 32\.78 33 Road Infrastructure and Sustainable 194\.33 258\.14 133 Urban Planning Institutional Development 10\.49 4\.30 41 Total 304\.70 295\.20 91 Page 43 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 4\. EFFICIENCY ANALYSIS Overview 1\. In 2007, the project was originally approved with two key components that together constituted over 95 percent of the project cost\. ï‚ BRT component\. Development of a BRT system along the Giang Vo-Lang Ha (9\.1 km) and Giai Phong corridor (10\.1 km) ï‚ RR2 component\. Construction of approximately 6\.1 km road section as part of the RR2 between Nhat Tan Bridge and Cau Giay 2\. In 2013, the project was restructured\. The BRT component was realigned in the western section from Le Van Luong extended road to Le Trong Tan street to maximize the design capacity of the public transport system\. The route was also extended to Yen Nghia bus station\. The BRT Line 2 Giai Phong corridor was cancelled to avoid the overlap of the LRT project along the same corridor\. 3\. The economic analysis was conducted for both BRT and RR2 components at the completion of the project to provide a comparison of the economic efficiency of the project from the estimation at project appraisal with the changes over project implementation\. The updated economic analysis used similar methodology as in the PAD and the first restructuring, adding the benefits of GHG emission reduction\. Costs and benefits of the ‘with project’ scenario were compared with those of the ‘without project’ scenario (counterfactual or baseline scenario)\. Economic viability was assessed using two indicators of NPV and EIRR\. 4\. Annual costs and benefits were calculated for the life cycle of 12 years for BRT and 25 years for RR2\. To be consistent with the appraisal stage NPV, the same discount rate of 12 percent was used\. 5\. Unit prices of the updated project costs and benefits are based on prices in Vietnam in 2017\. The evaluation was conducted using U\.S\. dollar with exchange rate of VND 22,730:US$1, which was close to the market rate and so no shadow foreign exchange rate was considered necessary\. Ex Post Economic Analysis of the BRT Component 6\. Project costs\. The analysis used the project life cycle costs, which included capital costs and operation and maintenance (O&M) costs throughout the evaluation period\. 7\. Capital costs\. The capital cost for this BRT component included costs for civil works, equipment, consulting services, and resettlement\. Civil works included concrete pavement of the BRT lanes, depots, stations and terminals for BRT, footbridges, parking lots at stations, office, and control center\. Equipment costs included costs for buses, communication system, ticketing and control, traffic signals, and control system\. The capital costs were reduced significantly at first restructuring due to the cancellation of one corridor and fewer vehicles (130 buses to 35 buses)\. The final costs were even lower mainly because of the cancellation of the electronic ticketing package\. Page 44 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Table 4\.1\. Updated BRT Component Costs (US$, millions) PAD (2007) Restructuring (2013) ICR (2017) Financial cost 92\.8 52\.0 32\.78 Table 4\.2\. Annual Disbursement for the BRT Component (US$, millions) Capital Cost Total 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (US$, millions) Financial Cost 32\.8 0\.01 1\.03 1\.35 0\.27 0\.48 0\.86 2\.87 3\.86 7\.09 13\.23 1\.74 Economic Cost 26\.6 0\.01 0\.83 1\.10 0\.22 0\.39 0\.69 2\.32 3\.12 5\.74 10\.72 1\.41 8\. Operating and maintenance costs\. The method in the PAD was used with 2017 prices\. Table 4\.3\. Updated O&M Cost (US$, millions per year) 2017 2020 2025 O&M cost 3\.337 3\.989 4\.112 9\. Economic benefits\. The study quantified three major sources of benefits: VOC savings, travel time savings, and the GHG emission reduction\. The economic benefits of reducing fatalities/injuries were not calculated due to lack of baseline data\. 10\. VOC savings\. VOC savings result from modal shifts from private vehicles or/and normal buses to BRT services\. The VOCs of BRT and other vehicles in the ‘with project’ and ‘without project’ cases were updated using the same methodology as in the PAD and restructuring with 2017 unit prices\. Table 4\.4\. Vehicle Operating Costs (US$ per vehicle-km) Sl\. No\. Type of Vehicle Restructuring (2013) ICR (2017) 1 BRT 1\.269 1\.523 2 Motorbike 0\.092 0\.046 3 Car 0\.362 0\.329 4 Standard bus (60 seats) 0\.740 0\.630 11\. VOT savings\. VOT savings were estimated based on reduction of travel times, income of travelers, and traffic pattern\. At the Implementation Completion and Results Report (ICR) stage, a roadside survey on traffic pattern and income level was conducted to update the time saving and VOT of passengers\. Table 4\.5\. Value of Time (US$ per passenger per hour) Restructuring (2013) ICR (2017) Average VOT/passenger/hour 1\.55 1\.89 12\. Travel demand forecast\. In the PAD and the 2013 restructuring, travel demand forecasts were done with the STRADA model\. At the ICR stage, travel demand was adjusted with actual BRT ridership for the first year of operation and other traffic along the corridor\. Page 45 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Table 4\.6\. Modal Composition of BRT Ridership (modal shift) Restructuring ICR No\. Type of Vehicle (2013) (2017) 1 Motorbike 48% 35% 2 Car 1% 11% 3 Bus 51% 44% 13\. GHG emission reduction\. In the PAD and 2013 restructuring, GHG emission reduction benefits were not calculated\. With the BRT ridership data collected every month and modal shift data estimated using the 2nd month and 9th month BRT survey, GHG emission reduction due to the BRT component is estimated\. Table 4\.7\. GHG Emission Reduction by Year due to the BRT Component (tCO2e) Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 tCO2e 2,278 2,300 2,323 2,347 2,370 2,394 2,418 2,442 2,466 2,491 2,516 2,541 2,566 14\. Based on the Guidance Note on shadow price of carbon in economic analysis in September 2017,1 US$50 per tCO2e was used for 2017, and an annual increase of 2\.25 percent is assumed to calculate the shadow price of carbon, that is, US$50 per tCO2e in 2017, US$60 in 2025, and US$65 in 2029\. 15\. Updated economic evaluation results\. The updated evaluation shows that at ICR, the investment efficiency of the BRT component is only modest, with an EIRR of 6 percent\. This is mainly due to the lower ridership and therefore smaller scale of benefits\. Table 4\.8\. Updated Economic Analysis of the BRT Component PAD Restructuring ICR (2007) (2013) (2017) NPV (US$, millions) 41\.3 3\.44 −5\.16 EIRR (%) 21\.0 13\.1 6\.0 Updated Economic Analysis of the RR2 Component 16\. Capital costs\. Similarly, capital costs of the component included civil work costs, consulting and resettlement costs, and so on\. Actual investment costs were higher than cost estimate at appraisal due to significant increase in land acquisition costs and some civil works variations\. Table 4\.9\. Financial Investment Costs of the RR2 (US$, millions) Items PAD (2007) ICR (2017) Civil works 42\.54 51\.81 Resettlement 104\.32 174\.69 Others 23\.89 7\.61 Total 170\.75 234\.12 1In line with the high-level commission on carbon prices led by Joseph Stiglitz and Nicholas Stern, the estimation method is based on marginal abatement cost of reducing GHG emission to meet the Paris Agreement target of keeping temperature rise below 2 degrees by 2100\. Page 46 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Table 4\.10\. Actual Disbursement of the RR2 (US$, millions) Items Total 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Civils Works 51\.81 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 14\.89 14\.06 10\.21 9\.88 2\.77 Resettlement 174\.69 0\.00 0\.39 0\.34 11\.52 6\.88 8\.39 26\.53 96\.84 13\.46 5\.86 4\.49 Other costs 7\.61 0\.00 0\.00 0\.94 0\.52 0\.60 0\.69 1\.38 1\.31 1\.10 0\.76 0\.31 Total 234\.12 0\.00 0\.39 1\.27 12\.04 7\.48 9\.08 42\.80 112\.20 24\.77 16\.51 7\.57 17\. O&M costs\. The method in the PAD was used with 2017 prices\. Table 4\.11\. Updated O&M Cost 2017 2020 2025 2030 2035 2040 O&M cost 1\.950 9\.755 1\.950 1\.950 1\.950 58\.529 18\. Traffic forecast\. A traffic count was carried out along the RR2 in October 2017, more than one year after the road inauguration\. The results are given in table 4\.12\. Table 4\.12\. Traffic Count on the RR2 in 2017 (vehicles per day) Section Motorbike Car Bus Truck Cau Giay - Buoi 84,253 24,700 1,338 917 Buoi - Nhat Tan 47,460 39,640 3,324 2,076 19\. The 2017 traffic survey shows that traffic grew faster than expected\. At the ICR stage, the actual traffic on the Cau Giay-Buoi section was 12 percent higher than forecasted in the PAD whereas traffic on the Buoi-Nhat Tan section was 50 percent higher than projected in the PAD\. With reference to other recent relevant studies in Hanoi, the traffic forecast was updated as shown in table 4\.13\. Table 4\.13\. Updated Traffic Forecast on the RR2 (vehicles per day) Section 2020 2025 2030 2035 2040 Cau Giay-Buoi section Motorbike 70,063 89,420 114,126 145,656 185,898 Car 2,909 3,820 5,016 6,586 8,649 Bus 158 207 272 357 469 Truck 108 142 186 245 321 Buoi-Nhat Tan section Motorbike 27,470 35,060 44,746 57,109 72,887 Car 20,736 27,749 37,134 49,694 66,502 Bus 2,525 3,379 4,521 6,051 8,097 Truck 1,490 1,993 2,668 3,570 4,777 Cau Giay-Nhat Tan section Motorbike 27,470 35,060 44,746 57,109 72,887 Car 26,476 35,431 47,415 63,452 84,913 Bus 1,434 1,919 2,568 3,437 4,600 Truck 983 1,315 1,760 2,356 3,152 Page 47 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) 20\. Project benefits\. Economic benefits quantified for the analysis consist of (a) VOC savings, (b) travel time savings, and (c) GHG emission reduction due to the average speed increase on the RR2\. These three benefits were estimated annually by comparing total VOCs, total time values, and GHG emissions ‘with’ and ‘without’ the RR2 scenarios\. 21\. VOC savings\. The unit VOCs in the ‘with project’ and ‘without project’ cases were calculated using the HDM4-VOC model with inputs from recent relevant studies and similar projects, updated with changes in gasoline and lubricants costs, vehicle prices, and vehicle characteristics and usages in Hanoi City in 2017\. Given this updated traffic forecast, the VOC savings from the investment in the RR2 were as shown in table 4\.14\. Table 4\.14\. Updated VOC Savings Benefits (US$, millions) VOC Savings 2017 2020 2025 2030 2035 2040 Motorbike 0\.855 0\.990 1\.264 1\.613 2\.058 2\.627 Car 17\.714 21\.095 28\.226 37\.767 50\.532 67\.614 Bus 1\.482 1\.765 2\.361 3\.160 4\.228 5\.658 Truck 0\.906 1\.078 1\.443 1\.931 2\.584 3\.457 Total 20\.957 24\.930 33\.295 44\.472 59\.405 79\.359 22\. Travel time savings\. Travel time savings were due to shorter trips at faster speed because of the construction of the RR2\. VOTs used in the analysis were also updated using recent survey results\. Given this updated traffic forecast, the VOT savings from the investment in the RR2 are as shown in table 4\.15\. Table 4\.15\. Updated VOT Savings Benefits (US$, millions) VOT Savings 2017 2020 2025 2030 2035 2040 Motorbike 4\.726 6\.334 10\.317 16\.805 27\.374 44\.589 Car 5\.290 7\.292 12\.452 21\.263 36\.308 61\.999 Bus 4\.243 5\.849 9\.989 17\.057 29\.129 49\.744 Truck 0\.171 0\.236 0\.403 0\.689 1\.176 2\.009 Total 14\.459 19\.750 33\.225 55\.918 94\.156 158\.616 23\. GHG emission reduction\. In the PAD and the 2013 restructuring, GHG emission reduction benefits were not calculated\. With the traffic count and road ride survey conducted, GHG emission reduction due to the RR2 component is estimated as shown in table 4\.16\. Table 4\.16\. GHG Emission Reduction by Year due to RR2 Component Year 2016 2020 2025 2030 2035 2040 tCO2e 7,651 9,659 12,925 17,297 23,147 30,977 24\. Similarly, the shadow price of carbon is US$50 per tCO2e for 2017, with 2\.25 percent annual growth\. Page 48 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) 25\. Updated economic evaluation results\. Although the capital costs increased about 20 percent, higher traffic volume on the road as well as higher VOT of passengers resulted in better return on investment\. Both the internal rate of return (IRR) and NPV at the ICR stage are higher than those estimated at the appraisal stage\. Table 4\.17\. Economic Evaluation Results for the RR2 PAD (2007) ICR (2017) NPV (US$, millions) 34\.0 165\.0 IRR (%) 14\.5 18\.5 Page 49 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Comments/Edits Revisions Explanation 1a Discount rate is too high; Discount rate kept at The ICR used the same discount Suggest using cost-benefit ratio instead of 12% rate of 12% so that the NPV\. comparison can be made between project appraisal and project closing\. NPV is not used for deciding project feasibility but to assess the efficiency decrease\. Using cost-benefit ratio would be the same as NPV for this purpose\. 2a Higher BRT ridership is expected\. BRT ridership forecast Given the future development is adjusted in the ex along the corridor and ongoing post economic improvements to the BRT analysis features and connectivity issues, BRT ridership growth rate is adjusted upward\. However, the adjustment is minor as the forecasted ridership is also constrained by station and fleet capacity\. 3 Edit in para\. 29: 9 10 pedestrian overpasses Number of pedestrian (two newly constructed ones and two were overpasses revised to added with stairs on the existing ones) 10 4 Rating for PDO (ii)(b): promote more Proposed change not Two major indicators related to environmentally sustainable urban accepted this outcome were relaxed during development plans for Hanoi Moderate first restructuring and it is Substantial difficult to justify Substantial achievement because the land use policy reform did not materialize and the PTA has not been established\. 5 Edit in para\. 48 and para\. 50 for efficiency Minor edits were Same as #1\. Revised text: made in wording The prolonged project implementation and reduced scope of work for the BRT component has affected the efficiency of the project\. 6 Efficiency rating: Modest Moderately Proposed change not World Bank ICRs rate efficiency Satisfactory accepted by the scale of ‘High’, ‘Substantial’, ‘Modest’, and ‘Negligible’\. 7 Overall outcome rating: Moderately Proposed change not The overall outcome rating is Satisfactory accepted derived according to the latest ICR guideline: the project is Moderately Satisfactory with High relevance, Substantial efficacy, Page 50 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Comments/Edits Revisions Explanation and Modest efficiency\. 8 Edit in para\. 62\. On flyover\. A “light Text in para\. 62 was Revised text: structureâ€? flyovers were was constructed revised accordingly In mid-2012 and early 2013, along the proposed BRT realignment that with shorter Hanoi constructed a “light were was not suitable for BRT to run over\. explanation than the structureâ€? flyover along the The development of light flyover with aim of suggested edits due to proposed BRT realignment to preventing traffic congestion\. At that time, word limit\. ease congestion\. the construction of flyover was a matter of urgency, which needed to be implemented quickly to overcome the traffic jams\. Initially, the city planned BRT vehicle running under the flyover so as not to have to strengthen the flyover load, not affecting the construction progress\. However, in the course of implementation, on the basis of the comments from WB, the City agreed to upgrade the flyover load for BRT vehicle running on the flyover\. 9 Edit in para\. 64\. Slow approval procedures Wording in para\. 64 Revised text: and weak capacity\. The approval process was revised\. Lengthy approval procedures\. Like also took long time, since BRT with many all other WB operations, project complicated items was the first time applied implementation had to comply in Vietnam, getting comments from related with both the WB system and the agencies and being careful in appraisal and domestic system\. With the BRT approval process is indispensable\. Hanoi being the first one in the country, managed to concentrate on resolving the and technically complicated, the issues as quickly as possible\. project had to go through careful Implementation of this project must comply evaluation, scrutiny, and lengthy with a dual system: WB system and the local approval procedures at different system\. The system of Vietnam, especially institutional levels of Hanoi\. Hanoi must comply with the Laws of Vietnam before making approval, so it must report to competent authorities to decide contents beyond their competence\. It was identified in the first ISR that delays due to administrative procedures would make it difficult to complete the project before closing date\. Like all other WB operations, project implementation had to follow a dual system: the WB system and the domestic system\. The Vietnam system, especially Hanoi was extremely conservative and slow\. It was identified in the first ISR that the delays due to administrative procedures would make it difficult to complete the project before closing date\. 10 Edit in para\. 65\. After the questioned bidder Edits accepted Revised text: was debarred due to separate reason on DOT and PMU and the bank team May 12, 2015, DOT and PMU and the Bank disagreed on the post- Page 51 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) Comments/Edits Revisions Explanation team could not also reach consensus further qualification evaluation of the delayed on the post-qualification evaluation second responsive bid\. of the second responsive bid\. 11 Edit in para\. 81\. complaints, especially those Edit to point 3) Point 4) is a factual statement related to fraud/corruption during the accepted; deletion of backed by complaints\. procurement process resulted in several point 4) not accepted adverse influences on the project implementation including cancelation of the procurement process; and 4) delay in making payments to consultants and contractors caused delay in contract implementation and sometimes lead to disputes\. 12 Edit in Annex 4\. 7 6\.1 km (Km 6+537- Road length is revised K0+419) road section as part of the Second to 6\.1 km\. Ring Road between Nhat Tan Bridge and Cau Giay\. Note: a\. The first two comments in the table are summaries of the written comments that the client sent by e-mail\. Full comments are included in the end after this table\. 1\. The discount rate for the financial evaluation of the project was determined to be 12% per annum\. This was a very high number compared to the condition in Vietnam, especially in the case of BRT evaluation\. This led to a low Net Present Value (NPV) of BRT (−7\.46 million) – Table 3 Results of Economic Analysis at different stages\. It is recommended that the discount rate should be equal to the interest rate of ODA loans of the project (1% / year)\. 2\. The assessment of investment project through NPV only is applied for business projects (i\.e, projects are invested to seek higher returns than input costs)\. 3\. BRT should be considered as a public project (is an investment project that seeks total benefits of the investment higher than input costs)\. Hanoi has been trying to encourage the development of public transport, even Hanoi is spending a budget to subsidize for bus routes annually\. Therefore, economic efficiency assessment of BRT as a business project will not reflect the nature as well as investment objectives of the project\. It is recommended to use “Cost-Benefitâ€? (B / C) to evaluate the efficiency of BRT (not using NPV)\. 4\. For the ridership of BRT: under current traffic conditions, BRT cannot fully function as BRT in the world\. As a result, BRT ridership has not reached the initial forecast but is already the busiest route (higher than all regular buses)\. The city is planning step by step to complete installation of electronic ticket system, to finalize the traffic management plan \. to speed up the BRT operation and to attract passengers\. Moreover, many high-rise buildings on both sides of the route are being completed and when these buildings are put into operation, the BRT ridership will get higher\. Page 52 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 6\. SUPPORTING DOCUMENTS 1\. TRAMOC, 1-month, 2-month, 3-month, 8-month, and 10-month Hanoi BRT Operation Report, 2017 2\. World Bank, 2nd Month and 9th Month BRT Survey for Hanoi BRT Line 1, 2017 3\. World Bank, Country Partnership Strategy for Vietnam 2007–2011 (Report No\. 65200-VN) 4\. World Bank, Country Partnership Framework for Vietnam 2018–2022 (Report No\. 111771-VN) 5\. World Bank, Project Appraisal Document on a Proposed Credit in the amount of SDR101\.8 Million to the Socialist Republic of Vietnam for a Hanoi Urban Transport Development Project, Report No\. 39434–VN, May 17, 2007 6\. World Bank, Project Document on a Proposed Global Environment Facility Trust Fund Grant in the amount of USD 9\.8 Million to the Socialist Republic of Vietnam for a Hanoi Urban Transport Development Project, Report No\. 40565–VN, August 10, 2007 7\. World Bank, Restructuring Papers, 2013, 2015, and 2016 8\. World Bank, Mission Aide-Memoires, 2008-2016 9\. World Bank, Implementation Status and Results Reports, 2008-2016 Page 53 of 55 The World Bank Hanoi Urban Transport Development Project ( P083581 ) ANNEX 7\. MAP Page 54 of 55

REVIEW

P081255

 ICRR 14402 Report Number : ICRR14402 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/26/2014 Country : China Project ID : P081255 Appraisal Actual Project Name : Changjiang/pearl US$M ): Project Costs (US$M): 199\.8 261\.4 River Watershed Rehabilitation Project L/C Number : L4832 Loan/ US$M): Loan /Credit (US$M): 100\.0 99\.5 Sector Board : Agriculture and Rural Cofinancing (US$M): US$M ): 12\.0 13\.4 Development Cofinanciers : European Commission Board Approval Date : 06/27/2006 Closing Date : 06/30/2012 06/30/2012 Sector (s): Forestry (23%); Crops (22%); Irrigation and drainage (20%); Animal production (20%); Flood protection (15%) Theme (s): Other environment and natural resources management (33% - P); Water resource management (17% - S); Land administration and management (17% - S); Rural services and infrastructure (17% - S); Other rural development (16% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Keith Robert A\. Oblitas Ridley Nelson Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: To improve farmers' livelihoods and protect the environment in poor and highly degraded watersheds of the Changjiang and Pearl River Basins by promoting an integrated and replicable model of sustainable rural development \. (Source: Loan Agreement\. The PAD has identical wording\.) b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: 1\. Soil and Water Conservation Estimated cost (base costs without contingencies) at Appraisal - $81\.3 million\. Actual cost - $119\.2 million\.) Soil and water conservation through: (i) stone-face terraces; (ii) sediment retention structures such as check-dams, drains or sediment deposit pools to slow water runoff and reduce sediment flow to major rivers; (iii) afforestation and protection/closing of degraded forests and other slope-land for soil and water conservation and (iv) village infrastructure such as drinking water supply, and improved access roads and tracks\. 2\. Livelihood Improvements Estimated cost (base costs without contingencies) at Appraisal - $99\.7 million\. Actual cost - $122\.7 million\.) Investments to improve farm income and change unsustainable farm practices, by: (i) developing horticulture and high value fruit and nut tree orchards; (ii) establishing perennial grasslands for fodder production and reduced soil erosion; (iii) livestock development integrated with soil and water conservation; (iv) irrigation and drainage - primarily small scale tanks and cisterns - for agriculture, run-off control and emergency water supply in case of drought; and (v) energy saving systems such as energy efficient stoves and small-scale biogas digesters to reduce usage of firewood \. 3\. Project Management and Support Services Estimated cost (base costs without contingencies) at Appraisal - $16\.3 million\. Actual cost - $18\.0 million\.) For project management, support to participatory project design processes, M&E, and mitigation of environmental and social risks\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was approved on June 27, 2006, and closed as scheduled on June 30, 2012 - a project duration (Board to closure) of six years\. The period between project approval and effectiveness was four months\. The project was supported by a Bank loan of US$100\.0 million and a Grant from the European Community of Euro 10\.0 million, which primarily financed livelihood enhancement activities \. One million dollars of the EC Grant was used to finance a “grant optionâ€? to help poor farmers with loan repayments\. Disbursement of the Bank loan at closure was $99\.5 million\. Project costs in US dollars increased by 31 percent, mainly due to appreciation of the local currency against the dollar \. Project costs in Renminbi remained largely the same\. While the project’s objectives were not changed, there were two minor amendments of the legal documents: on December 22, 2009, the project scope was marginally reduced to take account of cost increases and the appreciation of the local currency; and, on June 28, 2012 the grant option was widened to make it available to all poor households participating in the project \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The project directly supports several thematic areas in the Bank’s and Government’s development th th agenda\. The Government’s 11 and 12 Five Year Plans (respectively for 2006-10 and 2011-15) emphasize a “harmoniousâ€? society, balancing growth with ecological and poverty concerns\. The Bank’s Country Partnership Strategy (2006-2011) refers to “Supporting Greener Growth, with the promotion of more sustainable agricultural practices; and demonstration of approaches to sustainable natural resources management as two key pillars of the strategy\. These goals mirror China’s ecological and poverty alleviation needs\. Deforestation and ecologically unbalanced farming practices are eroding top soils, reducing ground water recharge, and silting rivers and other water bodies\. The project’s twin emphases on the environment and welfare fit well within the Bank’s and Government’s strategy and recognize that the environment and the agricultural economy are interlinked\. The project’s Relevance of Objectives was High\. High b\. Relevance of Design: The project’s Results Framework provides a clear linkage of project activities to their expected ecological and/or livelihood impacts, placing each project activity and its impact (s) under the two pillars of the project’s objectives – (i) improving watershed environmental management; and (ii) improving rural livelihoods\. Where an activity directly benefits both thrusts - the case for the majority of the project's activities - this is made clear in the framework\. Additionally, impacts are separated into short term and longer term influences\. Project design, comprising two interlinked operational components each supporting one objective, is well focused on the project’s goals\. The primary focus on the watershed uplands, characterized by particularly vulnerable soils and poverty, recognizes the need and potential impact in these areas, A notable feature is that interventions are generally small-scale, and most relatively simple, facilitating farmer participation, especially needed in remote areas \. A basin/sub basin/watershed approach was a comprehensive way to manage water and land resources\. Relevance of Design was High\. High 4\. Achievement of Objectives (Efficacy): 1\. Protecting the environment in poor and highly degraded watersheds of the Changjiang and Pearl River Basins There were multiple activities under the project aimed at conserving land, water and forest resources (including conservation or afforestation of vegetative cover; sediment retention through check dams, drainage and water conserving agricultural practices; terracing of agricultural lands; establishment of orchards and pastures; and energy saving stoves)\. Taking the project's main activities, achievements against appraisal targets were: stone terraces 124 percent of appraisal targets; drainage 90 percent; vegetative protection areas 143 percent; irrigation channels 85 percent; orchards 84 percent; and livestock 49 percent\. Although there are some gaps in data, these actions appear to have had substantial impacts on soil erosion, and evidence also suggests that the more degraded watersheds and poorer communities were substantially involved\. First, as concerns erosion, the percentage of the project area where erosion was “controlledâ€? (involving some form of protection such as trees, terraces, conserving agricultural practices ) reached 84 percent as against a target of 76 percent\. The setting in place, on such a large scale, of such mitigating actions was a significant achievement\. All of these project outputs could be expected to reduce soil erosion\. The more difficult assessment is the actual impact (outcome) of such measures\. The ICR advises that the Soil and Water Conservation Monitoring Center of the Pearl River Hydro-conservancy Committee estimated the total project area where a 50 percent long-term erosion reduction was achieved to be 1,769 km2\. However, no information is provided on how the estimate was made – whether it was based on actual measurement of representative sites of erosion run-off, or whether it was “observedâ€? (a term used several times in the ICR), based on less empirical measures\. This places a question mark on the reliability of the 50 percent estimate\. Although substantially reduced soil erosion could be reasonably expected from the mitigating actions taken under the project, the degree of impact is uncertain\. Second is the question of whether the project’s reach was primarily to degraded watersheds\. No definition of “protected watershedsâ€? or specific assessment of the proportion of land in the project area that was “highly degradedâ€? is provided in the ICR, but some inferences can be drawn from the following\. Some 54 percent of the project’s land area is described in the ICR( page 31) as in “very poorâ€? or “poorâ€? conditions (about 27 percent each)\. The area with cropping systems under “better conditions and cash cropsâ€? was 30 percent\. Thus, land that was less suitable or unsuitable for cash crops was about 85 percent\. Also, of the 165,000 ha of land included in the project, 112,000 ha (68 percent) was closed for re-vegetation (rather than tree or annual crops)\. This would be consistent with land in degraded condition\. Hence, these figures suggest that the project was mostly reaching degraded watersheds\. Third, is the degree to which the project reached the poor\. The $10 million grant contributed to the project from the European Community was specifically focused on poor families\. It provided financial help so that the families could afford investments in livelihoods activities \. According to the ICR (page 6), this “allowed for participation of all households independent of their individual financial capacity \.â€? The grant facility and other project actions enabled the project to reach 76 percent of all poor households in the project area\. This was slightly larger than the proportion of households from all income strata benefitting from the project which was 70 percent of all the project area’s households\. Participation of minorities was marginally greater than for the population as a whole - an average of 71 percent of all households\. Participation of ethnic minorities was 72 percent\. Finally, beyond the project’s impact on basin management and the more degraded watersheds and poorer communities, benefits also extended to a more macro scale \. A significant influence was on incremental carbon sequestration\. Based on a survey at project completion, incremental sequestration was estimated to have reached 391,000 metric tons, compared with a revised target of 300,000 tons\. This was a reduction on the original target which was 580,000 tons, largely due to tree plantations being still immature\. The ICR comments that after 10 years, based on experience with similar vegetation and agro-climates, incremental carbon sequestration would be expected to be between 600,000 and 800,000 tons\. Summarizing, the project made progress towards its goal of helping conserve the environment \. There were achievements for all of the main environmental concerns it sought to address – improving land vegetative cover, mitigating soil erosion, enhancing water retention, and increasing carbon sequestration\. There is some uncertainty regarding the dimensions of the reduction in soil erosion, although official figures indicate a large impact\. The major focus was, as intended, on the degraded watersheds\. The project was socially inclusive although not much beyond actual proportions in the population of the poor and women\. But considered overall, especially taking account of the good environmental impact of the project, the project’s Efficacy in protecting the environment in poor and highly degraded watersheds of the Changjiang and Pearl River Basins was Substantial \. 2\. Improving Farmers’ Livelihoods Income enhancing activities included: (i) 34,000 hectares of economic trees (fruits, nuts, etc\.) were established against a target of 40,000 hectares; there were 31,000 benefitting livestock households compared with a target of 50,000 households (the ICR comments that the target was reduced during project implementation as support was sharpened to investments with a clear link to soil and water conservation); 4,800 hectares of earth terraces were established compared with a target of 7,100 hectares at appraisal, subsequently adjusted to a target of 4,100 hectares; 8,000 hectares of irrigated land were created (there was no target); and grassland development reached 2,500 hectares, approximately what was aimed for at project restructuring, although a radical reduction on the appraisal target of 20,000 hectares\. Based on data from household interviews in field surveys conducted in 2012 in five counties covering all four project provinces, models of typical households in different agro -economic circumstances were constructed\. For households farming in very poor conditions (poor, rocky and thin soils, and uneven rainfall) farm income increased by one-third over the project period, and by 130 percent if the project improvements also included fruit trees\. Another model - for farmers in “relatively poor soil conditions and uneven rainfallâ€? - yielded a doubling of farm income\. There were even higher increases for farms with good soils and reliable rainfall\. Although the physical achievements of livelihood activities were below appraisal targets, the evidence suggests that beneficiary incomes increased considerably \. The project's Efficacy at improving farmers’ livelihoods is rated Substantial \. 3\. Promoting an Integrated and Replicable Model of Sustainable Rural Development The project piloted numerous environmental and agricultural activities together with innovation in community procurement, financial and management procedures adapted to a watershed management/social betterment approach\. Most activities have been at least partially successful and there is thus direct experience of what works and what can be improved or discarded\. Providing the implementation lessons from the project are encapsulated in training, study visits and written notes the project has potential to be a valuable source of learning for China’s future watershed/rural poverty alleviation program\. It appears that this is already starting to happen\. The ICR (page 13) comments that features of the project are already being adopted in the national program, specifically mentioning beneficiary participation and community procurement\. Prospects and achievements for replication of the project’s development practices indicate Substantial Efficacy 5\. Efficiency: Implementation Efficiency\. The project was implemented, as planned, in six years, although, due primarily to the combined unanticipated impacts of appreciation of the Renminbi against the US dollar, and a steep rise in the costs of unskilled labor and materials, some physical achievements were less than targeted; but there were also a number of activities that exceeded targets \. Economic Rate of Return\. The project’s economic rate of return is estimated in the ICR at 18 percent, using the same methodology as at appraisal, including the estimated net value of carbon sequestration (excluding sequestration the ERR is 17 percent)\. The ERR estimated at appraisal was 17 percent\. Development of stone terraces was estimated to be uneconomic (an ERR of 1 percent), although potentially terracing can provide opportunities for intensification towards higher yield agricultural practices and crops\. The project team has advised that the economic rate of return in the ICR was calculated based on aggregation of individual models of activities and farm systems, using base data from field surveys \. (It would have been desirable to have had more information in the ICR on the field surveys’ methodologies, sampling and measurement approaches\.) Management and support service costs were not included in the analysis as was also the case in the original PAD analysis\. The two are therefore comparable\. Inclusion of such overheads (component 3) would add about eight percent to investment costs\. There is no sensitivity analysis in the ICR with which to calibrate the impact of this on the ERR\. While this would clearly lower the overall ERR, some of the unquantified benefits referred to in the PAD and the ICR were expected to raise it\. As originally noted in the PAD (p\. 66), there was expected to be a "project impact on institutional development and accountability of public services and efficiency of public spending" and there was expected to be significant transfer of benefits outside the project itself through the introduction and learning transferred to other national programs \. As noted above in Section 4, this transfer appears to have started to happen, especially in the area of beneficiary participation and community procurement\. In summary, while the project’s physical achievements were less than planned, the shortfall was largely due to unexpected price and exchange rate impacts and these exchange rate changes have impacted both the cost and benefit streams in the ERR analysis\. While many of the benefits are of an environmental nature with longer term impacts and therefore based on expectations, the ERR expected to be achieved is very similar to the PAD projection \. Assuming no significant biases in survey data, the project appears to have been economically viable with good returns for participants and satisfactory in its overall economic rate of return\. In terms of administrative cost effectiveness, implementation within the planned six years suggests no major weaknesses in implementation \. On balance, the project’s Efficiency is rated Substantial \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 17% 90% ICR estimate Yes 18% 93% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project’s objectives were substantially relevant to the dual problems of poverty and of soil erosion and loss of vegetative cover in the upper sub-watersheds of the Changjiang and Pearl rivers\. The project’s design was substantially relevant – it was closely focused on the objectives, with most components providing both increases in welfare and environmental conservation \. The project’s efficacy was substantial\. The combination of terracing, forest and pasture management, orchards and small sediment retention structures, increased vegetative cover and reduced soil erosion, though the degree to which soil erosion was reduced is uncertain\. Such activities also significantly increased farmer incomes, and project activities are being replicated by Government in other watersheds applying learning from the project\. In generating higher incomes for participating farmers, and a viable economic rate of return, efficiency was also substantial\. The overall Outcome of the project was Satisfactory \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Most project activities involved both environmental and livelihood improvements, providing direct incentives for families and communities to continue the project’s environmental initiatives\. A good M&E system, which the government intends to maintain, will help identify future problems\. The country’s generally strong governance provides a basic implementation capacity \. Government commitment to the approach promoted by the project is evidenced by efforts to replicate the approach in other watersheds, perhaps auguring well for commitment to also maintain or improve the results of this project\. An exogenous risk might stem from the continuous migration from rural to urban areas commonly found in China\. A smaller labor pool might cause some productive activities to receive less attention, reducing agricultural production, although reduced labor would lower costs as well as production benefits and would be expected to lead to labor saving mechanization where possible\. The project’s Risk to Development Outcome is deemed Moderate a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: Project objectives were straightforward and design was well focused on the objectives \. The monitorable indicators were in most cases practical, and between them give an informative picture of the project’s achievements and outcome, supported by a well-designed M&E system\. Financing arrangements were overly complex and underestimated the complications arising from formal approval processes operating in juxtaposition with participatory implementation \. In most other respects, however, design led to an innovative and largely successful project outcome \. The following design features are noteworthy: The approach used by the project effectively recognized the commonly used dual approach to watershed management – combining environmental with livelihood activities, each complementing the other, and in most cases, directly combining the two in the same component (e\.g\. terracing providing both higher agricultural productivity and sediment retention benefits; fruit /nut trees for both livelihood and vegetative cover)\. Project design was well tailored to enable each thrust to complement the other, so that incentives for environmental management were present in most field activities\. The project team leader has advised that significant technical specializations in watershed management, environment, water, agriculture, forestry and other disciplines enabled practical technical features in project design (this is only partly discernible in the ICR's staff specialization table as technical assistance came from another project and other sources)\. Finding such extra sources of specialization was well handled\. The project was complex, with a demanding array of activities\. (The ICR’s Annex lists 20 sub-components)\. A number of components contained innovations, adding to the implementation challenge\. Nevertheless, in the event, significant progress was made with most project actions, with beneficial impact, attesting that the project’s complex design was manageable in China’s relatively good governance capacity\. Quality at Entry was Satisfactory \. at-Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: Supervision missions were regular and adequately budgeted and missions were well staffed, including environmental and social specialists (as well as economic, institutional, fiduciary and other skills), with technical experts from the EU-China River Basin Management Program, providing more specialist inputs\. Implementation issues were generally resolved quickly\. The restructuring to take account of price increases and currency changes was expeditious\. Staff continuity could have been better\. There were four Task Team Leaders, and the ICR comments that this may have contributed to some shortfalls, such as the slow recognition and adjustment of the agricultural components to support the emerging cooperatives \. But overall, the supervision team pro-actively steered a multi-faceted and demanding project to a largely satisfactory outcome\. The Quality of Supervision was Satisfactory \. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: In most respects, government performance was highly satisfactory\. The Ministry of Water Resources was highly committed to the project, providing strong leadership \. Similar commitment was provided at all other Government levels including provincial and lower governments and the project-related line departments\. Counterpart funding was provided to full requirements, and was later in project implementation increased by 70 percent to compensate for the effects of the exchange rate and price escalation impacts on project costs\. The interest in the project extended to adopting project innovations such as integrated watershed rehabilitation and farmer participation, and applying these approaches in national programs \. Two aspects caused delays: internal approval processes could be slow; and the requirement by the National Development and Reform Commission to have all sub-watershed designs fully approved at project inception was onerous\. But taken overall, Government Performance was Satisfactory \. Government Performance Rating Satisfactory b\. Implementing Agency Performance: The Changjian River Commission, and the provinces, municipalities, and counties set up project management offices, which provided strong staff at field levels\. The Central Project Implementation Office was the coordinating Implementing Agency and had a core team of highly effective and dedicated staff\. The office was in close contact with the other involved agencies and the local governments, was field oriented and provided and mobilized specialist technical assistance, conducted regular supervision missions and maintained an innovative M&E program\. Actions were timely and remedies were applied when needed\. The Performance of the Implementing Agencies was Highly Satisfactory \. Implementing Agency Performance Rating : Highly Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: M&E Design was closely based on the project’s objectives and Results Framework, with Monitorable Indicators generally well identified to assess the progress of the project towards the objectives, as well as to assess progress and achievements of project components\. The M&E system’s design was adapted from the China Loess Plateau Watershed Rehabilitation Project, and the EU financed China River Basin Management Program provided a base for a computerized Management Information System interlinked with the M&E system\. A baseline survey was conducted to provide an initial reference point\. The entire system was computerized, and internet, GPS tracking, and smart phones provided ready data access and entry in real time\. b\. M&E Implementation: The M&E/MIS systems were applied project-wide using a uniform reporting interface accessible on the web throughout the project area and in Beijing and Washington\. Data was regularly updated and available in real time\. At the end of the project an impact evaluation survey was carried out\. c\. M&E Utilization: Uniform project progress reports were regularly provided to Government and the Bank and were used in decision making and project supervision\. Real time data could be presented in various geographic formats including at sub-watershed, county, prefecture, province and project levels and also by farming system, topography, crop, gender/social stratum, farm income and other information\. Some technical parameters such as areas covered by soil erosion control activities and forest cover were also measured using satellite imagery and field service records \. Comparative data between geographic areas were used to improve efficiency of project activities\. The ICR comments that the project’s M&E system could be a basis for replication in other projects \. Overall, the Quality of the project's M&E was High\. High M&E Quality Rating : High 11\. Other Issues a\. Safeguards: The project was classified as environmental category B, and triggered the following safeguards : Environmental Assessment (OP 4\.01), Pest Management (OP 4\.09), Involuntary Resettlement (OP 4\.12), Indigenous Peoples (OP 4,20), Forests (OP 4\.36), and Dam Safety (OP 4\.37)\. A Pest Management Plan, Social Assessment, Policy Framework for Resettlement, and an Ethnic Minorities Plan were produced\. The Dam Safety safeguard was found not needed\. The project was focused on environmental improvement and social aspects were assessed in the ICR as benign or beneficial, with no significant safeguards issues arising during project implementation \. However, the presence in the project of such a large land area that was closed off for re-vegetation (112,000 ha of the 165,000 ha total land under the project), begs the question as to whether some of the land, even if highly deteriorated, was not previously used as a source of livelihood for some communities – grazing, for instance\. It is not clear from the ICR whether there was no net income loss for all affected land users in such areas\. b\. Fiduciary Compliance: Financial management was complicated by three different sources of counterpart funds with different approval and accounting procedures, causing some delays in provision of funds, though this was not a critical constraint to project progress\. One case of funds misuse was found, corrected and funds returned\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following four lessons, primarily affirmations of prior projects’ experiences, can be drawn (lessons 3 and 4 are adapted from the ICR): 1\. Adopting measures that both improve the environment and develop more productive agricultural practices can be attractive to a community giving an incentive for sustaining both the environmental and agricultural improvements \. The majority of the project’s activities were public or private investments that contributed to both of the project’s two objectives, environmental protection and enhanced livelihoods, by directly benefitting both the local community and/or individual farmers and improving the environment - i\.e\. most environmental actions were profitable\. With their direct welfare at stake, farmers are likely to maintain the environmentally beneficial practices\. 2\. Technologies for watershed management that are simple and small -scale can have significant impact - on the environment and people's welfare - without recourse to larger infrastructure \. Simple and low-cost technologies like planting orchards, minimum tillage, check -dams, terraces, pastures and soil and water conserving agronomic practices, were used, and improved incomes and the prospects for conserving soils\. 3\. A project design focused on a project ’s objectives facilitates outcome oriented implementation \. In this case, the project’s logical framework, design, and monitorable indicators were sharply focused on the objectives\. This helped to create mutually supportive and integrated activities, and helped the implementers to adhere to interventions that would support the objectives\. 4\. An objectives focused M&E system with regularly updated data can help a project maintain focus, improve implementation efficiency, and identify improvement possibilities \. The M&E system was focused on the project’s objectives and monitorable indicators\. Data was continuously updated and was readily available in real time to managers and decision makers\. 14\. Assessment Recommended? Yes No Why? As an example of a largely successful incentives-driven linkage between environmental conservation and increasing agricultural productivity, to the benefit of both the environment and increased welfare, with environmental protection an integral part of the agricultural initiatives \. The PPAR could be clustered with other projects in China and/or elsewhere, possibly including environmental projects with a lesser degree of integration of productivity and conservation activities, or with other features contributing to the Bank's learning for projects involving watershed management, soil and water conservation, and rural incomes\. 15\. Comments on Quality of ICR: The ICR is well organized and written with thoughtful, forward looking, discussions of implementation issues and lessons, including reference to other projects where they influenced project design or the capacity for implementation\. The Results Framework achievements are well focused on the objectives and achievements against most monitorable indicators are backed by data with relevant discussion of circumstances affecting these achievements\. Improvement areas could have included: (i) Several critical data areas - soil erosion, agricultural productivity, and farm incomes - needed backing by information and commentary on the source of data, how it was measured, and likely degree of reliability; (ii) as beneficiary involvement was a core part of the project approach, more discussion of how communities and farming families were mobilized and involved would have been desirable; and (iii) provision of more discussion and quantitative assessment of the benefits to farmers from environmental actions, to better illustrate the benefits of the project's dual approach to environmental management and welfare \. a\.Quality of ICR Rating : Satisfactory

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